This is taken from a paper by Brad DeLong. And what is the number one issue of our time? Income distribution. Enjoy the beach because you ain't gonna be working in the future.

The urgency of a growth agenda is strengthened by the recognition that the United States' social insurance system was designed for the pre-1973 rapid rather than the post-1973 slow pace of growth.Without faster long-term economic growth America's social insurance system as we know it is unlikely to survive the next generation. Thus there is a sense in which the stakes at risk in the task of finding policies to spur American economic growth are larger for the left than for the right half of the political spectrum. All have an interest in faster economic growth: faster growth empowers the American people to better achieve their ends whether their ends are sitting on beaches sunning themselves, raising their children, protecting endangered species, or increasing their level of education.

But in the absence of faster economic growth than has been seen in the past two decades, the future of the social insurance state is easy to read: Medicare and Social Security devour the rest of the Great Society and the New Deal over the course of the next generation. Two generations hence Medicare and Social Security run up against their own budget constraints, and destroy themselves.

You really need to read this. Thanks to the ever thoughtful Dr. Rothman for alerting me.

http://andolfatto.blogspot.com/2012/04/trend-is-cycle.html

Do we have a new trend in long-run growth? Is this recovery as good as it gets?

http://economix.blogs.nytimes.com/2012/03/22/are-the-good-times-never-coming-back/

This is just plain stupid...and I'm not happy.

http://online.wsj.com/article/SB10001424052970204880404577225493025537660.html?mod=WSJ_Opinion_LEADTop

You know when I bring out my "jack ass" photo I am disgusted. Well, I am disgusted. Raising the dividend tax rate to an effective rate of 64.1% is whacky. But here we go. Don't blame China or India or anybody else for the destruction of American jobs. The president is doing a fine job all by himself. He does not give a tinker's damn about economic growth or job creation. He only wants to create his idea of a utopian society where everyone is equal and those who have skills and education and therefore employment take care of the rest of society. We are just about there. He only needs to figure out how to raise tax revenues as a percentage of GDP up to 25%. I think you are seeing his answer. Start liking it because he is going to get re-elected in November. Then America will get everything it deserves for that vile act. "From each according to their abilities to each according to their needs". This could not possibly be a more apt description of policy today. No, it is not in the Constitution. Rather it is the main thesis of The Communist Manifesto.

Have a great day comrades.

Thinking structurally and long term.

http://www.econbrowser.com/archives/2011/09/what_could_amer.html

Robert Lucas: Voting for the president, rational expectations, capital taxation.

http://online.wsj.com/article/SB10001424053111904194604576583382550849232.html?mod=WSJ_Opinion_LEADTop

Economic Growth is all that matters. Everything else is just a side show.

Click on this graph. What I have done here is create a graph of the future path of our GDP at two different rates of growth. One is at around 3% and the other around 2% and then let them compound for 50 years. Look at the difference. One economy is 50% bigger than the other. How many of all the entitlement promises we have made can we pay for in the future if our long-run rate of growth were to fall by 1%. Not pretty is it? Well this is what I fear most (other than the ghosts of my sordid past). Well, think of the top graph as the US economy between 1980 and 2008. Think of the bottom economy as France and the growth paths match up pretty well. Still think 1% doesn't mean much?

Look at the graphs...you'll know what to think.

http://www.frbsf.org/publications/economics/letter/2011/el2011-21.html

See your future...be your future.

http://www.bloomberg.com/news/2011-07-14/too-much-debt-means-economy-can-t-grow-commentary-by-reinhart-and-rogoff.html

The president and dangerous ideas.

As if collectivism isn't bad enough, now the president has verbalized his trepidation regarding innovation and technological advancement. I remember Cynthia Tucker saying the same type of clap trap years ago. She being a columnist with the Atlanta Journal-Constitution once remarked that technology was the enemy of the working class. I still have not caught my breath from the shocking nature of that statement. Apparently the president has the same thread of Luddite thought running through his economic mental calculus.


He claims innovation is one reason why workers are displaced and that is no doubt true...and quite wonderful. For you see, economic growth and advancement is a never ending fight between the stinginess of nature and the ingenuity of man, between technological progress and the law of diminishing returns. Without innovation we all lose. The only way we can cope with scarcity is to continually do better and better with less and less (unless of course you are the government).

From history we know people did not want the telephone to be developed since it would displace all those poor telegraph operators. Don't develop the car since mule breeders would lose out. Computers would destroy jobs for filing clerks. Imagine your life without the telephone, auto or computer and how much poorer we would all be. Cyrus McCormick invented the mechanical reaper that would cut the corn of 10 men. What happened? Farmers would get together vandal parties and destroy these machines since it would throw 9 farmers out of work, according to their thinking. And if you remember the long shoremans' union strike in California several years ago, one of the sticking points was that the union wanted to continue forbidding management from using the forward button on their computer to send messages. I'm not making this up. They wanted to preserve secretarial jobs by making people have messages re-typed by a person instead of forwarded via email. Email destroys jobs, you see? That is the mindset. And nothing could wed us to serfdom faster than this type of thinking.

I am reminded of a quote from Milton Friedman contained in the attached article: The story goes that Milton Friedman was once taken to see a massive government project somewhere in Asia. Thousands of workers using shovels were building a canal. Friedman was puzzled. Why weren't there any excavators or any mechanized earth-moving equipment? A government official explained that using shovels created more jobs. Friedman's response: "Then why not use spoons instead of shovels?"


Read more about the joy of technological innovation here.

Why not raise the top marginal tax rate back to 94%?

I have always been befuddled by the burning passion to raise taxes on the "rich" so they can pay their fair share. Whenever you hear the word "fairness" hold on to your wallet because someone is coming after it. Now folks in Washington and Academia (Robert Reich for example) are floating the idea of jacking up the top marginal tax rate back to 1960s levels, in the 70% range or so. Why stop there? Why not put it back to 94% like it was in the Second World War? And make it for all incomes above $250,000. The graph above of Hauser's Law is a historical fact that is perpetually ignored by all the social engineers of the world who want to sock it to the American people to pay for their vision of what America should be (think France here). Revenues to pay for that are not going to come from tinkering with the tax code. If you doubled everyone's income tax bill today, and made everyone who pays income taxes stroke a check for twice what they paid last April, you would collect $1.2T and would not balance the budget for even one year. If you confiscated all incomes over and above the $100,000 threshold, you would collect $1.5T, and obviously you could only do that once. What really matters is what you squeeze out of the economy as a percentage of GDP and it is clear that we have never gone much beyond 20% no matter how you want to re-arrange the furniture, so to speak.

The real cash cow would be to keep the tax code as it is and slap on a Value Added Tax (VAT, think national sales tax), that would certainly be a revenue whopper. But when that money is spent then what do you do? There will always be the call for more taxes even after that. Don't believe me? Look at the UK. They have high income taxes and a VAT, they are broke too and in deficit spending and what were they screaming? You got it, "we need to raise taxes to do something about the deficit"! They raised the VAT from 17.5% to 20% in January of this year. That is a bunch of Bullocks mate! Count me out.

Most if not all of the deficit and debt reform we should be looking at should come from spending reduction and the elimination of so-called tax expenditures. So let's start there...you have a special tax subsidy or deduction because you are some favored political class or bought some special item, say your prayers varmint. Kill it. Then let's talk about entitlements for all you young folks under age 55.

Until we are willing to put government spending at 20% of GDP or choke the living hell out of our economy with a European-style VAT (that will never be enough), we will have the ongoing deficit and debt saga for as long as financial markets will allow it.

For further explanation of such nonsense look here.

My recent column for the ECU Economics Alumni Newsletter.

Macro Corner 2011

Drifting Along…Going Sideways

Hello once again as I greet you from hot and steamy North Carolina. Not only is the heat inescapable, but so is the feeling of drift. The economic currents slowly push the stream toward the sea and yet lead us nowhere for no good reason. You row your boat and pull the oars and the dock is no further away than when you launched the boat. It seems we are caught in the frozen years and perhaps even in the middle of a Japanese “lost decade”. In times like these a little historical perspective is just the thing we need to try and understand not necessarily why we are here (much has been said regarding that) or where we are going (that’s hard to know), but rather how long it may take to get there.
To this end there is a remarkable book published in 2009 titled This Time is Different by Reinhart and Rogoff. This masterpiece of historical economic analysis takes a sample of 800 years of financial and economic data and examines trends that occurred after every financial crisis we have had during that time period. Note the sarcasm in the title. Every boom and bubble has people repeating the same mantras: “all the old rules no longer apply”, “this is a new world with different fundamental principles of valuation”, “this time is different!” But it never is. The only thing new in the world is the history you forgot or never knew in the first place. All asset bubbles fed by leverage and cheap credit end up splattered on the wall of economic history... every single one without exception. And the story is always the same in someone’s sick macroeconomic replay of Groundhog Day… leverage + asset bubbles + believing “this time is different” = SPLAT. Hey but why fret. It is going to happen again, trust me. It is only a question of when.
Anyway, the findings of Rhinehart and Rogoff are juicy gems. Their research reveals:
1. In the aftermath of financial crises there is a 35.5% average decrease in real housing prices with an average duration of 6 years. So want to know when housing might recover? Probably not before 2013 if then, on average of course.
2. In the aftermath of financial crises there is a 55.9% decrease in real equity prices with an average duration of 3.4 years.
3. In the aftermath of financial crises there is a 7% average increase in the unemployment rate with an average duration of 4.8 years. We just about made this and I would bet we beat that duration.
4. Real public debt increases 86% in the three years following the crisis.
5. When the privately held government debt-to-GDP ratio crosses the 90% threshold, there is a reduction, on average, of 1% in the long-run trend growth rate of GDP of that country. This statistic should make you lose sleep at night. We are fast approaching this important benchmark.

So I guess the upshot is we are not out of the woods and have years to go to get out of the fever swamp we went through in 2008. Just remember, if we lose 1% on our long-run growth trend, there is not a chance in this world we will meet all the promises we have made over the next 50 years…and even less chance your children will have a better economic life than you. Let’s swear off asset bubbles and leverage. That would be a great start.

Have a great day,
Dr. Doom, I mean Dr. Parker.

I wish there was something here I disagreed with....alas I don't so more sideways drift I fear.

http://online.wsj.com/article/SB10001424052702303657404576363984173620692.html?mod=djemEditorialPage_t

This is maddeningly stupid. You should not wonder why jobs are flying overseas.

http://online.wsj.com/article/SB10001424052748703730804576315141682547796.html?mod=WSJ_Opinion_LEADTop

Downgrades come in twos.

More downgrades here. Thanks to the venerable Dr. Rothman for alerting me to this piece.

Robert Mundell and growth.

Robert Hall starts at minute #38. He and James Hamilton are the clearest and cleanest economists on the planet.

Listen to what he says at minute 43:45. That is one of the answers as to why we are where we are.



http://amps-web.amps.ms.mit.edu/public/150th/jan27/150econFinance-part2.html

You really need to read this.

http://www.boston.com/bostonglobe/editorial_opinion/oped/articles/2011/02/06/made_in_the_usa/

God in heaven this makes sooooo much sense. Let's make this happen. Widen the base and lower the rates. NOW!

From Greg Mankiw's Blog by way of Dr. Rothman


http://taxpolicycenter.org/UploadedPDF/1001492-Marron-Cutting-Tax-Preferences.pdf

This is terrific. Jeffrey should love this!

http://johnbtaylorsblog.blogspot.com/2011/01/higher-investment-best-way-to-reduce.html