The nobler sort of man emphasizes the good qualities in others,
and does not accentuate the bad.
The inferior does the reverse.
Confucius
Chart of the Day
Pethokoukis has an interesting AEI blog, in addition to Mark Perry's Carpe Diem; a recent post featured the first chart showing spending (blue) versus revenues (red). The circled area reflects the Age of Obama's deficits. What the chart does not show are off-balance sheet unfunded liabilities; the Baby Boom Tsunami is just starting, and the deficit is materially understated, from an accrual accounting perspecitive. If we got more robust growth, it would mitigate the deficit. I've added charts for state, local and aggregate government spending. It's stunning that nearly 40% of GDP is being spent by government; the private sector employs 5 of 6 employees.
Pethokoukis has other, related posts. The new Obama budget, even on unrealistic growth projections, doesn't show employment getting back to pre-recession peaks for another 10 years. And the budget won't be balanced until 2055. As bad as that is, Obama's clueless, counterproductive anti-growth policy is discussed in another post:
Quick econ lesson: The key flaw of any income tax is that it penalizes saving [and investment]. That’s bad. The reduction in capital accumulation reduces labor productivity and lowers real wages throughout the economy, depressing the standard of living of future generations. Some studies have found that a switch to consumption taxation would increase the size of the US economy by as much as 9%.
But the capital gain tax preference and various savings accounts such as IRAs and 401ks help offset the tax code’s anti-savings bias. That’s good for growth. But Obama keeps trying to dismantle these work-arounds in the name of fairness. In this case, more fairness equals less economic growth.
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| Courtesy of James Pethokoukis/AEI |
John Taylor Interview
One of my favorite economists... His late January WSJ op-ed is a beautiful critique of the Fed. Let me single out some key takeaways:
- Early in 2010 they predicted that growth in 2012 would be a robust 4%. It turned out to be a disappointing 2%. And as the recovery fell short of their expectations, they continued and then doubled down on the emergency interventions used in the panic in 2008.
- The Fed's current zero interest-rate policy also creates incentives for otherwise risk-averse investors—retirees, pension funds—to take on questionable investments as they search for higher yields in an attempt to bolster their minuscule interest income. The low rates also make it possible for banks to roll over rather than write off bad loans, locking up unproductive assets. And extraordinarily low rates support and feed the spending appetites of Congress and the president, increasing deficits and debt.
- The large on-again off-again asset purchases have already created highly variable money growth—from 10% in January 2009 to 2% in June 2010 and back to 10% in early 2012 and then down again. Wide swings in money supply reduce macroeconomic stability—a danger that Milton Friedman warned about long ago.
- The perverse effect comes when this ceiling is below what would be the equilibrium between borrowers and lenders who normally participate in that market. While borrowers might like a near-zero rate, there is little incentive for lenders to extend credit at that rate.This is much like the effect of a price ceiling in a rental market where landlords reduce the supply of rental housing. Here lenders supply less credit at the lower rate.
Political Cartoon
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| Courtesy of Michael Ramirez and IBD |
Crosby, Stills and Nash, "Suite: Judy Blue Eyes"
