Paul Krugman is Super-SMRT, And Other Observations: a Long-Promised Fisking

His Krugman-ness in the NYT:

Mark Thoma sends us to the new Journal of Economic Perspectives paper(pdf) on optimal taxes by Peter Diamond and Emmanuel Saez. It’s a tough read (I’m still working on it myself), but there’s one discussion that I think helps make a useful point about current political debate.

Useful to whom?

In the first part of the paper, D&S analyze the optimal tax rate on top earners. And they argue that this should be the rate that maximizes the revenue collected from these top earners — full stop. Why? Because if you’re trying to maximize any sort of aggregate welfare measure, it’s clear that a marginal dollar of income makes very little difference to the welfare of the wealthy, as compared with the difference it makes to the welfare of the poor and middle class. So to a first approximation policy should soak the rich for the maximum amount — not out of envy or a desire to punish, but simply to raise as much money as possible for other purposes.

I was going to say "optimal for whom?" but Paulie K. kindly spells it out: the "optimal tax rate" is the optimal tax rate for the government. It maximizes the revenue of the state, and it's ability to engage in "other purposes." That phrase, however, is not so clear: what are these "other purposes"? How well are they performed? How well is that performance even measured? If the people decide that the government no longer needs to perform them, can they get their money back?

The New Depression is On, Y'all...

So sayeth Carl Weinberg, chief economist at High Frequency Economics, to CNBC (h/t: Ace):

“Our view is that unfunded guarantees are worthless. Raising resources to fund the EFSF and the associated SIV will require diverting savings – domestic European savings, for the most part, not Chinese savings, and not those kept on reserve at the IMF – from either domestic consumption or investment,” he said.Raising that money within the next year from European savers will have a major effect on jobs and incomes as output and demand drop sharply, according to Weinberg, who believes that Europe will be back in crisis sooner rather than later.“We predict a catastrophic contraction of GDP in Euroland in a combined monetary and real-economy event," he said. "The event we envision is much more akin to the Great Depression of the 1930’s than to any business cycle we have experienced in our lifetimes.”

And what happened after the Great Depression in Europe?

I say we let the Germans win this time. Help them out, if possible.

Bank of America: When Unintended Consequences are Ear-Splittingly Obvious

Consider the principle known as "blowback": that if you attack someone, you should reasonably expect that they will hit back. Thus, Machiavelli's dictum that if you must do an enemy an injury, do him one from which he will not recover.

Now, click over to Ace and read about why Bank of America is gouging me $5 a month for using a debit card.

What proggies consider obvious with regard to Islamic terrorists they consider a bizarre mystery with regard to American businesses.

But behold the Genius that is Barack Obama:

‘You don't have some inherent right just to – you know, get a certain amount of profit.

You don't? When you run a business you don't have the right to defray costs by charging value for service? Does this statement even have that level of thought?

The White House Censors Ford Ad

The Detroit Free News has the details: (h/t: Is This Blog On)

On the one hand, Ford is not anywhere near as squeaky clean as it like to present. From the article:

Ford did seek a line of credit from the feds, borrowed billions under a government program to "retool" its plants and effectively failed first. That's why it recruited a superstar CEO from Boeing Co. and gave him some $23 billion in borrowed money to save the Blue Oval from bankruptcy.
Or it would have taken the money, too.

So their reticence about taking the money was circumstantial, not principled. And to an extent, the White House feels like they made things easier for Ford, too.

On the other hand, screw the whole ugliness of this. The day a car company can't lash out against its competitors because the President doesn't like it is not a great day for liberty. Because after all, Ford still doesn't have GM's gubmint-gay-run-teed advantages:

There's no help from American taxpayers to help lighten its debt load, giving crosstown rivals comparatively better credit ratings and a financial edge Ford is working diligently to erase all on its own.
There's no clause barring a strike by hourly workers amid this fall's national contract talks with the United Auto Workers — a by-product of the taxpayer-financed bailout that General Motors Co. and Chrysler Group LLC retain until 2015.

Hmmm....the government legally disbarring a union from striking, to benefit a major corporation, for the "common good" of the whole country. There's a word for this...anyone, anyone?

Well When You Put it That Way, It Sounds Obvious

Glen Reynolds, riffing off the Chicago Tribune Solyndra Editorial:

“A nickel’s worth of business sense and a dime’s worth of caution might have saved Uncle Sam millions — and the Obama administration a heap of trouble.” Where are you going to find a nickel’s worth of business sense in an administration where there’s no private-sector experience?

The Keynesian Stimulus Ain't That Keynesian, or Keynes Was not a Moron.

From Reason, (h/t Ace)

If the federal government had a strong track record of responsible spending, it would mean one thing if it went into hock for a short period of time to goose the economy (again, whether this would work is open to question). It means something totally different when a government that spent all of the 21st century piling on debt and new, long-term entitlement programs responds to an economic downturn first by creating yet another gargantuan entitlement (Obamacare) and taking on even more debt in the here-and-now. This cuts in a Milton Friedmanesque, monetarist direction too. If the Federal Reserve had not been keeping money artificially cheap for the past couple of decades and it worked to lower interest rates and increase the availability of money in a given moment, that would mean one thing. Promising to keep rates low for the next couple of years - after years of loose money and statements that all those bubbles weren't bubbles at all - doesn't mean the same thing.

Insanity = Repetition + Expectation. RTWT

More on Tax Uncertainty

House Ways and Means Chairman Dave Camp has some testimonials underneath his creepy politician smile.

The Economy isn't Yours to Fix.

Now that the debt-ceiling kabuki is done, the usual suspects are huffing and chuffing about "the people's business." Observe this tidbit from RealClearPolitics (h/t Ace):

Outside Washington, constituents are clamoring about the economy -- or, as U.S. Rep. Jason Altmire, D-McCandless, interprets it: "Let us know when you guys are done with the bickering, so we can talk about fixing our economy."

Translation: Now that we've raised the debt limit, let's get to work spending the damn money stimmalating things, shall we? Campaign commercials don't write themselves.

This silly bastard doesn't care about the economy. The economy is nothing more than a source for talking points for him. The economy's in the shit because the Great Stimulus didn't work, just like it didn't work in the 1930's. Government doesn't put money into the economy, it takes money out, and when it's done feeding its own oxen, it flings some around haphazardly so it can put signs up that say "I' from the government and I'm here to help."

You want to get the economy going? It's simple...

1. Make the Bush tax cuts permanent. Tax uncertainty slows growth. Having this kabuki again does none of us any good.
2. Drop our corporate tax rates in half. Unless you WANT to give companies incentives to keep moving overseas.
3. In Fact, Reform the whole Damn Tax Code Already. What does the US Tax Code say? Whatever you can get a tax lawyer to make it say. The wealthy in this country already have the game rigged. A simplified tax code would reduce compliance costs on small businesses without ruining the hash of the bigger players.
4. Stop Getting in the Way of Energy Production. We need to drill for oil, coal, and natural gas if we want to have energy today. We need to get nuclear energy online quickly if we want to have energy tomorrow. Your wind farms and solar panels are cute, and harmless, I suppose, but they aren't a replacement for what works, and they never will be.
5. Let Things Take Their Natural Course. Recessions end. Depressions end. Businesses incapable of adapting to hard times end.  Other businesses batten down the hatches and ride out the bad times. They won't last forever unless we keep getting in the way of a recovery.

The economy isn't for Obama or the Congress to fix. In fact, the more they tinker with it, the more harm the will likely do.

Are We Going to Default?

Maybe.

If we do, will that suck?

Assuredley.

Am I panicking over it?

Oddly, I'm not.

There's a kind of cosmic justice to all of this, that our government is so fundamentally divided that it cannot agree on how to undo the mammoth debt we've accrued. America has been a house divided against itself for some time; with progressives hungrily constructing their Leviathan and conservatives desperately trying to find a magic bullet that will kill the beast. Eventually, so powerful a discord creates positions across which no bridge can span. Somebody's going to win; we're all going to lose.

It's a thing called hubris.

It's Still 2008.

Over at the City Journal (h/t: Ace), Nicole Gelinas argues that the recession has been prolonged because the cause of it has not been dealth with. To wit: the mortgage-backed toxic assets that 2007's Super SIV (Structured Investment Vehicle) and 2008's TARP are still there, and they're ready to wreak havoc as soon as the Fed tries to do anything with them:
That’s what started to happen just a few weeks ago, when the

Fed gingerly tried to declare victory. Because the central bank figured that markets were returning to health, it decided to sell some of its AIG-related securities. After the Fed made its move, an index that tracks this type of securities plummeted, after having doubled in the previous two years. The Fed panicked and made an unusual announcement that it wouldn’t try for sales again any time soon. The index then rose by double-digit percentage points.
These are not signs of a healthy financial market. Those toxic assets are still there, and they’re spreading their poison into the rest of the economy. Private businesses have no idea what will happen when the Fed pulls away all its support—or what will happen if the Fed doesn’t pull away its support. So companies hoard cash rather than create jobs. People, too, hoard cash. Stuck with the bubble’s hangover of private debt, they have no idea how they’re going to pay for their kids’ education or their own retirements. Even employed people without much debt are terrified that they’ll lose their jobs and won’t get new ones—so they don’t spend money, further depressing consumer spending and killing more jobs.

Obama's trillion-dollar Stimulus is utterly beside the point: it was merely the Illusion of Action, miles away from the actual source of the problem. Which means that he not only doubled-down on Bush's initial mistake, he added a new one. When the market isn't allowed to do its job, the market becomes bloated and stagnant.
Read the whole thing.

The Economy is Hosed.

Just let Vodkapundit tell it:

• 30% — federal debt held by public as percentage of GDP, 2005.
• 60% — federal debt held by public as percentage of GDP, 2010.
• 180% — federal debt held by public as percentage of GDP, CBO estimate, 2035.
• 0% — odds of current path being sustainable.

That's just the last part, so Read the Whole Thing, and when you're done giving Stephen Green a high-five for the obscure-but-amazingly-apt Douglas Adams reference, please remember just which feckless blowhard it was who found our financial house burning down and proceeded to throw napalm on it.

California Tries to Make Amazon to Collect Sales Taxes...

...Amazon says "No thanks."

It's like Sacramento has a Death Wish or something.

Carville's Razor

"Forget red and blue states in the next election. The real divide might be between fossil fuels states and the states still trying to break wind for their energy and economy."

That there's funny, I don't care how broke you are. Oh, and read the whole thing.

I Always Liked Lamar Alexander...

Niche tax breaks targeted; Senate kills ethanol credit

Alexander was instrumental in bringing this subsidy down. Quoth he:

“At a time when we are borrowing 40 cents out of every dollar that we spend, it is a good time to take a hard look at unwarranted tax breaks, and one appropriate use of those funds is to reduce the deficit,” Alexander said Thursday.
“I am looking at energy tax breaks. I am opposed to permanent subsidies for energy as a general matter. I am in favor of jumpstarting new technologies such as electric cars, helping the next few nuclear plants get off the ground, but I am opposed to, for example, a permanent ethanol subsidy and a permanent subsidy for windmills,” Alexander added.

If it needs a subsidy, then it doesn't work.

Obama: I Fixed the Economy, But It's Not My Fault.

Daily Caller:

“Recovering from that [Bush-era] body-blow will be uneven… there are going to be times where we are making progress, but people are still skittish and nervous and the markets get skittish and nervous, and so they pull back because they’re still thinking about the trauma of this two-and-a-half years ago,” he said.
Then he suggested the drama-seeking media has a negative role too.
“Economic data that in better times would pass without comment, now suddenly people wonder well are we going to go back to this terrible crisis and all that affects consumer confidence; it affects business confidence; it affects the federal markets,” he said.
However, the White House’s task is to rise above the daily drama, Obama said, as he returned to the standard themes of his stump speech.

The economy is all your fault, America. If you people would just stop losing your jobs, the economy would be fine. I mean, did you look in your other pants?

“And so our task is to not panic, not to overreact, to make sure that we’ve got a path forward as how we make our economies competitive, making sure that we are with dealing with the structural issues and basic fundamentals that will allow us to grow and create a good, sound business environment so America for example, the need for us to get a handle on our debt and our deficit is going to be important. Making sure that our investments in education and clean energy and infrastructure and how we are going to do that.”

That's right, we're not going to do something panicky and ill-thought, like spend a trillion dollars. We're going to do something forward-thinking and robust, which will help us get our debt under control, like spend another trillion dollars.

MSNBC's Lynn Mucken on High Gas Prices: Suck it Up, Proles.

This is a month old, but hardly past its Mock-By date, especially for this web site. Out come the Fisking Shears:

It's my new thing.

Target vs. Walmart

I'm a Target shopper, too; mostly out of convenience (our Target is closer), partially out of not wanting to overload my daily redneck quotient. I even pronounce it "Tar-zhey," de temps en temps, albeit not without some self-directed irony.

But I love the fact that Walmart exists. I love that you can by shotguns and ammo there. I love that it pisses off the terminally bourgeois. And I'm not above shopping there; when I lived in Southern Maryland I went to the Walmart frequently.

So huzzah to both of them. May their struggle for market share go on like Coke and Pepsi's.

I Would Like to Believe Pejman Yousefzadeh...

...that inflation isn't really a problem. I really really would. But when the article he links in support of this thesis offers the following bizzaritude, I can't:

The recent pace [of inflation] can't be sustained, but food and energy will continue to rise.

The hell? In what universe is a consistent rise in food and energy prices NOT inflation? Why on earth would anyone suppose that a rise in the thing that humans and their machines need daily will not drive up prices in other sectors?

It's a plumb good thang I kin dine on
squirrel pies and old shoes.

Trains Are For Nerds, Redux

George Will:

Washington, disdaining the decisions of Ohio and Wisconsin voters, replied that it will find states that will waste the money.
California will. Although prostrate from its own profligacy, it will sink tens of billions of its own taxpayers’ money in the 616-mile San Francisco–to–San Diego line. Supposedly 39 million people will eagerly pay much more than an airfare in order to travel slower.

Read the whole thing, and then marvel at how effortlessly George's arguments coincide with mine.

83 Cents on the Social Security Dollar? Where Do I Sign Up?

Alex Pollock has crafted a plan to un-screw Social Security so simple, straightforward, and obviously beneficial that there's a virtual guaruntee that Congress will never consider the measure. It begins with a sound statement of reality:

If a debt cannot be paid, it will not be paid—at least not paid in full.

Everyone who has ever declared bankruptcy or dealt with a credit counseling firm knows this to be true. There is a point where liabilities stretch beyond future earnings. We have either hit this point already or sailing in full-steam, damn-the-torpedoes mode towards it.

Here's the plan:

You could stay in Social Security as it is. Or you could elect to settle for 83 cents, paid in U.S. Treasury inflation-indexed bonds, which you would own outright. These bonds, with all future interest payments on them, would constitute true retirement savings, protected from inflation.⁶ In exchange, you would forego formula benefits equal to the value of the bonds you received divided by 0.83. You would have made up your own mind about the chances of such promised Social Security benefits actually being paid.

I'd take it in a New York minute. So would most people, and every time that happens, Uncle Sugar finds his liability decreased. The essence of trade: both sides benefit.

So what's to stop it from happening? The greed of politicians for control over the lives of its citizens; the hunger to be seen as the cornucopia from which all good things flow. Why, if people have their own assets, we don't need to save them from themselves! Then what the hell are we going to do?