Monday, May 17, 2010

Hauser's Law - As Reliable as the Law of Gravity

The Wall Street Journal had an op-ed by David Ranson today entitled "The Revenue Limits of Tax and Spend." In it he shows why, using what he has dubbed as Hauser's Law, the government will never be able to raise tax revenues above 20% of GDP. I linked to an earlier op-ed in which he also referenced Hauser back in July 2008. In that post I also cited ASU economist Ed Prescott.

Here is what I said then:

It is pretty well accepted that raising taxes retards GDP growth and if GDP growth is already very low, as it is right now, then you could get negative growth, i.e. shrinkage. The definition of when the economy is in recession is two consecutive quarters of negative GDP growth. Raising tax rates at this time, as the Democrats want to do, could very well tip us into a recession. If the Democrats get into the White House and increase their majority in Congress, raising taxes is what they have promised to do, telling their voters that it will only affect "the rich", however they are defining that term today as they pander to wealth-envy and promise "free" goodies. To think that it won't affect them is demonstrably wrong, as the work of another economist, Nobel prize winner Ed Prescott has shown.

"Here is a somewhat startling fact: Based on labor market statistics from the Organisation for Economic Co-operation and Development (OECD), Americans aged 15-64, on a per person basis, work 50 percent more than do the French. Comparisons between Americans and Germans or Italians are similar. What’s going on here? What can possibly account for these large differences in labor supply? It turns out that the answer is not related to cultural differences or institutional factors like unemployment benefits, but that marginal tax rates explain nearly all of this difference. " [my emphasis]


If the Democrats follow through on their promises then we will have a recession. That is definitely a change you can believe in.



How accurate do you think my prediction was? I definitely recommend reading both today's Ranson piece and the one I linked to from my earlier post. Hauser's Law appears to be as reliable as the Law of Gravity. Attempt to defy it and you will fall.

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Monday, May 03, 2010

Why the Capital Gains Tax Should Be Abolished - Six Reasons

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What is the Definition of Government?

President Obama proposed one definition in a commencement speech at the University of Michigan over the weekend. This is one part of it:

"Government .. is the roads we drive on and the speed limits that keep us safe. It's the men and women in the military, the inspectors in our mines, the pioneering researchers in public universities."
Neal Boortz offers us a slightly more expansive definition. Read the whole thing.
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Sunday, May 02, 2010

GM Pays Its Loans Back - One of the More Brazen Prevarications We've Seen Lately

GM CEO Ed Whitacre claimed in widely aired ads this week and a guest column in the Wall Street Journal, that the company had paid back its loans from the government early and in full. Not to put too fine a point on it, this is a flat-out lie. Even the New York Times isn't buying the claim. Not only that but the NYT reporter, Gretchen Morrison, goes so far as to accuse the Obama Administration, and Treasury Secretary Tim Geithner in particular, of encouraging the claim and even actively echoing it.  In fact, the company paid back $6.7 billion in loans not from operating earnings, but from TARP funds placed into escrow for it to tap for working capital purposes. In other words, they paid the taxpayers back with money the taxpayers had provided. Reason's Nick Gillespie illustrates for us:


I went and took a look at the company's latest SEC filings. The 10K (annual financial statement) for the year ended 12/31/2009 was just filed on April 10 (late, it should have been filed on March 31) and for the period between the government takeover of the company in early July and December 31, the company had a negative EBITDA (earnings before interest, taxes, depreciation and amoritzation) of ($348 million). In other words, it didn't generate enough cash from operations to even cover interest expense incurred on the debt, $694 million,  let alone any principal. Also notable is the fact that the company filed a 10Q (quarterly report) on the same day, for the quarter ended 9/30/2009, so almost 5 months late. Its 10Q for 3/31/2010 is due on May 15th. So we don't really know how the company has done since the end of the year or if it will file on time.

Ed Morrissey has more over at Hot Air, as does Scott Johnson at Power Line.

It looks like the standard lefty MO is in play here. If the facts don't support you, lie. If called on the lie, attempt to brazen it out. If that doesn't work, question your interlocutor's motives and if all else fails, change the subject. We appear to be in the brazen-it-out stage still. I can't wait to see what they come up with next.



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Saturday, May 01, 2010

The Federal Response to the BP Oil Spill vs Hurricane Katrina

Over at Power Line, John Hinderaker asks whether President Obama  failed to respond to the April 21st explosion of a BP oil rig in the Gulf of Mexico and the subsequent oil leak. He makes the comparison to the Hurricane Katrina response. That was clearly the primary responsibility of local responders, i.e., the mayor of New Orleans and the governor of Louisiana, a responsibility they failed at miserably. The response to the oil spill, miles out to sea, is the primary  responsibility of the federal government, a responsibility it appears to have failed at by dithering and delaying action until nine days after the explosion. Now measures to contain the spilling oil appear to be too late to do much good and damage to coastlines and fisheries will be far worse as a result.  I think this incindent just gives further proof to the charges that Hurricane Katrina was cynically seized on as an opportunity to damage George Bush politically.


There is a basic difference between this incident and Hurricane Katrina, to which it is being compared. In the case of Katrina, the primary responsibility for disaster response lay with the local and state governments. The local response was very poor; among other things, the governor of Louisiana was slow to call out the National Guard. Here, responsibility lay with the Obama administration from the beginning. State and local governments have no jurisdiction and no ability to deal with an oil spill miles out to sea. Only the federal government can act. It didn't, until, perhaps, it was too late

Read the whole thing.
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