Is Tax-and-Spend Worse than Borrow-and-Spend?
Larry Kudlow interviewed Rudy Giuliani (transcript here), and they naturally started bashing Obama. Here’s Kudlow’s question:
Kudlow: [O]ne of the big topics of this program tonight for investors is, are we going to return to a real tax-and-spend approach to economic policy, which was used in the 1970s? As you well know, it caused — it caused sluggish economic growth, it spurred inflation. Stock markets did very badly.
Hmm let’s see: High government spending, sluggish economic growth, high inflation, and poor stock market performance. Does that sound like an exclusively Democratic description?
As the chart below indicates, the S&P 500 is lower in nominal terms today than it was when George Bush assumed office.
In that same period, prices in general have risen (even according to the bogus official measures) by about 25 percent. Check out the chart below and compare the inflation record of the two Bushes against the Clinton years. (Of course the worst is Carter.)
Finally, let’s check out government spending. It’s a good thing W. won and kept out those big-spending Democrats!
In conclusion, YES I realize there are extenuating circumstances. Clinton would have spent more were it not for the Republican Congress, and George W. Bush would have spent less were it not for 9/11. And as far as the stock market, it’s not Bush’s fault that the dot-com bubble burst right when he took over.
Even so, there’s much to be said for the cranky old man’s wisdom who claims there’s not a dime’s worth of difference between the two parties. Going the other way, I also can’t get worked up when Democrats try to scare me with references to the police state under McCain. The Democrats in 2006 had a clear mandate to oppose Bush on these matters, and they just rolled over on wiretapping, war funding, etc.
Will Dollar Fall Another 40 Percent?
“Jurg Kiener, CEO of Swiss Asia Capital, expects the dollar to lose another 30% – 40% on the dollar index over the next 3 – 4 years.” See the full story.
I’m not sure about the specific magnitude of his prediction, but I definitely agree that the dollar still has to slide significantly, in order to reduce the huge US trade deficit.
In general, a large current account deficit doesn’t mean that a currency is doomed, because a current account deficit is the accounting flipside to a capital account surplus. So for example, if the next US president were to sharply cut marginal tax rates, eschew any massive carbon legislation, open up domestic energy production, etc., then investors would flock to US assets (raising the current account deficit) even as the dollar soared.
But that’s not what’s been happening during the last few years (and it’s not what will happen with the next president!). The massive piling up of indebtedness to foreigners is not analogous to a new bio-tech company going public and raising capital. Rather, it’s more like a lawyer who just got laid off, and continues with his previous lifestyle by racking up credit card debt.
For more details, see my article here.
Are You Rich If You Make $250,000?
Barack Obama has suggested that people making $250,000 are rich, and so can afford to pay higher taxes.
Now there are all sorts of quibbles we could raise. For example, if you are a young, single professional, then $250,000 per year allows you to live it up. On the other hand, if you are in your forties and have a spouse and three college-age children to support, you’re probably not taking weekend trips to Vegas very often.
There is also the issue of where you live. As this article points out, someone making $250k in Paducah, Kentucky would need $586k in New York City to live comparably. Now these comparisons are always flawed, because you can’t ask, “How much does a Broadway show cost in Paducah?” Still, the point remains that picking a single number for “rich” is silly.
I’m not the first to suggest this, but it’s a great point and so I’ll plagiarize: I would love it if Rick Warren or some other moderator would ask Barack Obama, “What percentage of total income tax revenues should the upper 1% pay, in order to be paying their fair share?”
Can you possibly imagine Obama saying on the spot, “Eh, I think the top 1% should pay about 40% of all income taxes”?! Of course not, that would sound crazy. But then he would have some serious backpedaling to do, as this chart shows. Probably Obama would know better than to answer the question directly. Instead he’d say something like, “You know, this is a complex issue with many facets. Our dynamic economy relies on innovative entrepreneurs to create jobs and new products that benefit us all. All my plan asks is that they give back some to the community which has provided them with such opportunities.”
We Need Privacy From the Government
At LRC today I have an article explaining why the free market provides the efficient amount of privacy, while government is the true threat. An excerpt:
Even in a completely free society where everyone respected private property rights, it would still be the case that your doctor would know what medications you were taking, your ob-gyn (if you are a woman) would know whether you had had an abortion, your bank teller would have a pretty good idea of how much money you made (especially if you ran your own business and deposited written checks from your customers), and the teenager at Blockbuster would know if you rented naughty movies.
The reason consumers would tolerate these “invasions” of privacy is that the goods and services provided, would be much cheaper if the providers didn’t have to adopt costly screening measures. For example, it would certainly be possible for Blockbuster to set up its stores and checkout procedures, so that the kids working the cash register didn’t actually see which movies each customer rented. For example, the physical DVDs or cassettes could be bar-coded with no other identification on them. The customers would use a key to go find their desired title. So unless Rain Man were on duty, nobody would know if you rented Sister Act 2 every week. (Please tell me you don’t.)
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Ultimately, in a free market competition would ensure that customers’ privacy was protected as much as possible, consistent with other desirable product features. In this sense we can say the market provides the “optimal” or “efficient” amount of privacy. If a bank had poor safeguards and its clients’ personal information repeatedly were stolen by hackers, it would eventually go out of business. Third-party agencies could provide consumers with ratings on privacy issues for various businesses.
In contrast, nobody gets to fire the FBI if they think its warrantless searches and wiretaps – not to mention all the tax dollars it receives – are too high a price to pay for the “services” it provides in, say, finding anthrax killer(s).
Tyler Cowen Accidentally Confirms Austrian Business Cycle Theory
This is almost too delicious to be true. Back in January 2005, Tyler Cowen (an econ prof at George Mason who runs the very popular blog MarginalRevolution) had a post titled, “If I believed in Austrian business cycle theory.” It’s hilarious because Cowen did (and does) not believe in ABCT, yet his “predictions” were uncanny–I encourage you to click the link and see for yourself, and remember what things felt like back in early 2005.
Anyway, Austrian enthusiasts have been calling him out on it lately, and Tyler is a good sport about it here. (I should mention that there is also a discussion of breast implants, if that encourages you to click the link.)
I really can’t understand the reticence of some free market economists (not just Tyler Cowen, either) to blame the housing boom and bust on the Federal Reserve. This was an almost textbook illustration of ABCT. As I explain in this article:
The case against the Fed is straightforward: In an attempt to jumpstart the economy out of recession, Greenspan slashed the federal funds target from 6.5% in January 2001 down to a ridiculous 1% by June 2003. After holding rates at 1% for a year, the Fed then steadily ratcheted them back up to 5.25% by June 2006. The connection between these moves by the central bank, versus the pumping up and popping of the housing bubble, seemed to be more than just a coincidence. On the contrary, it looked like a classic example of the Misesian theory of the business cycle, in which artificially low interest rates lead to malinvestments, which then require a recession to correct.
Offshore and ANWR Drilling Would Lower Prices Immediately
Notwithstanding certain politicians’ claims to the contrary, if the federal government gave the green light to development of ANWR and offshore oil deposits, prices would fall immediately. This is because producers with excess capacity in the present (basically, Saudi Arabia) would see the drop in future prices (because of the new barrels hitting the market in ten years), and that would make it more profitable for them to pump more in the present. I explain the mechanics of this more fully here.
President Bush lifted the executive side of the offshore drilling ban on Monday, July 14. Although it’s not airtight proof of the immediate effects of policy changes, even so it’s amazing that that day was virtually the all-time peak in oil prices; since then they have collapsed.
Imagine what would happen if Congress let its ban expire with the federal fiscal year (September 30)?!
Are We in a Recession?
Unable to fool the public into thinking things are rosy, here is now the “consensus” view from official economists: “The U.S. economy may have avoided a recession but will grow below trend for some time…”
Isn’t it surprising that during the worst financial crisis in decades, with record oil and food prices, and with the housing sector in shambles, we’re not even in a recession?
The answer is that the CPI and unemployment figures aren’t calculated as they used to be. So for example, when people look at today’s figures and compare them to earlier periods, it seems like America is a bunch of whiners.
But that’s because those numbers are comparing apples to oranges. Besides the trend to reporting “core inflation”–as if food and energy aren’t really important items to most households!–there is the fact that even the regular CPI has all sorts of seasonal and “hedonic” adjustments made to it. For example, in this article I went through and tried to understand how in the heck the BLS said gas prices fell by 4.6 percent from March to April this year. (!) Guess what? No matter how hard I tried, I couldn’t reproduce that result. I guess we just have to trust that the government statisticians wouldn’t fudge things.
I haven’t independently verified his methods, but John Williams over at ShadowStats claims that, using the old methods of calculation, CPI and unemployment would be much higher than what officials are telling us. (As for unemployment, part of the trick is that now they don’t count people who are “discouraged” and stop trying to find a job.)
Now folks, some of you may be new to all this, and you think I am a paranoid nut. So let me ask you: Do you do the grocery shopping for your household? Do you think prices have only gone up 5 percent or so over the last year? You know your energy costs have gone up far more than that. Hasn’t milk and chicken gotten a lot more expensive too? C’mon, you know the official CPI figure is bogus.
Nominal GDP has been growing much more slowly than consumer prices. We have been in a recession for some time now.
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One last comment from the CNBC article linked above… Check this out:
Economists in the quarterly National Association for Business Economics survey were less pessimistic about the economy’s outlook in the June 19 through July 10 survey than they were in April, but price pressures will weigh on growth.
“More firms reported higher sales, but also higher material costs and lower profits, in the second quarter than in the first quarter,” said Ken Simonson, chief economist at the Associated General Contractors of America.
My economic worldview might be wrong, but at least it is coherent. In contrast, these mainstream prognosticators think that (a) economic growth causes inflation (not!), and (b) inflation hinders economic growth. How the heck do economies ever grow, in their books?
How Secure Is Your Bank’s Website?
Some commonsense tips that are worth skimming. For example, I knew about “https” but I didn’t realize the shading of the URL bar meant anything. Thanks to Robert Wenzel for the link.
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