No Truce With Kings

Unless maybe you’re a Keynesian.

Amusing

Here’s an interesting topic from NPR’s Planet Money: Six Policies Economists Love (And Politicians Hate).

Here’s the short list of policies; there’s explanation for each in the post so Read The Whole Thing. (Or listen to the epsiode here.)

One: Eliminate the mortgage tax deduction.
Two: End the tax deduction companies get for providing health-care to employees.
Three: Eliminate the corporate income tax.
Four: Eliminate all income and payroll taxes.
Five: Tax carbon emissions.
Six: Legalize marijuana.

I’d argue against #5 since I’m not convinced carbon emissions are the negative externality that many others think they are. But the rest of the list makes a lot of sense.

The corporate income tax in particular has never made any sense to me. What do we think we’re taxing? It’s either (a) investment capital that’s used for taxes so it can’t be re-invested or (b) it’s a cost that’s passed on to customers or (c) it’s individual income being taxed (i.e., lower dividends)… yet again. WTH?

Does anyone honestly think the government is better at making capital investments than the market is? And if you do think so, have you checked your Social Security account balance lately?

The economists on the show were an interesting mix.

Dean Baker, co-director of the Center for Economic and Policy Research in Washington, D.C., and widely published blo “You could probably describe me as left of center. It’d be fair.”

Russ Roberts, George Mason University economics professor. “In the grand spectrum of economic policy, I’m a pretty hard core free market guy. I’m probably called a libertarian.”

Katherine Baicker, professor of health economics at Harvard University’s Department of Health Policy and Management. We simply called her a centrist on the show.

Luigi Zingales, professor of entrepreneurship and finance and the University of Chicago’s Booth School of Business. “What I like to say is that I’m pro-market, but not necessarily pro-business.”

Robert Frank, professor of management and economics at Cornell University’s Johnson Graduate School of Management. “I’m a registered Democrat. I think of myself as a radical pragmatist.”

In a theoretical sense, this recent decision by the European Court of Justice strikes me as propagating an injustice because it spreads some peoples’ misfortunes to everyone else. Whatever happened to being responsible for your own problems, the Stiff Upper Lip, and similar attitudes?

But in more practical terms, just think of all those who’ll be gaming the system. File a sick claim during a vacation and cop another month or so of time off. I’m sure there are plenty of doctors who’ll be willing to document the severity of your illness – with a little of the old quid pro quo.

Then think of how little surplus European countries have left in their economies to pay for this type of regulatory nonsense. Here’s an article from the New York Times describing the court’s decision (which manages to ignore the fact that people respond to incentives).

On Vacation and Sick? A Court Says Take Another

BRUSSELS — For most Europeans, almost nothing is more prized than their four to six weeks of guaranteed annual vacation leave. But it was not clear just how sacrosanct that time off was until Thursday, when Europe’s highest court ruled that workers who happened to get sick on vacation were legally entitled to take another vacation.

“The purpose of entitlement to paid annual leave is to enable the worker to rest and enjoy a period of relaxation and leisure,” the Court of Justice of the European Union, based in Luxembourg, ruled in a case involving department store workers in Spain. “The purpose of entitlement to sick leave is different, since it enables a worker to recover from an illness that has caused him to be unfit for work.”

With much of Europe mired in recession, governments struggling to reduce budget deficits and officials trying to combat high unemployment, the ruling is a reminder of just how hard it is to shake up long-established and legally protected labor practices that make it hard to put more people to work and revive sinking economies.

Update: Via Samizdata, I ran across an article in The Telegraph about this decision. It’s titled It’s cruel European judges who are destroying jobs and contains some interesting paragraphs in it. Here are a couple:

[…] Of itself, this will not add much to the unemployment totals. Our government estimates that it could cost British employers around £100 million ($156 million – jhc) a year. Spread throughout the economy, that is an irritation, not a catastrophe. But it is an unnecessary irritation. It sends all the wrong messages. A violation of common-sense, it adds to the job-stroke which is having such serious consequences in most of the EU. It reinforces the impression which many employers have formed over the past few decades: that hiring workers is risky and should be avoided wherever possible.

[…]Since the 1950s, employers’ options have opened up. They can replace men with machines. They can dispense with highly paid and truculent first-world workers and relocate manufacturing to countries where the locals are cheaper, docile and grateful. This creates difficulties. Although the right to work is economic nonsense, any advanced society will wish to run its economy as near as possible to full employment. A few years ago, the US had achieved that, by making it easy for employers to hire and fire. As a result, American workers had far fewer rights than their European equivalents, but anyone who wanted a job could have two of them.

Update: My brother the postmaster writes, "This idea of being able to use sick leave if sick supposedly while on annual leave is not so remote after all, since it’s already in place in the U.S.P.S. union contracts, and is used by a few […] So, I assume it’s also in place for other U.S. government workers."

Here’s a chart from Business Insider for the spot price of oil as of today (I believe). It highlights the fact that the price dropped below $90 per barrel for the first time since last October.

What are those silly oil speculators thinking? They’re driving the price down! And just before the peak driving season in the US?

Somebody ought to give them a clue.

I’ve been reading Aaron Clarey’s book Behind the Housing Crash. I haven’t finished it yet but I think that anyone with savings or investments in U.S. financial institutions should read it.

It’s a well-told account of how the housing bubble came into being and then popped. Clarey tells the story from his point of view as an analyst/underwriter for commercial loans at a credit union and then at some local banks in the Minneapolis/St. Paul area. It’s like a tour of a financial butcher shop.

I think Clarey has a good grasp of financial basics – in part because he confirmed one of my own conclusions about the U.S. markets. I used to wonder about the phenomenal run-up in stock prices over the last 30 years. To illustrate, I recall a friend asking me in the early 80s, “When do you think the Dow will break 1000?” and then in the late 90s I called him and asked, “So, Mike, when do you think the Dow will break 10,000?”

My conclusion was that there was too much money chasing too few investments – that the increasing amount of retirement money was driving the demand up while the supply of equities remained relatively fixed. What else explained a 10-fold gain in the DJIA in less than 20 years? There had been nothing like it in the history of the U.S. exchanges.

My next thought was that maybe this was due to the way the tax code for retirement plans was written In the U.S., tax-deferred retirement savings can only be invested in stock and bond markets.

(What will happen to the price of stocks and bonds as the Baby Boomers start drawing out their retirement money and changing their investment patterns is left as an exercise for the reader.)

So I was intrigued to see Clarey mention this tax law factor himself as a reason for the bubbles of recent history. In particular, he writes about how all the retirement funds in the market drove the dot com bubble and then were a ready market to buy CDOs (bundled mortgages), which was one of the factors driving the housing bubble.

Clarey writes the Captain Capitalism blog.

An interesting illustration of how little is being done to manage the US debt-limit crisis.

And there’s an ironic side note in this post from Reason’s blog. The first two paragraphs…

Uncle Sam Tells Americans How to Get Out of Debt

After saddling the country with as much new debt as the rest of the world combined in one year flat, one would think that Uncle Sam wouldn’t have the cojones to dish out debt advice to others. But one would be wrong. In an unwitting self-parody worthy of Froma Harrop on The Daily Show, the Federal Trade Commission has created a step-by-step web guide for Americans “Knee-Deep in Debt.”

The first step, says the agency, which represents a government that went over 800 days without passing a budget, is: create a budget! Get a “realistic assessment of how much money you take in and how much money you spend,” it lectures those in financial doo-doo, seemingly oblivious of the fact that its own bosses have promised $60 trillion to a $100 trillion more in entitlements than the country has money to pay for.

This is a Samizdata quote of the day for today. Mr. Clegg is deputy Prime Minister in England.

I need to say this – you shouldn’t trust any government, actually including this one. You should not trust government – full stop. The natural inclination of government is to hoard power and information; to accrue power to itself in the name of the public good.

– Nick Clegg, interviewed by Henry Porter It is quite remarkable for a serving British minister to say this on the record. Public protestation of belief in the benignity and good intentions of the state is the normal standard.