HOT LINKS 07-08-2010…(get them while they’re hot)

Okay, so I already failed in my attempt to link to a couple of good articles daily. That is never a good sign. I think I’m going to change up the format a little. I’m going to choose the top 3 articles I have read and go with that.

3. Tax Hikes and the 2011 Economic Collapse

Arthur Laffer- originator of the famous Laffer Curve– makes the case that the surprising amount of growth we’re seeing in 2010 is simply the result of individuals rationally shifting production, consumption, and investment from 2011 into 2010 because of the upcoming expiration of the Bush tax cuts next year. Because people react to incentives, the knowledge that next year the capital gains tax, for example, will go from %15 to 20% is making it likely that people are doing all they can to maximize their return this year before the tax cuts expire. Because of this, 2011 could be an especially bad year (bringing on that whole “double-dip recession” thing) as we see falling growth and growing unemployment thanks to the tax hikes.

2. The Education Debacle of the Decade

Bob Ewing gives us a perfect example of why public education (or, as I prefer, government education) isn’t really about education but, rather, about politics. The OSP (Opportunity Scholarship Program) gave Washington D.C. parents $7,500 each to send their children to any school they chose. The program is a resounding success and parents loved it. So what happens? The Teacher’s Union crushes it because it supposedly takes away money from public schools (which isn’t true, as explained in the article). Under markets- cooperation ensues. Under government- people vie for ways to use the state to push their agendas on everyone else.

1. Are Stimulus Skeptics Logically Incoherent?

Greg Mankiw responds to Paul Krugman on how the stimulus could actually be reducing aggregate demand in the near and long-term. Basically, the more the government borrows to spend, the higher future taxes have to be in the future. If future taxes are expected to be high, investment today looks a lot less inviting. Now, you may say this is contradictory to Laffer’s theory which says higher taxes in the future leads people to shift production into the near term in order to maximize the return now rather than in the future when the higher taxes are in effect. The careful distinction to make here, I think, is that higher taxes in the future lead to a shift in production and investment into the lower orders of the capital structure (to put it in Austrian terms). In other words, higher taxes in the future lead people to consume more now (which leads to an increase in output and higher profits), but businesses won’t be investing as much in long-term projects.

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