Law Abiding Citizens



SBHEU - Singapore Business Houses Employees Union

BERSATU - Singapore Association of Trade Union

Found the above union member's badge at my parents' home belonging to my father. Brought back memories when i showed it to him. My father has been a law abiding citizen. First, of the British Empire, then of the Federation of Malaya and now of the Republic of Singapore. He provided for the family. Never smoke, never drink, besides the occasional 4D/TOTO bets, is not a gambling addict.

And yet, i cannot help but felt a sense of fear when i was deciding whether to put up the picture of this now defunct union badge onto my blog. You see, as a citizen of Singapore for forty years of my life, i am so conditioned to practise "self censorship".

I do not know what came over me today. But i think it started on that Thursday, i was at the bus terminal waiting for about half an hour, by then the queue had snaked well over the length of the railing and intrude onto the walkway and it seemed to threaten to invade the opposite bus queue. By the time i boarded the bus, all the seats were taken and so i proceeded to the rear. The last row of seats were fully occupied. There was a family comprising of a little girl and her parents. They had luggage, probably going home to Johor Bahru across the causeway. The family occupied a corner of the last row with the dad seated facing the aisle, a burly man. I thought it was rather considerate of him, because the family of three plus the bulky luggage only took three seats. The bag was "seated" in between the mom and pop whereas the little lass was seated awkwardly on the mom's lap as well as onto what was remaining of the corner seat. He could have given his family ample room by placing the luggage in front of him by the aisle, thereby taking up "standing space", or even better, took up four seats.

By this time, the "ground crew" ( i do not know what to call them) from the bus company were waving for the standing passengers to move to the rear so that more can come onboard. I complied. Trying to balance standing at the slightly slopped tail end of the bus, almost coming onto contact with the man's knees. I think i have done my best for the share holders of this bus company.

There was this man who was standing next to me, he was not so law abiding. Maybe he did not benefit from forty years of Singapore upbringing. Bring back memories of squeezing onto military three-tonners during national service days, the consequence of which could be dire if you did not comply. He ignored the instruction of the bus company employees. I do not know why, right there, i felt that i have never felt like this before. In the past, i would view this fellow with disdain. Inconsiderate behaviour. This time, to put it simply, i supported his action.

I do not have many friends but i dare say that all of them are law abiding citizens as far as i know. Those very close ones were from my secondary and polytechnic school days. I know of three law abiding citizens of Singapore as my very good friends.

Law abiding friend #01

A friend from my Polytechnic school days. Technically inclined and liked to dabble in computer software, the goto guy for my "FORTRAN programming" tutorials. A project leader, worked hard and got distinction for the final year project.

National Service: Army, Service Support ( down-graded due to an episode of spontaneous pneumothorax)

After NS found work in the manufacturing sector in the area of software testing function. Worked and studied part-time in the National University of Singapore, obtained an engineering bachalor's degree. He would go back to the office to conduct conference call with his overseas counterpart in the wee hours. Tight project date-lines were a given during those boom times. Non-smoker, non-drinker. Remain single till today.

Age: 41 years old

Status: Retrenched.

Law abiding friend #02

Also a fellow class mate at the polytechnic. A talent for art. Did okay for his results.

National Service: Combat, Artillery

First job worked for a while with a hard disk manufacturing plant. Through good fortune found work in a field of his forte - Technical Illustration ! He poured himself into the work. With cumulative experienced in technical illustration for 15 years ( 7 years in the first company subsequently moving to the next and rose to senior position) Was dispatched to Tokyo for a couple of years for work assignment. Worked day and night and on weekends. Projects, dead line, projects, dead line ...

The last two years he suffered hypertension and was down for a period due to kidney stones. Non-smoker, and yes, dispite going to Japan, he remained a non-drinker. Single.

Age: 40 years old

Status: Retrenched.

He paid for his dad's Prostate cancer treatment through his Medisave (the father was a taxi-driver) whom had since pass on. Now, he is paying for his mom's diabetes, glucoma treatment and medication...

Currently undergoing "retraining" in the field of horticulture and landscaping. I hate to see him waste his talent to spend the remaining rest of his life as a landscaping labourer. Hope he can take up the mouse again maybe as a landscaping artist. But he express reservations, with his carpal tunnel condition, he dreaded working with the mouse again, i think only professionals in their field would understand. Has been taking up yoga and Tai-Chi (for the later, he wanted to make sure the mom get some exercise and that is why he is doing it and bringing her along)

Law abiding friend #03

A secondary school friend whom we still meet up during Chinese New Year class gathering. Went to a diferent polytechnic.

National Service: Combat, Navy

After NS, found work in the manufacturing sector, also a computer nut. Put himself through part-time studies finally obtaining a bachelor's degree in computer science. Married with three kids. After moving away from manufacturing found work in the IT sector. Initially was for a permanent position, then later worked on a contract basis, moving from site to site till now...non-smoker, non-drinker.

Age: 40 years old

Status: Express worry that this time round his contract will not be renewed.

31 December 2010

With money you can do many things ...

TodayOnline: Was villager killed deliberately?

Photographs of suspicious death ignite fury in China after going viral on the Internet

BEIJING - The photographs are so graphic that they appear cartoonish at first glance: A man crushed under the tyre of a truck, his head detached from his flattened spinal cord.

The pictures of Mr Qian Yunhui, 53, have gone viral in China, with hundreds of thousands of people viewing the images online since the weekend. And they accuse officials of gruesomely killing Mr Qian to silence his six-year campaign to protect fellow villagers in a land dispute.

Illegal land seizures by officials are common in China but the horrific photographs of Mr Qian's death on Saturday have ignited widespread fury. It is the latest in a string of cases in which anger against the government has been fanned by the lightning-fast spread of the Internet.

Officials in the city of Yueqing in Zhejiang province, which supervises Mr Qian's home village, insist that the photographs show nothing more than an unfortunate traffic accident, making their case in a hastily-arranged news conference on Monday.

Mr Qian's family, some Chinese reporters and residents of Zhaiqiao Village cite the photographs as proof of foul play and a sloppy cover-up.

In 2004, the city government approved construction of a power plant in Zhaiqiao Village. The company building the plant got virtually all the arable land in the village and the 4,000 or so villagers received no compensation, according to a blog post written four months ago under Mr Qian's name.

At the time, Mr Qian and other villagers went to government offices to protest against the land grab. Riot police officers beat more than 130 people and arrested 72.

Mr Qian, the former Communist Party representative in the village, travelled to Beijing to file a petition with the central authorities. In the news conference on Monday, city officials said that Mr Qian had been arrested, found guilty of criminal conduct and imprisoned at least twice.

Mr Qian continued his crusade after recently being released from prison. According to local media reports, he was the overwhelming favourite of the villagers in a coming election for village chief before his death.

IT WAS MURDER, WITNESS CLAIMS

Around 8.30am on Saturday, Mr Qian received a call on his mobile phone and walked out as he was talking, his wife Wang Zhaoyan was quoted as saying.

An hour later, he was run over by the truck, his body crushed beneath the left front tyre. The driver has been detained, according to the Yueqing city government.

Chinese news reports said another villager, Mr Qian Chengwei, told people that he had watched the victim being held down on the road by several men wearing security uniforms. One of the men then waved his hand and a truck drove slowly over Mr Qian.

Villagers arriving at the scene were immediately suspicious. They refused to allow the police to remove Mr Qian's body and a scuffle ensued.

Government officials told the Guangdong-based newspaper Southern Daily that the witness was a drug user. The paper also reported that the witness and the victim's family members were detained, though subsequent reports say Mr Qian's family members have been released.

Internet users and Chinese reporters have continued to question the explanation by city officials, pointing to discrepancies revealed by the photos. Why does the front of the truck show little sign of impact or blood? Why, if Mr Qian had been accidentally hit while walking upright, is his body lying completely perpendicular to the truck's tyre? Why was a brand-new security camera at the intersection where he died not working on Saturday? Who called Mr Qian that fateful morning?

"A few years ago, there were other people petitioning with my dad," family member Qian Shuangping told China Business Daily. "Some of them were bought off. Some of them got scared. We said, 'Just take some money and forget it. What if something happens to you?' My father wouldn't listen to us." The New York Times

... and that includes murder.

30 December 2010

Chuiew Kong Lum Pah Song

TodayOnline: America's political class struggle comes to a head

With their backs against the wall, working-class and poor Americans will begin to agitate for social justice

by Jeffrey D Sachs

(Jeffrey D Sachs is Professor of Economics and Director of the Earth Institute at Columbia University. He is also Special Adviser to the United Nations Secretary-General on the Millennium Development Goals. This commentary is exclusive to Today in Singapore.)

 

America is on a collision course with itself.

This month's deal between President Barack Obama and the Republicans in Congress to extend the tax cuts initiated a decade ago by President George W Bush is being hailed as the start of a new bipartisan consensus. I believe, instead, that it is a false truce in what will become a pitched battle for the soul of American politics.

As in many countries, conflicts over public morality and national strategy come down to questions of money. In the United States, this is truer than ever. The US is running an annual Budget deficit of around US$1 trillion ($1.3 trillion), which may widen further as a result of the new tax agreement. This level of annual borrowing is far too high for comfort. It must be cut, but how?

The problem is America's corrupted politics and loss of civic morality. One political party, the Republicans, stands for little except tax cuts, which they place above any other goal. The Democrats have a bit wider set of interests, including support for health care, education, training, and infrastructure. But, like the Republicans, the Democrats, too, are keen to shower tax cuts on their major campaign contributors, predominantly rich Americans.

The result is a dangerous paradox. The Budget deficit is enormous and unsustainable. The poor are squeezed by cuts in social programmes and a weak job market. One in eight Americans depends on Food Stamps to eat. Yet, despite these circumstances, one political party wants to gut tax revenues altogether, and the other is easily dragged along, against its better instincts, out of concern for keeping its rich contributors happy.

This tax-cutting frenzy comes, incredibly, after three decades of elite fiscal rule in the US that has favoured the rich and powerful. Since Ronald Reagan became President in 1981, America's Budget system has been geared to supporting the accumulation of vast wealth at the top of the income distribution.

Amazingly, the richest 1 per cent of American households now has a higher net worth than the bottom 90 per cent. The annual income of the richest 12,000 households is greater than that of the poorest 24 million households.

The Republican Party's real game is to try to lock that income and wealth advantage into place. They fear, rightly, that sooner or later everyone else will begin demanding that the Budget deficit be closed in part by raising taxes on the rich. After all, the rich are living better than ever, while the rest of American society is suffering. It makes sense to tax them more.

The Republicans are out to prevent that by any means. This month, they succeeded, at least for now. But they want to follow up their tactical victory - which postpones the restoration of pre-Bush tax rates for a couple of years - with a longer-term victory next spring. Their leaders in Congress are already declaring that they will slash public spending in order to begin reducing the deficit.

Ironically, there is one area in which large Budget cuts are certainly warranted: The military. But that is the one item most Republicans won't touch. They want to slash the Budget not by ending the useless war in Afghanistan, and by eliminating unnecessary weapons systems, but by cutting education, health, and other benefits for the poor and working class.

CORRUPTION IS STAGGERING

In the end, I don't think they will succeed.

For the moment, most Americans seem to be going along with Republican arguments that it is better to close the Budget deficit through spending cuts rather than tax increases. Yet when the actual Budget proposals are made, there will be a growing backlash. With their backs against the wall, I predict, poor and working-class Americans will begin to agitate for social justice.

This may take time. The level of political corruption in America is staggering. Everything now is about money to run electoral campaigns, which have become incredibly expensive. The mid-term elections cost an estimated US$4.5 billion, with most of the contributions coming from big corporations and rich contributors. These powerful forces, many of which operate anonymously under US law, are working relentlessly to defend those at the top of the income distribution.

But make no mistake: Both parties are implicated. There is already talk that Mr Obama will raise US$1 billion or more for his re-election campaign. That sum will not come from the poor.

The problem for the rich is that, other than military spending, there is no place to cut the Budget other than in areas of core support for the poor and working class. Is America really going to cut health benefits and retirement income?

Will it really balance the Budget by slashing education spending at a time when US students already are being out-performed by their Asian counterparts? Will America really let its public infrastructure continue to deteriorate?

The rich will try to push such an agenda but ultimately they will fail.

Mr Obama swept to power on the promise of change. So far there has been none. His administration is filled with Wall Street bankers. His top officials leave to join the banks, as his Budget Director Peter Orszag recently did. He is always ready to serve the interests of the rich and powerful, with no line in the sand, no limit to "compromise".

If this continues, a third party will emerge, committed to cleaning up American politics and restoring a measure of decency and fairness. This, too, will take time. The political system is deeply skewed against challenges to the two incumbent parties.

Yet the time for change will come. The Republicans believe that they have the upper hand and can pervert the system further in favour of the rich. I believe that they will be proved wrong. Project Syndicate

Saying just, to satisfy your testicles

 

30 December 2010

It is set in motion ...

Earnings drop for 2nd consecutive quarter

By Leong Sze Hian for TOC

I refer to the Ministry of Manpower’s (MOM) Labour Market Third Quarter 2010 Report. Earnings Average (Mean) Monthly Nominal Earnings Singapore $ Per Employee, has continued to fall from $4,310 to $3,819 and $3,754, for the 1st, 2nd and 3rd Qtrs, respectively.

With the economy booming and expected to be the fastest growing in the world at 15 per cent GDP growth, and media reports reporting that the job market is bursting at the seams, why has earnings continued to fall for the second consecutive quarter?

Since we are talking about Average (Mean) Earnings, what is the median earnings?

Normally, as in the past, media earnings may be lower than mean earnings?

So, although the annual growth rate was 5.4 per cent, with inflation hitting 3.8 per cent in November, which is the highest since January 2009, (“S’pore’s inflation hits highest level since Jan 2009”, Channel News Asia, Dec 23), we may yet end the year, with a third consecutive year of negative real median wage increase.

Unemployment

Mature residents aged 40 & over continued to form the largest group of resident job seekers (24,000 or 45%). As to long-term unemployment, the majority (67%) of them were mature residents age 40 & over.

For Residents Made Redundant, the occupational group, Professionals, Managers, Executives & Technicians (PMETS) formed the largest group, at 51.7 per cent.

By educational attainment, those with a degree, formed the largest group, at 29.9 per cent.

By age group, age 40 & over formed the largest group, at 51.8 per cent.

Sinced the data on residents made redundant pertain to private sector establishments each with at least 25 employees and the public sector, the number made redundant may be more if we include private sector establishments with less than 25 employees.

The number of workers placed on short-week or temporary lay-off rose to 410 in the third quarter, from 290 in the second quarter.

Similarly, the above excludes less than 25 employee establishments.

Re-employment

For re-employment, the improvement over the quarter was for all groups, except for residents with diploma or other professional qualifications whose re-employment rate declined from 64% to 60%.

Business outlook

The business outlook has softened. For example, a smaller net weighted balance of 3% of manufacturers expect improvement in the next six months, down from 18% in the quarter’s survey.

In summary, the above statistics may indicate that perhaps things are not as rosy as most media reports have portrayed, particularly for older and more educated residents on a relative basis.

29 December 2010

Rewriting History

Krugman: Invincible Ignorance

So Republican members of the Financial Crisis Inquiry Commission are going to issue their own report, placing primary blame on the government — because it’s always the government’s fault.

And according to reporting at the Huffington Post, all four Republicans voted in favor of banning the phrases “Wall Street” and “shadow banking” and the words “interconnection” and “deregulation” from the panel’s final report, according to a person familiar with the matter and confirmed by Brooksley E. Born, one of the six commissioners who voted against the proposal.

Yep. It was all Fannie and Freddie, which somehow managed to cause housing bubbles in Ireland, Iceland, Latvia, and Spain as well as the United States; and the repo market had nothing to do with it.

And bear in mind that this wasn’t one Republican; it was all of them.

I really do wonder how this country can remain governable, when one party insists on creating its own reality. Next thing you know they’re going to reject the theory of evolution. Oh, wait …

Orwell and the Financial Crisis

"... The same thing happened with Social Security privatization. There was a long effort by conservative groups to promote privatization, a term they themselves devised. ... But then, when it turned out that the term polled badly, they began rewriting old records in an attempt to cover up the fact that they had ever talked about it. ..."

"... The right has always understood that the perceptions game is a long game, that you have to rewrite history on a sustained basis to shape the assumptions that govern politics. Work at it steadily, and you have even a liberal Democratic president believing that Social Security only covered widows and orphans at first, that Medicare started small, and that the Clinton-era productivity boom began under Reagan... So of course they’re working hard, right now, to expunge deregulation and shadow banking from the story of the 2008 crisis."

17 December 2010

Will Global Warming submerge the whole of Singapore ?

Who cares ...

S$1,000,000 - 78 SqM, HDB 2 Bed- Room Flat ( 99 year lease ) ?

Unsustainable Policy : HDB

By Goh Meng Seng

Minister Mah Bow Tan has continued to claim that HDB flats are "affordable" despite of the 30 years mortgage. He has however, made a few interesting points today.

First he asserts that due to land scarce, in order to have a "SUSTAINABLE" housing policy, the present HDB policy should continue. Secondly, he has somewhat RETRACTED from his earlier position that it is ok to have high HDB prices because we could "monetize" aka sell our flats for retirement. He now says that we may not need to sell our flats and downgrade for retirement.

I have explained why selling flat for retirement is NOT A WORKABLE and SUSTAINABLE OPTION at all.

Before I talk about why this scheme of "selling flat for retirement" is not sustainable in the long run, I would like to address the basic fundamentals of why such HIGH HDB PRICES under the guise of "asset enhancement" is the deliberate policy direction of PAP government.

High Property Prices to solve Aging Population Problems

Since early 1980s, PAP has suddenly realized that their aggressive "TWO IS ENOUGH" policy is flawed and it would create unprecedented acceleration of aging population. By doing a demographic projection, it would mean that the CPF scheme may not be sustainable in providing adequate retirement financing for this aging population.

The burden of providing retirement financing lies on the government to give constant returns to CPF account holders. If less and less people are going to work in the work force while more and more people are going to withdraw their CPF money, it will create cashflow pressures on CPF. i.e. CPF will have to liquidate its assets to repay the CPF holders while earning lesser returns from a smaller asset pool. This problem will aggravate in time to come. This is also part of the reasons why CPF withdrawal age keep postponing.

The brilliant idea of maintaining high HDB flat price comes about to solve a lot of these problems derived from aging population. The following are the reasoning:

1) If people have less savings in CPF, the government won't be burden by interest payment to the account holders. i.e. the government will wash its hands off from retirement financing of an aging population.

2) How or who will finance the future retirees then? A 30 year mortgage plan will DEFINITELY force Singaporeans to sell their flats for retirement! This is basically because their CPF accounts will have very little amount of funds left! By allowing HDB prices to increase, these future retirees could well "withdraw" their "retirement funds" by selling off their HDB flats at high prices! This would solve their retirement financing!

Impact of HDB flat for Retirement Financing

Such simplistic thinking will have a few impacts. All of these impacts are unfavorable to Singaporeans but very favorable to the Government.

1) The Government could benefit from selling HDB flats at high prices to citizens and they no longer need to fork out money for any subsidies. All so call subsidies are basically on paper accounting, market subsidies.

2) The first adjustment is to raise land prices. HDB, on paper is in deficit because it has to buy land from SLA (both under Ministry of Development) at market prices. Please note that SLA has become the biggest land owner in Singapore with monopoly power to determine prices.

3) All proceeds from Land Sales go directly into the reserves and that is why our reserves grow at rapid rate since 1980s.

4) The government earns interests, instead of paying interests, from making loans to HDB buyers. This also means that Singaporeans are paying higher HDB prices using almost all their CPF monies and burden by higher mortgage interests.

5) The prices of HDB flats MUST increase substantially over time in order for this scheme to be sustainable. If not, the whole system will collapse.

Implications

What are the implications?

Apparently, the government benefited the most from such scheme! It relinquishes its responsibility of providing retirement financing for an aging population basically transferring this burden to the future generations in terms of HIGHER HDB PRICES. MAKE PROFITS from these higher HDB prices which transferred into reserves which make them good i.e. they have been boasting how good they are because they have accumulated so much reserves. On top of that, make money from interests collected from HDB buyers!

What they government gain will be what the citizens will lose. This is a very simple logic. HDB is the MONOPOLY of the new HDB flat market and it is also the lender who earns interests from all outstanding loans.

This scheme will impact on both present HDB owners who bought their flats at high prices which end up with 30 year mortgage. They will most probably be FORCED to sell their HDB flats when they want to retire. The future generations will have to suffer higher HDB prices because this is intended, so that the present generation could generate enough funds for their retirement needs!

Unsustainable

This model is NOT sustainable in the long run. The reason is pretty clear. In order to preserve the purchasing power of the amount of money Singaporeans have put into their HDB flats, the future price of their flats has to increase tremendously to cover the interest cost as well as inflation throughout the 30 years period.

However the wages of the working class normally grow at the rate just enough to cover inflation. That is why we are witnessing this impact of wages lagging behind HDB price growth for the past two decades. From the following graph prepared by Lucky Tan.

 

From 1990 to 2009, wage doubled while HDB prices grow by FOUR folds! This correspond to the increase in the mortgage payment period from 15 years to 30 years! In time to come, our future generations may have to pay for a 40years or even 50 years mortgage for just a decent HDB flat!

Is this sustainable?

Nobody can guarantee property prices to grow forever at such rapid rate. With an aging population, less youngsters will demand for MORE supply due to more elders trying to sell their flats. This will have downward pressure on relative prices.

There are CONFLICTING policy objectives. On one hand, in order for the scheme of utilizing high HDB prices as a means for retirement financing, we need HDB prices to outstrip wage growth but in order to maintain "AFFORDABILITY" for all generations, we need to maintain the price increase according to wage growth! How could these CONFLICTING policy targets be met simultaneously?

This is really an ill-thought out HDB-retirement scheme by the PAP government. This scheme benefits only the present government by alleviating its burden to provide for the retirement funding needs for the citizens while benefiting from all the higher HDB prices and interests earned from loans to HDB owners. This is in the expense of Singaporeans both present and future.

Almost all present Ministers will not be around in 30 years time to take responsibility for the effects of their policies. It is important for Singaporeans to understand the great implications of this HDB-retirement scheme upon our present generations as well as future generations.

I have come to this realization of this scheme ever since PAP started to embark the so call "Asset Enhancement Scheme" back in early 1990s. I have written a number of articles in protest of this scheme but many Singaporeans were overwhelmed by the immediate gain of paper capital gains. There were even Singaporeans trying to capitalize on the sudden increase in their flat value by upgrading or multiple upgradings. In the whole process, they committed higher and higher debts.

The latest report has indicated Singapore's housing debt has constituted more than 51% of total loans from our financial loans! This is even higher than Hong Kong's 20%! We will be doomed if there is a property crash! The whole financial system will be burden with unperforming loans!

An economy cannot invest too much of its financial resources in assets like properties which are not "productive" for the economy. If the property sector takes up too much of financial resources of the economy, we will not be able to have enough resources to finance investments by our local entrepreneurs. It will also means that the financial sector will be over-exposed to a potential bubble which will wipe off our wealth when it burst.

Experiences from Japan, Ireland and even US have shown that over-exposure of the financial sector to the bubble prone property sector will destroy the economy. Japan has hardly recover from its collapse of economy due to property bubble since 1990s!

It is up to every Singaporeans to judge on whether what I write here make any sense. It is easy to sell greed to the masses but it will create non-reversal damage to our future generations. It is not easy to convince people that high property prices are BAD for them. I have waited this long for the opportune time to explain what I have learned throughout these years. I urge every readers who agree with my views to help me to spread this message to your friends and relatives.

This unsustainable and potentially damaging HDB-retirement scheme must be stopped and ceased else our future generations will suffer in vain for our inaction.

-----------------------------------------------------------------------

From Web Blog - Singapore Notes

Gambling With Your House

... the NKF definition of subsidy, as exposed by the KPMG investigation team:

6.11.1 The NKF reported in its Investment Report 2004 that it enabled its patients to save in excess of $3.5 million in treatment costs by providing subisdies for costly medication and by bringing down drug prices.

6.11.2 We found that the amount of such savings was derived from the difference between the prices charged by NKF and a notional market price of drugs based on estimated annual consumption in 2004 instead of the difference between the prices charged by the NKF and the actual prices of drugs paid by the NKF. These savings were reflected in invoices given to patients.

6.11.4 As mentioned above, the market price was a notional market price determined by the NKF. The NKF, being a substantial and significant purchased, enjoyed subsidies and rebates from its drug suppliers. Instead of passing these costs savings to its kidney patients, we found that the NKF charged its patients a premium for certain drugs.

11 December 2010

There are just too few of you in this world ...

A Plea ...

20 November 2010

Death and Taxes - USA

Paul Krugman

Unserious People

OK, let’s say goodbye to the deficit commission. If you’re sincerely worried about the US fiscal future — and there’s good reason to be — you don’t propose a plan that involves large cuts in income taxes. Even if those cuts are offset by supposed elimination of tax breaks elsewhere, balancing the budget is hard enough without giving out a lot of goodies — goodies that fairly obviously, even without having the details, would go largely to the very affluent.

I mean, what’s this about? There is no — zero — evidence that income taxes at current rates are an important drag on growth.

Oh, and they’re talking about raising the retirement age, because people live longer — except that the people who really depend on Social Security, those in the bottom half of the distribution, aren’t living much longer. So you’re going to tell janitors to work until they’re 70 because lawyers are living longer than ever.

Still, I guess this is what it takes to get compromise, if by compromise you mean something the center-right and the hard right can agree on.

Update: It’s here. And it really is that bad. The idea that co-chairs of a commission whose charge is fiscal sustainability should take it upon themselves to (a) declare that federal revenue must not exceed 21 percent of GDP — that’s right, putting a cap on receipts and (b) call for reducing the top rate from 35 to 23 is just awesome.

Income And Life Expectancy

I’ve referenced this before, but here’s the Social Security Administration study. Look at Table 4: since 1977, the life expectancy of male workers retiring at age 65 has risen 6 years in the top half of the income distribution, but only 1.3 years in the bottom half.

11 Nov 2010

Middle Class - Chinese

Todayonline - The heir apparent and China's middle class

By Peter Foster
The writer is The Daily Telegraph's China Correspondent. He moved to Beijing in 2009.

From behind the walls of a faceless government building in west Beijing came the news this week that China's mandarins have identified the man who will, in all probability, lead their country after 2012.

It was delivered through a typically obfuscatory communique from the official Xinhua news agency, which said the individual in question had been promoted to a job on the commission that oversees China's armed forces. By such signals do we come to know the identity of the man who will take the helm of the world's second-largest economy.

Mr Xi Jinping, a 57-year-old technocrat with degrees in chemical engineering and law, also happens to be the son of one of China's revolutionary leaders: A "princeling".

What he stands for is far more difficult to divine. Some say he's an economic reformer, or at least presume so since Mr Xi made his name pushing through economic development in the coastal provinces in the 1990s. His success may have something to do with that revolutionary lineage - his father Xi Zhongxun was a communist guerrilla fighter who was purged during the Cultural Revolution, but rehabilitated under Mr Deng Xiaoping.

Perhaps, say the rune readers, this makes Mr Xi the son more liberal-minded when it comes to political reform. Equally, say others, having suffered during the Cultural Revolution himself, Mr Xi is burdened with that same deep fear of political chaos that has made China's top leadership so resistant to change.

The truth is that nobody knows: There has been no manifesto, no hustings, no televised cross-examination, just the coded announcement that Mr Xi will become the leader of an organisation and a country that plays its cards disconcertingly close to its chest.

Perhaps it is a mistake to try and decipher the man. Like the current President, Mr Hu Jintao, he is almost anti-charismatic, a deliberately faceless embodiment of the consensus that rules China. (His wife, a folk singer popular with the over-50s, is far better known.)

Understandably, after the madness of the Mao years, big personalities are no longer welcome in Chinese politics; instead Mr Xi stands at the apex of a labyrinthine network of committees set up to inch China forward, step by step, towards a socialist nirvana with Chinese characteristics.

And therein lies the problem: While China's rulers are dealing in increments - "crossing the river by feeling the stones", as Mr Deng put it - the country they govern is plunging into the turbulent waters of the future.

When Mr Hu stepped out of the shadow of Mr Jiang Zemin in 2003, China had 190? million mobile phones. Today, it has over 800?million. Only 50?million were online; today, it is 420?million. During the same period, China's share of global GDP doubled to 8 per cent, and by 2019 - the mid-point of Mr Xi's putative reign - China could account for nearly 15 per cent.

Such momentous material advances are changing the social fabric of China at a far greater pace than the ruling party is adapting to meet the people's expectations. China's middle classes increasingly want to know why they can't afford to buy a house or why their children can't find jobs after graduation, just as its millions of migrant working classes want to know why, when they live and work in a city, they don't have the right to send their children to school there.

Increasingly, China's individuals think they know their rights and are prepared to defend them against rent-seeking officials, bullying commercial interests that cover up their mistakes and damage public health, and bent policemen and courts that put the interests of the party over the constitutional rights they pledged to uphold.

It is this changing reality that Mr Liu Xiaobo, the Nobel Peace laureate, was reflecting when he wrote Charter 08, a document that offered a blueprint for gradual reforms that would bring basic rights and freedoms - of expression, association, religion and property ownership - within the grasp of ordinary Chinese.

Those demands are arguably the natural consequence of the economic and social development that the party has engineered. But whenever faced with pressure to take the next step, China's leaders have suffered from a 20-year attack of political vertigo, of which Mr Liu's 11-year jail sentence is but the latest expression. As Mr Sun Liping, a sociology professor who was Mr Xi's PhD supervisor, has written in an essay much read on the Chinese Internet, the result of this has been "social decay" - which has its origins in the uncontrollable power of the party that Mr Xi looks set to lead.

"The system of government in China will change. It will change in Korea, Taiwan, Vietnam. It is changing in Singapore. But it will not end up like the American or British or French or German systems. What are we all seeking? A form of government that will be comfortable, because it meets our needs, is not oppressive, and maximises our opportunities. And whether you have one-man-one-vote, or some-men-one-vote or othermen-two-votes, those are forms which should be worked out. I'm not intellectually convinced that one-man-one-vote is the best. We practise it because that's what the British bequeathed us ... "- Lee Kuan Yew

For the foreseeable future, the centre holds; but the tension created by political paralysis, by the ruling party's refusal to submit to checks and balances, to explain itself and even argue its case to a society increasingly expecting explanations, is not going to abate.

The world can only hope that out of its secret huddles and conclaves, the party has found a leader in Mr Xi with the ability to manage the consequences.

THE DAILY TELEGRAPH

21 October 2010

Free Flow II

Paul Krugman - Rare and Foolish

Comments:

Bill Pieper

Taiwan
October 18th, 2010
12:13 pm

While the behavior of the PRC government may well be despicable, one almost has to admire how they consistently school western “barbarian” nation, especially the oafish Americans, at nearly every turn. This time they might have overreached, but so what. They have gotten what they want and can sit back while the US officials wring their hands, desperate not to upset their mighty corporate pay masters with a response deemed too harsh. The hand wringers will of course be fully supported by an army of allied ideological warriors from DC think tanks, universities, federal regulatory sleeper cells and elected/selected members of Congress on both sides of the aisle.

The Chinese are masters of two classic strategic and tactical policies used in concert and with complimentary effects. One is divide and conquer, that is, pitting nations which should be naturally allied against the PRC to instead quarrel with one another. This is frequently accomplished by pitting the US exporters and financiers against their European counterparts for example. The other is to exploit an opponent’s weakness, using it as a weapon. In the case of United States, the weakness would be the American slavery to an ideology of “free” trade and unrestricted capital flow; an ideology that provides a near perfect cover for unfettered greed on the part of the nation’s political and financial class. In a hyper-financialized oligarchy such as the US, this fanatic devotion to ideology has benefited a handful of players enormously, while contributing greatly to the ongoing decimation of the middle class.

After the epidemic of tainted products from China, toys poisoning children, toxic drywall, pet food, bad baby formula (presumably none of which reached American shores) etc., etc., a responsible government would have simply imposed a flat out ban of any product that can be consumed, worn or used to build homes until the Chinese government can demonstrate that it has the ability and the will to police its own manufacturing industries. If the US had a government that cared about its people and actively worked in their long term interests, such a ban would have been in place years ago. As far as I can tell it would be perfectly legal within the framework of WTO and other international trade agreements to do so, since public safety interests trump trade deals. In fact, I imagine that if the shoe were on the other foot and US companies had routinely shipped tainted and dangerous products to the Chinese, the PRC would have stepped in and halted such trade until the US can prove it is a responsible trading partner.

The REE debacle illustrates an alarming trend that has been going on for decades. The loss of REE processing resources will take years to replace, so even if mining commences tomorrow, the ore cannot be processed until the plant and expertise is in place. But it is not just rare earths that should concern Americans. When a nation loses its ability to create things, even non-strategic industries will decline over time because there is a lot to learn by making stuff.

Even when products are produced using high level design, creation and engineering talent located in the US, many innovations in process and design are taking place in the locations that actually manufacture the products. The US is losing the “culture” of manufacturing, a culture that contributes to improvements of the products being produced. In addition to this, there is an enormous amount of technological transfer and outright theft of intellectual property from western companies going on, especially in China where western companies are forced to partner with local operations to produce at least some components. These local partners will flat out steal patented technology, even highly sensitive defense related technology, all while being protected by political allies in the PRC. The western companies go along with these risks and costs because they either feel they have no choice in order to remain competitive, or they are eyeing the alluring and thus far illusive carrot of a billion person market. Some companies are finding out too late that it has simply not been worth the cost. But the C-level managers who made the decisions to go to China in the first place - as well as their eager financier partners - have long since made their millions and care not a bit about the costs to their home countries and fellow countrymen.

Paul Cohen

Hartford, CT
October 18th, 2010
12:34 pm

Paul,

There are already too many conflicts around the world that could embroil everyone. We are fighting two endless wars to protect our access to oil, without which, our mighty military machine would collapse. Now you want to escalate tensions with China because they won’t share their rare-earth materials? Let’s throw in Panda Bears. And hey, they have the Great Wall for tourism too. We need to end our colonial foreign policy, not extend it. The greed and selfishness (the ever escalating concentration of wealth flowing to the top) of Corporate executives is the reason we export jobs to exploit cheap labor. If there were a more equitable distribution of wealth in this country, Americans could support demand without having to cut jobs and the opportunity for amassing wealth would still flourish. I’m a bit surprised at the hawkish tone of this piece.

19 October 2010

Middle Class

President Obama on Small Business Jobs & Tax Cuts: "We Don't Have Time for Any More Games"

Posted by Jesse Lee on September 15, 2010 at 06:05 PM EDT

Having just emerged from a Cabinet meeting focused on getting every agency doing all they can to help America create jobs, the President zeroed in on two major fights for the middle class.

The first was the long-overdue breaking of the Republican blockade against help for small business -- for which he thanked the two Republican Senators who stepped up and abandoned their party's parliamentary gimmicks. The second was the ongoing attempt by Republicans in Congress to hold middle class tax cuts hostage to additional, excessive tax cuts for the very wealthiest Americans.

And while I am grateful for this progress, it should not have taken this long to pass this bill. At a time when small business owners are still struggling to make payroll and they’re still holding off hiring, we put together a plan that would give them some tax relief and make it easier for them to take out loans. It’s a bill that’s paid for. It won’t add a dime to the deficit. It’s a bill that was written by both Democrats and Republicans.

Right now, we could decide to extend tax relief for the middle class. Right now, we could decide that every American household would receive a tax cut on the first $250,000 of their income.

But once again, the leaders across the aisle are saying no. They want to hold these middle-class tax cuts hostage until they get an additional tax cut for the wealthiest 2 percent of Americans.

We simply can’t afford that. It would mean borrowing $700 billion in order to fund these tax cuts for the very wealthiest Americans -- $700 billion to give a tax cut worth an average of $100,000 to millionaires and billionaires. And it’s a tax cut economists say would do little to add momentum to our economy.

Now, I just don’t believe this makes any sense. Even as we debate whether it’s wise to spend $700 billion on tax breaks for the wealthy, doesn’t it make sense for us to move forward with the tax cuts that we all agree on? We should be able to extend right now middle-class tax relief on the first $250,000 of income -- which, by the way, 97 percent of Americans make less than $250,000 a year. So right off the bat, 97 percent of all Americans would get tax relief on all their income. People who are making more than $250,000 a year, say, you’re making half a million dollars, you’d still get tax relief on half your income.

And everybody agrees that this makes sense. Middle-class families need this relief. These are the Americans who saw their wages and incomes flat-line over the last decade, who’ve seen the costs of everything from health care to college tuition skyrocket and who have been hardest hit by this recession.

Extending these tax cuts is right. It is just. It will help our economy because middle-class folks are the folks who are most likely to actually spend this tax relief -- for a new computer for the kids or for maybe some home improvement.

And if the other party continues to hold these tax cuts hostage, these are the same families who will suffer the most when their taxes go up next year. And if we can’t get an agreement with Republicans, that's what will happen.

So we don't have time for any more games. I understand there’s an election coming up. But the American people didn't send us here to just think about our jobs; they sent us here to think about theirs. They sent us here to think about their lives and their children’s lives, and to be responsible, and to be serious about the challenges we face as a nation.

That's what members of both parties have now done with the small business jobs bill. And I hope we can work together to do the same thing on middle-class tax relief in the weeks to come.

25 September 2010

NEW WORLD ORDER

18 August 2010

Putting Singapore’s GDP in perspective

By Furry Brown Dog

Supporters of the ruling party and status quo are fond of citing Singapore’s GDP per capita, one of the highest in the world as evidence that its government has done well. Measuring economic success by GDP has many disadvantages as various other netizens have elaborated. I don’t intend to add to those, but in this post I will endeavour to show how this metric is flawed even without disputing that GXP (where ‘X’ refers to any of various national income accounting measures) measures the economic well-being a country’s people.

In 1959, when the PAP first took power in Singapore, Singapore’s GDP per capita (US$2186) in constant 1990 USD (hence adjusted for inflation and PPP) was second only to Hong Kong’s (US$3027) and Japan (US$3554) in East Asia. In this respect, Singapore was already ahead of all the countries in East Asia including China and Taiwan, and South Korea. This did not change when Singapore split from Malaysia in 1965, GDP per capita at US$2667 was highest in the region excluding Hong Kong (US$4825) and Japan (US$5934). These figures are a far cry from the nominal US$500 GDP per capita in 1959 often cited by PAP supporters which ignores both PPP and inflation adjustment. Fast forward to 2008, Singapore’s GDP per capita has overtaken Japan (which was mired for a decade and has yet to recover) but still trails Hong Kong.

Secondly, it is misleading to use GDP per capita when comparing between countries because Singapore only comprises of a single city whereas larger nations have rural areas and smaller towns. A fairer standard of measurement would instead be between cities rather than countries adjusted for purchasing power. This gives rise to the measurement of gross metropolitan product (GMP) per capita , PPP. This measurement compares between cities and towns instead of between countries where the relative poverty of rural inhabitants would distort the measure of GDP per capita. Because PPP involves a routine measurement of a country’s consumer price levels, data is much harder to come by compared to nominal GDP.

The latest data I could find dates back to 2005. Singapore’s GMP per capita PPP when measured against other cities worldwide ranks only at 53rd out of 100 (many other cities above belong to the same country), whilst not a bad showing is far from its spectacular perch of 9th ranking if one considers ranking by country only. This is certainly nothing to crow about.

Lastly, GDP (per capita) suffers from the fatal flaw as a economic indicator because it does not subtract profits earned in Singapore but which is remitted back to foreign shareholders and foreign investors. It also ignores incomes sent back by Singaporean corporations overseas. A more appropriate measure would be gross national product (GNP), which measures national income and profits held by Singaporean firms and residents (citizens + PRs) only. The latest figures for 2009, show that Singapore’s GNP for that year was S$182.536 bn, compared to its GDP of S$265.057bn. In other words, total income and profits for 2009 earned by Singapore residents and firms is only a mere 69% of GDP; the remaining 31% is repatriated overseas.

How does this compare to other countries? Expressing GNP as a proportion of GDP and ranking all the countries worldwide shows that Singapore is ranked only at 32nd place (figures appear to be dated 2007):

If you’re wondering how impoverished countries like Seychelles and Djibouti could rank above Singapore, remember we’re not talking about GDP or GNP (per capita) here as an absolute measure, but instead GNP as fraction of GDP. Such a metric is a loose way of determining how much of economic growth is generated by local employees and firms, while netting out foreign contributions. Singapore doesn’t appear to fare particularly well in this category, which likely reflects its over-dependence on foreign-owned corporations (MNCs) and the lack of a strong local economy and comparatively minor contributions to national income of Singapore firms which have ventured overseas.

Update 7th Aug: A commenter named Jason pointed out that the numbers seem off because it only lists 3 countries worldwide as having greater GNI than GDP, which doesn’t make sense since total world GNI and GDP should theoretically equate. So I went to look for another more reliable source and settled on World Bank figures here. More specifically I used GNI Atlas and GDP current US$.

Using data for both GNI and GDP for the year of 2007, and excluding countries for which no GDP and/or GNI figures are provided (for 2007), Singapore ranks about 138th place out of 183 countries worldwide for GNI/GDP:

Here’s the raw data which I used for those who want to see the full ranking. So while the earlier data is off, my conclusion doesn’t change, since Singapore’s ranking according to World Bank figures is even worse.

PS. The GNI data from the World Bank uses a special Atlas method which smoothens out exchange rate fluctuations and inflation over a few years, whilst the GDP figures are stated in USD terms for the exchange rate of a single year. This may account for some of the discrepancies observed. So like many things in economics, it serves as a reasonable first approximation, but certainly far from ideal. Cross-country comparisons are difficult, I’ll grant you that.

07 August 2010

By Alex Au

Domestic costs drive inflation, not import prices

For a long time, the Monetary Authority of Singapore (MAS), our central bank, has used the management of the Singapore dollar exchange rate as the chief tool to influence inflation locally. It argues that since Singapore’s economy is so open to external trade, inflation tends to come in via rises in prices of imported goods. By shifting our exchange rate up or down, MAS compensates for changes in import prices, thus moderating inflation.

An economist from the National University of Singapore says this is less than half the story. His conclusion is that managing the exchange rate is not good enough for the task.

In an article published in the Straits Times, 29 July 2010 (headlined: Rising Sing$ may not keep prices low), Tilak Abeysinghe dealt with the question: Why are consumer prices rising while the Singapore dollar is appreciating and import prices are falling?

His answer opened with these words:

" From 2006 till last year, consumer prices rose by 3.1 per cent annually while import prices fell by 2.3 per cent. Last year alone, import prices fell by a hefty 8 per cent, while consumer prices went up by 0.6 per cent. The general trend of import prices since 1981 has been downwards and consumer prices upwards. Given Singapore’s extreme dependence on imports, this has puzzled some.

My co-researcher Choy Keen Meng and I examined this puzzle and found, somewhat unexpectedly, that non-tradeables account for 55 per cent of Singapore’s consumer price inflation, while import prices account for the rest. "

Further down, he explained what he meant by non-tradeables. These include labour costs, rental and storage costs, government fees and charges and so on, he explained.

What he is saying therefore is that even as we manage to enjoy lower import prices through the deliberate strengthening of the Singapore dollar, this is more than wiped out by increasing domestic cost elements such as salaries, rents and payments to the government. The result is that we still continue to suffer inflation.

So why not strengthen the dollar some more until it balances out domestic cost increases? There’s a limit to how far the dollar can strengthen; at some point, it will severely affect our export competitiveness.

Abeysinghe was too polite to discuss the far-reaching implications of his findings, especially on policy, but they are not hard to see.

Firstly, the long-standing belief that inflation is mainly the result of external price movements may have blinded our policy-makers to the true impact of domestic cost pressures. Has our government been raising fees and charges, and pushing up land prices in the mistaken belief that these do not have much impact on inflation?

Secondly, if salaries are another domestic cost component that has been pushing up prices of goods and services in Singapore, this begs another question: whose salaries? In 2009 when we faced a worldwide recession and Singapore’s GDP contracted an inflation-adjusted 1.3 percent, the median household incomes of all sectors (by housing type) fell. However, those living in more modest homes suffered the greatest contraction in income. Here are data from a paper titled Key Household Income Trends 2009, from our Statistics Department.

What you see in the table is part of a much longer trend wherein the income gap widens year after year. There is a tendency for salaries to increase more for those already earning more, or in the case of 2009, to decrease less when bad times hit. But salary-rises feed into overall inflation, and inflation affects the poorer segments of society disproportionately. This is because they spend a larger portion of their income. The rich save a substantial part of their income, putting it into interest-bearing or dividend-producing assets.

Then there is the huge influence that the government has over land prices. They impose massive redevelopment charges when an owner wishes to redevelop a piece of land for more intensive use while empty parcels of land are not auctioned off until a minimum bid price is reached. This minimum bid price appears to be quite arbitrarily set. Between them, the ever-rising cost of land results in rents going up inexorably, cyclical downturns excepted.

In turn, land for public housing are then revalued to catch up with notional “market” values (which as explained in the preceding paragraph are heavily affected by government action), and the selling prices of flats marked up accordingly.

In other words, the government’s failure to act effectively on inflation hurts the less well-off particularly hard. The belief that tackling inflation is a job that can be left to the MAS managing the exchange rate is misplaced. There are plenty of domestic cost pressures, many related to government policies, that have a greater effect.

03 August 2010

Regressive Taxation and Fiscal policy

Martin Wolf:

The political genius of supply-side economics

July 25, 2010

The future of fiscal policy was intensely debated in the FT last week. In this Exchange, I want to examine what is going on in the US and, in particular, what is going on inside the Republican party. This matters for the US and, because the US remains the world’s most important economy, it also matters greatly for the world.

My reading of contemporary Republican thinking is that there is no chance of any attempt to arrest adverse long-term fiscal trends should they return to power. Moreover, since the Republicans have no interest in doing anything sensible, the Democrats will gain nothing from trying to do much either. That is the lesson Democrats have to draw from the Clinton era’s successful frugality, which merely gave George W. Bush the opportunity to make massive (irresponsible and unsustainable) tax cuts. In practice, then, nothing will be done.

Indeed, nothing may be done even if a genuine fiscal crisis were to emerge. According to my friend, Bruce Bartlett, a highly informed, if jaundiced, observer, some “conservatives” (in truth, extreme radicals) think a federal default would be an effective way to bring public spending they detest under control. It should be noted, in passing, that a federal default would surely create the biggest financial crisis in world economic history.

To understand modern Republican thinking on fiscal policy, we need to go back to perhaps the most politically brilliant (albeit economically unconvincing) idea in the history of fiscal policy: “supply-side economics”. Supply-side economics liberated conservatives from any need to insist on fiscal rectitude and balanced budgets. Supply-side economics said that one could cut taxes and balance budgets, because incentive effects would generate new activity and so higher revenue.

The political genius of this idea is evident. Supply-side economics transformed Republicans from a minority party into a majority party. It allowed them to promise lower taxes, lower deficits and, in effect, unchanged spending. Why should people not like this combination? Who does not like a free lunch?

How did supply-side economics bring these benefits? First, it allowed conservatives to ignore deficits. They could argue that, whatever the impact of the tax cuts in the short run, they would bring the budget back into balance, in the longer run. Second, the theory gave an economic justification – the argument from incentives - for lowering taxes on politically important supporters. Finally, if deficits did not, in fact, disappear, conservatives could fall back on the “starve the beast” theory: deficits would create a fiscal crisis that would force the government to cut spending and even destroy the hated welfare state.

In this way, the Republicans were transformed from a balanced-budget party to a tax-cutting party. This innovative stance proved highly politically effective, consistently putting the Democrats at a political disadvantage. It also made the Republicans de facto Keynesians in a de facto Keynesian nation. Whatever the rhetoric, I have long considered the US the advanced world’s most Keynesian nation – the one in which government (including the Federal Reserve) is most expected to generate healthy demand at all times, largely because jobs are, in the US, the only safety net for those of working age.

True, the theory that cuts would pay for themselves has proved altogether wrong. That this might well be the case was evident: cutting tax rates from, say, 30 per cent to zero would unambiguously reduce revenue to zero. This is not to argue there were no incentive effects. But they were not large enough to offset the fiscal impact of the cuts (see, on this, Wikipedia and a nice chart from Paul Krugman).

Indeed, Greg Mankiw, no less, chairman of the Council of Economic Advisers under George W. Bush, has responded to the view that broad-based tax cuts would pay for themselves, as follows: “I did not find such a claim credible, based on the available evidence. I never have, and I still don’t.” Indeed, he has referred to those who believe this as “charlatans and cranks”. Those are his words, not mine, though I agree. They apply, in force, to contemporary Republicans, alas,

Since the fiscal theory of supply-side economics did not work, the tax-cutting eras of Ronald Reagan and George H. Bush and again of George W. Bush saw very substantial rises in ratios of federal debt to gross domestic product. Under Reagan and the first Bush, the ratio of public debt to GDP went from 33 per cent to 64 per cent. It fell to 57 per cent under Bill Clinton. It then rose to 69 per cent under the second George Bush. Equally, tax cuts in the era of George W. Bush, wars and the economic crisis account for almost all the dire fiscal outlook for the next ten years (see the Center on Budget and Policy Priorities).

Today’s extremely high deficits are also an inheritance from Bush-era tax-and-spending policies and the financial crisis, also, of course, inherited by the present administration. Thus, according to the International Monetary Fund, the impact of discretionary stimulus on the US fiscal deficit amounts to a cumulative total of 4.7 per cent of GDP in 2009 and 2010, while the cumulative deficit over these years is forecast at 23.5 per cent of GDP. In any case, the stimulus was certainly too small, not too large.

The evidence shows, then, that contemporary conservatives (unlike those of old) simply do not think deficits matter, as former vice-president Richard Cheney is reported to have told former treasury secretary Paul O’Neill. But this is not because the supply-side theory of self-financing tax cuts, on which Reagan era tax cuts were justified, has worked, but despite the fact it has not. The faith has outlived its economic (though not its political) rationale.

So, when Republicans assail the deficits under President Obama, are they to be taken seriously? Yes and no. Yes, they are politically interested in blaming Mr Obama for deficits, since all is viewed fair in love and partisan politics. And yes, they are, indeed, rhetorically opposed to deficits created by extra spending (although that did not prevent them from enacting the unfunded prescription drug benefit, under President Bush). But no, it is not deficits themselves that worry Republicans, but rather how they are caused: deficits caused by tax cuts are fine; but spending increases brought in by Democrats are diabolical, unless on the military.

Indeed, this is precisely what Jon Kyl (Arizona), a senior Republican senator, has just said:

“[Y]ou should never raise taxes in order to cut taxes. Surely Congress has the authority, and it would be right to — if we decide we want to cut taxes to spur the economy, not to have to raise taxes in order to offset those costs. You do need to offset the cost of increased spending, and that’s what Republicans object to. But you should never have to offset the cost of a deliberate decision to reduce tax rates on Americans”

What conclusions should outsiders draw about the likely future of US fiscal policy?

First, if Republicans win the mid-terms in November, as seems likely, they are surely going to come up with huge tax cut proposals (probably well beyond extending the already unaffordable Bush-era tax cuts).

Second, the White House will probably veto these cuts, making itself even more politically unpopular.

Third, some additional fiscal stimulus is, in fact, what the US needs, in the short term, even though across-the-board tax cuts are an extremely inefficient way of providing it.

Fourth, the Republican proposals would not, alas, be short term, but dangerously long term, in their impact.

Finally, with one party indifferent to deficits, provided they are brought about by tax cuts, and the other party relatively fiscally responsible (well, everything is relative, after all), but opposed to spending cuts on core programmes, US fiscal policy is paralysed. I may think the policies of the UK government dangerously austere, but at least it can act.

This is extraordinarily dangerous. The danger does not arise from the fiscal deficits of today, but the attitudes to fiscal policy, over the long run, of one of the two main parties. Those radical conservatives (a small minority, I hope) who want to destroy the credit of the US federal government may succeed. If so, that would be the end of the US era of global dominance. The destruction of fiscal credibility could be the outcome of the policies of the party that considers itself the most patriotic.

In sum, a great deal of trouble lies ahead, for the US and the world.

Where am I wrong, if at all?

02 August 2010