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Political wisdom, fiscal malpractice

Political wisdom, fiscal malpractice. That would be my description for the much ballyhooed "payroll tax cut" supported by a bipartisan chorus of political leaders. The cut is good politics — and fiscal malpractice.

Let's begin with some basic facts on the payroll "tax" situation:

Most of us with 401K or similar retirement plans invest between 3% to 6% and employers match some portion of this contribution. That's basically how Social Security is also structured: the employee and employer contribute to the fund.

The previous and supposedly standard payroll deduction for Social Security is 6.2% of your first $110,100 of income. With the "temporary" reduction, workers are contributing only 4.2% of that income to Social Security. If you are self-employed, you normally pay 12.4% to Social Security, but with the "reduction" you are paying "only" 10.4% (the employer's 6.2% plus the employee's 4.2% rates).

The so-called "$…

Risky Simplicity: Debt is Growth

Some of my friends and colleagues in the "orthodox economics" camps have tried to make the case that debt is necessary at times for growth, or at least stability. While there is merit to this line of reasoning, it is also a risky simplification of economic realities. To argue their point, these traditionalists point to household spending.

One friend, a left-leaning political scientist with solid economics knowledge, described it thusly:
All of us assume debt to improve our lives, and government is no different. We take out loans on homes, cars, our educations, and to finance our businesses. Government has to do the same. You've taken on debt, I've taken on debt, and we did it for better futures. Arguments for a larger stimulus and more investment in some projects would have made sense ten years ago, but today those arguments ignore the experiences of Japan and southern Europe, where "investments" by the government did not revive flagging economies. I do pl…

FDR's policies prolonged Depression by 7 years, UCLA economists calculate / UCLA Newsroom

One of the arguments I've advanced in various forums, including my classrooms, is that much of the rise America experienced during and after the Second World War was "luck" — we were spared the direct destruction experienced by every other global economic leader. It's hard to lose the war of economic dominance when you're the only player in the game for two to three decades.

But what about the "end" of the Great Depression before the War? First, I'm not convinced we were truly out of the Depression; economists and historians debate this. (I've noticed historians are more inclined to embrace the "FDR saved us!" line, while economists are skeptical of simplified credit to a person or political party.)

FDR was not a purist; he was a political pragmatist. He spent, or cut, as he saw fit, without any grand plan. I believe it is far too simple to accuse FDR of adhering to Keynes or any other economist's views. FDR bounced from idea to id…

U.S. Still Believes We Control Our Personal Destinies

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Today, the Pew Research Center released the following:
The American-Western European Values Gap

It should be no surprise that Americans value personal freedom more than they value a social safety net. The United States is a nation built by explorers who managed to survive frontiers. Even immigrants celebrate the rugged individualism of our national heros. A table of the survey findings:


Notice that the data are mirror images. Europe has a different history, one shaped by two world wars and various upheavals. Neither approach is "right" or "wrong" — but I definitely fall in the personal freedom camp. I do not trust governments to solve problems and would rather be left alone to succeed or fail, as much as possible.

Most Americans support a minimal safety net, but nothing comparable to the European welfare state. Individualism and the Role of the StateIn the U.S., Britain, France and Germany, views of the role of the state divide significantly across ideological lin…

What the "Lesser Rich" Do: Create Jobs

My wife and I are among what I've heard one economist call "the lesser rich." We are in the top ten percent of households, but we are not wealthy. We don't drive luxury cars, live in a McMansion, or even own a big screen television. My computer is several years old, our phones are not "smart phones," and we've never been on a cruise. Yet, according to the statistics, we are "rich." I'm sure that explains why my last clothing purchase was a $9.99 pair of store-brand Khakis from Target.

Where do you fall in the eyes of political leaders (and the public to whom they are pandering):
http://www.census.gov/compendia/statab/2012/tables/12s0694.pdf

Less than $10,0007.3%$10,000 to $29,99923.3%$30,000 to $59,99927.5%$60,000 to $74,99910.1%$75,000 to $99,99911.5%$100,000 to $149,99911.9%$150,000 to $199,9994.4%$200,000 to $249,9991.8%$250,000 and More 2.0%
More than half of U.S. households (58.1%) have combined incomes of less than $60,000. Two-third…

Sticking to the Issues, Not a Candidate

Following my last post, a friend asked if I was "coming out" as a Republican. No. That's not going to happen, since I am deeply offended by the influence of the religious conservatives within the GOP. I have no interest in supporting candidates or a party that isn't willing to "live and let live" on most social issues. But, I'm also not going to embrace a party that wants to regulate an even broader range of behaviors I consider to be personal choices. If I want a greasy burger or a buttery croissant, leave me alone. "Sin tax" is one of the more idiotic phrases in government revenue collection.

Given a choice, I am more likely to support and even work for "conservative" Democrats, but I'd also consider a "liberal" Republican. However, I tend to focus on issues as a scholar and adviser rather than individuals. I don't like or trust politicians, but I can support a cause.

If you want me to collect data and report on…

An Outsider Inside Academia

For the last few years, I have found myself using the phrase "I am not a social conservative" before explaining my positions on a number issues. The last thing an academic within some disciplines wants is to be accused of being a conservative. It would be career suicide within some university humanities departments to be a self-identified Republican, and I cannot imagine being an outspoken "Tea Party" supporter within some fields. You might as well admit you also don't want publications, conference invitations, and the all-important tenure.

I'm a free-market capitalist, vehemently opposed to both crony capitalism and overzealous central planning. We have allowed the elite to control both government and commerce, strangling the true free market. Big companies get the regulations they want, while pretending to oppose them. It costs pennies per customer for McDonald's to comply with laws regulating nutritional disclosures, but that same law costs dollars p…

Yes, I'm a Union Member, But...

I have several broader topics on the "to-do" list for this blog, but this week a colleague's observation reminded me that too many people see issues from stark, all-or-nothing, positions.

Since joining the faculty at a private, non-profit, university, I've been publicly stating that the union isn't starting its negotiations for a new three-year contract from a position of power and authority. That bothers me.

"How can you be in a union? You've detailed union corruption, negative effects on employment, and complained about public employee unions. I thought you hated unions?"

I do not "hate" all unions. I dislike many unions, definitely, primarily because of their leadership. But that does not mean that I am opposed to all unions. If anything, I want to reform unions and help guide change to make them relevant. Unions, as they are, represent the past — a romanticized past that often overlooks the problems of unions.

I am opposed to the roman…

Pres. Obama and 'Unexpectedly' Useless Economists

This week, a CNN/Opinion Research poll found only 43 percent of potential voters favor Obama's jobs plan. That means 57 percent aren't convinced this plan will do much. In another poll, 51 percent of likely voters said the plan was likely to have no effect on unemployment.

"But… but… but…" the President's people stammer. "Economists like Moody's Analytics Chief Economist Mark Zandi says it will create 1.9 million jobs!"

That's the problem. The public is starting to realize that economists are "unexpectedly" useless when it comes to forecasting the economy. If you want evidence, do a search on the word "unexpectedly" and any combination of "unemployment," "housing," "prices," "wages," or "inflation."

Today's top story on CNBC:
The weekly jobless claims number, which is closely watched as an indicator for employment trends, unexpectedly rose 11,000 to 428,000, well ahead o…

The Myth of the Multiplier - Reason Magazine

I have written in the past that I doubt the "multiplier" effect some economists and politicians cite when promoting federal spending. I believe this column makes several good points:
The Myth of the Multiplier - Reason Magazine

There are "indirect" multipliers, which I do believe are real — though not perfect. Money spent on roads and highways, for example, enables transportation of goods. The problem is, even spending on transit systems is seldom wisely managed.
Government is not efficient. Even what it should do, such as providing for the national defense, it does inefficiently. I admire the military, but it isn't efficient. Any "multiplier" effect from military spending is long, long term and often hard to quantify versus the waste.
NASA has created technologies that do provide economic benefits, certainly, but the NASA of today cannot even replace the space shuttle program in a timely fashion. The private contractors linked to NASA have develope…

Paul Krugman Is Still Wrong about Texas - By Kevin D. Williamson - Exchequer - National Review Online

Paul Krugman Is Still Wrong about Texas - By Kevin D. Williamson - Exchequer - National Review Online

Kevin D. Williamson, deputy managing editor of National Review, makes several points I have been making to individuals when they suggest that the Texas economy is either "dumb luck" or simply an illusion. Left-leaning commentators, and I include Paul Krugman in that category (he long ago surrendered his economics qualifications, as I've explained in previous posts), are avoiding serious comparisons of economic models across various states. The right is no better, but I used to expect better statistical analyses from Krugman.

What, indeed, does population growth have to do with job growth? Professor Krugman is half correct here — but intentionally only half correct: A booming population leads to growth in jobs. But there is another half to that equation: A booming economy, and the jobs that go with it, leads to population growth. Texas has added millions of people and mill…

Been Away, But Soon Blogging Again

My blogs have been inactive for a few weeks while I have been in the process of moving from the Midwest to one of the Original Thirteen. I apologize, but Internet access has been unpredictable at best and blogging on the road proved too difficult to maintain.

Thank you for understanding. It is interesting how reliant we are on Internet connections.

I will have new posts in the first week of August 2011.

Barbara Boxer’s blatant rewriting of history - The Fact Checker - The Washington Post

History is constantly rewritten and reinterpreted. Democrats and Republicans are both gifted at such rewrites. However, this isn't my rhetoric blog, this is an economics site. Let's take a look at the historical realities of claims by Democrats that the "Clinton Tax Rates" were responsible for boom times and a reduced annual deficit.

A quick note: We did not have a surplus under Pres. Clinton. We had a projected surplus over a decade, but no actual surplus. Budget gimmickry likely overstated the ten year total, too, since that assumes no disasters, wars, or recessions. Good luck living in that fantasy land.

For actual Clinton debt numbers, consider the following:

Yes, the deficit was almost eliminated in FY2000 (ending in September 2000 with a deficit of "only" $17.9 billion), but it never reached zero--let alone a positive surplus number. And Clinton's last budget proposal for FY2001, which ended in September 2001, generated a $133.29 billion deficit.
—…

When 'Rich' Isn't

Today, June 29, 2011, President Obama had a press conference to address the U.S. budget mess. During his opening statements and throughout the questioning, the president kept saying that "millionaires and billionaires" needed to pay their fair share. It's a favorite phrase of the president and one Andrew Ross Sorkin addressed earlier this year.

Pres. Obama might talk about the "wealthy" but he really means those with annual incomes over $250,000. Problem one with "wealthy" is that many wealthy, especially billionaires, don't have incomes. They earn capital gains and have investments, but they don't get weekly paychecks like the rest of us. Since we have an income tax, those can't be the men and women the president wants to tax. Problem two? The wealthy, at $250,000 a year, aren't all that wealthy in the cities where they are most likely to live.

Rich and Sort of RichMay 14, 2011By ANDREW ROSS SORKINHow did $250,000 become the magic numbe…