Chronicle of the Conspiracy
Friday, January 19, 2007JOKE OF THE DAY It's all true...
Posted by Donald L. Luskin at 8:45 AM | link
ONE VERY BIG VOTE AGAINST "NET NEUTRALITY" From The Register:
Robert Kahn, the most senior figure in the development of the internet... rejected the term "Net Neutrality", calling it "a slogan". He cautioned against dogmatic views of network architecture, saying the need for experimentation at the edges shouldn't come at the expense of improvements elsewhere in the network...
Posted by Donald L. Luskin at 12:12 AM | link
Thursday, January 18, 2007FIVE MINUTES TO MIDNIGHT Here's my SmartMoney.com column for Friday:
Was Thursday, January 18, the end of the world? Or at least the beginning of the end of the world?
It felt like it for the NASDAQ, down 36 points.
The mood for the day was set by the Bulletin of the Atomic Scientists, the respected publication of experts on nuclear weapons, which moved its famous symbolic "doomsday clock" two minutes closer to midnight. Since 2002 it's been at seven minutes before midnight, now it's at 5 minutes.
Why? It's not just the increased risk of the use of nuclear weapons by terrorist states like Iran or North Korea. Now the risk symbolized by the doomsday clock includes the risk of ecological disaster brought on by global warming.
Let's pass over the matter of what the heck atomic scientists know about climate change. Nothing, basically. But when it comes to hopping on a bandwagon of hysteria, everyone is welcome.
Fed chief Ben Bernanke was in a doomsday mood too, testifying before Congress on the long term budget outlook for the United States. All I can say is he made global warming look good. With any luck, we'll all drown in melted polar ice water before spiraling Social Security and Medicare obligations melt the economy.
But the real end of the world Thursday was something else entirely. It was when the Democrat-controlled House of Representatives voted to raise taxes. It's the first time the House has voted to raise taxes in 13 years.
Daniel Clifton of the American Shareholders Association says, this might be "the first step in reversing what could be considered the best run for American taxpayers since the creation of the income tax."
It's been a good run for investors, too. With lower taxes, the economy has grown faster. So stock market returns have been higher.
According to data from Ibbotson Associates, the real (after-inflation) compound annual return of the S&P 500 over those 13 years was 8.2%, compared to an average of only 7.0% for all the years prior.
Wait! Stop right there! No nasty emails, please! Let me anticipate your objections.
You're probably saying, so what -- the difference between 8.2% and 7.0% is trivial. Oh, really? Suppose you have some money to deposit in the bank. There are two banks, right next door. One pays 8.2% interest, and one pays 7.0% interest. Which one are you going to choose?
You'd better pick the one that pays 8.2%, especially if you're a long-term investor. After a 60-year lifetime of investing, thanks to the magic of compounding you'll have twice as much in your account if you get that extra 1.2% per year interest.
And you're probably saying that over those 13 years we not only didn't raise taxes, we cut them. So what about the government budget? How can we possibly get along without those tax revenues?
We can get along better, actually. In 1993, before the 13 years of no tax hikes began, the federal deficit was 3.9% of GDP. Today, after 13 years of tax cuts, it's about 2.5%.
And back in 1993 the cumulative federal debt was 49% of GDP. Now it's only 39%.
So let's see here. We cut taxes for 13 years. The stock market performed better. The deficit went down. The debt went down.
So what's the stupidest thing we could possibly do now? That's right (all at once, now): raise taxes.
And that's just what the House did yesterday. It's the beginning of the end of the world.
What the House did, exactly, was this: it imposed $8 billion in new taxes on the American energy industry. Yes, the greedy goniffs who gouge you at the pump for the gasoline made from the oil they had to drill ten miles through sub-ocean rock on the other side of the world to get for you. Those guys.
Stop kidding yourself. Don't get distracted by the pretty words in the same legislation that spends some of the money on cool-sounding "alternate energy" technology. A tax is a tax, no matter how it's spent. And a tax on them is a tax on you. As sure as night follow day, $8 billion in new taxes for the energy industry means $8 billion in higher prices at the pump -- for you.
Another tax increase could happen in the next couple months without anyone voting for it at all.
Unless a new law is passed to prevent it from happening, in the 2007 tax year the threshold for individual taxpayers to qualify for higher Alternative Minimum Tax rates will revert back to its 2002 levels. About 20 million people who think of themselves as middle class, people who never had to pay AMT before, will have to pay it this year. The average hit per taxpayer will be something like $4,000.
Because of the details of the way AMT is calculated, it hits taxpayers hardest if they live in states that have high state and local income taxes. Those states -- like New York and California -- are dominated by Democratic voters. So there's a decent chance that the Democrat-controlled congress will do something to prevent this tax hike from happening.
But last week the House passed so-called "pay-as-you-go" rules that require that any tax cut be offset by a tax increase, or by spending cuts. Do you think this new Congress is going to cut spending? I don't. That means if they stop the AMT tax-hike, they'll just have to raise some other tax to make up for it.
And you and I both know which tax they're going to want to raise: the taxes on dividends and capital gains that were slashed in 2003.
Lower taxes for investors kicked off one of the best bull markets in history and sent the Dow Jones Industrial Average to new all-time highs. If those taxes are raised, it's bye-bye for stocks.
As the year plays out, investors are going to have to seriously ask themselves whether this new Democrat-controlled Congress might just be the end of the world.
It's five minutes to midnight right now. Don't fall asleep.
Posted by Donald L. Luskin at 11:35 PM | link
THE IPOD STANDARD Let's see -- how many fallacies can we find in this analysis of "purchasing power parity" by comparing the price of an iPod in various countries? Is the biggest fallacy of all that this nonsense is carried on the website of Scientific American?
Purchasing power parity surveys compare the prices of goods in different countries and at their simplest level can help show whether one currency is undervalued against another...Thanks to "Irrational Exuberance" for the link.
Posted by Donald L. Luskin at 2:55 PM | link
UNMASKING A CLASSIC KRUGMAN CANARD Nice Krugman slashing by David Hogberg at the American Spectator:
...Krugman's attempt to paint our health care system as inferior,By the way, does anyone know why the Spectator continues to give a platform to Ben Stein (this Hogberg article's web page features a prominent link to Stein's contributions)? Isn't the New York Times enough of an outlet for Stein's elitist tax-hiking agenda? Does a small conservative journal need to participate, too?The only reason universal coverage seems hard to achieve here is the spectacular inefficiency of the U.S. health care system. Americans spend more on health care per person than anyone else -- almost twice as much as the French, whose medical care is among the best in the world. Yet we have the highest infant mortality and close to the lowest life expectancy of any wealthy nation.I'm not going to get into the defects of using life expectancy and infant mortality as measurements of a health care system (go here for that). The question here is whether Krugman knows that these are poor measures. Since 2002 he has written a least 8 columns in the New York Times plus an article in both the New York Times Magazine and the New York Review of Books using these measures to bash our health care system. It is difficult to believe that, in all that time, he has never received an email telling him that such measures tell us little about a health care system. Indeed, going back to one of his columns from 2005, it's pretty clear that he has received such an email:Most Americans probably don't know that we have substantially lower life-expectancy and higher infant-mortality figures than other advanced countries. It would be wrong to jump to the conclusion that this poor performance is entirely the result of a defective health care system; social factors, notably America's high poverty rate, surely play a role. Still, it seems puzzling that we spend so much, with so little return.Krugman is clearly weasel-wording his way to an admission that life expectancy and infant mortality are poor measures of a health care system. So, Krugman knows that these measures are lousy, but he continues to use them. I can't imagine why.
Thanks to reader Jameson Campaigne for the link.
Posted by Donald L. Luskin at 9:49 AM | link
Wednesday, January 17, 2007A GREAT ONE FROM 2005 How did I ever miss this?
Posted by Donald L. Luskin at 7:50 PM | link
TWO AMERICAS It's true. There are two. One that is sane, and one that is insane. Here's an example of the latter, a posting from John Edwards' blog by James Kroeger.
In order for John Edwards to succeed in his goal of eliminating Poverty in America, he is going to have to persuade the Journalist Class that it is a good idea to increase the tax obligations of the nation's richest citizens. His powers of persuasion are admittedly great, but I think he will be more successful if he can present some fresh arguments to the American public that will make them think about the subject from a new perspective.Thanks to reader Josh Reed for the link.
Posted by Donald L. Luskin at 1:40 PM | link
WE HAVE A VERY DISTURBED INDIVIDUAL HERE ...who is squeeling with delight to be a New York Times subscriber, but worried about the environmental implications.
This morning I made a big purchase, even though it only cost me 2 dollars. I subscribed to the Sunday edition of the New York Times.
Posted by Donald L. Luskin at 12:42 PM | link
FASHION RAGS ON POLITICS
While the latest Vanity Fair features heroic portraits of incoming congressional Democrats (yes, believe it or not, there is such thing as an heroic portrait of a sewer rat like Henry Waxman -- it can be done) -- the latest GQ features a terrific story on heroic Republican porkbuster Senator Tom Coburn. The story portrays him correctly as "a party of one" -- a courageous man who operates purely from principle. So it's with non-partisan authority that Coburn passes judgment on the Democrats who take office with promises of "fiscal responsibility":
So now there’s all this hullabaloo about the Democrats taking over—Tom Coburn is supposed to care? He’s supposed to get excited now that the peanut butter is on top and the jelly is on the bottom instead of the other way around? This is a revolution? It’s a revolution that Ted Stevens has been pushed aside as chairman of the defense-appropriations subcommittee and that in his place the Democrats have installed…Daniel Inouye of Hawaii? A man who inserted $900 million of his own personal projects into the budget last year—and who happens to be one of Ted Stevens’s best friends in the Senate? It’s a revolution that the Democrats have cleaned out the subcommittee behind the Bridge to Nowhere and replaced the chairman with…Patty Murray of Washington? A woman who personally led a campaign for the bridge and who threatened revenge against any Democrat who opposed it? It’s a revolution that Thad Cochran has been deposed as the most powerful budgetary overlord in the Senate and is being replaced with…Robert C. Byrd of West Virginia? A man who has single-handedly converted his state into a federally funded monument to himself, with no less than thirty projects named in his own honor, including the Robert C. Byrd Expressway and the Robert C. Byrd National Technology Transfer and the two Robert C. Byrd federal buildings and the Robert C. Byrd Center for Hospitality and Tourism—not to mention the actual statue of Robert C. Byrd that stands in the rotunda of the state capitol?Meanwhile, Vanity Fair says of its heroes,
...take a steady gander at the men and women depicted here. Take their measure. And try to remember the promises, and the spirit of promise, they represent.
Posted by Donald L. Luskin at 10:58 AM | link
THE MYSTERIOUS EAST From the China Economic Review:
The [Chinese] Ministry of Commerce, responsible for promoting Chinese exports, has become one of the last remaining institutional lobbies to back further currency appreciation... A think-tank attached to the ministry said, in a report published on the ministry's website, that a 3% appreciation in the yuan every year "will not have an obvious or apparent influence on the overall increase of China's trade". In the past, the ministry has claimed that a 3% appreciation would wipe out the profits of exporters...I guess they're entitled to change their minds.
Posted by Donald L. Luskin at 12:59 AM | link
I'M GENUINELY IMPRESSED Here's one of the most impressive things I've ever read in economics -- and, perhaps appropriately, I came upon it somewhat by chance. I was listening to the podcast of Russell Roberts' interview with Don Boudreaux at EconTalk, and Don mentioned a note by Noble laureate James Buchanan, titled "Order Defined in the Process of its Emergence." Buchanan questions one of the shibboleths of free-market economics -- the idea of the "invisible hand" -- and argues that thinking about markets as spontaneously producing results similar to those that could have been achieved through perfect planning is fundamentally wrong. Here are most of the last two paragraphs from Buchanan, but I encourage you to read the whole thing -- it's quite brief, even in its entirety.
Buchanan is making an argument about process, but he's also undergirding the moral argument for economic freedom. Markets do not exist as means to achieve some desirable pre-determined end any more than people do. They exist for their own sake and on their own terms. If it so happens that the pattern of results they produce mimics some result that you considerable desirable, then, well, so what? If they didn't, you couldn't enforce the result you consider desirable anyway -- because markets, ultimately, both deliver what is possible and determine what is possible by doing the delivering.
Update... Somehow I knew that Rick Gaber would chime in on this one:
Funny, last night I was musing over the fact that the noun "markets" by itself tends to encourage teleology, especially because specific markets, the NYSE, the farmers' market, etc. ARE organized entities nowadays, however spontaneously they first coalesced, and the conceptually-challenged or -lazy will use their images in place of the CONCEPT of general voluntary exchange. Thank goodness the English language has the "present progressive tense" (especially verbs ending in "ing"), because if we used, for example, terms like "voluntary trading" instead of "the market," perhaps confusion and calls for takeovers would diminish.
Posted by Donald L. Luskin at 12:58 AM | link
Monday, January 15, 2007WHO CARES IF IT'S ELEGANT? Greg Mankiw, our friend in most matters who has gone around the bend with his love affair with a carbon tax, coos over the latest bad news from Washington. He quotes the Washington Post's ultra-liberal columnist Sebastian Mallaby:
On Saturday I put the case for a carbon tax or a cap-and-trade system to James Connaughton, the head of the Council on Environmental Quality at the White House. Far from denouncing these policies as eco-socialist nonsense, Connaughton sounded open to them. "In concept I can agree with you," he said. Something must be done to stem demand for climate-warming energy, and although there are several ways of getting there, a carbon tax or cap-and-trade system would be the most "elegant."Mankiw's comment:
I would bet against seeing any sensible increase in Pigovian taxation over the next two years, but if mainstream Republicans like Jim Connaughton appreciate the elegance of the idea, there is always hope.The problem here is that Mankiw is so taken by the "elegance" of the economic theory involved that he wants to see these taxes implemented simply for the sake of elegance, whether or not there's any need for it. Mankiw has an elegant hammer. To him, the world is a nail.
Posted by Donald L. Luskin at 11:46 PM | link
POLITICAL ANALYSIS DOESN'T GET ANY COLDER THAN THIS This is painful to read, but it's time to face the risks. Here's our friend Daniel Clifton from the American Shareholders Association:
Beginning of the End for the Taxpayers' Golden Era Starts Tomorrow
Posted by Donald L. Luskin at 12:47 PM | link
Sunday, January 14, 2007THE NEW YORK TIMES SHRUGS The New York Times talks about the forthcoming Atlas Shrugged movie starring Angelina Jolie. The usual narrative is intact. Ayn Rand's powerful and immensely successful cry for capitalism is treated as one might a romance novel -- not to be taken seriously, but nevertheless very popular. The novel's philosophical seriousness is offered as reason why not to take the book seriously. It's most powerful elements, its lengthy passages on economic and political topics within the story arc are dismissed "the philosophy that it hammers home endlessly" in "Castro-length monologues." The Times has the gall to cite itself -- its own contemporary review -- as proof of the book's flimsiness:
“It howls in the reader’s ear and beats him about the head in order to secure his attention,” Granville Hicks wrote in The New York Times, “and then, when it has him subdued, harangues him for page upon page. It has only two moods, the melodramatic and the didactic, and in both it knows no bounds.”Could the Times review have been wrong? No -- surely the book-buying public is wrong. Just wait till the movie is a hit. The public will be wrong again.
Update... Our correspondent "Irrational Exuberance," who is a bit of an expert in all things having to do with Alan Greenspan (who was a Rand acolyte), points to this 1957 letter to the Times by the Maestro, in response to that same book review:
To the Editor:"Exuberance" also offers a critique of my comments, above:
I have to mildly object to the assertion towards the end of your post. The NY Times article notes: "Yet 'Atlas' was a best seller. Six million copies have been sold over the years, and it remains a popular title ... " In your post you suggest that 6 mm purchases of the book implies that the NY Times review is wrong, overwhelmed by the referendum of the public.Great point, but I think "Exuberance" slightly misinterpreted my comments. I wasn't saying that the wide public acceptance of the Atlas means it is a good book, or means the Times is wrong. I was trying to say that the the Times here is holding itself out as an elite arbiter of "correct" opinions, positioning itself against mere popularity -- as what amounts to a substitute for a substantively argued refutation of the book's philosophy. The Times basically just turns up its nose, and acts as though the book's popularity were in fact some kind of evidence of its worthlessness. I suspect the Times would have an easier time with Rand is she were unpopular, because then she'd be no threat. What the Times doesn't know what to do with is the threat that a large constituency seems to have embraced Rand's pro-individual anti-state message, in defiance of the Times' collectivist, statist message.
Posted by Donald L. Luskin at 5:59 PM | link