Monthly Archives: April 2012

The Latest “Recovery” Numbers

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First, some numbers via The Wall Street Journal:

  • Commerce Department: 2.2% growth for the first quarter of 2012.
    • down from 3% at the end of last year.
    • close to the 1.7% that all of 2011 had.
  • Recession-created pent up demand for cars and trucks accounted for half of that increase in GDP—1.1%.
    • “Real” growth in GDP, then, was 1.1%.
  • Businesses building up inventories accounted for another 0.6 percentage points of GDP growth.
    • Now we’re down to 0.5% “real” growth.
  • Businesses, over the last six months, have added inventory by more than $120 billion.
    • foretells lower business spending in the nearby future as that expanded inventory needs to be sold off.

As backdrop for all that, our GDP grew on the year by $600 billion, but Federal debt climbed by $1.3 trillion—more than twice GDP growth—in the same period.

Now, about President Obama’s enormous tax increase scheduled to take effect next January.  A worker’s Social Security tax bill will go up by nearly 50% as the payroll tax holiday expires, and his income tax bill will go up drastically: a lower income worker will see his first marginal tax go from 10% to 15% as Obama simply erases that 10% bracket, while a high-income worker will see his top marginal rate run up from 35% to 39.6%.

And this doesn’t include Obama’s tax increases on capital gains and dividends—levied on those rich investors like retired grandma for whom dividend income plays such a major role, and on those middle class investors—the ones whose 401(k)s or whose company-provided pensions invest for dividend and cap gain income.

Imagine the impact on GDP—and on the practical economy in which we must live—of these tax explosions.

Obama Got One Right

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President Obama is in hot water over a decision by his Health and Human Services Secretary, Kathleen Sebelius, to limit access to Plan B/Morning After pills to prescription only for girls 17 years old and younger.  Women 18 and older still can get the pill over the counter.

President Obama is right on this one.  Yes, he’s reputed to be “the most pro-abortion in the history of the United States.”  So what?  Those who use this to decry Obama’s hypocrisy are ignoring an important aspect of this issue.

While there is a legitimate question concerning the adequacy of the science and whether this pill is safe for “young teens,” there’s a larger matter involved.  Sex and pregnancy are serious matters, even for adults.  These girls, who are 17 and younger, are both legally and emotionally children.  It’s true enough that “18” is an arbitrarily drawn line for defining legal majority.  However, it’s also true that children lack the maturity to make reasoned judgments about the risks they run when they engage in various behaviors, including sex.

Whether or not this is the motivation for Obama’s decision, requiring the prescription for minor children is a pathway to getting/keeping parents involved, and parents need to be involved where their children are concerned.  Certainly, some children mature faster than others, some parents are bad parents, and many adults make bad decisions.  However, that last is irrelevant to this, and the maturation and examples of bad parenting are exceptions—they cannot justify a blanket rule granting all children access to this sort of medication without adult supervision—ideally, their parents’ supervision.

A Thought on Taxes

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With a tip of the hat to The Wall Street Journal, and a caution to those who insist on raising our taxes—including doing so only to certain governmentally disfavored groups.

Henry Hazlitt in “Economics in One Lesson,” 1946:

When a corporation loses a hundred cents of every dollar it loses, and is permitted to keep only 60 cents of every dollar it gains, and when it cannot offset its years of losses against its years of gains, or cannot do so adequately, its policies are affected. It does not expand its operations, or it expands only those attended with a minimum of risk. . . .

There is a similar effect when personal incomes are taxed 50, 60, 75 and 90 per cent. People begin to ask themselves why they should work six, eight or ten months of the entire year for the government, and only six, four or two months for themselves and their families. If they lose the whole dollar when they lose, but can keep only a dime of it when they win, they decide that it is foolish to take risks with their capital. In addition, the capital available for risk-taking itself shrinks enormously. It is being taxed away before it can be accumulated. In brief, capital to provide new private jobs is first prevented from coming into existence, and the part that does come into existence is then discouraged from starting new enterprises. The government spenders create the very problem of unemployment that they profess to solve.

What he said.

Sound Currency Policy

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A Sound Dollar Act was introduced in the House of Representatives last month by the Vice Chairman of the House Joint Economic Committee, Congressman Kevin Brady (R, TX), and a companion bill was offered in the Senate by Senator Mike Lee (R, UT), who sits on, among other committees, the Senate Joint Economic Committee.

This bill has a couple of interesting aspects.  For one thing, it would limit the Federal Reserve Bank system  to a single mandate—to maintain price stability, i.e., control inflation.  It would eliminate the Fed’s current other mandate, that of maintaining full employment.

This simplified requirement would both eliminate the conflict inherent between those two requirements and reduce the government’s involvement in what is essentially a private economy imperative—the decision to expand a business, or not, and to employ more or fewer personnel (with a free market economy’s inherent bias toward more employment stemming from a prior inherent bias in favor of growth).

The bill also would reduce the Executive Branch’s political dominance of the Fed.  Currently, the Federal Open Market Committee, the instrument of the Fed that sets monetary policy, has as voting members seven men and women who are appointed by the President, the president of the New York Federal Reserve Bank (these eight are permanent voting members), and four presidents of the Fed system’s remaining eleven regional Federal Reserve Banks (the four rotate among the remaining eleven).  Thus, monetary policy is set by Presidential appointees.  Certainly, those appointees are nearly as independent as a President-appointed Supreme Court Justice, but still.  Under the bill, all 12 presidents of the individual Fed banks would become permanent FOMC voting members, so the regions collectively would outnumber the President’s appointees.  The advantage here is that the individual bank presidents are appointed by boards of directors made up of bankers and business leaders local to each of the Federal Reserve System’s regions.  In this way, the regions, which better understand their situations than can a remote government, would gain significant influence over FOMC decisions that impact those regions.

The Sound Dollar Act also would limit the Fed to purchases of Treasury securities.  This would reduce the ability of the Fed to make credit allocation decisions—to pick and choose which banks, for instance, it will “save” by buying from them the toxic asset du jour.  Bailout or bankruptcy is a free market decision; no government instrumentality, other than a bankruptcy court, has any legitimate role in the matter.

I’m not sure allowing the Fed even to buy Treasuries is a good idea, though, unless it’s done after the free market has bought what it wants, and then only at that just demonstrated set of prices.  If the Federal government is such a poor credit risk that it has trouble peddling its debt to private investors, or other governments, why should the American taxpayer be Dragooned into taking on that risk?

With some tweaks, this is a bill that would serve well.  We just need to get the Big Government types out of government and so out of the way.

Incidentally, the WSJ‘s op-ed also has some words on the Fed’s success rate with that other mandate, maintaining “full employment,” and why it’s useful to take that DOC away from the Fed.  RTWT.

A Couple of Related Items

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The Wall Street Journal reports that the Securities and Exchange Commission gave up the identity of a Pipeline Trading Systems LLC whistleblower when an SEC lawyer decided to show the PTS executive the lawyer was questioning a notebook compiled by the whistleblower that was “filled with jottings about trades, calls and meetings.” The executive in question recognized the whistleblower’s handwriting.

The WSJ article also cites an SEC spokesman:

Our review of the facts confirms that we followed this practice in this case.  While we utilize evidence from all witnesses, we do not reveal which witnesses may be cooperating with the government except as required by law or the governing rules of civil procedure.

Oops.  Apparently, given the spokesman’s claim that the lawyer “followed this practice” in the present case, it’s SEC civil procedure to give a whistleblower’s identity to the investigation target during the investigation.

In another WSJ report, we learn that The Obama/Holder Justice Department “inadvertently misled the Supreme Court in January 2009 by asserting that officials routinely ‘facilitate’ the return of erroneously deported immigrants.”  That assertion was provided the Supremes pursuant to Nken v Holder, and Chief Justice John Roberts cited it in a ruling that deportation while an appeal was still pending didn’t necessarily impose irreparable harm on immigrants.  This revelation is especially timely given that the Supreme Court also heard arguments this week about the legitimacy of Arizona’s immigration law,

Oops.  Sorry about that.

How are they related?  By the dishonesty shared by these government organs.  Why dishonest?  Because the lawyers involved are highly trained, very intelligent people, and they were not acting on the spur of the moment.  It stretches credulity well past breaking to think these were simply careless mistakes.

For how much longer can afford this level of dishonesty in our government?