Political Calculations
Unexpectedly Intriguing!
February 27, 2015

Perhaps the only thing cooler that the JPL's image of the dwarf planet Ceres taken by the Dawn probe....

Ceres - Source: http://www.jpl.nasa.gov/news/news.php?feature=4491

Would be if the folks at JPL had to finish Obi Wan Kenobi's "That's no moon..." quote.


It certainly beats seeing faces on Mars!

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February 26, 2015
States surrounding Wisconsin - Source: https://www.sba.gov/offices/regional/v

As econoblog readers, we follow Econbrowser pretty regularly, mainly for Jim Hamilton's insights, but recently, we've begun paying closer attention to the comments of his co-blogger, Menzie Chinn, who is an economics professor at the University of Wisconsin-Madison.

That's primarily because of the recent rise to prominence of Wisconsin state governor Scott Walker in 2016 presidential polling, whose performance in office Chinn has often criticized. Normally, we're entertained by Chinn's analysis, since it frequently involves comparisons of the job growth between Wisconsin and its western neighbor Minnesota since Walker was sworn into office in January 2011, which we find funny because of all the states surrounding Wisconsin, the composition of Wisconsin's economy is much less similar to Minnesota than it is to any of the states with which the state shares waterfront footage on Lake Michigan, which is something that one might think an economics professor at the University of Wisconsin-Madison would know.

Recently, Chinn has commented on two issues facing Wisconsin that are connected to each other: the state's reduction in tax collections following the implementation of Governor Walker's tax cuts in 2014 and also the Governor's proposed cuts in state funding supporting the University of Wisconsin, which follows from the state's reduced tax revenues.

Let's look first at Wisconsin's tax collections. Our first chart shows the rolling four quarter total we calculated for the state's tax collections as reported by the U.S. Census Bureau from 1995 through the end of the third quarter of 2014, which at this writing, is the most recent data available. We've annoted the chart to indicate periods of recession (the shaded vertical red bands) and also who was serving as the state's governor (in black text) and also the timing of when the state implemented major changes in its tax policies (in red text).

Rolling Four Quarter Total Wisconsin State Taxes Collected in Each Quarter, 1995-2014

As you might expect, we see that recessions are bad for tax collections, that tax collections tend to rise following tax rate hikes and tend to fall after tax rate cuts are implemented.

But changes in tax rates affect more than just state tax collections. They can also impact the relative performance of the state's economy, which can affect the growth rate of its GDP and its level of employment. Our next chart looks at the raw numbers for Wisconsin's state GDP through the fourth quarter of 2013 (the most recent data available from the U.S. Bureau of Economic Analysis).

Wisconsin State Gross Domestic Product (GDP) in Each Quarter, 1995-2014

Our next chart repeats that exercise for the trailing twelve month average of Wisconsin's total employment level for each quarter from 1995 through 2014 as reported by the U.S. Bureau of Labor Statistics.

Wisconsin Trailing Year Average Total Employment in Each Quarter, 1995-2014

In the employment chart, we've also indicated the trajectory that employment levels in Wisconsin was following after bottoming during the recession, for the period from 2010 through 2012.

One of the more interesting observations that Professor Chinn has provided is that Wisconsin's employment levels have lagged those of both the U.S. and Minnesota during the first years of Governor Walker's first term in office. Chinn however neglects to mention in his comments that Governor Walker faced extreme political opposition to his actions to resolve a massive budget deficit that he inherited from the state's previous governor, Jim Doyle.

Here, Doyle had imposed $2.2 billion of new taxes in his 2009-2011 biennial state budget, with $1.1 billion of that hitting in 2010 and the remaining $1.1 billion increase hitting taxpayers in 2011. A good portion of these taxes was expected to be used to sustain the increased spending benefiting Doyle's political supporters employed in the state's various government agencies and other institutions, such as the University of Wisconsin, which were set to receive a massive, but temporary inflow of funds from President Obama's 2009 economic stimulus program.

That extreme opposition even extended to a number of state senators representing the state's Democratic party, who fled the state rather than to allow votes on measures to restore fiscal balance to the state's government, which effectively shut down the state's legislature and preventing Governor Walker from implementing pro-economic growth measures.

After they did return and Walker was successful in breaking the power of the state's public employee unions, whose interests were being represented by the state senators who acted to flee the state rather than fulfill their responsibilities as elected legislators, they retaliated by forcing a recall election. Combined with the recall of a number of state senators in Walker's political party during the summer of 2011, the combination was enough to block Walker from being able to implement a significant portion of his pro-growth economic agenda during the period covered by Wisconsin's 2011-2013 biennial budget.

Until, that is, after the gubernatorial recall election in June 2012, which Governor Walker won. Following that victory, Walker began to make measurable progress in implementing his long-delayed economic reforms, with both economic growth rates and employment levels picking up considerably after June 2013, which is when Wisconsin's next biennial budget shaped according to Governor Walker's priorities went into effect.

You can see that happen in our next chart showing how the state's year-over-year GDP and employment growth rates have evolved since 1995.

Wisconsin State Employment and GDP Year Over Year Growth Rates, 1996-2014

Note that the trend for the state's economic growth tends to precede the trend for the state's employment growth. Note also that the long delay in improvement in the state's GDP and employment levels after Governor Walker's election were a direct consequence of the perverse success that the political opposition to Governor Walker had in obstructing the implementation of the Governor's pro-growth policies, where the interests of public employee unions and other left-wing interests were put ahead of those of regular Wisconsinites.

Now that we've established that the implementation of Governor Walker's preferred economic policies was greatly delayed as a result of the political shenanigans of his opposition, let's look next at a key measure of how the state's tax policies affect its most productive citizens - the average amount of taxes collected per employed Wisconsinite:

Wisconsin State Taxes Collected per Employed Person, 1995-2014

This chart confirms that Governor Walker's tax cuts, when adjusted to account for the effect of inflation, have only returned to the level they were during most of the term of the preceding governor, Jim Doyle. Or rather, the part of Governor Doyle's term before he succeeded in imposing that dramatic $2.2 billion worth of tax hikes in 2010 and 2011.

As we noted before, much of the money collected through those new, higher taxes went to benefit Governor Doyle's political supporters employed at various government agencies and at state-funded institutions, such as the University of Wisconsin-Madison, so we'll close on an interesting footnote.

In Fall 2009, the University of Wisconsin-Madison employed 2,017 faculty and 16,507 administrative staff. In Fall 2010, funded in part by Governor Doyle's new taxes and benefiting from President Obama's economic "stimulus", the number of faculty members increased by 10 to 2,027, while the number of administrative staff increased by 836 to 17,343. Since Fall 2011, of the 19,527 faculty, grad students and staff reported as being employed at the University of Wisconsin-Madison, where 2,200 are faculty and another 2,000 or so are grad student/teaching assistants, we can infer that the size of the university's administrative staff has increased to around 17,527, which represents an approximate 1,020 increase in the number of administrative staff since Fall 2009.

Coincidentally, Professor Chinn reports that the University of Wisconsin-Madison's Chancellor Becky Blanks has said that the Governor's proposed reduction in funding for the institution could require it to shed some 1,083 staff positions.

Well, that would be about right, wouldn't it? Just thought we'd take a quick moment to connect the appropriate dots....

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February 25, 2015

Aren't Hollywood actors supposed to be among the most ardent supporters of left wing causes?

And as members of organized labor unions going back for decades, aren't Hollywood actors supposed to be looking out for the interests of those among their ranks who are clearly being exploited for their talent for precious little pay?

So you would think that such ardent supporters of left wing causes and union members would stand in solidarity with their fellow actors to prevent them from having their talent exploited for precious little pay. But you would be wrong, because these same people also believe that hiking the minimum wage will not cost them their jobs, but could potentially shut down the theaters where they work.

An impassioned, two-hour, open-mike meeting about the future of Los Angeles County's small-theater community Saturday at the Renberg Theatre at the Los Angeles LGBT Center in Hollywood drew an overflow crowd of well over 200 theater folks.

With just one exception, the dozens of speakers, including a calmly emphatic Tim Robbins, were motivated by a deep fear of what a proposed higher wage might do to their artistic scene.

Actors' Equity, the national union for stage actors, is seriously considering imposing a $9 hourly minimum wage for its members when they perform or rehearse in L.A.'s small venues.

Robbins and the rest think $9 an hour is exorbitant and that actors should continue working on small stages for what they have been receiving for decades. The going rate is $7 to $15 per performance, depending on ticket prices and seating capacities. Rehearsals, which can consume scores of hours, pay nothing.

Most of the small theaters are nonprofit organizations that need donations to augment ticket sales in order to sustain what's typically a hand-to-mouth existence.

Robbins is the founder and artistic director of the Actors' Gang in Culver City, launched before his 1988 ascent to movie stardom in "Bull Durham."

He stepped to a microphone wearing a pale blue denim jacket and said it made no sense for union officers to expect small theaters to survive under the proposed new terms.

We predict that many of the same actors will soon be calling for new government-funded support for the arts. But then, the government has been funding the arts for decades through government entities like the National Endowment for the Arts, so its kind of difficult to see how that would be anything more than another poorly targeted welfare program. Especially since the NEA has never funded any work that might be considered to be a significant artistic achievement.

Don't believe us? Try to name one work they've funded from the last fifty years that greatly influenced the direction of any form of art in the United States off the top of your head, without turning to Google's search engine to try to dig one up. Then turn to Google and see what stands out to you as the most influential work funded by the National Endowment for the Arts that would be instantly appreciated as such by regular Americans.

Like any bureaucracy that really only looks out for its cronies, they've mainly done mostly wasteful things that, when they have succeeded in drawing an audience of the public, was usually the result of a controversy it needlessly provoked, mainly as a device to attract a public audience in the first place.

But no work of any enduring artistic impact. That's because the artists funded by these government programs neither needed the support of the community nor of commercial audiences. And it shows, because to have an enduring impact, they would have to connect with both.

That's what makes these "exploitative" small theater groups so important and worth preserving. To survive, they have to connect with their audiences and with the communities in which they operate. That's a cauldron that develops the kind of artistic development and subsequent achievement that can stand the test of time.

But that's also a kind of competition that those who are connected with the "right" people on the left don't want to face. Which is why, after so many decades, they're out to close it down. Never mind that everyone who participates in those theater groups volunteers to do it because of how they develop their artistic potential and because of the opportunities they provide to perform.

Even if it means doing two shows a day for $7 to $15 a performance and rehearsing for free!

WPA Two a Day Vaudeville Performance Poster - Source: http://www.loc.gov/pictures/resource/cph.3f05685/?co=wpapos

HT: Mish, who gave us the angle we needed to inspire us to talk about the motion picture business this eyar after we were so sorely disappointed by the reports of how lame the 2015's Academy Awards ceremony was. [Message to the Academy: Joan Rivers was the only one who made watching any portion of the "ceremonies" tolerable - it was a big, bad mistake to snub her among the posthumous recognitions!]

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February 24, 2015

Of all the things we never expected to find ourselves doing, providing policy guidance to the Federal Reserve is probably at the top of the list.

That's all the more unexpected because we've never had any contact with any official at any level of any branch of the U.S.' central banking institution.

NASA - Source: http://www.nasa.gov/centers/langley/news/researchernews/rn_HorowitzLeaderDog_prt.htm

And yet, if you listen to the things that a number of the Fed's most influential officials have been saying, you'll find our fingerprints all over them.

It all begins with some key observations and insights we've offered over the years. On that count, our having quantified how the action of investors collectively shifting their forward looking focus from one discrete point of time in the future to another point of time in the future can influence otherwise inexplicable changes in stock prices is likely our major contribution, followed by our observation that the Fed was using stock prices to assess the effectiveness of its monetary policies.

Those two things together allowed us to identify and quantify mistakes made by top Fed officials as they attempted to provide forward guidance to markets. And that, in turn, allowed us to describe how they could repair the damage and more effectively use forward guidance as a monetary policy tool by emphasizing the timing of when the Fed will implement changes using its more traditional arsenal of tools.

The Fed was listening. Now they're applying the lessons they've gleaned from our observations and suggestions.

Over the last several weeks, we've been observing, with increasing frequency, the statements of highly influential Fed officials who have gone out of their way to set the expectation that the Fed will begin hiking short term interest rates above its current 0-to-0.25% level by the end of the second quarter of 2015.

And we know that forward guidance has been effective because of the trajectory that U.S. stock prices has taken during these last several weeks, which becomes even more clear after our simple adjustments to account for the past volatility of U.S. stock prices, which we use as the base reference points from which we can otherwise project future stock prices within a relatively narrow range of noise.

Alternative Futures for S&P 500, 2015Q1 Likely Trajectories for Stock Prices When Investors Are Focused on Indicated Future Quarter

Provided, of course, that we know just how far investors are peering into the future when they make their investment decisions today, which is why we show each of the likely trajectories for investors focused on any of the next four quarters ending in the future. And that's where the Fed's forward guidance efforts come into play, because the Fed's outsized ability to affect interest rates can affect how far forward in time investors look from the present, which then tells us which future trajectory to follow. At least while investors aren't distracted by the alternative futures.

Guide Right Forward March - Source: http://www.loc.gov/resource/ihas.200211693.0/?sp=1

The way that works is that when the Fed says it is going to do something by the end of a certain time period, investors will adapt their investments to be consistent with the expectations for the investment returns that associated with that period of time in the future. We can then tell from the actual trajectory that stock prices follow how tightly investors have set their forward looking focus on the quarter that coincides with the anticipate action on the part of the Fed.

That's the way in which the Fed's forward guidance has been shaped and made more effective, even at the so-called lower zero bound, by our insights and what the Fed has absorbed from our guidance of how to better employ this tool. As long as the Fed's action is considered to be credible given the current state of economic affairs, the Fed can use the model we've developed of how stock prices work as a means of assessing the degree to which markets have bought in to the Fed's preferred policies.

Here, the greater the deviation from the projected trajectory associated with the future point of time to which the Fed has directed investors, the more statements or actions using the other tools the Fed has available to it will be needed to bolster the credibility of its preferred policy. If the gap can't be closed after all that, that provides the indication the Fed needs that it should pursue a different, and more credible, policy.

The best part? It doesn't matter if you've never heard of us or even believe any of what we've just described is possible. It is the way the world works, whether you like it, understand it, or not.

As for what good this does, if you happen to be an investor or just someone who needed more economic stability before you could justify proceeding with plans to expand your business or investments in today's world, you've benefited from the Fed's more effective implementation of its forward guidance policy. As for us and our role in providing guidance to the Fed in implementing those forward guidance policies since mid-2013, you're welcome.

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February 23, 2015

A lot of lower middle class Americans are just finding out that they will have to pay more income taxes for the 2014 tax year than they expected because they didn't or couldn't sign up for ObamaCare in late 2013 or early 2014.

But for people in that situation, they now have a very important question to answer: "Which do you suppose will cost you more - signing up for government-subsidized health insurance for this year or losing out on getting the Affordable Care Act's tax credit for having health insurance coverage when you file your income tax return next year?"

#getcovered - Source: http://www.whitehouse.gov/share/what-obamacare-means-you

We can help you answer that question! And as it happens, it's a very timely question that many people need to answer because there's going to be a special health insurance sign-up period for Americans who weren't aware that they were going to get hit with higher income taxes this year because President Obama's political network of community organizers and Healthcare.gov navigators have really dropped the ball on telling people whether they're at risk of getting hit with higher income taxes if they didn't enroll for health insurance last year. That special enrollment period will run from Sunday, 15 March 2015 through Thursday, 30 April 2015.

But here's the thing - depending upon how much your income is, for people who can reasonably expect to be healthy through the end of 2015 and not really need health insurance at all during the year, you can end up paying way more for your Obamacare health insurance coverage than what you might otherwise have to pay on your income taxes. It might actually make a lot more sense for you financially to not sign up for coverage now and to then reconsider your situation later this year when the health insurance signup period for 2016 begins on 1 November 2015.

And that's assuming that you don't consider the real and affordable alternatives to signing up for Obamacare's government-subsidized health insurance to be more attractive.

Let's talk about the numbers that you'll need to weigh your decision. First, you'll need to identify your annual income, which for many people, is something they can get from their income tax returns for 2014, which must be in the mail no later than Wednesday, 15 April 2015, so it's an easy number to get.

Next, you'll need to shop for the health insurance plan through your state's or the federal government's health insurance "marketplace", which will ask you to enter your annual income and will tell you how much your subsidized monthly premium (or rather, your monthly bill) for health insurance coverage will be for the option you select.

Then enter those numbers in the tool below. Our tool also asks you to indicate how many adults or children would be covered by the health insurance and to identify your state so we can sort out whether your income is low enough to qualify for health insurance coverage through the government's Medicaid program, which would mean you don't have to worry about having to pay higher income taxes.

It's that simple - we'll have some more discussion after our tool's results.

Your Household Data
Input Data Values
Year in Which Insurance Coverage Will Apply
Your Total Household Income, or Modified Adjusted Gross Income (If Known)
Number of Household Members
Number of Children in Household
Your State's Health Insurance Exchange Data
Select Your State (Select "United States" If Your Territory Isn't Listed)
Subsidized Monthly Premium for the Health Insurance Plan You're Considering Purchasing (This is the amount that Healthcare.gov or your state's health insurance exchange will indicate as your cost.)

Your Annual Health Insurance Results
Calculated Results Values
For Health Insurance (Premium Only, No Co-Pays or Deductibles)
For the Alternative Tax If You Don't Purchase Health Insurance (And Not Provided by Your Employer)
Potential Savings or Costs If You Choose to Pay the Tax Instead of the Premium
Your Potential Savings (or Costs, if Negative)
The Bottom Line

What we find for our default example, where a relatively low income earning single individual would only pay $99 per month for subsidized health insurance through the Obamacare exchanges, is that it makes much more sense for this individual to not buy the health insurance and pay their higher income tax bill instead.

But that won't be true for all individuals - there are times when it would make more sense, purely from a financial point of view with respect to the total amount of additional taxes and the annual cost of just the insurance premiums they might pay, where it would make more sense to buy the subsidized health insurance.

Warning: For those of you who do choose to sign up for Affordable Care Act subsidized health insurance, please be aware that if you earn more income in 2015 than the amount you indicated when you signed up for that coverage (such as if you get a raise or change to a higher paying job), the amount of your Obamacare tax credit will be considerably lower, which means that your income tax bill will be considerably higher when you file your taxes next year. So if you do make more money than that this year, make sure you have an additional amount of money to cover the cost of your higher income tax bill withheld from your paychecks in 2015.

If that's your situation, we have another tool to help you do the math for that too!

About This Tool

This tool is based on our more generic "ObamaCare: Should You Pay the Premium or the Tax?" tool, which is updated annually - this version specifically and only applies for the 2015 tax year.

Legal Disclaimer

Materials on this website are published by Political Calculations to provide visitors with free information and insights regarding the incentives created by the laws and policies described. However, this website is not designed for the purpose of providing legal, medical or financial advice to individuals. Visitors should not rely upon information on this website as a substitute for personal legal, medical or financial advice. While we make every effort to provide accurate website information, laws can change and inaccuracies happen despite our best efforts. If you have an individual problem, you should seek advice from a licensed professional in your state, i.e., by a competent authority (such as a licensed insurance broker, medical professional or legal services provider) with specialized knowledge who can apply it to the particular circumstances of your case.

Note that we didn't include "Healthcare.gov Navigator" or "community organizer" in the category of "competent authority".

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Materials on this website are published by Political Calculations to provide visitors with free information and insights regarding the incentives created by the laws and policies described. However, this website is not designed for the purpose of providing legal, medical or financial advice to individuals. Visitors should not rely upon information on this website as a substitute for personal legal, medical or financial advice. While we make every effort to provide accurate website information, laws can change and inaccuracies happen despite our best efforts. If you have an individual problem, you should seek advice from a licensed professional in your state, i.e., by a competent authority with specialized knowledge who can apply it to the particular circumstances of your case.