October 04, 2006
"Large and unavoidable"
Fed Chair Ben Bernanke did his best to sound the alarm today over the looming fiscal calamity that awaits us, that is, of course, without alarming anyone. But his message was clear: as Baby Boomers reach retirement age, the rest of us will bear a pretty hefty burden in supporting them in their dotage.
This is not a drill. The fate of President Bush's plans for Social Security reform does not bode well for the entitlement-slashing suggestion. Which leaves...what...exactly...oh, right: tax increases!
Posted by bill at 10:20 PM | Comments (0)
December 15, 2005
Antics & Semantics In Hill Budget "Cuts"
Long irritating ladies and gentlemen who wish to cut federal spending has been the riotous success of those opposed in getting the country to adopt "cut" as the slang terminology for "decrease the increase in the rate of spending." The rout of words' meaning what they indicate is so complete that major newspapers will not bother teasing out the difference between a real cut and a smaller-than-advocated increase ("Health and Education Measure Narrowly Approved by House").
The point goes beyond the political: you cannot, as a factual matter, decry a shrinkage in the expansion of, say, the food stamp program based on the vulgar implication that current recipients are having their nourishment stolen away. Of course, there is the matter of next year's recipients, lining up for their turn. They have a claim to their food stamps, or prescription drugs, or what have you. They have a possible claim to imminent entitlements. But a pre-claim? To unbudgeted, unvoted, unreal entitlements? How early can one start being beholden to future need interests? How early must one be?
Posted by James G. Poulos at 03:26 PM | Comments (0)
November 03, 2005
Paper Tigers and Bogeymen
Steven Malanga, in "The Conspiracy Against the Taxpayers" seems to think that the crushing municipal and state pension obligations due to teachers, firemen, and various government functionaries have been forced on an unwitting public. I disagree.
In a perfect world, maybe taxpayers would have demanded fairness from the beginning, but this is not a perfect world, and we are not perfect individuals. Sadly, all taxpayers are complicit in the long history of simply paying off workers in the public sector. Teachers unions may be powerful, but so is the pervasive fear among parents of teacher quality (which, sadly can lead parents to support higher teacher salaries even as they agitate for the right to remove inferior teachers from the classroom).
Despite the many flaws of taxpayers, and the nearly crushing burdens (well summarized in Steven Malanga's article) of our long-standing willingness to bribe the public sector, a simple truth remains: the unions are dying. The greater the discrepancy between the benefits and security afforded public sector vs. private sector employees, the harder it will be to justify those differences. Taxpayers are only now beginning to feel the true weight of our collective largess to the public sector, and as the scope of the obligations becomes clear, we will find a way to relieve ourselves of these burdens or punish the organizations that championed them, or both.
Steven Malanga needs to calm down, he is awed by the strength of paper tigers, and frightened by union bogeymen.
Posted by Audi Partem Alteram at 01:13 AM | Comments (0)
October 20, 2005
As Darkness Falls on the Labor Movement
Amid the deafening cry of capital "C" conservatives watching in horror as the Bush Administration allows their adopted party to tear itself apart, nonpartisan conservatives are quietly cheering a long overdue bit of good news: the last bastion of strength among American industrial unions is being stormed, and no one is riding to the aid of the beleaguered UAW. When Steve Miller, CEO of Delphi and a veteran of many corporate turnarounds, announced recently that his firm was filing for bankruptcy, he may have finally sounded the death knell for uneconomic pay packages in this country.
While labor costs should not bear exclusive blame for the bankruptcy of Delphi in particular and the distress of the domestic automotive sector in general, they have played a large part. The intractability of the UAW regarding those costs may have given auto executives an excuse to regard high labor costs as inherent in their business, instead of a variable cost that could be negotiated down. As Professor John Paul MacDuffie of the Wharton School of Business observes: "The question is why there wasn't pressure to deal with that issue sooner. There wasn't much of an inclination to invest in [improving] those businesses, maybe because labor costs were seen as insurmountable barriers." In short, the former strength of the UAW, and the irresponsible way in which that organization used its strength, has now imperiled an industry.
The auto industry will restructure, and workers will find new employment. Perhaps more importantly, the children of current UAW employees will come of age in a world in which their parents will not be able to regale them with stories of a comfortable life in exchange for their unskilled labor. Those children will know (as most American children have for at least a generation) that they must educate themselves and provide value commensurate with the salaries they hope to command. A recent article in The Nation summarizes the situation best: "Delphi is a marker of a new America in which there is no collective security, in which the union will not make you strong, in which there is no government to give you shelter and in which you know you are alone." Individuality, self-reliance, and an end to the welfare state, surely this is something to warm the hearts of fiscal conservatives everywhere.
Posted by Audi Partem Alteram at 11:35 PM | Comments (0)
October 12, 2005
Faint signs of governing
Bush's tax advisory panel is backing a significant limitation in the tax breaks currently given to homeowners. This is the type of boring, wonkish stuff that effective governing is all about. Now let's hope our elected officials have the courage to act on these sensible recommendations instead of caving to pressure from the inevitable horde of lobbyists that are going to be unleashed at even the hint of a move toward rationality.
Posted by Audi Partem Alteram at 12:50 AM | Comments (0)
October 08, 2005
A Rational Look at Housing Policy
The stage is set. On Tuesday a presidental commission on tax policy will review the many tax benefits granted to homeowners (see article here). This policy is overdue for a serious revamping. As I have argued on this site before, federal tax policy currently serves only as a restraint on sanity in the housing market; at best a dubious use of nearly $100 billion a year.
Posted by Audi Partem Alteram at 09:59 PM | Comments (0) | TrackBack
September 13, 2005
Stop the Hysteria
Is is possible, just possible, that what China is up to is the business of developing into a capitalist country? No, the capitalism China adopts will not be exactly the same as our own, but so what? It is maddening to see the The Nation correctly noting the absurdity of the Right effectively complaining that China is too good at capitalism.
Posted by Audi Partem Alteram at 01:22 PM | Comments (0) | TrackBack
September 08, 2005
Death Tax Repeal In Its Death Throes?
David Runciman, Cambridge political theorist, has it in for the estate tax. His criticism of it is more thorough than that of his American brothers-in-arms, but none the more cogent. And as Katrina washes away the possibility of a vote on that notorious removal of wealth from the hands of the children whose parents have earned it, liberalism's central thesis endures in its folly.
The pivotal error? Pro-estate tax ads have asked why we ought to give billions in "lost" revenue to a handful of millionaires, while the needs of a less fortunate public go unmet. One question is at what point needs become wants, but in addition to being particularly gauche at the moment that query is eclipsed by the observation that the repeal of the estate tax will not "give" anyone anything. Of course, it will refrain from taking large sums of money from the people who have earned it.
If you like, ask whether they deserve that money--but not whether its ownership is their right. It's the third-rate heirs of those who earn a fortune whom death-tax boosters attack for making a mockery of wealth and privilege, but the people who create wealth to begin with are those truly assaulted by the estate tax. The idea that one's legal personhood exists at least an instant after one's body gives out is as venerable as it is grounded in the fundaments of private property itself.
Posted by James G. Poulos at 04:26 PM | Comments (0) | TrackBack
August 26, 2005
Oil, Oil, Oil...Oy....
It's a simple argument: America's addiction to foreign oil is funding anti-American extremists and tying our hands behind out backs when it comes to dealing with Islamic Petrocrats (and Hugo Chavez). Just like a song with a simple refrain, everyone's singing along: Tom Friedman has been beating this particular drum since 9/11 - maybe before. Fareed Zakaria, who I generally like, sang his part in an editorial a week or so ago (methinks because he couldn't think of anything too original in time for his deadline). It went like this:
"If I could change one thing about U.S. foreign policy, what would it be? The answer is easy, but it's not something most of us think of as foreign policy. I would adopt a serious national program geared toward energy efficiency and independence. Reducing our dependence on oil would be the single greatest multiplier of U.S. power in the world."
"Everything we're trying to do in the world is made much more difficult in the current environment of rising oil prices," says Michael Mandelbaum, author of "The Ideas that Conquered the World." Consider terror. Over the last three decades, Islamic extremism and violence have been funded from two countries, Saudi Arabia and Iran -- not coincidentally the world's first- and second-largest oil exporters. Both countries are now awash in money and, no matter what the controls, some of this cash is surely getting to unsavory groups and individuals.”
The thing about Fareed and Tom and Bill Maher, et. Al is that they have a point. It’s hard to push the Saudis and Iranians and Venezuelans when oil is almost $70 a barrel. If we could treat them as they need to be treated, we could advance the game-winning goal of democracy. Again, right on the money.
The problem is – perhaps because the idea of the Western world kicking oil is so inconceivable – they’ve never really thought what would happen if the day after oil.
The mullahs may be breaking into check-cashing places in Tehran when we’re zipping around in our 100 mile-per-gallon SUVs; and don’t get me wrong, I’d take great personal pleasure in watching the auction where Wahabi yachts go for pennies on the dollar.
This would, in all likelihood, spell the end of regimes that have stood the last fifty years on anti-American stilts. But how would they end? With a rousing ‘Goombayah’?
Governments that run out of money go into death spirals; and not peaceful ones. When oil-revenue governments can’t pay their workers salaries, or for healthcare or education or whatnot, and their economies subsequently tank, their situation that comes about would look a like Weimar Germany’s. And Afghans have been so kind to show us, you don’t need a lot of money to cause a lot of problems..
And even though we may not need the oil that’s sitting uselessly under Arab dunes, I have a feeling America won’t be able to walk away from whatever problems a broke House of Saud generates.
Similarly, the less marketable Middle Eastern oil is to the world at large, the less would be democrats in the Arab world have to work with. Oil money has done a lot of good for Norwegians, and Alaskans. As dreamy as it seems, an elected Saudi president or prime minister could do more to reaffirm the faith of Arabs in democracy as a hundred Hamid Karzais. That much money, spent right, could provide the sorts of services – healthcare, higher education, roads, etc. – the lack of which causes Palestinians and Iraqis to grumble that it’s all just a Yankee scam.
Perhaps buying $5 a gallon gas is the most patriotic thing you could do.
Posted by Louis at 10:28 PM | Comments (0)
August 03, 2005
Capitalist in Name Only
A nativist uproar has just cost the shareholders of Unocal over $1 billion while also highlighting the breathtaking hypocrisy of the United State's claim that it is a capitalist country. The facts are simple enough. Energy company Unocal was looking for someone to acquire it, and Chevron came along with a bid. Then CNOOC, a firm 71 percent owned by the Chinese government, offered a superior bid. Again, CNOOC was offering more money. It was at this point that things went crazy.
Apparently in this country, competition is a desirable thing only so long as you can pick the competitors. I say that because, given the stunningly simple issue of whether to choose CNOOC's bid of $18.5 billion or Chevron's bid of over one billion less, members of Congress somehow felt it was their duty to tip the scales in favor of the low bid.
Not only did our legislators just rob the shareholders of Unocal, they offered to the world in general and China in particular the spectacle of a country (or at least the leaders of a country) afraid to compete. Capitalism is not insular, you do not have the option of playing only with those you have played with before. China has seen that the world's preeminent capitalist country is not committed to capitalism so much as it is committed to an outdated view of the world. We will someday reap what we have sown; China will have its revenge.
Posted by Audi Partem Alteram at 07:49 PM | Comments (0) | TrackBack
July 29, 2005
Too Close
The House of Representatives finally passed the Central American Free Trade Agreement (CAFTA), but the narrow margin of victory should dissuade free marketers everywhere from celebrating. Two votes. A measure that would lower trade barriers between the United States and some of our (small and poor) neighboring countries, only passed by a two vote margin, 217-215. Yes, Republicans favored the bill and Democrats excoriated it, but the problem goes deeper. There were too many Republican defections, and the Democratic members of the House (more than 100 of whom voted for NAFTA in 1993) seem to have lost their stomach for globalization. If the United States is to continue as a leader in the march toward globalization, we are going to have to convince more than a bare majority of our legislators to come along.
Posted by Audi Partem Alteram at 10:05 AM | Comments (0) | TrackBack
July 10, 2005
Angry and Ignorant
I have just read an amusing article, "Urban Archipelago", that reads like someone's primal scream after a sympathetic but more rational editor insisted on substituting some of the rage for lucidity. The targets of this venomous essay are many, but for my purposes I would like to focus on one that has become something of a default whipping boy for the Left in recent years: Wal-Mart. You see, this article, and in particular the irrational attacks on Wal-Mart, is illustrative of the extent to which some in the Democratic Party, a party for which this registered Independent still harbors warm feelings, has lost its mind.
Passages such as the one below speak of a woeful ignorance of basic economics:
"We will pass laws mandating a living wage for full-time work, upping the minimum wage for part-time work, and requiring large corporations to either offer health benefits or pay into state- or city-run funds to provide health care for uninsured workers. That will reform Wal-Mart in our blue cities and states or, better yet, keep Wal-Mart out entirely."
Wal-Mart, and all the other success stories of our capitalist system exist because we made them. As citizens of the country in which these companies were founded, as customers, as investors, or in all three roles, we can each be proud of the accomplishments of firms such as Wal-Mart, and should take offense when pundits speak blithely of creating a nakedly hostile business environment for the purpose of artificially checking their growth.
The arrogant superiority of the authors of this piece is offensive and sad (conservatives can be equally arrogant and superior, but that is a separate matter). Our dynamic economy and the firms which thrive in it comprise the foundation of our republic, and neither party should speak lightly of undermining that foundation.
Posted by Audi Partem Alteram at 03:57 AM | Comments (0) | TrackBack
June 21, 2005
Hard Landing
It's in the air: the frenzy and the folly of a bubble as the end nears. The real estate bubble in the U.S. has reached absurd heights. According to the National Association of Realtors (NAR), 25% of those purchasing homes last year made no down payment (see article here). The increasing use of no-interest and negative amortization mortgages is undercutting the traditional (financial) rationale for purchasing a home. Meanwhile, real estate prices are falling in Australia and the UK (ours is part of a global real estate bubble), and it is only a matter of time before they begin to fall here. Given the extent of the run-up in housing values in some areas of the country, and the increasing willingness of American home buyers to adopt imprudent risks, this is unlikely to be a soft landing.
Posted by Audi Partem Alteram at 01:54 AM | Comments (0) | TrackBack
June 02, 2005
Cowardice in the face of change
After wagging his finger at the apparent desire of Western Europe to cling to a way of life that runs counter to global economic trends, David Brooks briefly noted that the same irrational fear of change and costly nostalgia for a bygone economic system are present in the United States as well. If he had the stomach for it, Mr. Brooks might have gone on to note that not only are those fears present in the United States, but that this country is currently on the brink of an embarrassing defeat at the hands of voters driven by those same concerns. However, to our shame, the voters in our case are members of Congress. The defeat of CAFTA, a straight-forward trade agreement with none of the potential for loss of sovereignty that may have played a role in the recent votes by the citizens of France and the Netherlands, would be a sign that the United States is comprised of citizens just as fearful of change and jealous of their advantages as the citizens of Europe who have been so thoughtlessly mocked in the conservative press. We live in a glass house, and we should put down our stones.
Posted by Audi Partem Alteram at 12:54 AM | Comments (0) | TrackBack
May 30, 2005
School District Administrators Ought to Study Economics
On May 17th 45 school budgets in Long Island and 6 in Westchester (both in suburban New York) were rejected by voters. Rejections of this scale are a new occurrence, and the reaction of education officials is at once amusing and frustrating for the level of ignorance it indicates. Somehow convinced that it is possible to justify a 60 percent per pupil increase in spending from the 2001-2002 school year to the 2005-2006 school year (an extreme case, but an illustrative one), these administrators seem to be woefully ignorant of the basic tenets of economics.
Economics studies the allocation of scarce resources. Money, even in many of the affluent communities of suburban New York, is just such a scarce resource. As birth rates decline and the demographic make-up of our nation changes, there is likely going to be an increased level of confrontation regarding the financial committment communities are willing to make for the benefit of their school systems. These rejections are not only a protest against rising property taxes, they are also a very public indication that demographic trends will alter policy at the community level.
Posted by Audi Partem Alteram at 09:04 PM | Comments (0) | TrackBack
May 18, 2005
A Closer Look at China's Economy
The drumbeat, from both the right and the left has been relentless: China's monstrous economy threatens the well being of Americans everywhere. But is the Chinese economy really all that menacing? In a fascinating article appearing in the July/August 2004 issue of Foreign Affairs (see article here), George Gilboy offers an illuminating analysis of the true state of the Chinese economy, and reveals it to be something far different from the dragon that will consume the West, as so many have claimed. Clearly addressing issues such as the perception of Chinese manufacturing superiority and imminent domination of high-tech industries, Gilboy patiently makes the case that China is a rather ordinary (albeit extraordinarily large) developing economy, and one that does not present significant economic danger to Western countries.
It has been beat into our collective heads that China is an exporting powerhouse, but this article provides key information that gives a better picture of the nature of China’s exporting power. In China, foreign-funded enterprises account for 55 percent of all exports, and 85 percent of exports for high-tech industries. In contrast with that 55 percent figure, foreign-funded enterprises in South Korea, Taiwan and Thailand during the modernization periods of those countries (1970s and 1980s) accounted for 18-25 percent of exports. Additionally, these foreign-funded enterprises have increased their domestic market share of high-tech sales to 45 percent, surpassing the 42 percent share of China’s state-owned enterprises. Even in China, Chinese technology is increasingly being shunned.
Not only are Chinese firms not selling a large amount of high-tech goods and services, they are doing a remarkably bad job at developing or even understanding them. Gilboy reveals that Chinese R&D has been miniscule, remaining below one percent for the last decade. After informing readers that: “Industrial firms in those countries (South Korea and Japan) spent between two and three times the purchase price of foreign equipment on absorbing and indigenizing the technology embodied in the hardware (during the 1970s and 1980s).” Gilboy goes on to note that: “Over the last decade, large and medium-sized Chinese industrial firms have spent less than 10 percent of the total cost of imported equipment on indigenizing technology.” These are not, by any stretch of the imagination, behavior patterns characteristic of a rising technology power.
China is an enormous market, and it will at some point later in this century most likely become the world’s largest economy. But it is not now, and is demonstrably not yet on the path to being, comparable in quality to the U.S. economy. We should all note the wisdom of this statement by Tom Nugent: “the ignorance of the politician in matters that impact economic policy can cause a lot more damage than the surgeon’s knife or the accountant’s calculator.”
Posted by Audi Partem Alteram at 11:08 AM | Comments (0) | TrackBack
May 16, 2005
The Role of Unions
I believe that unions no longer serve a productive role in the U.S. labor market. Early in the last century, when the nation’s workforce was transitioning from rural to urban employment and most jobs were unskilled, many employers did act callously toward their workers. Industrial companies, located in the major cities and as such at the destination points for millions of immigrants, were dismissive of the safety and professional development of their employees. Unions had a legitimate role then. They spoke for groups of workers who individually had neither the skill nor the resources to apply any leverage when contracting for employment. Through the efforts of unions wages were raised and employers, now faced with a more expensive workforce, were given incentive to attend to the training of their workers. Unrecognized by the unions, however, was the fact that these successes largely rendered them obsolete.
So what role do unions play in our country today? Instead of champions of the repressed masses, unions have become parasites, leaching vital resources from their member’s employers in good times and in bad. They foster within certain groups the belief (regrettably innate in many of us) that their members deserve more. The incessant demands (and the timidity of the managers that bow to them) of unions representing employees within both the public and private sectors have led to unconscionable property tax increases and have ravaged America’s so-called “smokestack industries”. Unions have simply refused to accept that organizations on the micro level and society as a whole on the macro level suffer when employee compensation is determined by lobbying and threats, instead of by market forces.
Posted by Audi Partem Alteram at 10:37 AM | Comments (0) | TrackBack
May 06, 2005
Change the tax system
Our tax system is no longer competitive when compared with those of our trading partners. While our economy continues to benefit from efficient capital markets and the entrepreneurialism that has long made America stand out in the world, this is not a time to grow complacent. The system we employ for taxing personal income in unnecessarily burdensome to both taxpayers and the government that must administer collection. Likewise, our corporate tax is inefficient in that it renders our country a less friendly place to do business. Change can and should be made.
A recent piece in The Economist lays out the case for a flat tax in a convincing and informative manner. Administratively, a flat tax would be a godsend to the IRS. It would impose one rate, on every dollar earned from the first to the last. As the article goes on to explain:
in principle, the taxman could simply withhold 20% of a company's payroll, without needing to know who was paid what. Add a second rate of tax, however, or a personal exemption, and the tax collector must find out how much money is going into each pay packet before he can be sure of collecting the right amount from the right person. In America, for example, the tax collector needs to tax the wage packets of 130m or more employees, rather than simply taxing the payrolls of 8m or so enterprises.
This system, which Estonia has enjoyed since 1994, could help us remove considerable inefficiencies from our economy.
Legal Affairs believes that the corporate tax will not long survive in the U.S. (see article here). I look forward to its demise. As author Maya MacGuineas observes: “the Congressional Budget Office has estimated that because of the many inefficiencies the corporate tax creates, it drains as much from the economy as it actually collects.” Additionally, an uncompetitive tax structure in this age of globalization makes the United States a less attractive place to locate facilities, and hence imposes significant opportunity costs on our society.
Hopefully our President and Congress will soon find the will to stop tinkering with a broken tax system and fulfill the hope of William Simon, Treasury Secretary under Richard Nixon, who longed for a tax system that looked “like someone designed it on purpose”
Posted by Audi Partem Alteram at 09:48 AM | Comments (0) | TrackBack
The Power of Negative Thinking
For some people, no amount of disconfirming data will shake a predetermined conclusion.
This morning's outstanding jobs report from the Labor Department has Wall Street upbeat. April's job growth hit 274,000, more than 100,000 above estimates. March and February's job numbers were adjusted significantly upward.
Minutes after the numbers were released, Congresswoman Carloyn Maloney (D-NY) went on Bloomberg TV to try to put the kibosh on the celebration (bold and excerpting mine).
Rep. Carolyn Maloney: The unemployment numbers seem low, but when you look at the number of people in the job market and the number of people employed, it is a fraction of our population. The one area that is disturbing is the continued loss of manufacturing jobs. Since President Bush took office this country has lost over 2.5 million manufacturing jobs.
Mike Schneider, Bloomberg TV: The skeptic would say you look for a dark cloud within a silver lining... As pointed out, we have almost a perfect storm right now of job creation, low unemployment, productivity strength up, hourly earnings up. Something must be going well.
CM: Well, I would like to say that it looks like a record going in the right direction. Many of the records from the administration are going in the wrong direction. In the last several months we have had record deficits, a record debt and a record trade deficit. These indicators are not good for the future of our economy... Today, 274,000 jobs is great news. Let's hope this continues. We hope that it will strengthen our economy and our country.
MS: What do you think is responsible for this? These things don't happen in a vacuum. If administration policies were responsible for lack of growth or higher unemployment or lack of job creation a while back, is the inverse correct this time around, are administration policies paying off?
CM: Overall you have to look at the total record and since President Bush took office there are fewer-
MS: You pointed that out... I asked a simple question. Are administration policies responsible for this surge in job creation?
CM: I would have to look at where the jobs were created. Were they created in the private sector or were they more people employed by the military? I just saw overall jobs numbers. I'm thrilled with it. We have a hearing later on today. I'll have more information then. But I only know the overall job numbers since they just came out. I'd be glad to study it and get back to you.
Posted by Suitably Flip at 09:27 AM | Comments (0) | TrackBack
May 02, 2005
Cursing the doctor
This is ridiculous. The United States has the most advanced financial system in the world, and while government officials in Europe and Asian will often speak wistfully of our advanced capital markets, they clearly do not have the stomach for the unfettered capitalism that makes those markets possible. German politicians are now spewing grossly misleading rhetoric about the function of private equity firms, accusing them of taking advantage of vulnerable German companies to the detriment of the German public. Japan is sadly following a similar path, having recently witnessed what in the United States would be considered a perfectly normal hostile takeover, politicians are outraged, and calling for strict limitations on mergers and acquisitions. This is akin to two very sick men raving at a physician who offers medicine that causes mild nausea.
To paraphrase Mao Tse-Tung, capitalism is not a tea party. The politicians who envy us our vibrant economy and advanced markets need to realize that capitalism must be freed from all but the most necessary government intervention for society to enjoy its fruits. I only hope that the current demonizing of the agents of change by politicians in these two countries represents the last gasp of defiance before capitulation.
Posted by Audi Partem Alteram at 11:35 AM | Comments (0) | TrackBack
April 30, 2005
The Economy
The economy has hit a soft patch; is worse ahead? To me, it seems that there are a lot of reasons to take a "wait and see" attitude at this point. The dollar is shaky; the current account deficit is unsustainable, as is the federal budget deficit; and the battle over Social Security reform puts a big question mark over the future macroeconomic environment.
Posted by Good Samaritan at 07:36 AM | Comments (0) | TrackBack
