Robert Reich's Economic Goofiness

Robert Reich is back at it, praising the President's budget for raising taxes on the most productive members of society and transferring the proceeds to those who work hard but nonetheless produce less. Here is an excerpt from Reich's praise, offered on February 26:

"It's about time a presidential budget uneqivocally redistributed income from the very rich to the middle class and poor. The incomes of the top 1 percent have soared for thirty years while median wages have slowed or declined in real terms. As economists Thomas Piketty and Emanuel Saez have shown, in the 1970s the top-earning 1 percent of Americans took home 8 percent of total income; as recently as 1980 they took home 9 percent. After that, total income became more and more concentrated at the top. By 2007, the top 1 percent took home over 22 percent. Meanwhile, even as their incomes dramatically increased, the total federal tax rates paid by the top 1 percent dropped. According to the Congressional Budget Office, the top 1 percent paid a total federal tax rate of 37 percent three decades ago; now it's paying 31 percent.

Fairness is at stake but so is the economy as a whole. This Mini Depression is partly the result of a widening gap between what Americans can afford to buy and what Americans when fully employed can produce. And that gap is in no small measure due to the widening gap in incomes, since the rich don't devote nearly as large a portion of their incomes to buying things than middle and lower-income people. The rich, after all, already have most of what they want."  (emphasis added)

Let's think for a moment about the highlighted language. Reich tells us that we are in a "mini-Depression." Really? Our unemployment rate is less than 8 percent. How is that a "mini-Depression?" Are Italy and Germany, which always seem to have rates above 8 percent, in a constant state of (mini) Depression? If they are, should we really be adopting economic policies along the lines of the high tax and high regulation models of these countries ?  Hmmmmm.

What, though, about Reich's diagnosis of the cause of the current economic contraction, which he attributes to "the widening gap between what Americans can afford to buy and what Americans when fully employed can produce." This gap, he says, is the result of "the widening gap in incomes, since the rich don't devote nearly as large a portion of their incomes to buying things than [sic] lower income people." The remedy, then, is to raise taxes on the rich and ship the money to the non-rich, thereby narrowing the gap between what (some) Americans want and what they can afford to buy.

This is, for lack of a better word, goofy. It is certainly true, as I have pointed out earlier, that many Americans are consuming or trying to consume more than they produce. Indeed, here is what I said on January 29th of this year.

"When economic historians write the history of this past couple of decades, they will likely conclude that Americans lived high on the hog, consuming far more than we produced, with the gap financed by borrowing from China, Japan and the Middle East, who purchased government securities and bonds backed by mortgages and credit card receivables. The only way to reverse this trend is to reduce our consumption significantly (and unlikely scenario) or increase our productivity significantly."

It is incorrect, however, to attribute low or stagnant productivity in the middle class to a "widening gap in incomes" between rich and poor. For one thing, Reich has the causation exactly backwards. In a free society, income and thus income gaps are determined by relative productivity gains, and not vice versa. Moreover, additional productivity, and thus higher incomes, among those in the upper income brackets does not magically reduce or even slow the actual productivity of those in the middle or lower classes. (In the same way, reduced or stagnant middle class productivity does not increase the productivity of those in the upper brackets.) To take a simple example, when Apple and Steve Jobs invented and marketed the I-Phone, reaping tremendous profits for their efforts, they did not thereby REDUCE the productivity of barbers, autoworkers, airline mechanics and other hard-working Americans in the middle class. If anything, one might expect such increased productivity among the wealthy to increase the productivity of the middle class as well. For instance, by inventing the Windows Operating System and facilitating its distribution, Microsoft (and its shareholders) enhanced the productivity of millions of American workers, who previously relied on electric typewriters, hand-held calculators and the postal service !

What, though, about Reich's apparently separate claim that "the rich" already have most of what they want, and thus will spend a smaller proportion of their income than those in the middle and lower classes ? This is simply a replay of the old Keynesian theory of "secular stagnation," which predicted that, as societies became wealthier, average consumption as a percentage of national income would continually fall, as a more affluent citizenry would enjoy so many material comforts that individuals would be less inclined to spend their incremental income of consumption. As a result, it was said, government should tax the more affluent and spend the proceeds, thereby lowering the national savings rate and stimulating aggregate demand. The theory fell out of favor in the late 1940s and 1950s, as the economy grew despite massive reductions in the federal spending as a percentage of GDP compared to the period of 1941-1945.

There are a couple of things wrong with Reich's invocation of this theory in this context. First, the theory does not support or depend on Reich's claim that increased affluence for some reduces or stifles the productivity of others. On the contrary, individuals who consume less save more, and such savings will, over the medium and longer run, find its way into productivity-enhancing investments in plant and equipment, education, research and development, etc. Second, Reich's claim that we are in a period of secular stagnation assumes that current year incomes are a good proxy for the sort of permanent income that actually determines consumption. If, on the other hand, there is a high variance between annual and permanent incomes, then a snapshot of annual income data cannot tell us whether we have entered such a period. Third, the theory of secular stagnation would seem to predict that more affluent nations like the United States would have ever increasing rates of unemployment, unless offset by ever rising government spending, measured as a share of GDP. On the contrary, however, real per capita income has risen significantly over the past three decades, while government spending as a share of GDP has been relatively flat. Fourth and finally, if the rich have all that they want, why are they working so hard to earn so much income ?

To sum up, Reich's claim that increasing incomes for the rich has reduced or stultified the productivity of those in the middle class is nonsense. Moreover, the evidence does not support his "secular stagnation" thesis. Higher taxes on the more productive members of society will have to be justified in some other way.

Obama's Fiscal Chutzpah (and Confusion)

ONE TRILLION DOLLARS !!!

The White House has announced that it will be hosting a "Fiscal Responsibility Summit." This is a bit like Gilligan (pictured above left) hosting a summit on sound navigation practices ! Is this the same White House whose fiscal policies will bring us the largest deficit ever (over $ 1 TRILLION dollars !) in the coming year ? Indeed, the Treasury plans to borrow nearly $500 Billion in this quarter alone ! http://www.foxbusiness.com/story/markets/industries/finance/treasury-expects-borrow--billion-quarter/

At the summit, the President, legislators, scholars and interest groups will supposedly explore ways to reduce the deficit that will result from the President's own fiscal policy. "On the table" will be reductions in spending in Iraq and Afghanistan and, you guess it, increased taxes on those individuals who create more wealth than others. How we will spend LESS in Afghanistan after dispatching an additional 17,000 troops there --- a deployment announced last week --- is a mystery to me. (Oh, and didn't candidate Obama promise to spend more on foreign aid in Afghanistan than the stingy Bush administration ?)

All kidding aside, the announcement raises the question of whether the current administration understands the rationale of its own economic recovery plan. The point of the stimulus package, we thought (and reported here), was to borrow hundreds of billions of dollars and then spend the proceeds on various projects that would "creat jobs" and thus put money in everyone's pocket. The plan also included a hefty helping of tax cuts and direct payments to individuals with no tax liability, on the hope that the recipients thereof would spend the proceeds. However, cutting spending elsewhere (including spending on, say, hazard pay for troops who return from Iraq, ammunition, and spare parts), or raising taxes, will of course offset at least some of the stimulus that results from the $790 Billion "emergency" package signed just last week. While individuals who earn over $250,000 per year may spend a slighlty smaller share of their income than those closer to the poverty line, they nonetheless spend most of it, with the results that, even under a static model, increasing their taxes will, other things being equal, slow down the economy. And, of course, the world is not static; those who anticipate higher taxes may work, invest (and create) less, thereby reducing the nation's long run productive capacity.

Recall in this connection that the U.S. GDP is about $13 Trillion. $800 billion in stimulus spread over two years would amount to less than two percent of GDP annually. $800 billion offset by significant spending cuts and tax increases may well amount to less than 1 percent annually. If the economic situation really is as dire as the Administration is telling us, will this be nearly enough to pull us out of recession ??

One more thing. Unlike much of the stimulus spending, the tax increases proposed by the President will likely be permanent with the result that the present value of such increases will be quite high and perhaps offset entirely the amount of the temporary stimulus. If so, then the President's economic plan has much more to do with redistribution than stimulus.

Privatization Momentum Builds !!

On Friday the William and Mary Flat Hat published an Op-ed by student Alex Ely, calling for privatization of William and Mary. As Ely points out, the College cannot achieve "Greatness" so long as it remains owned and controlled by the Commonwealth of Virginia. I am flattered that Ely reproduces a quote of me from an earlier Flat Hat article on the subject, where I point out that our public status results in an artificial ceiling on the tuition and fees we can charge in state students. Here is that previous article. http://flathatnews.com/content/69306/case-laid-out-college-go-private Ely also refers to previous Op-eds in the Flat Hat, written by yours truly, laying out the case for privatization. Here are links to those Op-Eds: "Private Greatness" http://flathat.wm.edu/2005-09-09/story.php?type=2&aid=3 and "Privatization: A Winning Choice" http://flathat.wm.edu/2006-03-17/story.php?type=2&aid=5. He also notes that privatization would eliminate political interference in the College's internal affairs and that, by raising tuition, the College could generate revenue to fund the ever-more expensive [my characterization] Gateway Program and create a graduate school to train public servants (presumably in addition to the College's Thomas Jefferson program in Public Policy).

Mr. Ely's Op-Ed coincides with one by Mr. Jeff Dailey over at the Virginia Informer, also calling for privatization. Mr. Dailey notes that the Commonwealth has repeatedly cut the College's budget since 2002, leaving the College without the resources necessary to meet its objectives and that, absent a massive infusion of public cash, privatization is the only option. Dailey also points out that the amount of influence the Commonwealth exercises over the College far exceeds its diminishing financial support for William and Mary.

http://media.www.vainformer.com/media/storage/paper1335/news/2009/02/18/SignedEditorials/Privatization.Is.The.Best.Option.For.The.College-3636143.shtml

By posting Mr. Ely's excellent article, I do not mean to endorse all of it. In particular, as some of you know, I am no fan of the Gateway Program. See my Op-Ed on the issue: http://flathat.wm.edu/story.php?issue=2005-09-23&type=2&aid=3While Ely says the program is necessary to ensure access to the College, I don't think that's right. When the College announced the Gateway Program, it reported that there were 300 students of modest means already attending the College; presumably these students were relying upon low interest loans or had served their country in the military and were drawing on the GI Bill. In short, absent Gateway, there are various means of access to William and Mary. By analogy, most of us borrow money to purchase a home or buy a car. No one would say that individuals who must borrow to make such purchases lack "access" to cars or homes. Moreover, unlike Ely, I don't think the College ought to concern itself with training public servants. Indeed, my sense is that the College already graduates an inordinate number of public servants.

These are debatable points, however. Ely's main point still stands. If the College wants to be great, however, defined, it should go private. And, I will add that going private will make it easier to raise money for various programs, e.g., merit scholarships or need-based programs like Gateway, since W&M's President will not have to spend countless hours lobbying Richmond not to cur our budget, change the in-state out of state mix of students, etc. (The President of Duke raised more than $200 million to support its version of Gateway BEFORE implementing the program.) With such free time, the President of a private William and Mary could make contact with more alumni and foundations and raise the sort of endowment the College needs.

Apply Fairness Doctrine To Academia ??

There was a superb Op-Ed in the Richmond Times-Dispatch yesterday, by A. Barton Hinkle on the so-called "Fairness Doctrine." Hinkle applies the supposed logic of the doctrine to Academia as well as the print media. As Hinkle points out, Higher Education receives massive infusions of taxpayer cash and other benefits. Moreover, the political leanings of academics are quite unbalanced --- Hinkle reports that at Brown University, for instance, "liberals" outnumber "conservatives" 30-1. At Columbia and Yale the figures are a mere 14-1. Thus, Hinkle says, why not apply the logic of the Fairness Doctrine to compell universities to ensure that their faculties are more "balanced" than they currently are ??

Hinkle also applies similar logic to newspapers and the rest of the media. So, he says:

"Suppose Washington required that every story alleging a festering cancer at the heart of American government or business be matched by a story of equal length celebrating the great work done by the country's national-security apparatus. Or one championing an entrepreneur who managed to launch a business despite the roadblocks placed in his path by hostile environmentalists."

No doubt defenders of academia would (properly) invoke the First Amendment and institutional academic freedom aa rationales for resisting any governmental effort to condition the receipt of government largesse upon "agreement" by universities to hire more conservative faculty. Remember in this connection that schools like Brown, Columbia and Yale are purely private universities and thus particularly immune from such governmental overreaching. Newspapers would invoke the Supreme Court's decision in Miami Herald Publishing Co. v. Trunillo, 418 U.S. 241 (1974) which struck down a state statute that provided public figures who had been criticized in the paper a "right of reply." But there's the rub. The First Amendment also applies to private broadcasters --- who purchase their own broadcasting equipment, pay for the electricity that powers it, and hire the producers and staff who produce the programming. The First Amendment presumably prevents the government from requiring someone who owns a private radio station and employs private talk show hosts to broadcast something he or she does not want to broadcast. As Jefferson said, in a quote reproduced in an earlier post, it is both sinful and tyrannical to compell someone to use his or her wealth to propogate ideas he or she finds abhorent.

Proponents of the so-called "Fairness Doctrine" applied to radio broadcasting might invoke two counter-arguments. First, the airwaves are "public," the federal government has granted station owners the "privilege" of broadcasting, and thus the government can require staion owners to provide balance. Second, they argue that the radio spectrum is "scarce," so that some regulation is necessary to make sure that different viewpoints get sufficient "access" to the "airwaves."

Taking the first argument first, I don't know what an "airwave" is. I know what "air" is, and I know what "radio waves"are. Neither is "public" in any sense relevant in a free society. (Private broadcasters use privately-owned equipment powered by privately-purchased electricity to create and broadcast private radio waves.) It is certainly true that the government has (unlaterally?) "declared" that the "airwaves" are public and also taken upon itself the right to determine who gets to broadcast over which frequencies. This declaration, however, cannot ipso facto empower the government to compel station owners to broadcast material they do not wish to broadcast. Consider an analogy. What if the government declared that all automobiles that travel over public roads are themselves "public," and ordered citizens to listen to Rush Limbaugh three hours per day or to display a "Protect Unborn Life" bumper sticker ?? Add to this the fact that citizens cannot drive an automobile on public roads without a "drivers license."

Obviously the compelled listening and bumper sticker regulations would be unconstitutional abridgments of speech, despite that government's declaration of "publicity" and subsidy for public roads. Indeed, in Wooley v. Maynard, 430 U.S. 705 (1977) the Supreme Court struck down the New Hampshire requirement that all license plates display the adage "Live Free or Die." (Some citizens of New Hampshire apparently preferred life to freedom. But, seriously, some believed that the display offended their religious beliefs.) It did not matter that the state licenses drivers or that cars travel on public roads. Indeed, the case for regulation on this ground is even weaker in the case of broadcasting. After all, cars really DO drive on public roads, while radio waves travel through the atmosphere and space owned by no one. And, if travelling on public roads could justify the abridgment of speech, then Trunillo is wrong, since the Miami Herald no doubt relied upon the public streets to deliver its newspapers.

What, though, of the scarcity rationale ?? It may be true that there is not an infinite number of broadcast frequencies. But broadcasting is not the only way to get one's message out. Indeed, in the antitrust context, the Supreme Court has held that print media and radio broadcasting occupy the same market. See Lorain Journal v. United States, 342 U.S. 143 (1951) (finding that newspaper had attempted to monopolize the local media market by inducing advertisers not to deal with a local radio station). Add to this recent technological innnovations such as satellite radio, cable television, and the internet (whereby anyone can broadcast their ideas via print and/or voice), and it's hard to see how any "scarcity" of broadcast frequencies can justify governent determination of broadcast content. In any event, there are not an infinite number of newspapers or magazines, both of which are produced using finite resources such as ink, paper and journalistic talent, either, and yet scaricity of these outlets has never justified additional regulation.

Again, bravo to Hinkle for his superb column, which can be found here:

http://www.timesdispatch.com/rtd/news/opinion/columnists/article/HINKLE20_20090219-174806/210890/

Indy Racing in 46 Days !!!

The Indianapolis Racing League has announced its schedule for the 2009 season. The first race --- the Honda Grand Prix of Petersburg, Florida --- will take place on Sunday, April 5 at 2:00 PM on the VERSUS network. The 93rd Indianapolis 500 will take place on May 24 and will be televised on ABC. Here is a link to the league's website, which in turn includes a copy of the schedule. It looks like the VERSUS network will be televising the lion's share of the races, taking over the role played by ESPN II last year.

http://www.indycar.com/schedule/

Note that Dario Francitti is returning to the IRL this year after a one year hiatus on the NASCAR circuit. Indy officianados will recall that Franchitti won the Indianapolis 500 in 2007 (I was there), and also won the overall Indy series championshio that year. Will he repeat this year ? Note that one of his chief rivals, Helio Castroneves (of "Dancing with the Stars" fame), is still listed as a member of Team Penske, despite his troubles with the IRS.

Photo is of Tony Kanaan, couresy of cmakin on Flickr.

California Sinking

NBC Los Angeles carries the following Op-Ed, by a "Robert George" about the economic downfall of California. Among other things, George traces the state's original success to bipartisan pro-growth policies of former governors Pat Brown (D) and Ronald Reagan (R). George points out that, under Brown, spending on infrastructure totalled 20 percent of the state's budget. The figure is now 3 percent. George also points out that, by some measures, California is below the national average when it comes to educational achievement by its younger citizens. Perhaps educated Californians are moving elsewhere, where, for instance, income taxes are lower ? Whatever the reason, this statistic does not bode well for the state's economic future.

http://www.nbclosangeles.com/news/us_world/Golden-State-Broken-Dreams.html#comments

First, Do No Harm/CBO Pans Obama Plan

Hippocrates

The non-partisan Congressional Budget Office (CBO) has concluded that the Stimulus Package proposed by President Obama will actually reduce economic growth and thus GDP over the long haul, when compared to doing nothing at all. The CBO concludes that the stimulus bill will create jobs in the short run, but that, over the longer run, the spending and borrowing necessary to support it will crowd out private investment and thus REDUCE GDP in the longer run, since the forgone investment would have enhanced national productivity.

http://washingtontimes.com/news/2009/feb/04/cbo-obama-stimulus-harmful-over-long-haul/

The study is answer enough to the claim by Stephen Pearlstein of the Washington Post that all spending is stimulus, no matter what. http://www.washingtonpost.com/wp-dyn/content/article/2009/02/05/AR2009020503413.html That may well be true, in the short run, but spending on digging holes and refilling them (or refurbishing Federal Buildings) will not make America more productive and will, over time, crowd out private (and public) investment that would.

Senator Coburn's List/"Paid Volunteers"

A couple of days ago Senator Coburn of Oklahoma, who has in the past co-sponsored legislation with then-Senator Obama to increase transparency in budgeting, published a list of what he calls "Wasteful and non-Stimulus provisions in the Stimulus Bill." It's quite a lengthy list ! I had to chuckle at the "$160 million for paid volunteers." Huh ? First, I am not sure what a "paid" volunteer is. Second, if reducing taxes on citizens (including volunteers) will not stimulate the economy, as President Obama claims, then why will sending volunteers a check do so ?? In either case, the recipients may simply save the new found money, thus not stimulating consumption. (Recall my earlier post that mentione the "paradox of thrift.")

Senator Coburn has introduced numerous amendments to the bill, including a provision that would prevent any allocations to universities with endowments over $15 Billion or which spent over $100 million annually on lobbying. Recall in this connection my earlier post reporting that Higher Education ranks 7th among America's various industries in expenditures on lobbying.

http://bishopmadison.blogspot.com/2009/01/corruption-in-higher-education.html

Senator Coburn would also transform aid to the states from grants to loans the states would actually have to pay back.

In any event, here is the Senator's list:

• $2 billion earmark to re-start FutureGen, a near-zero emissions coal power plant in Illinois that the Dept. of Energy defunded last year because the project was inefficient • A $246 million tax break for Hollywood movie producers to buy motion picture film • $650 million for the digital television (DTV) converter box coupon program • $88 million for the Coast Guard to design a new polar icebreaker (arctic ship) • $448 million for constructing the Dept. of Homeland Security headquarters • $248 million for furniture at the new Dept. of Homeland Security headquarters • $600 million to buy hybrid vehicles for federal employees • $400 million for the CDC to screen and prevent STD’s • $1.4 billion for a rural waste disposal programs • $150 million for Smithsonian museum facilities • $1 billion for the 2010 Census, which has a projected cost overrun of $3 billion • $75 million for “smoking cessation activities” • $200 million for public computer centers at community colleges • $75 million for salaries of employees at the FBI • $25 million for tribal alcohol and substance abuse reduction • $10 million to inspect canals in urban areas • $6 billion to turn federal buildings into “green” buildings • $500 million for state and local fire stations • $650 million for wildland fire management on Forest Service lands • $150 million for Smithsonian museum facilities • $1.2 billion for “youth activities,” including youth summer job programs • $88 million for renovating the headquarters of the Public Health Service • $412 million for CDC buildings and property • $500 million for building and repairing NIH facilities in Bethesda, MD • $160 million for “paid volunteers” at the Corporation for National and Community Service • $5.5 million for “energy efficiency initiatives” at the VA “National Cemetery Administration” • $850 million for Amtrak • $100 million for reducing the hazard of lead-based paint • $75M to construct a new “security training” facility for State Dept Security officers when they can be trained at existing facilities of other agencies. • $110 million to the Farm Service Agency to upgrade computer systems • $200 million in funding for the lease of alternative energy vehicles for use on military installations. • State Medicaid Bailout: $87.7 billion.

Stimulus Update/What Are We Stimulating II

Earlier today the Senate adjourned without any deal on the stimulus package, contrary to very recent predictions by the Senate leadership that the final vote on the plan would take place this evening.

http://www.cnn.com/2009/POLITICS/02/05/stimulus/index.html?iref=mpstoryview

Perhaps some Senators are reading the polls showing that only 37 percent of Americans support the bill in its current form.

http://www.rasmussenreports.com/public_content/business/economic_stimulus_package/support_for_stimulus_package_falls_to_37

Meanwhile, Daniel Henninger at the Wall Street Journal has (inadvertently) echoed the question I asked late last month about the House Bill, viz. "What are we stimulating," or, as Henninger puts it: "What is Congress Stimulating?"

Meese (Late January)

http://bishopmadison.blogspot.com/2009/01/keynes-comethwhat-are-we-stimulating.html

Henninger (Today)

http://online.wsj.com/article/SB123379617394050229.html

Among other things, Henninger notes that the money allocated for refurbishing Federal Buildings has risen from $6 Billion in the House Bill to $9 Billion in the Senate Bill ! There is also money for refurbishing hiking trails and "remediation of abandoned mines and well sites." Moreover, as readers likely know, the overall cost of the Senate version has ballooned to $900 Billion. As with the TARP legislation, the Senate has (thus far) piled on even more spending.

As noted in my earlier post, Keynes argued that one can "stimulate" the economy (at least in the short run) by paying people to dig holes and then fill them up again. Apparently the Senate has modified this slightly by proposing to pay people to fill up old mineshafts as a way of stimulating the economy. Stimulation or not, however, such refilling, like refurbishing Federal buildings, will have NO impact on our national productivity, thereby leaving us with additional debt but not additional ability to pay it off. This is a bit like borrowing large sums of money for College and then graduating with a major in a subject that offers no employment prospects !

Top Selling Cars, Whoops, Trucks !

Still Number 1 !

According to our leaders in Washington, Americans are pining for more fuel efficient ("green") automobiles, particularly in light of the record-high gas prices over the summer.

Why, then, are the two best selling "cars" in the USA actually trucks ?? That's right -- in 2008 the Ford F-150 maintained its position as the best selling vehicle in the USA. The Chevy Silverado Truck finished second, with the Toyota Camry (yawn) coming in third. The Dodge Ram truck finished 9th.

http://www.autoblog.com/photos/top-ten-best-selling-vehicles-in-2008/

Note that even the Camry does not have stunning gas mileage --- only 21mpg in the city, the same as a Chevy Tahoe hybrid ! Soon Chevy will release a hybrid version of its Silverado Pickup, in the Crew Cab variety, which should also replicate the Camry's gas mileage. If Congress requires Detroit (or, actually, Ontario --- where they build more cars than Michigan) to build more "green" automobiles, will Americans buy them ?? Or, will they continue to pay a little more in gas for the safety and aesthetic value of a pickup truck ?

Foreign Ownership of U.S. Treasury Securities ?

Last month the Department of the Treasury published a table summarizing the allocation of US Public Debt held by foreign countries. According to the report, foreign debt holdings total a little over $ 3 Trillion, out of $10 Trillion or so in total public debt. Here are the top 20 foreign holders of U.S. Public Debt.


1) China $682 Billion
2) Japan $571 Billion
3) UK $360 Billion
4) "Carribean Banking Centers" $221 Billion
5) "Oil Exporters" $198 Billion
6) Brazil $130 Billion
7) Russia $78 Billion
8) Luxembourg $75 Billion
9) Hong Kong $66 Billion
10) Switerland $63 Billion
11) Norway $59 Billion
12) Taiwan $43 Billion
13) Germany $43 Billion
14) Singapore $37 Billion
15) Ireland $35 Billion
16) Thailand $35 Billion
17) Mexico $35 Billion
18) Turkey $29 Billion
19) Korea $29 Billion
20) Canada $17 Billion

http://www.treas.gov/tic/mfh.txt

Note that, just one year ago, China held only $459 Billion, while Japan held $590 Billion. Since then, the two countries have reversed positions in the rankings.

According to the Census Bureau, our trade deficit with China during 2008 was over $240 Billion. China, of course, has to do something with these excess dollars --- apparently they used some of them to purchase additional U.S. Treasury Securities.

http://www.census.gov/foreign-trade/balance/c5700.html#2008

Does anyone know why Luxembourg, which has a population smaller than Richmond, Virginia, holds more such debt than Germany ? Perhaps the country is a banking center, like the Cayman Islands.

Finally, note that this report comes just as the United States plans to borrow nearly $500 Billion in the first quarter of 2009.

France Rejects Obama-Style Stimulus Package

The Prime Minister of France has rejected calls by the French left for an "Obama-style stimulus plan." According to the International Herald Tribune, Prime Minister François Fillon has stuck by the French Government's $ 33 Billion plan to focus its stimulus package on building infrastructure and stimulating corporate investment in productive capacity.

According to Fillon:

"It would be irresponsible to chose another policy [i.e., the Obama-type stimulus sought by the left], which would increase our country's indebtedness without having more infrastructure and increased competitiveness in the end."

According to the IHT article, the French plan includes money for investments in roadbuilding, new power plants, modernizing France's electrical grid, improving rail facilities, rennovating ports, and improving water and natural gas distribution.

http://www.iht.com/articles/2009/02/02/business/frecon.php

Meanwhile, here in the United States, some are calling President Obama's stimulus package "Socialism in disguise."

http://www.foxnews.com/story/0,2933,483345,00.html

Whether or not the Obama/House plan is in fact Socialism, it is somewhat jarring to see a French Prime Minister criticize the US for being fiscally irresponsible ! The French stimulus plan focuses on improving the nation's overall productivity and not simply counter-acting the current slump.