Beautifully Said

Megan McArdle writing at Bloomberg has a wonderful article on economic perspective.  It concludes:

In every generation, we forget how much poorer we used to be, and then we forget that we have forgotten. We focus on the things that seem funny or monstrous or quaint and darling. Somehow the simplest and most important fact — the immense differences between their living standards and ours — slides right past our eye. And when Ernst tried to remind us, people didn’t say “Wow, we’ve really come a long way”; they pointed and laughed.

We have stalled what made us prosperous, what McClosky calls market-tested betterment that often is called capitalism.  Do read the whole thing.

Somebody posted a quote from Bernie Sanders on our Facebook page.  We can’t find the exact quote but he has taken umbrage against Citizens United numerous times like here and here.  In fact, it looks like the quote is cobbled together from various responses he has made about restricting political speech.

As you should know, upon taking office, senators-elect must swear or affirm that they will “support and defend the Constitution.”  We guess that the senator from Vermont did not get as far as the First Amendment.  We will leave the Facebook quote without a comment.

FA Cup Draw

And here is the FA Cup Draw for February 14-15:

1 Crystal Palace (13) v Liverpool (8) or Bolton Wanderers
2 Arsenal (5) v Middlesbrough
3 Aston Villa (15) v Leicester City (20)
4 West Bromwich Albion (14) v West Ham United (7)
5 Bradford City v Sunderland (16) or Fulham
6 Blackburn Rovers v Rochdale or Stoke City (10)
7 Derby County v Reading
8 Preston North End or Sheffield United v Cambridge United or Manchester United (4).

We’ve added the current Premiership standings as a proxy for seeding.  The or means that those two teams must first replay a tie with the winner going on.  The first team is the home team so the higher seed leaves opponent and home-field advantage to the luck of the draw.  There will be at least one minor league team, to use US terminology, in the elite eight and perhaps as many as six.  It is a strange way to award a trophy but it is fun.

The results show the Cup is usually won by a big team but as recently as 2013, Wigan Athletic won the Cup the season they were relegated from the Premiership.  Relegation means that the team is forced to play at a lower level the next year.  Wigan is currently in the relegation zone for the second level called the Championship League.

Questions of the Day

Over at Politico a Democratic Congressman asks two good questions:

Connecticut [D] Rep. Jim Himes said. “So that provokes a lot of soul-searching. Do people not know what is happening in the economy? Do they not believe us that we have something to do with the recovery?”

The answers are yes and no.  Yes we are having a stronger but still tepid recovery.  Two reasons for the stronger recovery are the reduction in unemployment benefits and fracking.  The Democrats are on the anti-growth side of the issue in both cases.  We know that the caucus is unlikely to take our advice but class warfare has its limits.  Try for a mixed platform that includes some pro-growth ideas.

FA Cup Results

The FA Cup is an amazing event.  It is kind of like the college basketball tournament without the seeding.  This weekend the top four teams in the UK had three losses and a draw.  Draws go to full replay.  They are in the sweet sixteen now.  There are seven Premiership (major league) clubs in with four more hoping to make it in the replays.  Because there is no seeding the highest ranked teams could play each other.

What is amazing is that this happens in the UK.  Think of all the Labour governments.  Yet “unfettered” capitalism reigns supreme in the soccer leagues.  If you win you keep playing.  You might get Manchester United or Cambridge United in the the next draw.  Actually, that’s exactly what you might get as those two teams have a draw to play.  The winner moves on.

Why can’t US leagues do something like the FA Cup.  Golf does it every week but the major teams never play outside of their designated leagues.  The difference is that US leagues are so centralized that it would be difficult for the FA Cup to happen.  Open leagues with relegation (and promotion) make for a different environment.

Employer Mandate

Catherine Rampell at the Washington Post has thundered that The Employer Mandate Must Go.  Really.  Then she said:

Republicans are right: The employer health insurance mandate is dumb.

Perhaps it was a fear of not being invited to Georgetown cocktail parties that led her to:

That [postponing the mandate] has not kept the pitchfork-wielding anti-Obamacare partisans at bay. Instead, it has emboldened them. These unilaterally announced delays are, somewhat ironically, the basis for House Speaker John Boehner’s lawsuit alleging that President Obama has overstepped his constitutional authority. That’s right: Republicans claim to be mad that Obama delivered a policy outcome they say they want, too.

It is that darn Constitution.  Her point being that if we could ignore the administration’s behavior then we could all get together and eliminate the employer mandate and Obamacare would be OK.  Or perhaps it would be less bad.  Or perhaps there would be bigger fiscal problems.  Or perhaps it would be worse but folks would not notice for a period time and then we are stuck with O-care.

She is selling what the Republicans have been hired to refuse.  Obamacare is a Rube Goldberg machine.  If we start to tinker with it then there will be more tinkering until eventually it comes down on our heads.  We need to find simple solutions by eliminating Obamacare.  That would eliminate one level of Rube Goldberg.  Then we can move towards a market solution.  The market solution will eliminate most of the problems caused by the current environment.  Don’t worry there will still be some opportunities for government intervention.  We would hope to keep such interventions to ones the government will be successful at.

It is not going to be easy to convince folks to go market.  Everybody likes their own rent.  One of the biggest problems is that fringe benefits are not considered gross income (they have to be gross income before they can be taxable income) for tax purposes.  Eliminating the personal income tax might be easier than taxing the currently untaxed fringe benefits.

The Power Of Markets

Dana Milbank is trying to defend the current administration by attacking one of its foes, the Chamber of Commerce.  The best he can do is very weak tea:

The point isn’t that the economy is booming because of President Obama’s policies. The recovery until now had been disappointing by any standard. But if the business lobby and conservatives in Congress aren’t going to give Obama any credit now that the recovery is underway, they might at least acknowledge that the sky didn’t fall because of his actions, and that the socialist takeover that many on the Hill warned of has not occurred.

We do need to thank the Republicans, as the voters did recently- see here for the extent and here for the explanation, for restricting the President’s actions. But more important is the impact of markets and human ingenuity.  Markets helped North Koreans avoid starvation.  Markets helped the US economy rebound despite the attempts of the administration to throttle them.  The administration wanted to drive up the cost of energy as part of its drive to “green” energy.  It restricted the use of coal, restricted the use of fracking, stopped the Keystone pipeline, and gave subsidies to Solyndra and others.  Markets found private and state land for fracking.  Markets found other ways, mostly trains, to transport energy.  Many of the subsidized entities were unable to compete in the market.

Market supporters need to remember that markets are amazing.  The administration has been able to delay the market driven economy but it has not yet been able to deny it.  It will be an interesting two years (and a few days).  The administration has made their goal clear: to command the economy.  The Republicans have not yet made it clear to the extent they will be pro markets versus “pro business”.  The reason “pro  business” deserves scare quotes is that it is typically only possible to be pro certain businesses.  For example, if you are pro US sugar growers then you are against importers and consumers.

Adam Smith said there is a great deal of ruin in a nation.  We need to remind ourselves of Smith’s insight as the administration toils away while at the same time we need to recognize, see North Korea, that is can be done.

Dictionary Please

Charles Lane at the Washington Post:

Transformative and beneficial though they [Medicare, Medicaid, the Higher Education Act, the Elementary and Secondary Education Act and, less famously but no less consequentially, expanded eligibility for Social Security disability insurance] were, and still are, the Great Society programs minted 50 years ago have mutated into sources of new and in­trac­table problems, the most important of which is their unanticipated, enormous cost — which not only increases the national debt but also crowds out spending on other critical public needs from national defense to research. [emphasis added]

We cannot find any meaning of beneficial that means the same poorly thought out.  Still it is good to see somebody at the Washington Post being able to connect the dots.

Exogenous Shocks

Today Saudi Prince Alwaleed says

The well-known billionaire investor recently told USA Today he’s positive we’re “never” going to see $100-a-barrel oil prices again.

Seriously?  We just got over “Peak Oil” a few hours ago and now prices are never going above $100?  There are lots of shocks out there that could cause $100 oil.  Growth in Europe and Japan could drive up prices.  Continued growth in the US might do it.  There might be more economic catastrophes like New York and fracking.  We don’t see it bouncing back tomorrow but there are lots of reasons to think that the price won’t always be this low.  It is a violent and sometimes stupid world out there.

Bad Math

Deroy Murdock has proposed the 0-10-100 tax plan at NRO.  It is a conceptually interesting idea to have no deductions or exemptions.  We think it is a good idea to move in the direction of fewer deductions and exemptions.  In fact, we think that fringe benefits should be taxed.  The proposal has one big problem.

The corporate tax would work similarly:

“0” deductions. There would be no write-offs for payrolls, new plant and equipment, raw materials, amortization, rent, or anything else. That’s the bad news. The good news is that gross income would be subject to a tax rate of just 10 percent of whatever is generated in each calendar year.

Ten percent of corporate gross income is way too high.  Mr. Murdock should be surprised that

A 10 percent tax on that amount would yield $1.45 trillion — far in excess of the $273 billion in federal corporate-tax receipts for 2013.

He is saying that his business tax is about five times higher than the current one.  One estimate of return on sales (net income/net sales) is four to five percent.  If the corporate tax rate is ten percent of sales then most  businesses would have a loss.  Of course, there would be a great deal of activity as businesses tried to reduce costs and increase prices to produce a profit.

So it is back to the drawing board on corporate taxes for Mr. Murdock.  It is easy to fix by changing the corporate tax to a value added tax (or a national sales tax or even a carbon tax).  We reduce the paperwork requirements and get the taxes closer to right.  It will be closer to right because there will be an emphasis on taxing consumption and a reduced emphasis on tax avoidence.