and I'm now sort of mathematical touristing through some of the models...but one thing I saw immediately in the AAM report, which gives more credibility to me, they assumed materials would be mandated to "Buy American" and it appears they also assume workers, location would be American. this is my main beef so far with these models, not a single variable do I see for imports to outsourced labor to raw funds going offshore. But hold on, I'm still digging around, playing mathematical tourist.
and I agree, the refusal to release that information is outrageous, although I find Alan Greenspan to be the real villain.
Glad you like it. The entire blogosphere wants Bernanke out and I believe we're the only site that says ok, we get that....now who gets in? Just as an example, Greenspan is way worse than Bernanke.
It's like Geithner. I think he should be fired but it comes from the top, it's Obama who is approving these directions. Even worse, do I want JP Morgan Chase as Treasury Secretary? Jesus, we just had Goldman Sachs as Treasury Secretary and see what happened there! i.e. we have a revolving multinational financial corporate door....
if one can charge a tax on food, why would charging such a small tax on market transactions causing us to get blasted by some daytrader forum? (they are). They act like a 0.000005% tax is somehow going to wipe out the market, just absurd.
If profits are there to make, nothing will whip out the market it will just adjust for the new taxes.
Rep. Peter Defazio introduced a modified Tobin tax on oil commodities futures....to specifically address and stop speculation on oil. I think this is really worth a try because it's fairly clear the oil commodities bubble of 2008 was manipulated.
I hope you join us, just create an account, upper right, so you an track your comments. You an also cross post if you have a mind, create a signature sporting your new site design. ;)
I think that if the aim of the bill is to kill the market then this should be made explicit. But my understanding is that the aim is to create jobs and make Wall Street pay for the taxpayers funds that were used to support the financial system. The net impact would be to CUT jobs within the financial sector(brokerages, exchanges and several support industries such as IT), plus there will negative impacts on those agents like small traders and investors that are being unfairly punished for Wall Street's mistakes.
If the tax was passed then you would be left with a small number of large corporations with close Government ties and vested interests. You can have a very stable centrally planned economic system just like in North Korea but then you have no dynamism or accountability and there will be a far less efficient allocation of scare capital.
I do not dispute that both small and large traders can gamble their capital if they want to, but your capital doesn't last very long if you do that, with the exception being if you are bailed out by the Government! The trading houses that are 'too big to fail' will always be bailed out by the government so they have an extra incentive to gamble - heads they win, tails you lose. In a true capitalist system those companies that failed should not be bailed out. Personally I would protect depositors at all costs and let the shareholder take the hit for their bad investments as opposed to paying for their bad investments with taxpayers money.
When I take the other side of a trade I attempt to minimize risk as much as possible, if I do not hedge my risk successfully I will quickly lose my capital. And even if I do lose my capital nobody else loses out, so there is no risk to society. But when Goldman Sachs or JP Morgan re-packages mortgages or sells credit default swaps it takes an upfront fee, pocketing a cash profit and forgetting about the consequences. When the 'black swan' event occurs later on the firm or the poor guy who acquired the toxic asset loses a truckload and the taxpayer via the Government steps in.
The difference with a small trader is that no public funds are used to cap our downside so we have no incentive to act irresponsibly or else we risk losing our stake. A trader at an investment bank could act responsibly and some do I'm sure, but my re-collection of the business is that the traders play musical chairs, flipping between the various banks every couple of years and pocketing bonuses for short term profits. Meanwhile the risks remain for the firm and more importantly the taxpayer.
To answer your question, every time a trader makes a trade he is contributing to liquidity and making a very small positive contribution to society. Profitable and long standing traders play a vital role in the price discovery mechanism and pay a share of the fruits of their labour to the government in the form of taxes. Is this any different from any economic agent that sources a product and resells to someone else at a higher price? Isn't that the basis behind the capitalist economy?
When I buy it is because my bid price was the BEST price available to all sellers, when I sell it is because my sell price is the BEST price available to all buyers. The person on the other side of the trade may be an investor, corporate or agricultural farmer, and without my price and resulting transaction they would have otherwise have obtained a worse price and lost out. It is a win-win situation. It is of course no different to any other transaction conducted in a capitalist economy, if the two parties did not want to undertake the transaction they have the free will not to transact, but if they do trade it is because they both believe that they benefit from doing so.
I agree with you that there needs to be more effective regulation where the regulators have real powers. Personally I also believe there should be complete separation of the risk taking entities and the commercial deposit taking banking businesses. They should not be mixed together as they are presently, but of course the large investment banks will lobby against that! And you could argue that the off-exchange (over the counter) transactions generate additional risks to on-exchange transactions which are fully transparent and easier to regulate.
I was shocked to find that using the AAM / PERI multipliers for specific types of infrastructure yielded employment numbers much higher than what I had come up with 27,000 as a multiplier. So I thought I had made a huge error in my previous calculations somewhere using that 27,000 multiplier. After a few minutes of anxious recalculating, I remembered that I had not used the total amounts of infrastructure spending, but had used one fifth of the Civil Engineers' repair total, and one tenth of the new infrastructure total, to account for the programs being spread out over five and ten years, respectively.
So now I'm going through the AAM / PERI to see how they handled the problem of annualizing the spending.
It also occurred to me that there is no number in my original table of new infrastructure for new roads and bridges, which is likely to be a huge amount.
One thing that I don't think I have ever seen discussed in an employment post is the affect that exemption from overtime has had on, in particular, the white-collar workforce. I know that in every company I have ever worked for, it has been a law freely violated by the employer - practically everyone in the company would be designated as exempt from overtime - which technically requires the person to be a "professional" and, if I am not mistaken, in some kind of decision-making role. IT, in particular, aggregiously violates this law. Every place I have ever worked, the lowest help desk worker - who is bound to be on the phones for a certain number of hours each day, has no decision-making authority, has no direct reports, etc., is considered exempt and worked 60 hours a week for a salary without overtime.
I wonder how many jobs we would create in this country if this law were actually enforced? Sure, some employers might decide to pay the overtime, but others might choose to simply add staff appropriately.
I'm still in stunned disbelief that Federal Reserve chairman Ben Bernanke refuses to tell the American people who he gave over $2 TRILLION of United States currency (freshly printed I might add) to.
Come on Ben, what kind of toxic assets did you take off the hands of your banking buddies in return for cold hard cash?
For this alone Ben Bernanke should be fired on the spot.
My point to the various Finance Ministers etc was "where else can you raise significant taxes without a hue and cry from those NOT responsible for the recent risky casino behaviour" Might do some good by putting sand in the oil too. Call it temporary, like income tax, if you like:-)
Our website sports a new design today: http://thebrowser.com.
Seriously. You might change the title to "Gobs" for the moment.
The AAM doc. is very well done. So, for multipliers they have 18k per $1B but in direct, explicit jobs they have a baseline for calculated jobs per sector, which I haven't found their totals yet, still reading but they are obviously much lower but also should be much more exact.
At minimum I think that's much more realistic than $27k per $1B.
I really want to see infrastructure spending happen, with real jobs and I also want a very strong "buy American" on materials plus tie the jobs to U.S. citizens, legal residents.
I'm concerned because the stimulus is already getting blasted to hell and today I did too, because of using some extremely biased commercial modeling companies who magically find for their clients....well, what they want to hear in so many words.
So, right out of the gate, any more deficit spending is under enormous attack. Personally since they have not spent about $676B of the original stimulus, I've love to see some of those funds plain redirected to an infrastructure, direct jobs program.
Here's another thing, for tax cuts multipliers are used also and there too, because the results are not adding up, so then the claim is it would be "much worse" instead of considering something is wrong with the models w.r.t. global economy and domestic spending pouring overseas.
Anyway, I do have my diffy-q intact so I'll take a strong look at this doc. I have poo pooed some of these models and noted they ignore the phantom GDP, did some posts on that (due to offshore outsourcing as well as productivity) but I haven't dug into the mathematics yet. TBD.
Anyway, it's the post title that's flipping me in this "scan and pan" blog world.
but perhaps we're each looking at different documents.
In the How Infrastructure Investments Support the U.S. Economy: Employment, Productivity and Growth from PERI in January 2009, page 25 includes "Table 3.1. Estimated employment effects of increased infrastructure spending,” listing employment multipliers by type of infrastructure spending. Just like you said, there are different multipliers for different types of infrastructure. Sigh. And I promised the wife I would help get the Christmas lights up.
Appendix B discusses “The Input-Output Model and Employment Multipliers” on pages 49 – 53. And Appendix C discusses “Induced employment effects” on pages 53 – 54.
Having long ago lost the ability to solve a differential equation, I will have to rely on you to peruse the appendices and see if they are accurate. At the very least, look at the table of multipliers and see if they look acceptable.
I will do a spreadsheet tomorrow morning and correct the diary with the resulting numbers.
As for not reading your blogs on trade, please accept my sincere regrets. I've had little opportunity to read (and write) blogs until this past week, having been on the road almost constantly since the end of June. At least now I know where to find some material on trade worth reading.
When the "MARKET" gets back to providing a primary function of allocating scarce capital to it's most efficient purpose for the benefit of society, I will sympathize with your argument. Right now it is nothing more than a casino and by your own admission you exploit it's weaknesses for your personal benefit. Somehow, in your view, small time players like yourself are a "good" thing even though you play the same game as the large WS financial instituions, just on a much smaller scale.
In other words, day traders are collectively providing useful "liquidity", while the larger firms are just gambling and taking unwarranted risks. Can you offer a single example where your trading activities have supported a positive contribution to the American economy?
You have also stated -
Providing liquidity means looking for a small edge and attempting to repeat this multiple times. It is not as easy as it sounds!
I don't doubt that, but so what? Is this the preferred method to separate the proverbial "wheat from the chaff", the winners and losers in our society? Is our brand of capitalism really a zero sum game? If we all "played the market", then the best would thrive and the rest would fall into ... what?, some kind of societal abyss.
IMO, trading in the "Markets" on a small scale or a large, global scale is the same. The perfect "market" does not exist, and reaching "optimal equilibrium" is not a foregone conclusion. Only regulated markets will result in benefits to the larger society, and the traders supporting that. To that end, the financial transaction tax is one tool that will protect the larger stability of the general economy from the excesses of the investment class. And if it means that you, Ben W., lose your "edge" and have to resort to really allocating your resources to a useful purpose for yourself, then so be it. You have lots of company in that segment of the population.
We have day traders here making their living off of trades.
The plan, at least for most of these, should not really hurt the smaller investors bottom lines, even day traders who makes a lot of transactions.
There was a Progressive scaling, so it really hits those large institutional speculators and tuned to capture derivatives and manipulation of actual markets and not the little guys.
then there was a number of trades threshold per time period as well before any tax kicks in.
So, while small investors are "freaking out" on this, it's not what you think. But like any idea, the proof is in the details so even I, who think this is a good idea, will reserve final judgment until I read the rules and legislative text or whatever form it might take.
After all, it wouldn't be the first time a good idea was turned upside down to kill the little guys and enrich the large hedge funds, GS and so on, who truly can manipulate commodities markets and have unfair advantages... with exemptions.
There are many small independent traders that trade commodities and financial derivatives and add liquidity to the financial markets. I for one am one of them, and I am not connected to any of the Wall Street firms. I was in the past, although I disliked the investment banking culture and decided to set up on my own with the goal of establishing a track record and one day assisting others with their investment and saving objectives. I am far from being a millionaire, in fact I earn less than a school teacher. But I enjoy my work and it provides an income for my family. I provide liqudity on a small scale by 'taking the other side of a trade' to a hedger, there is some risk involved on each individual trade but by managing my overall risk statistically I am able to generate a relatively steady income. I would be put out of business if the financial transaction tax was passed.
There is little doubt that Wall Street fuelled the property boom by re-packaging mortgage assets and selling them off to third parties and obviously the creation of other OTC derivatives etc has put the financial system at grave risk. But this has nothing to do with the actions of the commodity speculator or even the stock day trader. Traders acted as they always have since commodity exchanges were first established hundreds of years ago by providing liquidity and ensuring a fair price is achieved by both buyer and seller. No single body or central planner can achieve this goal of matching demand and supply more effectively than the market, though history shows that many Governments have tried and failed. As you can see from this year's rally when stock prices collapsed to a bargain level a successful and profitable trader would have been buying shares at these bargain levels and when prices extended too far during the bubble he/she would have been selling. Traders that sell at excessively low prices and buy at excessivley high prices do not last long. If they do, the markets will eventually catch up with them if they repeat such mistakes!
Although there is certainly justification for 'making Wall Street pay for its mistakes' the problem with the proposed financial transaction tax is that the large Wall Street firms that have strong relationships with Government such as Goldman Sachs, Merrill Lynch, Citibank...those firms that WERE reckless, paid record bonuses, put the system at risk, and took taxpayers money...will still exist if a financial transaction tax is introduced. Whereas the small independent trader will be put out of business overnight. Providing liquidity means looking for a small edge and attempting to repeat this multiple times. It is not as easy as it sounds!
Surely it is better in a capitalist economy to have, at its heart, a financial marketplace that is a TRUE market...that is, not one that is made up of five or six large investment banks that are all buddies with the US Treasury and Federal Reserve...'too big or too stupid to fail, with the full backing of the US taxapayer when they screw up'...but a marketplace comprising of a numerous and diverse mix of economic agents, small and large, not just those that are bailed out when they make bad decisions.
By passing a financial transaction tax and punishing those that had nothing to do with the crisis, whilst rewarding those banks like Goldman Sachs by eliminating any competition to them, the US economy will be a capitalist economy only in name.
Blame Wall Street's Banks, Government, Regulators, Mortgage Lenders etc for this crisis, but please don't show ignorance by punishing every member of the financial community for other's mistakes. Many of us in the financial community did not receive a dime of taxpayers money, on the contrary when we are successful a share of our money goes to the Government.
Clearly people are angry at the banks disgusting behaviour, especially now that they are paying themselves record bonuses, but if the goal is to achieve a more competitive, ethical and 'socially useful' financial sector to serve the general public, then other measures such as a levy on banks or windfall tax on bankers bonuses would be a fairer and more effective method of achieving such aims.
----- Original Message -----
From:
Sent: Tuesday, March 03, 2009 12:18 PM
Subject: ...of 684 TRILLION, 550 Trillion in CDSs are side bets on the outcome of an event...people need to understand what we are propping up with taxdollars
Rep. Collin Peterson has said,
"As much as 80 percent of the credit-default swap market is traded by investors who don’t own the underlying bond."
Which means of $684 trillion in CDSs, almost $550 trillion of that sum is unnecessary coverage for mortgage backed securities. That indicates that 550 Trillion in CDSs are side bets on the outcome of an event. Folks, that is gambling. Interstate gambling is illegal. Why should those CDS instruments be honored? C'mon, they are placed bets.
If a well connected bookie shorted you, would you call the cops to get your money back? I don't think so. Would the cops be on your side? I don't think so. Would the cops loan the gangster the money to cover your bets.? I don't think so. Why are "suits" treated so deferentially in this case?
The "suits" who were holders of these CDS placed illegal bets...
At this point the US Government's duty is to step in and confiscate the illegally placed bets under the Wire* & Travel Act statutes...
By taking these bets AIG was a bookie...and now the US Government duty is to make a case under RICO statutes and arrest the players involved in this bookie's operation. The law is clear, follow it, so that others may learn.
* - "The Wire Act of 1961 complements other federal bookmaking statutes, such as the Travel Act (interstate travel in aid of racketeering enterprises, including gambling), the Interstate Transportation of Wagering Paraphernalia Act, and the Illegal Gambling Business Act (requires a predicate state law violation).
The Wire Act was intended to assist the states, territories and possessions of the United States, as well as the District of Columbia, in enforcing their respective laws on gambling and bookmaking and to suppress organized gambling activities.[58] Subsection (a) of the Wire Act, a criminal provision, provides:
Whoever being engaged in the business of betting or wagering knowingly uses a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest, or for the transmission of a wire communication which entitles the recipient to receive money or credit as a result of bets or wagers, or for information assisting in the placing of bets or wagers, shall be fined under this title or imprisoned not more than two years, or both.[59]
In order to prove a prima facie case, the government must establish that:
The person was "engaged in the business of betting or wagering" (compared with a casual bettor);
The person transmitted in interstate or foreign commerce: bets or wagers,
information assisting in the placement of bets or wagers, or
a communication that entitled the recipient to receive money or credit as a result of a bet or wager;
The person used a " wire communication facility;" and
The person knowingly used a wire communication facility to engage in one of the three prohibited forms of transmissions.
I’ve never been fully committed to the notion that we’re going to have a “double dip” — that the economy will slide back into recession. But it has been clear for a while that it’s a serious possibility, for two reasons. First, a large part of the growth we’ve had has been driven by the stimulus — but the stimulus has already had its maximum impact on the growth of GDP, will hit its maximum impact on the level of GDP in the middle of next year, and then will begin to fade out. Second, the rise in manufacturing production is to a large extent an inventory bounce — and this, too, will fade out in the quarters ahead.
He links to some bad news reports that Stimulus construction jobs are already fading.
I didn't track on specifically what infrastructure has already been spent via Stimulus but that's something someone else might want to take a look at and write in a comment here or under the CBO post.
a link to a political press release and a very large PDF and I even searched the PDF for estimates....does not tell me where one is claiming $1B creates 27k in jobs.
The AAM study sites 18k jobs per $1B investment. On top of it, they are using generalized multipliers. Specifically a consumption multiplier. This is not the same as specing out a very specific project, budgeting it, calculating it's GDP impact per jobs and jobs created.
The Senate Democratic Caucus, odds are it's worse, note they are quoting a transportation secretary. Dude, where's my spreadsheet? (;)) I'm just about to write some things about use of multipliers via the latest CBO report and if you note....obviously that jobs creation projection is way off and there are good reasons why it's way off.
So, you need to not only pull out that quote, but also cite what model, project estimate they are using to claim such a figure.
If you're going to claim increase of ~12% of the U.S. labor market jobs (and I'm low balling, in terms of total number of jobs currently, 132M, try an increase of 14%, of course that's not accounting for job destruction as well as pop. growth over 10 yrs.), would be magically created in a post title, be prepared to back it up.
Sorry, but as much as I'm in favor of direct jobs infrastructure projects, the site motto is no economic fiction, which implies one needs to back up their numbers explicitly. In addition, if you want to see a direct jobs program based on critical infrastructure projects...it adds credibility to make sure all of your number ducks are straight in a row.
That includes the "left". Frankly the Stimulus projections are a political debacle. While I'm sure Keynes was rolling in his grave over the implementation of Stimulus...bottom line is this is, instead of pointing out they did not implement true Keynes....is hurting the entire credibility of Keynesian economics because results ain't materializing considering the $787B price tag.
If I, an obviously friendly reader, question it to the point the title makes me shake head and immediately dig for where someone is getting their numbers, you can bet our most hostile readership is also.
On top of it, infrastructure projects are pretty damn explicit, so there really is no reason they cannot plain spec out each project, included estimated timeline, costs, capital requirements, needed personal and so on and use those very exact numbers.
On trade, jez, I guess you aren't reading my posts. Gotta be a tally of over 50 on various policy, tools on trade that do not involve tariffs. That's a bummer, I try so hard to make people aware of other policies, legislation possibilities, tools and on top of it link in the middle column to a host of other sites promoting similar actions.
Funny how property values have gone down but my property tax bill went up?
In the 23 years I've lived in my house the property tax bill went up 700%. If only my income had gone up 700%! But sadly I've participated in the 30 years of wage stagnation.
Poor or rich, we all buy what we can afford. A consumption tax would mean that the big, well heeled spender will pay taxes and the poor will pay taxes. The rich will pay a greater total. Yea, I know about the social / moral argument but since in my younger years I've also participated in poor, I was the one in control of what I bought. Would have 10% changed my mind on buying the red beans and rice....nope. Would 10% change the mind of someone that can afford a 42 foot Bertrum ...nope.
Property taxes are the most egregious of all taxes. No property tax would mean that in lean times I would not need to worry about the tax man taking my house.
subtitled "Where do the job numbers come from?" which has links to sources.
Yes, there must be a better way to manage trade than tariffs. Unfortunately, I've not learned much of a better way, so "tariffs" is what comes out in the "heat of the moment" of writing. I do, however, believe that the WTO and GATT will have to be radically reformed, if not replaced altogether. The real problem that must be solved is "regulatory arbitrage," not of financial regulations (though this is a big, albeit familiar problem, also) but labor safety and environmental regulations as well. I don;t even know if WTO and GATT even consider these problems; I very much doubt it.
Seriously. Even assuming all of that $1B went towards wages, that's $37k per worker. Of course with large infrastructure projects, you're talking a lot of capital. Heavy equipment then one needs engineers, management, logistics to do that work.
I don't think those numbers are realistic and unfortunately these assumptions, which are not spelled out are how you are titling your post 19 million jobs.
Sorry Tony, I'm a math head, plus involved in real world projects and that's just not adding up.
When doing any sort of large construction, infrastructure types of projects, materials and heavy equipment, are going to be a huge portion of the total costs.
Then, beyond unskilled labor, for heavily skilled labor to engineers, I don't think $37k is anywhere near market value.
but what I do really like on this post is connecting just how much U.S. GDP is lost by ignoring crumbling infrastructure.
What you are quoting is 3.16% of GDP can be attributed to inefficiencies in national transport systems.
We need more of those types of numbers....because that makes sense to pour money into infrastructure projects. You can see the overall economic pay out by investing in America through public works projects.
We also need to verify those GDP projections.
I'll also note that much of the original infrastructure was done via the New Deal in the 1930's direct jobs programs as well as Eisenhower's highway projects (Eisenhower would be called a radical socialist in today's world).
Tariffs are ruled illegal by the WTO and are also a "sledge hammer" type of tool to rebalance trade. That's why a VAT is so attractive, it has the features of a surgeon's scalpel. It can be changed dynamically, daily and per individual item, not entire sectors as a tariff is.
I keep writing many times there are much better tools and policies available to balance trade. I don't know why people are still stuck on tariffs as the only option. It's not.
I'm all for infrastructure projects to be chosen for a direct jobs program as well as public works, but Tony, I think to present this idea one needs realistic numbers from real world large civil engineering types of projects. We have many to choose from so getting accurate estimates on total number of jobs created and overall costs should be out there already, or at least could be projected from recent past projects.
and I'm now sort of mathematical touristing through some of the models...but one thing I saw immediately in the AAM report, which gives more credibility to me, they assumed materials would be mandated to "Buy American" and it appears they also assume workers, location would be American. this is my main beef so far with these models, not a single variable do I see for imports to outsourced labor to raw funds going offshore. But hold on, I'm still digging around, playing mathematical tourist.
and I agree, the refusal to release that information is outrageous, although I find Alan Greenspan to be the real villain.
Glad you like it. The entire blogosphere wants Bernanke out and I believe we're the only site that says ok, we get that....now who gets in? Just as an example, Greenspan is way worse than Bernanke.
It's like Geithner. I think he should be fired but it comes from the top, it's Obama who is approving these directions. Even worse, do I want JP Morgan Chase as Treasury Secretary? Jesus, we just had Goldman Sachs as Treasury Secretary and see what happened there! i.e. we have a revolving multinational financial corporate door....
That's the real problem.
if one can charge a tax on food, why would charging such a small tax on market transactions causing us to get blasted by some daytrader forum? (they are). They act like a 0.000005% tax is somehow going to wipe out the market, just absurd.
If profits are there to make, nothing will whip out the market it will just adjust for the new taxes.
Rep. Peter Defazio introduced a modified Tobin tax on oil commodities futures....to specifically address and stop speculation on oil. I think this is really worth a try because it's fairly clear the oil commodities bubble of 2008 was manipulated.
I hope you join us, just create an account, upper right, so you an track your comments. You an also cross post if you have a mind, create a signature sporting your new site design. ;)
So far the "high end" is 18k per $1B but I haven't read the entire thing.
I think that if the aim of the bill is to kill the market then this should be made explicit. But my understanding is that the aim is to create jobs and make Wall Street pay for the taxpayers funds that were used to support the financial system. The net impact would be to CUT jobs within the financial sector(brokerages, exchanges and several support industries such as IT), plus there will negative impacts on those agents like small traders and investors that are being unfairly punished for Wall Street's mistakes.
If the tax was passed then you would be left with a small number of large corporations with close Government ties and vested interests. You can have a very stable centrally planned economic system just like in North Korea but then you have no dynamism or accountability and there will be a far less efficient allocation of scare capital.
I do not dispute that both small and large traders can gamble their capital if they want to, but your capital doesn't last very long if you do that, with the exception being if you are bailed out by the Government! The trading houses that are 'too big to fail' will always be bailed out by the government so they have an extra incentive to gamble - heads they win, tails you lose. In a true capitalist system those companies that failed should not be bailed out. Personally I would protect depositors at all costs and let the shareholder take the hit for their bad investments as opposed to paying for their bad investments with taxpayers money.
When I take the other side of a trade I attempt to minimize risk as much as possible, if I do not hedge my risk successfully I will quickly lose my capital. And even if I do lose my capital nobody else loses out, so there is no risk to society. But when Goldman Sachs or JP Morgan re-packages mortgages or sells credit default swaps it takes an upfront fee, pocketing a cash profit and forgetting about the consequences. When the 'black swan' event occurs later on the firm or the poor guy who acquired the toxic asset loses a truckload and the taxpayer via the Government steps in.
The difference with a small trader is that no public funds are used to cap our downside so we have no incentive to act irresponsibly or else we risk losing our stake. A trader at an investment bank could act responsibly and some do I'm sure, but my re-collection of the business is that the traders play musical chairs, flipping between the various banks every couple of years and pocketing bonuses for short term profits. Meanwhile the risks remain for the firm and more importantly the taxpayer.
To answer your question, every time a trader makes a trade he is contributing to liquidity and making a very small positive contribution to society. Profitable and long standing traders play a vital role in the price discovery mechanism and pay a share of the fruits of their labour to the government in the form of taxes. Is this any different from any economic agent that sources a product and resells to someone else at a higher price? Isn't that the basis behind the capitalist economy?
When I buy it is because my bid price was the BEST price available to all sellers, when I sell it is because my sell price is the BEST price available to all buyers. The person on the other side of the trade may be an investor, corporate or agricultural farmer, and without my price and resulting transaction they would have otherwise have obtained a worse price and lost out. It is a win-win situation. It is of course no different to any other transaction conducted in a capitalist economy, if the two parties did not want to undertake the transaction they have the free will not to transact, but if they do trade it is because they both believe that they benefit from doing so.
I agree with you that there needs to be more effective regulation where the regulators have real powers. Personally I also believe there should be complete separation of the risk taking entities and the commercial deposit taking banking businesses. They should not be mixed together as they are presently, but of course the large investment banks will lobby against that! And you could argue that the off-exchange (over the counter) transactions generate additional risks to on-exchange transactions which are fully transparent and easier to regulate.
I was shocked to find that using the AAM / PERI multipliers for specific types of infrastructure yielded employment numbers much higher than what I had come up with 27,000 as a multiplier. So I thought I had made a huge error in my previous calculations somewhere using that 27,000 multiplier. After a few minutes of anxious recalculating, I remembered that I had not used the total amounts of infrastructure spending, but had used one fifth of the Civil Engineers' repair total, and one tenth of the new infrastructure total, to account for the programs being spread out over five and ten years, respectively.
So now I'm going through the AAM / PERI to see how they handled the problem of annualizing the spending.
It also occurred to me that there is no number in my original table of new infrastructure for new roads and bridges, which is likely to be a huge amount.
One thing that I don't think I have ever seen discussed in an employment post is the affect that exemption from overtime has had on, in particular, the white-collar workforce. I know that in every company I have ever worked for, it has been a law freely violated by the employer - practically everyone in the company would be designated as exempt from overtime - which technically requires the person to be a "professional" and, if I am not mistaken, in some kind of decision-making role. IT, in particular, aggregiously violates this law. Every place I have ever worked, the lowest help desk worker - who is bound to be on the phones for a certain number of hours each day, has no decision-making authority, has no direct reports, etc., is considered exempt and worked 60 hours a week for a salary without overtime.
I wonder how many jobs we would create in this country if this law were actually enforced? Sure, some employers might decide to pay the overtime, but others might choose to simply add staff appropriately.
Great article - please keep it up.
I'm still in stunned disbelief that Federal Reserve chairman Ben Bernanke refuses to tell the American people who he gave over $2 TRILLION of United States currency (freshly printed I might add) to.
Come on Ben, what kind of toxic assets did you take off the hands of your banking buddies in return for cold hard cash?
For this alone Ben Bernanke should be fired on the spot.
My point to the various Finance Ministers etc was "where else can you raise significant taxes without a hue and cry from those NOT responsible for the recent risky casino behaviour" Might do some good by putting sand in the oil too. Call it temporary, like income tax, if you like:-)
Our website sports a new design today: http://thebrowser.com.
Seriously. You might change the title to "Gobs" for the moment.
The AAM doc. is very well done. So, for multipliers they have 18k per $1B but in direct, explicit jobs they have a baseline for calculated jobs per sector, which I haven't found their totals yet, still reading but they are obviously much lower but also should be much more exact.
At minimum I think that's much more realistic than $27k per $1B.
I really want to see infrastructure spending happen, with real jobs and I also want a very strong "buy American" on materials plus tie the jobs to U.S. citizens, legal residents.
I'm concerned because the stimulus is already getting blasted to hell and today I did too, because of using some extremely biased commercial modeling companies who magically find for their clients....well, what they want to hear in so many words.
So, right out of the gate, any more deficit spending is under enormous attack. Personally since they have not spent about $676B of the original stimulus, I've love to see some of those funds plain redirected to an infrastructure, direct jobs program.
Here's another thing, for tax cuts multipliers are used also and there too, because the results are not adding up, so then the claim is it would be "much worse" instead of considering something is wrong with the models w.r.t. global economy and domestic spending pouring overseas.
Anyway, I do have my diffy-q intact so I'll take a strong look at this doc. I have poo pooed some of these models and noted they ignore the phantom GDP, did some posts on that (due to offshore outsourcing as well as productivity) but I haven't dug into the mathematics yet. TBD.
Anyway, it's the post title that's flipping me in this "scan and pan" blog world.
but perhaps we're each looking at different documents.
In the How Infrastructure Investments Support the U.S. Economy: Employment, Productivity and Growth from PERI in January 2009, page 25 includes "Table 3.1. Estimated employment effects of increased infrastructure spending,” listing employment multipliers by type of infrastructure spending. Just like you said, there are different multipliers for different types of infrastructure. Sigh. And I promised the wife I would help get the Christmas lights up.
Appendix B discusses “The Input-Output Model and Employment Multipliers” on pages 49 – 53. And Appendix C discusses “Induced employment effects” on pages 53 – 54.
Having long ago lost the ability to solve a differential equation, I will have to rely on you to peruse the appendices and see if they are accurate. At the very least, look at the table of multipliers and see if they look acceptable.
I will do a spreadsheet tomorrow morning and correct the diary with the resulting numbers.
As for not reading your blogs on trade, please accept my sincere regrets. I've had little opportunity to read (and write) blogs until this past week, having been on the road almost constantly since the end of June. At least now I know where to find some material on trade worth reading.
When the "MARKET" gets back to providing a primary function of allocating scarce capital to it's most efficient purpose for the benefit of society, I will sympathize with your argument. Right now it is nothing more than a casino and by your own admission you exploit it's weaknesses for your personal benefit. Somehow, in your view, small time players like yourself are a "good" thing even though you play the same game as the large WS financial instituions, just on a much smaller scale.
In other words, day traders are collectively providing useful "liquidity", while the larger firms are just gambling and taking unwarranted risks. Can you offer a single example where your trading activities have supported a positive contribution to the American economy?
You have also stated -
I don't doubt that, but so what? Is this the preferred method to separate the proverbial "wheat from the chaff", the winners and losers in our society? Is our brand of capitalism really a zero sum game? If we all "played the market", then the best would thrive and the rest would fall into ... what?, some kind of societal abyss.
IMO, trading in the "Markets" on a small scale or a large, global scale is the same. The perfect "market" does not exist, and reaching "optimal equilibrium" is not a foregone conclusion. Only regulated markets will result in benefits to the larger society, and the traders supporting that. To that end, the financial transaction tax is one tool that will protect the larger stability of the general economy from the excesses of the investment class. And if it means that you, Ben W., lose your "edge" and have to resort to really allocating your resources to a useful purpose for yourself, then so be it. You have lots of company in that segment of the population.
We have day traders here making their living off of trades.
The plan, at least for most of these, should not really hurt the smaller investors bottom lines, even day traders who makes a lot of transactions.
There was a Progressive scaling, so it really hits those large institutional speculators and tuned to capture derivatives and manipulation of actual markets and not the little guys.
then there was a number of trades threshold per time period as well before any tax kicks in.
So, while small investors are "freaking out" on this, it's not what you think. But like any idea, the proof is in the details so even I, who think this is a good idea, will reserve final judgment until I read the rules and legislative text or whatever form it might take.
After all, it wouldn't be the first time a good idea was turned upside down to kill the little guys and enrich the large hedge funds, GS and so on, who truly can manipulate commodities markets and have unfair advantages... with exemptions.
There are many small independent traders that trade commodities and financial derivatives and add liquidity to the financial markets. I for one am one of them, and I am not connected to any of the Wall Street firms. I was in the past, although I disliked the investment banking culture and decided to set up on my own with the goal of establishing a track record and one day assisting others with their investment and saving objectives. I am far from being a millionaire, in fact I earn less than a school teacher. But I enjoy my work and it provides an income for my family. I provide liqudity on a small scale by 'taking the other side of a trade' to a hedger, there is some risk involved on each individual trade but by managing my overall risk statistically I am able to generate a relatively steady income. I would be put out of business if the financial transaction tax was passed.
There is little doubt that Wall Street fuelled the property boom by re-packaging mortgage assets and selling them off to third parties and obviously the creation of other OTC derivatives etc has put the financial system at grave risk. But this has nothing to do with the actions of the commodity speculator or even the stock day trader. Traders acted as they always have since commodity exchanges were first established hundreds of years ago by providing liquidity and ensuring a fair price is achieved by both buyer and seller. No single body or central planner can achieve this goal of matching demand and supply more effectively than the market, though history shows that many Governments have tried and failed. As you can see from this year's rally when stock prices collapsed to a bargain level a successful and profitable trader would have been buying shares at these bargain levels and when prices extended too far during the bubble he/she would have been selling. Traders that sell at excessively low prices and buy at excessivley high prices do not last long. If they do, the markets will eventually catch up with them if they repeat such mistakes!
Although there is certainly justification for 'making Wall Street pay for its mistakes' the problem with the proposed financial transaction tax is that the large Wall Street firms that have strong relationships with Government such as Goldman Sachs, Merrill Lynch, Citibank...those firms that WERE reckless, paid record bonuses, put the system at risk, and took taxpayers money...will still exist if a financial transaction tax is introduced. Whereas the small independent trader will be put out of business overnight. Providing liquidity means looking for a small edge and attempting to repeat this multiple times. It is not as easy as it sounds!
Surely it is better in a capitalist economy to have, at its heart, a financial marketplace that is a TRUE market...that is, not one that is made up of five or six large investment banks that are all buddies with the US Treasury and Federal Reserve...'too big or too stupid to fail, with the full backing of the US taxapayer when they screw up'...but a marketplace comprising of a numerous and diverse mix of economic agents, small and large, not just those that are bailed out when they make bad decisions.
By passing a financial transaction tax and punishing those that had nothing to do with the crisis, whilst rewarding those banks like Goldman Sachs by eliminating any competition to them, the US economy will be a capitalist economy only in name.
Blame Wall Street's Banks, Government, Regulators, Mortgage Lenders etc for this crisis, but please don't show ignorance by punishing every member of the financial community for other's mistakes. Many of us in the financial community did not receive a dime of taxpayers money, on the contrary when we are successful a share of our money goes to the Government.
Clearly people are angry at the banks disgusting behaviour, especially now that they are paying themselves record bonuses, but if the goal is to achieve a more competitive, ethical and 'socially useful' financial sector to serve the general public, then other measures such as a levy on banks or windfall tax on bankers bonuses would be a fairer and more effective method of achieving such aims.
----- Original Message -----
From:
Sent: Tuesday, March 03, 2009 12:18 PM
Subject: ...of 684 TRILLION, 550 Trillion in CDSs are side bets on the outcome of an event...people need to understand what we are propping up with taxdollars
Rep. Collin Peterson has said,
"As much as 80 percent of the credit-default swap market is traded by investors who don’t own the underlying bond."
Which means of $684 trillion in CDSs, almost $550 trillion of that sum is unnecessary coverage for mortgage backed securities. That indicates that 550 Trillion in CDSs are side bets on the outcome of an event. Folks, that is gambling. Interstate gambling is illegal. Why should those CDS instruments be honored? C'mon, they are placed bets.
If a well connected bookie shorted you, would you call the cops to get your money back? I don't think so. Would the cops be on your side? I don't think so. Would the cops loan the gangster the money to cover your bets.? I don't think so. Why are "suits" treated so deferentially in this case?
The "suits" who were holders of these CDS placed illegal bets...
At this point the US Government's duty is to step in and confiscate the illegally placed bets under the Wire* & Travel Act statutes...
By taking these bets AIG was a bookie...and now the US Government duty is to make a case under RICO statutes and arrest the players involved in this bookie's operation. The law is clear, follow it, so that others may learn.
http://www.gambling-law-us.com/Federal-Laws/wire-act.htm
* - "The Wire Act of 1961 complements other federal bookmaking statutes, such as the Travel Act (interstate travel in aid of racketeering enterprises, including gambling), the Interstate Transportation of Wagering Paraphernalia Act, and the Illegal Gambling Business Act (requires a predicate state law violation).
The Wire Act was intended to assist the states, territories and possessions of the United States, as well as the District of Columbia, in enforcing their respective laws on gambling and bookmaking and to suppress organized gambling activities.[58] Subsection (a) of the Wire Act, a criminal provision, provides:
Whoever being engaged in the business of betting or wagering knowingly uses a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest, or for the transmission of a wire communication which entitles the recipient to receive money or credit as a result of bets or wagers, or for information assisting in the placing of bets or wagers, shall be fined under this title or imprisoned not more than two years, or both.[59]
In order to prove a prima facie case, the government must establish that:
The person was "engaged in the business of betting or wagering" (compared with a casual bettor);
The person transmitted in interstate or foreign commerce: bets or wagers,
information assisting in the placement of bets or wagers, or
a communication that entitled the recipient to receive money or credit as a result of a bet or wager;
The person used a " wire communication facility;" and
The person knowingly used a wire communication facility to engage in one of the three prohibited forms of transmissions.
Paul Krugman is warning on a double dip recession, brought on in part by today's ISM report:
He links to some bad news reports that Stimulus construction jobs are already fading.
I didn't track on specifically what infrastructure has already been spent via Stimulus but that's something someone else might want to take a look at and write in a comment here or under the CBO post.
a link to a political press release and a very large PDF and I even searched the PDF for estimates....does not tell me where one is claiming $1B creates 27k in jobs.
The AAM study sites 18k jobs per $1B investment. On top of it, they are using generalized multipliers. Specifically a consumption multiplier. This is not the same as specing out a very specific project, budgeting it, calculating it's GDP impact per jobs and jobs created.
The Senate Democratic Caucus, odds are it's worse, note they are quoting a transportation secretary. Dude, where's my spreadsheet? (;)) I'm just about to write some things about use of multipliers via the latest CBO report and if you note....obviously that jobs creation projection is way off and there are good reasons why it's way off.
So, you need to not only pull out that quote, but also cite what model, project estimate they are using to claim such a figure.
If you're going to claim increase of ~12% of the U.S. labor market jobs (and I'm low balling, in terms of total number of jobs currently, 132M, try an increase of 14%, of course that's not accounting for job destruction as well as pop. growth over 10 yrs.), would be magically created in a post title, be prepared to back it up.
Sorry, but as much as I'm in favor of direct jobs infrastructure projects, the site motto is no economic fiction, which implies one needs to back up their numbers explicitly. In addition, if you want to see a direct jobs program based on critical infrastructure projects...it adds credibility to make sure all of your number ducks are straight in a row.
That includes the "left". Frankly the Stimulus projections are a political debacle. While I'm sure Keynes was rolling in his grave over the implementation of Stimulus...bottom line is this is, instead of pointing out they did not implement true Keynes....is hurting the entire credibility of Keynesian economics because results ain't materializing considering the $787B price tag.
If I, an obviously friendly reader, question it to the point the title makes me shake head and immediately dig for where someone is getting their numbers, you can bet our most hostile readership is also.
On top of it, infrastructure projects are pretty damn explicit, so there really is no reason they cannot plain spec out each project, included estimated timeline, costs, capital requirements, needed personal and so on and use those very exact numbers.
On trade, jez, I guess you aren't reading my posts. Gotta be a tally of over 50 on various policy, tools on trade that do not involve tariffs. That's a bummer, I try so hard to make people aware of other policies, legislation possibilities, tools and on top of it link in the middle column to a host of other sites promoting similar actions.
Funny how property values have gone down but my property tax bill went up?
In the 23 years I've lived in my house the property tax bill went up 700%. If only my income had gone up 700%! But sadly I've participated in the 30 years of wage stagnation.
Poor or rich, we all buy what we can afford. A consumption tax would mean that the big, well heeled spender will pay taxes and the poor will pay taxes. The rich will pay a greater total. Yea, I know about the social / moral argument but since in my younger years I've also participated in poor, I was the one in control of what I bought. Would have 10% changed my mind on buying the red beans and rice....nope. Would 10% change the mind of someone that can afford a 42 foot Bertrum ...nope.
Property taxes are the most egregious of all taxes. No property tax would mean that in lean times I would not need to worry about the tax man taking my house.
subtitled "Where do the job numbers come from?" which has links to sources.
Yes, there must be a better way to manage trade than tariffs. Unfortunately, I've not learned much of a better way, so "tariffs" is what comes out in the "heat of the moment" of writing. I do, however, believe that the WTO and GATT will have to be radically reformed, if not replaced altogether. The real problem that must be solved is "regulatory arbitrage," not of financial regulations (though this is a big, albeit familiar problem, also) but labor safety and environmental regulations as well. I don;t even know if WTO and GATT even consider these problems; I very much doubt it.
Seriously. Even assuming all of that $1B went towards wages, that's $37k per worker. Of course with large infrastructure projects, you're talking a lot of capital. Heavy equipment then one needs engineers, management, logistics to do that work.
I don't think those numbers are realistic and unfortunately these assumptions, which are not spelled out are how you are titling your post 19 million jobs.
Sorry Tony, I'm a math head, plus involved in real world projects and that's just not adding up.
When doing any sort of large construction, infrastructure types of projects, materials and heavy equipment, are going to be a huge portion of the total costs.
Then, beyond unskilled labor, for heavily skilled labor to engineers, I don't think $37k is anywhere near market value.
but what I do really like on this post is connecting just how much U.S. GDP is lost by ignoring crumbling infrastructure.
What you are quoting is 3.16% of GDP can be attributed to inefficiencies in national transport systems.
We need more of those types of numbers....because that makes sense to pour money into infrastructure projects. You can see the overall economic pay out by investing in America through public works projects.
We also need to verify those GDP projections.
I'll also note that much of the original infrastructure was done via the New Deal in the 1930's direct jobs programs as well as Eisenhower's highway projects (Eisenhower would be called a radical socialist in today's world).
Tariffs are ruled illegal by the WTO and are also a "sledge hammer" type of tool to rebalance trade. That's why a VAT is so attractive, it has the features of a surgeon's scalpel. It can be changed dynamically, daily and per individual item, not entire sectors as a tariff is.
I keep writing many times there are much better tools and policies available to balance trade. I don't know why people are still stuck on tariffs as the only option. It's not.
I'm all for infrastructure projects to be chosen for a direct jobs program as well as public works, but Tony, I think to present this idea one needs realistic numbers from real world large civil engineering types of projects. We have many to choose from so getting accurate estimates on total number of jobs created and overall costs should be out there already, or at least could be projected from recent past projects.
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