August 31, 2010

I.E. Vs. E.G. - All Your Questions Answered

http://theoatmeal.com/comics/ie


The More Things Change, The More They.....

The passage below from Senator Robert Taft came from a radio debate in the 1930's between Senator Taft and Representative T.V. Smith regarding the New Deal:

[The New Dealers] are willing to sacrifice individual freedom in order supposedly to improve the condition of the poor and increase their material welfare. But in this purpopse the policy has completely failed. There are more than 10,000,000 people unemployed today, and the largest relief expense this year, 10 years after the depression, than any in the history of the United States. Farm prices are lower than they have been for 6 years. Businessmen are discouraged and indignant. Deposits have piled up in the banks because rich and poor alike are afraid to put their time or money into private enterprise, because they fear that Government regulation will prevent success and Government taxation will take whatever profit there might be. The New Deal policy is the only one which has ever plunged us into a second depression before we were out of the first. If any policy leads backward and not forward, it is the policy of spending billions of borrowed money and piling up a tremendous debt for future generations to pay. A policy which leads inevitably to the bankruptcy and inflation of the currency will not only make the poor people poorer, but it is likely to force a socialism which will utterly deprive them of individual freedom.

Unanswered LOST Questions

I was a huge fan of the TV show LOST, but found myself very disappointed in the last season.

This video goes a long way in detailing my frustration:

"Those Voices Don't Speak for the Rest of Us"

August 25, 2010

The Art of Brokerage

I am currently reading Niall Ferguson's biography of the legendary merchant banker Siegmund Warburg.

I came across the passage below which is an excerpt from an interview with Warburg in 1970.

Warburg uses the doctor/patient relationship to describe his thoughts on being a broker. The passage is probably the best description I have ever read regarding the art of brokerage:

“The motives of a doctor are a mixture of altruism – the wish to help others – and of the ambition to do a good job. He hopes to obtain both the inner satisfaction arising from well-accomplished achievements as well as material recognition. On this basis a good doctor should in the first place listen with great attention to the problems and complaints of his patient and try to gain a comprehensive picture of his strong and weak points, looking not only at the patient’s specific ailments but observing the state of the patient as a whole with its physical and psychological ramifications.

A doctor must neither neglect smaller impairments of the health of his patient nor must he despair over the patient’s most critical afflictions nor desert him even on his deathbed. Moreover a good doctor must have the courage to tell the patient unpleasant facts and to oppose the patient when the patient wants to do things which appear to the doctor to be unwise.

Finally, the doctor when looking after his patient should think only how he can give the best care to his patient and should not give any thought to the bill which he will send to the patient afterwards. However, once the doctor has performed a good service, he should not be shy about sending proper bills to those who can afford to pay them. The primary point seems to me always to be the quality of the service and the courage to persist in giving well-considered advice, no matter how unpopular that might be at times.”

Artificial Demand

Here is what artificial demand looks like:

Intel's Paul Otellini Speaks Out

Some comments from Intel CEO Paul Otellini made at the Technology Policy Institute's Aspen Forum:

"Unless government policies are altered... 'the next big thing will not be invented here. Jobs will not be created here."

"The U.S. legal environment has become so hostile to business...that there is likely to be "an inevitable erosion and shift of wealth, much like we're seeing today in Europe--this is the bitter truth."

"Not long ago...'our research centers were without peer. No country was more attractive for start-up capital... We seemed a generation ahead of the rest of the world in information technology. That simply is no longer the case."

"Otellini singled out the political state of affairs in Democrat-dominated Washington, saying: 'I think this group does not understand what it takes to create jobs. And I think they're flummoxed by their experiment in Keynesian Economics not working.' "

"If our tax rate approached that of the rest of the world, corporations would have an incentive to invest here," Otellini said. But instead, it's the second highest in the industrialized world, making the United States a less attractive place to invest--and create jobs--than places in Europe and Asia that are "clamoring" for Intel's business."

1934 Cartoon from Chicago Tribune

The cartoon below appeared in the Chicago Tribune in 1934.

Pay close attention to the statement in the bottom left corner of the cartoon.


If you have bad eyes like me, here is what the statement says:

Plan of Action for U.S.

SPEND! SPEND! SPEND under the guise of recovery - Bust the government - Blame the capitalists for the failure - Junk the Constitution and declare a dictatorship.

August 24, 2010

When Did Thrift Become Bad

When Did Thrift Become Bad?

By William C. Dunkelberg, Chief Economist of the National Federation of Independent Business

Supporters of letting the “Bush tax cuts” expire, especially for those with incomes over $200,000 (the “rich”), argue that money given to the rich is mostly “saved” while money to the “poor” is spent 100%, thus stimulating the economy. We can infer from that position that the argument is that “savings” don't matter for the economy or that the rich somehow destroy the income they do not spend (i.e. save) and it has no impact on the economy. A Brookings report (August, 2010) reports “…most Bush tax cut dollars go to higher-income households and these top earners don't spend as much of their income as lower earners”. So, economic policy is to take money from the successful and savers and give it to those who will spend spend spend?

Savings is defined as “non-consumption”, if you don’t spend it (on government or personal consumption), it is saved, whether in your mattress, or in an insurance premium, or buying stocks and bonds or putting the money in a bank. Savings make up the pool of funds we use to finance “investment”, the creation of new productive assets like equipment, office or warehouse buildings, inventions, new vehicles for business purposes, things that raise worker productivity and income in the long haul.

If you don’t put money in the local bank (i.e. save and deploy the funds in the financial system somewhere), we can’t finance any of these investment expenditures. It’s that simple. We are already a nation of poor savers, with our consumer saving rate reaching near zero in the housing boom (p.s. new housing is counted as investment, a new asset, but it doesn’t have much impact on productivity). So, the notion that rich people waste their incomes by saving a significant percentage of it is so off the mark! We need savers, and policies that transfer income earned by the successful to those who will spend 100% of it and don’t save anything is a recipe for economic disaster.

Most small businesses when started are financed almost entirely with the savings of the entrepreneur and small firms grow and create jobs with earnings that are “saved and re-invested” in the firm. The Brookings report argues that ending the cuts will have minimal impact on small business growth because “Less than 2 percent of tax returns reporting small-business income are filed by taxpayers in the top two income brackets”. This “2 percent” number uses as a denominator about 29 million tax returns with schedule C business income. But most of these employ nobody, many are part-time businesses. There are only 6 million employer firms, 90 percent with fewer than 20 employees. These are the job creators and far more of them would be impacted by the expiration of the Bush tax cuts.

We have borrowed the savings of the rest of the world for years so that we could “party” and still invest in some real capital at the same time. The problem is that those lending us their savings reap the returns, not Americans, and eventually might expect to be repaid. Every time we go through these cycles, we pile on more and more debt which claims more earnings each year from investments financed by the debt (and by foreign direct and financial investment) and increases the total amount of debt that must be refinanced and repaid in the future. The longer we put off making governments and firms seeking subsidies accountable, the more devastating will be the day of “settlement”. And we all know it will come. Each “crisis” brings the day of reckoning closer.

August 21, 2010

70th Anniversary of Churchill's Battle of Britain Speech

A Speech That Should Be Given

Imagine the impact on our country and education system if every school principal gave a speech like this:

To the students and faculty of our high school:

I am your new principal, and honored to be so. There is no greater calling than to teach young people.

I would like to apprise you of some important changes coming to our school. I am making these changes because I am convinced that most of the ideas that have dominated public education in America have worked against you, against your teachers and against our country.

First, this school will no longer honor race or ethnicity. I could not care less if your racial makeup is black, brown, red, yellow or white. I could not care less if your origins are African, Latin American, Asian or European, or if your ancestors arrived here on the Mayflower or on slave ships.

The only identity I care about, the only one this school will recognize, is your individual identity -- your character, your scholarship, your humanity. And the only national identity this school will care about is American. This is an American public school, and American public schools were created to make better Americans.

If you wish to affirm an ethnic, racial or religious identity through school, you will have to go elsewhere. We will end all ethnicity-, race- and non-American nationality-based celebrations. They undermine the motto of America, one of its three central values -- e pluribus unum, "from many, one." And this school will be guided by America's values.

This includes all after-school clubs. I will not authorize clubs that divide students based on any identities. This includes race, language, religion, sexual orientation or whatever else may become in vogue in a society divided by political correctness.

Your clubs will be based on interests and passions, not blood, ethnic, racial or other physically defined ties. Those clubs just cultivate narcissism -- an unhealthy preoccupation with the self -- while the purpose of education is to get you to think beyond yourself. So we will have clubs that transport you to the wonders and glories of art, music, astronomy, languages you do not already speak, carpentry and more. If the only extracurricular activities you can imagine being interesting in are those based on ethnic, racial or sexual identity, that means that little outside of yourself really interests you.

Second, I am uninterested in whether English is your native language. My only interest in terms of language is that you leave this school speaking and writing English as fluently as possible. The English language has united America's citizens for over 200 years, and it will unite us at this school. It is one of the indispensable reasons this country of immigrants has always come to be one country. And if you leave this school without excellent English language skills, I would be remiss in my duty to ensure that you will be prepared to successfully compete in the American job market. We will learn other languages here -- it is deplorable that most Americans only speak English -- but if you want classes taught in your native language rather than in English, this is not your school.

Third, because I regard learning as a sacred endeavor, everything in this school will reflect learning's elevated status. This means, among other things, that you and your teachers will dress accordingly. Many people in our society dress more formally for Hollywood events than for church or school. These people have their priorities backward. Therefore, there will be a formal dress code at this school.

Fourth, no obscene language will be tolerated anywhere on this school's property -- whether in class, in the hallways or at athletic events. If you can't speak without using the f-word, you can't speak. By obscene language I mean the words banned by the Federal Communications Commission, plus epithets such as "Nigger," even when used by one black student to address another black, or "bitch," even when addressed by a girl to a girlfriend. It is my intent that by the time you leave this school, you will be among the few your age to instinctively distinguish between the elevated and the degraded, the holy and the obscene.

Fifth, we will end all self-esteem programs. In this school, self-esteem will be attained in only one way -- the way people attained it until decided otherwise a generation ago -- by earning it. One immediate consequence is that there will be one valedictorian, not eight.

Sixth, and last, I am reorienting the school toward academics and away from politics and propaganda. No more time will devoted to scaring you about smoking and caffeine, or terrifying you about sexual harassment or global warming. No more semesters will be devoted to condom wearing and teaching you to regard sexual relations as only or primarily a health issue. There will be no more attempts to convince you that you are a victim because you are not white, or not male, or not heterosexual or not Christian. We will have failed if any one of you graduates this school and does not consider him or herself inordinately lucky -- to be alive and to be an American.

Now, please stand and join me in the Pledge of Allegiance to the flag of our country. As many of you do not know the words, your teachers will hand them out to you.

August 19, 2010

Fooled by Stimulus

Eric Sprott of Sprott Asset Management has written one of the more important market commentaries I think I have ever read.

In studying the government debt market, we have inadvertently been led to question the economic theory that most fervently justified recent government spending programs: that of Keynesian economics. The so called “beautiful theory” of Keynesian economics is arguably the most influential economic theory of the 20th Century, shaping the way Western democracies approached the balance between free market capitalism and government initiatives. Like many beautiful theories, however, Keynesianism has ultimately succumbed to the ugly facts. We firmly believe the Keynesian miracle is dead. The stimulus programs are simply not producing their desired results, and the future debt costs associated with funding these programs may cause far greater strife in the future than the problems the stimulus was originally designed to address.


.........There are a number of studies we have come across that suggest stimulus is the wrong approach. The first is a 2005 Harvard study by Andrew Mountford and Harald Uhlig that discusses the effects of fiscal policy shocks on the underlying economy. Mountford and Uhlig explain that from the mid-1950’s to year 2000, the maximum economic impact of a two percent increase in government spending was an ensuing GDP growth of approximately three percent. A two percent spending increase inevitably requires an increase in taxes. Due to the nature of interest costs, however, the government would have to raise taxes by MORE than two percent in order to pay back the initial borrowing. According to their data, this increase in taxes would generally lead to a seven percent drop in GDP. As they state in their study: “This shows that when government spending is financed contemporaneously that the contractionary effects of the tax increases outweigh the expansionary effects of the increased expenditure after a very short time.” Stated simply, ‘borrowing to stimulate’ has never worked as planned because the cost of paying back the borrowed funds surpassed the immediate benefits of the stimulus.


In a follow-on study, Harald Uhlig estimated that an approximate $3.40 of output is lost for every dollar spent on stimulus. Another study on the same subject by C’ordoba and Kehoe (2009) went so far as to say that, “massive public interventions in the economy to maintain employment and investment during a financial crisis can, if they distort incentives enough, lead to a great depression.”


If the conclusions of these studies are even close to being correct, we are now in quite a predicament – not just in the US, but across the Western world. Remember that the 2007-08 meltdown was only two years ago, and as we highlighted in April 2009 in “The Elephant in the Room”, the US government has spent more on stimulus and bailouts, in percentage of GDP terms, than it did in the Gulf War, Operation Iraqi Freedom, the Vietnam War, the Korean War and World War I combined. All that spending was justified by the understanding that it would generate sustainable underlying growth. If it turns out that that assumption was wrong, have the governments made a fatal mistake?


........Since Keynesian economics is no longer relevant, some are now arguing that tax cuts will save the day. Two of the academic studies we reviewed suggest that tax relief is a much stronger stimulus to the economy than government spending, and under normal circumstances this is probably true. But we are not in a normal economic environment. Even if the tax cuts implemented by George Bush in 2006 are extended by the next Congress, the US will still face the ‘Keynesian Endpoint’. A Government Accountability Office (GAO) report published in January 2010 states the following: “In our Alternative simulation, which assumes expiring tax provisions are extended through 2020 and revenue is held constant at the 40-year historical average; roughly 93 cents of every dollar of federal revenue will be spent on the major entitlement programs and net interest costs by 2020.” Extending tax cuts won’t solve anything.

In the end, Keynesian stimulus ultimately fooled us all. It roped in the politicians of the richest countries and set them on an unsustainable course of debt issuance. Recent Keynesian stimulus has even managed to fool the sophisticated economic models designed by central banks. The process of accounting for massive government spending ‘confuses’ the models into calculating a recovery trajectory when it doesn’t exist. The Bank of England confirmed this with its announced £3.5 million overhaul of its current model due to its inability to generate accurate inflation and recession forecasts.


Keynesian stimulus can’t be blamed for all our problems, but it would have been nice if our politicians hadn’t relied on it so blindly. Debt is debt is debt, after all. It doesn’t matter if it’s owed by governments or individuals. It weighs on the institutions that issue too much of it, and the ensuing consequences of paying off the interest costs severely hinders governments’ ability to function properly. It suffices to say that we need a new economic plan – a plan that doesn’t invite governments to print their way out of economic turmoil. Keynesian theory enjoyed a tremendous run, but is now for all intents and purposes dead... and now it’s time to pay for it. Literally.

August 18, 2010

In the Eye of the Beholder

This really, really shocked me:

ESPN polled 135 major college players players on an assortment of topics, including who has the best uniforms, and Oregon was a runaway winner. Of all the college uniforms, the Ducks' were the favorites of 53.7 per cent of the players polled.

August 17, 2010

The Mind of the Class of 2014

"Each August since 1998, Beloit College has released the Beloit College Mindset List. It provides a look at the cultural touchstones that shape the lives of students entering college this fall. The creation of Beloit’s Keefer Professor of the Humanities Tom McBride and former Public Affairs Director Ron Nief, it was originally created as a reminder to faculty to be aware of dated references, and quickly became a catalog of the rapidly changing worldview of each new generation."

The Beloit College Mindset List for the Class of 2014

Most students entering college for the first time this fall—the Class of 2014—were born in 1992.

For these students, Benny Hill, Sam Kinison, Sam Walton, Burt Parks and Tony Perkins have always been dead.

1. Few in the class know how to write in cursive.

2. Email is just too slow, and they seldom if ever use snail mail.

3. “Go West, Young College Grad” has always implied “and don’t stop until you get to Asia…and learn Chinese along the way.”

4. Al Gore has always been animated.

5. Los Angelinos have always been trying to get along.

6. Buffy has always been meeting her obligations to hunt down Lothos and the other blood-suckers at Hemery High.

7. “Caramel macchiato” and “venti half-caf vanilla latte” have always been street corner lingo.

8. With increasing numbers of ramps, Braille signs, and handicapped parking spaces, the world has always been trying harder to accommodate people with disabilities.

9. Had it remained operational, the villainous computer HAL could be their college classmate this fall, but they have a better chance of running into Miley Cyrus’s folks on Parents’ Weekend.

10. A quarter of the class has at least one immigrant parent, and the immigration debate is not a big priority…unless it involves “real” aliens from another planet.

11. John McEnroe has never played professional tennis.

12. Clint Eastwood is better known as a sensitive director than as Dirty Harry.

13. Parents and teachers feared that Beavis and Butt-head might be the voice of a lost generation.

14. Doctor Kevorkian has never been licensed to practice medicine.

15. Colorful lapel ribbons have always been worn to indicate support for a cause.

16. Korean cars have always been a staple on American highways.

17. Trading Chocolate the Moose for Patti the Platypus helped build their Beanie Baby collection.

18. Fergie is a pop singer, not a princess.

19. They never twisted the coiled handset wire aimlessly around their wrists while chatting on the phone.

20. DNA fingerprinting and maps of the human genome have always existed.

21. Woody Allen, whose heart has wanted what it wanted, has always been with Soon-Yi Previn.

22. Cross-burning has always been deemed protected speech.

23. Leasing has always allowed the folks to upgrade their tastes in cars.

24. “Cop Killer” by rapper Ice-T has never been available on a recording.

25. Leno and Letterman have always been trading insults on opposing networks.

26. Unless they found one in their grandparents’ closet, they have never seen a carousel of Kodachrome slides.

27. Computers have never lacked a CD-ROM disk drive.

28. They’ve never recognized that pointing to their wrists was a request for the time of day.

29. Reggie Jackson has always been enshrined in Cooperstown.

30. “Viewer Discretion” has always been an available warning on TV shows.

31. The first computer they probably touched was an Apple II; it is now in a museum.

32. Czechoslovakia has never existed.

33. Second-hand smoke has always been an official carcinogen.

34. “Assisted Living” has always been replacing nursing homes, while Hospice has always been an alternative to hospitals.

35. Once they got through security, going to the airport has always resembled going to the mall.

36. Adhesive strips have always been available in varying skin tones.

37. Whatever their parents may have thought about the year they were born, Queen Elizabeth declared it an “Annus Horribilis.”

38. Bud Selig has always been the Commissioner of Major League Baseball.

39. Pizza jockeys from Domino’s have never killed themselves to get your pizza there in under 30 minutes.

40. There have always been HIV positive athletes in the Olympics.

41. American companies have always done business in Vietnam.

42. Potato has always ended in an “e” in New Jersey per vice presidential edict.

43. Russians and Americans have always been living together in space.

44. The dominance of television news by the three networks passed while they were still in their cribs.

45. They have always had a chance to do community service with local and federal programs to earn money for college.

46. Nirvana is on the classic oldies station.

47. Children have always been trying to divorce their parents.

48. Someone has always gotten married in space.

49. While they were babbling in strollers, there was already a female Poet Laureate of the United States.

50. Toothpaste tubes have always stood up on their caps.

51. Food has always been irradiated.

52. There have always been women priests in the Anglican Church.

53. J.R. Ewing has always been dead and gone. Hasn’t he?

54. The historic bridge at Mostar in Bosnia has always been a copy.

55. Rock bands have always played at presidential inaugural parties.

56. They may have assumed that parents’ complaints about Black Monday had to do with punk rockers from L.A., not Wall Street.

57. A purple dinosaur has always supplanted Barney Google and Barney Fife.

58. Beethoven has always been a dog.

59. By the time their folks might have noticed Coca Cola’s new Tab Clear, it was gone.

60. Walmart has never sold handguns over the counter in the lower 48.

61. Presidential appointees have always been required to be more precise about paying their nannies’ withholding tax, or else.

62. Having hundreds of cable channels but nothing to watch has always been routine.

63. Their parents’ favorite TV sitcoms have always been showing up as movies.

64. The U.S, Canada, and Mexico have always agreed to trade freely.

65. They first met Michelangelo when he was just a computer virus.

66. Galileo is forgiven and welcome back into the Roman Catholic Church.

67. Ruth Bader Ginsburg has always sat on the Supreme Court.

68. They have never worried about a Russian missile strike on the U.S.

69. The Post Office has always been going broke.

70. The artist formerly known as Snoop Doggy Dogg has always been rapping.

71. The nation has never approved of the job Congress is doing.

72. One way or another, “It’s the economy, stupid” and always has been.

73. Silicone-gel breast implants have always been regulated.

74. They’ve always been able to blast off with the Sci-Fi Channel.

75. Honda has always been a major competitor on Memorial Day at Indianapolis.

August 16, 2010

Some Advice from Advertising Legend Albert Lasker

ALBERT LASKER WAS ONE OF THE PIONEERS OF THE AMERICAN ADVERTISING INDUSTRY AND ONE OF THE MOST FASCINATING BUSINESSMEN IN OUR HISTORY. MR. LASKER WAS THE INNOVATOR OF MANY THINGS THAT WE TAKE FOR GRANTED IN ADVERTISING AS WE KNOW IT TODAY IN THE EARLY 1900’S, AT LORD & THOMAS, HIS AGENCY WHICH WAS THE LARGEST IN THE WORLD AT THE TIME. HE WAS ASKED TO HIRE TO HIS DAUGHTER, MARY LASKER, AND HE AGREED RELUCTANTLY AT A MODEST SALARY OF $30.00 A WEEK. HE DECIDED THAT THE BEST ACTION WAS TO KEEP HIS DISTANCE FROM HIS NEWEST EMPLOYEE. HE DID, HOWEVER, LEAVE A NOTE ON HER DESK ON HER FIRST DAY AT WORK, OCTOBER 29, 1935 AND HERE IS THE LETTER:


“MY DARLING MARY, WELCOME TO LORD & THOMAS. I HOPE WE HAVE A LONG BUSINESS ASSOCIATION TOGETHER—IF WE DO, WE WILL BOTH GET MUCH JOY FROM IT.


BOTH AS FATHER AND EMPLOYER I GIVE YOU THIS ADVICE—TRY TO LEARN FROM EVERYONE (HIGH AND LOW), TRY TO BE OF SERVICE TO EVERY ONE (HIGH AND LOW). HE FINALLY LEADS WHO FIRST LEARNS TO SERVE. AND REMEMBER—WE SPEND OUR LIVES LEARNING. ABOVE ALL, BE YOURSELF—YOUR BEST SELF. ALWAYS THINK OF THE OTHER FELLOW’S VIEWPOINT AND TRY TO GET HIM TO THINK OF YOURS. LEARN TO WALK BEFORE YOU RUN. BELIEVE IN YOURSELF—AND BELIEVING, STRIVE TO LEARN EVERY DAY AND GROW CREATIVELY EVERY MINUTE SO THAT YOU WILL JUSTIFY YOUR BELIEF.

ALL MY LOVE, FATHER”

August 11, 2010

We are Broke

From Larry Kotlikoff:

‘Unofficial’ Liabilities

Based on the CBO’s data, I calculate a fiscal gap of $202 trillion, which is more than 15 times the official debt. This gargantuan discrepancy between our “official” debt and our actual net indebtedness isn’t surprising. It reflects what economists call the labeling problem. Congress has been very careful over the years to label most of its liabilities “unofficial” to keep them off the books and far in the future.

For example, our Social Security FICA contributions are called taxes and our future Social Security benefits are called transfer payments. The government could equally well have labeled our contributions “loans” and called our future benefits “repayment of these loans less an old age tax,” with the old age tax making up for any difference between the benefits promised and principal plus interest on the contributions.

The fiscal gap isn’t affected by fiscal labeling. It’s the only theoretically correct measure of our long-run fiscal condition because it considers all spending, no matter how labeled, and incorporates long-term and short-term policy.

$4 Trillion Bill

How can the fiscal gap be so enormous?

Simple. We have 78 million baby boomers who, when fully retired, will collect benefits from Social Security, Medicare, and Medicaid that, on average, exceed per-capita GDP. The annual costs of these entitlements will total about $4 trillion in today’s dollars. Yes, our economy will be bigger in 20 years, but not big enough to handle this size load year after year.

This is what happens when you run a massive Ponzi scheme for six decades straight, taking ever larger resources from the young and giving them to the old while promising the young their eventual turn at passing the generational buck.

Herb Stein, chairman of the Council of Economic Advisers under U.S. President Richard Nixon, coined an oft-repeated phrase: “Something that can’t go on, will stop.” True enough. Uncle Sam’s Ponzi scheme will stop. But it will stop too late.

And it will stop in a very nasty manner. The first possibility is massive benefit cuts visited on the baby boomers in retirement. The second is astronomical tax increases that leave the young with little incentive to work and save. And the third is the government simply printing vast quantities of money to cover its bills.

Worse Than Greece

Most likely we will see a combination of all three responses with dramatic increases in poverty, tax, interest rates and consumer prices. This is an awful, downhill road to follow, but it’s the one we are on. And bond traders will kick us miles down our road once they wake up and realize the U.S. is in worse fiscal shape than Greece.

Some doctrinaire Keynesian economists would say any stimulus over the next few years won’t affect our ability to deal with deficits in the long run.

This is wrong as a simple matter of arithmetic. The fiscal gap is the government’s credit-card bill and each year’s 14 percent of GDP is the interest on that bill. If it doesn’t pay this year’s interest, it will be added to the balance.

Demand-siders say forgoing this year’s 14 percent fiscal tightening, and spending even more, will pay for itself, in present value, by expanding the economy and tax revenue.

My reaction? Get real, or go hang out with equally deluded supply-siders. Our country is broke and can no longer afford no- pain, all-gain “solutions.”

August 9, 2010

Samuel Rutherford on Adversity

Dr. George Grant posted this amazing and succinct passage from the 17th Century Scottish theologian Samuel Rutherford:

”I hope to over-hope and over-believe any troubles.”

“Grace withereth without adversity.”

“I see grace groweth best in winter.”

“Your rock doth not ebb and flow--but your sea.”

“I know no sweeter way to Heaven than free grace and hard trials together.”

“Dry wells send us to the Fountain.”

August 5, 2010

Visualizing Our New Health Care Industry

Why Mitch Should Run

From the Politico:

Indiana Gov. Mitch Daniels, now on the back nine of his tenure in Indianapolis, is still supporting very strong approval ratings despite the economic downturn.

The Indiana political newsletter
Howey Politics has a GOP-conducted poll from late last month showing 65 percent of Hoosiers approve of Daniels and just 28 perce t disapprove.

Deeper in the numbers, Daniels' enduring popularity is even more striking. Fifty-six percent of self-identified Obama supporters approve of the Republican governor and potential White House candidate while 36 percent of them disapprove.

The survey was conducted by Christine Matthews, who has polled for Daniels in the past.

Laffer on Taxes

From a recent WSJ article by Nashville resident and tax expert Art Laffer:

Since 1978, the U.S. has cut the highest marginal earned-income tax rate to 35% from 50%, the highest capital gains tax rate to 15% from about 50%, and the highest dividend tax rate to 15% from 70%. President Clinton cut the highest marginal tax rate on long-term capital gains from the sale of owner-occupied homes to 0% for almost all home owners. We've also cut just about every other income tax rate as well.

During this era of ubiquitous tax cuts, income tax receipts from the top 1% of income earners rose to 3.3% of GDP in 2007 (the latest year for which we have data) from 1.5% of GDP in 1978. Income tax receipts from the bottom 95% of income earners fell to 3.2% of GDP from 5.4% of GDP over the same time period. (See the nearby chart).

These results shouldn't be surprising. The highest tax bracket income earners, when compared with those people in lower tax brackets, are far more capable of changing their taxable income by hiring lawyers, accountants, deferred income specialists and the like. They can change the location, timing, composition and volume of income to avoid taxation.