12/31/2011

Global Warming, Anyone?

A recent Pew Center poll reveals some interesting statistics about who believes global warming is mostly because of human activity.

There is a large partisan gap in views about the causes of global warming: 51% of Democrats and 40% of independents say the earth is getting warmer mostly because of human activity. But only 19% of Republicans say rising temperatures are mostly attributable to human activity. Of course, if you add all these numbers up based on the percentage of the US population who are Democrats, Republicans, and Independents, you find out that most people do not believe that global warming is mostly because of human activity.

Remember, this question is not about just "solid evidence of global warming" -- we already know the earth has warmed and cooled for billions of years -- its about "do you believe the earth is getting warmer mostly because of human activity".

What conclusions can we draw from this? Well, one obvious one is that either a lot more Democrats and Independents are dumber than Republicans, or a lot more Republicans are dumber than Democrats and Independents. I've done a lot more in-depth research on this subject than your average Joe; I don't like being called dumb -- and I'm a Republican.

Let's do some simple math based on the current number of each kind of voter:

Democrats 42 million 51% = 21.42 million
Republicans 30 million 19% = 5.7 million
Independent 24 million 40%= 9.6 million
( 96 million total)        (36.72 million total)

Overall, only 38 percent of voters think that the earth is getting warmer mostly because of human activity. Not very encouraging news for your average global warming alarmist.

This signals the end — probably for decades, if not forever — of a trivial pursuit that began 14 years ago with the Kyoto Protocol that the U.S. Senate would not even bring to a vote. The pursuit was for a 194-nation consensus obligating a few nations to transfer enormous wealth to many other nations’ governments, to be politically distributed by them, with the supposed effect of ending global warming, if such proves to be.

12/28/2011

The FED's Secret Bailout of Europe

Damnant quod non intellegunt   --They condemn what they do not understand

America's central bank, the Federal Reserve, is engaged in a bailout of European banks. This operation is going pretty much unnoticed here in America.

The Fed is using what is called a "temporary U.S. dollar liquidity swap arrangement" with the European Central Bank (ECB). There are similar arrangements with the central banks of Canada, England, Switzerland and Japan. The Fed trades or "swaps" dollars for euros. The Fed is compensated by payment of an interest rate (usually 50 basis points, or one-half of 1%) above the overnight index swap rate. The ECB, which guarantees to return the dollars at an exchange rate fixed at the time the original swap is made, then lends the dollars to European banks of its choosing.

Why are they doing this? The Fed could  lend directly to U.S. branches of foreign banks. It did a great deal of such lending to foreign banks under various special credit facilities in the aftermath of Lehman's collapse in the fall of 2008. Much of that lending was also conducted in secret. Or, the ECB could just lend euros to banks and they could then purchase dollars in foreign-exchange markets. The world is awash in dollars, as we all know.

The two central banks are engaging in this chicanery because each needs a cover. The Fed was embarrassed by the revelations of its prior largess with foreign banks. It doesn’t want the debt of foreign banks on its books. A currency swap with the ECB is not technically a loan.

I commented on this whole scenario about a week ago. The bottom line is that Barack Obama and his merry band of Keynesian Kops want to devalue global currencies (a technique we already know has not worked) which will eventually (they hope) inflate our way out of the problem. The end result of course, is simply to postpone the day that the piper comes to the door, except this time he'll be bearing a shotgun. The worst part of this medicine is that the patient will stop getting better (e.g. being fiscally sound) since every time he gets his fix, he "feels" better and goes off his medication.

It's disappointing, even downright depressing as people with above-room-temperature IQ's such as ourselves can do virtually nothing to stop the insanity.

12/26/2011

Harry Reid's Big Lie


On December 6, regarding his proposed 1.9 percent surtax on million-dollar incomes, Harry Reid said: "Millionaire job creators are like unicorns. They’re impossible to find, and they don’t exist… Only a tiny fraction of people making more than a million dollars, probably less than 1 percent, are small business owners. And only a tiny fraction of that tiny fraction are traditional job creators… Most of these businesses are hedge fund managers or wealthy lawyers. They don’t do much hiring and they don’t need tax breaks."

The real facts:
Millionaire tax filers earn almost a quarter trillion dollars from their businesses. They hire hundreds of thousands of employees to do so.

There are a trivial number of millionaire hedge-fund managers and wealthy lawyers (who, according to Harry, do not hire anyone and don’t need tax breaks). The millionaire tax surcharge is not aimed at them, but at the tens of thousands of millionaire business owners.

A 1.9 percent surcharge on millionaires would raise at most eleven billion dollars. By today’s standards, this is chump change.

The millionaire’s tax is not about balancing the budget. It is about gaining political advantage through the use of envy and greed (two of the seven deadly sins).
Reid, in his crude way, is trying to portray Republicans as the party of dishonest millionaires, who have not earned their wealth, have not created jobs, detract rather than create value, and refuse to pay their fair share. This kind of class warfare is now the anchor of the Democrat election playbook.

12/20/2011

Payroll Tax Cut Extension And You

Why would Democrats want the two-month cut instead of the yearlong cut? Because they didn’t want to give the issue up as a political boon. It allowed them to criticize Republicans for hypocritically opposing a tax cut. They settled for Keystone and offsets in exchange for the ability to again bash GOP-ers over their opposition to the tax cut extension two months from now.

The House didn’t want to play along. A study came out to demonstrate that a two-month tax cut would be unworkable, allowing them to focus on the timeframe, rather than the tax cut extension itself. Their game? A two-month tax cut extension is a source of too much uncertainty for taxpayers. That's true, but it's not the central issue.

Here’s the problem: Whether it’s for two months or a year, a payroll tax cut extension is simply bad policy. In the context of comprehensive Social Security reform, it might make sense to tamper with the payroll tax. But as a half-hearted, gimmicky gesture to pander to the middle class, it doesn’t.

Politicians justify their support for bad policies with this defense: “If I don’t support this poor policy, I won’t be reelected because my opponents will use it against me. So, I’m going to support this poor policy so as to be reelected — and, then, I’ll implement sound policy.” But they never quite get around to the sound policy-making.

We have nobody to blame for this phenomenon but ourselves. The problem is not with politicians. It’s that we, the people, want our treats. In this case, it’s the payroll tax cut extension. Sooner or later, we're going to have to sober up and learn that the solutions to our problems lie in personal responsibility. When the American people grow up, we’ll have more responsive government. Think about it.

12/13/2011

What is a “Job Creator”?

There is considerable political noise surrounding the idea of job creation. The right wing uses the “job creator” argument to push the position that increasing taxes on the rich will burden job creators and deter from future job creation.  The other side tries to show that we should increase taxes on the rich and reduce taxes on the real job creators – the consumers.  This is another common case of filtering economics through a political filter in order to validate a preconceived bias. 

A capitalist economy has, in the extreme aggregate, a theoretical level of infinite demand.  Entrepreneurs and capitalists meet that demand by creating goods and services with the hopes of generating a profit.  Importantly, the consumer and supplier are two sides of the same coin.  Henry Ford doesn’t exist without demand for automobiles.  Apple doesn’t exist without demand for iPhones.

If there is no demand for the goods and services in a capitalist economy then there can be no capitalists and there can be no corporations that employ workers.  So, the argument over “job creators” is a chicken and egg argument. 

You buy an iPhone from Apple because the product will serve some role that you demand in your life.  This gives Apple the potential to generate a profit and leverage their business operation, expand their business, employ more workers and generate higher profits.     But what role does the entrepreneur serve in the capitalist economy besides meeting demand and generating profits? Entrepreneurs make our lives more efficient by providing us all with the ultimate luxury – time.

Some people believe money is wealth and that money will lead to increased happiness.  Of course, this confuses the idea of money.  Money is not wealth and money does not create happiness.   If you were unconstrained by time you could, in theory, consume all that the entrepreneur can produce. Of course, the greatest luxury of all is quite finite.  We are always constrained by time.   The entrepreneur offers us the opportunity to take advantage of the ultimate luxury by giving us more time.

This provides insight as to exactly how the entrepreneurial process creates wealth.  Alexander Graham Bell is one of the greatest innovators in American history. He created a more efficient way to communicate by inventing the telephone.  Clearly, communication is vital part of human life.  And in theory, there is infinite demand over the long-term to communicate. At some point, Mr. Bell sat down and probably said something like – “it would be far more efficient if I could talk to Mr. Smith immediately as opposed to having to send him a telegram”.

What Bell did was to fill a demand by inventing a product which helped consumers meet this demand. He didn't necessarily create jobs independent of his consumers- there were plenty of messengers and telegraph operators already employed and working. What Mr. Bell did do was to give his consumers more time to consume other goods and services.  He reduced the toil and trouble of having to acquire things by providing them with a product that made their lives more efficient and productive. There are numerous examples of the way that a simple innovation such as Bell’s helps us to improve productivity, efficiency and ultimately our standard of living.

The key point here is that improvements in our standards of living provide us more time to do the things we think will help us achieve happiness. The consumer and the producer are two sides of the same coin. What the entrepreneur does is help to increase the size of the coin by helping to meet demand through innovation -- which increases our productivity, ultimately allowing us to consume more goods and services and resulting in more employment.   Without the role of the entrepreneur we are merely a society trading wealth amongst each other.

The danger of the current political debate is that we are pitting the 1% against the 99% without understanding that we are all really the 100%.  Could the 1% afford to pay more in taxes and “redistribute the wealth”?  Probably. I've been an advocate of reforming the tax code for a long time. However,  I am not in favor of raising anyone’s taxes in the middle of a  weak economy. And as a sovereign fiat currency issuer we don’t have to "finance it" by taking more money from someone else.

More importantly, we should not demonize the entrepreneurs who help create goods and services which increase everyone’s standards of living.  We should applaud their efforts and encourage it,  and try to make it easier for others to be entrepreneurial and create their own products and hire new employees. What we should demonize is the crony Capitalist who  gambles in the casino of Wall Street without actually improving the standard of living of customers.   But let’s not demonize the wealthy who have contributed to improving our standard of living.  In doing so, we only end up reducing the standard of living of us all.

12/10/2011

Liberal FUD Department Redux

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This NYT Graphic keeps coming up repeatedly (it's been so widely reproduced, many don't even realize that the Times is the original source!) It's really emblematic of the mindless leftist FUD about economics. Just for starters, this thing represents the "Bush Tax Cuts" as a "cost". What they fail to understand is that tax rates and tax revenue are two different things.

Since the Eisenhower administration in the 1950's federal tax revenue as a percent of GDP has averaged about 18 percent. It didn't matter whether top tax rates were 92 percent (yes, they were that high!), or as low as 30 percent. Tax "rate" differences are not a "cost" item that you can just stick in some chart and say, "See! Bush cost us more money than Obama!".

Tax "Cuts" (or in reality "current tax rates", whatever they may be) are not really a cost at all. What we need to measure is revenue to determine if current tax policy is good or bad. These cuts were passed in response to a recession occurring as George W. Bush entered office.
reference: [New York Times] http://www.nytimes.com/2011/04/14/us/politics/14obama.html?_r=1
"The use of the phrase “tax expenditures” allows the administration to lump tax-related issues into the spending category."

reference: [Human Events] "Tax increases are spending cuts"http://www.humanevents.com/article.php?id=42921
"How do you cut a trillion bucks in spending from the tax code? The tax code is how the government takes in revenue. It doesn’t “spend” money."

Under Bush’s "tax cuts for the rich" the rich paid more in taxes in 2005 than any time in the prior 20 years. In fact, as the Wall Street Journal noted, thanks to Bush’s "tax cuts for the rich", the richest one percent went from paying 25% of all income taxes in 1990 to 39% in 2005. The richest 5% went from paying 44% of all income taxes in 1990 to paying 60% of all income taxes in 2005 -- all of this during the Bush administration. So if the Bush "tax cuts for the rich" are a cost, why did the rich end up paying far more in taxes? Simple: THEY MADE MORE MONEY. They employed more people. The lower tax rate structure encouraged job and wealth creation, and economic growth.

More importantly, after the 2001 initial tax cuts, the annual growth rate went from 0.3% in 2001 to 2.5% in 2002. By 2004, GDP growth was the highest in 20 years.
Likewise, after the 2003 tax cuts, the unemployment rate fell to the lowest level since World War II.

During the Bush years, despite the 2000 Recession, the attacks on 9-11, the stock market scandals, Hurricane Katrina, and wars in Iraq and Afghanistan, the Bush Administration was able to reduce the budget deficit from 412 billion dollars in 2004 to 162 billion dollars in 2007, a sixty percent drop. During the Bush years the average unemployment rate was 5.2 percent, the economy saw the strongest productivity growth in four decades and there was robust GDP growth.

So the next time some lefty liberal attempts to tell you that "tax cuts" are a cost, get the facts.

Source: Policy Changes Under Two Presidents - NYTimes.com

12/04/2011

Keynes Went Wrong In China Too

The People's Bank of China's surprise announcement Wednesday of a half percentage point cut in banks' required reserve ratio is an admission that the economy is facing stiff headwinds. Consumer price inflation remains relatively high at 5.5%, and the true level of inflation as reflected in the GDP deflator is probably closer to 10% The reason? After the 2008 financial crisis, China embarked on a Keynesian stimulus program that by GDP standards, was three times the size of ours here in the US.

The country is drowning in unproductive investments financed with credit. The government spent 15% of GDP largely on public works projects in inland regions, financed with loans from the state-owned banks. Investment as a share of GDP soared to 48.5% in 2010, and the M2 measure of money supply ballooned to 140% that of the U.S. Now comes the hangover.

Worsening inflation forced the government to put on the brakes this year. As with most property busts, transactions dried up, followed by a free fall in prices. Land prices were down 60% year on year in September. Property developers are slashing prices of new homes to stave off bankruptcy.

Lord Keynes, are you listening? When you print huge amounts of borrowed fiat money, you get inflation, a boom, and the inevitable bust. Try to explain that to American economists like Paul Krugman, who thinks our stimulus wasn't "big enough".

12/02/2011

How to Really Analyze US Employment Numbers

Unemployment Rate vs Total Employment
Yes - the unemployment rate fell to 8.6 percent in November, but it also masks a startling shift in the job market. The Labor Department said Friday that employers added 120,000 jobs last month. With that, the unemployment rate dropped to the lowest level in more than two and a half years.

But a key reason for the drop was that hundreds of thousands of people who could work had stopped looking for work. The report showed 487,000 people left the labor force in November -- for the Labor Department's purposes, they are not counted as unemployed.
What's important is total employment, which has barely budged. This means we're still facing a NET LOSS of over 2 million jobs since president Obama took office in 2009 - an absolutely abysmal performance, considering all the taxpayer money the government has thrown at the problem.

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Source: Bureau of Labor Statistics

The above chart simply takes the total US employment number by month from 1/1/2001 through 11/1/2011, and divides that by the total US population for the same period.

Don’t let them tell you we’re “adding jobs”. We’re not.