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Friday, September 28, 2012

If They Tax Everybody and Everything, You Still Can't Fund the U.S. Government

In the wake of the passage of a 75% "super tax" on the rich in France and calls for higher taxes on the rich during the U.S presidential campaign, I want to post one of my shockingly favorite videos from last year.  Bill Whittle, using analysis by IowaHawk, attempts to "fund" the U.S. federal budget of approximately $3.7 trillion or about $10 billion per day by "eating the rich" or by taxing just about everybody and everything.  To the dismay of leftists everywhere, it simply doesn't add up. For example, he shows that if you take 100% of Exxon Mobil and Walmart 2010 global profits you would fund the U.S. budget for about.... three days.  He goes on to take all the profits of all the Fortune 500 companies, all the major sports leagues, all people making over $250k, etc. with shocking results.  Enjoy:


Wednesday, September 12, 2012

Obama Apologizes for Free Speech

An anti-Islamic filmmaker must go into hiding and four American diplomats get brutally murdered by Islamic mobs. What is the American government's response? Why an apology, of course:
The Embassy of the United States in Cairo condemns the continuing efforts by misguided individuals to hurt the religious feelings of Muslims—as we condemn efforts to offend believers of all religions. . . . Respect for religious beliefs is a cornerstone of American democracy. We firmly reject the actions by those who abuse the universal right of free speech to hurt the religious beliefs of others.
In other words, Obama's conception of free spech is that it is fine, as long as you don't hurt anyone's feelings.  Of course, free speech is important precisely to protect unpopular or controversial opinions.  The Objective Standard blog gets it right:
A cornerstone of the American republic is the right to peaceably practice religion and to freely express one’s views. For U.S. officials to call for respect for an ideology of violence, and to ignore the rights of Americans, is reprehensible.
(Interestingly, while the Drudge Report headlines gruesome photos of the murders with various links relating to the story, what does the mainstream media consider important about this event?  On the New York Times front page is this headline: "Quick Criticism by Romney Is Itself Criticized" in which Romney is accused of "politicizing an international crisis."  Uh, this is a political crisis and Romney is a politician who is running a political campaign for a political office.  CBS News went with: "Amid criticism, Romney doubles down on criticism of White House's response to Egypt, Libya attacks" In other words, the substance of his criticism is not important, only that he dared to criticize.)

Monday, September 10, 2012

Good Follow Up Refuting Democrats' Auto Bailout Claims

See this op-ed The Democrats' GM Fiction as a good companion piece to my post The Flawed Economic Logic Behind the Government's Auto Bailout. The authors rightly conclude:
The GM bailout was a bad deal for GM’s creditors, for U.S. taxpayers, and, in the long run, for the U.S. automobile industry and our overall national competitiveness. No wonder the Democrats are campaigning on a fictionalized account of it.

Friday, September 7, 2012

The Flawed Economic Logic Behind the Government's Auto Bailout

In a bizarre harangue delivered to the DNC delegates, ex-Michigan governor Jennifer Granholm hysterically chanted that hundreds of thousands of jobs were "saved" by the federal government's bailout of General Motors.  According to her, these jobs were "saved" thanks only to the largess of the Dear Leader and his minions at the State Ministry of Automobiles.  

But can this be true?  Can the government simply loan failing businesses money and "save jobs?" If this is good for the economy, shouldn't the government simply lend money to every failing business in such a way that no one would ever lose their job and there would never be unemployment?  Given the adoring cheers of the DNC delegates, many people believe this to be the case.  

Let's put aside factual questions about her statistics and not even consider the fact that most of GM's recent business is from sales of vehicles to the government paid for with your tax money (!) and consider an even simpler example.

Say there is a restaurant on the corner.  Their menu consists of only one item: a fish and jelly bean sandwich.  Recently, shards of glass and metal were found in the fish by several customers. If this weren't enough, the wait staff is known to be rude, there is no parking, and the fish and jelly bean sandwich costs $48.

Not surprisingly, very few people go to this restaurant.  The business is failing.  This is bad news for the owners, wait staff, cooks, and bus boys.  It's also bad news for the fish and jelly bean distributor as well as the spoon and fork supplier.  It's bad news for their supplier of soap and paper towels as well as the corner gas station that supply the trucks with fuel. If the business fails, they will all be out of a job.

But Harvard Law Genius, Jennifer Granholm, has an idea.  The government will loan the restaurant money.  They can continue to make fish and jelly bean sandwiches.  No one will lose their job and all the secondary suppliers will not lose any business.  No jobs will be lost.  In fact, it can be said that Granholm saved jobs!

It is true that the restaurant will continue in business and these workers will continue working there until the loan runs out, business conditions change, or people start desiring expensive, poisoned, crappy sandwiches.  But what else is being forgotten?

Where did Granholm get the money to lend to the restaurant?

Government obtains money through taxation.  Every dollar that Granholm loaned to the restaurant is a dollar that will not be loaned to some other business or spent on some other product.  Because Granholm has loaned money to the restaurant, that very same money will NOT be loaned to the computer company down the road which needs capital to expand, or the doctor doing life saving research, or a company that needs capital to continue research on a new source of energy.

Instead, capital will be tied up in a fish and jelly bean sandwich restaurant and all the businesses that exist to support it.  While the restaurant continues to make sandwiches no one desires, these other businesses have that much less capital with which to meet the actual demands of consumers for their excellent products.

If we apply this principle to the larger economy, it is easy to see that free markets ensure that capital tends to flow towards profitable enterprises.  Consumers vote with their dollars and capital flows towards the most profitable businesses.  That is how we end up with i-pads, antibiotics, and five star steak restaurants.

When this mechanism is disturbed or overridden through government intervention, based not on profits but political pull and the bribery of politicians like Jennifer Granholm, we end up with a market full of fish and jelly bean sandwich restaurants or worse - enormous, inefficient, capital sucking companies that make crappy cars.

Why Does the Unemployment Rate Not Count the Unemployed?

This article discusses a peculiar aspect of the recently released Bureau of Labor statistics unemployment report:
Despite the fact that fewer Americans were employed in August than July, the unemployment rate ticked down from 8.3 in July to 8.1. That is because so many people dropped out of the labor force and stopped looking for work. The unemployment rate is the percentage of people in the labor force (meaning they had a job or were actively looking for one) who did not have a job.
In other words, from August to July less people were employed, but the unemployment rate went down. That's because when someone drops out of the civilian labor force, as defined by the Bureau of Labor Statistics, they are no longer counted in the unemployment rate. So, according to the BLS, if everyone in the United States stopped working and stopped looking for work, the unemployment rate would be a heavenly 0%.

Unfortunately, the article reports that this participation rate has been trending lower and lower.

The Bureau of Labor Statistic also reported that in August the labor force participation rate (the percentage of the people in the civilian non-institutionalized population who either had a job or were actively looking for one) dropped to a 30-year low of 63.5 percent, down from 63.7 percent in July. The last time the labor force participation rate was as low as 63.5 percent was in September 1981.
If you want more accurate measurements, I suggest going to www.shadowstats.com where John Williams diligently tracks both official and unofficial economic statistics. According to his broadest measure of unemployment, the current rate is about 23%!

And, this is not even taking into account a more important conceptual issue related to employment that I blogged about here in which the government counts as employed those engaged in complying with or enforcing arbitrary and counter productive government taxes and regulations.  Given actual statistics plus my definition of "real employment", the unemployment rate surely must be well over 50%.