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Archive for May, 2010

You don’t need to watch old Gunsmoke episodes if you want to travel into the past. Just read the latest Congressional Budget Office “research” claiming that Obama’s so-called stimulus “increased the number of full-time-equivalent jobs by 1.8 million to 4.1 million.” CBO’s analysis is a throwback to the widely discredited Keynesian theory that assumes you can enrich yourself by switching money from your left pocket to right pocket. For all intents and purposes, CBO wants us to believe their Keynesian model and ignore real world data. This is akin to the famous line attributed to Willie Nelson, who was caught with another woman by his wife and supposedly said, “Are you going to believe me or your lying eyes?”

Using its own Keynesian model, the White House last year said that wasting $800 billion was necessary to keep the unemployment rate from rising above 8 percent. Yet the joblessness rate quickly jumped to 10 percent and remains stubbornly high. We’ve already beaten this dead horse (here, here, here, here, and here), in part because the White House has embarrassed itself even further with silly attempts to find some way of turning a sow’s ear into a silk purse. This is why Obama Administration estimates have evolved from “jobs created” to “jobs saved” to “jobs financed.”

The CBO’s most recent “calculations” are just another version of the same economic alchemy. But don’t believe me. Buried at the end of the report is this passage, where CBO basically admits that its new “research” simply plugged new spending numbers into its Keynesian formula. This sounds absurd, and it is, but don’t forget that these are the same geniuses that predicted that a giant new healthcare entitlement would reduce long-run budget deficits.

CBO’s current estimates of the impact of ARRA on output and employment differ slightly from those presented in its February 2010 report primarily because the agency has revised its estimates of ARRA’s impact on federal spending on the basis of new information. Outlays resulting from ARRA in the first quarter of calendar year 2010 were higher than the amount that CBO projected in February 2010 in preparing its estimate of the law’s likely impact on output and employment, primarily because a larger-than-expected amount of refundable tax credits was disbursed in the first quarter rather than later in the year. That change makes the estimated impact of ARRA on output and employment in the first quarter slightly higher than what CBO projected in February.
http://www.cbo.gov/ftpdocs/115xx/doc11525/05-25-ARRA.pdf

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Ever wonder why unions care so much about the minimum wage when almost all union members get paid above that level? The answer is simply, but sleazy. As Walter Williams explains, they want to protect their high-pay status by increasing the cost of lower-skilled workers. For all intents and purposes, they are pricing poor people out of the job market:

Labor unions are the major supporters of increases in the minimum wage. Even though the overwhelming majority of their members earn multiples of the minimum wage, they spend millions upon millions lobbying for minimum wage increases. They do it because higher minimum wages protect their members from competition with low-skill, low-wage workers. Most other minimum wage supporters are decent people with a concern for low-wage workers, but their actions suffer from a misguided vision of how the world operates.
http://townhall.com/columnists/WalterEWilliams/2010/05/26/minimum_wage_cruelty_update

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Is there anything more despicable than a politician with personal (taxpayer-financed!) security guards who wants to prevent other people from having the right of self defense? Mayor Daley of Chicago is a good example of this strange species (scientific name: hypocratus sleazious). The priceless John Lott looks at the evidence from Jamaica to show the idiocy of gun control:

With Chicago’s Mayor Daley again claiming that a gun ban is necessary to keep Chicagoans safe, Jamaica and other countries with gun bans might teach Americans a lesson. …every instance we have data for shows that when a ban has been imposed, murder rates rise. …Jamaica wasn’t always the extremely violent country that it is today (see the figure here). Jamaica experienced large increases in murder rates since enacting a handgun bans in 1974. Since the gun ban, Jamaica’s murder rate has soared to become one of the highest in the world, currently at least double that of other Caribbean countries. …Just as Mexico’s President Calderon showed last week, it is always easy for politicians to blame crime on guns. The crime data in Jamaica shows the same thing as the crime data in Chicago and Washington have shown. It is the law-abiding
http://www.foxnews.com/opinion/2010/05/25/john-lott-kingston-jamaica-murder-gun-ban-violence-chicago-washington/

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When even the New York Times is writing articles about the collapse of the European welfare state, you know that the political establishment is finally recognizing the writing on the wall. Recognizing a problem and solving a problem, however, are two different things. They need to use an axe on their budgets, but the examples below indicate a scalpel is being wielded instead. The key thing to look for is whether government spending in the future is consuming a larger or smaller share of economic output (GDP), and I sadly expect the burden of government spending in Europe to grow:

The deficit crisis that threatens the euro has also undermined the sustainability of the European standard of social welfare, built by left-leaning governments since the end of World War II. Europeans have boasted about their social model, with its generous vacations and early retirements, its national health care systems and extensive welfare benefits, contrasting it with the comparative harshness of American capitalism. Europeans have benefited from low military spending, protected by NATO and the American nuclear umbrella. …But all over Europe governments with big budgets, falling tax revenues and aging populations are experiencing rising deficits, with more bad news ahead. With low growth, low birthrates and longer life expectancies, Europe can no longer afford its comfortable lifestyle…. The countries are trying to reassure investors by cutting salaries, raising legal retirement ages, increasing work hours and reducing health benefits and pensions…. The reaction so far to government efforts to cut spending has been pessimism and anger, with an understanding that the current system is unsustainable. In Athens, Aris Iordanidis, 25, an economics graduate working in a bookstore, resents paying high taxes to finance Greece’s bloated state sector and its employees. “They sit there for years drinking coffee and chatting on the telephone and then retire at 50 with nice fat pensions,” he said. “As for us, the way things are going we’ll have to work until we’re 70.” …the region lacks competitiveness in world markets. According to the European Commission, by 2050 the percentage of Europeans older than 65 will nearly double. In the 1950s there were seven workers for every retiree in advanced economies. By 2050, the ratio in the European Union will drop to 1.3 to 1. …Figures show the severity of the problem. Gross public social expenditures in the European Union increased from 16 percent of gross domestic product in 1980 to 21 percent in 2005, compared with 15.9 percent in the United States. In France, the figure now is 31 percent, the highest in Europe… The challenge is particularly daunting in France, which has done less to reduce the state’s obligations than some of its neighbors. …The legal retirement age in France is 60, while Germany recently raised it to 67 for those born after 1963. With the retirement of the baby boomers, the number of pensioners will rise 47 percent in France between now and 2050, while the number under 60 will remain stagnant. …President Nicolas Sarkozy has vowed to pass major pension reform this year. …the government, afraid to lower pensions, wants to increase taxes on high salaries and increase the years of work. …while most French see a pension overhaul as necessary, up to 60 percent say working past 60 is not the answer….”This will have to be harmonized, Europeanized, or it won’t work – you can’t have a pension at 67 here and 55 in Greece,” Mr. Fischer said.The problems are even more acute in the “new democracies” of the euro zone – Greece, Portugal and Spain – that embraced European democratic ideals and that Europe embraced for political reasons in the postwar era, perhaps before their economies were ready. They have built lavish state systems on the back of the euro, but now must change. Under threat of default, Greece has frozen pensions for three years and drafted a bill to raise the legal retirement age to 65. Greece froze public-sector pay and trimmed benefits for state employees, including a bonus two months of salary. Portugal has cut 5 percent from the salaries of senior public employees and politicians and increased taxes, while canceling big projects; Spain is cutting civil service salaries by 5 percent and freezing pay in 2011 while also chopping public projects. …In Athens, Mr. Iordanidis, the graduate who makes 800 euros a month in a bookstore, said he saw one possible upside. “It could be a chance to overhaul the whole rancid system,” he said, “and create a state that actually works.”
http://www.nytimes.com/2010/05/23/world/europe/23europe.html

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Americans should not get too smug about the troubles in Europe because the Bush-Obama policies of wasteful spending are bringing us down the same path. The latest evidence comes from a well-researched article about personal income in USA Today showing that the share from private paychecks fell to a record low and the share from government handouts reached a record high. As Veronique de Rugy of the Mercatus Center points out in her quote, this is the pattern that led to fiscal disaster in Greece:

Paychecks from private business shrank to their smallest share of personal income in U.S. history during the first quarter of this year, a USA TODAY analysis of government data finds. At the same time, government-provided benefits — from Social Security, unemployment insurance, food stamps and other programs — rose to a record high during the first three months of 2010. …The result is a major shift in the source of personal income from private wages to government programs. The trend is not sustainable, says University of Michigan economist Donald Grimes. Reason: The federal government depends on private wages to generate income taxes to pay for its ever-more-expensive programs. Government-generated income is taxed at lower rates or not at all, he says. “This is really important,” Grimes says. …Economist Veronique de Rugy of the free-market Mercatus Center at George Mason University says the riots in Greece over cutting benefits to close a huge budget deficit are a warning about unsustainable income programs. Economist David Henderson of the conservative Hoover Institution says a shift from private wages to government benefits saps the economy of dynamism. “People are paid for being rather than for producing,” he says.
http://www.usatoday.com/money/economy/income/2010-05-24-income-shifts-from-private-sector_N.htm

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Governments that tax work and subsidize sloth are committing a form of slow-motion suicide, and the Greek fiscal crisis is the canary in the coal mine of this phenomenon. Interestingly, some European governments are trying to halt the downward slide, though I suspect that most of them will fail to take the necessary steps. But it’s nonetheless good news that this is getting coverage since it is equally important that the United States learn the right lessons so we can reverse the reckless big-government policies of the Bush-Obama years. Here’s an excerpt from a thorough AP story:

…the welfare state — cherished by many Europeans as an alternative to what they see as dog-eat-dog American capitalism — is coming under its most serious threat in decades: Europe’s sovereign debt crisis. Deep budget cuts are under way across Europe. Although the first round is focused mostly on government payrolls — the least politically explosive target — welfare benefits are looking increasingly vulnerable. “The current welfare state is unaffordable,” said Uri Dadush, director of the Carnegie Endowment’s International Economics Program. …”We have to adjust our social security systems in a way that they motivate people to accept regular work and do not give counterproductive incentives,” German Finance Minister Wolfgang Schaeuble told news weekly Frankfurter Allgemeine Sonntagszeitung on Saturday. …Demographers and economists began warning decades ago that social welfare was doomed by the aging of Europe’s baby boomers. Some governments had been trimming and reforming, but now almost all are scrambling to close deficits in order to prevent a wider collapse of confidence in the euro. The [British] government has promised to raise the age at which citizens receive a state pension — up from 60 to 65 for women, and from 65 to 66 for men. It also plans to toughen the welfare regime, requiring the unemployed to try to find jobs in order to collect benefits. …Ministers are reviewing the long-term affordability of the country’s generous public sector pensions. …France’s conservative government is focusing on raising the retirement age. Many workers can now retire at 60 with 50 percent of their average salary. …Unions in France are organizing a national day of protest marches and strikes on Thursday to demand protection of wages and the retirement age. [Spain] has proposed hiking the retirement age for men from 65 to 67. …After sharp cutbacks imposed as the condition of an international bailout this month, Greeks must now contribute to pension funds for 40 instead of 37 years before retiring, and the age of early retirement is set to 60 at the earliest. Civil servants with monthly salaries of above 3,000 euros ($3,750) will lose two extra months of salary — one paid at Christmas, the other split between Easter and summer vacation.
http://news.yahoo.com/s/ap/20100523/ap_on_bi_ge/eu_europe_financial_crisis_welfare_state

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I have a question for my friends who support a national sales tax. First, some background. Beginning with the defeat of Woody Jenkins in his Louisiana Senate race back in the 1990s, various versions of the national sales tax have caused political headaches for GOP candidates. Even candidates from conservative states, such as Sen. DeMint in South Carolina, have been put on the defensive because they said good things about the FairTax. The latest example comes from the Pennsylvania special election for Rep. Murtha’s seat. As this Wall Street Journal column points out, the winning Democratic candidate hammered the Republican because of his support for the FairTax. So even though I have said very nice things about a national sales tax, testified about the virtues of the national sales tax, and debated in favor of a national sales tax over the current system, I am increasingly convinced that the flat tax is the only plan that is sufficiently immune to demagoguery. Can anyone give me a persuasive argument about the political viability of the FairTax?

Democrats turned the table and ran against Mr. Burns on taxes. The GOP businessman had flirted in the past with supporting the FAIR tax, a version of a national sales tax that supporters want to replace the income tax. Mr. Critz’s ads blasted Mr. Burns for supporting a 23% sales tax increase without mentioning the income tax elimination, and the GOP seems to have been caught flat-footed. Republicans can rightly complain that this is unfair and that Mr. Critz will vote to raise taxes when Mrs. Pelosi gives the order. But they need a real-time campaign answer to the tax-hike charge. Whatever the merits of the FAIR tax in theory, we’ve long thought it is a political loser because voters figure they’ll get the sales tax without losing the income tax. At a minimum, FAIR tax supporters shouldn’t have left Mr. Burns defenseless on the subject. By the way, this is also a political warning to Republicans inclined to fall for the Democratic trap of agreeing to a new value-added tax in return for lower income-tax rates.
http://online.wsj.com/article/SB10001424052748703691804575254181251201818.html

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