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Friday, November 16, 2007

KUDLOW REPLAY   Here's the YouTube video, in which I am forced to remind Michael Metz that it's not "generosity" or "compassion" if you force me to give my money to charity at the point of your gun.


Posted by Donald L. Luskin at 10:47 AM | link  

FAILURE IS AN OPTION   The Wall Street Journal editorial page savors the humbling of Eliot Spitzer, now with a Bush-league approval rating among his voters, no longer the "crusading" attorney general, but an unpopular governor dogged by failed initiatives and a widening ethics scandal:
The only real difference between Mr. Spitzer now and then is that as Governor he is obliged to govern, as opposed to merely bringing charges amid a PR offensive and then settling before having to prove anything in court. His heavy-handed approach to the drivers license plan shows the limits of such behavior in a job where he actually has to persuade people.

It remains far from clear whether Mr. Spitzer has drawn the right lessons from his recent failures. At Wednesday's announcement on the licensing plan, he said that leadership was "not solely about doing what one thinks is right," a curious formulation. There may be more damaging revelations to come out of Troopergate too. But assuming Mr. Spitzer survives that scandal, he could do worse than enroll in anger management class and take a pledge not to try to ruin everyone who disagrees with him.


Posted by Donald L. Luskin at 9:22 AM | link  


Thursday, November 15, 2007

GIVE ONE GET ONE   This is just so cool. Our old friend Nicholas Negroponte does it again!

Posted by Donald L. Luskin at 2:23 PM | link  

THE MYSTERIOUS EAST   And don't expect macroeconomic statistics to make it any less mysterious. Here are some massive downward revisions to previous estimates of the size of China's economy. This should make the US protectionists happy, to learn that the world's most populous nation is poorer than was previously thought.
In a little-noticed mid-summer announcement, the Asian Development Bank presented official survey results indicating China's economy is smaller and poorer than established estimates say. The announcement cited the first authoritative measure of China's size using purchasing power parity methods. The results tell us that when the World Bank announces its expected PPP data revisions later this year, China's economy will turn out to be 40 per cent smaller than previously stated...

Why such a large revision in the estimates of China's economic condition? Until recently, China had never participated in the careful price surveys needed to convert accurately its gross domestic product into PPP dollars.

The World Bank's estimates based on summary data from the late 1980s probably overstated China's PPP gross domestic product even then. Up to now, the bank has revised its estimate very little. In the meantime, China has repeatedly raised the prices of food, housing, healthcare and a range of other non-traded goods and services. These reforms should have lowered the PPP adjustment, but the bank left it basically unchanged.

Hmmmm. Kind of shakes your faith in macroeconomic stats, doesn't it? And in the IMF, too. Thanks to our monetary affairs correspondent "Irrational Exuberance" for the link.

Posted by Donald L. Luskin at 12:06 PM | link  

WHOSE PAYING WHOM FOR WHAT IN THE BATTLE OF THE AMT?   My DC-insider pal "Mick Danger" has another despatch from the AMT wars:
Gotta read this to believe it. Congressman Peter Welch (D-VT), who is pushing for big and immediate tax increases on private equity and hedge funds, asserts that opponents among his colleagues are swayed by campaign contributions. From Congress Daily [no link available]:
...Welch said opposition to the proposal shows the industry is spreading campaign contributions around.

"The hedge fund guys are powerful folks. The people who were aided by the loophole would prefer to continue their free ride," he said.

Oh, my! But, if that’s so, why do the principals at the leading private equity and hedge funds send 70% of their campaign contributions to Democrats even as nearly all of them support the tax increases? The more truthful but still distressing answer is that a) those private equity and hedge funds guys are Democrats and B) most political money goes to those in power, motivated by the need to build relationships, hold down animosity, and gain access. Not to “buy votes” as is so often alleged. Mr. Welch must think his fingers only point to Republicans or that private equity and hedge funds have made themselves invulnerable.

Meanwhile, Reid has a Rangel problem. Word is he soon may schedule a Senate vote on the House-passed AMT bill knowing it will fail. The thinking, such as it is, is that this then clears the path for the Senate to pass AMT patch without full offsets; i.e., they can escape from their “paygo” trap by establishing that they don’t have the votes to comply. Lovely business.

As Reid dumps the Rangel bill, he hurts those House Democrats who just last week were pushed by Pelosi and Hoyer to vote for it. Speculation is that sometime in December, the Senate will pass an AMT-relief bill with no “pay for” combined with an “extenders” package which will be paid for by tax increases on publicly-traded private equity firms, by ending the deferral of income earned in offshore hedge funds and by other provisions.

Even if Pelosi, Rangel & Company accept that version of AMT relief, Bush might just veto it.


Posted by Donald L. Luskin at 11:36 AM | link  


Wednesday, November 14, 2007

OUR "VOLUNTARY" TAX CODE   My op-ed from the Wall Street Journal this morning, with links to sources:
Should we stop worrying and learn to love the "mother of all tax reform plans" put forward by House Ways and Means Committee Chairman Charles Rangel of New York?

The bill would raise taxes by $3.5 trillion over the coming decade, according to Louisiana Republican Rep. James McCrery, a committee colleague of Mr. Rangel's, making it the largest tax increase in history. There has been so much concern that such a tax increase would hurt financial incentives that drive economic growth that House Speaker Nancy Pelosi distanced herself from Mr. Rangel's plan almost as soon as he announced it.

But fear not. As Mr. Rangel wrote on this page two weeks ago, his bill would "restore a sense of equity and fairness that is critical to the success of our voluntary tax system." That's right, he called our tax system "voluntary." That means we don't have to worry about the incentive effects, since we won't actually have to pay any of that $3.5 trillion -- unless we want to.

So when April 15 comes around, I encourage you to be like Herman Melville's Bartleby and say: "I prefer not to." But wait. By April 15 you'll already have paid, since taxes are involuntarily withheld from your paycheck. Nothing can be done about that, even if you don't volunteer to file a tax return. And if you don't file a return, you'll find yourself involuntarily in jail.

You'll then have to yield to the opinion that Mr. Rangel wasn't being entirely straightforward in writing that our tax system is voluntary. But then, he wasn't being entirely straightforward in writing that his bill, which would further raise taxes on the "rich" who already pay the great majority of federal taxes, has anything to do with equity and fairness.

Perhaps from Mr. Rangel's perspective, our tax system is indeed voluntary. After all, he chooses who pays taxes, how much they pay and how their money gets spent. If he wants to raise our taxes to support a $2 million earmark to create a Charles B. Rangel Center for Public Service at the City College of New York, he can volunteer to do that -- but the rest of us have no such choice.

To be fair, our tax system is indeed voluntary in certain respects. For example, wealthy liberals like Warren Buffett, who call publicly for higher taxes on the rich in the name of fairness, can volunteer to pay more themselves any time they wish to do so. All Mr. Buffett has to do is send a check to Department G -- that's G for "gift" -- at the Bureau of the Public Debt in Parkersburg, W.Va.

Why not try an experiment in which the tax system is made truly voluntary? Already 42 states (as well as the District of Columbia and Puerto Rico) raise revenues with lotteries, through which citizens voluntarily paid $57 billion last year. It's a long and noble tradition. Before the birth of Christ, the Han Dynasty ran lotteries to raise the revenues used to build the Great Wall of China.

Government could be entirely financed by voluntary taxation. Yes, the government would have to be small enough to make do, and citizens would have to be sufficiently public-minded about it. But all 13 original American colonies ran lotteries, and playing them was considered a civic duty. Proceeds from lotteries established Harvard, Yale, Columbia, Dartmouth, Princeton, and William and Mary -- and paid for the cannons that defeated England in the Revolutionary War.

But today, Mr. Rangel might find that the volunteerism in today's tax system is a dangerous thing. His bill would raise the tax rate on capital gains income, but the cap-gains tax is voluntary to the extent that one doesn't have to pay it until one chooses to sell an appreciated asset. That fact is not lost on Mr. Buffett, who believes the rich should pay more taxes, but who has never volunteered to sell even one share of his vast holdings in Berkshire Hathaway -- and thus has never volunteered to pay any cap-gains taxes.

What if every investor did that? It's nice to imagine a nation of long-term investors just like Mr. Buffett. But if stockholders never sold any of their investments, the economy, incomes and job creation would slow to a crawl because a growing economy depends on capital moving freely and continuously to its perceived highest and best use.

Mr. Rangel should also bear in mind that taxes on labor income are voluntary in the sense that one can choose not to pay them by choosing not to earn any labor income -- that is, by not working. All the rich need to do in order to make true Mr. Rangel's characterization of our tax system is to retire to their yachts, rather than continue to contribute to the economy by running hedge funds or doing private equity deals.

When that happens, Mr. Rangel will get a lesson in supply-side economics he'll never forget. Some say that the Laffer Curve is wrong, and that tax cuts don't result in higher tax revenues. But when America's most productive workers stop working -- even a little bit -- in reaction to the incentive effects of the "mother of all tax reform plans," they'll see that the Laffer Curve was right after all, and that it can cut both ways. Involuntary tax hikes result in voluntarily lower tax revenues.

Update... Reader John Grosberg tells us,

Your last point, that "Mr. Rangel will get a lesson in supply-side economics he'll never forget" is, as you know, the theme of Atlas Shrugged. I interpret Ayn Rand's idea of a "strike of the men of the mind" led by John Galt as a dramatization of the "automatic" effects of increasing interventionism. In other words, in the real world, "John Galt" is a personalization the "invisible hand" of negative incentives that, wholly without any mastermind, leads the men of the mind to withdraw their contributions from society. There need be no actual John Galt to lead the strike. If the strike needed an instigator, it would be Charlie Rangel, since he's the one pushing for the negative incentives.

Most unfortunately, the people's suffering will pay for the lesson that will be lost on Mr. Rangel. It will simply provide him an excuse for more intervention.

Update 2... Our old partner-in-crime Chris Hynes takes it one step further:
Right on, and lots of fun. An interesting point--with the top 1% of Americans paying 40% of the taxes, we actually do have more power than we think.

Entrepreneurs could stop their wages, and their companies would pay the additional tax. I can't keep my portfolio companies from paying me dividends, though. So it ain't easy.

Still if the top 1% cut their activities by 10%, we'd lose more than 4% of individual income tax revenues. That's not 4% of the entire budget, but it's a big number.

The bottom line is that when government concentrates its revenue grab from such a small group of people, it's taking a big economic and political risk. Atlas could shrug.

Another topic for intellectual thought. At some point, a consumption tax could actually become a tax strategy the Dems would like. It dawns on me that right now, retired, most everything I make is "favored" -- cap gains or dividends.

I also have paid taxes on a lot of money which I've saved and designated for future consumption. Presently I can access that money without paying additional taxes. As the baby boomers age, that pool of after-tax assets gets larger compared to the pool of wages (your involuntary taxpayers). The logical grab is a consumption tax, exempting all consumption up to the poverty level, then progressively increasing to target the conspicuous consumer. At some point it will be more valuable to the dems to tax consumption than income.

As the Beatles said "If you take a walk I'll tax the Street."


Posted by Donald L. Luskin at 1:33 AM | link  


Tuesday, November 13, 2007

THE ONCE AND FUTURE RENT-SEEKER   Al Gore wins a prize bigger than the Nobel -- a partnership with Kleiner Perkins, the pre-eminent Silicon Valley venture capital firm. This is payola, pure and simple. Kleiner principals used Gore, when he was vice president, to promote the Clinton administration's antitrust campaign against Microsoft -- the key rival of several Kleiner-backed companies. And it's more of the same rent-seeking, too. Now Gore can help Kleiner lobby the Democratic congress to subsidize the useless "green" technologies of its portfolio companies.

Update... What still really rankles, though, is that Nobel Peace Prize. Here's Gregg Easterbrook:

Gore spent eight years in the White House, and in that time took no meaningful action regarding greenhouse gases. The Clinton-Gore administration did not raise fuel economy standards for cars and trucks or propose domestic carbon trading. Though Clinton and Gore made a great show of praising the Kyoto Protocol, they refused even to submit the treaty to the Senate for consideration, let alone push for ratification. During his 2000 run for the presidency, Gore said little about climate change or binding global-warming reforms. In the White House and during his presidential campaign, Gore advocated no consequential action regarding greenhouse gases; then, there was a political cost attached. Once Gore was out of power and global-warming proposals no longer carried a political cost -- indeed, could be used for self-promotion -- suddenly Gore discovered his intense desire to demand that other leaders do what he had not! It is a triumph of postmodernism that Gore won the Nobel Peace Prize for no specific accomplishment other than making a movie of self-praise. Gore caused no peace nor led any reconciliation of belligerent parties nor performed any service to the dispossessed, the achievements the Peace Prize was created to honor.
Thanks to Richard Strype for the link.

Update 2 [11/14/2007]...An anonymous reader "Buddy" notes the New York Times' less than fully honest coverage of the Kleiner partnership:Here's another update on the Gore/Kleiner Perkins news.

The Times article on the Gore/Kleiner news included this line (right up front, paragraph 5):
Mr. Gore said he would donate his salary from the venture to the Alliance for Climate Protection, a nonprofit policy foundation.
Sounds altruistic, right? But the information is based on this line from the Kleiner press release:
Mr. Gore also announced that as part of the agreement between the two firms, 100 percent of his salary as a Partner at KPCB will be donated directly to the Alliance for Climate Protection—the non-partisan foundation he chairs that focuses on accelerating policy solutions to the climate crisis.
His salary isn't going to some unrelated non-profit -- it's going to his own organization. Now why do you think the Times would choose to leave out that piece of information?

Posted by Donald L. Luskin at 11:15 PM | link  

NO WONDER   No wonder American manufacturers want to move their plants overseas. No wonder the American unions spend so much time on politics. Does anyone in this country want to work anymore?
Starting Jan. 1, a simple doctor's note won't get an absence excused. Instead, workers will need more detailed proof they couldn't make it to work, such as a prescription slip or test results from the doctor. Workers face punishments ranging from a verbal warning to getting fired if they rack up too many unexcused absences.

At the same time, employees who make it a year with perfect attendance will be entered into an annual drawing for $15,000 good toward the purchase of a new GM car or truck. Five workers a year will get the prize.

GM is using its new labor deal to attack the enormously expensive and troublesome problem of worker absenteeism, which continues to eat into profits of Detroit's automakers despite major productivity strides. At some GM plants, entire employee pools are kept on hand to fill in for absent workers.

Thanks to Chris Janutol for the link.

Posted by Donald L. Luskin at 12:08 PM | link  

OKAY, HERE'S WHAT I'D CUT   Now wouldn't this fellow make a good House majority leader? My DC-insider pal "Mick Danger" points to this letter to the editor of the Washington Post from John Boehner:
The Nov. 8 editorial “No Pay, No Patch” asked what I would cut from the federal budget in place of an irresponsible tax increase to finance an alternative minimum tax (AMT) “patch.” Here are some examples to start, all of which were recently approved by Congress:

- $3.2 billion to revive outdated programs, such as one funding exchanges “with historic whaling and trading partners.”

- $1 million for the Clinton School of Public Service in Arkansas.

- $300,000 for an “Exploratorium” in San Francisco.

- $100,000 for an educational program conducted aboard a catamaran in California’s Monterey Bay.

Moreover, the editorial missed the point. Congress doesn’t have a revenue problem. Revenue is at an all-time high after the 2001 and 2003 tax cuts, which have triggered economic growth that is “paying for” an AMT patch many times over. Rather, Congress has a spending problem, and raising taxes to “pay for” an AMT patch is simply a backdoor way to feed its addiction to pork.

If Congress can find a way to pay for pork, it surely can find a way -- without raising taxes -- to protect 23 million Americans from an onerous tax they were never meant to pay in the first place.


Posted by Donald L. Luskin at 8:59 AM | link  

REFORM THE AMT WITH A LITTLE OIL ARB   This is one reason why I don't worry about the national debt -- because I know that we have so many national assets underlying it. Here's an idea for cashing in on one of them:
...the U.S. government is sitting on a large reserve of oil, the Strategic Petroleum Reserve (SPR), which now holds about 700 million barrels of oil. This is enough oil to provide about 10% of daily U.S. oil consumption for a year. And if the U.S. government got smart about selling the oil -- a big if -- it would make money for the Treasury and help consumers by bringing oil prices down. Moreover, the government could make even more money, with minimal risk to the economy, by selling the SPR oil altogether.

Imagine, for example, that the U.S. government began today to sell two million barrels a day and make up for the loss by buying today the same amount in the December 2008 futures market at $87.60. If it earned the spot price of $96.32 on each barrel and had a $1 per-barrel transactions cost, it would make $7.72 a barrel. The government would make daily profits of $15.44 million. If the differential in prices persisted, the feds would make $5.6 billion a year. This is chicken feed to the federal government

but it would allow the feds to cut some tax that yields $5.6 billion.

Posted by Donald L. Luskin at 8:54 AM | link  

THE MYSTERIOUS EAST   And those mysterious reporters, like the author of this Bloomberg story, to whom it is more mysterious than it actually is:
TOKYO (Thomson Financial) - Bank of Japan (BoJ) governor Toshihiko Fukui said Tuesday that global and financial markets remain unstable as evident in the volatility in equity and foreign exchange markets as investors continue the process of repricing risk.

'As the global capital markets undergo a repricing of risks, financial markets continue to be unstable,' Fukui said at a news conference following the BoJ's policy board meeting.


Posted by Donald L. Luskin at 8:46 AM | link  


Monday, November 12, 2007

IMAGINE HOW GOOD IT WOULD BE IF WE WEREN'T IN A RECESSION   It's true. Even though America has been in a recession since January 2001 (according to the liberal media), discretionary income is booming. Mike Lion at BizzyBlog has this story:
...from the Conference Board earlier this week -- “Between 2002 and 2006, the percentage of U.S. households with discretionary income increased from 52.1 percent (57 million households) to 63.5 percent (73 million households).”

Summarizing, here is the progression of Americans with discretionary income:

– 1983 - 33%
– 1987 - 30%
– 1997/1998 - 52%
– 2002 - 52.1%
– 2003/2004 - 51%
– 2006 - 63.5%

In everyday language, this means that about 12% of the population went from just getting by to having money to spare in a span of two or three years.

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

SIZE MATTERS   For all the talk about the supposedly shrinking US economy (the last two quarters actually showed excellent growth), sometimes it's hard to get a perspective on just how vast our economy actually is. This map should help.

Standing alone as a country, California would be the eighth-largest economy in the world and approximately the size of France. Texas' economy is half the size of California's and its GSP compares to that of Canada. Florida's GSP is approximately the size of Asian tiger South Korea. Illinois' economy is approximately the size of Mexico. Ohio's economy is roughly the size of Australia's. Tennessee's GSP is the size of Saudi Arabia; Nevada, the size of Ireland; Alabama's economy is the size of Iran. Bill Clinton's home state of Arkansas, one of the poorest states in the United States, is approximately the size of Pakistan's economy.

And what about the United States' nearest rivals? Germany and China -- #3 and #4 on the list of the world's largest economies -- are smaller than the economies of Texas and California combined. India's $800 billion economy is on par with Florida. Brazil, as we see on the map, is comparable to New York. Russia's economy is about the size of New Jersey (or Texas).

Thanks to Grover Norquist for the link.

Posted by Donald L. Luskin at 9:11 AM | link  

"THE GREATEST SCAM IN HISTORY"   Never mind that John Coleman is the founder of The Weather Channel. There mere fact that he opposes belief in global warming means he's not fit to hold an opinion. But here it is anyway:
It is the greatest scam in history. I am amazed, appalled and highly offended by it...

I have read dozens of scientific papers. I have talked with numerous scientists. I have studied. I have thought about it. I know I am correct. There is no run away climate change. The impact of humans on climate is not catastrophic. Our planet is not in peril. I am incensed by the incredible media glamour, the politically correct silliness and rude dismissal of counter arguments by the high priest of Global Warming.

In time, a decade or two, the outrageous scam will be obvious. As the temperature rises, polar ice cap melting, coastal flooding and super storm pattern all fail to occur as predicted everyone will come to realize we have been duped.

Thanks to Dave Duval.

Posted by Donald L. Luskin at 12:26 AM | link  

KRUGMAN UNDERMINES RUBINOMICS   There was a time when Paul Krugman would not say a bad word about Democrats. Any Democrat. Ever. Now Krugman is so confident -- over-confident, I hope -- in the ascendancy of the Democratic party that he feels free to disagree regularly. Here he attacks Barack Obama. And here he takes on no less a personage than Robert Rubin, whom he formerly always described as the "legendary Treasury secretary." In essence, he is challenging the very underpinnings of "Rubinomics," saying it is based on a "fallacy." He's right, for a change.
...it is naive to imagine that changes in the government’s financial balance can translate directly into changes in physical trade flows, without working through a mechanism such as the exchange rate.

That is the fallacy of ‘immaculate transfer’ - confusing the accounting principle which says that the current account balance equals the savings-investment balance with the process that enforces that constraint on decision-makers.

Unfortunately, the belief that government finances can some-how directly affect the trade balance has become virtual orthodoxy among top US officials.


Posted by Donald L. Luskin at 12:26 AM | link