Evening Economics: puppy mills? Edition

QOTD — John Stuart Mill: I never meant to say that the Conservatives are generally stupid. I meant to say that stupid people are generally Conservative. I believe that is so obviously and universally admitted a principle that I hardly think any gentleman will deny it.

QOTD2 –John Kenneth Galbraith: “The modern conservative is engaged in one of man’s oldest exercises in moral philosophy; that is, the search for a superior moral justification for selfishness.”

A friend sent this:
Banks Use Life Insurance to Fund Bonuses
Banks are using a little-known tactic to help pay bonuses, deferred pay and pensions they owe executives: They're holding life-insurance policies on hundreds of thousands of their workers, with themselves as the beneficiaries.

Banks took out much of this life insurance during the mortgage bubble, when executives' pay -- and the IOUs for their deferred compensation -- surged, and banking regulators affirmed the use of life insurance as a way to finance executive pay and benefits.

Bank of America Corp. has the most life insurance on employees: $17.3 billion at the end of the first quarter, according to bank filings. ...

Yglesias: Japan’s Q2 GDP Shrank at Record Pace

The current recession is already worse in some ways than the Japanese Depression of the 1990s in Japan: “Japan confirmed Wednesday what many had long suspected: that the world’s second-largest economy contracted at a record pace during the quarter that ended March 31, as exports collapsed and companies cut back production.”

The United States could really use some export-led recovery. But the world’s second- third- and fourth-largest economies are all export-oriented and busy collapsing due to the collapse of demand in the trade deficit countries.

digby: Suckers And Parasites

When Obama proposed to put back the charitable deduction for people who make over $250,000 a year to what it was during Ronald Reagan's admnistration, it was universally accepted that this would spell the end of charity as we know it. Apparently, all these wealthy philanthropists will refuse to give money to their favored charities is their tax break is less than it is right now because it just isn't worth it to them. These are people who everyone reveres as being the smartest and most productive, generous people in the world.

Fine. But can we at least stop talking about these people as if they are doing this because of their generous hearts? Here's evidence that it just ain't so:

America's poor are its most generous givers

In fact, America's poor donate more, in percentage terms, than higher-income groups do, surveys of charitable giving show. What's more, their generosity declines less in hard times than the generosity of richer givers does.

"The lowest-income fifth (of the population) always give at more than their capacity," said Virginia Hodgkinson, former vice president for research at Independent Sector, a Washington-based association of major nonprofit agencies. "The next two-fifths give at capacity, and those above that are capable of giving two or three times more than they give."

Indeed, the U.S. Bureau of Labor Statistics' latest survey of consumer expenditure found that the poorest fifth of America's households contributed an average of 4.3 percent of their incomes to charitable organizations in 2007. The richest fifth gave at less than half that rate, 2.1 percent.

The figures probably undercount remittances by legal and illegal immigrants to family and friends back home, a multibillion-dollar outlay to which the poor contribute disproportionally.

None of the middle fifths of America's households, in contrast, gave away as much as 3 percent of their incomes.

President Obama said in his press conference last March when he announced the rollback of the charitable contribution tax break:

People are still going to be able to make charitable contributions. It just means if you give $100 and you’re in this tax bracket, at a certain point, instead of being able to write off 36 (percent) or 39 percent, you’re writing off 28 percent. Now, if it’s really a charitable contribution, I’m assuming that that shouldn’t be the determining factor as to whether you’re giving that hundred dollars to the homeless shelter down the street.

Sorry Mr President. That's a nice idea, but you misunderstand. The only people who aren't demanding a tax deduction for charitable giving are the poor. The middle class isn't looking for a huge amount. But the people who have more money than God, and who only give a measly 2% of it to charity in the first place, would rather get no write off at all than give that hundred bucks and only get 28%. It wouldn't even be worth their time to fill out the paperwork for such chump change.

Ezra Klein: How Inequality Accelerated the Financial Crisis

Historian Niall Ferguson took to the New York Times this morning to argue that "if deregulation is to blame for the recession that began in December 2007, presumably it should also get some of the credit for the intervening growth." This doesn't make sense on two levels. First, it's a straw man. Deregulation isn't to blame for the recession that began in December 2007. You can make an argument that an absence of new regulation was to blame. But it's not as if we shuttered the agency regulating credit default swaps in 2006. That agency never really existed. The regulatory state didn't keep pace with the financial sector.

Second, the point itself is illogical. It's like saying, "if driving drunk is to blame for me hitting the tree in my front yard, then it should also get some credit for getting me there in the first place." The relevant question is what would have happened if you weren't driving drunk. The answer, probably, is you would have arrived at your destination without hitting the tree. Similarly, the question is what the financial sector would have looked like with a sounder regulatory regime. Ferguson doesn't entertain the counterfactual, and so doesn't prove his point.

But he did spur Matthew Yglesias to post this graph tracking wage growth over the past 30 years, which bears on a related counterfactual:

As Matt writes, "for the top one percent, that’s a pretty impressive period. For the next 19 percent, there’s something happening. But for the bottom 80 percent, there’s just very little going on in terms of real income growth." Two things emerged from this. First, the middle class wanted to maintain, and even expand, its standard of living. So it went into debt. It borrowed on credit cards and refinanced its mortgages. Bad news, as we're seeing now.

Second, the new money in the economy was disproportionately concentrated in the bank accounts of the richest of the rich. But at some point, even the very wealthy run out of vintage wines to purchase. So they put that money to work making them more money. They funneled it towards the financial sector and created a massive new market for financial innovation.

Conversely, you could imagine a counterfactual where growth was more equitably distributed and the middle class saw their incomes rise. Rather than buying financial products, they would have bought things. Cars. Televisions. Couches. Viking stovetop ranges. In the aggregate, they would have used the money to consume rather than to make more money. And that would likely have kept the financial sector somewhat more in check.

(Graph courtesy of the Congressional Budget Office.)

Ezra Klein: European Health Systems: Still Better

I've been thinking a lot about European health care systems for an upcoming article (exciting teaser right? Stay tuned!), but I can't resist sharing this graph. You frequently hear that America might spend a uniquely large amount on health care, but the unchecked growth of spending is an international dilemma. The insinuation is that a European-style fix, if indeed one were possible, would not in fact solve the problem. It would just delay it. This graph from the Commonwealth Fund, however, calls that into question:

As you can see, it's true that everyone is experiencing spending growth. But America's growth is uniquely rapid. Our system is, in other words, uniquely broken.

(Graph source: Commonwealth Fund.)

Atrios: Gulyvornya

California always seems to be about 2 weeks away from completely imploding, yet somehow it manages to lurch onwards.

I'm so old I can remember when our national media decided their greatly inflated claims about California's deficit and Davis's attempts to address it were reason enough to chuck him out.

John Cole: Let It Burn

Sorry California, but the rest of us are tired of your BS:

A smattering of California voters on Tuesday soundly rejected five ballot measures designed to keep the state solvent through the rest of the year.

The results dealt a severe setback to the state’s fragile fiscal structure and to Gov. Arnold Schwarzenegger and the state legislators who cobbled together the measures as part of a last-minute budget deal passed in February.

The measures, which would have prolonged tax increases, capped state spending, earmarked money for education and involved the state in a complex borrowing scheme against its lottery, were rejected by roughly 60 percent of those who voted. The failure of the measures, combined with falling revenues since the state passed its budget, leaves California with a $21 billion new hole to fill, while foreclosure rates and unemployment remain vexing problems here.

“Tonight we have heard from the voters, and I respect the will of the people who are frustrated with the dysfunction in our budget system,” Governor. Schwarzenegger said in a prepared statement. “Now we must move forward from this point to begin to address our fiscal crisis with constructive solutions,” Mr. Schwarzenegger said.

You are a state DOMINATED by Democrats, yet plague us all with the craziest Republicans in the country in Congress, you are lagging behind Iowa in terms of civil rights, and you consistently refuse to outvote the smattering of fanatical anti-tax Republicans who show up to vote down any ballot initiative to balance your budget. Can anyone give me reasons I should feel sympathy?

Right now I tend to agree with McMegan:

There is a surprisingly sizeable blogger contingent arguing that we have to bail them out because however regrettable the events that lead here, we now have no choice. But actually, we do have a choice: we could let them go bankrupt. And we probably should.

I am not under the illusion that this will be fun. For starters, the rest of you sitting smugly out there in your snug homes, preparing to enjoy the spectacle, should prepare to enjoy the higher taxes you’re going to pay as a result. Your states and municipalities will pay higher interest on their bonds if California is allowed to default. Also, the default is going to result in a great deal of personal misery, more than a little of which is going to end up on the books of Federal unemployment insurance and other such programs.

Nothing is going to change until they bottom out.

Krugman: Prodigal intellectuals

So I see Richard Posner has decided that modern conservatism is intellectually bankrupt. And Bruce Bartlett has a new book saying it’s time to let go of Reagan.

At one level it’s good to see decent people showing some intellectual flexibility (Bartlett, in particular, has always come across as someone with whom one can have honest disagreements.) And yet — why, exactly, should we listen to people who by their own admission completely missed the story? I mean, anyone who actually listened to what Newt Gingrich and Dick Armey were saying in 1994, let alone what passed for thought in the Bush administration, should have realized long ago that if there ever was an intellectual basis for modern conservatism, it was long gone.

And the truth is that the Reaganauts were a pretty grotesque bunch too. Look for the golden age of conservative intellectualism in America, and you keep going back, and back, and back — and eventually you run up against William Buckley in the 1950s declaring that blacks weren’t advanced enough to vote, and that Franco was the savior of Spanish civilization.

So the idea that we should pay any attention to people who somehow failed to see all this until very late in the game — and, in the case of Posner (not Bartlett), waited to express their doubts until conservatism had lost power ….