Free Markets, Free People

Economics

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Tax on the rich? Boy it didn’t take long to spend that, did it?

Remember, this “tax fairness” was something which was going to solve our fiscal problems, if you listened to the left’s claim that is.  However, reality is fairly brutal and usually doesn’t much pay attention to rhetoric based in lies and stupidity.  Case in point:

Congress is poised to clear the final $50 billion chunk of emergency aid for Superstorm Sandy relief Monday — and in one vote, it will have used up all the new tax money President Obama won by raising rates on the wealthy in the “fiscal cliff” deal.

The “cliff” … well they’re busily engaged in trying to see if they can kick the can nearer the edge and, by the way, make the “cliff” a little higher while they do that by raising the debt limit … again.

Meanwhile, let’s talk about immigration, gun bans and whatever else our “leaders” can think of to distract us from this pending disaster.

‘Kay?

~McQ

Will we learn from Britain and France?

One of the more frustrating things I observe is our apparent unwillingness, as a country, to learn from the mistakes of other countries.  For instance, we’ve watched the effects of the welfare state in Europe and its fiscal impact, yet we continue down the same road toward the same cliff they’re now getting ready to go over.

More specifically, we’ve watched other countries raise taxes higher and higher and subsequently watched them lose their native talent.  France is in the process of doing that now.  And Britain?  Well, they’ve been suffering from it for a while:

Nick de Bois, secretary of the 1922 Committee of backbench MPs, said that Britain needs a “culture change” to stem the flow of talented emigrants by encouraging success.

“Our most economically active are leaving to apply their talents elsewhere,” the MP said, warning that talented Britons are being lured away to “growth economies” elsewhere in the world.

Office for National Statistics figures obtained by Mr de Bois show that in the ten years to 2011, a total of 3,599,000 people permanently left the UK.

Contrary to the perception of the typical emigrants being older people retiring to a life in the sun, the figures show that 1,963,000 of those who left were aged between 25 and 44.

By contrast, only 125,000 people of retirement age emigrated.

Note what is “luring” them away?  “Growth economies“.  And what does one usually find is anything labeled a “growth economy”?  Economic opportunity.  A chance to better your own situation without being punished and vilified for doing so.  You’d think that might be something our “leaders” would understand and appreciate.

But it’s about culture, isn’t it?  About the culture our leadership fosters.  And that culture in this country is “class warfare”:

“Government must help lead a culture change in this country that competes with the new economies, one where competitiveness and success are valued and personal achievement and personal wealth are respected, not pilloried,” he said.

That’s not at all where this particular government is headed, is it?
And the result?  Human Nature 101.  See Britain.

~McQ

So lift those heavy eyelids

What if people could easily function with much less sleep?

Jon M at Sociological Speculation asked that question after observing that “new drugs such as Modafinil appear to vastly reduce the need for sleep without significant side effects (at least so far).” At extremes, as Jon M noted in a follow-up post, modafinil allows a reduction to 2.5 hours a night, but “the more common experiences seem to be people who reduce their sleep by a few hours habitually and people who use the drugs to stay up for extended periods once in a while without suffering the drastic cognitive declines insomnia normally entails.”  In fact, alertness is not the only reported cognitive benefit of the drug.

The US brand of modafinil, Provigil, did over $1.1 billion in US sales last year, but for the moment let’s dispense with the question of whether modafinil is everything it’s cracked up to be.  We’re speculating about the consequences of cheaply reducing or even eliminating the need for sleep for the masses.

If I can add to what’s already been said by several fine bloggers – Garett Jones at EconLog on the likely effect on wages, then Matt Yglesias at Slate sounding somewhat dour about the prospect, and Megan McArdle at the Daily Beast having fun with the speculation – the bottom line is that widely reducing the need for sleep would be a revolutionary good, as artificial light was.

For a sense of scale, there are about 252 million Americans age 15+, and on average they’re each awake about 5,585 hours a year.  Giving them each two extra hours a night for a year would be equivalent to adding the activity of 33 million people, without having to shelter, clothe, and feed 33 million more people.

Whatever objections critics have, sleeping less will be popular to the extent that people think the costs are low.  For all the billions of dollars spent trying to add years to their older lives, obviously people would spend more to add life to their younger years.  Who ever said, “If only I’d had less time!”?

Consider that the average employed parent usually sleeps 7.6 hours each workday.  He spends 8.8 of his remaining hours on work and related activities, 1.2 hours caring for others, and 2.5 hours on leisure and sports.

If he spends more time working productively (i.e. serving others), that’s good for both him and society.  The time and effort invested in birthing, educating, and sorting people for jobs is tremendous, so getting more out of people who are already born, educated, and sorted is just multiplying the return on sunk costs.

That’s a godsend for any society undergoing a demographic transition after the typical fall in birthrates, because aside from hoping for faster productivity growth, the specific ways to address having fewer workers per retiree – higher taxes, lower benefits, more immigration, or somehow spurring more people to invest in babies for decades – are unpleasant or difficult or both.

And if he uses extra hours to pursue happiness in other ways, that’s generally fine too.  A lot of people may simply get more out of their cable subscription. Others will finally have time for building and maintaining their families, reading, exercising, or learning a skill.

Yes, once a substantial number of people are enhancing their performance, others will likely have to follow suit if they want to compete.  But then, that’s also true of artificial light and many other technologies.  If people naturally slept only four hours a night and felt rested and alert, who would support a law forcing everyone to sleep twice as long, cutting a fifth of their waking hours so that everyone would slow down to the speed that some people prefer to live their lives?

I don’t think most people have such a strong presumption in favor of sleep.  We like feeling rested, or dreaming, but not sleeping as such; a substantial minority of Americans sleep less than advised despite the known costs, and so reveal their preference for waking life over oblivion.

Just in cased you missed it, our problem STILL isn’t revenue

I continue to be stunned by the apparent willingness of all involved on the left to whistle past the graveyard when it comes to understanding what our fiscal governmental problem is and how to fix it.  Here … let’s try a picture:

Oh, look … it’s spending.  Specifically, spending on entitlements and interest on the money we’ve borrowed to do so.  And what are we talking about cutting?  The military, of course.  Because, you know, it is in the blue slice of the pie.  Make sense?

Pac Man’s revenge.  By 2050, he will have swallowed all of the blue.

But, hey, it’s “absurd” to argue about raising the debt limit. By the way, does anyone remember when Sen. Obama declared that raising the debt limit signaled a failure in leadership?

Ahem …

~McQ

And now the “rich” will pay…

I hate to say “I told you so”, but it isn’t just the rich who will be paying increased taxes. And what should be clear to anyone with the I Q of a turnip, is that this will cost people their jobs.

The compromise called for taxes to rise to 39.6% from 35% on personal income above $400,000. In a 2011 study, the Treasury Department found that raising taxes on incomes over $500,000 would affect roughly 750,000 small businesses organized as S-Corps, partnerships and other small entities.

Of course, you remember the Democrats claiming that this wouldn’t affect small businesses. Well, that was a flat out lie. But then we live in an era of lies which, if there political apparently, we’re willing to overlook. While most of us are. I just had to be one of those who isn’t.   Not that Democrats are the only political liars, but they seem to be the most prolific and the most blatant. Especially when it comes to budget, deficit, and financial matters. They are the quintessential “snake oil” salesman.

And they have sold us are huge bottle of snake oil.

Couple these tax increases with the Obamacare taxes that kicked in on the 1st, and you have two reasons for 750,000 small businesses not to hire. And you can bet none of them will go over 50 employees, and some may even reduce staff to get under that number.

These are your “rich”. They happen to be the “rich” would generate jobs, or what have, if they hadn’t been hit by two new taxes this year.

Your government at work.

~McQ

US average marginal effective tax rate about 40%?

So tell me again why the government can’t seem to get along with what it already gets?

Taking into account all taxes on earnings and consumer spending—including federal, state and local income taxes, Social Security and Medicare payroll taxes, excise taxes, and state and local sales taxes—Edward Prescott has shown (especially in the Quarterly Review of the Federal Reserve Bank of Minneapolis, 2004) that the U.S. average marginal effective tax rate is around 40%. This means that if the average worker earns $100 from additional output, he will be able to consume only an additional $60.

And yet the prevailing political attitude seems to be that of France’s “leadership”, i.e. government, has first claim on all your earnings and if you protest you’re “greedy”.

Who’s greedy?

Speaking of France, California seems bound to duplicate its latest tax scheme:

Consider California, which just enacted higher rates of income and sales tax. The top California income-tax rate will be 13.3%, and the top sales-tax rate in some areas may rise as high as 10%. Combine these state taxes with a top combined federal rate of 44%, plus federal excise taxes, and the combined marginal tax rate for the highest California earners is likely to be around 60%—as high as in France, Germany and Italy.

Yet they wonder why people are fleeing the state.

Impact and implications?

Higher labor-income and consumption taxes also have consequences for entrepreneurship and risk-taking. A key factor driving U.S. economic growth has been the remarkable impact of entrepreneurs such as Bill Gates of Microsoft, Steve Jobs of Apple, Fred Smith of FedEx and others who took substantial risk to implement new ideas, directly and indirectly creating new economic sectors and millions of new jobs.

Entrepreneurship is much lower in Europe, suggesting that high tax rates and poorly designed regulation discourage new business creation. The Economist reports that between 1976 and 2007 only one continental European startup, Norway’s Renewable Energy Corporation, achieved a level of success comparable to that of Microsoft, Apple and other U.S. giants making the Financial Times Index of the world’s 500 largest companies.

Yet we continue to try to recreate Europe’s debacle here.

The economy now faces two serious risks: the risk of higher marginal tax rates that will depress the number of hours of work, and the risk of continuing policies such as Dodd-Frank, bailouts, and subsidies to specific industries and technologies that depress productivity growth by protecting inefficient producers and restricting the flow of resources to the most productive users.

If these two risks are realized, the U.S. will face a much more serious problem than a 2013 recession. It will face a permanent and growing decline in relative living standards.

These risks loom as the level of U.S. economic activity gradually moves closer to that of the 1930s, when for a decade during the Great Depression output per working-age person declined by nearly 25% relative to trend. The last two quarters of GDP growth—1.3% and 2.7%—have been below trend, which means the U.S. economy is continuing to sink relative to its historical trend.

But your political and financial lords and masters know best, don’t they?  Just ask them.  They continue down this road despite the fact the destination is in plain sight in Europe and it isn’t pretty.

Occam’s Razor states “entities should not be multiplied unnecessarily.” Said another way, the simplest explanation is usually the most likely explanation. In this case the simplest explanation is incompetence.  But is it really incompetence?  With the European example staring them right in the face it’s hard to believe anyone is that incompetent.  The conclusion to their policies have already been proven to be a disaster.

So one has to being to consider other possibilities when those who are pushing the policies seem oblivious to the obvious.

You have to begin to wonder if it is a problem of hubris.  I.e. “the only reason it hasn’t worked before is we weren’t in charge”.  We’ve seen that in any number of instances throughout history where discredited or obviously illogical ideological ideas were tried and they again failed.

Or you have to consider the words “by design”.  But then you’re stuck with trying to come up with a valid reason “why”.  Recreating Europe’s debacle, or Japans’s or, for heaven sake, our’s in the ’30s would seem to be something smart politicians would attempt to avoid.

But here we are.

Economic growth requires new ideas and new businesses, which in turn require a large group of talented young workers who are willing to take on the considerable risk of starting a business. This requires undoing the impediments that stand in the way of creating new economic activity—and increasing the after-tax returns to succeeding.

And yet, we see a government bent on erecting even more impediments via increased taxation, costly new laws and onerous regulation.

Isn’t it about time we demanded to know “why?”  More importantly, maybe we should ask whose side they’re on.

~McQ

The flight of the ‘greedy rich’

France’s prime minister, Jean-Marc Ayrault, is hopping mad. In response to the French socialist government’s plan to significantly increase taxes on "the rich"—including a proposed 75% tax on incomes above €1 million—rich people are moving out of the country. This is intolerable to Mr. Ayrault.

"Those who are seeking exile abroad are not those who are scared of becoming poor," the prime minister declared after unveiling sweeping anti-poverty measures to help those hit by the economic crisis.

These individuals are leaving "because they want to get even richer," he said. "We cannot fight poverty if those with the most, and sometimes with a lot, do not show solidarity and a bit of generosity," he added.

It could be a scene right out of "Atlas Shrugged".

Mr. Ayrault is angry because rich Frenchmen are fleeing the country to keep their money, instead of handing it over to him. And he is joined by the baying of the other hounds in France’s left wing. Case in point, French actor Gerard Depardieu, whose announcement that he was moving to Belgium provoked responses such as:

Socialist MP Yann Galut called for the actor to be "stripped of his nationality" if he failed to pay his dues in his mother country, saying the law should be changed to enable such a punishment.

Benoît Hamon, the consumption minister, said the move amounted to giving France "the finger" and was "anti-patriotic".

In a stinging editorial, Libération, the left-leaning daily, called him a "drunken, obese petit-bourgeois reactionary".

They are owed this money, by God, and how dare you try and steal it away from them!

This is always the implicit argument of the Left: They have the first claim to your income, and you have a duty to honor that claim. No matter how you earned that money, they have the right to take as much of it as they please away from you, and if you dispute that right, you’re unpatriotic, and should be punished.

This is Leftism in a nutshell. You are not a free individual, but rather a serf of the state or some other politically-defined "larger community" that has an absolute claim on your property and income that you may not defy. This is no different in concept, or in practice, than the idea of ancient Babylon or Akkad that every subject is a slave of the king.

You can dress it up in high-sounding phrases like "solidarity" or "social justice", "helping the poor" all you want, and it still amounts to nothing but the simple declaration that the state owns you.

The people who believe in this idea are the enemies of freedom, and should be treated as such.

~
Dale Franks
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Failing California doubles down on solar power

You’d think, by now, governments would have figured out how poor they are at picking winners and losers.

Of course, they haven’t as witnessed by the witless California government continuing to push solar energy.

For example:

California’s Riverside County is producing more solar energy than anywhere in the U.S., with close to a dozen solar plants either online or proposed.

“On the face of it, it looks like a good deal. They talk about all these huge jobs and long-term benefits to the county. The truth is, it’s a very short term,” Riverside County Supervisor John Benoit said. “We’re going to be carrying the burden of having these types of facilities for decades to come, and because of the incentives that have been provided by federal and state government, there’s virtually nothing left for the county government or the local people to get benefit back after the small number of construction jobs are gone.”

Unlike Riverside’s 500 megawatt natural gas-fired facility, which pays $6 million a year in property taxes, a solar plant being built a few miles away will pay next to nothing, just $96,000.  When Riverside balked at its own upfront infrastructure costs and tried to impose an impact fee, the industry sued.

So Riverside has hundreds of square miles carpeted with solar panels and no jobs to speak of and barely any revenue to show for it.

But surely, as promised, this has led to cheap, reliable and renewable energy, right?

Yeah, not so much:

Solar also promised to be a cheap source of power, fueled by the sun. What the industry didn’t say is the technology only converts a fraction of the sun’s energy, and the intermittent nature of sunshine does not produce the power promised.

And Stanford economist Frank Wolak, a California energy expert, said solar could boost consumer energy bills up to 50 percent, a finding similar to the state Public Utilities Commission. Solar power from two recently approved plants range from $100 to $200 per megawatt hour, at least 8 times higher than the $16 consumers pay for natural gas.

“It’s probably 50 percent more (than coal or natural gas) today,” Benoit said. “Five years ago, it was probably a 100 or 150 percent more costly to generate a kilowatt with solar. The cost of these panels has come down dramatically. But still, getting back to the old equation, do you want to spend a little bit more to be green? And the legislature and the governor in California have said clearly, we’re going to do that.”

But at what cost to consumers and to what benefit to much of anything except government’s chosen crony, er, beneficiary?  Instead of allowing markets – i.e. consumers and producers – to decide on the mix, government has unilaterally taken that away from them and made the decision itself.

After all, the autocrat has decided:

Answering critics at a solar ribbon-cutting earlier this year, Gov. Jerry Brown laid down the gauntlet, affirming his commitment to solar energy and saying he would “crush” opponents of solar.

“There are going to be screw-ups. There are going to be bankruptcies. There’ll be indictments and there’ll be deaths. But we’re going to keep going – and nothing’s going to stop me,” Brown said.

I can believe that.  Somebody needs to tell Brown the whole effort is a ‘screw-up’.

But since government is involved, the crony gets the treatment other industries don’t:

“There’s been a policy to fast-track and install these utility-scale renewable energy installations that are on the scale of five to 10,000 acres each,” said April Sall of the Wildlands Conservancy. “We’ve seen thousands of acres of the desert bladed and now undergoing utility-style construction to basically convert that from pristine habitat that included those sensitive plants and animals, to becoming potentially a dust bowl.”

Now imagine if these actions and plans were those of “Big Oil”.  Yup, you don’t have to imagine long, do you?  But in this case?

The two largest green groups in the U.S., the Sierra Club and Natural Resources Defense Council, have remained silent on the impact of Big Solar on land use and endangered species, which is not so with gas, oil or coal. Sall and other local environmental groups say the Washington-based organizations see climate change as a bigger threat and therefore won’t get involved.

Shoddy “science” is their excuse and they’re sticking with it.

And that’s your update on the imperial blue state model today.  And yes, it’s going down the tubes which is why this cartoon applies to more than small business in the state:

~McQ

How does one oppose a “right to work?”

Well, if you’re wondering, just take a gander at what is happening in Michigan.

The Democrats will be the first to tell you “elections have consequences”, usually followed by ” … and Obama won”.  Well the same can be said of state level elections and in the case of MI, the GOP won.  In fact, they won everything at the state level, enough to pass “right to work” legislation which essentially says one doesn’t have to join a union to work.

The unions, of course, pitched a tantrum.

And, now that he’s solved all the nation’s problems, balanced the budget, reduced the deficit and has long-term debt on a downward trend, President Obama has weighed in on this situation:

“President Obama has long opposed so-called ‘right to work’ laws and he continues to oppose them now,” said White House spokesman Matt Lehrich. “The president believes our economy is stronger when workers get good wages and good benefits, and he opposes attempts to roll back their rights. Michigan — and its workers’ role in the revival of the US automobile industry -– is a prime example of how unions have helped build a strong middle class and a strong American economy.”

The union’s “role in the revival of the US automobile industry”?!

Is he kidding?  It is the unions which essentially helped make two of the big three financially unsustainable.  Remember, GM and Chrysler went bankrupt and had to be bailed out.  And the federal government screwed with the bankruptcy proceedings and handed  a large portion of GM to the union while stiffing bond holders.

That’s the “prime example” in reality.

And the president’s “belief” that our “economy is stronger when workers get good wages and good benefits” doesn’t mean those things only happen with unions.  Apparently, in right-to-work states, unions continue to lose out when they try to organize because workers are getting both good wage and benefits and seem happy with their situation.  What they don’t see is a benefit to unionizing – i.e. paying dues to a union which will be unlikely to do any better.

Finally, how is allowing someone to choose whether or not to join a union “rolling back rights?”

I knew Obama wouldn’t be able to stay out of state level politics, given his base and their demands.  The Democrats have become the party of unions.  Private unions are dying off and they’re getting pretty desperate.  First WI and now MI?  My goodness, can NY and IL be far behind?  How dare the GOP give workers the right to chose not to join a union as a prerequisite to working.  For a party that brags about being the party of choice, other than one particular choice they champion, the Democrats are pretty much opposed to all others.

Unions are the buggy whip of the latest evolution in labor.  Improved communications, a global economy and the realization that businesses have options as well have made unions an anachronism.  Reality and economics say labor is a commodity – a factor of production.  What labor is increasingly realizing is that the jobs they have can be exported or, given today’s technology, mechanized when costs exceed their worth.   Wages are leveling out and in today’s economy, the demands that were once commonly made by unions are no longer economically feasible.    But additionally, bad companies can no longer exist in the dark of a communications vacuum and pay and treat their workers poorly without there being repercussions.  Competition drives wages and benefits as well or better than unions ever did.

It’s a different world.  Unions are 19th century holdovers.

Time they shuffled off into Obsolete-land where they belong.

~McQ

Keystone XL: So now what will the excuse be to delay it?

You likely recall the controversy concerning the President’s denial of approval for the Keystone XL pipeline a few months back.  Citing the route through the state of Nebraska as a problem, Obama decided to defer a final decision until after the election.

Up for grabs – a lot of oil and 20,000 jobs.  Most saw approval as a no-brainer and the route through NE as easily “fixable”.   But Obama was having none of it, choosing to please his base vs. opting for jobs for Americans.  Since the disapproval, Canada, where the pipeline originates, has announced plans to sell that oil to China.

So, where are we now?

Well, there’s a new route through NE and local leaders have voiced strong support for the pipeline:

TransCanada has proposed a new route for the pipeline that avoids the Nebraska Sandhills, and the Nebraska Department of Environmental Quality is seeking comment before it drafts its report on the new route. Port-To-Plains Alliance, which is made up of more than 100 local elected officials and community leaders, has today offered its “strong support” for the Keystone XL Pipeline.

Their reasoning seems pretty strong — if you’re interested in putting Americans back to work and helping the economy:

Keystone XL will provide significant economic benefits for our region. The pipeline is expected to create approximately 20,000 manufacturing and construction jobs in the United States. It could also generate more than $5.2 billion in tax revenue to the Keystone XL corridor states. At a time when state and local governments across the country are struggling to balance their budgets, these employment and revenue benefits are critical to our region. Specific benefits for Nebraska include:

  • More than $465 million in new spending for the Nebraska economy
  • More than 7,500 person years of employment
  • Increased personal income by $314 million
  • Additional state and local tax revenues of more than $11 million
  • $390 million in increased Gross State Product

And that’s just Nebraska.  Other states stand to gain significant revenue as well.

Then there’s the issue of the Bakken Formation oil in Montana and  North Dakota.  It too needs the pipeline to be finished so it can efficiently ship oil from there to the coastal refineries.

Again, the major problem has apparently been solved.  It’s a move that would lessen our dependence on Venezuelan and Middle East oil (instead opting for supplies from a loyal and stable ally), would make the shipment of Bakken oil less costly, benefit state and Federal revenue (at a time when both entities are hurting for it) and, most importantly, create multi-thousands of jobs.

So, what excuse do you believe Obama will use to further delay or disapprove it this time?

~McQ

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