Forget about the lost furnishings and finances, the most pitiful victims of the subprime mortgage crisis rocking the United States are the family pets.

Shelters across the country have seen sharp upticks in the number of people giving up their pets in recent months because they have been forced out of their homes.

And -- more tragically -- neighbors, police and foreclosure agents are finding increasing numbers of pets left to fend for themselves in abandoned homes.

ARLINGTON, VA – Newly appointed Ron Paul economic advisor, Donald L. Luskin, issued the following statement about Dr. Paul’s proposed comprehensive economic revitalization plan:

“Ron Paul’s economic plan is the real thing – a plan. It’s not just a band-aid designed to ‘stimulate’ the economy in an election year. It’s a fundamental agenda for real and lasting change, making the US economy more vibrant and competitive, and removing barriers to advancement for all Americans.”

Eliminate Taxes on Dividends and Savings. The basis of capitalism is savings, and Americans who do so should be rewarded. Pass HJ Res. 23 to encourage savings over consumption.

Repeal the Death Tax. Attacking small businesses and breaking up family farms smothers growth and kills jobs. Pass H.R. 2734 to make the Bush tax cuts permanent.

Cut Taxes for Working Seniors. Grandmothers and grandfathers working to make ends meet should keep all the fruits of their labor.
Pass H.R. 191 to amend the Internal Revenue Code of 1986 to repeal the inclusion in gross income of Social Security benefits.

Eliminate Taxes on Social Security Benefits. That money belongs to seniors, not the government. They paid into the system for a lifetime, and they should be free to spend every penny as they see fit. Pass H.R. 192 to amend the Internal Revenue Code of 1986 to repeal the 1993 increase in taxes on Social Security benefits.

Accelerate Depreciation on Investment. We need to help companies grow and create jobs. Pass H.R. 4995 and amend the Internal Revenue Code of 1986 to reduce corporate marginal income tax rates.

Eliminate Taxes on Capital Gains. Investment should be embraced and rewarded. Pass H.J. Res 23 (The “Liberty Amendment”), proposing an amendment to the Constitution of the United States relative to abolishing personal income, estate, and gift taxes and prohibiting the United States Government from engaging in business in competition with its citizens.

Eliminate Taxes on Tips.The single parents and working students who earn their income chiefly through tips deserve to keep all of their money. This tax on "estimated income" is unfair and should be ended. Pass H.R. 3664 to amend the Internal Revenue Code of 1986 to provide that tips shall not be subject to income or employment taxes.

Support Mortgage Cancelation Relief Act. Working families who lost their homes should not be punished a second time with a big IRS bill. Pass H.R. 1876 to amend the Internal Revenue Code of 1986 to exclude from gross income of individual taxpayers discharges of indebtedness attributable to certain forgiven residential mortgage obligations.

Reduce Overseas Military Commitments. Our bases and troops should be on our soil. It's time to stop subsidizing our trading partners in Europe, Japan and South Korea.

Freeze Non-Defense, Non-Entitlement Spending at Current Levels I vote against all bloated, pork laden spending bills and will veto them as president.

Televise Federal Open Market Committee Meetings. An institution as powerful as the Federal Reserve deserves full public scrutiny.

Expand Transparency and Accountability at the Federal Reserve Pass H.R. 2754 to require the Board of Governors of the Federal Reserve System to continue to make available to the public on a weekly basis information on the measure of the M3 monetary aggregate and its components.

Return Value to Our Money. Legalize gold and silver as a competing currency. Level the long-term boom and bust business cycle by passing H.R. 4683, which would repeal provisions of the federal criminal code relating to issuance coins of gold, silver, or other metal for use as current money and making or possessing likenesses of such coins.

Repeal Sarbanes/Oxley. It has seriously wounded our capital markets and helped make the UK the financial center at our expense.
Ending these misguided regulations would bring jobs flooding back to the United States. Pass H.R. 1049 to reform Sarbanes-Oxley and reduce the burden it places on small businesses.

Repeal or Remove Costly and Unnecessary Federal Regulations. Neighbors know best how to help their neighbors. We need to make it easier for community banks, credit unions, and other financial institutions to better serve their communities and to help people in these communities get access to credit and capital. Pass H.R. 1869 to enhance the ability of community banks to foster economic growth and serve their communities, boost small businesses, increase individual savings, and for other purposes.

Let's try to translate his cute idea into a real economic policy. If impending tax rate increases are a spur to cashing out capital gains, increasing consumer spending and growth, then as your other reader pointed out what to do in the next year? Well, obviously, threaten increased rates again. We could keep increasing capital gains tax rates every year, say a modest 1% increase year over year (wouldn't want to reach 100% in my lifetime). Then there would always be an incentive for The Rich to "cash out" and spend more. Great idea.

Krugman propounds a social-democratic ethos, places undue faith in government and politics, and gives the presumption to the status quo. He opposes a classical-liberal ethos and systematically slights or elides the strong arguments for liberalization. In all that, I think Krugman is wrongheaded.

I have suggested that, in doing so, he appeals especially to the people’s romance. But is the people’s romance what steers Krugman? Yes, I suspect, to some extent. But to some extent I suspect that Krugman and many others push the people’s romance as a way of promoting the collectivism that they favor for other reasons as well. I see another kind of penchant in play, a penchant that gives rise to a mentality particularly of people of high strata who are chiefly concerned with being among what they regard to be the top of the pyramid of culture and power. Robert Nozick (1986) has suggested that “[t]he intellectual wants the whole society to be a school writ large, to be like the environment where he did so well and was so well appreciated.” Nozick suggested that “wordsmith” intellectuals resent “capitalism” for not according them the high status they come to feel entitled to from their experience in school. I am inclined to see such highstrata statist intellectuals as indulging the mythology of society as organization because that mythology gives structure and vision to the yearning to see oneself as part of the governing set—a mentality betokened in phrases like “the best and the brightest.” It is a mentality of those whose selfhood places them “near the top,” and who from such high station gaze upward. That such a penchant would be selected for in the environment of evolutionary adaptation is certainly plausible. It’s good to be the alpha male or one of his close companions. To my mind, Krugman typifies the profile. I find especially telling the enmity he holds toward Republicans in power. He seems to resent not being among or not being able to identify with the people at the top. I suspect that Krugman’s ideological direction has been determined more by a will to see oneself a part of what one perceives to be society’s leadership than by infatuation with the people’s romance. That penchant contributes to his dedication to a kind of politics that, given his setting and personal history, serves him in pursuing such sense of self and that, by delineating and inculcating a “society” that like an organization has and requires “leadership,” accommodates the governing-set mentality itself.

Update... Reader Rohit Dewan notes,

I’d note also that Krugman once said that reading the Foundation trilogy from Asimov as a teenager was his inspiration to become an economist – particularly the Hari Seldon character who was I guess in charge of using his mental powers to “centrally plan” the future of humanity (I never read the book). Fits right in with that psychological profile of him.

call for a 'creative capitalism' that uses market forces to address poor-country needs that he feels are being ignored.

'We have to find a way to make the aspects of capitalism that serve wealthier people serve poorer people as well,' Mr. Gates will tell world leaders at the forum, according to a copy of the speech seen by The Wall Street Journal.

This economy has been a cat with nine lives. But now it's a cat on a hot tin roof, and it's not going to land on its feet.

There's a viral economic doomsday / Ron Paul for President YouTube video that's gotten 150k views in the past couple days. About 6:30 into it you appear, Don. You might not be able to get that far into it, though, because Peter Schiff gets a lot of the screen time at the beginning.

What's funny is that this video has gotten more views the last 2 days than the Fox Business Channel gets in a month.

...if they were repealed in a year, the Bush tax cuts could spur a burst of economic activity in 2008. If people knew that their tax rates were going up next year, they’d work to make sure that more of their income is taxed at this year’s lower rates. Investors would likewise have a giant incentive to cash out their capital gains now to avoid paying higher taxes later. In 1986, stock sales doubled as taxpayers rushed to avoid the capital gains tax rate increase scheduled for 1987. If people pour their stock gains into yachts and fast cars, that’s pure fiscal stimulus.

...the president has...argued for an extension of his tax cuts, now scheduled to expire at the end of 2010. ...most of the benefits would go to the very rich — the group least likely to spend a tax windfall.

Update... Daniel Clifton of Strategas tells us,

For the time period of ’03-’07, total capital gains tax collections were expected to be $259bn. The actual collections resulted $481bn, an 85.7 pct difference from the initial forecast. As the chart below shows, for the past three years capital gains tax revenue has been more than double the forecast for capital gains tax revenue made following the ’03 capital gains tax cut.

Regarding the Len Berman article that you cited, I would argue that he may technically have a point. Rational individuals and businesses, knowing that taxes are now certain to rise in the future, may very well alter their work habits and consumption plans today in response. And presumably, this would lead to an increase in economic activity and saving.

However, Mr. Berman conveniently ends his analysis in 2008. In effect, people altering their behavior are simply borrowing from future expenditures and labor activities, as by logical extension of his own argument, they are likely to do less working and spending in a higher tax environment. This reduction in activity presumably would then cause a slowdown or perhaps recession in subsequent years.

Simply put, this amounts to a long-term rebate that the government provided from 2003-2008, similar to the rebate the Congres is pushing through today, albeit much larger. Or if you prefer, it's like car companies offering 0% financing to borrow sales from future quarters. At the end of the day, temporary stimulus exerts temporary change to economic activity, which is later "retrenched" in the form of slower activity soon after.

What Mr. Berman has done is actually of great service to supply-siders, since he is on the left acknolwedging that tax rates influence consumer behavior and government spending has only short-term effects on consumption, thereby implying that the best way to effect long-term economic growth is to provide stable incentives for individuals to work, save, and spend.

The idea that capital gains should be indexed for inflation has been around a long time with no serious takers among policymakers. It’s always made sense to me. Your pals at the Club for Growth are promoting it.

I like much of their policy objectives but am put off by their style. In my view, there’s too much noise and finger-pointing out of the Cloggers and damn few results.

I wonder how reliable their constitutional legal research is; can the President index capital gains by executive order? On the other hand, Bush would certainly influence the two congressional tax committees by getting the public to refocus on how inflation is a hidden, growing tax. If AMT was a mistake for all below the top 155 taxpayers and we can patch that without a pay-for, why not fix this one, too? The cause is the same as are most of the victims.

Wouldn’t it be a happy surprise if the President announced in the upcoming State of the Union that he was directing the Treasury Secretary to redefine “gain” as an increase in value minus inflation? To the extent that average homeowners (who pay their mortgages) are nervous about the credit crunch, it’s that they worry foreclosures in their neighborhoods will lower the value of their homes, not that they themselves will default.

So, send them a real lifeboat to carry them away from the fear of declining home values, Mr. President. Tell the country that you are doing something real, big and permanent for them. (Go ahead and push the stimulus package, too, not that it matters.)

He is generally consistent in his views to an extent that defeats forecasting precision. For example, he has predicted the demise of housing and subprime lenders since 2002. See also below his early 2006 and early 2007 (and, from his web site, also 2008) forecasts that U.S. stocks would drop below 2002 lows.

...Based on our judgment, Gary Shilling's forecasts for the overall U.S. stock market are right about 36% of the time,

well below average

. [Emphasis in the original]

His forecast accuracy rate is about 57%, which is

above average

... [emphasis in the original]

The steep housing slump is unlikely to reverse any time soon, and the head-spinning financial market turmoil triggered by subprime slime is bound to take its toll.

"I'm going to be honest: I know a lot less about economics than I do about military and foreign policy issues. I still need to be educated [about economics]".  That was McCain speaking with Stephen Moore in Nov. of 2005, at the Senator's office in Washington, D.C. In the same interview McCain identifies former economics professor and U.S. Senator Phil Gramm as his leading economic adviser on economic issues.  Here's the whole incident as recounted by Moore:

On a broader range of economic issues, though, Mr. McCain readily departs from Reaganomics. His philosophy is best described as a work in progress. He is refreshingly blunt when he tell me: "I'm going to be honest: I know a lot less about economics than I do about military and foreign policy issues. I still need to be educated." OK, so who does he turn to for advice? His answer is reassuring. His foremost economic guru is former Texas Sen. Phil Gramm (who would almost certainly be Treasury secretary in a McCain administration). He's also friendly with the godfather of supply-side economics, Arthur Laffer.
 

The always reliable "Huffington Post" re-writes history, and transforms this incident into a recent meeting with editorial board of The Wall Street Journal, one in which Sen. McCain is made to say he "doesn't really understand economics."   A pure fabrication, and a rather nasty one at that. Here's the opening paragraph from Sam Stein's article "Short on Economic Understanding, McCain Brings Phil Gramm to Meeting" in the Huffington Post:

At a recent meeting with the Wall Street Journal editorial board, Republican presidential candidate John McCain admitted he "doesn't really understand economics" and then pointed to his adviser and former Senate colleague, Phil Gramm - whom he had brought with him to the meeting - as the expert he turns to on the subject, The Huffington Post has learned.

The incident was confirmed by a source familiar with the proceedings of the meeting.

Perhaps no surprise this -- Paul Krugman has picked up the fabrication and he's spreading it via the New York Times.

John McCain did in fact have a recent meeting with the editorial board of the Wall Street Journal -- but note well that Phil Gramm wasn't present, and John McCain didn't tell anyone that he "doesn't really understand economics".

But it’s time to start taking the ten-term Texas congressman seriously. He tied for second-place (with John McCain) in Nevada on Saturday. He beat both Rudolph Giuliani and Fred Thompson in Michigan (he also beat Giuliani in Iowa and South Carolina and Thompson in New Hampshire). And Paul now holds the record for the most money raised — $6 million — on a single day in a primary season by any candidate in history. It would be a real mistake to think of Paul as the Dennis Kucinich of the right.

Nut or not, Paul isn’t going away. His message is combining intense opposition to the war in Iraq with a strong agenda for free-market capitalism. So it’s drawing grass-roots support from both parties. Even if it’s a bridge too far for him to capture the GOP nomination, he could mount an insurgent run for the presidency with cross-party appeal and fundraising power, probably as the nominee of the Libertarian party (on whose ticket he ran for president in 1988). He could end up shaping the coming election as H. Ross Perot did the 1992 race — denying either major-party candidate the mandate of a majority of the popular vote, and shifting the center of gravity on important issues.

For many conservatives, what makes Paul seem like a nut is his absolute opposition to the war in Iraq and his insistence on immediate withdrawal of U.S. troops from the Middle East and most of the rest of the world. On the other hand, his views on abortion are perfectly in line with mainstream conservative values (although this side of Paul never seems to get any attention).

On the economics front, Paul is a delightful paradox. If you crack the nut shell and look objectively at what Paul is really advocating, conservatives will find that Paulonomics looks an awful lot like Reaganomics. Paulonomics emerges as a refreshing return to conservative roots: small government, low taxes, deregulation, and sound money. If Paulonomics seems nutty, that may say more about the sad state of events today, with “big government conservatism” having become the new touchstone.

The core concept of Paulonomics is the reduction in the size and cost of the federal government. Irking many of today’s conservatives, Paul emphasizes how this should include scaling back what he calls American “militarism,” beginning with a pullout of Iraq.

But embracing a more classic fiscal conservatism, Paul would outright eliminate what he believes are wasteful and counterproductive federal programs, such as the departments of Education and Energy. Nutty? Most Republicans wouldn’t dare talk about eliminating the Department of Education in the age of “No Child Left Behind.” But Paul reminded me in a recent interview that it wasn’t so many election cycles ago that scrapping this department was an official plank of the GOP platform.

And if you mean it about cutting the cost of government, you’ve got to after the big-ticket items. As to the biggest-ticket items of all, Paul would decommission Social Security and Medicare by honoring obligations to those who are utterly dependent, but letting young people opt out of both systems entirely. Nutty? Let’s be honest: Most conservatives want to do exactly this, but are afraid to say so in a political environment where even mandatory personal accounts are vilified as a “risky scheme,” as Al Gore famously put it.

With all that and more gone from the federal budget, it’s not so nutty for Paul to talk about eliminating the individual income tax and the intrusive bureaucracy that administers it. Paul points out that today’s level of federal tax revenues, without the income tax, is sufficient to meet all the government’s expenses as they stood not so many years ago. The problem is that the size, scope, and cost of government has grown so much. Would it be such a nutty trade-off to roll back the clock on government expenditures if it meant eliminating income taxes for all Americans?

Paul deplores the federal deficit, but insists the only way “to solve that problem is to cut spending, not to raise taxes — or to not lower taxes when you get a chance.” As a first step he advocates the elimination of all taxes on capital — estates, capital gains, interest income, and dividends. He told me, “It’s capital that you need to make capitalism work.” He says the idea that most excites young voters is his proposal to eliminate income taxes on tips: “It’s a big deal if you’re a family struggling and if a second member of the family is working and trying to pay the bills.” Nothing nutty about any of that.

Paul may be the anti-Reagan when it comes to foreign affairs and the military. But he out-Reagans Reagan in his unwavering opposition to the government regulation of business. He may have seemed like a nut when he was one of only three congressmen to vote against the Sarbanes-Oxley Act in 2002. But weren’t the real nuts the conservative congressmen who got swept up in a witch-hunt against “corporate crooks,” and voted to impose the most sweeping, burdensome, anti-competitive, and costly financial regulation in a generation?

Paul is an advocate of free trade — to a fault. He believes deeply in unrestricted trade between people and nations. Yet he votes against free-trade agreements such as NAFTA and CAFTA because he believes that trade is a right, not a gift for Congress to bestow in certain circumstances. Without such agreements, the reality is that trade is probably less free than it is with them. Is Paul a nut for letting the perfect be the enemy of the good? Perhaps, but for Paul it’s a point of principle. He told me, “I don’t call them free-trade agreements; I call them managed trade agreements.” Instead, Paul would like to see a simple policy of “low and uniform” tariffs for all products from all nations.

Perhaps the most unusual element of Paulonomics is the idea of abolishing the Federal Reserve. For Paul, this is another way to eliminate government interference and to lower taxes — in this case to lower what he calls “the inflation tax.” Do we need the Fed to be a lender of last resort to aid in financial crises, such as the present sub-prime mess? Paul says no: “the lender of last resort is just the printer of last resort, the inflationist of last resort.”

Most politicians fall all over themselves in public adulation of the reigning Fed chairman. But Paul has had the courage to grill these unelected economic central planners when they come before his House committee. He asks the tough questions that others fear to ask, and they’re the same questions that are often asked by economic commentators on this website, including me. Most prominently, how is it the Fed continues to operate on the demonstrably false premise that rapid economic growth is, ipso facto, inflationary?

Paul, however, can be his own worst enemy on this subject when, in debates, he seems to blame all our economic challenges on inflation, or when he buys into some of the conspiracy theories that have surrounded the Fed in various forms since its inception. In a recent grilling of Ben Bernanke, Paul made an issue of the discontinuation of M3 monetary aggregate statistics, as though the Fed had done this in order to hide something. Okay, that was nutty.

But as a first step toward eliminating the Fed, Paul advocates “legalizing competition — allow gold and silver to circulate with the dollar, and take off all the taxes on gold and silver money.”

Ah, gold! The mere mention of it in today’s modern economy brands you as a nut, or at least an economic hick. But remember, American money was linked to gold in one way or another for most of our history, until 1971 in fact. In his first year in office as president, Ronald Reagan established a blue-ribbon commission to investigate a possible return to gold. It went nowhere, but was Reagan a nut to ask the question? More fundamentally, is there anything nutty about money that would be, as Paul advocates, “convertible and redeemable in something of real value”?

For all his apparent extremism, there’s no other candidate who has managed to excite both Democrat and Republican voters by combining an anti-war message that irritates conservatives with a free-market message that irritates liberals. Nutty? Or brilliant?

If I’m right and Ron Paul doesn’t just fade away as the primary season progresses, he’ll make a real difference. His anti-war message would make life difficult for Hillary Clinton, by drawing away the most pacifist elements of the Democratic base. But it’s on the economics side where I think he could make the biggest impact. In an election year in which bigger government, higher taxes, and protectionism seem to have so much momentum, Paulonomics may be just what is needed to rebalance the debate in favor of growth.

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

Sunday, January 20, 2008

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