The US decides if it can tax you based on where you incorporate your company. Ireland decides if it can tax you based on the location of the people managing the company. So if you incorporate a subsidiary in Ireland, and manage it from the US, you don’t (so far) have to pay taxes in either country. And that’s exactly what Apple has done, not filing a tax return for AOI anywhere in the world in the last five years.
One of the main ways the Fed stimulates the demand for goods and services is by giving the banks more money to lend through what are known as open market operations. But if this money simply piles up in banks as excess reserves instead of being used to make new loans to consumers and businesses, it won’t have any effect on the demand for goods and services and it won’t cause prices to rise.
Excess reserves are, in fact, piling up in banks –– from near zero before the recession to around $1.75 trillion today –– instead of flowing into the economy and offsetting the fall in demand from the recession. Because of this, demand is too low, unemployment is too high, and inflation has consistently been running below the Fed’s two percent target.
So here’s the question. Why hasn’t the Fed shown the same boldness and creativity in responding to the unemployment problem that it displayed when it needed to bail out financial institutions? When banks were in trouble, the Fed created a whole host of special facilities and pushed the rules to the limits. Some of the special facilities and polices worked out very well, others didn’t work at all, and some had unintended consequences. But the Fed was willing to take the necessary risks and that allowed it to come to the rescue of the financial system.
But now, when unemployment is the problem, the Fed seems unwilling to push the limits to the same degree. For example, the Fed could charge banks for holding excess reserves instead of paying them interest on those reserves as it does now. With such a penalty in place banks would have a much larger incentive to make loans, and some of the piled up reserves would leave banks and turn into new demand for goods and services. That’s just what the economy needs.
From Peter Levine:
The Burkean conservatism of the Democratic Party is not merely tactical, a way of staving off undesired change by playing defense. It has philosophical roots. On the center-left, after all, is where you encounter the strongest endorsements of indigenous cultures and traditions, of deference to community norms and assets. It’s also on the Democratic side where “sustainability” (i.e., preserving something that is) seems most attractive as a guiding principle, and where people are highly sensitive to fragility, unanticipated consequences, human arrogance. Conservation, preservation, and respect for tradition are in tension with the technocratic inclinations of the Party, but they represent a powerful current in center-left thought.
The most reflective and consistent recent American Burkean was Senator Daniel Patrick Moynihan. He opposed the War on Poverty in the 1960s because he thought it would destabilize communities and was based on arrogant abstractions dreamed up in academia. He then opposed the Reagan-era cuts in those programs on the same grounds. Another politician might have been blowing in the political winds, but Moynihan wrote rather extensively against both reforms on Burkean grounds. In the 1960s, he was marginal as a Democrat, excoriated by liberals and hired by Nixon. By the time he voted against Clinton’s welfare reform in 1996, he stood right at the heart of a now-Burkean party.
Advent of EITC means shifting anti-poverty funding away from poorest of the poor:
“For EITC, we’re spending $55 billion, whereas the government never spent more than $20 billion on TANF. It’s not right to say that we’ve retrenched our aid to the poor,” Schaefer said. “What’s true is that we’ve shifted a lot of the aid from the people at the very bottom to the people right at the poverty line.”
I recall back in the 1990s and the last decade when both Republican and Democratic economists wanted to invest Social Security funds in the stock market. (Democrats generally wanted to invest the fund collectively rather through individual accounts.) I tried to point out that both were assuming impossible rates of return given the fact that the stock market was at price to earnings ratios that were far higher than historic averages.
When this issue was highlighted in the debate over President Bush’s privatization plan (see the No Economist Left Behind test) Brad DeLong suggested that we do a paper on it for a Brookings conference. I didn’t think that this simple arithmetic could warrant a Brookings paper, even though the issue was hugely important. To get it in Brad (along with Paul Krugman) added a model of optimal consumption paths given a declining rate of labor force growth. While the model was fine, it had nothing to do with the basic issue that the stock market was over-valued at the time that people were thinking of investing workers’ Social Security money in it. The model did add sufficient complexity so that we got the Brookings crew to take the simple argument seriously.
The same story held during the housing bubble years. I had many people ask me why I didn’t publish anything in journals on the bubble in the years 2002-2007 when I was writing for CEPR’s website and popular publications. The reason is that it was too simple a story for any serious journal.
The basic story was that house prices had diverged sharply from their long-term trend and there was no plausible story rooted in the fundamentals of the housing market that could explain this divergence. While this was certainly compelling in my view, the American Economic Review is not going to publish an article that shows house prices just keeping pace with inflation for 100 years and then suddenly rising by 70 percent in real terms from 1996-2006. It would be necessary to somehow make the story complicated to get economists to take it seriously.
To my view this is the fundamental problem of economics. There is a need to find ways to make economic issues complex even when they can be explained by the simple economics that we teach in econ 101. This is not a pretty picture.
Today, with the future path of the new influenza still uncertain, Beijing faces conundrums similar to those it confronted after publicly admitting to SARS. May Day, one of China’s biggest travel holidays, is approaching. Travel restrictions might be warranted to prevent nationwide spread if the virus is now thought to be geographically confined, and if further evidence shows that people can act as carriers and transmitters of H7N9. But the economic and geopolitical consequences of clamping down on social mobility are profound, particularly now that China’s economic growth is slowing.
In 2003, Beijing warned the public to limit travel, but did not actually barricade the capital and set up health checkpoints in all of the nation’s train, bus, shipping, and air travel stations until it was too late. I watched tens of thousands of fearful migrant workers and students — impelled by rumors of forced quarantines targeting those without permanent Beijing residency papers — flee the capital by trains over the days between the April 20 admission and May Day holiday, taking the SARS virus to every region of the country. Having lost control of geographic spread, China had no choice but to assume the entire country was infected, and create an extraordinarily expensive, nationwide response. I witnessed construction of Xiaotangshan SARS Hospital, a 1,500-bed quarantine facility erected in only eight days, complete with isolation rooms, dedicated sewer and water filtration systems, negative air pressure flow, and state-of-the-art nursing stations. That astounding feat was repeated all over the country, with quarantine hospitals built in five to 10 days in every region. As I traveled around China by car, I was stopped roughly every 50 miles by police and subjected to thermometer checks. Any individual anywhere in the country that evidenced a fever was immediately placed in one of the newly erected quarantine facilities, and would remain there indefinitely — no visitors allowed. In Beijing, such fever stations were ubiquitous: Anybody with an abnormal temperature was immediately packed off to a military-run quarantine site or Ditan Hospital for Infectious Diseases, where even the doctors and nurses were on lockdown, forbidden to see their families for weeks. Knowing that the virus was spreading inside of hospitals, terrified physicians and nurses jumped out of windows and patients hid in their homes until May 15, when the central government declared it a high crime, punishable even by death, to hide or spread SARS cases.
That is how by July 5, 2003, China stopped SARS — with a nationwide find-the-fever campaign that could not possibly be executed in a country that places civil liberties above the rights of the state. I have often thought about the fever stations I encountered in the mountains of Shanxi, where coal truck drivers were compelled to submit to fever checks while people in bio-containment space suits sprayed antimicrobials all over their vehicles’ cabs. I’ve tried to imagine such fever stations positioned along America’s superhighways: Visions of angry drivers pulling shotguns on public health nurses and highway patrol officers always dance thru my head. Few countries could today manage a nationwide fever/quarantine campaign akin to China’s SARS effort.
Indeed, I’m not sure the China of 2013 could pull off the feat it executed in 2003. Thanks to Weibo, China’s equivalent of Twitter, and dozens of other Internet-posting possibilities, very little about this flu outbreak has remained secret for long. Any perceived violation of patients’ rights or individual dignity is getting a virtual shout-out. And though President Xi and top health officials have already noted that travel over May Day might be unwise, and Hong Kong has signaled anxiety about the pending tsunami of mainland visitors, possibly bringing H7N9 their way, it seems unimaginable that today’s government could close the perimeter of any major city, let alone Shanghai, the epicenter of H7N9, with population of some 23 million people.
One thing that experts know, and that non-experts do not, is that they know less than non-experts think they do. — Kaushik Basu
To me, the most interesting question is why it is so politically difficult to sustain appropriately accommodative monetary or fiscal policy. The demand for Reinhart-Rogoff results, rather than their supply, is the funny thing. Because it’s that which has the rich world stuck in its current mess, not some overzealous academics. — Ryan Avent
Dave Roberts on the potential of distributed energy:
Crane noted that natural gas prices have plunged in recent years. However, average citizens have seen very little benefit, because for the most part (excluding those who have natural gas heat), natural gas only reaches them through intermediaries — manufacturers and electrical generators — who pocket most of the extra value. Crane thinks natural gas should “disintermediate” and pipe directly into homes for microturbines. That way homeowners will harvest the savings of cheap natural gas and make themselves more independent from crappy grids. (Crane noted that there are 130 million wooden utility poles in the country; “the economy of the 21st century should not be based on wooden poles.”)
It would be cool to have a microturbine. Wonder how that would work with multi-family housing (ie apartment buildings).