Tag Archives: economics

Nominations

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Here are three and their positions on various matters of some import.

Chuck Hagel, Secretary of Defense:  President Barack Obama has put him up to forward Obama’s defense policy of global retrenchment and defense cutbacks.

Hagel thinks it’s appropriate to negotiate with terrorists—Hamas, for instance—and he refused to join a US Senate letter to the EU calling on them to label Hamas a terrorist organization.

In a 2006 op-ed for The Washington Post, he called for a troop withdrawal in Iraq—right before the successful surge, which he also opposed when it came up.

In response to current SecDef Leon Panetta’s statement that the present sequester would gut Defense, and while the Joint Chiefs of Staff were telling Congress that the sequester would lead, variously, to “a severe and irreversible impact on the Navy’s future,” “a Marine Corps that’s below the end strength to support even one major contingency,” and “an unacceptable level of strategic and operational risk” for the Army[,]” Hagel insisted that the “Defense Department, I think in many ways, has been bloated….  So I think the Pentagon needs to be pared down.”

I won’t go over his anti-gay verbal assault on a Luxembourg ambassador nominee, except to note that his attitude will impact Defense’s (repealed) Don’t Ask Don’t Tell policy.

John Brennan, Director, CIA: Obama selected Brennan to put forward Obama’s policy of no intel collection, just kill them with drones:

Brennan is closely identified with the Obama administration’s expanded policy of using drones…to strike at suspected militants in countries such as Yemen, Somalia, and Pakistan.  The Washington Post refers to Brennan as “the principal architect of a policy that has transformed counterterrorism from a conventional fight centered in Afghanistan to a high-tech global effort to track down and eliminate perceived enemies one by one.” The Post adds that Brennan is at the “core” of the White House centered effort to use drones and that “when operations are proposed in Yemen, Somalia or elsewhere, it is Brennan alone who takes the recommendations to Obama for a final sign-off.”

In truth, there’s much to be applauded about this policy; however, like all things, it can be overdone—and it is here, through the blind, unconsidered application of drone strikes.  The biggest symptom of the policy’s failure?  The utter lack of intel coming out of these strikes.  Dead men, after all, tell no tales.

Brennan compounded this failure, though, with this lie:

There hasn’t been a single collateral death because of the exceptional proficiency, precision of the capabilities we’ve been able to develop.

On top of this, Brennan has no understanding of the fundamentals of terrorism: he’s called jihad a “legitimate tenet of Islam,” insisting instead that these poor, misguided violent extremists are victims of “political, economic, and social forces.”

Jacob “Jack” Lew, Secretary of the Treasury: Obama selected him to continue Obama’s policy of extended (and extensive) borrowing and spending.  But he, too, cannot be trusted.

When Lew was Obama’s Director of OMB, he testified before Congressional committees on Obama’s budget proposals:

Our budget will get us, over the next several years, to the point where we can look the American people in the eye and say we’re not adding to the debt anymore; we’re spending money that we have each year, and then we can work on bringing down our national debt.

President Obama’s budget proposals then added at least $600 billion to the deficit every year.

As Senator Jeff Sessions (R, AL) puts it

[Lew’s] testimony before the Senate Budget Committee less than two years ago was so outrageous and false that it alone disqualifies him.

There’s more.  Lew claimed that the reason the Democratic Senate hadn’t adopted a budget is that it was being filibustered by Republicans.  This demonstrates breathtaking ignorance of the Congress, or further dishonesty, or both.  Budgets cannot be filibustered—they get up or down votes and the majority carries the outcome.  He also misrepresented the fact that the House (led by Republicans) has passed a budget every year since 2010, and the Senate (led by Democrats) have refused even to debate them.

And there’s this exchange between Bernie Sanders (I, VT) and Lew [emphasis added]:

When asked by…Sanders…at a Senate confirmation hearing in 2010, when Lew was nominated to be head of the Office of Management and Budget, whether the deregulation pushed by Rubin and former Fed Chairman Alan Greenspan had “contributed significantly” to the banking crisis, Lew responded:

“Senator, I don’t consider myself an expert in some of these aspects of the financial industry.  My experience in the financial industry has been as a manager, not an investment adviser.  My sense, as someone who has generally been familiar with these trends, is thatthe problems in the financial industry preceded deregulation.  There was an increasing emphasis on highly abstract leveraged derivative products that got us to the point, that, in the period of time leading up to the financial crisis, risks were taken, they weren’t fully embraced, they weren’t well understood.

I don’t personally know the extent to which deregulation drove it, but I don’t think deregulation was the proximate cause.”

That is a statement of such profound (faux) ignorance that it’s awe-inspiring that Lew would say such a thing out loud.  Moreover, he was one of the senior economic advisors working for President Bill Clinton when Clinton signed the legislation making all of those “derivative products” exempt from the reach of any existing government regulation or regulatory agency.

Tax Failures

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The Foundry is offering a list of tax increases that went into effect with the start of the year, the fiscal cliff fiasco notwithstanding.  Here are some of them, and the Obama attack on jobs embodied in them is…interesting.

Payroll tax: increase in the Social Security portion of the payroll tax from 4.2% to 6.2% for workers.  This hits all Americans earning a paycheck—not just the “wealthy.”  For example, The Wall Street Journal calculated that the “typical U.S. family earning $50,000 a year” will lose “an annual income boost of $1,000.”

I have trouble with this.  Conservatives do themselves no good to tout this as a tax increase.  This is, in fact, merely the expiration of a payroll tax reduction that was purely temporary from the start, and advertised and passed as temporary.  Worse, this tax holiday was nothing but vote pandering while defunding an already failing Social Security System.

Tax rates on investment: increase in the rate on dividends and capital gains from 15 percent to 20 percent for taxable incomes over $450,000 ($400,000 for single filers).

Taxes on business investment: expiration of full expensing—the immediate deduction of capital purchases by businesses.

Another investment tax increase: 3.8 percent surtax on investment income for taxpayers with taxable income exceeding $250,000 ($200,000 for singles).

Medical device tax: 2.3 percent excise tax paid by medical device manufacturers and importers on all their sales.

These directly attack jobs and job creation.  With active disincentives on investments, these will, inevitably, fall.  With reduced investing, there is less capital available for business’ R&D, which represents new products in production, which represents new—and more—jobs in the producing.  With reduced investing, there is less capital available for business expansion, and such expansion translates directly into jobs.

Death tax: increase in the rate (on estates larger than $5 million) from 35 percent to 40 percent.

Another payroll tax hike: 0.9% increase in the Hospital Insurance portion of the payroll tax for incomes over $250,000 ($200,000 for single filers).

The increase in the death tax makes it harder for small business owners to pass on to their heirs their businesses.  This hits particularly hard businesses whose value is largely tied up in physical assets, like small manufacturers and small farmers.  These folks will be faced with an increasing likelihood of having to sell their businesses, or major components of them—things they’ve spent a lifetime building up—in order to pay the death vig.  These sales/downsizings represent existing jobs that will go away with the sale/downsize.

That last payroll tax increase also will hit the small business owner especially hard.  It just got more expensive to hire additional labor or to keep existing labor.  Moreover, there’s significant opportunity cost: that 0.9% tax represents money that now cannot be committed to R&D (already expensive for small businesses) in an effort to stay competitive; or committed to improved marketing in an effort to maintain/grow market share; or committed to payroll in the form of a new hire, pay raises, bonuses; or….

 

h/t The Spirit of Enterprise

An Obamacare Outcome

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Omaha, NE’s, WOWT television reports that an 11-restaurant Wendy’s franchise

has announced that all non-management positions will have their hours reduced to 28 a week.  Gary Burdette, Vice President of Operations for the local franchise, says the cuts are coming because the new Affordable Health Care Act requires employers to offer health insurance to employees working 32-38 hours a week.  Under the current law they are not considered full time and that as a small business owner, he can’t afford to stay in operation and pay for everyone’s health insurance.

The reduction will affect 100 Wendy’s franchise employees.  Here’s another example of Obamacare pricing those it claims to help out of the market.

Middle Class, Luck, and American Power

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George Friedman, writing for Stratfor (he’s also their Founder and CEO), has an article out concerning the American middle class and American global power.  The whole article is well worth reading, but for now, the relevant remark comes near the end:

It would seem to me that unless the United States gets lucky again, its global dominance is in jeopardy.  Considering its history, the United States can expect to get lucky again….

The luck to which Friedman refers concerns some fortuitous unintended consequences, and he offers three examples:

The GI Bill was designed to limit unemployment among returning serviceman; it inadvertently created a professional class of college graduates. The VA loan was designed to stimulate the construction industry; it created the basis for suburban home ownership. The Interstate Highway System was meant to move troops rapidly in the event of war; it created a new pattern of land use that was suburbia.

The threat to our status as a global power—and by extension to our freedom of action as a nation—stems from a generation of the failure of a long-standing belief in American culture—the faith in the availability of economic upward mobility.  For instance, median household income in 2011 was $49,000, just below the level in 1989 in real terms; it seems that upward mobility has stagnated.

Luck matters, but to a very large extent, we make our own luck.

Underlying this making is individual responsibility, individual initiative, and individual risk-taking.  In all of our past booms, including those in which fortune played a role through those unintended consequences, the freedom to exercise those individual characteristics was both broadly present and not very much circumscribed by government intervention.

Here’s a present example of the role played by fortune, this time negatively: those individual characteristics, and parallel ones in business, are severely circumscribed by government regulation in all aspects of our lives.  We’re restricted in what we’re permitted or required to buy or to throw away (see Obamacare and CFL bulbs), in the decisions businesses are permitted to make in their own interests rather than government’s (see Obamacare and Dodd-Frank with its CFPB abomination), in what businesses are permitted to release as by-products of production or sales.

Our ability to make our own luck, today, is severely limited by government.  Fortuitous unintended consequences are a lot less likely in an environment of rapidly increasing government control over the economic environment which underlies the making of that luck.

There’s another factor at play, too: those government restrictions also have the unintended consequence of restricting upward mobility.  The poor become trapped in their stratum and cannot move up into the middle class due to those restrictions’ effect on job creation and hiring.  This not only works to the detriment of those poor, it shrivels the remaining middle class.

Some Graphs on Unemployment

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Here are some graphical illustrations of the ongoing devastation of the Obama Recovery, from The Big Picture. 

The U-6 unemployment rate includes the rate for folks who are underemployed as well as the folks who are unemployed but still looking for work.

Think of the damage done to that teen-aged and early-20s cohort in terms of work experience and earning power lost.  This loss is made all the worse for occurring at the start of their careers, where the opportunity cost is the greatest, and it leaves them permanently behind in what they could have accomplished compared to their peers in past, real recoveries and their peers in future, real recoveries.  This is nearly as devastating to our society and to our economy as the as the physically lost generations from war are to nations’ societies and economies.

It doesn’t look like it’s going to get any better, either.  The only upside for that youth cohort is that they have time in their lives for (some) recovery.  Older age cohorts have no such time.

The rapid reduction in the size of our labor force is not at all being helped by President Barack Obama’s economic policies.

Finally, just to put the Obama Recovery in perspective:

 

h/t Spirit of Enterprise