This is the best post on deficits I’ve read in a while.

In Sum: Both sides are full of shit.

Jamie posted this at 2:24 PM EDT on Thursday, June 11th, 2009 as It's Economics - Stupid!

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This is the best article on taxation I have read in a while.

(Hattip: Dad)

Jamie posted this at 1:01 PM EDT on Thursday, May 21st, 2009 as It's Economics - Stupid!

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President Obama wants to cut federal spending by $100 million.  All well and good, but here’s a graphic that shows how big that cut really is (H/T).

Hubbard posted this at 11:54 AM EDT on Tuesday, April 21st, 2009 as Bailoutistan, CHANGE!, It's Economics - Stupid!

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On the cover of my May 2009 issue of Smart Money is this teaser: “It It Time to Dump Index Funds? p. 15″

Actually, that might have been a great story for the May 2008 issue. See also here. See also here. If you’re still on the train, I’m unsure as to why you would get off now.

Apollo posted this at 2:40 PM EDT on Saturday, April 11th, 2009 as It's Economics - Stupid!

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A journalist just asked the president whether charities are wrong when they say that reducing the charitable contribution deduction for the wealthy (i.e. those with enough money to give away) will reduce the incentive to donate to charities.

No, no it doesn’t reduce the incentive, he said.

His answer to that question was no less willfully ignorant than those who deny evolution or insist the earth is flat. The difference, of course, is that a president has never asserted that he should be able to take over science departments or mapmakers. This president has asserted that he should be able to take over any company he feels like. And he gets on prime time television and flat out asserts that the most fundamental law of economics – incentives matter – is wrong.

This man is a walking argument for small government. The smaller the government, the less damage the idiots in charge can do. The larger the government, the more control economic illiterates have over the economy.

Update: Here’s the exchange:

QUESTION: It’s not the well-to-do people. It’s the charities. Given what you’ve just said, are you confident the charities are wrong when they contend that this would discourage giving?

OBAMA: Yes, I am. I mean, if you look at the evidence, there’s very little evidence that this has a significant impact on charitable giving.

Incentives don’t matter.  There’s not even an acknowledgement here that, “Yes, it may discourage some giving, but I think the gains in tax revenue are worth it.” There’s just an assertion that the laws of economics don’t apply here.

Apollo posted this at 7:56 PM EDT on Tuesday, March 24th, 2009 as It's Economics - Stupid!

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Congressmen like Barney Frank are playing with fire.  Populism is an explosive force because angry people are very likely to take out their wrath on the wrong target, much like a whipped dog attacking its own sides rather than the whip.  The AIG bonuses seem egregious, but congress is only adding fuel to the fire when they stoke fury.  Mona Charen observes that:

the most sinister move came from Barney Frank. He demanded that Liddy reveal the names of the 73 executives who had received retention bonuses. Liddy said he would so if he could receive a promise of confidentiality. Frank refused and threatened to subpoena the names. Liddy said if subpoenaed he would obey the law, but he then read to the committee some of the death threats his company had been getting over the past few days. Some threats spoke of hanging the executives with piano wire, others of finding where their kids went to school.

That is the sort of ugliness and criminality that Frank is willing tacitly to encourage by demanding the names. And for what? The bonuses amounted to just one-tenth of one percent of the AIG bailout (to say nothing of the stimulus bill and the gargantuan budget bill Congress and the president are hanging around our necks). If politicians want to metaphorically flay away at evil businessmen, well that’s regrettable. But when they cross the line into encouraging the targeting of actual individuals, they are no longer “honorable gentlemen,” but leaders of a mob.

Krauthammer explains why congress’s actions are very likely unconstitutional and short-sighted:

And there is such a thing as law. The way to break a contract legally is Chapter 11. Short of that, a contract is a contract. The AIG bonuses were agreed to before the government takeover and are perfectly legal. Is the rule now that when public anger is kindled, Congress will summarily cancel contracts?

Even worse are the clever schemes being cooked up in Congress to retrieve the money by means of some retroactive confiscatory tax. The common law is pretty clear about the impermissibility of ex post facto legislation and bills of attainder. They also happen to be specifically prohibited by the Constitution. We’re going to overturn that for $165 million?

And Linda Chavez both makes the case that many of the people at AIG actually deserve their bonuses and identifies the root of the real problem here in human nature:

When a company is collapsing — as AIG certainly was at the time these contracts were negotiated — everybody who has an alternative is looking to jump ship. Think about it. If you knew that your employer might not be around in a few months and you had very specialized skills that were much in demand elsewhere, would you be willing to go down with the ship? Not likely. But if your employer offered you a handsome financial incentive to stick around, you’d be far more likely to take the risk. Well, that’s exactly what AIG did when it negotiated retention bonuses.

But what about the people, who received those bonuses, that had already left the company? It’s legitimate to question whether those bonuses are deserved, but it’s ridiculous to jump to the conclusion they aren’t based solely on the information we currently have.

It depends on the circumstances surrounding their departures. If they just up and quit, leaving the company in the lurch, they aren’t entitled to the bonus. But my guess is that most of them left because the company decided it was in its interest either to eliminate the job or replace the individual with someone else. In that case, barring demonstrable fault on the part of the individual, the company would be obligated to pay the amount that had been promised when the employee agreed to stay on.

So if it’s not the principle of retention bonuses that infuriates people, what is it? It’s anger that the people who received these bonuses are greedy. But greed isn’t the only destructive vice out there. What’s driving public outrage right now is another unattractive vice: envy. Neither vice is healthy.

Class envy won’t put a single penny in anyone’s pocket. It won’t save jobs. It certainly won’t solve the credit crisis. And the irresponsible rhetoric from politicians will make it less likely that we will solve the real problems confronting the nation.

We’ve already had Sen. Charles Grassley suggest failed company executives ought to commit hari-kari — which he retracted later — and Rep. Barney Frank seemed perfectly happy to have AIG executives who received bonuses identified publicly even if it jeopardized their security. If this keeps up, it could turn really ugly. Mobs are difficult to control once they’ve been unleashed. But don’t expect any of the rabble-rousers on Capitol Hill or in the White House to take responsibility if things turn violent.

First we have complicated but perhaps justifiable reasons for bonuses.  Second we have congressmen stirring up outrage in a matter that might shred constitutional guarantees against ex post facto laws.  Third, we have a situation where this simplified narrative may prevent us from needed reforms, as Kim Strassel explains:

This spectacle has left the financial community with one impression: Stay away. What healthy bank, what hedge fund, what private equity firm wants to take part in an Obama plan to sell off toxic assets, or to revive consumer lending, with the knowledge that they might be Washington’s newest bonfire? Executives are already working to get out of TARP, fearful of political punishment. This despite a recession, falling house prices and growing bank losses.

As it happens, the administration has suggested the banks might need yet more public capital, not less. But just who in Congress is today prepared to vote to provide more funding, with greedy AIG on the public mind? It’s too busy passing laws to levy 90% taxes on bank employees everywhere.

Washington does have its grown-ups: Those few Republicans who tried for years to reform Fannie and Freddie, but who also voted for a necessary banking rescue; those in Congress who have tried to explain that the goal is not to bail out bankers, but to bail out ourselves; those very few who have stood up to remind Americans that — as distasteful as some Wall Street bonuses have appeared — it is far more pernicious for Washington to start setting salary caps. Sadly, their reward for political courage has been to be labeled as stooges of . . . greedy Wall Street.

That’s right. Washington has its story, and it’s sticking to it. Perhaps to the bitter end.

H.L. Mencken seems appropriate to quote here: “Democracy is the theory that the common people know what they want, and deserve to get it good and hard.”

Hubbard posted this at 9:22 AM EDT on Friday, March 20th, 2009 as CHANGE!, It's Economics - Stupid!, Kraut-hammered, The Democratic Congress

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Back in the old campaign days, the Obama campaign sent out mixed messages on trade.  Obama sounded protectionist notes, but Austan Goolsbee reassured Canada that it was mere rhetoric.  Like former Attorney General John Mitchell (of Watergate fame), Goolsbee essentially told Canada, “Watch what we do, not what we say.”

The Obama administration has probably violated NAFTA by blocking Mexican trucks, which the Teamsters Union supports.  So Mexico has, unsurprisingly, retaliated—but has done so shrewdly, in a way to punish the politicians who backed the Obama policy:

California, an important supplier of fresh fruits, dried fruits and nuts to Mexico, will be hit hard. Table grapes will face a 45% duty at the Mexican border; wine, almonds and juices among other agricultural products will pay 20%. Some 90% of Christmas-tree exports from California and 65% from Oregon go to Mexico. It’s doubtful volumes will hold up beneath a 20% tariff.

Alongside Oregon, Washington state will pay dearly to protect the Teamsters. Four out of 10 pears that the U.S. exports go to Mexico and half of those come from Washington. Under the new rules, American pears now face a 20% tariff, as do a host of paper products from the Pacific Northwest and Wisconsin.

Wisconsin’s scrap battery industry, which exports $128 million annually to Mexico, won’t be as competitive after it pays a 20% tariff. Nor will New York’s $24 million annual exports in personal hygiene products or its exports of $250 million in precious-metals jewelry. President Obama’s home state of Illinois can’t be happy to learn it will lose competitiveness under a 20% tariff on its plastic tableware and kitchenware exports to Mexico ($57 million annually) and on its printed leaflets and brochures ($68.7 million).

North Dakota Senator Byron Dorgan sponsored the amendment that closed the border and his constituents will pay. North Dakota only exports $1 million in oil seeds annually but 80% of that goes to Mexico. They now face a 15% tariff.

With the cost of imported U.S. products now higher, Mexicans will substitute these U.S. brands with products from Europe, Canada and Latin America. The retaliation appears to take care not to punish Mexican consumers or producers nor give new protection to any special interest in the domestic market. Its purpose is to focus Washington on its Nafta commitments.

We’ve got 46 more months of this, at least. . .

Hubbard posted this at 8:12 AM EDT on Thursday, March 19th, 2009 as CHANGE!, It's Economics - Stupid!

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Wilkinson:

The “size” of government is not a good proxy for either economic or non-economic liberty or for economic performance. Advocates of “small government” need to worry more than they do about the moral and economic dimensions of the composition of spending, and they need to realize that they care more than they think they do about questions of “distributive justice,” which is pretty obviously manifest in enthusiasm for reforms, like the “flat” and “fair” tax.

I think our real concern ought to be limited government. But whether you think an ideally limited government is also small will depends on lots of things including your account of rights, your beliefs about the relative efficiency and reliability of state vs. market provision of various goods, your beliefs about the necessity of public spending to facilitate growth, and more.

The post goes off to some interesting places — largely dependent on how one reads his use of the word “liberalism” –  but it’s a smart post.

Tom posted this at 1:07 PM EST on Monday, February 23rd, 2009 as It's Economics - Stupid!

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California is going bust, and the British are amused:

How did this happen? Sure, the economy is bad. But this is a state whose money comes from the most bankable economic assets on Earth – the Long Beach ports, the Central Valley agricultural region, the defence contractors out in the Mojave desert, Silicon Valley, Napa Valley… Hollywood. How do you tax all this and end up amassing debts at the present rate of $1.7 million per hour?

Perhaps it has something to do with the man running the place. And I am ashamed to say that, yes, when the actor most famous for playing a killer robot in a so-so B-movie ran for governor, I was behind him. I defended his fiscally conservative, socially moderate agenda and loveable tendency to work movie tag lines into important policy debates. I believed in Governor Arnold Schwarzenegger, the “governator”. And like the five million Californians who voted for him, I’m feeling a bit silly now.

A lack of appreciation of the past has been a hallmark of California politics for some time now.  My co-blogger Apollo aptly quoted Ghân-buri-Ghân to this effect:

Many paths were made when Stonehouse-folk were stronger. They carved hills as hunters carve beast-flesh. Wild Men think they ate stone for food.

Infrastructure didn’t just arise out of the desert.  It took generations to build—and only a single generation to wreck.  Will the state get a bailout?

Hubbard posted this at 9:42 AM EST on Tuesday, February 17th, 2009 as Bailoutistan, It's Economics - Stupid!

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After watching todays wonderful economic turn of events I decided to cheer myself up by watching Milton Friedman videos on YouTube.

God I’m a nerd.

Jamie posted this at 12:02 PM EST on Tuesday, February 10th, 2009 as It's Economics - Stupid!, We're all DOOMED

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Interestingly, the new UAW talking point on why UAW workers shouldn’t take a pay cut is that UAW workers don’t make as much as Toyota’s workers.

Huh. Mickey Kaus makes the point that Toyota can afford to pay its workers that much because it’s profitable. But the sublter point he makes needs to be stated explicitly:

Factory 1: Unionized workers, lower wages, losing money.

Factory 2: Non-unionized workers, higher wages, making money.

So if the UAW talking point is correct, they’ve managed to run their companies into the ground and didn’t even get more money for their workers out of the deal. The whole point of unions is to get more for their workers; according to Gettelfinger, now, the UAW can’t even do that. I think the UAW should change its talking point before people realize that its argument only shows that the UAW is a dead weight loss.

Apollo posted this at 12:41 PM EST on Sunday, January 25th, 2009 as It's Economics - Stupid!

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I went to a Wal-Mart in southern California tonight. It had no fewer than 26 permits and licenses displayed, from the city, county, and state governments, including at least three from the California Bureau of Home Furnishings and Thermal Insulation. I poop you not, that’s a real state agency.

Of course, it doesn’t phase Wal-Mart at all to get those permits and licenses. They probably have several people employed full time making sure that their California stores have all the permits and licenses they need. Because big corporations make large sums of money, they can afford such large, wasteful expenditures.

Mom and pop, though, can’t. If you wanted to open a custom upolstery business, would it dawn on you that there were no fewer than three sections of the California Business and Professions Code specifically devoted to governing your behavior, including one that required you to have a custom upholstery license (unless, of course, you already held a “bedding manufacturer’s license” – nothing gets my goat more than unlicensed bedding manufacturers!)? Traditionally, if someone operated a custom upholstery business and exceeded the cost estimate he provided to his customers, he quickly went out of business because there would be negative word of mouth and no repeat customers. In California, however, such behavior is a frickin’ crime!

Wal-Mart’s not in the custom upholstery business. But they do sell sheets and various sorts of bedding. And as such, they need at least three permits from this single government agency. To sell sheets. Because, I guess, Californians are so stupid that if they were left to their own devices they couldn’t buy proper bedding. They’d probably buy bags of potato peelings to cover themselves and gallons of gasoline to fill their waterbeds, and wonder why they woke up feeling starchy and engulfed in flames. Let us stop and thank God above that the California Bureau of Home Furnishings and Thermal Insulation is there to prevent such a travesty.

Apollo posted this at 3:02 AM EST on Tuesday, December 23rd, 2008 as It's Economics - Stupid!

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AP writers are *gasp* withholding their bylines in order to pressure management in contract talks. Personally, I’m not sure how much pressure this exerts. Historically, a lot of journalism has been published without a byline, and some publications, like The Economist, still carry on this tradition. But perhaps the AP writers know more about the journalism business than do I:

The Guild said it had opened with a 10 percent wage increase proposal, “but has indicated flexibility at the bargaining table.”

Besides withholding bylines from stories and photographs, the Guild said some employees “planned to withhold use of their personal vehicles, cellphones, and other equipment, while others were ‘working to rule.’”

The Guild said the protest began Sunday and is “set to end later this week.”

AP president and chief executive Tom Curley said last month that the New York-based AP, a cooperative owned by 1,500 daily US newspapers, plans to reduce its staff by 10 percent over the next year, mostly through attrition.

The move, which would amount to more than 400 jobs, was necessary because of a reduction in fees paid by member newspapers, many of which are facing financial difficulties, and the declining economy, Curley said.

You see, if my employer was cutting 10% of its workforce because its revenue stream was drying up, I would not ask for a 10% raise for doing the same job I’ve been doing. Indeed, I might infer that part of my employer’s failure was do in some microscopic part to the work me and my colleagues were doing, and thus getting militant at the negotiating table might cause them to just fire the lot of us and start anew with cheaper and more productive workers. After all, it’s not as though AP writers have a unique skill set; probably a hundred thousand college graduates a year could be passable beat reporters with a month of training.

But then, I’m not a unionized journalist, so what do I know about economics? Strike on, nameless comrades!

Apollo posted this at 12:53 PM EST on Tuesday, December 16th, 2008 as It's Economics - Stupid!, Journalism

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The levels of bad government involved in this story astound. Why does the White House insist that Congress “failed” to act? Rather, they succeeded in not acting, which is the toughest thing to do in these circumstances, and something to be lauded.

But, of course, Congress is to be blaimed for giving the administration $700 billion, no strings attached. Plainly this is not what was intended; we were all told that bailing out banks was a unique circumstance, if the banks fail we’d all fail. That can’t be true of GM.

I hope those who supported the original bailout are pleased with their handiwork. Some of us knew this was a path to unending government bailouts of anyone with a lobbyist who felt like whining. Now, money that was supposed to be used to keep credit flowing and small businesses open is instead being used to keep an oppressive labor union from bringing its practices into the 21st century, and multi-billion dollar corporations with idiotic management from harvesting what they’ve sowed. Now we’re propping them up, in an economic downturn where auto sales obviously won’t be picking up anytime soon.

This reliance on mega-corporations is very 1960s. What’s going on now is a futile and extraordinarily costly attempt to keep dinosaurs alive in an environment better suited to smaller, more versatile creatures. Why not let these three automakers flounder and a dozen pop up in their place? If there’s room in the market place for both GMC and Chevy trucks when both are owned by the same company and are identical (except for a mild variation in headlights), imagine how much better the market would be if we had a GMC and a Chevy that were competing against each other. It’s 2008 and some still think we’re dependent on three automakers and a union that’s a parody of Wagner Act stupidity? Talk about a failure of imagination.

And just as with the original dinosaurs, these guys are not savable. The only question is how much good money will we continue to throw after bad. The answer from the Bush administration, enabled by the nitwits in Congress and those who panicked back in September by supporting this chain of bailouts, is “untold trillions.” We’ve no reason to expect that the incoming administration is going to be better; indeed, we’ve every reason to believe that this impending bankruptcy was a once in a generation chance to give Detroit a chance at regaining competitiveness. Now the Bush administration has ruined it, and steered the government down the road to nationalization, a path that the next administration probably won’t object to very loudly.

This is going to take decades to unravel, if we’re lucky.

Apollo posted this at 12:22 PM EST on Saturday, December 13th, 2008 as Bailoutistan, It's Economics - Stupid!

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The government is “investing” another $20 billion into Citibank. Obama says his “stimulus” package is up to $700 billion. This is on top of the $700 billion we’ve already sunk. Some guy on Fox yesterday said with a straight face that we’re looking at multiple years with deficits of more than $1 trillion.

A suggestion: Why not just have a bailout of $∞? That would probably shore up our financial system, and might get the economy firing on some additional cylinders. So long as we’re “borrowing” play money, why not do it for reals?

Apollo posted this at 2:38 AM EST on Tuesday, November 25th, 2008 as It's Economics - Stupid!, Lord, What Fools These Mortals Be!

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