Bad Evidence Leads To Wrong Conclusion

We have some longer or deeper things we are trying to work on but folks keep writing foolish things that need to be dealt with.  In this case it is Jeff Spross at The Week.  The Week appears to be a serious publication with, one would think, editors. How, then, did Jeff’s “How The Democrats Can Raise Taxes Without Technically Raising Taxes” end up on The Week?  We don’t know.

Jeff sets up the article by discussing that the The Donald’s administration decided not to index capital gains for inflation.  Then he says:

But Democrats — or anyone, really — should take a hint from Trump’s decision. It’s not just that capital gains shouldn’t be indexed to inflation; income taxes shouldn’t be either.

Doing away with that indexing would raise plenty of new revenue for the government. But more fundamentally, it would fix a basic misunderstanding about good macroeconomic policy.  [Emphasis added]

Jeff is serious.  And he is seriously wrong.

Sidebar One: Jeff has no comment on the standard deduction which is also currently adjusted for inflation.  End Sidebar One.

It doesn’t seem to us that “You are paying more taxes but we didn’t really raise your taxes” is much of a rallying cry for any party.  The more serious problem is Jeff’s understanding inflation.  Here is Milton Friedman explaining that inflation is a monetary phenomenon.  In the United States, Milton tells us, inflation is made in Washington DC.

Sidebar Two: If you want you can now discuss the extent to which the Federal Reserve, which controls the money supply and hence inflation is independent within the government.  You can come back to that discussion later as it might take a really long time.  End Sidebar Two.

Jeff doesn’t agree with Milton. Jeff thinks inflation is caused by supply-demand problems.   Jeff says that we need higher taxes as a brake on an overheated economy:

Here’s the problem with that logic: If your economy is experiencing high inflation, like what we went through in 1980, then it needs to slow down. Mainstream macroeconomics assumes that high inflation is evidence of an overheating economy: too much demand chasing too little supply. In which case, to cool inflation off, money needs to be taken out of the economy. And taxes are one tool for doing just that.  [Emphasis added]

There is a big problem with Jeff’s example.  We checked the economic data for 1980 at The Balance.com where they have unemployment at year end, GDP growth, and inflation by year on one page.   It was really easy to find and somebody at The Week should have checked.   At the end of 1980 the unemployment rate was 7.2 percent, GDP growth was negative signaling a recession, and inflation was 12.5 percent.  So Jeff’s example contradicts his theory.  Rather than the economy being overheated it was in recession.  How about Venezuela?  Nope.  Zimbabwe?  Nope and you can even use the same cite for that and more.

Few people have been more exactly wrong than Jeff when he says that indexing income tax brackets is pro-inflation:

By contrast, brackets that are indexed to rise with the price level are essentially pro-inflation. As the inflation rate increases, the rate at which the bracket thresholds rise increases as well. That’s a fiscal stimulus added to the economy right when it’s already running too hot. In fact, Russel Long, a Democratic senator from Louisiana at the time, made this exact point, arguing indexing would “make inflation worse by pumping more money into circulation at a time inflation is at its worst.” [Emphasis added}

Inflation is at best independent of real economic growth.  What makes Jeff so wrong is that the government (see Sidebar Two above) controls inflation.  To have the government benefit from inflation by increasing receipts from bracket creep is a really bad incentive for folks who want to avoid inflation.  Hint: that should be almost everyone.  Indexing brackets is strongly anti-inflation because the folks that control inflation, the government, have fewer incentives to inflate.  It is really important that inflation indexing for brackets and standard deductions stay.  It is also really important to check the data that you rely on.

 

 

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Yea For NBC

As you know, we support free trade and economic freedom.  We support them because they mean that folks get better things cheaper.  The press rarely does so it gives us joy to report on an NBC story by Martha C. White.

Sidebar: Yes, it bothers us a bit to generalize about the press.  There are members of the press that are serious about economics but mostly they are in support of leftist.  Instapundit always has some good comments on the connection between the press and the left.  End Sidebar.

It is a long quote but it is worth it when Martha says:

“It’s a good example of how the benefits of free trade are extremely diffuse but then the benefits of protectionism are concentrated,” said David Dollar, a senior fellow at the Brookings Institution.  [Emphasis added]

Collectively, Americans are paying more than $1.5 billion extra every year from this tariff alone. Another recent study by a trio of economists from Princeton and Columbia universities and the New York Fed found that the combined impact of all the Trump administration’s trade sanctions costs Americans $1.4 billion each month.

Although the tariff studied by the University of Chicago researchers was only on imported washing machines, the study found that the price increases were significantly more widespread. “Taking the effects on both goods together, the overall tariff elasticity of consumer prices is above 100 percent for the 2018 safeguard tariffs,” they wrote. “The costs of these 2018 tariffs are substantial.”

 

 

The Challenge Of Free Speech

The Best Of The Web discusses the reaction of the media and Twitter to the movie “Unplanned” that tells the story of Abby Johnson who left Planned Parenthood to be come a pro-life activist.  The media, according the Best Of The Web has largely ignored the movie with few reviews.  TV stations have refused to run ads for it.  And then its Twitter account was suspended.  The tempest for that could not be confined to a teapot.  Folks were angry and properly so but some of it was misguided.  From a quote from the Hollywood Reporter in the Best Of The Web:

“It is a sad time we live in when corporations can remove individuals freedom of speech at will. When did we empower these corporations to have such authority? More importantly, why do we empower them to do so?” Cary Solomon, co-writer and co-director of the film, said in a statement to The Hollywood Reporter.

Freedom of speech is really important but it is not the issue with Twitter.  Here is the First Amendment from Wikipedia:

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances. [Emphasis added]

Social media has a big impact of speech but, as the first word in the First Amendment makes clear, the Constitution protects us from the government infringing on our right to speech.  Perhaps we should make a law to regulate social media.  Mark Zuckerberg, the chief executive at Facebook, has some ideas on that subject in a Washington Post op-ed. His bad ideas show the difficulty of regulating speech.  After clearing his throat Mark ignores the First Amendment:

I believe we need a more active role for governments and regulators. By updating the rules for the Internet, we can preserve what’s best about it — the freedom for people to express themselves and for entrepreneurs to build new things — while also protecting society from broader harms.

Restricting speech to protect society from broader harms or any other reason is unlikely to pass constitutional muster.  Later on he supports global standards as related to privacy (and perhaps other stuff):

I also believe a common global framework — rather than regulation that varies significantly by country and state — will ensure that the Internet does not get fractured, entrepreneurs can build products that serve everyone, and everyone gets the same protections.

Here we see how  social media and free speech interact in the US.  We have our legal system that is different from others but we have social media based on the Internet that crosses boundaries, usually, with ease.  We have free speech but only a few others do.  Thus, global solutions are unlikely to be acceptable to the US.

We don’t see an acceptable solution coming from either the US government or globally.  We live with press bias.  We live with social media bias.  Press bias has reduced the influence and the financial success of the press.  It is better than living without free speech.  Our best hope it that the social media giants will not accept the reduction in financial success.  Mark is a smart guy.  We hope he finds a realistic solution.

 

Media Deja Vu

We are back from vacation.  We will tell you about the trip later but the hot topic is the Mueller Report and its exoneration of The Donald.  Lots of other folks have weighed in on the report.  Our value added is being in a pub when one of the news shows was reading the report.

It was a deja vu moment because we had a similar moment in an airport in Europe.  It doesn’t matter where in Europe but if you want a guess it was Poland.  One of the countries, again a guess would be Ireland, had made the “wrong” vote as far as the media was concerned.  We couldn’t understand the language but the body language of everyone in the press room made it clear that a mistake had been made.

The report on The Donald was similar.  We could see his picture and hear the voice going over the report but the words were indistinct making it similar to the earlier event.  We only saw one person but the tone of the voice was unmistakable.  How could have this happened?  Kyle Smith at NRO gives us more details on political problems with the media.  We don’t fully share Kyle’s joy that we can ignore the media because we really need a responsible media. But we agree we don’t have one now.

Irony

We were reading Ask Amy this morning and she was organizing some old columns into themes.  Today’s theme was to be tolerant of opposing view.  A writer was complaining that her friends were bashing the 44th president.  The writer gives no examples.  Amy then said that she had heard Glenn Beck refer to him as a socialist and call filmmaker Michael Moore a “fatty-fatty fatso.  Then she goes on to say, “you may have been sheltered from this sort of passion during the Bush years” but she does recognize that there was shocking and disrespectful bashing of W.

Does Amy think this person was off-planet during W’s presidency?  The examples that Amy gives are rather weak compared to Bushitler and so on.  We should be tolerant of opposing views.  We wish there were politic free zones but there aren’t and there shouldn’t be.   We are stuck with free speech.

Sober Democrats

George Will is looking for a sober Democrat.  We think it would be somebody he could disagree on most policy issues but still vote for in 2020.  Showing the difficulty of George’s search, the 44th President was in the news recently:

The former U.S. President said during a talk at the Obama Foundation summit in Chicago that world leaders must solve problems around climate change, education, agriculture, among others, which according to him are not as hard to deal with as they may seem. As reported by the Daily Mail, [the 44th President] didn’t mention [The Donald] by name, but he did say that the world “badly needs remaking” and that “the reason we don’t do it is because we are still confused, blind, shrouded with hate, anger, racism, mommy issues.”

The joy of being a progressive is that you can attack The Donald and the press will say perhaps it was an attack on … well, it might be somebody else.  So the immediate past president would have a hard time making the list of sober Democrats.  George has identified John Delany, an entrepreneur and a Congressman from Maryland, as a reasonable choice for the Democrat presidential nomination in 2020.  He is, as George demonstrates, a progressive:

He checks various boxes that might mollify all but the most fastidious progressives: He likes early-childhood education, a carbon tax, a $15 minimum wage, and extending the Social Security tax to higher incomes. He dislikes the NRA, the Supreme Court’s Citizens United decision, high interest rates on student loans, and “outrageous” drug prices. He would achieve “universal” health care by offering Medicaid for all, and for those who choose to opt for private programs, as he thinks most people would, there would be federal subsidies for those who need them.

The only point of possible agreement for us in that list is the carbon tax.  We are willing to support a carbon tax at a reasonable level that replaces the gas tax.  It is not much to keep a conservative interested but, according to George, he is pleasingly adult compared to the candidates from the Senate.  George is right but it is an exceeding low bar to clear to be declared adult compared to Cory and Kamala.  George says the Democrats could do much worse and probably will.  We agree with him that it helps The Donald.  We would like to see a sober Democrat leader again in our lifetime but it doesn’t look good.  It is too bad because there is an opening for sober leaders.

Culture Trying To Change Reality

The press, media, writers, and video makers of all kinds try to distort our reality.  There are two problems with this.  First, the majority runs left and it is a distraction if not an influence on all of us.  Two, if you choose to do so in this fractured world, you can limit your exposure to a very limited area.  We were reminded of this as we started Sue Grafton’s novel W Is For Wasted.  Here is Sue on page three:

This was October 7, 1988 ,and it looked like things were as bad as they were ever going to get.

So we are thinking it is tough times for Sue’s anti-hero Kinsey because this is about as good as things have ever been at the end of Reagan’s second term.  We looked it up to check.  Real economic growth in each of the last four quarters was over four percent.  The Cold War wasn’t over but Reagan had made his Tear Down This Wall speech.  Sure the price of stamps had gone up but otherwise it was as close as we will ever see to perfect on the national level.  Instead, Sue was worried about the deficit, unemployment, and stamp prices.  We’re not sure why Sue mentioned unemployment of 5.5% as an item indicating it was as bad as it gets.  It had come down from double digits in the beginning of the decade (here are annual rates) so unemployment reduction was another positive part of the Reagan Revolution.

For a conservative it is hard, but not impossible, to avoid the left because they are numerous, outspoken, and love to generalize.  We are not starting our novel: It was December 2012 and it looked like things were as bad as they were ever going to get.  It does remind us that we should work on that novel and to try to be a little more subtle than Sue was.

The problem is finding a solution.  Our novel won’t do it.  Posting political stuff on FaceBook does more harm than good.  A check to the National Review might help and don’t be afraid of the left in print, film, or in person.