Marriage and Economy

April 27, 2009 — Jon

Marriage research is something I know almost nothing about, so there’s a lot in Mark Regnerus’ Washington Post piece advocating early marriage I’m completely unqualified to discuss, but I still wanted to comment on this:

Sara, a 19-year-old college student from Dallas, equated thinking about marrying her boyfriend with staging a rebellion. Her parents “want my full attention on grades and school because they want me to get a good job,” she told me. Understandable. But our children now sense that marrying young may be not simply foolish but also wrong and socially harmful. And yet today, as ever, marriage wisely entered into remains good for the economy and the community, good for one’s personal well-being, good for wealth creation and, yes, good for the environment, too. We are sending mixed messages.[...]

[...]Today, there’s an even more compelling argument against delayed marriage: the economic benefits of pooling resources. My wife and I married at 22 with nothing to our name but a pair of degrees and some dreams. We enjoy recounting those days of austerity, and we’re still fiscal conservatives because of it, better poised to weather the current crisis than many, because marriage is an unbelievably efficient arrangement and the best wealth-creating institution there is.

This is a slighly different issue, but I did — back in my college days — mostly attend a class on “Women in the Labor Market,” and I want to draw a distinction between the economic benefits of pooling resources (the economic benefit of marriage) and the economic benefits of working (the economic benefit of marriage-abstainment). That is, most people who marry do so at least in part, to have children. Due to the threadbare social safety net in the United States, as well as certain social norms, having children can often derail women’s careers, especially in fast paced (and well paid) industries like science, technology, or medicine. At the least, the it’s one of the larger contributing factors to wage inequality. Certainly, there’s some “correlation is not causation” doubt-casting that can be applied to this conclusion, but I still think it’s worth pointing out that marriage, when coupled with raising children, is not necessarily the most economically sound nor societally productive decision.

Anyway, the piece makes for an interesting read. At the very least, it seems to be pretty unremarkable to note that there are abounding biological reasons to marry early.

Posted in Culture, Policy. Tags: , . Leave a Comment »

High Incomes Produce High Costs

April 21, 2009 — Jon

I’m really not sure what to say about Gabriel Sherman’s piece in New York magazine documenting the petulant outbursts of Wall Street bankers, other than to echo the general observation that the disconnect in understanding between bankers and everyone else is truly remarkable. I do want to make one particular point though concerning the notion that living in New York necessitates obscene levels of pay.

“You can’t live in New York and have kids and send them to school on $75,000,” he continues. “And you have the Obama administration suggesting that. That was a very populist thing that Obama said. He’s being disingenuous. He knows that you can’t live in New York on $75,000.”

That was an argument I heard over and over: that the high cost of living like a wealthy person in New York necessitates high salaries. It was loopy logic, but expressed sincerely. “You could make the argument that $250,000 is a fair amount to make,” says the laid-off JPMorgan vice-president. “Well, what about the $125,000 that staffers on Capitol Hill make? They’re making high salaries for where they live, maybe we should cut their salary, too.”

A similar point is made earlier in the article when noblesse oblige is recast, or perhaps more accurately, reinterpreted, as trickle down economics, but you really can’t make this type of argument without acknowledging that the absurdly high incomes of bankers help create the “cost structure” for “not optional” expenditures like “40,000 private schools and “a summer home within an hour or two commute from Manhattan.” The whole enterprise becomes a cyclically developing self-fulfilling prophecy to meet the ever expanding incomes of the ultra wealthy. If the ultra wealthy are simply very wealthy, then the costs of the services these people consume will go down, and so too with them, the costs of living for everyone else.

Obviously, there are also a lot of other ways to respond to these arguments — for example, I think it’s more likely that an entire office of Congressional staffers makes $150,000 than one does alone, or that nobody is talking about capping income, or that even if a staffer did make $150,000, it’s not likely to produce pervese incentives that topple the financial system, etc. — but I always think it’s important to make this point anytime someone who’s fabulously wealthy complains about the need to spend money on luxury items.

UPDATE: In the article, you get the clear sense that many bankers — at least those interviewed — held firmly to the belief that their money-like-substance creation was inherently valuable, and that the public will rue the day the bankers left. So just in case you were wondering, you’ll want to know that on average, managed funds performed more poorly between 2004 and 2008 than market composites.

Posted in Policy, Politics. Tags: , , . 2 Comments »

Inequality And You

April 19, 2009 — Jon

Via Ezra Klein, the Center for Budget and Policy Priorities is doing a series on the growing problem of inequality. The results are truly arresting.

This is about as tangible an example as you can get of the phrase “it takes money to make money,” but of course, it’s also a reflection of policy choices and a culture that has conflated capitalism with morality. And as Ezra notes, the fact that the incomes of the top 1 percent have grown 256 percent really doesn’t even do the data service.

It’s easier, after all, to get large percentage changes on small absolute numbers. Increasing the salary of someone who makes $25,000 by 100% only requires another $25,000. If you make $725,000, however, a $25,000 raise is peanuts. It’s three percent.

This chart below illustrates the trend in dollar terms.

A lot of liberals immediately react to inequality as a moral quandry, in the sense that policy goals should be aligned to promote fairness. Of course, there is an obvious validity to this argument, but it’s also worth noting that in a system  where merely running for Senate costs tens of millions, growing gaps in inequality grossly skew political representation to favor the interests of the rich. And as inequality grows, so too will the political power of the mega wealthy and we’ll continue to see more and more narrow and parochial interest groups exert tremendous influence on policy matters that affect everyone (legislation to stave off catastrophic climate change comes to mind). Now, I don’t really envision a scenario where if the scope of economic growth isn’t widened, we’ll find ourselves enserfed to oil tycoons and bank executives, but we will continue to see our democracy increasingly distorted to serve the needs of a select few.

Posted in Policy. Tags: , , . Leave a Comment »

Banks: TARP Imperils Ability to Overpay Executives

April 17, 2009 — Jon

Via Kevin Drum, we get some context Goldman Sachs’ “noble” desire to pay back $5 billion in TARP funds.

Back in September, Goldman Sachs received a $5 billion capital investment from Warren Buffett that requires interest payments of 10%.  A month later they received a $10 billion capital injection from the Treasury that requires interest payments of only 5%.

So this should mean that if Goldman is animated by shareholder best interest, it would pay off the Buffet loan first, right? After all, the interest will cost the company — and shareholders — much more the longer it sits on the books, so this should be a no-brainer. Analyst Richard Bove sheds some light.

“If you were thinking of shareholders first, you would get rid of the most onerous amount first, and that would benefit shareholders. … However, if you pay off TARP you are eliminating all of the restrictions on paying management,” Bove told TheStreet.com. “You shouldn’t be diluting existing shareholders to pay off TARP so you can pay management more money.”

I suppose you could make the argument that the best interest of shareholders would be best met by the PR boon associated with unshackling the company from more rigorous government oversight, but I think given the financial industry’s history over the past couple years,  it’s pretty safe to assume this isn’t the true motivating factor. Further, this logic would be rendered even more incredulous when you consider that TARP money aside, financial firms are still the benefactors of significant government aid.

Even as they clamor to exit the most prominent part of the bailout program by repaying government investments, firms continue to rely on other federal programs to raise even larger amounts of money….The Federal Deposit Insurance Corp. has helped companies [] borrow more than $336 billion through the end of March, by guaranteeing to repay investors if the firms defaulted. And financial firms hold more than $1 trillion in emergency loans from the Federal Reserve.

Goldman Sachs declared a “duty” to repay the Treasury after posting a first-quarter profit. The chief executives of several large banks at a meeting last month urged President Obama to accept repayments. But no company has similarly pledged to leave the government’s other aid programs.

The explanation appears to be simple: Only the capital investments by the Treasury require the companies to make significant sacrifices, such as restricting executive pay.

I’m aware that the strict government oversight is legislatively codified in the TARP bill, but Congress ought to pass a law extending the jurisdiction of these powers to cover banks currently relying on government loan guarantees. The legislation should be written loosely enough to allow leeway in determining who is subject, but the recent spate of news suggesting banks are all of a sudden “profitable” is insulting to one’s intelligence. After all, if Goldman was doing well enough to pay off the TARP funds, why did they need to raise $5 billion in stock to do it?

Finally, these measures represent a significant gamble by the part of the banks that the populist rage engendered by the AIG bonus mess has finally subsided. They might be right to assume that the more complicated nature of the situation won’t result in the same level of outrage, but it’s not a lock. It’s hard to speak for “the public”, but I can tell you that I’m not yet comfortable enough with the idea that finance should return to its status quo to let this slide — and Barney Frank is no fool.

Posted in Policy, Politics. Tags: , , , . Leave a Comment »

The Heights of Chutzpah

April 1, 2009 — Jon

So today the Republicans elucidated a bit more fully their budgetless-budget of last week during which they embarrassingly offered to cut taxes, maintain entitlements, and address the deficit, all without the use of the One Ring, the Force, or any other ethereal or mystical powers. Anyway, if you thought that was ballsy and transparently ludicrous, clearly you hadn’t considered this possibility.

But the real way that Republicans offer the tax cut without factoring it into the budget’s revenue is to suggest that Americans won’t actually take advantage of the lower rates. Instead, the GOP budget permanently extends President Bush’s 2001 and 2003 tax cuts. A Republican budget committee aid said that the revenues assumed in the GOP budget are based on the current tax structure that resulted from those cuts.

In other words, Republicans are assuming that given the choice between a higher rate and a lower rate, Americans will choose the higher rate.

A lot of people have been referring to this as the “April Fool’s Budget” ironically, but I’m not so sure. Seriously, I really can’t believe how a party that carps endlessly about being ignored would offer this sort of gimmick on April 1st and not be joking. I look forward to truth emerging.

Posted in Policy, Politics. Tags: , , , . Leave a Comment »

Call The Wahmbulance

March 25, 2009 — Jon

There’s been a lot of discussion around the office today about this Op-Ed in the New York Times written by former AIG employee Jake DeSantis that doubled as his letter of resignation as an Executive Vice President of AIG’s Financial Products unit. DeSantis, who intends to take his bonus of $742,006.40 and give it to charity, feels that since he (according to him) had nothing to do with the CDS business that sunk the AIG ship, he has been treated unfairly by the media, the government, and AIG CEO Edward Liddy. And there’s some level of truth to this. Not all of AIG’s employees were involved directly with making billions of dollars in bets they had no money to cover.

But, let’s not forget that AIG’s heretofore Financial Products division — which rewarded DeSantis lavishly over his career — was made artificially profitable by the horrible bets made by “other” people he worked with or near. These bets were not backed by real, actual money anyone had anywhere, but before they imploded, they profited AIG — and Jake DeSantis — enormously. Without getting to heavily into the metaphysics of the matter, you could argue that this money AIG used to pay DeSantis’ absurdly high salary never existed in the first place. So there’s that. But more concretely, Jake DeSantis would not even have the opportunity to work for $1 if the government had not ponied up $170 billion to keep the knee-breakers at bay. That is, were it not for this hulking heap of taxpayer cash, Jake DeSantis would be completely out of the job, which, I’ll add, is precisely what is supposed to happen in a capitalist free market economy. Instead, you have a situation where a variety of factors have made the “let them fail” course the worst of all possibilities, and Jake DeSantis still has a job and an opportunity to turn things around. All things considered, this is fairly good fortune for someone working at arguably the most odious culprit in the ruination of the American economy, and you’d think it would be enough to curb any desire to loudly bitch about unfair treatment. But I suppose not.

Now again, DeSantis’ argument makes a certain, small amount of sense, but in the words of Lao Tzu: give me a fucking break, man.

Posted in Policy, Politics. Tags: , , . Leave a Comment »

Bankruptcy or Bonuses, Which Would You Rather Have?

March 18, 2009 — Jon

Megan McArdle has a post up on the tax system, but says this in the post:

I’m not angry and bitter; I’m about as mad as I am at the prospect of people who bought homes they can’t really afford getting a bailout while I continue renting–which is to say, not very.  Life is rather too short to spend it getting angry at remote strangers.

I guess a lot of this was discussed following the famous Santelli rant, but it’s worth noting that as yet (Senate vote is pending — who knows what they’ll do to it), there are no people who bought homes they can’t really afford getting a bailout. In fairness, Megan seems to acknowledge as much (“the prospect of”), but were this prospect to become a reality, it wouldn’t change the fact that the two are pretty wildly different. On the one hand, you have financial service firms who were instrumental in magnifying the damage of the housing bubble wistfully dolling out bonuses financed by $300 billion from taxpayers, that in many cases will be larger than whatever “bailout” homeowners receive. Of course, this $300 doesn’t include the other ways that people in the financial services have been bailed out, like today’s announcement from the Treasury Fed committing $750 billion buying mortgage backed securities (this was in addition to $500 billion already spent).

On the other hand, the so-called “bailout” for homeowners allows bankruptcy judges to alter the terms of a mortgage once the lender and the bank have already tried to adjust the mortgage voluntarily. In other words, the “bailout” results in the decrease of a home’s mortgage (and asset value, I’ll add) after you go to bankruptcy court. The way people have been describing this, you’d think Barack Obama was going to come strolling down your street with a t-shirt gun loaded with wads of cash to make it rain on your irresponsible neighbors. In reality though, nobody wants to go to bankruptcy court, but I bet there are a lot of people who wouldn’t mind receiving “retention” bonuses when they’re quite lucky to even have a job. The two aren’t even remotely close. (I know people are arguing that there’s demand for these AIG workers elsewhere, and that if their departure could bring to bear disaster. To which I would ask, $173 billion isn’t disaster?)

I say all this fully understand that there are sound policy reasons to be bailout banks and homeowners, and I think these issues of fairness are secondary, but to suggest the level of unfairness is symmetrical is ludicrous.

UPDATE: Also want to point out the obvious that whatever you might say about owners buying homes they couldn’t afford, it’s not as if these people bought their homes on a credit card. That is, someone else looked at their finances and decided to give them a loan. Now, whether they were given a loan under the assumption the house could be sold several years later at a higher value, whether the loan officer just didn’t care as long as they qualified, or whether the bank legitimately thought their new debtors could afford the home is basically immaterial insofar as the powers that be gave the loan a green light. Of course, this doesn’t absolve the homeowner of total responsibility, but it’s a bit of a stretch to suggest that this whole operation was the result of homebuyers run amock.

Posted in Policy, Politics. Tags: , , , , . Leave a Comment »

Regulators Must Regulate

March 18, 2009 — Jon

This idea about creating a “systemic risk regulator” seems like a pretty good idea, but it’s also worth noting that one of main weaknesses of regulatory entities are regulators who lack the will to do anything. For example, Alan Greenspan could have raised interest rates to burst the housing bubble, but instead, he told people to take out adjustable rate mortgages.

I’m afraid there isn’t much of a solution here, but one thing would be to elect people who actually believe the government has a role in society.

Posted in Policy. Tags: , . Leave a Comment »

Keeping Up Appearances

March 9, 2009 — Jon

I was talking with my brother yesterday about how one of the biggest problems confronting the economy is the sheer lack of consumer confidence. It’s palpable everywhere. Even people whose situations have not objectively changed — and are thus better off, at least in a relative sense — have curbed spending and are looking for areas to save. Obviously, such behavior is not without cause; with lay offs seemingly entering freefall, job security is a legitimate concern. I’m not entirely sure what can be done about it, but I suspect that calls for Obama to strike a more optimistic tone will be media meme du jour or du week.

However, I’m at least a little ambivalent about this notion. That is, while there seems to be no causal relationship between confidence (perception) and reality, I feel quite comfortable venturing that there is at least a very strong correlation between the two. This crisis is more than an amorphous sense of insecurity — a discovery of a wrinkle on your forehead — it’s about discovering that vast quantities of wealth simply did not exist as we perceived them. And because perception played such a role in fueling our economy before, it’s tempting to believe we can jump start recovery with the same delusory energy (I think “fixing the housing market” fits in this category). Maybe we can, but I think we’re far more likely to see confidence restored when there’s reason to believe it. Accordingly, efforts should be guided towards addressing problems underlying the confidence loss: shoring up unemployment and positiong the country for long term growth through infrastructure overhaul and by adopting a long term outlook toward fiscal responsibility.

Posted in Uncategorized. Tags: . 1 Comment »

America’s Long Communist History

March 9, 2009 — Jon

Saw this chart a number of places over the weekend, but it graphs the highest marginal tax rate in the United States since 1920, and includes on the far right Obama’s proposed hikes.

As you can plainly see, Americans have a long history of motivating themselves to enterprise even in the face of innovation crushing, socialistic, free market murdering top marginal tax rates.

As a side note, this graph also illustrates that despite the best efforts of conservative apotheosizing, Ronald Raegan did in fact raise taxes. Little known fact.

Posted in Policy, Politics. Tags: , . Leave a Comment »
« Older posts
Newer posts »
Follow

Get every new post delivered to your Inbox.