links for 2007-11-28

• The tax cut ratchet - Paul Krugman Blog
• Subprime Series, part 2: - Vox EU
• Trust and European capital market integration - Vox EU
• Unions and inequality redux - Bluematter
• Fresh Pain for the Uninsured - BusinessWeek
• Grim View of Iraq Dangers in Survey of Journalists - New York Times
• Freebies from Lobbyists (local - Oregon) - Capitol Notebook
• In Study of Brain Evolution, Zeal and Bitter Debate - New York Times
• The Dance of Evolution, or How Art Got Its Start - New York Times
• Blame US finance deficit, not China's yuan rate -- Shanghai Daily
• China Rejects Europe’s Call for Currency to Rise Faster - New York Times
• A Loss for Privacy Rights - New York Times
• A Slowdown in Jobs Lost, and Created - New York Times
• Social Security Again - The Washington Monthly

Comments

[Denis Drew]

I POSTED THIS REPLY TO ABOVE W/MONTHLY S.S. POST -- THINK IT FUNNY ENOUGH TO REPOST HERE:

Today, Social Security retirement costs 4% of GDP. By around 2050 that should grow to 6-7% of GDP and remain there ad infinitum -- at which point average income should have doubled.

IOW, if you make $50,000 a year, your equivalently employed grandchild should make $100,000 in 2050. You now pay 12.6% FICA (divided w/employer); your grandchild may have to pay 20% FICA (w/employer): leaving you with $44,000 to pay for everything else; leaving your grandchild with $80,000 to pay for everything else (adjusted for inflation -- which adjustment wont, for good reasons, even take into account 3DTV for the same $600 price tag). Sound like a monumental crisis?

Today, we use excess FICA inflow to pay for "government owned" bonds that go into a so-called "Trust Fund" which supposedly insures Social Security when today's (arbitrarily frozen-for-all-time?) FICA tax is no longer enough to cover the multiplying baby boomers -- on or around 2017. At which 2017 point we are to gradually raise the income tax -- instead -- to cash the otherwise meaningless Trust Fund bonds. Without such "advance planning" for our retirees futures we would be forced to raise the FICA tax a whole 1/10 of 1% a year -- as average income rises 1 1/2% a year -- an unexplained taboo.

Actually, in the vicinity of 2017, we wont be forced to raise the income tax to cash the bonds, after all -- we could, instead, run up the national debt by selling bonds to cash Trust fund bonds instead (only if politicians are less than responsible): raising the specter of our great-great-great-great grandchildren paying for the retirement benefits of their long-long dead grandparents.

Today we pay for on budget items (army, farm subsidies) through a combination of short falling income tax and excess FICA receipts. By 2047, or whenever the Trust Fund bonds run out, we will no longer pay out Social Security with a combination of excess income tax (or bond sales?) and short falling (25% short) FICA.

At which whenever point we are scheduled to begin paying for Social Security retirement exclusively through FICA (after a big one-jump increase) -- and begin paying for on budget items exclusively through income tax (after a proportionate cut). What a unique in all the world retirement system -- could only have been hacked out by some easily confused politicians.

[hari]

In a previous input, we discussed some of the problems of financial intergration within the EU and, how after the introduction of the Single Currency under the Maastricht Treaty, the constraints to financial markets intergration is still manifest and the process is significantly slow.

This research article confirms above observation. It makes the further point that trust and confidence is the majour constraint, particularly in southern regions (eg. Italy, Spain, Portugal and Greece).

Moreover, EU banking regulation within Germany took a lot of time and effort by the Commission to rationalize the state finance structures from early postwar period. Namely, the problem of the socalled "LanderBanks".

Inspite of the single market and introduction of the EURO, it'll still take a lot of trust and confidence to destroy or replace regional traditions/preferences in the southern regions, in particular.

In comparison to US internal financial market, the EU has a long way to go to develop transparency. This summary report by the researchers makes some valid conclusions.

[Winslow R.]

Finally a decent article on banking though I don't think his solution will solve the problem....

Why banking is an accident waiting to happen
Martin Wolf

Why does banking generate such turmoil, with the crisis over securitised lending the latest example? Why is the industry so profitable? Why are the people it employs so well paid? The answer to these three questions is the same: banking takes high risks. But the public sector subsidises this risk-taking. It does so because banks provide a utility. What the banks give in return, however, is gung-ho speculation.

Perhaps the most striking characteristic of the banking sector is its profitability. Between 1997 and 2006, for example, the median nominal return on equity of UK banks was 20 per cent. While high by international standards, this seems not to be exceptional. In 2006, returns on equity were about 20 per cent in Ireland, Spain and the Nordic countries. In the US they were a little over 12 per cent. Returns in Germany, France and Italy seem to have been close to US levels.

As Andrew Smithers of London-based Smithers & Co and Geoffrey Wood of the Cass Business School at the City University London note in a splendid report, from which I have taken these data, long-run real returns on equity in the US have been a little below 7 per cent.* Another study estimated the global real return on equity in the 20th century at close to 6 per cent.**

A starting assumption for a competitive economy is that returns on equity should be much the same across industries.

http://www.ft.com/cms/s/0/3da550e8-9d0e-11dc-af03-0000779fd2ac.html