A compliment is a gift,
not to be thrown away carelessly,
unless you want to hurt the giver.
Eleanor Hamilton
Vintage Milton Friedman:
A Real Economist
Not a Nominal One (aka Paul Krugman)
Okay, if any reader by now doesn't realize that I love plays on words... I shouldn't need to explain that we can speak of real (inflation-adjusted) versus nominal price increases. I'm also using the words to reflect my comparative assessment of these Nobel Laureates in economics. (This blog is not particularly receptive to the dangerous policies advocated by neo-Keynesian (government spending favorable) Paul Krugman.)
There are a few points to note here:
- unless tax brackets are inflation-adjusted, the government gets a tax windfall from any nominal increases in wages, no vote required.
- inflation is a backdoor/hidden tax with no accountability by elected officials (e.g., easy money policy: more dollars for the same amount of goods and services). Politicians get credit for nominal tax cuts, but those cuts are illusory, mitigated by inflation
- there are opportunity costs with funding a government deficit: investment dollars are unavailable for the real (private sector) economy, driving up the costs of doing business
- business vs. individual taxes: money is fungible. Individuals are "more equal" than business when it comes to taxes. But this is an arbitrary distinction: employer benefit contributions on behalf of an employee are really the hidden portion of an employee's wages/compensation.
- tax credits vs. deductions: (flat) credits are a backdoor form of class warfare in a progressive income tax system, because deductions occur at the margin at a value related to your aggregate income level bracket.
- tax expenditures: government sees the taxes you save through a deduction or exemption (pretax retirement, healthcare insurance, home mortgage interest, etc.) as an expenditure (i.e., subsidy)
Some parts of the video are likely dated; I think, for instance, that there has been more of an effort to adjust for inflation in various tax policies. One interesting point of discussion involves the disposition of deductions. Some conservatives will argue against the elimination of various "expenditures", arguing that it amounts to a de facto tax increase (see David Friedman's criticism of them here). I think that government should not be in the business of providing incentives through tax gimmicks. When the progressives argue against oil industry tax breaks, I'm in general agreement--except I think that the massive subsidies, loan guarantees, electric vehicle tax breaks, etc., must also be on the table, i.e., equal protection/tax simplification, NOT pick-and-choose tax break policies.
Pin a Tail on the Donkey
I like coming up with tongue-in-cheek segment series and tags. This new series will focus on rebukes to ideological progressive politicians and their cronies, like neo-Keynesian economist Paul Krugman (see above segment on Friedman). I will say this much about Krugman: he is remarkably effective (but ultimately unconvincing) spokesman for neo-Keynesian government fiscal intervention; my personal opinion (and that of others, say here) is that he picks and chooses his data to frame his point of view, not unlike the infamous hockey stick study at the core of Climategate.
Let me be clear where I stand on the question of fiscal discipline: when we have a deficit, we are borrowing against future consumption to push consumption today. If Obama was to leave with over $5T in additions to publicly-held debt--effectively doubling what he inherited--it would take more than 2 years for the government to pay off ObamaDebt EVEN IF IT DIDN'T SPEND ANOTHER PENNY IN THE INTERIM. And for the past 3 years, Paul Krugman has been screaming at the top of his voice we're not spending nearly enough!
It's sheer madness, of course; whenever I hear another clueless Keynesian progressive repeat his boorish mantra "trickle-down economics", I want to scream back "trickle-down government" (whatever is left after the self-preserving bureaucratic monster has fed). Money is fungible: government spending is hardly intrinsically meritorious; it has no incentive to improve efficiency beyond the latest election, with many interest groups vested in status quo or expansion of regulations, mandates or benefits. Taxpayers are captive customers; government uses force to enforce payment of taxes, plus it holds control over fiat currency printing presses. It is next to impossible to downsize the federal government. Austerity means little more than living within your means, leaving more resources for the more efficient, effective private sector. Inefficient operations or lack of innovation in products and services provide potential vulnerabilities for competitors to exploit. Legacy obsolete cost structures are spilled milk. Keynesians like Krugman oppose decreased government spending as a matter of principle, even if austerity is little more than improved government efficiency like in the private sector. I see this as little more than a macro version of Bastiat's broken window fallacy. The seeds of renewed economic growth lie in giving up the ghost of obsolete costs.
Krugman, a frequent guest to ABC's This Week, is an effective, articulate communicator for his point of view, but he has the smart aleck, pervasively condescending "I-have-a-Nobel-Prize-and-you-don't" air about him. You almost wish that you had a designated momma on hand to slap the taste out of his mouth. (People have made similar comments about me; I think it has more to do with the fact that I'm direct and have self-confidence. However, I have a sense of humor about myself, and my focus is on the merits of the argument, not trying to make the other fellow look like an idiot.) What concerns me is that Krugman is using his obnoxious personality to distract attention away from his pathetically poor case for penny-wise, pound-foolish irresponsible government overspending.
Mark Skousen, an investor in the Austrian School tradition, had an overseas encounter with Krugman, whom at the time was shilling his latest book entitled
What did he think of the Canadian success story, how Canada faced a similar fiscal crisis in 1995, and cut federal spending and employment? All the Keynesian economists opposed it, but it turned out to be a big success — they balanced the budget in two years and the economy boomed. Then they went on a 11-year supply-side tax cut policy, and reduced capital gains, national sales, and corporate income (rate is now 12%!). They had no financial crisis in 2008, and no bank failures. [Krugman says Canada exported its way to growth through a weak Canadian dollar.]
I asked, “Isn’t Spain’s problem of 25% unemployment all about inflexible labor markets, the fact that Spanish firms are discouraged from hiring new workers because of government regulations?” [Krugman argued that overregulated labor was small potatoes.]
“What about austerity?” I asked. He said he opposed it now, but once we are over the recession, austerity would be required.Krugman is slippier than a wet noodle to nail down. But I believe that Skousen is correct on all counts.
Austerity? Yes, Krugman sees austerity with all the conviction of St. Augustine, whom famously wrote, "Lord, Make me chaste, but not yet." I can hardly wait for Krugman's next book; it'll probably be a diet book: "350 Pounds and the Michael Phelps Diet"; sure, austerity (diet and exercise) will be important one day, but we first need to restore the obese man to rotund health...) Can I see a show of hands of anyone convinced that a confirmed Keynesian will ever think it's a good time to cut spending if he is convinced federal spending is good for the economy?
Toomas Hendrik Ilves, the President of Estonia, doesn't quite rate one of my coveted IPPON! awards for his responses to Krugman's recent post damning Estonia with faint praise for its austerity program. President Ilves' tweets were sarcastic and quite accurate, of course. I would caution that President Ilves because I think Krugman specifically picked this fight to hype sales of his book. I don't think President Ilves should be the unwitting party Krugman uses to sell his economic nonsense...
Okay, before proceeding, let me create my first multiple-choice economics question for non-economists:
During 2008-2009, Estonia's economy contracted by 18%--more than Greece's economy has contracted over the duration of the so-called Great Recession. How did the Estonian government respond?
(a) blame George W. Bush and 8 years of failed policies;I won't publish the answer here, but see here for a hint. Here's a quote from a recent Huffington Post article:
(b) double the publicly-held national debt, investing in education, infrastructure, and green energy;
(c) engage in class warfare, scapegoat the political opposition, and go on a blame Estonia tour;
(d) slash civil servant salaries from 10 to 20%, raise the pension age, narrow criteria for health benefits, reduce and simplify taxes, and deregulate labor protections
Estonia, which in 2011 became the latest country to join the eurozone, has been heralded by some as an austerity success story. That year, it clocked a faster economic growth pace than any other country in the European Union, at 7.6 percent. Estonia is also the only EU member with a budget surplus, and had the lowest public debt in 2011 -- 6 percent of GDP. Fitch affirmed its A+ credit rating last week.Germany, with the strongest economy in the European Union, has a public debt of just over 80% GDP, and the growth rate of Estonia was 5 times the average. There is a vibrant high tech sector (e.g., Skype) which complains it can't find enough qualified local applicants. Is Estonia out of the woods yet? Wages and unemployment are still on the wrong side of the EU average, but the situation is improving. More impressively, Estonia reelected the politicians whom passed the austerity measures. I am clearly impressed with the Estonian people (versus, say, the Greeks or French, whom irresponsibly and counterproductively scapegoated legislators making tough, necessary decisions).
I think I just found my first candidate for Man of the Year (an award that has no stipend or trophy, just a few bytes in cyberspace). No, I don't mean Paul Krugman...
Musical Interlude: My Favorite Groups
Tom Petty and the Heartbreakers, "A Woman in Love (It's Not Me)". I bought the album once just to get this song which didn't break the Top 40. (I think it hit #5 on the rock chart; I knew the song because it got a lot of airplay when it came out.) This song is a true pop jewel, perfect song, wouldn't change a thing: the screaming guitar work, the driving percussion, the angst-ridden lyrics and vocals, the instrumental bridgework, the sparkling arrangement. I've listened to and sung along with this song hundreds, if not thousands of times without tiring of it.
I haven't previously published my personal top 10, but other tracks include: Bruce Springsteen's "Candy's Room", Simon & Garfunkel's "My Little Town", Doors' "Touch Me Now", Bee Gees' "Tragedy", Paul McCartney's "Maybe I'm Amazed", Eagles' "Desperado", the Carpenters' "Bless the Beasts and the Children", the Beatles' "Something", and Céline Dion's "To Love You More".
This list may change. In case you're wondering what's on my second 10: Pat Benatar's "Hell is for Children", the Carpenters' "Close to You", Richard Harris' "MacArthur Park", Barry Manilow's "Could It Be Magic", Chicago's "Old Days", Lonestar's "Amazed", the Beatles' "Yesterday", Neil Diamond's "Pretty Amazing Grace", Jim Brickman (featuring Michael W. Smith)'s "Love of My Life", and Peter Cetera's "One Good Woman".
I obviously have dozens of other favorite songs and artists (for a more comprehensive list, see here). There are nuances associated with some of my selections. For example, a few years back a former girlfriend and I were listening to the radio one evening when "Something" and "Close to You" came over the radio, and I sang along, serenading my lady, and then she sang an unfamiliar love song back to me a cappella. A truly spontaneous romantic moment I'll always treasure.
