Almost Classical

I agree with this analysis, which was featured on CNBC. The stock market is in a bubble. Witness the differences between Apple and Amazon: Apple beats projections and the stock falls, Amazon misses earnings targets and by some strange logic of "improving margins" rises. We are witnessing institutional investors moving from bonds globally into equities (stocks). The casual investor ("retail investor") is also moving back into the market. Sounds a lot like 1999 and 2007. In the period from 1999 to 2003 or so, the Fed lowered rates and created liquidity. That masked some underlying issues -- not the least of which is governmental debts at the local, state, and federal level. Investors seek returns, and money in a low-interest economy moves to either bond price gaming or equities. Stocks and commodities rise as the dollar falls: inflationary, in Austrian/Chicago terms, not the same as consumer inflation (a point I've made several times, since Paul Krugman and othe...

I'm going to admit to contradictory positions: 1) If in Congress, I would vote against raising the debt ceiling. 2) I consider the debt ceiling an incredibly stupid concept. First, I would vote against raising the debt ceiling because it is one of the few ways to force cuts to the rate of growth  in government. In Washington, seldom are "cuts" genuine reductions in spending; cuts are reductions to projected increases in spending. Baseline budgeting is reckless — in households, business, or government. Imagine basing your spending for 2014 based on 2013 + a hoped-for raise. Baseline budgets assume population growth, inflation, increased revenues, and more. The calculations are prone to error. Consider how easy it is for baselines to go awry. An increase in interest rates leads to higher debt maintenance costs, leads to decreased available revenues. A recession leads to lower tax receipts, and less revenues, while it might also increase demands for some services. You ...

This is fairly revealing of how things work: Barack Obama’s new ‘grass-roots’ group isn't quite - Kenneth P. Vogel and Tarini Parti and Byron Tau - POLITICO.com In its first days, Organizing for Action has closely affiliated itself with insider liberal organizations funded by mega-donors like George Soros and corporations such as Lockheed Martin, Citi and Duke Energy. … Dubbed the “Road Ahead” meeting, the conference was sponsored by a White House-allied trade association called Business Forward, which is funded by major corporations including Microsoft, Walmart and PG&E – each of which sent senior executives to participate in a panel on how to boost American economic competitiveness. Yep, change you can believe in, right?

Media chatter implies "the rich" are about to pay their "fair share" of taxes with the Fiscal Cliff agreement of early 2013. Such claims ignore reality, which is nothing new when it comes to media coverage of the intersection of economics and politics. First, "the rich" and the truly wealthy, those in the top half of one percent or so in personal net value, are unlikely to pay much more in federal taxes. Some might actually pay less with this agreement, depending on where and how they invest. How is this possible? The tax rate on earned income  is rising to 39.6% for households earning more than $450,000 annually ($400,000 for individuals). The new Medicare "supplemental" tax increase of 0.9 percent (which doesn't actually go to Medicare) is also based on household income  of $250,000 ($200,000 for individuals). But, what if your increases in personal wealth come from investing? Carried interest, dividends, and other wealth streams a...

The Inaugural Address reveals a lot about Pres. Obama. President Obama’s Second Inaugural Address - Washington Wire - WSJ :  Through it all, we have never relinquished our skepticism of central authority, nor have we succumbed to the fiction that all society’s ills can be cured through government alone. Our celebration of initiative and enterprise; our insistence on hard work and personal responsibility, are constants in our character. I wish I could believe he meant those words, but too often it seems Pres. Obama has faith in central planning, that bureaucrats do know best what is "right" for the rest of us. He is insufficiently skeptical of government, its expertise, and its power. The next section is more along the lines of "You didn't build that…" (a statement I and many others have explored in context of his full campaign speech). The president reminds us that "collectively" we stand. A false argument, since nobody is arguing against all gov...

This story only captures a small part of the new taxes households face in 2013. But, let us begin with this headline: Fiscal Cliff Deal Will Raise Taxes On 77 Percent Of Americans: Tax Policy Center Analysis By STEPHEN OHLEMACHER 01/02/13 07:49 AM ET EST Social Security is financed by a 12.4 percent tax on wages up to $113,700, with employers paying half and workers paying the other half. Obama and Congress reduced the share paid by workers from 6.2 percent to 4.2 percent for 2011 and 2012, saving a typical family about $1,000 a year. Obama pushed hard to enact the payroll tax cut for 2011 and to extend it through 2012. But it was never fully embraced by either party, and this time around, there was general agreement to let it expire. The new tax package would increase the income tax rate from 35 percent to 39.6 percent on income above $400,000 for individuals and $450,000 for married couples. Investment taxes would increase for people who fall in the new top tax bracket. H...

In the Austrian School of economic theory, government debt causes "inflation." That inflation might or might not result in higher consumer prices, which causes some confusion among politicians, pundits, and the public when they hear claims that governmental debt causes inflationary pressures. Reasonably, people assume inflation always means price increases. However, what the economists are describing is a bond market response to debt financing. As I am going to discuss in another post, Paul Krugman has abused the term "inflation" when discussing Austrian economic theory. As a professor, he certainly understands that Austrian/Chicago School theorists use the term inflation to mean any devaluation of fiscal reserves. Basically, dollars lose value because the bond market doesn't have faith in the government to behave responsibly. Bond markets are strange, powerful monsters. Upset the bond market and you'll find interest rates skyrocketing. Treat the bond ...

(This is Part Two of two. See Small Business for Part One) My previous post on the issue of taxes and small business focused on the nature of entrepreneurial risk and reward in our system. I do fear there is a tendency to punish success, viewing with suspicion those individuals who create and nurture businesses through rapid growth. Many people assume the worst of financially successful business owners, and that's ironic in a nation built on free market capitalism. A friend of mine recently commented that entertainers and athletes earning far more than most entrepreneurs seems to be excluded from such suspicions. Apparently, a $20 million film contract is okay, but earn $1 million running a business and we'll attribute the worst motives to you. President Obama and others have tried to use this public resentment and distrust of successful entrepreneurs by suggesting tax increases on "the rich" won't affect "small business" — because we all love sm...

Is higher education a good value? Is the education "worth it" for students destined for debt and uncertain job prospects? I often write about the value of a liberal arts foundation — but that doesn't mean that I believe the most promising career prospects are in the humanities. Students asking me will be told they should focus on science, technology, engineering, and math (STEM), while they also have to be selecting within the STEM fields. Not every science has great job prospects, but I can predict that English and art majors are going to face much bleaker prospects. My position isn't a contradiction; it is nuanced. If you are going to pursue a four-year degree it should have a solid foundation of liberal arts knowledge. This is because it is unlikely that graduates will remain in a single field throughout their professional lives. The humanities encourage creativity and critical analysis. But, the traditional university education isn't for everyone. Thoug...

The most popular (and unpopular) post on Almost Classical is on the 90 Percent Tax Rate Myth . In that post, I attempt to explain the obvious: When there was a 94% top rate in 1944-45, there were so many deductions and exclusions that the taxable income was not comparable to someone's entire income. First, the top rate started at $200,000, which today is equal to $2,413,059.90 — so the maximum EMTR would apply only to incomes of $2.5 million. But, that's still taxable income, not earned income.  In 1944, you could deduct business meals, all business travel, all forms of interest payments, and much more. You could even deduct spousal travel expenses on a business trip! (Why travel alone?) Companies could also "loan" or "provide" almost anything to an employee, from an apartment to standard benefits. It was possible to shelter tens of thousands of dollars from taxable income. Three-martini lunches and expense accounts were important realities, skewing tax ...

(Part One of Two) The most productive small businesses might be crushed as part of the "solution" to the "Fiscal Cliff" debates in Washington. For a year, our leaders have known the debt ceiling, sequestration, and other major economic nightmares — all self-inflicted wounds — were set to crash down upon us as the calendar changed. Raising taxes on "the rich" is a crusade for President Obama and many Democrats. Even more than a few Republicans have tacitly joined the march towards raising tax rates. I'd rather we simplify the tax system, before raising rates, but that's not the topic of this post. The president and some influential voices are dismissing the potential harm caused by narrowly focusing on "the rich" at a level that includes many small and growing businesses. Bloomberg News, of all places, published an editorial that conflates arguments about growing small businesses and small business in general. It is a rhetorical tr...