Bubble-headed nonsense from the left

[philunderwood]

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Bubble-headed nonsense from the left about income inequality

January 31st, 2011 | Author: Bruce McQuain

I ¡¯m not sure what else to call it but it does indeed seem a fitting example of a discussion we recently had here about colleges failing to teach critical thinking.

Think Progress (of course) has a blog post headlined with ¡°Income inequality in US worse than Egypt¡±. Never let a crisis go to waste, huh?

First you are asked to believe that it is ¡°income inequality¡± which is leading the pack of reasons the country wants Mubarak gone. If not, what¡¯s the purpose of the headline?

Secondly, there¡¯s the equivalence this writer makes between the US and Egypt. My guess Pat Garafalo has never been to Egypt (or perhaps even out of the US to a nation in which ¡°poor¡± actually means poor) so he has no frame of reference in his comparison. Its all about income inequality, that¡¯s always "bad" and that is the leading reason for unrest, or so the reasoning, such that it is, seems to conclude.

Usually ¡°income inequality¡± isn¡¯t even on the radar screen when these sorts of things happen. The grievances are more focused more generally on ¡°freedom¡±, ¡°liberty¡±, ¡°oppression¡± and/or ¡°democracy¡±. You may, as you have in the case of Egypt, even hear ¡°economic opportunity¡± as a reason.

No, ¡°income inequality¡± is one of those terms the left likes to use as a sort of euphemism for ¡°capitalist exploiters¡± ¨C a part of their perpetual war on business. ¡°Capitalist exploiters¡± include any corporation and most business owners. Of course they can¡¯t use ¡°capitalist exploiters¡± without revealing their game (and being dismissed out of hand), so ¡°income inequality¡± has to do. The implication, of course, is if we just took the money from those capitalist exploiters and spread it around (because, you know, those folks collect it and bury it in a coffee can in the back yard or stuff their mattress with it), all would be lovely.

The fact remains that economic opportunity is lacking in Egypt not because of ¡°capitalist exploiters¡± but because of government oppression and favoritism.

Somehow though, and certainly there are problems with government intrusion here, what has gone on in Egypt is relevant to what is going on here and the proof is ¡°income inequality¡±. Make the connection for heaven sake ¨C what¡¯s wrong with you?

Garafalo takes a wave at trying to sound fair about his point, but remember, to swallow this whole you have to believe two things ¨C one, that economics is a zero-sum game, so if the rich are getting richer the poor must get poorer and two, there is no opportunity for the poor to better their condition. The rich are just making it worse and worse for the poor by earning taking more than their ¡°fair share¡±.

Anyway, Garafalo says:

The Gini coefficient is used to measure inequality: the lower a country¡¯s score, the more equal it is. Obviously, there are many things about the U.S. economy that make it far preferable to that in Egypt, including lower poverty rates, higher incomes, significantly better infrastructure, and a much higher standard of living overall. But income inequality in the U.S. is the worst it has been since the 1920¡äs, which is a real problem.

Using that, I¡¯d have to guess that the former Soviet Union and it¡¯s bloc of Eastern European satellites had very low Gini coefficient scores, wouldn¡¯t you?

See, this is ¡°equality¡± for equality¡¯s sake. It¡¯s nonsense. It is the turning of a concept from a positive to a negative. We have all been promised something very profound in the country ¨C equal protection under the law and equal opportunity to pursue ¡°happiness¡±. Yet it is something the left constantly and consistently pushes as a different message. It doesn¡¯t just want equality in opportunity ¨C it want¡¯s equality of outcome.

That¡¯s why you continue to see long boring posts written about the subject of ¡°income inequality¡±. It is how the left justifies further intrusion by government and taking from those who ¡°have¡± to give to those who ¡°don¡¯t have¡±. It¡¯s about time we made it clear that other than the leftist chorus, no one else is buying into their preaching.

Oh and the big finish to the Garafalo piece?

Yale economist Robert Shiller has said that income inequality ¡°is potentially the big problem, which is bigger than this whole financial crisis.¡± ¡°If these trends that we¡¯ve seen for 30 years now in inequality continue for another 30 years¡­it¡¯s going to create resentment and hostility,¡± he said. But tax and spending policies that provide adequate services and allow for economic mobility ¡ª along with a robust social safety net ¡ª can head off trouble that may come down the road.

¡°Bigger than this whole financial crisis¡±. It will create ¡°resentment and hostility¡±. There may be ¡°trouble ¡­ down the road¡±.

Really?

Have you freakin¡¯ people looked around you and figured out yet how well everyone ¨C in comparison with most of the rest of world ¨C live here? This constant refrain from the left is as tiresome as it is wrong. It¡¯s nonsense on a stick. But you will continue to hear them whine about it for the foreseeable future because it is a way for them to justify taking your money for their purposes and sounding noble about it.

~McQ

[philunderwood]

Slaves to Words

By Thomas Sowell

www.JewishWorldReview.com |

We could definitely use another Abraham Lincoln to emancipate us all from being slaves to words. In the midst of a historic financial crisis of unprecedented government spending, and a national debt that outstrips even the debt accumulated by the reckless government spending of previous administration, we are still enthralled by words and ignoring realities.

President Barack Obama's constant talk about "millionaires and billionaires" needing to pay higher taxes would be a bad joke, if the consequences were not so serious. Even if the income tax rate were raised to 100 percent on millionaires and billionaires, it would still not cover the trillions of dollars the government is spending.

More fundamentally, tax rates-- whatever they are-- are just words on paper. Only the hard cash that comes in can cover government spending. History has shown repeatedly, under administrations of both political parties, that there is no automatic correlation between tax rates and tax revenues.

When the tax rate on the highest incomes was 73 percent in 1921, that brought in less tax revenue than after the tax rate was cut to 24 percent in 1925. Why? Because high tax rates that people don't actually pay do not bring in as much hard cash as lower tax rates that they do pay. That's not rocket science.

Then and now, people with the highest incomes have had the greatest flexibility as to where they will put their money. Buying tax-exempt bonds is just one of the many ways that "millionaires and billionaires" avoid paying hard cash to the government, no matter how high the tax rates go.

Most working people don't have the same options. Their taxes have been taken out of their paychecks before they get them.

Even more so today than in the 1920s, billions of dollars can be sent overseas electronically, almost instantaneously, to be invested in other countries-- creating jobs there, while millions of American are unemployed. That is a very high price to pay for class warfare rhetoric about taxing "millionaires and billionaires."

Make no mistake about it, that kind of rhetoric wins votes for political demagogues-- and votes are their bottom line. But that is totally different from saying that it will bring in more tax revenue to the government.

Time and again, at both state and federal levels, in the country and in other countries, tax rates and tax revenue have moved in opposite directions many times. After Maryland raised its tax rates on people making a million dollars a year, there were fewer such people living in Maryland-- and less tax revenue was collected from them.

In 2009, many people specializing in high finance in Britain relocated to Switzerland after the British government announced plans to take 51 percent of high incomes in taxes.

Conversely, reductions in tax rates can lead to more tax revenue being collected. After the capital gains tax rate was cut in the United States in 1997, the government collected nearly twice as much revenue from capital gains taxes in the next four years as in the previous four years.

Similar things have happened in India and in Iceland.

There is no automatic correlation between the direction in which tax rates move and the direction in which tax revenues move. Nor is this a new discovery.

Back in the 1920s, Secretary of the Treasury Andrew Mellon pointed out that people with high incomes were simply not paying the high tax rates that existed on paper, because they were putting their money into tax shelters.

After the tax rates were cut, as Mellon advocated, investments flowed back into the private economy, producing higher output, rising incomes, more tax revenue and more jobs. The annual unemployment rate in the next four years never exceeded 4.2 percent, and in one year was as low as 1.8 percent.

Despite political demagoguery about "tax cuts for the rich," in human terms the rich have less at stake than working people. Precisely because the rich have so many ways of avoiding taxes, a high tax rate is likely to do them far less harm than it does to the economy, on which millions of people depend for jobs.

[philunderwood]

Krugman and the “confidence fairy”

May 23rd, 2011 | Author: Bruce McQuain

I rarely can get through a Paul Krugman column anymore without throwing up my hands at some point and hitting the delete button. I have no confidence in anything he says and I see him as a shill for continued huge government intervention at a time when it is clear huge government intervention has failed and failed miserably.

So when you read nonsense like this you just have to wonder where he lives, because it can’t be here:

But at least in America members of the pain caucus, those who claim that raising interest rates and slashing government spending in the face of mass unemployment will somehow make things better instead of worse, get some pushback from the Federal Reserve and the Obama administration.

In Europe, by contrast, the pain caucus has been in control for more than a year, insisting that sound money and balanced budgets are the answer to all problems. Underlying this insistence have been economic fantasies, in particular belief in the confidence fairy — that is, belief that slashing spending will actually create jobs, because fiscal austerity will improve private-sector confidence.

Who was it who said about $600 billion in stimulus should do the trick? Instead we spent almost a trillion and instead of doing the trick, we saw unemployment go from about 6% to 10% (the promise being that the stimulus would hold it under 8%). And, by the way, who is it Krugman claims is suggesting raising interest rates while slashing spending? I think most folks understand that one of the problems we face is the possibility of increases in interest rates as inflation kicks in. And the recent spending binge is a likely reason for that to happen.

However, most of those talking about cutting spending want to see interest rates remain low. What they also want to see is taxes stabilized and a pro-business atmosphere projected instead of this anti-business atmosphere the administration has pursued since day one. Stability and incentives are how you get the economy moving, not increased taxes and a war on business.

So when Krugman lays out his straw-men for all to see, don’t be fooled. He’s again on his one-trick pony talking about massive government spending being the solution. He’s out to denigrate the opposition’s ideas even if they’re not the opposition’s ideas to try to push his point. Nowhere has government “created jobs” with any lasting quality by spending massive amounts of money. Look, if the idea is to get money out there and in circulation, cutting every family a rather large check would most likely be more useful than government trying to create jobs – something at which it has failed miserably.

So this “pain caucus” nonsense is just Krugman’s way of denigrating those who are saying that the can that has been continually kicked by previous administrations has reached the end of the road. It is time to DO something about it and that’s just a fact. And it’s like the old oil filter commercial – you can pay me now or you can pay me later – to which I add “but you’re going to pay”.

Krugman uses Europe’s woes as an example of what not to do (i.e. austerity). The implicit message is that spending is the key to recovery because it engenders “confidence”. Yet what he never even hints at in his ramble is that it is massive social spending that has Europe on the brink of bankruptcy and not the austerity programs recently attempted. It is decade upon decade of massive government spending that has put members of the EU on life support. Austerity isn’t the problem, it’s the desperation solution.

Krugman talks about “reality” but seems to live in another dimension.

My guess is that it’s just not willing to face up to the failure of its fantasies. And if this sounds incredibly foolish, well, who ever said that wisdom rules the world?

That’s right – they’ve tried austerity for what, a few years now? And they’re still trying to pull crashed economies out of the ditch, like those of Ireland, Greece and Portugal, all nations which have consistently overspent, overpromised and run up huge debt that has become a drag on their economies.

And the Krugman solution? Well not austerity. Not spending cuts, that’s for sure.

Who is it that’s “not willing to face up to the failure of [his] fantasies?”

~McQ

[philunderwood]

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The fake Chrysler loan “payoff”

May 27th, 2011 | Author: Bruce McQuain

You probably remember when GM made the big announcement that it had paid off its loans from the bailout? You most likely also remember that subsequent investigation found that GM was simply using borrowed money from a government extended line of credit to “pay back” part of what was loaned under the bailout? In other words it took taxpayer money extended under the LOC and gave it to the government as a payment of “debt”. Overall, though, it’s debt remained the same.

This week Chrysler went through the same sort of shenanigans as Conn Carroll reports:

American taxpayers have already spent more than $13 billion bailing out Chrysler. The Obama administration already forgave more than $4 billion of that debt when the company filed for bankruptcy in 2009. Taxpayers are never getting that money back. But how is Chrysler now paying off the rest of the $7.6 billion they owe the Treasury Department?

The Obama administration’s bailout agreement with Fiat gave the Italian car company a “Incremental Call Option” that allows it to buy up to 16% of Chrysler stock at a reduced price. But in order to exercise the option, Fiat had to first pay back at least $3.5 billion of its loan to the Treasury Department. But Fiat was having trouble getting private banks to lend it the money. Enter Obama Energy Secretary Steven Chu who has signaled that he will approve a fuel-efficient vehicle loan to Chrysler for … wait for it … $3.5 billion.

This is simply more smoke and mirrors from the “Smoke and Mirrors” administration, now engaged in pre-election image burnishing. In fact, the payback (someone call Debbie Wasserman Shultz) involves allowing a foreign auto company to take more control of Chrysler and then tossing a loan for 3.5 billion from government on top of the Fiat purchase of Chrysler stock at a reduced price.

They want you to believe this signals a stronger and profitable Chrysler. In fact, it is a pathetic attempt to fool the public.

But it is even worse than that:

So, to recap, the Obama Energy Department is loaning a foreign car company $3.5 billion so that it can pay the Treasury Department $7.6 billion even though American taxpayers spent $13 billion to save an American car company that is currently only worth $5 billion.

Oh, and Obama plans to make this “success” a centerpiece of his 2012 campaign.

Again, don’t forget the $4 billion in loans the Obama administration has “forgiven” that taxpayers will never get back – all in an effort to make this truly horrendous deal for taxpayers seem better than it is so he can claim credit for “saving the US auto industry” during the coming political re-election campaign.

~McQ

[philunderwood]

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Krugman and the false prophets of economics

May 31st, 2011 | Author: Bruce McQuain

The one-trick pony that is Paul Krugman, constantly pushes massive government spending as the panacea for all recessionary ills. It is supposed to be the way one “manages the economy” from a central government position – as collectivist a thought as one can imagine.

In fact, one of Krugman’s criticisms – despite the fact that his estimate of the amount needed to stimulate the economy was $200 billion less than what was passed in the stimulus package – is that the government hasn’t borrowed and spent enough. And he certainly is no fan of austerity, claiming that the “pain caucus” has been in charge (what almost a year trying to address decades of borrowing and spending?), with no significant results and oh, by the way, look at the UK.

“In Europe,” he wrote last week, “the pain caucus has been in control for more than a year, insisting that sound money and balanced budgets are the answer … [But] Europe’s troubled debtor nations are … suffering further economic decline thanks to those austerity programs.”

Yes, friends, “sound money and balanced budgets” are, apparently, things to be avoided.

But curiously Krugman never says, “oh, by the way, look at Switzerland” because if he did, he’d have to explain their positive outcome based on austerity:

The Swiss have run a prudent fiscal policy throughout the economic crisis. They have had a structural surplus in each of the past five years. Their net debt is actually lower today than it was in 2005. And guess what? In 2009 their economy suffered the smallest contraction in Europe, with unemployment today below 4 percent. As for sound money, the Swiss franc is up 95 percent against the dollar since 2000.

The key point is the Swiss never let their economy get in the shape that is now plaguing the rest of Europe and the US. It has never spent and taken on debt like the UK, much less Portugal and Greece. It has been a program of economic austerity for years. Consequently, the debt level is miniscule compared to other Western economies and recovery was quick with minimal intrusion (if any) from government. We, on the other hand, were borrowing in good times and borrowing heavily to spend on things our government has no business involving itself in much less borrowing money to do so. And it points out that even if you buy into the Krugman theory that we ought to be borrowing and spending in “bad times” ala Keynes, the other borrowing that has taken place limits those options considerably:

The real lessons for the United States are clear. Those who run up debt in good times can borrow only so much more when a recession strikes. And heavily indebted governments postpone fiscal stabilization at their peril. If you wait to reform until the bond market calls time, you are—to use a technical term from economics—screwed.

And we’re headed toward that “technical term” more quickly than we can imagine, and yet the Krugman’s of the world still counsel more spending of borrowed money leading to more accumulation of debt.

At a certain point, the amount of debt begins to shave percentage points off the GDP as the debt is serviced. That, at least in my opinion, is where we are now and one of the reasons we’re seeing such a slow recovery. GDP growth, last quarter for instance, is not at all robust:

Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 1.8 percent in the first quarter of 2011…

Economically we have to understand, at the highest levels, that despite the siren songs of Keynesians like Krugman, that the bill has come due – in fact it is past due- and must be addressed and paid. We can’t afford to ignore it anymore, nor pretend that spending borrowed money will do more good than harm. We and the can are at the end of the road. It can’t be kicked anymore without dire consequences. Unfortunately, while it seems we’ve at least recognized that fact – for the most part – what we can’t seem to make ourselves do is that which is necessary – cut spending deeply. We continue to hear from the false economic prophets that we can fix all this if we’ll just borrow and spend.

~McQ