Friday, March 27, 2015

What's So Bad About 7% Growth in China?


At 7% annual growth, real output doubles in 10 years, quadruples in 20, and grows eight-fold in 30.

In marked contrast, it takes 36 years to double output at 2% growth.

At 3% growth, output doubles in 24 years, quadruples in 48, and increases eight-fold in 72.

U.S. annual growth is likely to remain in the 2-3% range.

Even if these respective rates vary somewhat, China will be the unquestioned dominant power in Asia and the largest economy in the world within a few decades.  The notion of the U.S. containing China or trying to remain the dominant military power in Asia is seriously misguided.

In this regard, why not outsource security for the Middle East and the Strait of Malacca to China, Japan, and Korea, three countries that rely on energy imports from the Middle East?  Let them pay for it.  Make them stakeholders in Middle East stability.

Saturday, March 7, 2015

Republican Senators Lee and Rubio Timidly Talk Tax Reform

In their Wall Street Journal article of March 3, 2015, Republican Senators Mike Lee and Marco Rubio throw their tax reform hat into the ring.

They are on the right track in proposing a lower corporate tax rate of 25 percent and unlimited first-year write-off (expensing) of all new investment.

But they timidly propose to replace the current seven personal income tax rates (10, 15, 25, 28, 33, 35, and 39.6 percent) with two of 15 and 35 percent.  President Reagan’s Tax Reform Act of 1986 replaced a bevy of marginal tax rates peaking at 50 percent with two rates of 15 and 28 percent.

After twenty-nine years the best these two pro-growth Republican senators can do is add seven percentage points on Reagan’s top marginal rate.   Even the Democrat Bradley-Gephardt plan of 1986, which proposed three rates of 14, 26, and 30 percent, was more audacious.  


Sunday, January 18, 2015

Cuba's New Economic Policy

Socialism with Cuban characteristics.

Thursday, January 8, 2015

Joe Bastardi's Forecast for the Remainder of California's Rainy Season: DRY

Water is California's Real Problem

California is in the midst of a four-year drought.  Despite the several days of heavy rain in mid-December 2014, rainfall and snow pack water content are way below normal.  As of January 6, 2015 (with no rain in the forecast for the next 10 days), the water content of the Sierra snow pack is at 43% of normal for this time of the year, and only 17% of the average for April 1.

Trees are beginning to die across the state and even revered redwoods are showing signs of illness.

Indeed, one of California's most famous theme songs California Here I Come will be giving way to the Cowboy ballad Cool Water.

Unlike oil and gas, there is no national market for water.  California's water supply is a mixture of federal, state, and private sources, some of which derives from out of state.  The politics of water is extremely partisan, with cities electing Democrats and farming areas Republicans.

The water bond approved by the state legislature in 2014 will have little impact on short-run water supplies.

If high pressure off the coast continues to block the moisture-laden winter jet stream this year and beyond, more of the state will revert to desert, fire danger will worsen, and both oaks and redwood will die in large numbers.

You can follow the situation on the first link above.

Friday, December 26, 2014

Condolences to Piketty, Saez, and the 250 French Economists Who Endorsed Francois Hollande for President and his 75% Tax Rate on the Super Rich

In 2012, 250 French economists endorsed Francois Hollande for President, especially his proposal to impose a 75% marginal tax rate on the earnings of French residents that exceeded one million euros, an increase of 30 percentage points over the top rate of 45%.  Once in office, Hollande promptly imposed the tax.

Two years later, Hollande is letting the 75% top rate expire on December 31, 2014, which takes it back 45%.

Piketty, Saez, and their colleagues must have had a "Blue Christmas."

The imposition of a 75% marginal tax rate on the super rich had no impact on reducing inequality.  It collected only 420 million euros over two years, amounting to 0.005% of France's October 2014 deficit of 87 billion euros.  Indeed, it is likely that lost investment reduced the incomes of low- and middle-income French households more than 420 million euros.  France's appeal as a home for high-income earners was damaged along with its competitiveness for international senior managers.

It will be a very long time before another leftist French government, or a government of any stripe in Europe, puts Piketty into practice.

Professors Piketty and Saez should have been aware of the famous quote:  "Be careful what you wish for. You just might get it."

Tuesday, December 23, 2014

Buy Gold and Silver to Protect Yourself Against the Vagaries of Government Paper Money--Really?

Your friendly proprietor is deluged with radio and television ads to buy gold and/or silver bullion and coins to protect himself against the inflationary decline in purchasing power of government-issued fiat paper money.  Whatever the daily price, promoters confidently assert that "gold (or silver) is poised to go higher" next month, next year, or over the next few years.

Gold peaked at $1909 an ounce on August 22, 2011.  It stood at $1177/ounce on December 23, 2014. That is a decline of 38.3%. Profit for the dealer, shipping, and handling puts the loss at about 40%. Silver peaked at $48.58/ounce on April 28, 2011, falling to $15.81 on December 23, 2014--a decline of 67.5%.

What I want to know before investing in gold or silver is whether the merchants stating that gold and silver are protection against an inflationary loss in purchasing power and wealth have reimbursed their customers' losses?

Of course not.  All investments carry some measure of risk.  Caveat emptor!