American Gerontocracy

Generational Warfare In Our Time

Relocation – ConservativeLogic.com

We are broadening the scope of the site. The theme will remain conservative, and will continue to focus on an economics-centric view of why conservative policies are a superior choice for members of younger generations. But the site’s new name is Conservative Logic.

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March 29, 2009 Posted by | Uncategorized | Leave a comment

Even Krugman Thinks Geithner Is Wrong

Geither’s plan to address the mortgage crisis has been unveiled. And it’s (unsurprisingly) a disaster. The plan misdiagnoses the roots of the crisis, and proposes a plan that not only creates a tremendous moral hazard for potential investors in toxic mortgage assets, but also put the US taxpayer on the line as the backer of an open-ended government guarantee that will likely cost us trillions.

And who benefits? Hedge funds. They’ll swoop in, gamble on the toxic assets, make a killing if they are lucky, and if they aren’t the taxpayers foot the bill. A nice little payoff to certain major Democratic campaign supporters.

You know it’s bad when even liberal lapdog economists like Paul Krugman and and pseudo-economist hacks like James Galbraith weigh in against it.

Wall Street reaction won’t be kind, either. The Obama Administration needs to get this one straight. Meanwhile, a Congressional Sword of Damocles hangs over us all. With the AIG bonus debacle, this Congress has shown that it has no compunction about passing retroactive legislation, and is likely to want its own say in the resolution of the mortgage crisis. As long as government’s position remains unclear, markets will continue to remain paralyzed, and the broader economy will continue to suffer.

March 22, 2009 Posted by | Economy | 1 Comment

Disaster

I’m back.

It’s been almost a year since my last post. A lot has changed, personally and politically.

I have a new wife and a new mortgage. And my political philosophy — as documented on this blog — remains unchanged.

These things are good.

Obamais President. He has used the current economic downturn to grow government in historic and unprecedented ways, imposing policies that will inevitably result in greater burdens for the younger generation, and ultimately directly threaten the Amrican dream. I never thought it would get so bad so fast.

These things are bad.

In just over two months, between the TARP, the automotive bailout, the “stimulus” bill, and the bloated federal budget itself, Obama has increased the size of government spending by more than 30%. That’s more than George W. Bush spent in over eight years fighting the war in Iraq.

And there’s more. In addition to spending more, the government has printed money at an unprecedented rate. Here’s a quick look:

 

Money Supply

 

What does it mean? In short, it means that much, much more money is chasing a fixed quantity of goods and services.

Now, add this to the fact that the “stimulus” bill (plus, stimulus bill #2, coming soon!) — really a pork barrel of incredible proportions — will primarily start to impact the economy in 2010-2011, and we’re in for some serious problems. By that time, the economy will be on the upswing. The impact of additional government spending is likely to overheat the economy. Couple that to the money supply growth and we’re looking at the potential for extraordinary inflation, like we haven’t seen since the 1970s.

Welcome back, Carter years.

And by the way –guess who is paying for all this extra spending?

Not your parents. Not your grandparents. Not the 30%+ of the country that doesn’t pay taxes.

Yes — you guessed it. You are. Specifically, younger Americans. Because right now, we’re borrowing the money for all this government growth (primarily from the Chinese). Eventually, we’re going to have to pay it back. This won’t happen for years…. And by that time, the political leadership and the generation that incurred the debt will be comfortably retired, paying minimal taxes (actually, paying ZERO taxes, if Obama fulfills his campaign promises). The burden will fall on you. And it’s going to be crushing.

How do I know this?

You see, we’re racking up so much debt that even the “rich” won’t be able to cover the costs of paying it back. Right now, the top 5% of income earners in the US pay about 60% of all US income taxes. Even if we tax 100% of their income, at some point they can’t pay enough to fund the government. Then the tax man comes for you.

And by the way, taxing 100% of income over, say, $250,000 (Obama’s typical “rich” bogey) will basically shut down small business — and shut down the economy in turn. Why? Because most small businesses are set up as S-corps. If you raise individual income taxes, you effectively raise taxes on small business, which generates most of the growth (and employment) in our economy. Eliminate their profits, you eliminate their ability to invest in growing their businesses. Which effectively rips the heart out of our economy.

This is an epic economic disaster in the making, unfolding before our eyes.

Add to that Obama’s moves to increase protectionism, to add another effective tax on industry by imposing cap-and-trade (which incidentally, will also increase inflationary pressure), not to mention Congress’ apparent willingness to legislate bills of attainder to target high earners (bonus earners at companies that have accepted TARP money) and you have a situation where government is basically declaring war on business. Seriously.

But what about my “American Dream”?

Think about it for a second. Some day, you want to become rich, don’t you? But to grow your wealth, you’re going to need to make over $250,000 at some point. But how can you do this if the government is taxing away everything you earn above that level? Marginal taxes for people making north of $250,000 can already be well over 60% when factoring in state, local, city, federal, and other government taxes and fees. They’ll continue to rise as the need to repay the debt becomes more urgent, and as the size of government continues to swell as entitlement programs grow and metastasize.

What we’re looking at here is the end of the American dream. And above it all hovers the threat of inflation, which (if you’re not smart) will destroy what little wealth you’ve managed to create.

Tactical solutions

So, what can you do about it?

From a purely tactical standpoint, if you have any wealth or savings, don’t leave it exposed to inflation. Invest in assets that have constant real value if inflation hits.

It’s also a great time to borrow big, believe it or not. Interest rates are at an historic low. So now is a actually a good time to get a mortgage, assuming you’re in for the long term and can wait out any short term depreciation in property value. Borrowing at 5% when inflation is running rampant is a great trade if you can make it.

More later

More on all of these things later. There is a lot going on…. Too much for a single blog post. But keep one thing in mind:

Our government wants us to be afraid right now. That’s how they are selling their tonic of unprecedented govenment growth and intervention in the private sector. But if economic history tells us anything, it’s that recovery happens quickly after markets fail. That’s the entire economic history of the 19th century, and most of the 20th. Most economic collapses correct themselves within a year or two. That’s the dynamism of capitalism. The exception, of course, is the Great Depression — where government intervention prolonged the economic downturn.

Despite govenment policies that have the effect of undermining confidence in markets, creating uncertainty around the future role and burden of government on business, not to mention rewarding failure by sustaining business models that don’t work, I suspect we’ll be coming out of this economic downturn within twelve months. But we need to be concerned about what comes next.

March 22, 2009 Posted by | Obama, Taxes | Leave a comment

Happy Belated 4th

Yes, it’s rough out there. Fuel prices and a sluggish economy are hurting us all. But by any reasonable historical standard, Americans are doing okay right now. This 4th, we should keep in mind that the thing that makes America great — Americans themselves, their spirit, their hopes, dreams, optimism, inventiveness — is still intact. Together, I’m pretty sure there aren’t many problems we can’t solve.

In the meantime, we should continue to look to the future, stay positive, and try not to lose perspective about how fortunate we are.

On this troubled Fourth we still should remember this is not 1776 when New York was in British hands and Americans in retreat across the state. It is not 1814 when the British burned Washington and the entire system of national credit collapsed — or July 4, 1864 when Americans awoke to news that 8,000 Americans had just been killed at Gettysburg.

We are not in 1932 when unemployment was still over 20 percent of the work force, and industrial production was less than half of what it had been just three years earlier, or July, 1942, when tens of thousands of American were dying in convoys and B-17s, and on islands of the Pacific in an existential war against Germany, Japan, and Italy.

Thank God it is not mid-summer 1950, when Seoul was overrun and arriving American troops were overwhelmed by Communist forces as they rushed in to save a crumbling South Korea. We are not in 1968 when the country was torn apart by the Tet Offensive, the assassinations of Martin Luther King Jr. and Robert Kennedy, and the riots at the Democratic convention in Chicago. And we are not even in the waning days of 1979, a year in which the American embassy was seized in Tehran and hostages taken, the Soviets were invading Afghanistan, thousands were still being murdered in Cambodia, Communism was on the march in Central America, and our president was blaming our near 6-percent unemployment, 8-percent inflation, 15-percent interest rates, and weakening international profile on our own collective “malaise.”

July 12, 2008 Posted by | Uncategorized | Leave a comment

Lightning Round II

Smaller Government Delivers Better Results

This has, of course, been discussed before on this blog. But this article hits hard on the issue. In it, the author, Keith Marsden, summarizes the results of his landmark study comparing twenty similar nations — 10 low tax, small government states and 10 higher tax large government states over the past two decades. The conclusions are fascinating. Not only has economic performance been superior in small government states, but also:

“Slimmer-government countries also delivered more rapid social progress in some areas. They have, on average, higher annual employment growth rates (1.7% compared to 0.9% from 1995-2005). Their youth unemployment rates have been lower for both males and females since 2000. The discretionary income of households rose faster in the first group. This allowed their real consumption to increase by 4.1% annually from 2000-2005, up from 2.8% in 1990-2000. In the bigger-government group, the growth of household consumption has slowed to a 1.3% average annual rate, from 2.1% during the 1990-2000 period.

Faster economic growth in the first group also generated a more rapid increase in government revenue, despite (or rather, because of, supply-siders suggest) lower overall tax burdens.

Slimmer-government countries seem to have made better use of their smaller health resources. Total spending on health programs reached 9.5% of GDP in the bigger government group in 2004, 1.6 percentage points above the average in the slimmer-government group. Yet slimmer-government countries have raised their average life expectancy at birth at a faster pacer since 1990, reaching an average level of 78 years in 2005, just one year below the average for bigger spenders. Average life expectancy is now 80 years in Singapore, although government and private health programs combined cost only 3.7% of its GDP.

Finally, spending by bigger governments on social benefits (such as unemployment and disability benefits, housing allowances and state pensions) was higher (20.3% of GDP in 2006) than that of slimmer governments (9.6%). But these transfers do not appear to have resulted in greater equality in the distribution of income. The Gini index measuring income distribution is similar for both groups.”

More confirmation for a primary thesis of this blog – that the best way to address social issues is to grow the economic pie, not to increase taxes and burn money on social programs that have a poor track record of efficient results.

The Real Story Behind Iraq

Here is a very good summary history of the drivers behind the invasion of Iraq. The conventional wisdom, of course, is that the Bush Administration dragged the country into the war. This article reveals a more complex truth, including some interesting commentary from certain individuals along the way who now behave as if they opposed the war from the beginning:

“Saddam Hussein must not be allowed to threaten his neighbors or the world with nuclear arms, poison gas, or biological weapons. . . . Other countries possess weapons of mass destruction and ballistic missiles. With Saddam, there is one big difference: he has used them. Not once, but repeatedly. . . . I have no doubt today that, left unchecked, Saddam Hussein will use these terrible weapons again.” – Bill Clinton

Bill Clinton of course also was the first to refer to Iraq as a member of an “unholy axis” of rogue nations…. Years before Bush issued his much ridiculed “axis of evil” characterization.

What did Al Gore think?

“You allow someone like Saddam Hussein to get nuclear weapons, ballistic missiles, chemical weapons, biological weapons. How many people is he going to kill with such weapons? . . . We are not going to allow him to succeed.” – Al Gore

Or how about this gem from Hillary Clinton:

“Every nation has to be either for us, or against us. Those who harbor terrorists, or who finance them, are going to pay a price.” — Hillary Clinton

Again, despite the fact that Bush has been widely derided by the left for his supposedly simplistic absolutism, it looks like he was in pretty good company at the time.

WMDs, terrorist connections, international consensus…. This article does a good job assessing the political reality behind Iraq in the years before the war – before Iraq became a partisan issue. The article concludes:

“To judge by his unequivocal pronouncements pre-2003, and as improbable as it sounds now, that someone might well have been Al Gore, the erstwhile hawkish Vice President who had championed the Iraq Liberation Act, or indeed John Kerry, who back in 1998 told Scott Ritter that containment of Saddam was not working and that the time had come to use force. If Bush had failed to act, either one of these two men might have come to office in January 2005 publicly prepared to deal with the “gathering threat” that his predecessor had unaccountably allowed to grow larger and closer and ever more virulent.”

Next Up…. Oil!

My next post – oil and energy, and why partisan stupidity has prevented America from achieving energy independence.

June 30, 2008 Posted by | Uncategorized | Leave a comment

Lightning Round

I’m way behind on posting, so here is the lightning round – articles and commentary that I’ve run across that raise interesting and relevant insight – moving past the sound bites and obfuscation, and directly addressing the realities of today’s economy, foreign policy, war, etc.

The Productivity Revolution

This excellent article from the Wall Street Journal shows why protecting manufacturing jobs is not good policy, and why the disruptions that losing these jobs cause is a natural consequence of increasing American productivity.

Manufacturing versus productivity

“Look at the chart nearby. America’s manufacturing output, as measured by the Federal Reserve, is up seven-fold since 1950, but manufacturing jobs as a share of all jobs have fallen to 10% from 30%. Your grandfather and father may have worked for General Motors (and joined the UAW), but it’s likely that you don’t and won’t.

The problem, if it really is one, is not foreign competition or evil financiers. It is technology and productivity. In the 10 years ending in 2007, durable goods manufacturing productivity averaged an annual growth rate of 4.8%. In other words, if real growth is less than 4.8%, the sector needs fewer workers year after year.

For the economy as a whole, overall U.S. business productivity rose 2.7% at an average annual rate during the decade ending in 2007, 1.7% in the decade ending in 1997 and 1.4% in the 10 years through 1987. Change is everywhere, and it’s accelerating.”

Death by Entitlement

“Last month, the Congressional Budget Office (CBO) analyzed the growth of government spending and deficits for Rep. Paul Ryan (R.-Wis.), ranking member of the Budget Committee. The report estimated that spending on Medicare, Medicaid and Social Security, which in 2007 represented about 8 percent of GDP, would balloon to 14.5 percent in 2030 and 25.7 percent in 2082.

There is no way that can fly.

If you add in all other spending, including interest on the debt, federal spending under the CBO’s scenario would eat up an astounding 75.4 percent of GDP in 2084.

If taxes don’t keep pace, the CBO says the “additional spending will eventually cause future budget deficits to become unsustainable …”

And if taxes were to keep pace? The CBO says, “[T]ax rates would have to more than double.”

Here’s the source.

So guess who gets to pay the taxes to pay for these burgeoning entitlements? Younger generations of Americans, of course. These programs will fund the retirement and healthcare of older Americans. The taxes to fund them represent such a significant increase that they will be lifestyle-altering for millions of Americans. And still, Washington is intent to maintain the status quo, or even expand, these programs.

June 30, 2008 Posted by | Uncategorized | Leave a comment

Prioritizing the World’s Problems

Younger Americans tend to look at the problems of the world and demand solutions. This desire for change and progress is a significant contributor to their political philosophy and political choices.

But we only have limited resources to solve those problems. In a world where reality constrains our ability to drive change, how do we reconcile our policy initiatives with resource constraints?

This article suggests a way — simple cost / benefit analysis — with fascinating implications for real policy.

The pain caused by the global food crisis has led many people to belatedly realize that we have prioritized growing crops to feed cars instead of people. That is only a small part of the real problem.

This crisis demonstrates what happens when we focus doggedly on one specific – and inefficient – solution to one particular global challenge. A reduction in carbon emissions has become an end in itself. The fortune spent on this exercise could achieve an astounding amount of good in areas that we hear a lot less about.

Research for the Copenhagen Consensus, in which Nobel laureate economists analyze new research about the costs and benefits of different solutions to world problems, shows that just $60 million spent on providing Vitamin A capsules and therapeutic Zinc supplements for under-2-year-olds would reach 80% of the infants in Sub-Saharan Africa and South Asia, with annual economic benefits (from lower mortality and improved health) of more than $1 billion. That means doing $17 worth of good for each dollar spent. Spending $1 billion on tuberculosis would avert an astonishing one million deaths, with annual benefits adding up to $30 billion. This gives $30 back on the dollar.

Heart disease represents more than a quarter of the death toll in poor countries. Developed nations treat acute heart attacks with inexpensive drugs. Spending $200 million getting these cheap drugs to poor countries would avert 300,000 deaths in a year.

A dollar spent on heart disease in a developing nation will achieve $25 worth of good. Contrast that to Operation Enduring Freedom, which Copenhagen Consensus research found in the two years after 2001 returned 9 cents for each dollar spent. Or with the 90 cents Copenhagen Consensus research shows is returned for every $1 spent on carbon mitigation policies.

May 24, 2008 Posted by | Uncategorized | Leave a comment

The Bottom Line on Tax Policy

As I’ve pointed out before on this blog, there’s a gap between economic interest and voting patterns of younger Americans. I believe that much of this gap is explained by the fact that many younger Americans haven’t been taught the basics of economics. Obviously, this comes into play as we consider tax policy.

This recent article in the Wall Street Journal presents some pretty revolutionary and indisputable facts about tax policy in this country:

The interactions among the myriad participants in a tax system are as impossible to unravel as are those of the molecules in a gas, and the effects of tax policies are speculative and highly contentious. Will increasing tax rates on the rich increase revenues, as Barack Obama hopes, or hold back the economy, as John McCain fears? Or both?

Mr. Hauser uncovered the means to answer these questions definitively. On this page in 1993, he stated that “No matter what the tax rates have been, in postwar America tax revenues have remained at about 19.5% of GDP.” What a pity that his discovery has not been more widely disseminated.

 

Hauser's Law

 

The chart nearby, updating the evidence to 2007, confirms Hauser’s Law. The federal tax “yield” (revenues divided by GDP) has remained close to 19.5%, even as the top tax bracket was brought down from 91% to the present 35%. This is what scientists call an “independence theorem,” and it cuts the Gordian Knot of tax policy debate.

The data show that the tax yield has been independent of marginal tax rates over this period, but tax revenue is directly proportional to GDP. So if we want to increase tax revenue, we need to increase GDP.

What happens if we instead raise tax rates? Economists of all persuasions accept that a tax rate hike will reduce GDP, in which case Hauser’s Law says it will also lower tax revenue. That’s a highly inconvenient truth for redistributive tax policy, and it flies in the face of deeply felt beliefs about social justice. It would surely be unpopular today with those presidential candidates who plan to raise tax rates on the rich – if they knew about it.

An amazing truth has been revealed by a simple analysis of the data. Raising taxes on the rich will not reduce our deficit or fund more social programs, because it’s revenue impact is negligible.

The only tax poicy that makes sense is one that encourages economic growth.

May 24, 2008 Posted by | Uncategorized | Leave a comment

I Love Massachusetts

Really, I do. It’s where I grew up. And Boston has got to be one of the best, if not THE best, city in the country.

But Massachusetts has a bad habit of electing corrupt, incompetent government. From $200 million high schools to release programs for felons who go on to rape children and kill cops, Massachusetts is all about governmental irresponsibility via well intentioned but misguided liberal policies.

I am in MA visiting right now. Last night I ran smack into a prime example of corruption and incompetence and I figured I would blog about it.

Last night I was driving north up I-93 into Boston. For those of you who don’t know Boston, I-93 is one of the two main highways into the city along with I-90. It’s a four lane highway both ways and feeds directly into the Big Dig. Anyway, the geniuses in our state government decided to block off two lanes north (into Boston) for “paving” for about (literally) 10 miles. This caused a massive traffic jam at 9 o’clock on a Saturday night, which I was privileged to sit in for 45 minutes.

(In green terms, that’s a lot of wasted gas and unnecessary emissions. For you economists out there, think of the opportunity cost to the economy (time wasted) of that traffic jam.)

The kicker with this particlar construction project was that, of course, there was no actual paving going on. Not one construction vehicle was even on site across the entire 10 miles, let alone actually paving anything.

That being said, every mile or so there was a state trooper parked with his lights flashing, on “detail” collecting overtime over whatever overtime they already collect on a Saturday night.

That’s corruption and incompetence for you.

This is what happens when you elect someone a candidate with no substance and clever rhetoric to chief executive office.

May 11, 2008 Posted by | Uncategorized | Leave a comment

The Economy, Stupid

We’ve all heard how bad it is.

But is it really?

And on Friday, after the most recent jobs report — which produced a much-smaller-than-expected decline in corporate payrolls, a huge 362,000 increase in the more entrepreneurial household survey (the best gain in five months), and a historically low 5 percent unemployment rate (4.95 percent, to be precise) — the president told reporters: “This economy is going to come on. I’m confident it will.”

We’re in the midst of the most widely predicted and heralded recession in history. Problem is, so far it’s a non-recession recession. Score one for President Bush. In an election year, it could be a big one.

First-quarter GDP growth came in at 0.6 percent. It wasn’t the widely predicted decline, and economists expect that number to be revised up. GDP growth for the fourth quarter of 2007 was also up slightly, while the prior two quarters averaged over 4 percent growth….

Interesting — isn’t it? — just how durable and resilient our low-tax, free-market, capitalist economy truly is. Hit by soaring food and energy prices, a bad housing downturn, and a Wall Street credit crunch, the economy continues to expand, albeit slowly.

The media and the Democrats would like us to believe the economy is a disaster. But our economy is cyclical by nature, and this downturn may not even be as lasting as most.

May 4, 2008 Posted by | Uncategorized | Leave a comment