Category: Economics

Texas Fiscal Notes

We are lucky to live in a state that is urban and urbane, but still celebrates the rural traditions that make Texas what it is.
In this issue of Fiscal Notes, you will learn that hunting is big bucks to the state’s economy – $2.2 billion annually. And deer are the most popular quarry. But to me, deer hunting has a more personal connection.

When I was a young girl, Thanksgiving meant going to my grandparents’ East Texas farm near Magnolia. Early on Thanksgiving morning, the men would go hunting. Invariably, my grandfather would return with a deer, dressed and freezer-bound. To my child’s mind, deer hunting and the holiday were synonymous. I thought families everywhere were hunting!

I know better now. But it’s hard to live in Texas and not be touched by hunting. It is not just a sport for rural Texans. Six in 10 hunters live in urban areas. Eight percent are women. I didn’t grow up to be a hunter. I prefer to bait a hook and try my luck. But Texas is a better place because of our great outdoors and the hunting it affords.

Enjoy this issue and please share with others.
Delane Caesar
Director
Public Outreach & Strategies

Read Fiscal Notes.

Fans Pay Either Way for TV Blackouts

reports Richard Sandomir in the September 5, 2009, edition of the New York Times.  NFL Commissioner Roger Goodell refuses to back down from his position of not waiving the blackout policy for the people of Detroit where the unemployment rate approaches 30%.  Goodell is quoted as saying that the 36-year-old blackout policy has been very good for the game, for the fans, and for the teams.

But if enough people can’t afford the tickets, why penalize a team’s hometown fan base with the blackout hammer — making them drive 75 miles outside the market or searching for a pirated TV or Internet signal to catch the game?

Fool’s Gold

Journalist Gillian Tett warned about the problems in the financial industry long before many of her colleagues. In her new book, Fool’s Gold, Tett examines the role J.P. Morgan played in creating and marketing risky and complex financial products.  Interestingly, in her interview with Terry Gross on Fresh Air, Tett responded that her training as an anthropologist allowed her observe what the financial industry was not talking about.  This is how she spotted the problems in the derivatives market.  Listen to the interview here.

Banker Think

John Kozy, a frequent contributor to Global Research,  is a retired professor of philosophy and logic who blogs on social, political, and economic issues. After serving in the U.S. Army during the Korean War, he spent 20 years as a university professor and another 20 years working as a writer. He has published a textbook in formal logic commercially, in academic journals and a small number of commercial magazines, and has written a number of guest editorials for newspapers. His on-line pieces can be found on http://www.jkozy.com/ and he can be emailed from that site’s homepage.  His essay on bankers,   A Banker’s Economy, is disturbing in that it was published in August 2008, before most of the  worst news about our banks had been disclosed.

Biographical information from Global Research.

Stimulating the Economy: Tax Cuts or Public Works?

A landmark study done in 2002 and confirmed in 2008 by Civic Economics compared the local economic impact of shopping at two beloved Austin indie stores – Waterloo Records and BookPeople – to that of shopping at Borders. (At the time, the chain planned a new store across the street from the two stores.) The Liveable City study found that $100 spent at Borders had just $13 in local economic impact; the same expenditure at Waterloo and BookPeople yielded a $45 impact. (“Austin Unchained”, Austin Chronicle, 11/21/08).

Luis Uchitelle reports in the NYTimes that Obama  “speaks of a recovery that would generate 2.5 million jobs in the first two years of his administration. That would require not just zero economic growth, but a fairly robust expansion — a swing in effect from the present 4 percent contraction to a growth rate of 2.5 to 3 percent a year.  Achieving such a swing would mean adding nearly $1 trillion in annual output to the economy. ”

The trick is figuring out the proper combination of outright spending and lower taxes.  In public Senate Budget Committee hearings, Mark Zandi, chief economist at Moody’s Economy.Com,  said  that every $1 of direct spending for public works creates $1.50 or more of economic activity as those dollars are spent in local economies on household costs.    

This multiplier effect is missing when taxpayers receive a tax break because they may not spend the savings.  The stimulus payments issued this year failed to stop the contraction of the economy because some of the windfall was saved while some was spent on imported goods which does not add to the nation’s economic output.  

In dollars, this means that the government could spend “just” $750 billion on direct public works to achieve a $1 trillion rise in output while a stimulus devoted entirely to tax cuts would require the full $1 trillion.

My advice,  if you receive an additional stimulus tax cut, spend it in your local community on locally produced goods.

Failed Monsters of Mortgage Finance

AIG is back at the trough: US Throws New Lifeline to AIG

On October 7 the House Committee on Oversight and Government Reform held their second day of hearings on the financial crisis in Wall Street. The first day addressed Lehman Brothers, the second, AIG.  

Michael Sullivan, the fired executive of AIG, blamed mark to market accounting rules required under  FASB 157 for all of AIG troubles:  “No disaster as massive as the unforeseen and unprecedented financial market disruption that has occurred over the past year is the result of a simple or single cause. The world’s current economic challenges are obviously related to multiple actions by multiple parties. To assist the Committee, I would like to focus on one particular factor-the role played by one accounting rule applied to corporations.  

“The accounting rules require that certain assets be ‘marked to market.’ In other words, companies must declare the value of those assets, on a quarterly basis, at the price such assets could sell for on the market at that point in time. Companies must declare these values on their books even if they have no intention of, or immediate need to, sell the assets, and even if they have not realized any actual gain or actual loss. FAS 157, which was adopted relatively recently, set out specific guidelines as to how companies must determine the “market price” of certain categories of assets. However well FAS 157 operates under any reasonably foreseeable market conditions, in the unprecedented credit crisis which began in the summer of 2007, FAS 157 had, in my opinion, unintended consequences.  In a distressed market where assets cannot be readily sold, companies are forced to declare the value of those assets at fire-sale prices.”

One of the fundamentals of accounting and taxation is that fair market value is what a willing seller and a willing buyer will agree is the value of an asset.    If an asset can’t be sold, it means there are no willing buyers, and the asset has no value.  The difficulty with the “toxic assets” that companies want to offload onto the taxpayer is that there is no market so that it’s hard to determine a value.    

From the hearing transcripts: Congressman Christoper Shays (R, CT):  “Yesterday we sent a formal request to the Chairman  asking for a specific commitment to make the federal mortgage companies a priority in this hearing, not an after afterthought.   We can’t wait until Halloween to unmask these two failed monsters of mortgage finance.”

To read the complete hearings:  http://oversight.house.gov/story.asp?ID=2208.

The Emergency Economic Stabilization Act mandated a study of these Mark to Market Rules.  The study is to be performed by the Federal Reserve and Department of the Treasury.  The report is due January 9, 2009.

To listen to the first SEC hearings on this matter:  SEC Roundatable.

Physics does Economics

Mark Buchanan, a theoretical physicist, is the author, most recently, of “The Social Atom: Why the Rich Get Richer, Cheaters Get Caught and Your Neighbor Usually Looks Like You.”  He explains in the NYTimes how physicists are creating models to explain the markets.  He offers examples of three models one of which explores how a very small, such as .1%, transaction tax can actually stabilize some markets.  The tax slows down speculation, especially in foreign currency markets.

Perhaps “Numb3rs” can do a “ripped from the headlines” show.

“The Giant Pool of Money”

As reported in the Sept. 29 issue of the NY Times,  This American Life reported in May 2008 on the housing crisis.  This is their introductory text:

“A special program about the housing crisis produced in a special collaboration with NPR News.  We explain it all to you.  What does the housing crisis have to do with the turmoil on Wall Street?  Why did banks make half-million dollar loans to people without jobs or income?  And why is everyone talking so much about the 1930’s?  It all comes back to the Giant Pool of Money.”

Go listen.