Lunch with the Liberals

Eli,

I had lunch with a bunch of liberals over the weekend. Mrs. Knabe had strict instructions: Be nice, or else.

What did I think would be the impact of the fiscal cliff I was asked? Nothing. Defense companies are already adjusting their headcount for a lower level of business, with our without sequestration. Workers and consumers know the President wants to raises taxes on the rich, but also know the rich is a fluid concept that almost always means everyone. Besides, even with confiscatory tax rates there isn't enough gold in that pot. The current deficit is unsustainable, so it must end; either in higher taxes, lower spending, higher inflation or all of the above. What changes if we go over the cliff? Nothing. The higher taxes and lower spending we all know have to occur, occur. If we go over the cliff, taxes will go up and spending cut or if we don't go over the cliff and taxes will go up and spending will be cut. The cliff is not a surprise and spending and saving habits already reflect this.

Will the Fed's quantitative easing program work?

I have no idea. But I don't think there is a magic wand that can be waved by either the Fed or Congress. We seem to want to believe if Congress avoids The Cliff all will be right with the world. Or if the Fed would only engage in more QE growth will accelerate.  But what if the problem is micro, not macro? What if growth is being impeded by the mountain of regulations we have imposed over the decades? Minimum wage laws raises labor costs, which reduces labor demand. That is obvious to everyone. If it weren't obvious we would simply mandate everyone be paid one million dollars per year. Increasing generosity for food stamps and unemployment benefits may be humane but increases unemployment. Period. Full Stop. Forcing Intrade to cease and desist may serve some social purpose but it dampens economic activity or dampens the desire of others to engage in risk-taking. Farm supports mis-allocates resources. Ethanol subsidies raises prices. Forcing GM to build electric vehicles may serve a social purpose but it lowers profits and mis-allocates resources. Renewable energy standards raises prices to consumers and mis-allocates resources. I could have gone on, and on, and on. Maybe the issue isn't the Fed or taxes or spending. Maybe it's the million little cuts we have inflicted on ourselves. 

Why shouldn't we tax the rich like we did in the '50's. There was pretty good growth then, so 90% marginal tax rates can't have an impact on growth. Right?  I asked what is the purpose of taxing the rich. If it is based on the belief taxing the rich causes growth, there is no evidence of that. If the purpose is to make the incomes of others higher, there's no evidence of that either, unless you are one of the lucky recipients, but society as a whole getting wealthier by taxing the rich isn't a calculus that works. If the purpose is to reduce the deficit solely or mostly on the rich, those numbers are challenging as well. It seems the purpose is to satisfy envy. Slippery slope. I think it's a smokescreen anyway for higher taxes on everyone.

Sure, the 1950's had high marginal tax rates for the wealthy and the economy grew. But federal spending to GDP was about 15%, not 23% as it is now. Plus there was little  industrial competition, plus the massive regulatory state had yet to be built. There was no EPA, OSHA, Medicare, Medicaid, ethanol, FDA and on and on an on.

What I found most odd about this desire to tax more was this was a group of people who recognize the monetary value of an education. Yet they couldn't see the disincentive higher tax rates, particularly on the wealthy, has on education.

Bill

Buffett vs Buffett

Eli,

Buffett in the NY Times says taxes don't matter.

Suppose that an investor you admire and trust comes to you with an investment idea. “This is a good one,” he says enthusiastically. “I’m in it, and I think you should be, too.” 

Would your reply possibly be this? “Well, it all depends on what my tax rate will be on the gain you’re saying we’re going to make. If the taxes are too high, I would rather leave the money in my savings account, earning a quarter of 1 percent.” Only in Grover Norquist’s imagination does such a response exist.

Buffett in his 2011 letter to shareholders (emphasis in the original):

Investing is often described as the process of laying out money now in the expectation of receiving more money in the future. At Berkshire we take a more demanding approach, defining investing as the transfer to others of purchasing power now with the reasoned expectation of receiving more purchasing power – after taxes have been paid on nominal gains – in the future. More succinctly, investing is forgoing consumption now in order to have the ability to consume more at a later date.

You don't have to be an investing genius to recognize purchasing power is reduced if taxes increase. And just one step further, if your expected after tax purchasing power is reduced because of higher taxes there are investments he won't make, that he would make in a lower tax environment.

Further in the letter he writes of returns on US Treasury bills since 1965 when he took over at Berkshire:

During the same 47-year period, continuous rolling of U.S. Treasury bills produced 5.7% annually. That sounds satisfactory. But if an individual investor paid personal income taxes at a rate averaging 25%, this 5.7% return would have yielded nothing in the way of real income. This investor’s visible income tax would have stripped him of 1.4 points of the stated yield, and the invisible inflation tax would have devoured the remaining 4.3 points.

Again, when it's his money, taxes matter.

Buffett is smart enough to know investment leads to growth. Encourage investment, encourage growth. Discourage investment, discourage growth. And he obviously knows taxes matter.

I'm pretty sure I could go through every one of  his annual letter to shareholders and find clear statements by him that taxes matter greatly in his investment decision.

Bill

PS. Look at Greg Mankiw's post, A Master of Tax Avoidance, on the Buffett letter.

Buffett's 21%

Eli,

I doctored a graph from John Taylor that shows federal spending as a percent of GDP. Your icon's 21% suggestion is far below anything proposed on paper and since the (extremist) Democrats are dead set against changing one comma of Obamacare, Social Security, Medicare, Medicaid, SNAP, I don't see how you get to 21%. Heck, they won't even admit that in a world of 500 channels we shouldn't be subsidizing Big Bird. Of course the Republicans are only slightly better given their predilections to subsidizing Boeing via the Ex-Im bank and agribusiness with farm price supports.

Most of Buffett's op-ed focused on asserting without evidence marginal tax rates don't matter. But he never addresses the issue. Instead he makes the obvious point that investors invest. Thanks Warren, whoda thunk it? But marginal rates matter. Hell, ask a former heroin addict. 

I love this idea of going back to the 1950's tax rates, or Bill Clinton's tax rates and assuming if we do that ONE thing then everything else will magically follow. In case your memory needs refreshing Medicare and Medicaid started in 1965. The combined (worker and employer) tax rate on social security was 2.25% from 1951-1953 and ended at 3.75% in 1959. Today it's 12.4%. 

So sure, let's go back to the 1950's. If you eliminated Medicare and Medicaid and cut back Social Security by 80% you can achieve far less than 21% federal spending as a percent of GDP.

Here's one more thing to consider. I know in the fantasy liberal world tax rates and incentives don't matter. In the grittier world of drug users it somehow seems to apply. So let's assume the incentives drug users respond to is indicative of how people respond to marginal tax rates. And lets raise tax rates. On the rich, super-rich, middle class, you choose. What happens to young people's investment decisions? 

Investment decisions you ask? Yes, their investment in human capital, their investment in education. What happens? In the incentive-driven world they invest less. Simply because the after-tax returns have declined. Why would you as a policy maker on the one hand propose a policy that lowers the after-tax returns to education and on the other hand encourage investment in education via subsidies like Pell Grants and direct student loans?

Bill

Warren Buffet Numbers

Bill,

I'm not ashamed to admit I've been a big Buffet fan since way back when. I read his biography while moonlighting as a resident. I had, for the 1st time, a little money to save and wanted to learn something about investing. I always thought his value approach made a great deal of sense. Needless to say I don't have his touch, or I wouldn't be headed off to the hospital to work tomorrow.

In today's op-ed piece in the Times, Buffet proposes targets for Federal revenue and spending at 18.5 and 21 per cent respectively. As he notes, that doesn't entirely close the deficit, but it's a significant improvement  from the current gap between 15.5 and 22.4%.  I doubt those are numbers that will set your heart aflutter, but they'd certainly be a move in the right direction.

 Eli

Happy Thanksgiving!

Happy Holidays Representative Esty

Bill

Enclosed is my congratulatory letter to my newly minted representative.

Dear Rep Esty,

Congratulations upon your hard fought victory in the Fighting Fifth. Having moved to the district a week after the election, I missed the opportunity to vote for you, but as a lifelong Democrat, I would have been delighted to do so. As a freshman congressman, I hope you will bring a new perspective and enlightened approach to the task of governing the country.

The problems that will confront the 113 Congress cannot be overstated. By the time you are sworn into office on Jan 13, the lame duck 112th will likely have patched up some sort of interim solution to the impending combination of mandatory tax increases and spending cuts, but even more likely will have failed to myriad other essential obstacles to prosperity:  the unsustainable fiscal trajectory of the entitlements, a rationale energy policy, the  treatment of undocumented immigrants, reformation of  the tax code. All these tasks will present themselves in a partisan atmosphere of intensity as great as the country has ever seen.  

Here's an out-of-left-field idea. Find another freshman on the opposite side of the ideological spectrum. Someone from Oklahoma, say, or Arkansas. Invite them to lunch. Promise not to talk about politics. Tell each other stories. Talk about your families, your hobbies, how you unwind at the end of the day. Agree to meet once a month for the remainder of the term, no matter what. It's hard to demonize someone, or to be demonized by them once you know each other.

Sincerely yours

Eli Butcher

NIMBY Politics And The Energy Boom

Bill,


The deck of my ancestral home provides a spectacular view of Buzzards Bay and the Elizabeth Islands. With a modest pair of binoculars you can scan the channel that leads to Woods Hole on the other side. To the South runs the long coastline of the Eastern Atlantic, with all its glaciated coves and inlets, sand bars and estuaries, honkey tonk beach towns, and deep water harbors.

On the other side of the Elizabeths (owned almost entirely by the Forbes family) lie the island playgrounds of Nantucket, once the center of whaling in the Western World and now summer capital of the truly rich, and Martha's Vineyard, home to the historic African American summer colony of Oak Bluffs and vacation spot for the merely well off. Nantucket Sound, a narrow channel marked by a relentless west wind, lies between them. Along the northern edge of the sound, at the apex of the triangle formed the Nantucket to the southeast and the Cape along the northeast, the bottom rises up to form  Horseshoe Shoals, with an average depth of less than 10 feet. It's a nightmare passage for sailors but a perfect place for a wind farm.

After a 10 year, 10 million dollar struggle with more litigation than Jarndyce v Jarndyce, the Cape Wind project has received both the necessary Federal and state permits. Upon completion the project will supply enough electricity to light 3/4 ths of Cape Cod every year, will offset more than a million pounds of carbon dioxide annually, and may even allow for the closing of the oil burning Canal Generating Plant, which has been the site of two damaging oil spills from marooned tankers bring transporting fuel to the plant. The project will cost 2.5 billion dollars, and bring an untold number of jobs during its construction.

Every conceivable argument was attempted in opposition. It would kill the birds. It would kill the fish. It would be an eyesore. It was the right project in the wrong place. Its was a just a get-rich-scam by a bunch of evil industrialists. In an alliance that defied ideology but revealed their own self important sense of entitlement, figures as diverse as Ted Kennedy, Mitt Romney, Bill Koch and Walter Cronkite joined forces in opposition. What most of these folks have in common is that the project will be visible from their waterfront estates. Cape Wind enjoys the support of nearly four fifths of Massachusetts residents, as well as the current two term governor, Deval Patrick, who apparently isn't rich enough (yet) to afford a his own place on either island.

I join you in your enthusiasm for an American energy renaissance. If it puts people back to work, especially the sorts of folks who lack the degree of education required for other high paying jobs, and frees us from  petrotyranny of  the mullahs and sheiks, that's fine with me. At this juncture the risk benefit ratio (obvious economic and geopolitical benefits on one side, undetermined health and environmental (see the above) hazards on the other seems acceptable. That might change of course, over time. The newly reelected president, if he is to be successful, will disappoint his supporters in a variety of arenas and surprise his opponets  in others.  I'm not a supporter of hysteria, just of caution.

Eli

Commuter Train

Things fellow passengers do to irritate me on my commute.

1) Sick people. Medicate yourself to keep snot in their appropriate orifices or move to another car.

2) Picking your nose. Gross. Enough said.

3) Littering. Do we really need to explain this?

4) Feet on seat. Get them off.

5) Knees up against the back of seat in front of you. It is annoyance to person in front of you.

6). Talking in the quiet car. Quiet car. Get it?

7) Farters.

8) Invading my personal space.

Dude next to me has hit numbers 1,2,3, 5 and 8.

Hey hey you you get offa my train. 

No Such Thing as a Free Lunch

Eli,

Jay Carney, Obama's press secretary responded to a (dumb) comment by Mitt Romney with this.

"Making it easier for Americans to go to college — that’s good for America," Carney continued. "It’s good for all Americans. It’s good for the economy. Making healthcare available to young people who can stay on their parents’ plans — that’s good for those families, it’s good for those young people so they aren’t bankrupted in their 20s by an illness. And it’s good for the economy and it’s good for all of us."

It's that kind of logic that leads to $1.4 trillion dollar annual deficits. So great. The young get their goodies now, the bill later. Higher taxes, higher inflation, lower growth, or some combination. What a deal.

Federal Government Outlays and Receipts ($ in Millions)

Source: Monthly Treasury Statement

www.fms.treas.gov/mts/index.html

Bill

The new boom: Shale gas fueling an American industrial revival - The Washington Post

Eli,

The story below from the Washington Post lays out the positive impact fracturing and natural gas are having on the US economy. 

Environmentalists used to be in favor of gas, when they thought it would be expensive and hard to produce. Now that it it cheap and abundant they are opposed. For instance, see the comment in the story that natural gas is a u-turn to a dirty past. Also see the Sierra Club which used to support natural gas as a "bridge" fuel but now characterizes gas (and/or fracking) as "dirty, dangerous, and run-amok" 

There's probably somewhere over 100,000 wells that have been fractured over the past decade or so. Fracturing as a tool goes back well over 100 years. So we have lots and lots and lots and lots of evidence of the safety of this practice. After all, if it wasn't safe, wouldn't we have seen the impacts in geographies that have embraced fracturing, like Texas, Oklahoma, Louisiana, Colorado, Wyoming and North Dakota? 

We'll see what the EPA does. The fear some have is EPA will implement highly restrictive rules on fracturing that will increase costs for drillers and for natural gas. 

Bill

http://www.washingtonpost.com/business/economy/the-new-boom-shale-gas-fueling-an-american-industrial-revival/2012/11/14/73e5bb8e-fcf9-11e1-b153-218509a954e1_print.html

The new boom: Shale gas fueling an American industrial revival

By Steven Mufson, Published: November 14

The shale gas revolution is firing up an old-fashioned American industrial revival, breathing life into businesses such as petrochemicals and glass, steel and toys.

Consider the rising fortunes of Ascension Parish, La.

Methanex Corp., which closed its last U.S. chemical plant in 1999, is spending more than half a billion dollars to dismantle a methanol plant in Chile and move it to the parish.

Nearby, a petrochemical company, Williams, is spending $400 million to expand an ethylene plant. And on Nov. 1, CF Industries unveiled a $2.1 billion expansion of its nitrogen fertilizer manufacturing complex, aiming to displace imports that now make up half of U.S. nitrogen fertilizer sales.

These companies all rely heavily on natural gas. And across the country, companies like them are crediting the sudden abundance of cheap natural gas for revving up their U.S. operations. Thanks to new applications of drilling technology to unlock natural gas trapped in shale rock, the nation's output has surged and energy experts almost unanimously forecast that prices will remain low or moderate for a generation. The International Energy Agency says that by 2015, the United States will overtake Russia as the world's biggest gas producer.

"The supply of natural gas and the price are the driving factors, and we're swimming in natural gas down here," said Mike Eades, …….

Fiscal Cliffs

Eli,

I don't know why Washington is all atwitter about the fiscal cliff. It seems to me we've already jumped off. The gap between outlays and receipts since January 2009 (just to pick a random month) is 4 trillion, 763 billion and 469 million dollars. $4,763,469,000,000.

Federal Government Outlays and Receipts ($ in Millions)

Source: Monthly Treasury Statement

www.fms.treas.gov/mts/index.html

I know, I know, Obama, like Christ, is without sin and the deficit is all Bush's fault (two wars, tax cuts, unpaid for mandate, whereas in contrast Obama had two wars, three if you count Libya, tax cuts and a disingenuously paid for mandate).

There is a historical precedent for significant cuts in spending and balancing of the budget along with a rapid growth in the economy and extraordinary labor force growth. After WWII that is exactly what happened. But the key, at least in my mind, was the radical liberalization that took place with the removal of wage and price controls and removal of rationing. I think we should do the same now.

There is plenty of evidence to suggest our sluggish growth is a direct function of the shackles placed on the economy over the past 30, (more like 70) years. Growth is what is needed, and none of the discussions (by Republicans or Democrats) about the fiscal cliff addresses the necessity of radical liberalization if we care to have high growth rates again.

Bill

Brother can you spare $300 million?

Eli,

Oops. Connecticut is coming up short of funds, upwards of $300 million, for its fiscal 2013 budget. Governor Malloy is between a $300 million rock and a promise to not raise taxes hard spot.

The story in the link portrays this as something of a surprise, but it's not. The source of this forecast is something called the Connecticut Consensus Revenue Report. They arrive three times a year and give out year projections of the expected revenues from taxes, other revenue (gaming payments, licenses, transfers) and other sources, mostly Federal grants. The graph below shows the estimated "Taxes less refunds" the biggest chunk, about $15 billion, of the $21 billion total CT revenue expected for FY13. You can see the big Malloy tax increase in October of 2011 and you can see the forecast was optimistic from the very start. The current estimate of total taxes less refunds is $439 million lower than originally expected.

But not to worry. Let's tax the rich. After all, Keith Richards has a house in Connecticut and surely he wouldn't mind paying more of his fair share.

Bill

The Republicans are Doomed

Eli,

Of course, they aren't doomed at all, but it's amusing to hear the gasbags gloat (if on the Left) and pule (if on the right). The numbers are much less gloomy. In 2012 Republican candidates for the House received 55.1 million votes. This is UP from 51.9 million Republicans received in 2008. Now compare this to Democratic candidates for the House who received 54.5 million votes in 2012, DOWN from 64.9 million in 2008. Voters ran away from Democrats between 2008 and 2012.

I know the Republicans are receiving all sorts of advice to change its stance on immigration, and I wish it would, and change its stance on social issues, and on many of them I also wish it would change its stance, but if you get more votes this election than the last Presidential election and your opponent gets far fewer votes, I'm not sure you can draw the conclusion the nation is clamoring for you to change your policy.

But the Republicans face a demographic challenge that dooms them to minority status (pun intended). So were is this showing up in the numbers? Obama received a big portion of the minority vote, but I'm unconvinced that means Democrats will receive the same benefit in 2014 and 2016. If we look at the percent of votes Democrats and Republicans have received for the US House since 1942 it is difficult to see a demographic tsunami.

The only thing I see is a tendency to throw the bums out. Overreach in 1964 by the Democrats resulted in a shellacking in 1966. Nixon and Watergate led to a shellacking in 1974. Democratic overreach again in 2008 led to another shellacking in 2010. At least to my eyes, the anomaly looks like Democrats getting more than 50% of the vote since the Clinton overreach (BTU tax, HilaryCare) in 1992, leading to the Republican takeover of the House in 1994.

But clearly the Republicans are fated to lose the Presidency, after all, the Party has lost the popular vote in five of the past six elections. Again, I think the numbers tell a different story. First, like the votes for the House, voters ran, in droves, away from Obama in 2012. Obama received 69.5 million votes in 2008 and 61.8 million in 2012. Romney received FEWER votes than McCain, a result contrary to votes for Republicans for the House. People didn't like Romney, enough. But the numbers don't support a wholesale rejection of the Republicans.

I certainly hope Republicans become more like Democrats relative to immigration. In my view, it's simply a matter of free trade. If you believe in free trade, like I do, and believe based on the overwhelming evidence of hundreds of years of history that it is good for the vast majority of people, then more open immigration is a no-brainer. If you believe like I do, most social matters are best left to individual conscience, than one would support the Party moving more towards indifference on gay marriage and cannibas. But it's not clear to me the Party has to do those things, nor that it would be a net winner for it.

Bill

We (the US) are rich enough to accommodate really bad policy.

Eli,

A random line from a Cato Institute podcast on human capital.

"We (the US) are rich enough to accommodate really bad policy."

I thought it encapsulated the ability of the US economy to continue to grow despite really bad policy since, mostly, FDR. But as we have witnessed over the past three economic recoveries, the three slowest since WWII, the accumulation of really bad policy is starting to take its toll.

Bill

FEMA to the Rescue

Eli,

When I saw this a few days ago, I thought it was funny. Still think it's funny.

Bill

Gas Lines. Welcome Back the the 1970's!

Eli,

What happens when prices aren't allowed to accurately reflect demand and supply? Gas Lines! Welcome back to the '70's.!

Source: Wall Street Journal

I suppose some (Governor Christie, Governor Cuomo, Mayor Bloomberg) think this is a good way to allocate scarce resources, but I don't understand how standing in line does anyone much good.

There is an easy way to stop the lines: let the price rise. Voila! Problem solved! That's unfair some will say. Only rich people will get gas others will say. No, only those who value gas at the higher price and are able to pay for it will get gas. No different than the market for iPhones, Teslas, houses, milk etc. On the one hand signals and incentives to producers to produce more and consumers to consume less. On the other hand? Gas lines!

Bill,

PS. Same concepts apply to health care and colleges. The results are similarly inefficient.

Incentives according to Keith Richards

Eli,

More from Keith Richards, this time on incentives:

"The tax rate in the early '70's on the highest earners was 83 percent, and that went up to 98 percent for investments on so-called unearned income. So that's the same as being told to leave the country."

and

"The last thing I think the powers that be expected when they hit us with super-super tax is that we'd say, fine, we'll leave. We'll be another one not paying tax to you. They just didn't factor that in." 

and

"Sit in England and they'd give us a penny out of every pound we earned? We had no desire to be closed down. And so we upped and went to France."

This discussion was preceded by his recounting of his addiction to heroin and use of many drugs. It is likely during the time of these decisions he was on heroin and almost certain he was using many mind altering substances. Only the finest quality, he tell us.

So even a heroin addict recognizes and responds to marginal tax rates.

Bill

Who Really Bore the Brunt of The Great Recession?

Bill.

An informative post from Walter Meade today on the economic state of Black America and the failure of current policies to improve it.

Eli

The Second Coming of Bill Clinton

Eli,

I don't know why you are so worried about Romney, nor why you are so confused what he stands for. Isn't it obvious? He's a moderate Republican, the Second Coming of Bill Clinton. In fact, in many ways he's to the left of Clinton.

Clinton passed NAFTA. Clinton declared the era of Big Government is over. Graham-Leach-Bliley finally killed Glass Steagall but Clinton's Treasury Secretary (and competition) had effectively repealed Glass Steagall anyway. Clinton passed welfare reform. Clinton passed the Telecom Act of 1996. Federal spending growth under Clinton was less than just about every post war President and reached the lowest percent of the economy in decades. (And by the way, next time you make the bogus argument about taxes and Clinton, please be honest and tell the whole story including the facts in this paragraph). When Clinton couldn't get the BTU tax and Hilary Care passed in his first two years he pivoted to the right. Can we say he was "inconsistent" he was an etch a sketch President? He did the same thing when he lost the Governorship of Arkansas. He listened to what his constituents were saying and changed his stance. You vilify Romney but praise Clinton? Why? Romney is the second coming of Bill Clinton.

Who is Barack Obama? Why the second coming of George Bush, ofcourserous. No more torture; worse, he just kills them with drone strikes. Big spending, unpaid for mandates, trampling on civil liberties with extension of the Patriot Act and warrantless wiretaps. Picking winners and losers, crony capitalism. What's the difference between TARP (a Bush policy) and Bush's stimulus and Bush's attempt to bail out GM and Chrysler and Obama? Would love to hear your answer. To me they look like twins.

Which is why I'm totally confused by you. You love Clinton but hate Romney. You hate Bush but love Obama. But Romney = Clinton and Obama = Bush.

Bill

Denver 31, Cincinnati 23

Me to my brother: "Manning is awesome."

My brother responds: "He is no Tim Tebow--Thank God."

A Visitor From Greece

Bill,

An old student of mine, one of my favorites, came to visit to look for a job. About 15 years ago he left a promising academic position in Boston to go back to Athens, where he's from. "I wanted to recreate the childhood I had for my own children," he told me. "Open doors, warm nights sleeping on the balcony, the warmth of friends and family, a civilized pace of life."

Now he is desperate to get out. A calm man by nature, the despair in his voice was unmistakable. "My own economic circumstances are fine," he noted. As a senior member of a wealthy private practice hospital (yes, in Greece), he continues work and be paid. "But I can't go out at night. I fear for my children's safety. Golden Dawn is beating up people in the streets like the SS used to do. Home invasions and kidnappings have become routine. The Greece I knew is gone."

In my limited economic understanding ("amen to that" I can hear you saying), the problem for the Greeks is that there is no easy way for them to repent the sin of borrowing lots of money they had no capacity or intention to pay back. If they still had the drachma, they would devalue it to make their escape. They'd live with the resulting inflation, as the Italians have since the end of WWII, the imbeciles who lent them all that money would be wiped out, and everything would be hunky dory, more or less. Isn't that what we will do if we can't otherwise defuse our debt bomb? In fact, I wonder if that's the outcome some folks on the left would prefer.

But there is no such escape for the Greeks. They can't grow their economy. They are sinking in an endless cycle of borrowing and contraction. They can't earn enough to pay what they owe, they borrow more, they owe more and on and on. Meanwhile their country is disappearing.

Eli

Milksop's View of the Election

Eli,
This is a comment made by "Milksop" to one of your recent posts. I thought it deserved a fuller airing. Milksop, if you object, let me know, and I'll take it down.

Bill.

MilksopOctober 31, 2012 12:34 AM

A woman came to my door today asking if I was registered to vote, and whether I was leaning toward Romney or Obama. I told her that I was voting for Gary Johnson, because I see no difference between Tweedle Dee and Tweedle Dum. She wondered why. I told her that in spite of promises to the contrary, President Obama did not close Guantanamo Bay Prison, engaged in legally questionable assassinations without offering any justification, prosecuted medical marijuana providers, subverted due process with Bradley Manning, instructed defense contractors not to give out legally required WARN notices due to sequestration, etc. I don't see any reason why Romney would do differently.

She replied that she agreed, but it was important to save the economy, and Romney would ruin it. I told her that I didn't want to legitimate the claim that the President is responsible for running the economy which both candidates make. I also told her that I didn't see any point to having a good economy if we lose all our civil rights.

She told me that as far as civil rights go, Romney would destroy them more by getting rid of contraception and abortion. I replied that with regard to contraception, I think there is a freedom of religion principle being violated. The abortion issue I struggled a bit more with.

Later, I read up on Roe vs. Wade on Wikipedia, because I was wondering how the Supreme Court justified the idea that the right to an abortion was a constitutional right. To my surprise I found that there seemed to be fairly widespread agreement among both conservatives and liberals that the constitutional justification for the ruling was basically nonexistant. Supreme Court Justice Ginsberg herself stated that the ruling essentially destroyed a fledging abortion liberalization movement that focused on legislative relief, and Benjamin Wittes remarked that the ruling "disenfranchised millions of conservatives on an issue about which they care deeply."

I thought this gave an excellent explanation for the political quandry we find ourselves in now. Conservatives feel like they haven't been able to have their say, so they're motivated to push for increasingly (and outrageously) extreme laws with respect to abortion. Like Justice Scalia said in another case, "[B]y foreclosing all democratic outlet for the deep passions this issue arouses, by banishing the issue from the political forum that gives all participants, even the losers, the satisfaction of a fair hearing and an honest fight, by continuing the imposition of a rigid national rule instead of allowing for regional differences, the Court merely prolongs and intensifies the anguish."

On the other side, it's understood that the ruling that protects abortion hangs by a thread, requiring constant desperate attempts to protect it by those who support it. In either case, both sides are focused obsessively on a single issue while the rest of the system falls to pieces. It's like fighting over the remote control while burglers are cleaning out the rest of your house of your possessions (G-d forbid).

I told the woman at my door, who flew out from California to try to raise support for Obama here, that if I woke up the day after Election Day and either Obama or Romney was president, I'd be depressed. I will continue to feel hopeless that the two sides of the culture wars can speak to each other respectfully and thoughtfully, getting a fair chance to explain our positions and be heard, instead of appealing to lightning rod issues to energize the base.

I should probably go prepare to drown myself in silly sitcoms on November 7th.

Malloy says everything but Hartford to be declared disaster areas

Eli,

Wait a minute. I thought Hartford has been a disaster area for years now.

Bill

http://ctmirror.org/story/18036/malloy-everything-save-hartford-be-declared-disaster-areas

Malloy says everything but Hartford to be declared disaster areas

Scott Lincicome's "Campaign Jeep Shots"

Eli,

I'm pretty much a one-issue voter, that issue being free trade. This election, like many, will be tough. The major party candidates do not espouse free trade. However, there is Gary Johnson.

The irony of Chris Matthews defending outsourcing (whatever that means) is rich.

Bill

From Scott Lincicome's Blog:

http://lincicome.blogspot.com/2012/11/campaign-jeep-shots.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+ScottLincicome+%28Scott+Lincicome%29&utm_content=Google+Reader

Campaign Jeep Shots

Because I long ago gave up on the 2012 campaign's horrible trade debate, I've been desperately trying to avoid wading into this week's dumbest trade-related controversy: the Romney campaign's commercial claim that bailed-out (and now Fiat-owned) Chrysler plans to resume Jeep manufacturing operations in China.  Fortunately, AEI's Claude Barfield took one for the team and summed up my angry, depressed thoughts pretty perfectly:

In this campaign, economic "truthiness" has long since disappeared. The latest evidence of this is the flap over Governor Romney's claim on the campaign trail and in ads running in Ohio that Chrysler is planning to ship jobs to China by opening a plant to make Jeeps in that country. Another ad makes a similar claim for General Motors. This produced sharp rejoinders from GM and Chrysler, and earned Romney four Pinocchios from the Washington Post's factchecker, Glenn Kessler. My cynical side mainly deplores the ineptitude of Romney's timing: He should have waited until later in the week before the election in order to avoid the blowback from the Obama team and zealous factcheckers.

But more seriously, there is a depressing, deeper irony in all of this. On the one hand, Romney long ago should have stepped up to the plate with a full-throated defense of offshoring/ outsourcing as a key element of the competitiveness of US (and other nations') corporations—and ultimately as a force for generating additional jobs back in the US. These ads undercut the larger economic message on the imperatives of global competition his campaign has fitfully attempted to mount.

But not to fear. Help has come from an unlikely source: The eye-opening defense of Chrysler and GM mounted by Obama's surrogates. Last evening on the Chris Matthews show (I know, hardly the place for economic wisdom or even literacy), Matthews and Steven Rattner (backed by NY Times reporter Bill Vlasic) ridiculed Romney by pointing out that offshoring/outsourcing by corporations was a positive good for the US in that in today's global economy, in order to survive and succeed, US corporations had to produce their products in the markets they wanted to serve.

Rattner stated that this is a basic fact of life for the automobile industry. Jeeps made in China would feed a growing Chinese consumer demand for this iconic car, and would not come back to the US. This basic fact flies in the face of Obama dogma, which largely equates foreign investment by US corporations as the work of "Benedict Arnolds," as John Kerry asserted in 2004.

I suppose it's too late to demand that the Obama guys pull down all those ads condemning Romney as the "Outsourcer-in-Chief"; but maybe the Romney team can quickly flood a few Ohio TV markets with the "Rattner defense."

Barfield's point about the economics of outsourcing/offshoring is something I've discussed here many times: the vast majority of this routine economic practice is undertaken to satisfy foreign demand, not to ship foreign-made goods back to the United States, and it typically leads to more US employment, not less.  The FT's Alan Beattie reiterates these facts in a nice blog post that also belittles the whole Jeep kerfuffle:

More sympathy might be due to the Obama campaign if it didn't itself routinely equate foreign investment with sending jobs overseas, particularly its ill-advised attacks on the idea that a territorial corporation tax system would reward US companies for offshoring employment. As informed opinion on the subject routinely points out, the overall evidence is that foreign investment is a complement rather than a substitute to domestic expansion. If you want the specifics, read this.

If Beattie's links don't convince you about the economic benefits of outsourcing/offshoring for the US economy, go here or here.  Or if you want to understand the abject absurdity of political ploys to curb outsourcing, go here.

Of course, none of these truths will change the last few days of the 2012 campaign's moronic trade discourse, but the Jeep controversy does leave me wondering one thing: why didn't Kessler, Matthews, Vlasic and their media colleagues (particularly at the Washington Post) mount such a rational defense of outsourcing when the President and his PAC were spending millions of dollars to demagogue the "evil" outsourcing of Bain Capital and Mitt Romney?

Oh, right.

Man, I can't wait for this campaign to be over.

Who Will Vote?

Bill,

The strikingly different predictions now bubbling up in both the mainstream media and the blogosphere (to which we of course, are proud contributors), highlight the depth of our bitterly divided electorate. The contrast between those who predict  victory for Romney or triumph for the President appears to depend entirely on their perception of who will show up at the polls. The Romney enthusiasts see a reprise of 2010, when enraged conservatives eradicated a 25 seat Democratic majority in the House and 7 seats in the Senate. Obama supporters see an electorate similar to the composition of the 2008 version that yielded the 4th largest Democratic margin of victory in history.

As usual, both sides live in universes that are incompatible with each other. Both of them cannot be right, unless we have some form of a tie, in which case the result will not be decided by the people, but by someone else.

Too many parts of the Obama coalition are either unenthusiastic, disengaged,  or disillusioned. Obama has himself to blame for some of that. On the other side, the right is so determined to get rid of the President that it doesn't care that his opponent is a man who seems entirely devoid of  principle. Either Romney was lying in the primaries or he's lying now. Do you have any idea what he believes at this point? Does he?

My heart wants to believe, but my head says different. Either Romney will coast to a surprisingly easy victory, or we will have a mess that makes 2000 look like a garden party

Eli

Infrastructure

Bill

I was born in New Bedford exactly 8 days before Hurricane Carol arrived. The storm, similar in many ways to Sandy, reached landfall on the morning of August 31.  The effects on the city and the surrounding low lying areas were devastating, as the 110 mph winds and 14 foot storm surge swept up Buzzards Bay and inundated the shoreline. Most of the inner harbor, the city's lifeblood, was destroyed. Sixty souls in the path of the storm perished, along with 6500 homes, 3000 boats, and  nearly half a billion dollars in wealth.

Eight years later, my father fulfilled his life long dream of building a house on the water. He picked a rocky bit of shoreline on Clark's Cove just inside the Dartmouth line. Remembering the tumultuous and tragic circumstances of  my arrival, he chose high ground, 35 feet above sea level, and built a six foot sea wall 10 feet back from the high water mark. I'm happy to report to you that Sandy left the home I grew up in untouched.

As a result of  Carol and the New England Hurricane of 1938, the Eisenhower administration approved 10 million dollars dollars for approval of construction of the New Bedford hurricane dike. After the predictable cost overruns, the dike was completed in 1962 at a total cost of 17 million.

The dike closed across the entire harbor Monday afternoon. I'm sure the good citizens of New York wish they had similar protection.

Of course, between conservatives  on one side and environmentalists on the other, such a structure could never be built today.

Eli

Leading from Behind

Eli,

I'm reading "Life" by Keith Richards, (yea, that Keith Richards). On his leadership of the Rolling Stones:

“It's not a matter of cracking the whip, it's a matter of just sticking around, doing it, so they know you're in there, leading from the front and not from behind.” 

Take that Obama.

Bill

The Jones Act. Killing Commerce for almost 100 years.

Eli,

I have a high degree of conviction a reason the recovery (as measured by employment) from the 2007-09 recession is slower than the recovery from the 2001 recession which was slower than the recovery from the 1990-91 recession is the increased weight of job and commerce limiting policy decisions.

Consider the Jones Act, (officially The Merchant Marine Act of 1920) which mandates all goods transported by water between US ports be carried in US flag ships, constructed in the US, owned by US citizens, and manned by US citizens or permanent residents.

The Jones Act rises to attention periodically, like say, after a major storm strikes the East Coast and people wonder why it is so difficult to transport goods from one part of the country to another part of the country. See below the story from TheHill.com on waiving the Jones Act in order to get  fuel to Northeast ports.

Would fewer people be suffering right now if our policy choice had been to let the market determine the best way to carry goods between US ports? According to the Obama administration the answer is Yes, fewer people would be suffering.

So my question to you, as an unabashed believer in industrial policy, and other job limiting, price distorting measures, if these policies are bad in a crisis, why are they good in normal times?

Bill

http://thehill.com/blogs/floor-action/transportation-and-infrastructure/265607-administration-waives-shipping-rule-to-get-fuel-to-northeast-ports

Obama administration waives shipping rule to get fuel to Northeast ports

By Pete Kasperowicz - 11/02/12 02:04 PM ET
The Department of Homeland Security (DHS) on Friday issued a temporary waiver of the Jones Act, which will let foreign fuel tankers dock in Northeast ports and help get fuel to areas that are seeing fuel shortages in the wake of Hurricane Sandy.

The decision was made just days after reports of gas shortages in New York City and parts of New Jersey, which has led many gas stations to close and also led to reports of violence as people hunt for fuel. 

The Jones Act, part of the Merchant Marine Act, requires all water-borne goods shipped between U.S. ports to be moved on U.S.-flagged and U.S.-made ships, and staffed by U.S. citizens. Homeland Security Secretary Janet Napolitano said Friday that the waiver of this rule would last until Nov. 13 to address shortages caused by Sandy.

"The administration's highest priority is ensuring the health and safety of those impacted by Hurricane Sandy, and this waiver will remove a potential obstacle to bringing additional fuel to the storm damaged region," she said.

Napolitano said the waiver would let any ship carry fuel from the Gulf of Mexico to the Northeastern United States. DHS said officials are "continuing to monitor the situation" and are prepared to take "additional actions as necessary to ensure that the energy needs of the region affected by Hurricane Sandy are met."