Recently in Economics Category

I have to admit to feeling frustration with the "tax-'em-'til-they-bleed/leave" bunch. It has become quite apparent they lack two things: an understanding of economics and history.

It is this lack that drives the Obama Administration and a good portion of Congress. With history making budget deficits and plans to raise taxes to economy draining levels, it's quite clear they have unrealistic expectations of the revenues they'll collect, which in turn will drive them to raise taxes even higher, causing a further drop in revenues.

Whether it is a revolt of the kulaks, or mere tax avoidance, there is economic distortion from high rates of taxation.

The British are seeing this effect in their current budget, as wealthy Brits engage in tax avoidance (structuring their financial lives so as to legally avoid taxes) in anticipation of a rise from a 40% to a 50% rate.

Obviously the Brits are on a path to return to the bad old days of their 1970's economic malaise, when confiscatory tax rates drove the wealthy (and their wealth) out of the UK. The result was a moribund economy, high unemployment, falling tax revenues, and the failure of a number of long-standing British corporate icons (British Leyland, MG, and British Steel, just to name a few).

Two things to remember when it comes to taxes and government (from the comments):

The raising of T(axes) has the effect of decreasing I(nvestment) which in turn has the effect of decreasing Employment (N).

The larger the share of G(overnment) as a part of GDP, the worse off..the economy in the long run.

Turning this into an equation, we get the following: T=1/Ix → G=1/GPDy
(x and y are multipliers used to generate the correct ratio between the left and right side of the equation.)

But as we've already seen, those pushing for the ever higher taxes don't really understand math.

Robert Heilbronner, a lifelong socialiist, was able to admit that capitalism is a success where socialism has every where proved to be a failure. He famously wrote in 1989 that "Mises (the ardent free market economist whose books form an intellectual bulwark against socialism) was right." He even admitted the following:

Capitalism has been as unmistakable a success as socialism has been a failure. Here is the part that's hard to swallow. It has been the Friedmans, Hayeks, and von Miseses who have maintained that capitalism would flourish and that socialism would develop incurable ailments. All three have regarded capitalism as the 'natural' system of free men; all have maintained that left to its own devices capitalism would achieve material growth more successfully than any other system. From [my samplings] I draw the following discomforting generalization: The farther to the right one looks, the more prescient has been the historical foresight; the farther to the left, the less so.

He also noted then that "democratic liberties have not yet appeared, except fleetingly, in any nation that has declared itself to be fundamentally anticapitalist."

I have to say the opening statements of the President's State of the Union address were on target, talking about the problems that we, as a nation and as individuals, are facing. But once he started addressing the main issue we face - the economy - he lost me.

He talked about tax cuts, but only the temporary tax cuts. The somewhat more long term cuts, the Bush tax cuts, expire next year, meaning everyone will see a tax increase once they're gone.

On the stimulus bill - blah blah blah blah blah blah. (At least that's what I heard.)

As much as I agree that jobs are an issue, I have to disagree with the president that somehow it's up to the government to stimulate them with our money. Better that government get the heck out of the way. We don't need it to take $30 billion of the repaid TARP funds and spend it again.

I agree with Obama that we need to upgrade our infrastructure to help American businesses compete in the global marketplace. But what do high-speed trains have to do with that? Better that electrical systems and broadband communications networks be built, which will do far more to support American businesses than trains.

And while the president says he "won't accept second place for America", he's been doing what he can to make sure that's where we'll end up, if not third or fourth place.

After that I started nodding off as he started mouthing the same old platitudes but in different wrappers. (Make energy less expensive by taxing the hell out of it. Punish all the banks for the actions of a few. Spend billions more on education even though study after study after study shows more money doesn't equate to better education. Destroy our health care system in order to save it. And so on and so on.)

I. GOT. BORED.

ZZZZZZZzzzzzzzzzzz........

UPDATE 1/28/10: Going back and watching the address again, I saw that as time passed he shifted more and more blame for all our troubles on to others. He laid all the blame for the failure of health care reform and cap-and-tax squarely on the Republicans, saying they now owned the blame. Senator John Kyl rebutted that allegation today on NPR, stating the Senate Republicans were following the will of their constituents, blocking bad legislation that would do little more than cost the American people untold hundreds of billions of dollars with nothing to show for it.

Doug Bandow explains why without mincing words:

Only in government--monopoly public services--are unions advancing.  Which is what one would expect from organizations which typically promote inefficiency and waste as a means of enriching their members.

I have to say that I've seen that first-hand. At my Teamsters job people with more seniority--and much higher pay--actually are usually no more productive than people earning much less. In a few cases they are less productive. So it's totally unlike the unfettered private sector where one's pay is contingent on one's productivity. There's one woman who can walk only slowly but has over thirty years with the company and probably makes over $30 per hour. She doesn't do much in the otherwise hectic environment.

I have, recently reading the wonderful Tom Woods' Meltdown. It's the years 1920-21. Sharp, painful downturn, a depression.

Why it didn't last is found in the response of the Fed and feds: the opposite of what they're doing now.

Bob Murphy writes for The Freeman about the years 1920-21:

Here the government and Fed did the exact opposite of what the experts now recommend. We have just about the closest thing to a controlled experiment in macroeconomics that one could desire. To repeat, it's not that the government boosted the budget at a slower rate, or that the Fed provided a tad less liquidity. On the contrary, the government slashed its budget tremendously, and the Fed hiked rates to record highs.

The present economy is in rough shape. I work at UPS. I load the trucks, four of 'em anyway, that go out. I have a unique feel on the pulse of the economy. And in ten years of working there I have never seen such a crappy Christmas.

Two years ago I'd be having to show up at 1:30 am. Now, it's 3 am. I mean I'm not a smart engineer like Chan, but even I can do the math.

It looks like inflation is peering at us around the corner. Not in the short term, but it's coming, judging from this graph. Milton Friedman tells us to muster the will to stop the presses.

My dad keeps telling me to buy gold. But I'm more into ammo and guns. When the fecal matter hits the cylindrical fan that'll probably be more useful. But people obviously don't trust the U.S. dollar. As G. Gordon Liddy keeps saying, the Fed is printing money on toilet paper in the basement of the Treasury.

Um, well...see for yourself.

If more people understood economics, they'd be much less susceptible to the "broken windows fallacy."