Another Naked Capitalism gem.

More Bogus Bailout Reporting: “As Big Banks Repay Bailout Money, U.S. Sees a Profit”

This from a guest post at Naked Capitalism.  Thanks to economist’s view.

By Andrew Kaplan, a hedge fund manager:

“It has become fashionable among equities managers of the bullish persuasion to argue that a strong recovery in GDP will occur in 2010 because the “structural adjustment period” of moving back to a more normal savings rate has been completed. We’ve gone from a savings rate of barely 1% in 2008 up to 4.2% in July (ok, so the argument sounded better when the number was 6.2% in May, but still…).

The story goes something like, “consumers took a little time to recognize that their home equity had disappeared, but now they’ve adjusted their savings rates toward the desired level to reflect the fact that they need to save a larger proportion of income for retirement…so this effect will no longer be a drag on growth in coming quarters.”

This is the kind of conventional wisdom which could only emerge among folks in the 99^th income percentile who spend their time primarily with other folks in the 99^th income percentile. You don’t have to look at the data (mortgage delinquencies, foreclosures, credit card defaults, bankruptcies) all that hard to see a very different picture. In fact, it is almost certainly true that the savings rate for 99% of the US population is negative. These people (a/k/a “all of us”) are drowning. And to the extent that our savings rate is less negative than it was one or two years ago, that simply reflects the reality of reduced home equity and unsecured credit lines rather than any conscious effort to reach a “desired level” of savings.

A little data might help here. Unfortunately, there really IS no good data on PCE (personal consumption expenditure) and savings stratified by income percentile. There are a couple of surveys, the triennial “Survey of Consumer Finances” by the Federal Reserve and the “Consumer Expenditure Survey” by the Bureau of Labor Statistics, but the self-reported data is laughable. For 2007, the Consumer Expenditure Survey showed a personal savings rate of 18.4%. In the same year, the Bureau of Economic Analysis, which calculates the savings rate as a residual from actual income and expenditure data, showed a savings rate of 1.7%. Either the Consumer Expenditure Survey does a poor job of sampling, or people who fill out surveys are really big liars.

Fortunately, there IS some pretty good data on income stratification in the United States, and a few assumptions can help shed some light. Economists Thomas Piketty and Emmanuel Saez have made careers of studying US income inequality using IRS data, which goes back to 1913. The most recent data available (for 2007) showed that the top 14,988 households (0.01% of the population) received 6.04% of income, the highest figure for any year since the data became available. The top 1% of households received 23.5% of income (the second highest on record, after 1928), while the top 10% received 49.7% of income (the highest on record).

The fortunate 14,988 had an average income in 2007 of $35,042,705. They had an average federal tax burden, according to Piketty and Saez, of 34.7%, leaving them after tax income of $22.9 million. If you assume a 50% savings rate among this group, you get total savings of $171.5 billion. This is nearly ONE HALF of the total savings for the entire country implied by a savings rate of 4.2% ($365 bn) reported in this month’s Bureau of Economic Analysis data.

I’ve never actually had an after tax income of $22.9 million, so I couldn’t say for sure whether a 50% savings rate is a reasonable assumption, but I’m going to go out on a limb and say that it is, just based on the pure physics of spending money. Buying cars, clothes, and fancy dinners, even at Masa, won’t get you there…the math doesn’t work. Buying a private jet could get you there, but most people, even rich people, don’t buy one of those every year. The only EASY way to spend more than 50% of $22.9 million on an annual basis is to buy lots of houses…but the definition of “personal consumption expenditure” used by the BEA specifically excludes purchases of real estate. They use an imputed rent calculation instead. So I’m going to stick with my 50% number.

If we expand our survey to the top 1% of all households, we find an average income of $1.36 million for 2007. These folks had an average federal tax burden of just under 33%, so their after tax income averaged $916 thousand. If you assume this group had a savings rate of 33%, you get total savings of $452 billion (remember, $171.5 bn of this comes from the top 0.01%, we’re assuming a savings rate of around 25% of after tax income for the “poorer” 99% of the top 1%) This is more than 100% of the personal savings of the entire population, according to the BEA data. It implies that 99% of the US population still has, on average, a negative savings rate of around 1.3%. If you subtract the next nine percent, which likely still has a positive savings rate, the data for the bottom 90% becomes even more depressing, implying a negative savings rate of close to 5%.”

Bjorn Lomborg, an adjunct professor at the Copenhagen Consensus Center, argues that spending money on alternative energy research will have better results and less cost than schemes to make fossil fuel use expensive, such as Cap and Trade.  This comes from an article published in the Washington Post in June.

“The bitter arguments in the Senate this month over the Lieberman-Warner climate change bill, which would have required major emitters to pay for the right to discharge greenhouse gases, proved that climate change caused by humans has come to the fore of U.S. policy debates. This fact may comfort those who believe that future generations will judge us on the zeal with which we face the challenge. It may even assuage the fears of those who believe that warming will end life as we know it. But political rhetoric is unlikely to put us on a path toward solving the problem of climate change in the best possible way.

Or so says a report published at vox.eu, an economics website.

“Next, we statistically test whether trade and offshoring has forced workers out of the manufacturing sector. We find that there has been a big movement of workers out of sectors with a lot of import competition. We also look for the impact of offshoring on US manufacturing employment, finding small effects on employment that depend on the location of offshore activities. A 10 percentage point increase in offshoring to low-wage countries reduces employment in manufacturing by 0.2% while offshoring to high-wage countries increases employment in manufacturing by 0.8%. 

The beneficial effect of offshoring activities in high-income countries by US firms on their home employment is one of the most surprising findings of the study. The surprising positive effect of offshoring to high income countries on US wages is consistent with some new theories developed by Gene Grossman and Esteban Rossi-Hansberg (2008). They argue that offshoring activities can actually increase wages for workers remaining at home by cutting costs for the companies that employ them.

“There are several policy implications of this research.

• Policies designed to help displaced workers should be targeted at occupations, not industries. Since the research shows that some types of workers, such as those who work in shoe manufacturing, have been disproportionately hurt while other types of workers (such as teachers) have been unaffected, trade adjustment assistance needs to be appropriately targeted.
• Policies (such as those proposed by the Obama administration) designed to curb the negative effects of offshoring on US jobs need to distinguish between offshoring to rich and poor countries. Since the negative effects are restricted to lowincome destinations, any policies which discourage offshoring in high-income regions (such as Ireland or France) will have the unintended effect of hurting the very workers they are designed to protect.” 

 Beezer:  I wonder if one of the cost cutting measures when offshoring to developed countries is health insurance costs?   There’s an argument that if the U.S. reformed its expensive health care then domestic companies would save money, some of which would end up in higher pay.

Our health care debate is conducted in an open auditorium without soundproofing.  It’s noise and most often totally illogical.  Emotion overcomes rationality.  There are no adults.  The ridiculous is posited opposite the facts as equal.  And the gatekeeper, journalism, has taken a vacation.  Everything has been reduced to E Entertainment.   This from the Washington Post.  

“The Post publishes health-care reform stories almost every day as it tracks the twists and turns of the epic debate. So it’s surprising to hear from so many readers who ask: Why hasn’t The Post explained what this is all about?

“Your paper’s coverage continues in the ‘horse race’ mode,” complained Bill Byrd of Falls Church. “Who’s up, who’s down . . . political spin, personal political attacks.

“How I would love to read more actual journalism on this issue,” he e-mailed.

“Make no mistake, The Post has produced some stellar health-care coverage. It’s exposed heavy industry campaign contributions to key members of Congress who are drafting legislation. It’s revealed those with personal investments in corporations that could be affected by the health-care laws they write. And it’s burrowed into thorny questions about who should be authorized to deny patient requests for expensive but non-critical medical care.

“However, readers say that too many other stories have been about process or politics. That’s coverage The Post must own, of course. Washington is filled with policy wonks and decision-makers.

“But readers seem to be saying: What about the rest of us? Over the past month, dozens have called or e-mailed to urge more explanatory journalism.

“Many have said that Post stories routinely assume a foundation of knowledge that they simply don’t have. Some said that they don’t understand basic terms like “public option” or “single payer.” They want primers, not prognostications. And they’re craving stories on what it means for ordinary folks and their families.

“In my examination of roughly 80 A-section stories on health-care reform since July 1, all but about a dozen focused on political maneuvering or protests. The Pew Foundation’s Project for Excellence in Journalism had a similar finding. Its recent month-long review of Post front pages found 72 percent of health-care stories were about politics, process or protests.

“The politics has been covered, but all of this is flying totally over the heads of people,” said Trudy Lieberman, a contributing editor to Columbia Journalism Review, who has been tracking coverage by The Post and other news organizations. “They have not known from Day One what this was about.”

“It’s not for lack of interest. About 45 percent of Americans surveyed by the Pew Research Center for People & the Press recently said they have been following the health-care story more closely than any other.

“But nearly half of those surveyed this month in a nationwide poll by the Kaiser Family Foundation said they are “confused” about reform plans.

“Kaiser’s president and CEO, Drew Altman, worries that the media have devoted too much attention to “accusation and refutation” stories instead of focusing on the “core questions about health-care reform that the public wants answered.”

“By “gravitating toward controversies” such as the recent boisterous town hall meetings on health care, he said, the media may “unwittingly” be allowing coverage to be shaped by evocative rhetoric and images.

“Urban Institute President Robert D. Reischauer, a health policy expert, said that The Post needs to keep providing in-depth coverage of politics and process “because you’re the newspaper of record on policy matters.” But while conceding the issue’s complexity, he worries that Post stories sometimes include “a lot of inside baseball, even more than I want to absorb.”

“Post editors face a huge challenge in serving a range of audiences. “We’ve tried to create a balance,” said Frances Stead Sellers, who oversees health coverage. Much good work has appeared online, where “reform junkies” can get incremental coverage through the Daily Dose blog on The Post’s special “Health-Care Reform 2009” page. The Web site also has some terrific primer-like “infographics” that provide baseline knowledge.

“We’ll keep looking for more ways to make this challenging topic accessible to readers,” she said.

“Most readers who have contacted the ombudsman identify themselves as senior citizens and rely on the printed Post. The Kaiser survey found those older than 65 are the most confused by the issue.

“I think they want more glossaries explaining basic terms, easily digestible Q&As, short sidebars that summarize complex concepts and graphics that decipher complicated data. And they want stories that say what health-care reform will mean to them.

“Last Sunday’s Outlook section carried a piece by former Post reporter T.R. Reid titled “Myths About Health Care Around the World.” The writing was terse and anecdotal, without health-care gobbledygook. No he-said-she-said.

“On the Post’s Web site, it was among the most viewed articles on Sunday and Monday. It was one of the week’s most e-mailed stories.

There’s a reason. “

Paul Krugman, Nobel prize winning economist, is in truth a logician.   Economics is his tool, but logics is his talent.  In a blog post today, he nails our logical problems when it comes to publicly available information.  Houston, we have a problem. 

Horse-race reporting