Quote of the Day
Every trial endured and weathered
in the right spirit
makes a soul nobler and stronger
than it was before.
James Buckham
Magical Keynesian Pixie Dust:
It's Going to Take the Economy High
(Maybe With the Help of Mary Jane's Friends)
Let me put in a plug here for an independent southern Michigan college Hillsdale. I've never visited the campus but some time back, along with over 2 million others, I got on a mailing list for Imprimis, a monthly publication featuring a single conservative essay (you can subscribe here).
John Steele Gordon's summer-published lecture, "Economic Lessons from American History" has some good points and examples salient in that Obama is once again trying to spread his nonsense which confuses "investment" with unpaid for make work spending: in particular, the first two: governments make lousy investors and politicians have self-interest.
Gordon provides compelling evidence that government is a poor competitor. The Feds, staring with the Wilson Administration, built a factory to produce battleship armor: at twice the cost of private sector steel companies. It routinely underestimates project budgets , e.g., the Clinch-River Breeder reactor went 20 times over budget before the government pulled the plug on the incomplete project..
Gordon actually gives the government credit for success in building the Erie Canal and the Interstate Highway System and suggests government can be justifiable in highly-scaled projects. I'm far more skeptical: we didn't need Eisenhower to test the inadequacy of the existing public monopoly road system; any business logistics engineer faced the same problem transporting supplies and goods. Private companies given access to federal or other government land and the ability to charge tolls would have done it faster, cheaper, maintained it better and would have proactively planned solutions to congested road systems. The idea that a federal government over $16T in debt (and really tens of trillions more because a financially responsible government would have properly funded entitlements on an ongoing basis) is capable of funding and managing large-scale projects is strictly delusional. Big Businesses have gotten so used to transferring costs and risks to other taxpayers through the government. I think Gordon underestimates the possibilities of private joint ventures.
I like the fact Gordon goes beyond the poster boy of government rail money-losing incompetence (AmTrak) to discuss the New York state fiasco of the Erie Railway; because of rules and regulations (no direct link between Buffalo and NYC, within state borders (no New Jersey terminal, for instance).
I like the second lesson example even better. (I think Illinois and Chicago have played similar games.) The Left demonizes the profit motive but bureaucrats and career politicians have their own interests: you don't win popular support by raising taxes or cutting government services. Back in 1992, to resolve a $200M shortfall it engaged in a shell game, the New York government sold a state prison to a state agency backed by bonds and leases the prison from the agency. I call this the government's version of minimum payment financing, and it's a basic concept of Obamanomics. The deficit is artificially less than it should be for at least 2 reasons: underfunding of entitlements and manipulated low interest rates. If we went to historical benchmarks, we would see the service to our debts rising to a trillion dollars or more--40% of our aggregate tax revenue. How sustainable is this type of budget gimmickry? After all, there are are only so many state assets.
Time Magazine Putting Lipstick on a Pig
I mentioned in an earlier post that I got a subscription to Time when my multi-year US News print edition ceased publication some time back. Time has a typical liberal mainstream orientation and so I rarely read them when I get them. (Faithful readers know I do the same thing on Sunday talk soup podcasts.) I wish free market economists I cite dealt with related abuse of economics statistics.
There were a couple of items in the 10/3/11 issue on the economy briefing: Bernanke's record on inflation and effective tax rates paid in broad staged categories: starting at 4500K (24%) to 18% for the 400 wealthiest.
First of all, on Bernanke: let us consider the fact there was almost zero inflation before the use of greenbacks and/or we maintained a commodity-backed currency.. The fact of the matter is there is inflation in this economy despite manipulated near-zero interest rates, and part of that reflects the declining purchasing power of the dollar (like imported oil prices). Prices have remained stable in part because of an anemic economy and economic uncertainty (including the European crisis). The Time perspective assumes a dual mandate perspective (i.e., unemployment, and it implies that Bernanke's record is deficient from a full employment perspective), but Bernanke has done little to address dysfunctional policies including economic uncertainty of reckless finance and healthcare "reforms", and unsustainable entitlements and federal spending. All Bernanke has done is defer the day of reckoning, the Fed has a vested interest in Dodd-Frank, and by manipulating interest rates he confounds remedies to malinvestment and encourages rent-seeking behavior.
Second, on the effective rate nonsense, Time fails to point out the wealthy pay a disproportionate and historically high amount of absolute tax dollars (up to double their share of national income), that much investment income is double taxed and taxes nominal not real income. For example, when you pay taxes on interest below inflation that is not income but principal.
Taxing people more than a flat rate gives people incentives not to earn more realized income at each bracket--a perverse policy. We should not be penalizing success: we need simpler, consistent tax policies to encourage income realization and growth.
Musical Interlude: Christmas Retrospective
"Rudolph the Red-Nosed Reindeer"
