Last week, 72 New York State Assemblymen sent a letter to Assembly Speaker Sheldon Silver urging him to support a public financing program for primary, general, and special election campaigns for statewide offices. Such a program would match modest contributions with public funds, which allow small contributors to have a larger impact and brings more donors into the political process. As New York legislators consider adopting a public financing system, a new report from Demos shows the positive impact public financing has had in Connecticut.
Carmen Reinhart and Kenneth Rogoff wrote a wildly influential book four years ago called This Time Is Different.* The thesis of the book is that when a government has a debt-to-GDP ratio above 90 percent, it is terrible for economic growth. The authors also followed up with a couple of papers arguing the same thing. Pro-austerity forces here and elsewhere in the world have seized upon the book to push their favored policies.
Three developments in finance cropped up in the last days that must be read as a single story.
First, Blankfein, Dimon, and the rest of the Wall Street bigwigs visited the White House to meet with the president and his team. That team consisted of Denis McDonough (Chief of Staff); Valerie Jarrett (Senior Adviser); Cecilia Munoz (Domestic Policy Adviser); Gene Sperling (National Economic Council Director); and Alan Krueger, (Chairman, Council of Economic Advisers). The meeting was secret, but we can deduce much from its attendance.
For accounting purposes, it makes sense to count programs like Social Security, disability insurance, and Temporary Assistance for Needy Families as government spending. But these kinds of programs are not really government spending because the government does not actually direct how the money is spent. Unlike building a road, for instance, where the government decides that a road should be built and then pays to make it happen, cash benefit programs involve the government distributing money to people and allowing them to decide where to spend it.
One of my pet peeves about the coverage surrounding the plight of young people in America is that it focuses heavily, and at times exclusively, on how well recent college graduates are doing. Why people focus on this is a mystery to me. I suspect it is because the chattering classes are almost all college graduates, as are their friends. To them, being a recent college graduate is simply what it means to be a young person in the labor market.
I recently published an article in response to a study of high-frequency trading (“HFT”) by Professor Charles M. Jones of Columbia Business School and an opinion piece he published simultaneously in Politico. My article focused on the funding of the research by Citadel LLP, a major HFT user. It also pointed out broad concerns about the study, which asserts that computer-based algorithmic trading provides substantial net value to the economy.
It's no secret that wealthy people have a lot more clout when it comes to politics and civic life. They are more likely to vote, contact their representatives, belong to advocacy organizations, and—of course—contribute to politicians, parties, and PACs. Compared to ordinary folks, many of the wealthy are "super citizens."
More controversial, though, is whether these disparaties pervert our democracy—or whether it's no big deal to have super citizens wielding what Demos has called "million dollar megaphones."
Last week, Professor Charles M. Jones, a noted economist at Columbia, published an opinion piece in POLITICO claiming to enlighten readers on the realities of high-frequency trading (or “HFT”), computer driven trading at millisecond speeds driven by complex algorithms based on complex trading strategies. This has surfaced as the subject of politically charged debate in the context of of a proposed financial transaction tax that would, among other things, curb the most excessive forms of HFT.
It’s not getting better. That’s the key finding of a new survey of low-wage workers out yesterday from the Associated Press and NORC Center for Public Affairs Research at the University of Chicago. Eighty-one percent of low-wage employees surveyed said their family’s financial situation was the same or worse than it had been four years ago, while 64 percent reported that their wages have been stagnant or declined over the past five years. The survey queried 1,606 workers earning $35,000 or less annually.
With over twenty million Americans still unable to find full-time work, Washington shouldn't take its eye off job creation for a minute. That's certainly the feeling of voters, who overwhelmingly told exit pollsters on Election Day last November that fixing the economy should be Congress's number one priority—far more than said reducing the deficit.
Frankly, though, official Washington seems better at destroying jobs these days than creating them: Exhibit A are the sequestration cuts, which are eliminating jobs as I write this. Exhibit B is the rollback of the payroll tax holiday on January 1, which ensured that nearly every working American has been living with a pay cut for the past ten weeks.
Last night, the Senate Permanent Subcommittee on Investigations released a searing 300-page report on JP Morgan Chase’s London Whale episode. The bank lost at least $6.2 billion through trading credit derivatives in a business unit tasked with reducing firm-wide risk, the Chief Investment Office. (The trading activity is called the “Synthetic Credit Portfolio” or “SCP.”) There is much to digest in the report. Hearings are to commence today.
When a crew that calls themselves the "Systemic Risk Council" speaks, it's a good idea to pay attention. After all, the last time people pooh-poohed deep-seated problems within the financial system, trillions of dollars vanished into thin air and millions of people were thrown out of work.