Money matters. That’s why I have kept my eye on Greece’s money supply (M3). It’s been contracting in an increasing rate since February 2010. Since March 2010, I have concluded that the writing was on the wall and that all the debt sustainability numbers calculated by the International Monetary Fund, the European Union and the Greek government could be thrown in their respective bureaucratic trash cans. Well, even though the Bank of Greece is still behind the curve, it’s catching up. The Bank has just revised its forecast of Greece’s 2012 growth — down from ‑4.5% to ‑5.0%. The current annual rate of contraction (-19%) of the Greek money supply guarantees many more eruptions from that Balkan nation.
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Portuguese Finance Minister Admits Keynesian Stimulus Was a Flop
President Obama imposed a big-spending faux stimulus program on the economy back in 2009, claiming that the government needed to squander about $800 billion to keep the unemployment rate from rising above 8 percent.
How did that work out? One possible description is that the so-called stimulus became a festering pile of manure. About three years have passed, and the joblessness rate hasn’t dropped below 8 percent. But the White House has been sprinkling perfume on that pile of you-know-what and claiming that the Keynesian spending binge was good policy.
But not every politician is blindly ideological like Obama. Vitor Gaspar, Portugal’s Finance Minister, is willing to admit error. Here are some relevant excerpts from a New York Times report.
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Mr. Gaspar, speaking to The New York Times last week, has a message for observers who say Europe needs to substantially relax its austerity approach: We tried stimulus and it backfired. Like some other European countries, Portugal tried what Mr. Gaspar called “a Keynesian style expansion” in 2008, referring to a theory by economist John Maynard Keynes. But it didn’t turn things around, and may have made things worse.
Why does the Portuguese Finance Minister have this view? Well, for the simple reason that the economy got worse and more spending put his country in a deeper fiscal ditch.
The yield on Portuguese government bonds – more than 11 percent on longer-term bonds — is substantially higher than the yields on debt issued by Ireland, Spain or Italy. …The main fear among investors is that Portugal is going to have to ask for a second bailout from the International Monetary Fund and the European Union, which committed $103 billion of financial aid in 2011.
Maybe the big spenders in Portugal should import some of the statist bureaucrats at Congressional Budget Office. The CBO folks could then regurgitate the moving-goalposts argument that they’ve used in the United States and claim that the economy would be even weaker if the government hadn’t wasted more money.
But perhaps the Portuguese left doesn’t think that will pass the laugh test.
In any event, some of us can say we were right from the beginning about this issue.
Not that being right required any keen insight. Keynesian policies failed for Hoover and Roosevelt in the 1930s. So-called stimulus policies also failed for Japan in 1990s. And Keynesian proposals failed for Bush in 2001 and 2008.
Just in case any politicians are reading this post, I’ll make a point that normally goes without saying: Borrowing money from one group of people and giving it to another group of people does not increase prosperity.
But since politicians probably aren’t capable of dealing with a substantive argument, let’s keep it simple and offer three very insightful cartoons: here, here, and here.
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If Only Politicians Were More Like Good Parents
Sometimes I wish politicians were more like good parents. I know that doesn’t sound very libertarian — the last thing we want is for politicians to become humanity’s moms and dads — but there’s at least one thing good parents do that most politicians constantly avoid: saying “no.”
When kids want their food pyramids to have a base of candy, center of ice cream, and peak of ice cream with candy sprinkles, good parents say “no.”
When young ‘uns want to show off their mumblety-peg skills with the Bowie knife they found in dad’s old camping gear, good parents say “no.”
And when the children want to borrow the family sedan for a little off-road speed competition, good parents say “no.”
Of course, saying no all the time doesn’t make life with the kiddos easy or fun. The kids get angry. Mom and dad fume. “I hate you” may even be uttered. But refusing to help the children seriously endanger their arteries, digits, or worse — even if it makes the parents’ life tougher — is what good parenting is all about.
If only our politicians would exercise the same restraint. But they don’t, with the latest case-in-point being the drive to keep interest rates on subsidized federal student loans at super-low levels. It will be the centerpiece of a three-state presidential tour beginning today.
Currently, interest rates on subsidized loans — loans on which Washington pays the interest while a borrower is in school and for a six-month period after graduation — are at 3.4 percent, a surface-skimming level reached after the College Cost Reduction and Access Act of 2007 cut rates in half over a five year period. Rates are scheduled to return to 6.8 percent in July.
The argument proffered for keeping the rates at 3.4 percent is that interest rates generally are at historic lows, and 6.8 percent would simply be too high. Much more important, though, seems to be the political reality: President Obama appears intent on currying favor with both college students and, frankly, any voters looking at exorbitant college prices and asking “how the heck am I going to pay for that?”
But it’s not just the current president who appears to be playing politics. Mitt Romney, the presumptive GOP challenger to Mr. Obama, yesterday also urged Congress to freeze the rate at 3.4 percent.
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Sometimes, Governments Lie (6th Anniversary Ed.)
(This blog post first appeared at Cato@Liberty following the release of the 2006 Medicare and Social Security trustees’ reports. I repost it, with updated links and “exhaustion dates” because sadly nothing else has changed.)
Year after year, federal officials speak of the Social Security and Medicare trust funds as if they were real. Yesterday Today, the government announced that the Social Security trust fund will be exhausted in 2040 2033 and that the Medicare hospital insurance trust fund will be exhausted in 2018 2024— projections that the media dutifully reported.
But those dates are meaningless, because there are no assets for these “trust funds” to exhaust. The Bush administration wrote in its FY2007 budget proposal:
These balances are available to finance future benefit payments and other trust fund expenditures—but only in a bookkeeping sense. These funds…are not assets…that can be drawn down in the future to fund benefits…When trust fund holdings are redeemed to pay benefits, Treasury will have to finance the expenditure in the same way as any other Federal expenditure: out of current receipts, by borrowing from the public, or by reducing benefits or other expenditures. The existence of large trust fund balances, therefore, does not, by itself, increase the Government’s ability to pay benefits.
This is similar to language in the Clinton administration’s FY2000 budget, which noted that the size of the trust fund “does not…have any impact on the Government’s ability to pay benefits” (emphasis added).
I offer the following proposition:
If the government knows that there are no assets in the Social Security and Medicare “trust funds,” and yet projects the interest earned on those non-assets and the date on which those non-assets will be exhausted, then the government is lying.
If that’s the case, then these annual trustees reports constitute an institutionalized, ritualistic lie. Also ritualistic is the media’s uncritical repetition of the lie.
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Tax Complexity: Am I a Liar?
Andrew Sullivan cited an op-ed of mine last week regarding the complexity of the tax code.
One person commenting on Andrew’s article said:
I am a corporate tax lawyer with 25 years’ experience. I can’t prove it, but in my experience the vast majority of the complexity of the tax law has nothing to do with tax breaks. It has to do with providing precise rules to deal with an infinite variety of structures and transactions, in the face of taxpayers and their tax counsel who are determined to minimize their tax bill. Rules relating to tax breaks are insignificant in volume compared to the rules relating to consolidated tax returns, corporate reorganizations, foreign tax credits, taxation of the foreign subsidiaries of U.S. corporations (Subpart F) and hundreds of other things.
The Cato Institute article you link to is filled with lies and half-truths (which is about what I would expect from a Cato Institute article on taxes). The ‘tax rules’ do not span 73,608 pages and do not cover nine feet of shelf space. The standard CCH edition of the Code is 5,500 pages long, but that is highly misleading. That volume is targeted at tax practitioners and includes old statutory provisions that have been repealed or revised. Because of the obscure way that the regs are paginated, it is not easy to tell how many pages they are, but I would estimate it at about 30,000 pages, which includes proposed regs and the preambles to regulations. The entire set of Code and regs takes up about 18 inches on my shelf. To give you an idea about how much the Code and regs have expanded over the years, my set from 1987 takes up around 10 inches.
The volume that Chris Edwards describes in the Cato article probably refers to the bound CCH Standard Federal Tax Reporter, which may indeed cover nine feet and contain 73,608 pages. However, that volume is exclusively designed for practitioners and includes not only the Code and regs, but also commentary written by CCH and annotations from case law.
I don’t understand why people make such snarky comments when they clearly haven’t done their homework. Let me note first that I mainly agree with the writer’s first paragraph, at least with respect to the business tax code. He points to what I call “homemade” loopholes, which are different from the loopholes specifically legislated by Congress for special interests. Homemade loopholes stem from the inherent complexity of taxing business income, and they are an important reason why chopping the high U.S. corporate tax rate would create a large dynamic response from businesses. That is, it would not be worth the cost or legal risk for businesses to invent so many tax avoidance tricks if we had a much lower corporate tax rate. If we cut the rate, the U.S. corporate tax base would expand automatically as homemade loopholes shrank.
Now, about those “lies.” CCH itself publicizes the data I used showing federal tax rules spanning 73,608 pages. The CCH folks have been publishing information on federal taxation since 1913, so they know what they are talking about. Note that I said tax “rules” not tax “code.” The total rules that tax practitioners have to take into account are lengthier than just the code and regulations, and that’s what the broader CCH publication captures.
By the way, my “nine feet of shelf space” comes straight from the IRS National Taxpayer Advocate. This official watchdog agency cites (on pages 4/5) the nine-foot CCH Standard Federal Tax Reporter as one of their metrics of tax complexity. In the past, I’ve called CCH analysts to discuss with them the meaning of their published page counts.
It is true that average households don’t get into the nitty gritty of those nine feet of rules. But many thousands of highly paid professionals do have to on behalf of their individual and business tax clients. That is part of the reason why the current federal tax system is so wasteful. It consumes the time and energy of a huge number of skilled people, probably including the grumpy tax lawyer who called me a liar.
If the CCH page count doesn’t convince Mr. Grumpy that the tax system is wasting a lot of human effort, here is one more IRS Advocate factoid for him to consider (page 5):
Two companies publish newsletters daily that report on new developments in the field of taxation; the print editions often run 50–100 pages and the electronic databases contain substantially more detailed information.
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Washington’s One Percent
Stories about the wealth of Washington, D.C., have become commonplace, but this Sunday front-page story in the Washington Post adds more details to the lifestyles of the rich and powerful:
At the Collection at Chevy Chase, a $1,100 purple python pump gleams in the window of the Gucci store. Across Wisconsin Avenue at TTR Sotheby’s, sales agents prepare to sell a $32 million riverview home near Annapolis — one of the most expensive properties ever listed in the D.C. area. And at a nearby Whole Foods, BMWs idle in the circular drive as shoppers dash in for $19.99-a-pound Dijon-crusted rack of lamb.
Long before “the 1 percent” became part of the political lexicon, a growing number of highly educated, dual-income families were driving the region’s top income levels into the stratosphere.
To be considered part of the 1 percent in this area, it takes a household income far above the national average of $387,000. The gateway for the region is $527,000. In the District, the top 1 percent of households bring in at least $617,000; in Montgomery County, more than $606,000; and in Fairfax County, $532,000, according to an analysis of census statistics by The Washington Post and Sentier Research, a firm that specializes in income data.…
The percentage of area households with impressive, if not eyepopping, salaries has grown as well. In 1980, just 3 percent of households in the region had incomes that were the equivalent of $200,000 or more in today’s dollars. Now [after an increase in the national debt from $1 trillion to $15 trillion] 13 percent do.
Sounds like the Capitol in The Hunger Games. Washington’s citizens are less frivolous, though — despite recent news stories. The one percent in Washington are lawyers, lobbyists, government contractors, and the doctors and entrepreneurs who serve them. But unlike regions where actual wealth is created — software, automobiles, financial services, capital allocation, movies and television, medicine — Washington’s economy is based on the confiscation and transfer of wealth produced elsewhere. As such, Washington’s wealth is a net loss for economic growth in the country.
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‘May Cause Drowsiness, Use Caution Around Machinery’
Frank Harty of the Iowa law firm Nyemaster Goode describes a new kind of employer headache arising from the Obama administration’s hardline enforcement efforts on the Americans with Disabilities Act (ADA) front:
…Common sense dictates that any medication that carries with it a warning that it “may cause drowsiness” or that the patient should “use caution” if operating machinery may pose a risk in the workplace. It is for this reason that many employers adopt a policy requiring employees to self report the use of prescription pain killers. This is especially important in potentially dangerous workplaces such as manufacturing and construction.
In a recent action that defies common sense, the Equal Employment Opportunity Commission has taken the position that such policies are unlawful under the Americans With Disabilities Act. The ADA prohibits an employer from conducting “medical inquiries” without a business reason to do so. In EEOC v. Product Fabricators, Inc., an action in federal court in Minnesota, the EEOC required a manufacturing employer to abandon its policy of encouraging employees to inform supervisors if they are under the influence of narcotic pain killers such as Vicodin. The EEOC took the position that an employer cannot ask about prescription pain killer usage unless it has “objective” evidence that an employee is impaired on the job.
This places employers in a very difficult position.…
In particular, it puts employers to a choice between waiting until there is an actual accident caused by an employee’s nodding off or zoning out — thus at last providing “objective” evidence of risk — and the risk of a large judgment payable to an employee who has not yet gotten into accidents and whose lawyer will claim that there was no objective evidence to support a suspicion of impairment.
The Eighth Circuit upheld the agency’s stance earlier this year and an EEOC press release from February notes that the company agreed to pay $40,000 to settle the dispute. Harty notes that one “thing is certain: it will be employers, not the Equal Employment Opportunity Commission, who deal with the fallout from the loss of life and limb in the workplace.”