“Let us bend over and kiss our ass goodbye. Our 28-year conservative opportunity to fix the moral and practical boundaries of government is gone — gone with the bear market and the Bear Stearns and the bear that’s headed off to do you-know-what in the woods on our philosophy.”
— P.J. O’Rourke, November 10, 2008, repeating George Will’s sentiment, but from a . . . shall we say . . . different angle.
(via Don Luskin)
With the government doing so many things so quickly to relieve problems it really doesn’t understand very well, what will be the results? Do we know? Do they? Not really. Not really at all. Just one unintended consequence among many cited today by Brian Wesbury:
Take, for example, the extension of unemployment benefits enacted in June. Normally, jobless benefits are available for 26 weeks. The extension, which will last temporarily through early next year, added another 13 weeks. Following this, between June and October – in only four months – the unemployment rate has risen from 5.5% to 6.5%, a full percentage point.What’s odd about the jump in the jobless rate is that it has been accompanied by an unusual increase in the number of people who say they are looking for work. Normally, when the unemployment rate leaps upward we see a decline in the share of the population either working or looking for work (what economists call the participation rate). Not this time.In order to receive unemployment benefits, a person must be looking for work, so the extension of benefits is artificially coaxing many people who would no longer be in the workforce at all to say they are still looking for work, just so they can continue to collect benefits. The unintended consequence is that the unemployment rate is boosted faster and further than normal in a recession, making it more likely that policymakers further extend benefits, boosting the deficit and pushing up future tax payments.
“Thus does a conservative era end, with a Republican administration’s policy as a punch line.”
— George Will, November 9, 2008
Intel is ramping its health care strategy with new hardware and software to help home-bound patients. Mobile giant Qualcomm has an array of new ideas for dis-aggregating today’s hefty, expensive, purpose-built machines that only do one or two things into a web of sensors, software, and wireless links. Think “body area network,” or BAN. Both companies are members of the Continua Alliance, a group of companies creating a “connected personal health ecosystem” of interoperable medical technologies.
This is just the type of medical innovation I wrote about in Friday’s Wall Street Journal — the kind that will transcend many of today’s debates about who is going to pay for the old system. My answer: Nobody will pay for the old system. Create a new system.
Advancing faster than Moore’s Law, hard disk digital storage technologies are are the unsung heroes of the tech revolution. The beat goes on, and a large number of new technologies, from hybrid drives to phase-change ovonics to racetrack memory, promise to match the capacity of digital storage and/or DRAM with the speed of SRAM and other solid state memories. See a big special report from MIT’s Technology Review on all these “next memory” candidates, and more.
What should be first on a new President Obama’s agenda? Merely an
emergency rescue of human civilization
That’s all.
You can already see what’s going to happen. They’re going to put up some solar panels in the Arizona desert and some windmills in North Dakota. Then, after the Sun changes cycles and we get global cooling in about 10 years — as many scientists predict — Al’s going to crow like the rooster, thinking he saved the world.
From my article in Friday’s Wall Street Journal:
If Barack Obama ran for president by calling for a heavier hand of government, he also won by running one of the most entrepreneurial campaigns in history.
Will he now grasp the lesson his campaign offers as he crafts policies aimed at reigniting the national economy? Amid a recession, two wars, and a global financial crisis, will he come to see that unleashing the entrepreneur is the best way to raise the revenue he needs for his lofty priorities?
Read the whole op-ed here, and listen to a brief radio interview here.
Among those suggested as probable Obama Treasury Secretaries or economic consiglieres are Larry Summers and Paul Volcker, who have been advising him for many months now. This is very encouraging to those of us who balk at much of Obama’s economic agenda. Summers and Volcker are very smart Democrats. Volcker helped get us out of the ’70s inflation mess. And anyone who earns the wrath of the Harvard faculty for telling the truth, as Summers did when he was the University president — enough to get fired — can’t be all bad either.
I do have some reservations, of course. Lots more to say as the story evolves. . . .
John Tamny at Real Clear Markets on the roots and prospects for free trade:
In his Tract on Monetary Reform, John Maynard Keynes made the essential point that when money is debased, enterprise is discredited, and trade barriers soon reveal themselves. Having witnessed the worldwide monetary errors of the ‘20s that led to economic isolationism in the ‘30s, Keynes knew well the importance of the 1944 Bretton Woods monetary standard, of which he was a chief architect. . . .
Unfortunately, we’ve regressed. The chaotic monetary and currency policy of the present Administration has given rise to the trade skeptics of the next.
Tuesday’s “election could put trade-liberalization on ice for a while.”
Ross Douthat informs us that author Michael Crichton died on election day.
Crichton took science seriously. That’s not to say he did serious science, or that his novels were scrupulously realistic. But he made science fun to popular audiences and passed along an imaginative curiosity in the possibilities and perils of nature.
A number of years ago, before it was de rigueur, he also warned that our public officials, courts, and media were not scientifically literate. And that this was increasingly dangerous in our complex and knowledge-accelerated world. His books were often too alarmist for my taste, but he made up for that foible in the last few years. With State of Fear and a series of public lectures and testimony, he bravely took on the global warming alarmist crowd. And I think he was right.
RIP.
Economist Mike Darda:
There’s nothing like a credit crisis to stop inflation in its tracks.
Headline inflation will fall markedly over the coming year as energy and food prices fall from the previous spike. But inflation could later resume when the panic-induced plunge in velocity picks up. The Fed more than doubled its balance sheet to more than $2 trillion in the last two months, and it will have to be vigilant to pare liquidity as panic hoarding goes away. An inflationary weak-dollar Fed caused most of the credit crisis in the first place as it juiced the oil, housing, credit, and foreign reserve markets. Today’s crisis, which happens to be temporarily disinflationary, is not an especially pleasant trade-off to bring down the price index. Better just to keep the dollar sound in the first place.
Instead of never-ending rolling bailouts for years to come, Holman Jenkins thinks a simple tweak could fix the Big Three:
Washington wouldn’t have to find the courage to amend the labor laws to end the Detroit Three’s captivity by the UAW. Nor would it have to repeal the CAFE rules that are now a sacred cow. It would simply have to allow auto makers to meet the fuel economy standards with any mix of autos made in domestic or overseas factories. . . .
For 30 years, to make and sell the large vehicles that earn their profits, the Detroit Three have been effectively required to build small cars in high-wage, UAW factories, though it means losing money on every car. (That — not some perverse desire to make bad cars — is why they skimped for decades on styling, engineering and materials in their family sedans.)
China and Taiwan continue to reconcile.
Yesterday China and Taiwan agreed to open new air, sea and postal links. This establishes the hitherto elusive “three links” — direct trade, transport and mail — that the two governments have been talking about for years. They also agreed to cooperate on food safety regulation as well as to hold further talks every six months, alternating between Beijing and Taipei.
FedEx founder Fred Smith in The Wall Street Journal:
On free trade:
“I think the best thing the United States could do is to unilaterally disarm. It should open up markets. The agricultural subsidies are terrible. They’re just immoral.”
On taxes:
“If we had a lower corporate tax rate with the ability to expense capital expenditures, guess what? We’d buy more [Boeing] triple sevens. We absolutely have to cut the corporate tax. Our current tax rate is about 38%. Even Germany has a 25% rate.”
On human capital:
“We restrict immigration when we have thousands of highly educated people that want to come to the United States, and some of our greatest corporations [are] crying out that we don’t have the scientific talent that we need to develop the next generation of innovations and inventions . . .”
Janet Novack writing in Forbes details the long-term U.S. budget and tax realities that will lead to “The Coming Shakedown.” Big taxes and skimpy benefits, she writes, are baked in the cake:
Here’s what sober budget analysts (from both parties) see when they focus on 2020 and beyond: The well-off will pay higher federal taxes, for sure. But ordinary folks will pay more, too. They will pay as tax burdens diffuse into the costs of things they buy. They will likely pay more for fuel and electricity, as the costs of carbon permits and renewable-fuels mandates get built in. They may be asked to pay a European-style value-added tax. And they will pay on the other side of the ledger: Their retirement benefits will get clipped.
The federal government will get bigger, but not big enough to keep all the promises Washington has made. So the normal age to receive Social Security retirement benefits, already rising in steps to 67 for those born in 1960 or later, will increase further, perhaps to 69. High earners will pay more in and get less back in retirement. Call it a “tax” or call it “means testing”—it’s government, and it will make you poorer.
Economists of all stripes think we absolutely need a new value added (or a kind of sales) tax.
“A VAT has got to happen. We’re at a point where the traditional money-raising options are not going to work,” says Yale law professor Michael J. Graetz, who was a Treasury official during the Administration of President George H.W. Bush and has been pushing a plan to use proceeds from a VAT to reduce corporate income taxes and exempt families earning less than $100,000 from the income tax. A VAT encourages personal savings, which the U.S. needs more of. Plus, it forces retirees to help pay for their government benefits. Says Graetz: “You tax the elderly and you tax the coupon clippers. But no politician is going to say that out loud.”
To be sure, a VAT faces tremendous hurdles. Two decades ago economist Lawrence H. Summers, who later became President Clinton’s Treasury Secretary and is now an Obama adviser, famously observed that the U.S. hadn’t adopted a VAT because “liberals think it’s regressive and conservatives think it’s a money machine.” The country might get a VAT, he went on, when liberals realized it was a money machine and conservatives figured out it was regressive.
Larry Summers is a smart liberal, one of my favorites, and he’s probably right. But let’s get something straight: layering a VAT on top of our current tax system would be catastrophic. Some have suggested trading a VAT for a reduction in the corporate income tax. But that too is a dangerous game. One option I’d consider, versions of which have been suggested by both Art Laffer and Sen. Jim Demint, is a low-rate flat income tax with a low-rate VAT — say 8% each. That would be a hugely efficient and growth-fueling fundamental tax reform.
But it wouldn’t be the increase in government that the normal VAT backers have in mind. The way to “solve” the Medicare problem is not to gouge American producers in an inevitably futile effort to close the $43 trillion dollar unfunded budget gap. We shouldn’t wrack our brains trying to pay for the current bloated system. Much better to transcend the issue altogether by transforming health care with new medical technology and a newly dynamic, entrepreneurial, and consumer-driven market.
Coincident with the news that Microsoft is embracing the Web even for its longtime PC-centric OS and apps, The Economist has a big special report on “cloud computing,” including articles on:
– “The Evolution of Data Centres”
– “Software as a Service”
– “Connecting to the Cloud”
– “The Economics of the Cloud”
– The Effect on Business; and
– “Computers without Borders“
Maximum Entropy