Thanks to the liberal media most of the public probably has not heard about President Obama’s big tax hike on working people, Dennis Cauchon at USA Today is on the case. Just 16 days into his term in office, President Obama signed a bill that raised a tax that primarily hits working people. To date this tax hike has meant more than $30 billion out of taxpayers’ pockets.
If you missed this one, it’s probably because you don’t smoke. Obama raised the tobacco tax. It had the effect of leading to a sharp decline in smoking, with the number of smokers down by close to 3 million since 2009.
This sort of tax is always a mixed bag. There are many people who are genuinely hooked on cigarettes and are already struggling to pay their bills. Making their lives more difficult can’t be a good thing.
On the other hand, insofar as higher cigarette prices get people to stop smoking or even better keeps them from ever starting, it’s hard not to see that as a huge positive. Millions of people will enjoy longer healthier lives because of this tax increase. That’s certainly good news.
Anyhow USA Today deserves credit for giving this one some attention. It matters a lot more than many other items that have arisen in the presidential campaign.
Thanks to the liberal media most of the public probably has not heard about President Obama’s big tax hike on working people, Dennis Cauchon at USA Today is on the case. Just 16 days into his term in office, President Obama signed a bill that raised a tax that primarily hits working people. To date this tax hike has meant more than $30 billion out of taxpayers’ pockets.
If you missed this one, it’s probably because you don’t smoke. Obama raised the tobacco tax. It had the effect of leading to a sharp decline in smoking, with the number of smokers down by close to 3 million since 2009.
This sort of tax is always a mixed bag. There are many people who are genuinely hooked on cigarettes and are already struggling to pay their bills. Making their lives more difficult can’t be a good thing.
On the other hand, insofar as higher cigarette prices get people to stop smoking or even better keeps them from ever starting, it’s hard not to see that as a huge positive. Millions of people will enjoy longer healthier lives because of this tax increase. That’s certainly good news.
Anyhow USA Today deserves credit for giving this one some attention. It matters a lot more than many other items that have arisen in the presidential campaign.
Read More Leer más Join the discussion Participa en la discusión
Bill Gates is a huge beneficiary of government largess. So are Pfizer and Merck. If you don’t immediately understand why, then you haven’t been reading BTP enough.
Gates and Microsoft are incredibly wealthy because of the copyright and patent monopolies given to them by the government. Without these government enforced monopolies, we would all be getting Windows and Word for free (they’re worth it). The same applies to Pfizer and Merck. These companies’ drugs would be selling for $5 per prescription if we had a free market in prescription drugs. Government patent monopolies make drugs expensive and allow drug companies and select high level employees to get very rich.
There are many other ways in which the government structures markets that advantage some groups within society to the detriment of others. The financial sector presents many other obvious examples with its too big to fail insurance and enormous bailouts of the last few years that kept the Wall Street giants from going belly up.
The response to Governor Romney’s now famous comment about the 47 percent of households who freeload on the government is causing an enormous distraction. The tax and benefit sides of the ledger are the least important way in which the government affects the distribution of income. The far more important route is how the government structures markets to affect the before tax distribution of income.
This affects every area of the economy. For example, Chicago Mayor Rahm Emanuel is now trying to use the power of the government to throw striking teachers in jail if they continue their strike. Trade policy for the last three decades has been designed to undermine the bargaining power of manufacturing workers, as has been the high dollar policy that is a legacy of the Clinton years. The failure of the Fed to act more aggressively to try to boost the economy is denying tens of millions of workers employment or full-time employment at decent wages.
The list of ways in which government policy affects the pre-tax distribution of income is long. (Read my free book, The End of Loser Liberalism: Making Markets Progressive to get the whole story.) The leadership of both parties would like to keep the public’s focus exclusively on explicit tax and transfer policy, but this is just for children. The real story is what lies behind the curtain.
Bill Gates is a huge beneficiary of government largess. So are Pfizer and Merck. If you don’t immediately understand why, then you haven’t been reading BTP enough.
Gates and Microsoft are incredibly wealthy because of the copyright and patent monopolies given to them by the government. Without these government enforced monopolies, we would all be getting Windows and Word for free (they’re worth it). The same applies to Pfizer and Merck. These companies’ drugs would be selling for $5 per prescription if we had a free market in prescription drugs. Government patent monopolies make drugs expensive and allow drug companies and select high level employees to get very rich.
There are many other ways in which the government structures markets that advantage some groups within society to the detriment of others. The financial sector presents many other obvious examples with its too big to fail insurance and enormous bailouts of the last few years that kept the Wall Street giants from going belly up.
The response to Governor Romney’s now famous comment about the 47 percent of households who freeload on the government is causing an enormous distraction. The tax and benefit sides of the ledger are the least important way in which the government affects the distribution of income. The far more important route is how the government structures markets to affect the before tax distribution of income.
This affects every area of the economy. For example, Chicago Mayor Rahm Emanuel is now trying to use the power of the government to throw striking teachers in jail if they continue their strike. Trade policy for the last three decades has been designed to undermine the bargaining power of manufacturing workers, as has been the high dollar policy that is a legacy of the Clinton years. The failure of the Fed to act more aggressively to try to boost the economy is denying tens of millions of workers employment or full-time employment at decent wages.
The list of ways in which government policy affects the pre-tax distribution of income is long. (Read my free book, The End of Loser Liberalism: Making Markets Progressive to get the whole story.) The leadership of both parties would like to keep the public’s focus exclusively on explicit tax and transfer policy, but this is just for children. The real story is what lies behind the curtain.
Read More Leer más Join the discussion Participa en la discusión
Read More Leer más Join the discussion Participa en la discusión
The NYT had an editorial discussing how unprepared most workers are for retirement. While most of the points in the piece are well-taken, it would have been worth saying a bit about homeownership, since housing equity is the main source of wealth for most middle income people.
Many families were badly burned by buying a home in the middle of the housing bubble. So-called experts who should have known better and warned people, didn’t. This should have people very very angry.
However even in more normal times homeownership is not the slam dunk investment that its proponents claim. First, there are large transactions costs associated with buying and selling a home, typically around 10 percent of the purchase price. This means that anyone who cannot anticipate being in the same place for at least 5 years is almost certainly better off renting.
Even over the longer term homeownership is hardly risk free. In many areas where the economy is not diversified, if the major industry goes down, house prices will plummet with it. In this case, owning a home is sort of like putting all your savings in your employers stock. There are a lot of unemployed autoworkers in the Detroit area who have a home that is now worth $15,000-$20,000.
In short, there is a lot of silliness about homeownership that really needs to be attacked. Homeownership might be the dream of realtors, builders, and mortgage bankers, but that doesn’t make it the American Dream. And remember, anyone who tells you not to worry about house prices because “you can always live in your home,” is really trying to tell you that they don’t have a clue what they are talking about.
The NYT had an editorial discussing how unprepared most workers are for retirement. While most of the points in the piece are well-taken, it would have been worth saying a bit about homeownership, since housing equity is the main source of wealth for most middle income people.
Many families were badly burned by buying a home in the middle of the housing bubble. So-called experts who should have known better and warned people, didn’t. This should have people very very angry.
However even in more normal times homeownership is not the slam dunk investment that its proponents claim. First, there are large transactions costs associated with buying and selling a home, typically around 10 percent of the purchase price. This means that anyone who cannot anticipate being in the same place for at least 5 years is almost certainly better off renting.
Even over the longer term homeownership is hardly risk free. In many areas where the economy is not diversified, if the major industry goes down, house prices will plummet with it. In this case, owning a home is sort of like putting all your savings in your employers stock. There are a lot of unemployed autoworkers in the Detroit area who have a home that is now worth $15,000-$20,000.
In short, there is a lot of silliness about homeownership that really needs to be attacked. Homeownership might be the dream of realtors, builders, and mortgage bankers, but that doesn’t make it the American Dream. And remember, anyone who tells you not to worry about house prices because “you can always live in your home,” is really trying to tell you that they don’t have a clue what they are talking about.
Read More Leer más Join the discussion Participa en la discusión
Economists tend not to be very good at arithmetic. That’s why almost all of them failed to recognize the $8 trillion housing bubble and to understand that it’s collapse would wreck the economy.
Unfortunately their arithmetic (or logic) skills have not improved in the wake of the crash. Hence we have many economists telling us that the economy’s problem is a debt overhang. This gets picked up endlessly (e.g. Joe Nocera’s column today).
Let’s think this one through for a moment. As a result of the ephemeral wealth created by the housing bubble, people ran up far more debt than would have otherwise been the case. This means that people have far less equity in their homes than in a counter-factual where house prices had never diverged from trend.
Let’s say that collective indebtedness is $5 trillion greater than if there had never been a bubble. Now let’s have the great god of economic correctness clap her hands and eliminate the $5 trillion in excessive debt. Do we now see a consumption boom that gets the economy back on course?
If you answered yes, you get a PhD from a prestigious economic department and flunk basic logic. Our god just destroyed $5 trillion in wealth. Any increase in consumption from this act would be the result of the difference in the propensity of the debtors to spend out of wealth as opposed to lenders. If this is even 2 percent, that would be surprising. While $100 billion in additional consumption would be a nice boost to growth, it would still leave us far from full employment. (btw, anyone who bothers to look at the data would know that consumption is still unusually high relative to disposable income, not low.)
The reality is that we need some new source of demand to replace the demand generated by the housing bubble. In the short-run, this can only be the government. This is true regardless of how much we hate or love the government. In the longer run it will have to be net exports. People who know logic and arithmetic understand this fact. Others work as economists.
Addendum:
I thought I would add a bit more on the ownership of mortgage debt. The vast majority of debt is held in mortgage backed securities. The holders of this debt would be comparable to the ownership of government debt, albeit with a somewhat smaller presence of foreign owners. The debt would show up in the portfolios of many individuals with 401(k)s and other retirement accounts. It would also be included in most pension portfolios. Losses in the latter would have to be made up with larger contributions in future years.
On the other side, not all the underwater borrowers should be viewed as low or even middle class. There are plenty of people who bought homes for $600k at the peak of the bubble that are today worth $300k. These people may have substantial other wealth, so they need not have reduced their consumption substantially as a result of the drop in housing values.
And of course our disappearance of $5 trillion in mortgage debt would mostly be for people who are not underwater, since there is only a bit more than $1 trillion in underwater debt. Most of the vanishing debt would be for people who owe $200k on a $300k home. Our god of economic correctness will have reduced this to $100k by extinguishing $5 trillion in mortgage debt.
Again, I would not doubt that the underwater homeowners have a higher average propensity to consume out of wealth than owners of their debt, but there is no reason to believe the latter is close to zero. I think a gap of 2 percentage points would be on the high side of the plausible.
Economists tend not to be very good at arithmetic. That’s why almost all of them failed to recognize the $8 trillion housing bubble and to understand that it’s collapse would wreck the economy.
Unfortunately their arithmetic (or logic) skills have not improved in the wake of the crash. Hence we have many economists telling us that the economy’s problem is a debt overhang. This gets picked up endlessly (e.g. Joe Nocera’s column today).
Let’s think this one through for a moment. As a result of the ephemeral wealth created by the housing bubble, people ran up far more debt than would have otherwise been the case. This means that people have far less equity in their homes than in a counter-factual where house prices had never diverged from trend.
Let’s say that collective indebtedness is $5 trillion greater than if there had never been a bubble. Now let’s have the great god of economic correctness clap her hands and eliminate the $5 trillion in excessive debt. Do we now see a consumption boom that gets the economy back on course?
If you answered yes, you get a PhD from a prestigious economic department and flunk basic logic. Our god just destroyed $5 trillion in wealth. Any increase in consumption from this act would be the result of the difference in the propensity of the debtors to spend out of wealth as opposed to lenders. If this is even 2 percent, that would be surprising. While $100 billion in additional consumption would be a nice boost to growth, it would still leave us far from full employment. (btw, anyone who bothers to look at the data would know that consumption is still unusually high relative to disposable income, not low.)
The reality is that we need some new source of demand to replace the demand generated by the housing bubble. In the short-run, this can only be the government. This is true regardless of how much we hate or love the government. In the longer run it will have to be net exports. People who know logic and arithmetic understand this fact. Others work as economists.
Addendum:
I thought I would add a bit more on the ownership of mortgage debt. The vast majority of debt is held in mortgage backed securities. The holders of this debt would be comparable to the ownership of government debt, albeit with a somewhat smaller presence of foreign owners. The debt would show up in the portfolios of many individuals with 401(k)s and other retirement accounts. It would also be included in most pension portfolios. Losses in the latter would have to be made up with larger contributions in future years.
On the other side, not all the underwater borrowers should be viewed as low or even middle class. There are plenty of people who bought homes for $600k at the peak of the bubble that are today worth $300k. These people may have substantial other wealth, so they need not have reduced their consumption substantially as a result of the drop in housing values.
And of course our disappearance of $5 trillion in mortgage debt would mostly be for people who are not underwater, since there is only a bit more than $1 trillion in underwater debt. Most of the vanishing debt would be for people who owe $200k on a $300k home. Our god of economic correctness will have reduced this to $100k by extinguishing $5 trillion in mortgage debt.
Again, I would not doubt that the underwater homeowners have a higher average propensity to consume out of wealth than owners of their debt, but there is no reason to believe the latter is close to zero. I think a gap of 2 percentage points would be on the high side of the plausible.
Read More Leer más Join the discussion Participa en la discusión
Read More Leer más Join the discussion Participa en la discusión
Read More Leer más Join the discussion Participa en la discusión
In an article on the Fed’s decision to buy more bonds and to extend its commitment to a low interest rate policy, the Washington Post told readers:
“Fed officials have been sympathetic to concerns about inflation, which would first affect middle-class purchases of necessities such as food and gas.”
Actually, inflation in food and gas prices is of the least concern to the Fed because they are largely out of its control. The price of food and gas are determined in international markets. When these prices have risen it has been primarily because of rapid growth in demand in developing countries like China and India, or reductions in supply due to political disruptions or weather. (In many cases the price rises were amplified by speculation.)
The Fed’s actions will do little to affect worldwide demand for these products and therefore will have little effect on the price of food and gas. This is why the Fed generally looks at the core inflation rate, which excludes food and energy prices, in designing policy. The non-core components are both much more volatile and outside of the Fed’s control.
This piece also inaccurately asserts that the labor market has been worsening over the last three months because the economy has only been generating 100,000 jobs a month. The piece claims that it needs 120,000 jobs a month to keep pace with the growth of the labor market. In fact, the Congressional Budget Office projects labor force growth of 0.7 percent a year. This would imply that a growth rate of 90,000 jobs a month is sufficient to keep pace with the growth of the labor force. By this measure, job growth has just been keeping pace with the rate of growth of the labor force.
In an article on the Fed’s decision to buy more bonds and to extend its commitment to a low interest rate policy, the Washington Post told readers:
“Fed officials have been sympathetic to concerns about inflation, which would first affect middle-class purchases of necessities such as food and gas.”
Actually, inflation in food and gas prices is of the least concern to the Fed because they are largely out of its control. The price of food and gas are determined in international markets. When these prices have risen it has been primarily because of rapid growth in demand in developing countries like China and India, or reductions in supply due to political disruptions or weather. (In many cases the price rises were amplified by speculation.)
The Fed’s actions will do little to affect worldwide demand for these products and therefore will have little effect on the price of food and gas. This is why the Fed generally looks at the core inflation rate, which excludes food and energy prices, in designing policy. The non-core components are both much more volatile and outside of the Fed’s control.
This piece also inaccurately asserts that the labor market has been worsening over the last three months because the economy has only been generating 100,000 jobs a month. The piece claims that it needs 120,000 jobs a month to keep pace with the growth of the labor market. In fact, the Congressional Budget Office projects labor force growth of 0.7 percent a year. This would imply that a growth rate of 90,000 jobs a month is sufficient to keep pace with the growth of the labor force. By this measure, job growth has just been keeping pace with the rate of growth of the labor force.
Read More Leer más Join the discussion Participa en la discusión
A Morning Edition segment on the Fed’s likely actions included a comment from Karen Dynan, the co-director of economic studies at the Brookings Institution saying:
“our housing market remains in very poor shape. It may have turned the corner, but conditions still look pretty bleak.”
Actually house prices are pretty much back on their long-term trend path. The current sales rate is also at or above its trend level. It is true that house prices are still well below their bubble peaks, but that should be expected. It would be unreasonable to expect the Nasdaq to return to the prices it reached at the peak of the stock bubble. Similarly, there is no reason to expect (or want) house prices to return to their bubble peak.
A Morning Edition segment on the Fed’s likely actions included a comment from Karen Dynan, the co-director of economic studies at the Brookings Institution saying:
“our housing market remains in very poor shape. It may have turned the corner, but conditions still look pretty bleak.”
Actually house prices are pretty much back on their long-term trend path. The current sales rate is also at or above its trend level. It is true that house prices are still well below their bubble peaks, but that should be expected. It would be unreasonable to expect the Nasdaq to return to the prices it reached at the peak of the stock bubble. Similarly, there is no reason to expect (or want) house prices to return to their bubble peak.
Read More Leer más Join the discussion Participa en la discusión
A NYT article reports that one of the background issues in the strike of Chicago public school teachers is the increased use of charter schools, which is advocated by Chicago Mayor Rahm Emanuel. It would have been worth reminding readers that charter schools do not on average outperform the public schools they replace. If Emanuel is advocating increased use of charter schools he is either unfamiliar with recent research in education or has some motive other than improving student performance.
A NYT article reports that one of the background issues in the strike of Chicago public school teachers is the increased use of charter schools, which is advocated by Chicago Mayor Rahm Emanuel. It would have been worth reminding readers that charter schools do not on average outperform the public schools they replace. If Emanuel is advocating increased use of charter schools he is either unfamiliar with recent research in education or has some motive other than improving student performance.
Read More Leer más Join the discussion Participa en la discusión
