Category Archives: economy

Another bad idea brewing in Europe

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As pointed out previously, bad ideas that begin in Europe tend to find there way over here. And this is a bad idea that Democrats (especially one Barack Hussein Obama) will love. The financial transaction tax:

A new report, launched in Brussels on Monday by the Socialists and Democrats in the European Parliament, shows that – contrary to what the finance sector’s paid lobbyists have been insisting – a European financial transaction tax (FTT) would boost growth in Europe by at least 0.25%,  raise the revenue to combat poverty and climate change at home and abroad, and help re-balance the economy by making long-term investment more worthwhile than short-term, high frequency trading. This new report by noted economists Prof Avinash Persaud and Prof Stephany Griffith-Jones comes on top of revised estimates from the European Commission who originally produced some of the data that fat cat financiers pounced upon. The Commission’s original impact assessment was based on a flawed model which shows all taxes as harming growth, whatever the revenues are used for, but misunderstandings of what the impact assessment showed were used to create concern among progressive politicians and abused by people opposed to the tax all along to justify their position (even though the same people shed few tears over the impact on growth of measures they support like increased VAT or cuts in public services.)

Right…

The EU will regulate the economy is such a way as steer money in to long-term investment more worthwhile rather than short-term, high frequency trading. What could go wrong (other than making it difficult for publicly traded companies to raise capital through the sale of stock i.e. trading)?

Tim Worstall, my favorite economist, described this lunacy perfectly:

What are these people smoking?

Couldn’t have said it better myself.

How Obama admin is skewing data, creating illusion of falling jobless numbers

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Via Robert Reich @ The Guardian blog:

President Obama’s only chance for rebutting Republican claims that he’s responsible for a bad economy is to point to a positive trend. Voters respond to economic trends as much as they respond to absolute levels of economic activity. Under ordinary circumstances, January’s unemployment rate of 8.3% would be terrible. But compared to September’s 9.1%, it looks quite good. And the trend line – 9% in October, 8.6% in November, 8.5% in December, and now 8.3% – is enough to make Democrats gleeful.

The new 8.3% unemployment number is such a scam. As pointed out on Zero Hedge:

it appears that the people not in the labor force exploded by an unprecedented record 1.2 million. No, that’s not a typo: 1.2 million people dropped out of the labor force in one month! So as the labor force increased from 153.9 million to 154.4 million, the non institutional population increased by 242.3 million meaning, those not in the labor force surged from 86.7 million to 87.9 million. Which means that the civilian labor force tumbled to a fresh 30 year low of 63.7% as the BLS is seriously planning on eliminating nearly half of the available labor pool from the unemployment calculation.

A picture is worth a thousand words.

How can the BLS just drop 1.2 million people from the labor market? In one month no less.

Rush Limbaugh sums up this data nicely:

But the raw numbers, 130 million jobs in December, 128 million jobs in January, give or take a couple hundred thousand either side. But when the seasonal adjustments take place, there is a gain of 200, whatever they’re reporting, 33,000 jobs. Now, what’s happening is the labor force is shrinking. There are fewer jobs. Even the Drive-Bys, so excited, they can’t wait to report the good news, but even they are reporting that the labor force participation rate, number of jobs out there, is continuing to dwindle, and most of the jobs being created are low wage.

But none of that’s gonna matter. None of it’s gonna matter. I don’t want to be an “I told you so,” but way back last year, even recently toward the end of last year, this being an election year, I predicted. But you knew. You knew what was gonna happen when this year started. You knew that the statistics are that no president has ever been reelected when the unemployment rate’s over 8%. So guess what it’s gonna be by the time we get to Election Day? It’s just that simple.

Yep. The left will stop at nothing to get Obama re-elected.

Obama Demands Taxpayers Increase Funding For Overpriced Universities

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Trying to buy votes Barry?

“You’re the ones who need help,” the president told students gathered at the University of Michigan’s Al Glick Field House.

“A quarter of all millionaire [earners] pay lower taxes than millions of middle-class households. t… [audience boos] Is that fair? … does it make sense to you? … do we want to invest in things like… student loans and grants?”

He called on Congress to cut the interest rate on government loans to students, and said he had already limited graduates’ monthly payments on government loans to 10 percent of their after-tax income.

It seems the college aged Obama was busy honing his street agitation skills rather than hitting the ECON 101 books.

If he were truly serious about bringing college costs down, Obama would stop advocating policies (i.e. easy student loans & grants) that artificially increase demand for college. Any high school student can tell you when demand increases, prices will increase.

As pointed out previously here at MCT, if the government would stop artificially inflating demand by funneling tax payer money to colleges, prices would drop in a hurry:

One way to drive down the cost of college tuition is getting the government out of the business of student loans. Every time government becomes involved in an economic activity, it becomes more expensive. If government student loans are severely limited and Universities see fewer students attending their hallowed halls of higher learning, cost of tuition will drop in a hurry.

Of course, it’s tough to buy college student votes if politicians can’t pull the strings of student loans.

A video all leftists should watch

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This short video from the Adam Smith Institute is informative and interesting.

YouTube Preview Image

I like the bit about “this is mistake Karl Marx made.”

Scary Graphs: Why I don’t feel like I’m getting ahead

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If you ever get the ‘I’m not getting ahead’ feeling, the following graphs from the National Inflation Association will help explain why you feel this way.

The median American family was earning over $100,000 per year in today’s dollars during the 1970s.

The average American has been earning less per hour (adjusted for real inflation) and seeing a decline in their standard of living since the early 1970s after we left the gold standard.The Dow Jones divided by the price of gold. After the inflationary crisis of the 1970s, the Dow/Gold ratio bottomed at 1

There has been a whole lot of inflation happening over the past few decades, and as the above graphs illustrate, the average American has been losing ground in real purchasing power.

So, if you here the “hey, the DOW is over 1300 so the economy is back and Obama is great” spin, remember the above graphs. And these graphs as well.

Markets don’t fail… Politicians on the other hand…

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When you see nonsense such as this:

Democrats call for broader investigation into banks’ foreclosure processes

…….

Meanwhile, Maryland Democrat Elijah Cummings, ranking member of the House Oversight and Government Reform Committee, sent a letter to Chairman Darrell Issa (R-Calif.) asking him to bring high-ranking executives from the nation’s biggest mortgage banks to Capitol Hill testify about foreclosure abuses.

“Rather than using its substantial investigative powers to protect American consumers from the abuses of banks, the committee has focused instead on attacking the new agency created by Congress to protect these same consumers,” Cummings wrote.

Miller said the settlement won’t likely include enough relief for those who are underwater on their mortgages. He and Brown said they don’t yet know what mortgages are subject to the settlement because negotiations are ongoing.

Remember, markets don’t fail.

But markets don’t “fail.” They respond rationally, quickly and often brutally to conditions as they find them. If they see a shortage of supply or an excess of demand, they’ll drive prices higher. Conversely, excess supply or falling demand drives prices lower. If you’re looking for villains, examine why supply is constricted or inflated or why demand is stifled or encouraged. But don’t blame the markets for responding accordingly.

Politicians, on the other hand, do.

For example, the onset of the financial crisis three or four years ago was largely due in the US and the UK to excessive demand for mortgages from people who couldn’t afford them. In the US, this was driven by government mandates to Fannie Mae and Freddie Mac to do just that – pump up demand for housing. In the UK, tight restrictions on construction limited supply to a market that quite rationally came to believe home ownership was a sound substitute for more productive investment.
In both cases, the bankers’ cost of funding was distorted by deliberately low official interest-rate policies, the implicit knowledge they wouldn’t be allowed to fail and lax competition enforcement that led to the likes of Royal Bank of Scotland swallowing up competitors. The logical response by the markets was to divert money to housing, just as the politicians wanted.

How could anyone think government is going to solve this, or any other economic mess, when the government created the mess in the first place.

You can almost hear Art Laffer saying “I told you so”

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After 67% tax increase, Illinois continues to be in a precarious fiscal position.

Topinka says this is extremely disappointing, since a year ago, the state sharply increased income taxes (by 67 percent) and corporate taxes.

“After the largest tax hike in our history, the state continues to be in this precarious fiscal position with persistent payment delays, and frankly, the situation is unlikely to significantly improve in the near term,” she said.

You can almost hear Art Laffer saying “I told you so.”

Inbox: Taxation explained with beer

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Saw this in my e-mail and thought it was great:

Tax System Explained in Beer

Suppose that every day, ten men go out for beer and the bill for all ten men comes to $100.

If they paid their bill the way we pay our taxes, it would go something like this…

The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7..
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.
So, that’s what they decided to do.

The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve ball.

“Since you are all such good customers,” he said, “I’m going to reduce the cost of your daily beer by $20.”

Drinks for the ten men would now cost just $80.

The group still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected.
They would still drink for free. But what about the other six men? The paying customers?
How could they divide the $20 windfall so that everyone would get his fair share?

They realized that $20 divided by six is $3.33.
But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer.

So, the bar owner suggested that it would be fair to reduce each man’s bill by a higher percentage the poorer he was, to follow the principle of the tax system they had been using, and he proceeded to work out the amounts he suggested that each should now pay.

And so the fifth man, like the first four, now paid nothing (100% saving).
The sixth now paid $2 instead of $3 (33% saving).
The seventh now paid $5 instead of $7 (28% saving).
The eighth now paid $9 instead of $12 (25% saving).
The ninth now paid $14 instead of $18 (22% saving).
The tenth now paid $49 instead of $59 (16% saving).

Each of the six was better off than before. And the first four continued to drink for free.
But, once outside the bar, the men began to compare their savings.

“I only got a dollar out of the $20 saving,” declared the sixth man. He pointed to the tenth man,”but he got $10!”
“Yeah, that’s right,” exclaimed the fifth man. “I only saved a dollar too. It’s unfair that he got ten times more benefit than me!”

“That’s true!” shouted the seventh man. “Why should he get $10 back, when I got only $2? The wealthy get all the breaks!”

“Wait a minute,” yelled the first four men, “we didn’t get anything at all. This new tax system exploits the poor!”
The nine men surrounded the tenth and beat the hell out of him.

The next night the tenth man didn’t show up for drinks, so the remaining nine sat down and had their beers, without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money among all of them for even half of the bill!

And that, boys and girls, journalists and government ministers, is how our tax system works. The people who already pay the highest taxes will naturally get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy and they just may not show up anymore. In fact, they might start drinking somewhere the atmosphere is more friendly.

David R. Kamerschen, Ph.D.
Professor of Economics.

For those who understand, no explanation is needed.

For those who do not understand, no explanation is possible.

Is it in their best interest to let your kids rack up massive student loan debt?

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While I sympathize with the author of this Detroit News column, it is surreal to see someone say “we only want the best for our kids” while encouraging them to rack up staggering amounts of student loan debt as they enter adulthood:

The day of reckoning had come. Our first-born graduated from the University of Michigan in December and they were having the come-to-Jesus meeting with loan officers at the federal government.

I held my breath in the kitchen as my husband, blessed with both the patience and steel gut required for opening the closet on an avalanche of debt, said over the phone: “Why is it Jason, that the last counselor I talked to, not five minutes ago, gave me completely different numbers for the standard repayment plan?”

When I finally heard the balance in full, I gasped. (Here’s why: Today a four year in-state college education at the University of Michigan costs $100,000. )

Make no mistake. We borrowed willingly, with no regrets about the quality of her education, nor any illusions about the mounting interest.

O.K…I get it… If you don’t have the money to pay for tuition at a Big Ten school, just go into debt over it. Why go Jr. College for the first two years, then go to a less expensive school near home to reduce the cost when you can take out a massive loan.

These days, my husband and I have so often prefaced our conversations about securing both parent and student loans with the “Times have changed …” speech, our kids now roll their eyes. We tell ourselves that paying for their own education makes them value it more. But the truth is: We hate them taking on debt right out of the gate.

Saddling yourself and your children with incredible amounts of debt to attend college is not in anyone’s best interest.

Then we get to the real purpose behind the column. The author want’s the state and federal government (i.e. you and me) to “provide an affordable path for higher education.”

As a state, and a country, for that matter, we can’t keep on insisting our future depends on a highly educated work force and then not provide an affordable path for families to get their children college degrees.

One way to drive down the cost of college tuition is getting the government out of the business of student loans. Every time government becomes involved in an economic activity, it becomes more expensive. If government student loans are severely limited and Universities see fewer students attending their hallowed halls of higher learning, cost of tuition will drop in a hurry.

Otherwise, tuition will keep climbing and people like Mary Sue Coleman will continue laughing all the way to the bank.