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Join us as we discover, document, expose and challenge the bad people, the bad institutions and the bad ideas that stand in the way of wealth creation -- and show you how to fight back!

Saturday, July 28, 2007

OOPS!   You know all that talk the last few years from pessimists on both the left and the right about the supposed "negative savings rate" in the US? About how we're spending more than we're earning, become a nation of indebted global beggars? Turns out it was all just a data error. On Friday the Bureau of Economic Analysis released a major revision of the last three years of national accounts data, and it turns out that US individuals earned, cumulatively, about $185 billion more than had been previously reported (equivalent to the entire annual GDP of Norway, oil and all). That's enough to turn the savings rate positive. So all that talk, all that hand-wringing -- it was just a data error. Poof! Any retractions forthcoming? Don't count on it. The end of the world crowd is too busy worrying about sub-prime mortgages.

Posted by Donald L. Luskin at 10:13 PM | link  

"INSTANT" ECONOMIC IDIOCY   Writing in BusinessWeek, law professor Lawrence Mitchell writes of a "dangerous trend within American capitalism..."
...the growing preeminence of finance over operations. It causes stock market considerations to trump those that improve the actual workings of a business. And the quicker the stock payoff can be engineered, the better...

This reward bias toward finance has been with us since the creation of the giant public corporation in the late 19th century. Almost overnight, U.S. business was transformed from making money by controlling costs and increasing productive efficiency, the way John D. Rockefeller and Andrew Carnegie did, to reaping instant riches from stock sales...

I'm really worried about this "dangerous trend" that has been happening for over 100 years -- yep, it's been all down hill in the American economy since about 1895. And it's all due to those financial manipulators who create "instant riches" -- you know, those instant riches that take decades to build, but which get crystallized to that people like this law professor can notice them, in a single "instant" in which a company sells shares to the public. He probably thinks that Blackstone, for instance, was an "instant" success when it did its IPO a couple weeks ago. Sorry professor, it wasn't that easy -- the Blackstone people had to work like dogs for many years to get that "instant" success.

Posted by Donald L. Luskin at 9:27 PM | link  

ECONOMIC NONSENSE   "Financial writers" often say really stupid things when they try to talk economics, adding a patina of academic authority to their arbitrary opinions. Here's Daniel Gross in Slate, supporting his claim that California's Orange County is ground-zero of the subprime market collapse, what he calls "the nation's capital of real estate folly":
It's not entirely surprising that Irvine is a center of reckless real estate lending and borrowing. It's a classic industry cluster of the type seen in areas that lack natural resources.
Oh, I get it. OC has a troubled real estate market because they don't mine enough nickel there. But even in its own loony terms, Gross's analysis doesn't comport with the facts. OC is endowed with rich soil ideal for farming. Gross himself admits earlier in the same column that it all began as an "agricultural tract." This isn't the first time that Gross has just made stuff up.

Posted by Donald L. Luskin at 5:55 PM | link  

Friday, July 27, 2007


Posted by Donald L. Luskin at 10:00 AM | link  

OUR DEMOCRATIC NEROS   While financial markets burn, Democratic politicians fiddle with increasingly loony anti-growth policies and attitudes. It can't do markets or the economy any good to have to live day by day with the background drumbeat of such insanity and inanity as Elizabeth Edwards' vow to stop eating tangerines, because importing them creates too large a "carbon footprint." The Wall Street Journal edit page puts it well this morning:
More worrisome is the Beltway story, which is all pointing in the direction of hostility to growth. A bipartisan cast of Senators wants to raise taxes on "carried interest," which means on hedge funds and private equity partnerships. With this new element of political risk, no one should be surprised to see buyout deals such as the Cerberus purchase of Chrysler harder to finance. If Congress wants to dry up capital for mergers, keep it up.

Meantime, Congressman Lloyd Doggett (D., Texas) has introduced a $7.5 billion hike on foreign investment into the U.S. The proposal is aimed at U.S. subsidiaries of companies based abroad, and amounts to a tax on capital invested to create jobs in America. His proposal came out of the blue this week, and as we write was scheduled for a vote as part of the House farm bill. Foreign investors would have another reason to put their capital somewhere else.

These tax hikes may be a prelude to the big tax increase Democrats are promising if they win the White House in 2008. Taxes on marginal income tax rates, dividend and capital gains rates are all headed up. This would reduce the after-tax return on capital, which in turn would hit stock prices. Meanwhile, the free trade agenda is moribund: Trade promotion authority expired at the end of June, and pacts already signed with Peru, Colombia and South Korea are in jeopardy. Anti-China protectionism is building.

Especially with housing values still declining, the level of personal liquidity will be vital to sustaining growth. Congress and regulators haven't helped housing values by imposing new, much tougher lending restrictions -- as usual, long after the worst mistakes were made. That is helping to turn the subprime debacle into a larger credit anxiety pinch. Congress will only add to this worry if Members keep pushing for tax increases.

Posted by Donald L. Luskin at 8:08 AM | link  

Thursday, July 26, 2007

A LITTLE BIT OF LIBERAL OVER-REACHING   This is the kind of thing that really scares people, and re-established political equilibrium. An op-ed from today's New York Times:
...there is nothing sacrosanct about having nine justices on the Supreme Court. Roosevelt’s 1937 chicanery has given court-packing a bad name, but it is a hallowed American political tradition participated in by Republicans and Democrats alike.

If the current five-man majority persists in thumbing its nose at popular values, the election of a Democratic president and Congress could provide a corrective. It requires only a majority vote in both houses to add a justice or two. Chief Justice John Roberts and his conservative colleagues might do well to bear in mind that the roll call of presidents who have used this option includes not just Roosevelt but also Adams, Jefferson, Jackson, Lincoln and Grant.

The author, a biographer of FDR, calls the liberal agenda "popular values" and the conservative agenda "manifestly ideological." But normal Americans are going to be terrified at the idea of stacking the court in either direction. And if court-stacking is such a great tradition, then why did the threat of it tarnish FDR's reputation?

Posted by Donald L. Luskin at 12:05 PM | link  

"IN THE LONG RUN, WE ARE ALL DEBT"   It's a clever title for a new study by Standard & Poors, projecting the current bankrupt social entitlement policies of the major world economies, and forecasting that all of them will eventually become junk-status debtors. Here's a horrifying picture that summarizes the situation:

Jim Glass has more, and he writes to me "At least the French go off the cliff first."

Posted by Donald L. Luskin at 12:11 AM | link  

COULDN'T HAPPEN TO A NICER A**HOLE   I'm savoring Eliot Spitzer's very public self-destruction, as he discovers that he can't quite bully other politicians the same way he bullied helpless businessmen with fiduciary duties to perform. Our old friend Jim Glass points to some delicious commentary. Here's John Podhoretz:
There's no middle ground here. He's either a) clean or b) toast.

Spitzer either was or wasn't involved in siccing the State Police on a political rival, leaking false intimations about the State Police's findings and blaming the investigation on a non-existent press inquiry.

...But here's the thing: We only have Spitzer's word to go on here that he didn't know and wasn't involved.

What do we know about Eliot Spitzer?

We know that he has a history of threatening people with prosecution and ruination to get them to bow their head and scrape their knee to him.

We know that he's considered a control freak, a detail-oriented guy with a ceaseless attention to detail and the fine points of every case - and that this portrait of Spitzer is the one offered by his admiring supporters, not by his enemies.

If you trust what Spitzer's friends say about him, it would have been entirely out of character for Spitzer not to know what Communications Director Darren Dopp and others were doing in his name - especially considering that their target was the most powerful Republican in the state and that they were therefore playing a very dangerous high-stakes game.

And with Spitzer down, there are no shortage of people who used to fear him who are only too happy to finally be able to kick him. Here's Michael Goodwin in the Daily News:
In the fall of 1998, Eliot Spitzer was winning the race for attorney general. I was the Daily News Editorial Page editor, and my colleagues and I had pressed Spitzer about the source of millions of dollars he was spending on the race.

He told us, as he told election officials, that he had taken out personal bank loans. Days before the election, Spitzer confessed to another newspaper that his father really was the source of the money.

Soon after I got to my office that day, the phone rang. It was Spitzer, calling to explain. "Eliot," I said, "you lied to us."

His response was prompt and certain: "I had to," he said, adding his father didn't want his role known.

"I had to" is an excuse I will never forget. As Spitzer collected scalps on Wall Street and built a reputation as a crusading reformer, the memory tempered my applause. "I had to" wouldn't let go....

Posted by Donald L. Luskin at 12:00 AM | link  

Wednesday, July 25, 2007

ACADEMICS SHOULD RUN THE WORLD   But no, politicians are already doing that, based on the phony "studies" that academics cook up. From the Detroit News:
On Tuesday, the University of Michigan Transportation Research Institute issued a report that suggested the Detroit automakers could earn $14.4 billion by 2017 by hiking efficiency to 35 miles per gallon by 2017 -- as required on a bill that passed the Senate. They stand to make more profit gains because they will be making improvements that have higher market value and higher profit margins, the study said.
My DC-insider pal "Mick Danger" says,
Wow. What a huge turnaround that would be! So why didn’t these brain-iacs at University of Michigan Transportation Research Institute buy Chrysler? Maybe because it’s harder to actually do it than to put words on paper.

Posted by Donald L. Luskin at 11:57 PM | link  

IS DR. ATLAS SHRUGGING?   Health care is "free" now in Massachusetts -- except there isn't any.
BOSTON -- Tamar Lewis runs a makeshift hair salon out of her one-bedroom apartment in Roxbury, a low-income neighborhood here. She's 24 years old and has been cutting hair since she dropped out of high school in 2002. Until recently, she never had health insurance.

...Earlier this month, she signed up for state-subsidized insurance under a new Massachusetts law that aspires to universal coverage. The plan costs her $80 a month.

...On the day Ms. Lewis signed up, she said she called more than two dozen primary-care doctors approved by her insurer looking for a checkup. All of them turned her away.

Her experience stands to be common among the 550,000 people whom Massachusetts hopes to rescue from the ranks of the uninsured. They will be seeking care in a state with a "critical shortage" of primary-care physicians, according to a study by the Massachusetts Medical Society released yesterday, which found that 49% of internists aren't accepting new patients. Boston's top three teaching hospitals say that 95% of their 270 doctors in general practice have halted enrollment.

Thanks to David Duval for the link.

Posted by Donald L. Luskin at 11:45 PM | link  

WHY THE PROHIBITION, THEN WHY REPEAL?   Don Boudreaux has a theory that like so many other government decisions, it was all about taxes:
Prior to the creation in 1913 of the national income tax, about a third of Uncle Sam's annual revenue came from liquor taxes. (The bulk of Uncle Sam's revenues came from customs duties.) Not so after 1913. Especially after the income tax surprised politicians during World War I with its incredible ability to rake in tax revenue, the importance of liquor taxation fell precipitously.

By 1920, the income tax supplied two-thirds of Uncle Sam's revenues and nine times more revenue than was then supplied by liquor taxes and customs duties combined. In research that I did with University of Michigan law professor Adam Pritchard, we found that bulging income-tax revenues made it possible for Congress finally to give in to the decades-old movement for alcohol prohibition.

Before the income tax, Congress effectively ignored such calls because to prohibit alcohol sales then would have hit Congress hard in the place it guards most zealously: its purse. But once a new and much more intoxicating source of revenue was discovered, the cost to politicians of pandering to the puritans and other anti-liquor lobbies dramatically fell.

Prohibition was launched.

Despite pleas throughout the 1920s by journalist H.L. Mencken and a tiny handful of other sensible people to end Prohibition, Congress gave no hint that it would repeal this folly. Prohibition appeared to be here to stay -- until income-tax revenues nose-dived in the early 1930s.

From 1930 to 1931, income-tax revenues fell by 15 percent.

In 1932 they fell another 37 percent; 1932 income-tax revenues were 46 percent lower than just two years earlier. And by 1933 they were fully 60 percent lower than in 1930.

With no end of the Depression in sight, Washington got anxious for a substitute source of revenue.

That source was liquor sales.

With the Social Security surplus startting to dry up in coming years, let's see -- what can we legalize and tax? How abour marijuana? Crack? Sure, why not. It's a place where libertarians and big-governments types can (seem to) find common cause.

Posted by Donald L. Luskin at 7:29 PM | link  

Tuesday, July 24, 2007

IT'S OVER   The human race can hang up the phone. Checkers has been solved. Thanks to reader Mark Spahn.

Update [7/25/2007]... Reader Andrei Porumbrica says:

I believe it might be too presumptuous to consider the Checkers solved. If I’m not mistaken, the solution announced in the Science was based entirely on the English version of droughts. I can think of at least two other versions [International (played on a 10×10 board) and Russian] that are probably much more sophisticated than the version tested. There is still hope.

Posted by Donald L. Luskin at 12:53 PM | link  

AN FCC COMMISSIONER TEACHES KRUGMAN A THING OR TWO ABOUT BROADBAND   FCC Commissioner Robert M. McDowell responds to Paul Krugman's critique of America's broadband policy. Here's Krugman from Monday's New York Times:
...the United States that has fallen behind.

The numbers are startling. As recently as 2001, the percentage of the population with high-speed access in Japan and Germany was only half that in the United States. In France it was less than a quarter. By the end of 2006, however, all three countries had more broadband subscribers per 100 people than we did.

Even more striking is the fact that our “high speed” connections are painfully slow by other countries’ standards. According to the Information Technology and Innovation Foundation, French broadband connections are, on average, more than three times as fast as ours. Japanese connections are a dozen times faster. Oh, and access is much cheaper in both countries than it is here.

As a result, we’re lagging in new applications of the Internet that depend on high speed. France leads the world in the number of subscribers to Internet TV; the United States isn’t even in the top 10.

What happened to America’s Internet lead? Bad policy.

Here's McDowell in this morning's Wall Street Journal:
Exhibit A for the alarmists are statistics from the Organization for Economic Cooperation and Development. The OECD says the U.S. has dropped from 12th in the world in broadband subscribers per 100 residents to 15th.

The OECD's methodology is seriously flawed, however. According to an analysis by the Phoenix Center, if all OECD countries including the U.S. enjoyed 100% broadband penetration -- with all homes and businesses being connected -- our rank would fall to 20th. The U.S. would be deemed a relative failure because the OECD methodology measures broadband connections per capita, putting countries with larger household sizes at a statistical disadvantage.

The OECD also overlooks that the U.S. is the largest broadband market in the world, with over 65 million subscribers -- more than twice the number of America's closest competitor. We got there because of our superior household adoption rates. According to several recent surveys, the average percentage of U.S. households taking broadband is about 42%; the EU average is 23%.

Furthermore, the OECD does not weigh a country's geographic size relative to its population density, which matters because more consumers may live farther from the pipes. Only one country above the U.S. on the OECD list (Canada) stretches from one end of a continent to another like we do. Only one country above us on this list is at least 75% rural, like the U.S. In fact, 13 of the 14 countries that the OECD ranks higher are significantly smaller than the U.S.

And if we compare many of our states individually with some countries that are allegedly beating us in the broadband race, we are actually winning. Forty-three American states have a higher household broadband adoption rate than all but five EU countries. Even large rural western states such as Montana, Wyoming, Colorado and both Dakotas exhibit much stronger household broadband adoption rates than France or Britain. Even if we use the OECD's flawed methodology, New Jersey has a higher penetration rate than fourth-ranked Korea. Alaska is more broadband-saturated than France.

The OECD conclusions really unravel when we look at wireless services, especially Wi-Fi. One-third of the world's Wi-Fi hot spots are in the U.S., but Wi-Fi is not included in the OECD study unless it is used in a so-called "fixed wireless" setting. I can't recall ever seeing any fixed wireless users cemented into a coffee shop, airport or college campus. Most American Wi-Fi users do so with personal portable devices. It is difficult to determine how many wireless broadband users are online at any given moment, since they may not qualify as "subscribers" to anyone's service.

In short, the OECD data do not include all of the ways Americans can make high-speed connections to the Internet, therefore omitting millions of American broadband users. Europe, with its more regulatory approach, may actually end up being the laggard because of latent weaknesses in its broadband market. It lacks adequate competition among alternative broadband platforms to spur the faster speeds that consumers and an ever-expanding Internet will require.

Europe also suffers from a dearth of robust competition from cable modem and fiber. Cable penetration is only about 21% of households. In the U.S., cable is available to 94% of all households. Also, the U.S. is home to the world's fastest fiber-to-home market, with a 99% annual growth rate in subscribers compared with a relatively anemic 13% growth rate in Europe.

In fact, the European Competitive Telecommunications Association reported last fall that Europe is experiencing a significant slowdown in the annual growth rate of broadband subscriptions, falling to 14% from 23% annual growth. Growth stalled in a number of countries, including Denmark and Belgium (4% in each country). And France -- a relative star -- exhibited just 10% growth. Yet all of these nations are "ahead" of us on the much-talked-about OECD chart.

Here in the U.S., the country that is allegedly "falling behind," broadband adoption is accelerating. Government studies confirm that America's broadband growth rate has jumped from 32% per year to 52%. With new numbers expected shortly, we anticipate a continued positive trend. Criticisms of our definition of "broadband" being too lax are already irrelevant as over 50 million subscribers are in the 1.5 to 3.0 megabits-per-second "fast lane."

Posted by Donald L. Luskin at 8:14 AM | link  

Monday, July 23, 2007

THREE STRIKES, YET HE'S NOT OUT   He's French. He's a tax official. He has no brain. Yet he lives!
Something that many people secretly believed has been confirmed: You don't actually need a brain to work in a tax office. A French civil servant has been found to have a huge cavity filled with fluid in his head -- yet lives a completely normal life...

In fact the man, who works as a civil servant in southern France, has succeeded in living an entirely normal life despite a huge fluid-filled cavity taking up most of the space where his brain should be.

Thanks to the Wine Commonsewer, via David Duval.

Posted by Donald L. Luskin at 2:33 PM | link  

ARE THE DEMOCRATS SORRY THEY ACTIVATED THE CINDY SHEEHAN CELL?   From a San Francisco Chronicle op-ed by the anti-war activist, so warmly embraced by Democrats in 2004 -- and now threatening to oppose Nancy Pelosi in the 2008 election:
The Democrats are the party of slavery and were the party that started every war in the 20th century, except the other Bush debacle. The Federal Reserve, permanent federal income taxes, not one but two World Wars, Japanese concentration camps, and not one but two atom bombs dropped on the innocent citizens of Japan -- all brought to us via the Democrats.

Don't tell me the Democrats are our "saviors" because I am not buying it...

Update... Reader Brian Hart notes,
At least she opposes the Federal Reserve.
Yes, and I can't believe I didn't make note of that myself when I posted this -- not only the Fed, but the permanent income tax, too. Where does that come from? Maybe I've gotten Sheehan wrong all this time, just because of the way she's been used by the Democrats. Is she some kind of libertarian? In this, she's sounding a lot like Ron Paul.

Posted by Donald L. Luskin at 1:16 PM | link  

I THOUGHT DEMOCRATS WANTED TO PAY MORE TAXES   From a Washington Post story on the funeral of Lady Bird Johnson:
Lynda Johnson Robb...the wife of former Virginia governor and U.S. senator Charles Robb, drew appreciative laughs when she spoke of her mother's frugality. "She wanted to hold on until 2010, so we wouldn't have to pay any estate taxes," Robb said. "Oh, durn!"

Posted by Donald L. Luskin at 1:13 PM | link  


Posted by Donald L. Luskin at 10:53 AM | link  

AH, YES, DEMOCRACY...   ...who is it who defined it as "three wolves and a sheep voting on what's for lunch"? This graphic from the Financial Times says it all. Oy -- in the US, 30% of think that government ought to cap businessmen's pay; twice as many think globalization is a negative as think it's a positive. The only good thing I can say about this is: it could be worse.

Thanks to reader David Duval.

Posted by Donald L. Luskin at 10:45 AM | link  


Posted by Donald L. Luskin at 10:43 AM | link  

SO MUCH FOR A DEM TRADE DEAL   From this morning's Wall Street Journal:
Souring relations between the White House and Capitol Hill are threatening one of the few modest accomplishments that once seemed possible this year: passage of free-trade pacts with a handful of neighboring countries.

Just six weeks ago, market-opening deals with Peru and Panama appeared to have a clear path toward passage. That was because of an agreement between the White House and Congress to incorporate Democratic priorities, including enhanced labor-rights protections, into the pending trade treaties.

But now Democrats have raised a new hurdle: insisting Peru and Panama enact the promised labor-law changes before Congress acts.

My DC-insider friend "Mick Danger" comments,
Today's lesson: why Democtats are like bad puppies -- no matter what deal you thought you had, your fulfilling your part still resultds in the puppy peeing on the new rug.

Bush USTR Susan Schwab cut a deal with Charlie Rangel on trade, which was "supposed" to mean something positive for several pending deals. Except, now there is a new condition, one which no President can meet, to change laws in the other country as a condition precedent. It won't work and, indeed, it is designed to fail.

Pay attention to these high-jinks, especially you high-tech Democrats. Your pal Nancy is not your pal. She does what she's told to do by the union leaders.

Posted by Donald L. Luskin at 8:35 AM | link  

RAWLS   Good piece in this morning's Journal on an malign influence of the late philosopher John Rawls, who build an intellectual superstructure to support the politics of class warfare:
What Rawls contributed to the political education of American intellectuals was not any sort of rigorous analysis, but an overall spirit or outlook detrimental to freedom. He coined a doctrine of what he called "excusable envy," according to which it is rational to envy people whose superiority in wealth exceeds certain (unspecified) limits, and to act on that passion. He cancelled out his ostensible prioritization of liberty by holding that liberty must first be given its "fair value," meaning that political liberties, including freedom of the press, may need to be restricted so as to ensure that the political process yields legislation that is "fair" to the poor. In his later writings, increasingly deferential to the Marxist critique of liberalism, Rawls wrote that securing people's equal rights and liberties must be preceded by government's first having ensured that their "basic needs" for economic goods were met -- thus sanctioning the alibis offered by assorted despots for violating their subjects' elemental rights to free speech, the freedom from arbitrary arrest, and the security of individual life and property.

John Rawls's intellectual legacy for American politics was an unfortunate one. Then again, he disparaged our political regime as only an "allegedly" democratic one anyway, and grew increasingly bitter in his last years, according to his closest associates, over our failure to institute the policies he happened to favor -- such as severe campaign-finance restrictions and universal health insurance. Whatever one's views on such issues, neither Rawls's principles nor his spirit offer a promising approach for addressing them.

Posted by Donald L. Luskin at 8:31 AM | link