Tuesday, October 30, 2012

Sandy is a Negative

Don't believe the argument that natural disasters fuel economic growth.  That argument is only true if what is being destroyed is something that should have been demolished in the first place.  Otherwise, things like "Sandy" should be viewed as a net wealth loss.  So, who steps up to make up for the wealth loss....the government?

Governments at all level are broke.  Sandy will only exacerbate the problems of state and local governments and everyone knows the federal deficit is on a path to disaster.  So, there is no silver lining here.

The loss is not confined to destruction.  Shutting down New York City and much of the East Coast for two days is not going to be completely made up later.  Some substantial loss is inevitable from the shutdown.

Sandy is a reminder that bad things can happen randomly. It is also a reminder of why people and governments should save for a rainy day.  Sometimes it rains.

Wednesday, October 24, 2012

The Fiscal Cliff

The President, in the third and final debate with Governor Romney, said that sequestration was "not going to happen."  Wonder what he knows that we don't?  In any event, it has already happened in some sense.  The expectation of increased tax rates and of sequestration are already playing into the economy.

Business folks don't wait until January to make decisions.  They are making them now.  Business has ground to a halt in the US, excepting a spurt in housing and the buoyant energy sector.  The combined impact of Dodd-Frank, of Obamacare, of the expiration of the Bush tax cuts, and of the coming sequestration are enough to scare any self-respecting entrepreneur about America's future.

We are already careening down the fiscal cliff. 

The question is, if the President loses his re-election bid, can we climb back out of the abyss.  That depends upon what a President Romney would prioritize.   In the short run, the economy needs the government to step back.   Rolling back some of the draconian measures at the EPA would be a start.  Giving the green light to the Keystone project would be a dramatic symbolic gesture that would also create a lot of high paying jobs almost immediately.

But, to get real prosperity, we will need real tax reform that lowers marginal rates, the repeal or gutting of Obamacare and the repeal or gutting of Dodd-Frank.  Absent these items, the economy is not likely to ever be what it once was.

We've been going through one of the most anti-free market periods in American history (there have been others).  Do Americans still believe in free markets?  Does Romney?

Even a Romney presidency may not reverse the tide against free markets, but who knows?  We can and should hope for the best.

Thursday, October 18, 2012

Taxing the Rich As a Political Issue

It plays well to say that some hedge fund guru who makes $ 100 million per year should pay higher taxes.  Who can't sympathize with the view?

But, of course, that is never what is actually proposed by the Obama folks.

Instead the "tax on millionaires and billionaires" is aimed at the very large group of Americans who make far less than a million dollars per year.  The Obama "tax on the rich" aims it's bazooka at Americans who make $ 250,000 or more.  How did that group get labeled "millionaires and billionaires?"

There are a lot more families with income between $ 250,000 and $ 1,000,000 than families with income above $ 1,000,000, so Obama's plan is to soak the folks that aren't millionaires and billionaires, but, perhaps, aspire to be.  Worse, anyone aspiring to join the $ 250,000 plus crowd should take note.  This bazooka is aimed at your economic future. 

No point in starting that new business or hire that extra employee!  The President is your new future partner and is planning to sell you a new "protection" scheme on your future income, reminiscent of Al Capone days, by taking a higher percentage of that future.  Can't increase the number of millionaires and billionaires, can we? Heaven forbid!

This is the same rhetoric that recently led France to adopt a 75 percent tax rate on "millionaires and billionaires."  The few such people remaining in France are planning their move to Luxembourg, Monaco, or Switzerland.  Why remain in a country that doesn't want you?

The "fairness" argument put forward by Obama is really a direct attack on the very idea of free markets and property rights.  The middle class gets its largest boosts in wealth and income when the economy grows and "fairness" takes a back seat to economic growth.  Emphasizing "fairness" is a ticket to economic stagnation with an ultimate destination of modern Greece.

Saturday, October 13, 2012

The Uncertainty Trade-Off

The main reason that free markets struggle to achieve political legitimacy is that outcomes can be unpredictable.  There can be booms, busts, cycles, and anxiety.  In a regime like the old Soviet Union, there was no anxiety and no booms and busts.  There was simply perpetual stagnation.  Is there anything in between these two alternatives?

Probably not.

The idea of a 'mixed economy' is a common staple of university courses in economics and politics, but one wonders if a 'mixed economy' is a stable outcome.  Once a large part of the population derives its income from government, then a 'mixed economy' has a tendency to move more toward a government-dominated economy.  People vote their economic interests.  Public school teachers, once the most conservative voters in America are now among the most liberal voters.  Why?  They vote their economic interests, which they identify with the liberal economic policies that expand government and boost the compensation for public employees generally.

The modern political debate is a debate about whether the current political dynamic will take the US in the direction of the old Soviet model or try to apply the brakes before things become irreversible.   Unfortunately, there is no real political support for truly free markets (the acid test would be the public attitude toward abolishing minimum wage laws).  The best that can be done is to try to slow the growth of the power of our government overlords.

The heavy hand of government has crushed our financial system and put our economy in a straight jacket. It can get worse.

But, things could get better.  Just freeing up our financial system could spark a major economic recovery in the US.  Whether a Romney administration would have the political courage to roll back the damage done by Sarbanes-Oxley and Dodd-Frank is debatable.  But, there is no chance that the US economy can prosper if  Obama is re-elected.  Only government will grow in the Obama blueprint for America.

Friday, October 12, 2012

Smirkin' Joe

Smirking and rolling his eyes as a substitute for discussing policy, Joe Biden showed why the US economy and foreign policy has been run into a ditch.  Neither Biden nor Obama has any real interest in the issues of the day.  The discussion of the catastrophe in Libya provided an excellent summary of the Obama Administration's approach to life:  "We will get to the bottom of this!"  Really?

Biden seemed to think that any real discussion of policy was unnecessary.  His attitude was so condescending that it made one wonder what he and Obama really think of the American people.  The idea that government knows everything and the people are sheep to be lead was so pervasive in Biden's attitude, that it is easy to see why the Obama Administration feels that it doesn't need to produce budgets, programs, plans or anything.  Just smirk your way forward.

Biden constantly interrupted Congressman Ryan and talked over Ryan during Ryan's time.  Biden's contempt for the democratic process was on display throughout the debate.

Ryan, on the other hand, was polite and stuck to message.

Hopefully, the American public can see who believes in free markets and free people and who doesn't after this remarkable debate.

Tuesday, October 9, 2012

The Global Economy Weakens

The global economy is deteriorating.  There are no real bright spots.  The BRICs are slowing, Europe is in chaos, and the US is stuck in the mud.  For all the promises that governments make, real economic progress for the average person comes only when economies are growing.  Economies can only grow when markets are free and individuals are willing to take risks to make money. 

Unfortunately, no modern politicians seem committed to free markets.  Romney is probably better than the alternative, but even Romney sees government as an important player in the economy.  His Massachusetts history gives one pause.  The real problem is that Americans and Europeans generally believe that twenty or twenty five years in the work force deserves eighty years of compensation.  The arithmetic doesn't work for that.  Something has to give.

Things like social security and medicare are not affordable.  No society can afford them.  What is playing out in Europe and will someday play out in the US is the outcome of an unaffordable dream.  Someone has to save and invest or eventually there will be nothing to consume.  Free markets are the only institutions that can bring forth the necessary savings and investment to provide for our youth and our elderly.  No other system can do it.

Economic growth is not a luxury good.  It is an absolute necessity if we are to educate our children and take care of our elderly.  Dividing up a stagnant pie -- the Obama plan -- is to give up on the future.  Hopefully, Romney will win the election and the Paul Ryan influence will move the US back toward free markets and out of the quagmire that we find ourselves in.

Monday, October 1, 2012

This is Austerity?

Why are France and Spain (and everywhere else in Europe) in deep fiscal trouble?  -- Too many promises by government without any plans to come up with the money to pay for the promises.

So, what are France and Spain doing?  Spain's recently proposed 'austerity' budget includes a one percent increase across the board to pensioners.  Paying pensions is Spain's number one government expense.  So, why not make it even higher?  How about France?  Newly elected Socialist President Francois Hollande took quick action to move France's retirement age to 60 from 62.  He may as well have moved it to 40 for what little chance France has of paying future retirees.

No austerity plan in Europe touches things like retirement, public employee largesse, and laws that mandate hours and rule out employee terminations.  So, in reality, nothing of any real significance is taking place except that the Eurozone is taking on more debt and rolling the printing presses.

You wonder why anyone thinks that anyone should work at all?  Why not simply print Euros and Dollars and everything will be fine.  That seems to be the mindset in Washington and Brussels.