Category Archives: Tidbits

Tidbits…11/28/10

4. Here’s Why The Fed Plan Is Failing: We’re All Austrians Now

Amazingly, this article appeared on CNBC and, perhaps more amazingly, provides a pretty good summary of the Austrian theory of the business cycle (ATBC). It’s pretty simple, though, and leaves out a lot of the nuances inherent within the theory. But as far as mainstream exposure goes, it probably doesn’t get any better than this.

3. Europe’s New Contagion Worries

I have to say, this statistic literally shocked me:

Sean Egan, principal at independent debt rating firm Egan-Jones, points out that Ireland’s per capita debt has soared to about 135,000 euro, or about $180,000. That’s roughly five times the per capita debt level in the United States.

I mean, I knew Ireland’s total debt was bad, but putting it in per capita terms just makes it look that much nastier. Yeaaah, no problems here, right? Move along folks, nothing to see…

2. Our Puritanical Progressives

In today’s world it often seems as though political ideologies shift more than Heraclitus’ river. One second conservatives are crying for smaller government and the next they’re calling for more military spending. Liberals advocate marijuana legalization on the grounds that people should be free from legislating morality and then they turn around and advocate banning violent video games because it affects children. George Will gets it mainly correct when he says

The progressives’ agenda for improving everyone else varies but invariably involves the cult of expertise – an unflagging faith in the application of science to social reform.

1. Ireland Should Not Be Bailed Out

Ireland is, indeed, in a precarious situation. Something needs to be done, but not all of the proposed remedies are worth the cost. Some are better than others. Case in point: an IMF/EU bailout is probably worse than the disease. Certainly, it’s a bad deal for Irish citizens. The entire idea of a bailout is being fanatically pushed hard by certain EU members (namely, Germany, the UK, and France) because those three happen to be the largest creditors to Ireland. This isn’t about “saving Ireland” but, rather, about saving banks that voluntarily bought up Irish debt. Ireland should do what Iceland did: reject any bailout and let the chips fall where they will. Incidentally, Iceland is doing much better than Ireland at the moment.

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Tidbits…11/26/10

3. Corporate Profits Not Actually At Record High

Matthew Yglesias looks at the claim that corporate profits are at record highs and finds that the claim is not accurate. If one adjusts for inflation corporate profits are still below pre-recession levels. I think this is an important point to remember, if only to quiet the people who keep complaining that “PEOPLE ARE STARVING IN AMERICA WHILE CORPORATE PROFITS ARE AT THEIR HIGHEST LEVEL EVER!!!!” Yeah, that simply isn’t true.

2. Save the Dollar, Not the Fed

Good article that goes through a (very) short history of monetary theory and its relationship to the Federal Reserve. Prior to the 1970s the Fed had one job: price stability. However, with the onset of stagflation the Fed was given a dual mandate of price stability and full employment. Thanks to the “discovery” of the Phillips Curve, which posited an inverse relationship between inflation (which was seen to be caused by demand-side variables rather than primarily monetary policy) and unemployment. This gave the Federal Reserve a sort of theoretical justification for somehow maintaining a balance between skyrocketing prices and recessions. The author rightly points out that the empirical evidence for the Phillips Curve is questionable and, at any rate, the Fed has done an awful job of maintaining anything close to full employment and low inflation. Recent calls to remove the dual mandate and return to the original plan of solely focusing on price stability is misguided, the author claims, because the real problem is that the Fed cannot maintain price stability.

1. The Dual Over the Dual Mandate

This is an interesting article by Peter Schiff, and I think he gets it wrong (surprisingly, because he’s usually very good on monetary policy). He goes through a little history of the Fed just like the article mentioned above, but he comes to the conclusion that we should return to the days when the Fed only had one mandate, which was price stability. Now, I suppose as a policy of second best it would be better if the Fed was simply focusing on prices, but I think the first article gets it right that the Fed cannot achieve this and so we would be better off to simply get rid of the Fed. Schiff himself ends up making that case anyways when he writes

The real reason that prices rise, for both goods and wages, is that the Fed creates inflation.

How does the Fed create inflation? By increasing the quantity of money in the economy. If the Fed’s one tool- monetary policy- creates inflation, then how in the world is the Fed supposed to do anything? Price stability (which isn’t necessarily a good thing in and of itself) would seem to entail a Fed that literally did nothing, which is what Schiff should have advocated.

 

HOT LINKS 11/22/10…

Now that it is Thanksgiving break I find myself without much to do. So why not try blogging on a regular basis this week? I think I can handle that. I’ll begin this week with some articles I read this morning…

2. Obama Should Cut the Corporate Tax Rate

America has the highest corporate income tax in the world. Is this good for productivity? Not according to the OECD (Organization for Economic Cooperation and Development), which reported last year that the corporate income tax is the most damaging tax for long-run development (this may or may not be the original OECD study, but if not it looks close enough). America’s corporate income tax is 40% (that includes both State and Federal tax rates). The article nicely points out that since capital is relatively mobile, labor is going to end up taking the brunt of corporate tax rates. If you want to increase wages and productivity, lower tax rates.

1. The rapid declawing of the debt-ridden Celtic Tiger should spell the demise of supply-side economics—especially for Congress

Now, I may be misreading this article but it seems to me this fellow is mixing a few different points up. Basically, his main point is that Ireland was the supply-sider’s favorite example of success. Ireland cut its taxes, productivity surged, and everyone seemed happy. That is until it was revealed that it had some serious financial issues to deal with. So far so good. Nothing to quibble with here. So how did lower tax rates lead to Ireland’s financial instability? One would be tempted to say, “because they didn’t cut government spending along with the tax cuts,” but, according to his author, you would be very wrong. No, what led to all the problem’s was the deregulation during the late 90’s and early 2000’s that fueled the housing bubble which eventually collapsed into the world-wide recession we are experiencing today. Here’s where I am confused: What in the hell do lower-tax rates have to do with deregulation? They don’t necessarily imply one another. One can have lower tax rates AND sound regulation. In case the author didn’t notice, Ireland isn’t the only country that experienced a housing bubble, and amongst the countries that did, the regulatory schemes differed at times quite dramatically. The author tries to make the argument that lower tax rates ultimately led to the housing bubble and Ireland’s current financial predicaments. But I see no evidence for that. I haven’t really heard anyone arguing that lower tax rates led to the housing bubble anywhere. Most see it as either a failure of the regulatory systems in various countries, or foreign savings gluts, or central bank mischief, and so forth. Lower tax rates did not cause Ireland’s troubles.

 

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.

HOT LINKS 07-06-2010…(get them while they’re hot)

It’s quite popular these days to compile daily links from around the web…I mean, everyone’s doing it! From Tyler Cowen to Brad DeLong and so forth it is all the rage in the blogosphere. Because I’m such a sucker for peer pressure I’m going to try and link to a couple of articles I’ve read once a day. We’ll see how this goes…

As a limited theory of politics, libertarianism cannot answer these questions and thus really has little to say on its own about whether abortion should be legal or illegal.

If you torture people or eavesdrop on Americans without the warrants required by the criminal law, you receive Look-Forward Imperial Immunity.

That’s all for today. More coming tomorrow (and a few actual posts within the next few days).