It's clear that the impact of private equity on the economy is going to be one of the central issues in the presidential race given Mitt Romney's boasts about his performance as one of the partners in Bain Capital. President Obama and others have pointed out that private equity firms often leave large numbers of laid off workers and bankrupt companies in their wake.

To counter this image, David Brooks picked up the cause. He used his column to tell readers that private equity firms turned around the economy, getting inefficient firms up to speed and raising overall growth.

At the most basic level, the facts don't fit Brooks' story. If he wants to credit private equity with turning around the economy then we should have seen the turn around in productivity growth in the 80s (or at least the beginning) when leveraged buyouts first became a major feature of the U.S. economy. Instead, we had to wait until the mid-90s, long after private equity was well established.

As a practical matter, turning around failing firms is only one way in which private equity companies make money. The most common way they make money is by gaming the tax system. This is done first and foremost by loading companies up with debt. Interest payments on debt, unlike interest payments to shareholders, are tax deductible. By reducing target companies' tax liabilities, private equity firms can make large profits even if they don't do anything to turn around the company.

Private equity companies can also benefit from other forms of financial engineering. They may also be effective at the Facebook trick, over-hyping companies when they issue IPOs, selling them off to suckered investors at an above market price. While there are undoubtedly cases where private equity actually does turn around failing companies, this seems to be the exception as my colleague Eileen Appelbaum is discovering.

If Governor Romney's record at Bain in turning around companies is better than the record for the industry as a whole then presumably he could release a full list of the companies taken over under his watch and indicate what happened to them subsequent to their takeover. If he opts not to make this information public then it is likely that the record is not a good one.

Andrew Ross Sorkin seems to be very proud of himself for having figured out that Glass-Steagall would not have prevented the economic crisis that hit the economy in 2007 and is still causing tens of millions of people to be out of work or underemployed today. He is of course right, except most of us knew this 4 years ago.

The crisis, which is an "economic crisis" not a "financial crisis" was caused by the collapse of an $8 trillion housing bubble. This bubble was driving the economy by sparking both a construction boom and a consumption boom. When house prices came back down to earth, these sources of demand evaporated and there was nothing to replace them. It's a fairly simple story for those of us who learned arithmetic back in third grade.

Glass-Steagall played no direct role in the crisis or the buildup to it. Nonetheless, it does get to heart of one of the big unnecessary freebies that the government gives to the financial sector. The point of the law was that if you held government guaranteed deposits then there should be restraints on the sort of risks you can take.

It is understandable that the spoiled brats who run big banks on Wall Street think that they should be able to get handouts from the government with no strings attached, but that is not the way a market economy is supposed to work. If the banks don't want the government's guarantees for its deposits no one is forcing them to take the guarantee. But, if they take the guarantee, then they don't get to take big risks like Jamie Dimon's big bet.

This tradeoff is pretty straightforward. Even an NYT business columnist should be able to figure it out. 

That is what he told us in his New York Times column that was ostensibly about out of control Social Security and Medicare spending. Emmanuel begins by telling readers:

"If nothing is done about entitlement spending, and if our current tax breaks continue, then by 2025, tax revenue will be able to pay for Medicare, Medicaid, Social Security, interest on the debt and nothing else."

There are two big problems with this story. First there is the old trick of conflating Social Security with Medicare and Medicaid. This is a great trick for those who want to deceive people into believing the budget problem is primarily a demographic story. However, it is highly misleading. The retirement of baby boomers is projected to increase Social Security spending by 0.9 percentage points of GDP or roughly 20 percent between now and 2025.

By comparison, military spending increased by more than 1 percentage point of GDP between 2000 and 2005. In other words, the projected increase in Social Security spending over the next 13 years is relatively modest and easily affordable. It also is fully covered by projected Social Security revenue and assets in the trust fund.

The projected increase in health care spending is considerably larger, however this depends on using the Congressional Budget Office's "alternative fiscal scenario" rather than the baseline projection. The difference is that the baseline projection assumes substantial cost controls that were in the Affordable Care Act. These cost controls, if left in place, would substantially reduce the rate of growth of Medicare costs.

This point is important for two reasons. First it shows directly that the issue is not primarily one of demographics but rather one of exploding health care costs. Second, it is in principle possible to control these costs if the political power of health care providers can be held in check.

Per person health care costs in the United States are hugely out of line with costs anywhere else in the world. If our costs were comparable to those in any other wealthy country we would be looking at long-term budget surpluses rather than deficits. If it is too difficult politically to directly fix the U.S. system we could achieve enormous savings simply by allowing more trade in health care services. We will only see the explosive growth in health care costs described in the alternative fiscal scenario if health care providers and insurance companies are both powerful enough to prevent domestic reform and to maintain protectionist barriers that prevent people in the United States from taking advantage of lower cost care elsewhere. 

It is also worth noting that Emanuel's proposed cuts in these programs would hit people with average lifetime earnings of $40,000 and above. It might make more sense to place more burden on people earning $250,000 and above by raising their taxes.

The NYT had an article on efforts to raise the minimum wage in New York state. At one point the piece gives the views of Russell Sykes, a senior fellow at the Empire Center for New York State Policy, who is identified as an opponent of a higher minimum wage. According to the article, Sykes argued that:

"raising the minimum wage would not be helpful to most poor families. The earned-income tax credit was more beneficial to them, he said, and an increase in the minimum wage could make some families ineligible for the credit."

If a higher minimum wage makes a low-income family ineligible for the earned income tax credit (EITC) it is due to the fact that it has raised their income above the level where they qualify for the EITC. It seems a bit strange to argue that low-income family is hurt by raising their income. The highest EITC rate is 45 percent, meaning that a worker at below the peak (in 2010, $12,549 for a single parent with three children) would get an additional 45 cents for each additional dollar of earnings. If a higher minimum wage raises a worker's income from a point below this level, it is actually increasing the amount of money they get through the EITC, possibly by as much as 45 percent of the increase in the minimum wage.

The EITC then plateaus, meaning that additional earnings neither add to or subtract from the size of the tax credit. For income above $16,450 the EITC is phased out at the rate of 21 cents on the dollar. This means that in a worst case scenario, a worker may lose 21 cents from the EITC for every dollar in additional pay they get as a result of a minimum wage hike.

[This is corrected from an earlier version. Thanks to Robert Salzberg for calling attention to my error.]

Thomas Friedman did his usual Sunday morning stretch, waxing eloquently on a new era in:

"in which to be a president, a governor, a mayor or a college president will be, on balance, to take things away from people."

It's not clear why this would be the case. After all, productivity is growing at a rate of 2.0-2.5 percent annually. This should mean that we are getting richer, not poorer, through time. But Thomas Friedmanland bears little resemblance to the world of gravity and arithmetic that the rest of us inhabit.

It's also not clear how he thinks the future will be different from the past in this respect. In 1980, non-defense government spending at all levels was 14.3 percent of GDP. It was the exact same share in 2007 before the recession hit. There have been no big government give-aways for the last three decades.

Friedman begins by celebrating the developments in technology that are allowing individuals to produce books, music, videos and other creative work and directly distribute them without the mediation of publishers, the recording industry or movie companies. He then comments:

"The leading companies driving this trend — Amazon, Facebook, Microsoft, Google, Apple, LinkedIn, Zynga and Twitter — are all headquartered and listed in America. Facebook, which didn’t exist nine years ago, just went public at a valuation of nearly $105 billion — two weeks after buying a company for $1 billion, Instagram, which didn’t exist 18 months ago."

The rest of the piece then warns us that such companies may not be headquartered in the United States in the future. It's a bit hard to follow the story line here.

First, it is not entirely clear how much U.S. companies have driven this trend. Important innovations such a Skype and Linux have been developed elsewhere.

And, the success of several of these companies does not necessarily stem from being innovative. For example, most of Amazon's profits have been attributable to its effective lobbyists. They have managed to exempt most of its sales from state and local sales tax in most of the country. This enormous subsidy, at the expense of traditional retailers, has often exceeded its profit margin.

The Washington Post showed that it clearly does not believe in free market fundamentalism. It ran an article on a bill proposed by Vermont Senator Bernie Sanders to replace patent monopolies for prescription drugs to treat AIDS with a prize system. The headline and second sentence of the piece described the system as "radical."

Under this proposal, the government would pay to buy the patents for successful drugs. These drugs would then be placed in the public domain so that the drug could be produced as a generic in a free market. In most cases eliminating the patent monopoly would reduce the price of the drug by more than 99 percent. Drugs that would sell for tens of thousands of dollars a year with patent protection would sell for a few hundred dollars in a free market.

It is not clear why this idea would be viewed as "radical." Usually the Post and other pillars of the political establishment are major proponents of free market economics. (There are other mechanisms that can be used to replace the funding that comes from patent monopolies. For example, the government could increase the $30 billion that it already spends each year on biomedical research through the National Institutes of Health.)

The article included some peculiar comments that may have misled readers. For example, it noted that an AIDS drug that sells for $25,000 a year here can be purchased for $200 a year in sub-Saharan Africa. It then told readers:

"The huge price gap is a result of a deal struck with brand-name U.S. drugmakers under the President’s Emergency Plan for AIDS Relief, which provides anti-retroviral drugs to 3.9 million people in developing countries. In 2003, to reach more patients, brand-name drugmakers agreed to let overseas drugmakers sell generic, low-cost versions of their patented AIDS drugs outside the United States."

Actually, the price gap is due to patent protection in the United States. Generic manufacturers have the right to produce drugs without patent protection in large parts of the developing world. They don't need permission from U.S. drug companies. (They are losing this right in the next decade.)

I hate to be picky, but this seems like a rather bizarre term to include in this Washington Post piece on the G-8 meeting on Saturday. The full sentence is:

"Obama, who has pushed for additional fiscal stimulus in the United States, said the new agreement affirmed the course his administration pursued during the financial recession at home."

It is difficult to see what is added by including the word "financial." The point is that we are still suffering from the effects of the recession that officially began in December 2007. If the concern is that the recession officially ended in June of 2009 so that it is improper to refer to the current period as a "recession," then the word "downturn" should do the trick.

It is hard to see what including "financial" in the description does except confuse people. We have a downturn in the real economy, not just a few problems in the financial sector.

In a blogpost discussing the push by many groups to get a financial transactions tax the Post told readers:

"The White House believes it would be easy to evade, could hamper economic growth, and might make markets more volatile, not less so. Instead, Obama has proposed a new 'financial crisis responsibility fee' on big banks, which would raise about $61 billion. "

While it is not clear how the Post knows what the White House really believes, what we know is that financial transactions taxes are apparently not that easy to evade. The tax in the UK, which applies only to stocks (not derivative instruments like credit default swaps, options, and futures) raises between 0.2 and 0.3 percent of GDP annually. This would be between $30-$45 billion a year in the United States. Unless we assume that the Obama administration thinks our tax collectors are much less competent than those in the UK, then they presumably do not really "believe" that the tax will be easy to evade.

The reference to economic growth refers to outdated research by the European Commission (EC). The most recent study by the EC shows that a tax would lead to somewhat more rapid growth if the money was used either to reduce other taxes or finance public investment.

If the White House has any evidence that the tax would increase volatility they are keeping it secret from the world. The tax would simply raise transactions costs back to where they were 10-15 years ago. Financial markets were not obviously more volatile in 1995 than they are today.

Finally, the "financial crisis responsibility fee" proposed by the Obama administration would raise an order of magnitude less tax revenue than the financial transactions taxes of the size generally being proposed. The Obama administration surely understands that they are pushing a tax that will have much less impact on the financial sector and will raise much less revenue than a financial transactions taxes.

The Post does not know what the White House "believes" about financial transactions taxes. It knows what it says about financial transactions taxes. While what it says may reflect what it believes, it may also reflect the fact that the administration is hoping to raise money for its re-election campaign from Wall Street. Also, many officials in the administration may hope to work on Wall Street after leaving the administration. These are the facts that we know.

The methodology that the Treasury Department is using when claiming that we made money on the TARP would imply that the government could make money by issuing a 30-year mortgage at 1.0 percent interest to every homeowners in the country. The vast majority of these mortgages would of course be paid off with interest, therefore the taxpayers would come out ahead.

This is ridiculous accounting, as Gretchen Morgenson points out in her column today. There is an opportunity cost to this money and if that is not taken into account, there is no way to say whether this lending is profitable. In the case of the TARP and related Fed lending programs, financial institutions were able to borrow trillions of dollars at far below market interest rates.

These programs may have been justified given the situation in financial markets at the time, however it is ridiculous to say that we made a profit on the lending based on the fact that most of the money was repaid with interest just as it would be ridiculous to claim a profit on 1.0 percent 30-year fixed rate mortgages issued by the government.

In the FWIW category, anyone saying that we would have had a second Great Depression absent this lending should be immediately ignored. The first Great Depression was caused by 10 years of inadequate policy response, not just the mistakes made at the onset. There was nothing that we did or did not do in 2008-2009 that would have necessitated a decade of incompetent policy.

Argentina was able to recover from a full-fledged financial collapse in less than 18 months. There is no reason to believe that Ben Bernanke and other leading policy makers are very much less competent than the people determining economic policy in Argentina.