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The Obama administration's proposed budget for fiscal 2013- for the year beginning Oct. 1, 2012- shows the budget deficit for the year at over $1 trillion. It shows new revenue of $1.7 trillion over 10 years mostly from ending the Bush period tax cuts on families earning more than $250,000 a year, restoring the estate tax to the 2009 level and limiting subsidies for oil and gas companies. It proposes raising the tax rate on dividends from 15% to as much as 39.6%, for households earning more than $250,000 a year. This measure is expected to generate $206 billion over 10 years. The budget also offers "principles" for future tax reform by proposing the Buffett rule replace the Alternative Minimum Tax (AMT). The AMT was not indexed for inflation so it has the weakness of putting more middle class taxpayers into AMT, leading to temporary solutions by Congress. The Buffett rule would have people earning more than $1 million pay a tax rate of at least 30%. Many wealthy Americans like Mitt Romney paid lower taxes using deductions to lower tax rates- Romney's tax disclosures show he paid effective tax rate of 14%. The White House says the budget will reduce the deficit by $3 trillion over 10 years through the new taxes, and small changes to Medicare and Medicaid and other spending cuts. This is in addition to the $1 trillion in spending cuts agreed to in a deficit reduction agreement in 2011 between Democrats and Republicans in Congress. The budget proposal proposes investment in education and transportation projects of $137 billion, and continuing through Dec. 2012, a tax break for businesses to increase investment. It includes mandatory spending of $2.7 billion for new community college programs, $6 billion to modernize schools, and $1.8 billion to make homes more energy efficient. It also increases the resources of the Securities and Exchange Commission and the CFTC (two agencies overseeing the banks), $26 million for a new Interagency Trade Enforcement Center to counter unfair trade practices, and cuts U.S. postal delivery to 5 days a week. The result is a program designed to be balanced in terms of economic fairness, making modest investments in the future for education and energy, continuing policies to stimulate growth, and extending the date for bringing the deficit under control to 2018 instead of 2014 as planned earlier....

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The Journal editorial title suggests that Greece chose economic decline. It puts the responsibility for this choice on one political party that lied about its fiscal position, and another party that failed to take strong action. The government unions were uncooperative and resisted making changes. Making matters worse was policy from the EU that misread the Greece situation as a liquidity problem, and not as a solvency problem considering the huge debt Greece has piled up. And austerity measures pushed by the EU are doing little for growth- leading to an acceleration in the economic decline in recent months.

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Germany's Economy minister Zypries warned that Germany would take legal action by taking the case to the World Trade Organization if president Trump imposes tariffs above that allowed by WTO rules. She said this before a meeting at the White House between president Trump and Chancellor Merkel. The U.S. is Germany's largest export market with 107 billion in imports and the U.S. exports 58 billion euros of products to the U.S. Zypries accepted that the large trade surplus of Germany was "a problem," but that America "needs our machines and industrial plants" for the time being. Germany has insisted that it does not provide unfair advantages to its companies, and that German companies were simply more competitive. Trump has focussed largely on China for anti-competitive practices, though he mentioned BMW by name during the campaign. In the last 2 years the euro has depreciated significantly against the dollar giving German companies competitive advantage, largely as a result of the ECB- in opposition to German economic policy- trying to stimulate the economy of other southern eurozone countries such as Spain, Italy and France. ...

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The major provisions of the Republican House healthcare bill that passed by a vote of 217-213 are- 1. To help people buy insurance coverage the bill offers $2000 to $4000 a year, upto $14,000 a year in credits based mainly on age, reducing them for families making $150,000, individuals making $75,000. 2.  Under the Affordable Care Act insurers cannot charge older Americans more than 3 times for same coverage they offer to younger people, the new bill makes this 5 times. This would increase premiums for older Americans and reduce it for younger Americans. This is the most controversial part of the bill. Older Americans supported the Republican party in the presidential election. 3. The new bill ends Medicaid as an open ended entitlement and places this on a budget with cuts of $880 billion over 10 years. 4. To mollify conservative Republicans a provision allows state to opt out some provisions of the ACA that requires minimum benefits such as maternity care and emergency services. It retains coverage for pre-existing conditions to mollify moderate Republicans. The bill provides states with $138 billion over 10 years to subsidize premiums, provide coverage for pre-existing conditions, mental healthcare and drug addiction. 5. The bill removes the taxes imposed under the Affordable Care Act (ACA) on high income people of about $300 billion over 10 years by repealing a payroll tax increase and tax on investment income. This bill and the ACA offer 2 competing visions on healthcare, both bills passed only by a margin of 4-5 votes in the House. The ACA overlooked the impact on premiums causing discontent among middle income Americans. The new bill lets premiums rise for older Americans in order to keep premiums down for other Americans. This shows the many tradeoffs involved and choices being made, and the lack of a consensus on the issue of healthcare in the U.S., becoming a highly politicized issue instead of the way it is treated in western Europe.     ...

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This Journal editorial looks into the jobs numbers for September 2012 that showed unemployment decreasing to 7.8% according to the household survey. By taking the numbers as they are in the Labor Dept. surveys and setting aside skepticism it provides useful insights into the condition of the labor market. It cites the reason for some of the skepticism about the numbers- the 873,000 jump in employment shown by the household survey which looks at 60,000 households. It is the largest increase in employment for one month in 30 years says the Journal. The household survey finds that 582,000 of the 873,000 jobs are "part-time for economic reasons" in the survey's words. The number of part-time workers for economic reasons went up from 7.7 million in March 2012 to 8.6 million in September 2012. This also returns the focus on U-6 the measure of unemployment that Fed chairman Bernanke and experts looks at. This has remained the same for Sept. at 14.7% and includes the number of people working part-time who cannot find full time work. Another useful statistic for insight into the labor market is the decline in household incomes. Studies of Census data show a $4019 decline in median household income from Jan 2009 to June 2012. And the long term unemployed represent about 40.7% of the employed in recent data, an unusually high number that worries Mr. Bernanke. By looking at the broader picture one can get a better sense of the labor market....

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John Taylor on the dual mandate for inflation and unemployment and discretionary policies by the U.S. Federal Reserve that ended up creating booms and busts in the U.S. economy. He advocates replacing the dual mandate of "maximum employment" and "stable prices," which was inserted into the Federal Reserve Act in the 1970's, with a single mandate for "long-run price stability." Taylor points out that this will still give the Fed flexibility, as it is focussed on long run price stability. The Fed does not have to overreact to short run increases in inflation. And he points out that this actually will work well for unemployment as the booms caused by an overextended period of low interest rates such as that in 2003-2005, have led to booms followed by busts with high unemployment.

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The impact on the Republican party in 2012 of reform governors who came in with the 2010 U.S. elections- Christie of New Jersey, Walker of Wisconsin, Brownback of Kansas, Snyder of Michigan, Daniels of Indiana, Jindal of Louisiana and other state governors from Maine to Tennessee.

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The University of Michigan Transportation Research Institute said the average fuel economy of all new passenger vehicles purchased in January 2012 was 23 miles per gallon, up 0.8 or 4% from December 2011. This includes cars, light trucks, minivans, and SUV's. Professors Sivak and Schoettle of the Institute also released a U.S. Eco-Driving Index, or EDI, which estimates average monthly emissions of individual U.S. drivers for Nov. 2011 at 0.86- this is down 14% from October 2007. The need to reduce reliance on imported oil for the U.S., Europe, China and India, the high price of oil, and the need to reduce automobile emissions to improve air quality, make improvements in average fuel economy and emissions per driver absolutely critical.

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Toyota projects net income for fiscal year ending March 2014 of 1.9 trillion yen or about $18.8 billion, exceeding combined earnings of GM, Ford and Chrysler.

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The story of Eiji Toyoda is largely the story of the modern Toyota company. He guided the company as president from 1967 to 1982 and following that as chairman and senior advisor, a service that spans the entire period from the formation of Toyota during the 1930's by Sakichi Toyoda and his son Kiichiro Toyoda till today. Eiji was Sakichi Toyoda's nephew, and 18 years younger than Kiichiro. He worked in the company's textile loom business in the early days before the formation of the company to manufacture automobiles as an entrepreneurial venture by Sakichi and Kiichiro. An auobiography by Eiji Toyoda pubished by Kodansha in 1985 tells the story- Toyota- Fifty Years In Motion. Most of the prewar period was spent manufacturing buses and motorized vehicles for the military. It was after visits to Ford's Rouge automobile plant in Detroit in the fifties that Eiji first picked up the ideas for a suggestion system and getting workers to provide ideas and make improvements that later became kaizen. Eiji was born in 1913 before the beginning of the first world war and passed away at the age of 100 in 2013. He lived a remarkable life that witnessed most of the events of the twentieth century, the transition from a militaristic to a peace loving nation, and technological progress in many fields. The technological evolution continues with the development of electric cars. In the early days of the automobile Sakichi had imported a German electric car which was limited by the short battery charge, a limitation Toyota and other companies are still tackling to this day, showing the technological challenges still ahead. The story of Toyota shows pioneering efforts and progress is continuous, as Toyota picked up the ideas from Ford and added new ones of its own for better products. Family companies with dedicated service spanning a century are rare and Toyota is one of these companies. When the recall crisis of 2011 brought the young CEO, Akio Toyoda, Kiichiro's grandson, to the verge of tears at a public event, the memories of a generation of leaders and the need to live up to their ideals and the work that preceded him must have gone through his mind....

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David Wessel says the U.S. is in a liquidity trap. He says the 500 point drop in the Dow Jones Industrial Averages was a less significant event than the decision by the Bank of New York Mellon to charge clients for keeping large amounts of cash. In a liquidity trap investors are indifferent between keeping their money in cash or in investments providing a return, because interest rates are so low. Today the S&P 500 have in total an estimated $963 billion in cash. The solutions for gettting out of a liquidity trap include government stimulus spending, devaluing the currrency, and generating inflation that could make it easier to reduce government debt. The stimulus approach was adopted in the first 2 years of the Obama administration and there are now increasing pressures to reduce the U.S. deficit. Because of the role of the U.S. dollar as an international currrency and large sovereign holdings of U.S. currency, an outright devaluation of the dollar has not been considered an option. At the same time the weakening of the U.S. currency has helped exports and is encouraged by the Fed and the U.S. government. In a sense all three options are being tried in different degrees and ways. The stimulus was the early response till the deficit concerns began to increase and require attention, the efforts to lower the value of the dollar to increase exports is underway, and the rounds of quantitative easing by the Fed were intended to produce inflation (and avert deflation). All with limited success....

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The authors, Becker, Davis and Murphy, are from the University of Chicago. They point out that the uncertainty created by the Obama administration's programs including healthcare and social investments in education, energy conservation, and the desire to reduce carbon emissions, all tend to slow business expansion and investments to create jobs by putting additional costs on business. The expanding federal deficit and national debt also create additional uncertainty. Their point is that it was a mistake to start making major changes to transform the U.S. economy at this time, and that it would have been wiser to do these changes after the economy had recovered completely from the crisis. All efforts they say should have been concentrated on establishing conditions for a strong recovery. When combined with the lack of regulatory reforms to fix problems left behind from the crisis, and other failures, serious questions arise about how things will turn out in coming years. See Krugman- The Feeling of 1937, where Krugman takes this up from another angle, again with concerns about the future....

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This New York Times editorial after the Senate passed a bill in October 2011 calling for action on the misaligned Chinese currency, points to ways a misaligned currrency is damaging for China. It cites the Peterson Institute for International Economics estimate that this is costing China $240 billion a year. This is a result of accumulating huge dollar reserves that have a declining value against the renminbi. Higher import prices lead to higher inflation. And low interest rates on savings, to the point that they are lower than the inflation rate, hurt the vast majority of Chinese and reduce domestic consumption. And perversely this leads to money pouring into speculative uses such as real estate, creating unsustainable bubbles in housing. The Times editorial says China is not generating jobs from this strategy, as the export strategy is relying on use of advanced technology in manufacturing and not creating many jobs. It cites a statistic showing employment has increased by only 1 percent a year from 2004 even with GDP growth above 10%. China is beginning to realize the cost of this strategy, and is planning a shift in its five year economic plan. But this rebalancing has many obstacles. The current system dominated by state run companies, banks, local and federal government, is biassed in favor of the old export led strategy, and experts are pessimistic about the possibilities for change. The Times suggests China may be falling back on the export led strategy as the global economy is slowing. The whole system would have to change after three decades of this kind of development, and would require new leadership and major changes....

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As David Ignatius points out in his trip to China, the China of post 2010 is a lot of things depending on who you talk to in China- cocky, scared, anxious. He comes away perplexed by the range of questions that come up in his mind. The wealth of the coastal cities is stunning, and at the same time as the leaders insist China is still a poor country with deep regional imbalances, and what is less mentioned, the rising inequality in society. How to pull it all together to make possible a transition to development that is evened out across all regions and sections of society and to allow freedom of expression, is a challenge for the new leadership of Xi Jinping in 2011.

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The Economist describes the fraud in the election and the odious group of warlords and crooks that Karzai has pulled together to get support for this election. If they get as reward positions in the ministries then "the war is over" according to one diplomat. And without acredible government the chances are poor for any"good outcomes." Eide, the UN diplomat in the country says ultimately this will be decided not by governments but by people sitting at thier kitchen tables making up their mind as the follow the information in the media. And the President has only 37% of Democrats with him who want to see more troops in Afghanistan in a recent poll.