Monthly Archives: February 2012

Two Economic Plans

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Here is a sort-of side-by-side comparison of Senator Rick Santorum’s economic plan with Governor Mitt Romney’s plan—only sort-of because they address different things in addition to their areas of overlap.

Senator Santorum opened the discussion of his plan with this:

…Obamanomics has left one in six Americans in poverty, and one in four children on food stamps. Millions seek jobs and others have given up.

while Governor Romney had similar words to introduce his plan:

We have record-breaking unemployment and deficit spending, and a tax code that looks like it was devised by our worst enemy to tie us in knots. These three afflictions are interconnected. I have a plan to address them and achieve three goals: more jobs, less debt, and smaller government.

Economic Area

Santorum’s Plan

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Romney’s Plan

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Individual Taxes

 only two income tax rates of 10% and 28%. triple the personal deduction for children, eliminate the marriage tax penalty. Strong step in the right direction in simplifying through reducing the number of tax brackets while reducing tax rates.But why keep the distorting subsidy? 20% reduction in marginal individual income tax rates A step in the right direction, but it maintains the multiplicity of tax brackets

 

 reduces tax rates for businesses that pay at individual rates and employ the majority of private-sector American workers Through the above 20% reduction

 

 abolish the death tax.  repeal the Alternative Minimum Tax Unequivocally good moves

 

 place some curbs on personal tax deductions, exemptions and credits Such as…?

Corporate Taxes

 corporate tax rate halved to a flat rate of 17.5%. expense all business equipment and investment. Taxes on corporate earnings repatriated from overseas eliminated Again a sound move.  But see my summary below about manufacturing taxes. reduce the corporate tax rate to 25% from 35%, transition from a world-wide taxation system to a territorial one A good step in the right direction.Especially, the territorial tax system can be very beneficial, depending on its details.

 

 make the R&D tax credit permanent Lower the tax rate further, and this distortion isn’t necessary.  Nor will it be necessary y to weasel-word what constitutes R&D.

 

 maintain the 15% rate on capital gains, interest and qualified dividends, and eliminate the tax entirely for those with annual income below $200,000. Mostly maintains the status quo, but the differential treatment of groups of Americans just continues Obama’s class warfare.Also, see above concerning distortions and tax rates.

 

 broaden the corporate tax base. In what way, exactly?

Federal Spending

 spending cuts of $5 trillion over five years, including cuts for the remainder of fiscal year 2013 A sound start, but reduced spending in what areas?

 

 cut means-tested entitlement programs by 10% across the board, freeze them for four years, and block grant them to states A good start, but why not reduce the size of the grants each year until they’re eliminated?  These are supposed to be State programs: get the Federal government out of them altogether.

Federal Budget

 propose budgets that spend less money each year than prior years Reduced spending in what areas?

 

 submit to Congress a budget that will balance within four years; call on Congress to pass a balanced-budget Constitutional amendment which limits federal spending to 18% of GDP. Reduced spending in what areas?An Amendment can be good or bad depending on how it’s written.Finally, calling for a thing is easy to do….

 

Unstated in his present plan is his prior insistence on continuing to use our tax code to perpetuate the myth of the usefulness of government-centric economic engineering: he singles out manufacturing for especially low tax rates—no manufacturing corporate tax at all.

In addition, Santorum had this to say about jobs: he’d approve the Keystone XL pipeline, and he’d repeal all “Obama administration regulations that have an economic burden over $100 million.”  I don’t understand, though, why he exempts similar regulations from earlier administrations.  He also insists that Federal agencies must use “sound science and cost benefit analysis;” although here, too, he’s short on specifics, like what analyses fit this bill, or what constitutes “sound” science and cost benefit analysis.

Santorum also says he’ll work to replace Obamacare with “competitive insurance choices,” but without saying what constitutes “competitive” in his view—and he claims to be able to achieve this while maintaining a mandate that somebody must “protect those with uninsurable health conditions.”

Finally, he promises to present to Congress five free trade agreements his first year—but with whom?

Romney, on the other hand, expects his lower taxes to stimulate job growth.  He’s not far wrong here, but more specifics about jobs would have been nice in addition to those tax system generalities.

Both plans are vague on spending cuts, and both continue market distorting subsidies/tax credits of one sort or another—never minding that these simply continue government-generated distortions in our economy, driving up the prices of things that are subsidized and forcing all of us to pay for those price increases, whether we buy the subsidized item or not.  The two plans also emphasize different sides of the revenue coin: Romney focuses on the tax system while Santorum dwells more on spending and budgeting.

In the end, both plans, shortfalls and all, are enormous improvements over the Progressives’ plan of increased spending, higher taxes, exploding debt, and starker class warfare.

Managed Economies and Real Estate

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The People’s Republic of China offers a demonstration of the…complexities…involved in centrally managed a national economy, and the risks to those who attempt to operate in such an environment.

The present example centers on the Chinese real estate market.

Real estate was once one of the nation’s most successful industries. [D]evelopers plowed billions of dollars into huge developments—with apartments, commercial space, pools and golf courses—outside top-tier cities such as Beijing and Shanghai.

Now, having been drawn in by expansive government policies, those players are being damaged, if not destroyed, by that same government changing its rules.

Policies enacted since 2010 include restrictions on the purchase of second homes, higher down payments and tighter credit [, and] China’s two-year push to drive down property prices has punished many of the nation’s once highflying property developers and stymied a number of upscale projects.

And so we have this:

Today, the Xi Shui Dong development [for example, a 59-acre complex in Wuxi] stands less than half complete, hamstrung by its parent company’s high debt and tough new government restrictions. Last year, unit sales fell 25% from 2010, despite steep discounts. Construction cranes loom over mostly empty streets boasting only a handful of retailers.

Real estate developers are victims of the vagaries and capriciousness of government control over the nation’s real estate sector—controls which change as government changes its mind unpredictably, and as new members of government, anxious to make their own mark, decide they have a Better Idea and push it through.

Energy Then and Now

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I’ve been going back through a book I first read 30 years ago, the National Academy of Sciences’ Energy in Transition 1985-2010: Final Report of the Committee on Nuclear and Alternative Energy Systems.

At this point I’m less interested in specific predictions (over a future 25 year period?) than I am in the thinking and policies espoused by the NAS (and later by a variety of government administrations, as it will have turned out) to achieve the report’s goal of reduced energy consumption by the US.  Thus, the book leads off with this (remember, this is a 1980 copyright):

Slowing the growth of energy demand will be essential, regardless of the supply options developed in the coming decades.  In fact, the demand element of the nation’s energy strategy should be accorded the highest priority.  …this reduction could be accelerated by such explicit government policies as taxes and tariffs on energy and standards for performance….  [G]rowth of demand for energy in this country could be reduced substantially…by price-induced shifts toward less energy-intensive goods and services.

So much for recovering our manufacturing capacity.  The NAS continued [emphasis added]:

A major conclusion…is that technical efficiency measures alone could reduce the [energy/GNP [the earlier measure of US economic output]] ratio to as little as half its present value….  (This conclusion is sensitive to the prices assumed in the analysis,…result of this magnitude is attained only if prices…increase more rapidly than probable in a market at equilibrium.)

In some cases the price increases necessary…would have to be secured by taxes that would open up a wedge between consumer prices and the cost of producing and delivering energy.

The NAS had this to say about the impact of such measures [again, my emphasis]:

To avoid economic penalties, the rate of replacement must generally depend on the normal turnover of capital stock…though rising energy prices will accelerate this turnover in most cases.

“Normal turnover,” carefully manipulated by government interference with free market pricing through those taxes and tariffs and standards.

The real problem is finding a new balance between energy supply and energy demand, consistent with generally satisfactory overall economic performance. …

Tax, tariff, and price control policies…are important influences on the demand for energy.  But energy consumption can also be molded directly—for example, by imposition of mandatory standards for the efficiency of energy-using equipment….

Here is the NAS’ endorsement of economic management from the center—from government—preferring that to the clutter of a market of free actors freely interacting; i.e., we individual Americans acting in our own self-interest, unfettered by government, and achieving our own balance and defining for ourselves our “generally satisfactory performance.”  A free market at equilibrium is not to be tolerated.

Does any of this sound familiar in today’s political (I hesitate to say economic) environment?

A Wise and Practical Man

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What he said.

The Honorable Barack Obama
President
The White House
Washington, DC 20500

Dear Mr. President:

I am writing today to urge your Administration to take overdue but necessary action to confront soaring gasoline prices. In the last three years, gas prices have doubled, draining the disposable income of millions of hardworking Americans. In 2011, the typical U.S. household already spent $4,155 on gasoline, almost 10 percent of their income. Yet some analysts now predict prices may rise this year to more than $5.00 per gallon.

In a speech this Thursday, you stated that “there are no quick fixes to this problem. You know we can’t just drill our way to lower gas prices.” While we should explore a variety of energy resources—most especially those which do not put taxpayer dollars at risk—I respectfully disagree that we cannot utilize our remarkably vast untapped energy reserves to provide Americans with much-needed relief. I reject the defeatist view that says the nation that won two world wars, pioneered space travel, and overcame the Soviet Empire is now helpless in the face of high prices at the pump. We are not at the mercy of dictators, cartels, and events beyond our control.

Simply by removing the bureaucratic barriers imposed by your own administration we can begin to make progress. But we can go much further than that. Powerful action to harness America’s untapped oil and gas resources would place downward pressure on prices and speculation in the short-run and, by surging global supply, would serve to keep prices low in the future. Crucially, it would also provide millions of Americans with good-paying private-sector jobs; produce substantial royalties for local, state, and federal governments; reduce our enormous trade imbalance; and put an end to our huge wealth transfer from America to competitors oversees.

I therefore recommend the following proposals for immediate implementation:

1. Restore the bipartisan 2010–2015 offshore lease plan to ensure that the 31 lease sales called for in that plan are completed expeditiously. Your Administration only directed one lease sale in 2011 and has announced just one lease sale for 2012, far short of the number of sales that would have occurred over this period under the original 2010–2015 plan that your Administration discarded.

2. Take all necessary steps to accelerate the leasing and permitting process for domestic shale oil production. The United States has recoverable shale oil reserves estimated at 800 billion to 1.2 trillion barrels, meaning our nation has potentially three to four times more recoverable oil than any other country in the world except Canada.

3. Maximize energy production from federal lands. As I and 21 other Senators noted in a January 25, 2012 letter to you, actual oil production on federal lands is now just 714 million barrels per year, a 16 percent decline from what was projected just five years ago. This decline must be reversed.

4. End the de facto moratorium on permitting for offshore oil and gas production.

5. Direct the EPA, the Department of Energy, and other federal agencies to grant all necessary waivers and approvals to oil and gas refineries to facilitate maximum production at minimum cost. Refinery expenses comprise 11 percent of the price for gasoline that Americans pay at the pump, but your Administration has imposed numerous regulations that have driven refining costs up, not down.

6. Abandon your proposal to increase taxes and fees levied on U.S. energy production by more than $40 billion. These additional costs would be passed along to consumers, taking money out of their pockets and discouraging needed domestic production.

7. Approve the Keystone XL pipeline and grant necessary waivers, licenses, and permits, where possible, to ensure expedited completion of this important North American energy project. The pipeline would carry 700,000 barrels a day to U.S. refineries, which is nearly half what the U.S. currently imports from the entire Middle East.

America has the potential to fundamentally shift the balance of power in global energy production—to produce more energy, more efficiently and more cheaply, than your Administration has recognized. Such bold steps will broadcast an unmistakable signal to the world that not only places downward pressure on prices in the near-term but helps deliver a future of abundant, affordable energy. Moreover, unlike costly short-term stimulus, achieving energy independence would provide long-term relief to both struggling families and our indebted treasury.

I look forward to working with you on this important matter.

Very truly yours,

Jeff Sessions
U.S. Senator

Hmm….

President Obama’s Energy Policy

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Last Thursday, President gave a speech on his energy…policy.  Investor’s Business Daily looked into some of the claims he made.

“We’re focused on production.”

Fact: While production is up under Obama, this has nothing to do with his policies, but is the result of permits and private industry efforts that began long before Obama occupied the White House.

Obama has chosen almost always to limit production. He canceled leases on federal lands in Utah, suspended them in Montana, delayed them in Colorado and Utah, and canceled lease sales off the Virginia coast.

His administration also has been slow-walking permits in the Gulf of Mexico, approving far fewer while stretching out review times, according to the Greater New Orleans Gulf Permit Index. The Energy Dept. says Gulf oil output will be down 17% by the end of 2013, compared with the start of 2011. Swift Energy President Bruce Vincent is right to say Obama has “done nothing but restrict access and delay permitting.”

and

“The U.S. consumes more than a fifth of the world’s oil. But we only have 2% of the world’s oil reserves.”

Fact: Obama constantly refers to this statistic to buttress his claim that “we can’t drill our way to lower gas prices.” The argument goes that since the U.S. supply is limited, it won’t ever make a difference to world prices.

It’s bogus. New exploration and drilling technologies have uncovered vast amounts of recoverable oil.

In fact, the U.S. has a mind-boggling 1.4 trillion barrels of oil, enough to “fuel the present needs in the U.S. for around 250 years,” according to the Institute for Energy Research. The problem is the government has put most of this supply off limits.

and

“There are no short-term silver bullets when it comes to gas prices.”

Fact: Obama could drive down oil prices right now simply by announcing a more aggressive effort to boost domestic supplies. When President Bush lifted a moratorium in 2008, oil prices immediately fell $9 a barrel.

Finally, here’s how another nation that did, indeed, drill its way out of its foreign oil dependency—while its own ethanol program provided minor support to the dependency reduction (via PowerLine).

Brazilian Oil Production and Consumption, 1980 - 2009

Brazilian Oil Production and Consumption, 1980 - 2009