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!

Sunday, November 30, 2014

Friday, November 28, 2014

China's Gonna Fail, Really

For years, bloggers, tweeters, and economists have forecast China's imminent crash.  So far, China has stubbornly refused to crash.

Developing countries in Asia, Africa, and Latin America wish they were crashing like China.

Western Europe's stagnant economies wish they were crashing like China.

Economists wish their macroeconomic (fiscal, monetary, growth, etc.) models were crashing like China.


Saturday, November 8, 2014

Iraq Redux

From the archive, on September 13, 2014, U.S. troop strength in Iraq was increased to 1600, up from 875 on August 13, 2014, and up from an initial 300 in June 2014.  On November 7, 2014, President Obama ordered another 1500 troops to Iraq, pushing the total past 3000.

A tenfold increase in five months, worthy of a Nobel Peace Prize.


If Republicans Only Care About The Top 1%

How did they win majorities in both houses of Congress, along with a majority of governorships and state legislatures?

Tuesday, October 21, 2014

Catch-44: Janet Yellen, Inequality, Fiscal Policy, and Monetary Policy

On October 16, 2014, Howard Gleckman of the Tax Policy Center posted an insightful commentary on the declining budget deficit  ($483 billion, the smallest since 2009) for Fiscal Year 2014, which ended on September 30, 2014.

An improving economy, expiration of the Bush tax cuts, and expiration of the Social Security tax cuts all contributed to rising revenue.  One sentence especially stood out for your friendly proprietor:  "Revenues also rose because a growing share of income went to the rich, who pay higher tax rates.”  To repeat, the richer the rich get, the more revenue the government gets, hence a smaller deficit.  The path to a balanced budget, which some economists and politicians advocate, lies in the rich collecting a steadily rising share of income.

But in the eyes of many prominent economists, shrinking deficits are a problem.  In a world of zero interest rates, which means private sector spending and investment are not crowded out, deficits are constructive.  They can increase aggregate demand, which helps create jobs and halts stagnant or falling real wages for lower- and middle-income households.  Austere fiscal policy, declining deficits due to lower public spending (e.g., the sequester) and/or higher revenue, reduces aggregate demand, retards job creation, and suppresses wages.  Cost-imposed supply-side restrictions also retard growth.

Not only do smaller deficits suppress demand, the growing share of income going to the rich is increasing inequality.  This is incompatible with America’s core values, so said Fed Chair Janet Yellen on October 17, 2014.  In the second paragraph of a speech given at the Conference on Economic Opportunity and Inequality at the Federal Reserve Bank of Boston, she writes:

“The extent of and continuing increase in inequality in the United States greatly concern me.  The past several decades have seen the most sustained rise in inequality since the 19th century after more than 40 years of narrowing inequality following the Great Depression.  By some estimates, income and wealth inequality are near their highest levels in the past hundred years, much higher than the average during that time span and probably higher than for much of American history before then.   It is no secret that the past few decades of widening inequality can be summed up as significant income and wealth gains for those at the very top and stagnant living standards for the majority.  I think it is appropriate to ask whether this trend is compatible with values rooted in our nation's history, among them the high value Americans have traditionally placed on equality of opportunity.”

Paradoxically, it is Janet Yellen’s monetary policy of massive quantitative easing (QE), injecting new funds into financial markets by purchasing federal and mortgage backed securities, and low interest rates for those able to borrow (especially the already rich and wealthy), that has increased inequality.  QE boosts financial assets.  The DJIA nearly tripled from its bottom of March 6, 2009, through September 30, 2014.  Those with equities saw a huge rise in their wealth as new money fueled buying of equities.  Meanwhile, many in the middle- and lower- income brackets lost their homes (their chief source of wealth) and their jobs.

QE and zero interest rates may have helped the economy gradually recover from its deep hole caused by the financial crisis.  However, the chief beneficiaries have been the top 10%, 1%, and especially 0.1%.  Monetary policy has been the principle source of rising inequality of wealth and partly of income, with the highly educated and skilled earning an increasing share of income in the innovating economy.

Yellen’s monetary policy appears to be self-defeating when it comes to improving wealth and income equality

Yellen’s monetary policy appears to be self-defeating as rising tax collections reduce aggregate demand.

Is there an end to this Catch-44 circularity any time in her future?  Jobs remain a high priority in her conduct of monetary policy.  Yellen believes that QE and low rates help create jobs (trickle-down economics?) even though shrinking deficits may have the opposite effect.

Some 400 books have been written on the causes and consequences of the Great Financial Crisis, with little consensus on how to move ahead with growth, jobs, higher wages, greater equality, and, above all, prevent another crisis.  What’s Janet Yellen to do?  Pray for Congress to undertake an orgy of new spending, which is not in the cards, or that more money finally stimulates demand, growth, jobs, higher wages, and more equitable distribution of income and wealth.

I’m sure she would appreciate any good, non-ideological ideas you can send her.

Thursday, October 2, 2014

Monday, September 15, 2014

How to Live in High-Tax Sweden Almost Tax-Free

This post is directed largely at American men aged 50-65 who were enthralled with NBC’s summer 2014 hit mini-series “Welcome to Sweden.”

In 2005, Sweden abolished inheritance and gift taxes.  This opens the door to the possibility of almost tax-free living in Sweden.  But it’s not quite so simple as it sounds.

Swedish Inheritance Law is complex.  For an American man to fully realize its benefits, he should be (1) single (divorced, widowed, or never-married), (2) preferably childless, (3) willing to live a good part of the year in a cold, dark climate, (4) prepared to learn Swedish, (5) become a Swedish citizen, and (6) adjust himself to some peculiar Swedish norms and behaviors.  It would help to have excellent social media skills.

He should plan to arrive in Sweden by early June, when the weather warms and the foliage bursts into green, and be prepared to stay for the summer.  He should seek out Swedish women aged late 40s to mid-60s.  To minimize the pitfalls of Swedish Inheritance Law, he should look for Swedish women who are: (1) single (divorced, widowed, or never-married), (2) childless, (3) an only child, (4) the child of married parents who have no other children from other relationships, and (5) have wealthy parents.

Local and expat social media can provide information on where he is most likely to meet such a woman.  If he hits it off with her, he should state that wants a lifelong marriage, not cohabitation or a summer of “love.”  He should get to know her parents, who will be happy to see her married before they pass away.

Getting married to a Swede in Sweden is not too difficult.  Thereafter getting Swedish citizenship is straightforward.  While these processes are underway, her mom and dad can provide tax-free gifts to support the starry-eyed couple.

When mom and dad pass away, his new wife will inherit tax-free the assets of her late parents.  These are likely to include a fully-furnished house or apartment in Stockholm, country and/or island houses, several cars, plus financial assets on which they can draw for living expenses.   Since he will retain his U.S. citizenship, it is important that income from the estate flows largely to her to avoid his being subject to US personal income tax.

All that’s left is to minimize taxes on consumption.  Swedes face a staggering 25% value-added tax on most purchases (VAT is equivalent to a sales tax).  Since the happy couple will already own all the big-ticket items, they will be spared the 25% sales tax on cars, consumer durables and other household items.  They will benefit from reduced 12% rates on food and restaurant dining (excluding alcohol), and a 6% rates on cultural events.

It’s really important for him to love his wife since the money is hers, and to love living in Sweden.  If she loves him, given the fact that she has been single for a long time, their remaining years will be truly golden.

(Caveat: The reader is advised to study Swedish norms and behaviors before embarking on his possible new life.  He can learn a lot reading English-language blogs about life in Sweden and talking with American men who live with Swedish women in Sweden.)

Sunday, September 14, 2014

Swedes Vote for Higher Taxes, More Government Spending

On September 14, 2014, Swedes voted to replace their center-right government led by Prime Minister Fredrik Reinfeldt with a center-left government led by union leader Stefan Loefven. The era of Fredrik Reinfelt (2006-14) is over!

Bloomberg News on January 21, 2014, summarized Reinfeldt's achievements:

“Prime Minister Fredrik Reinfeldt, whose main policy thrust over the past eight years has been to let voters take home more of their pay....Reinfeldt has prioritized tax cuts as a path to job creation....To help pay for five rounds of income tax cuts since 2006, Reinfeldt has reduced unemployment and sickness benefits. His government has also lowered corporate taxes by 6 percentage points to 22 percent, below the EU average of 22.85 percent....Sweden’s tax revenue has dropped to 44.3 percent of GDP, from a peak of 51.5 percent in 1999, when the Social Democrats were in office.”  Reinfeldt also abolished a tax on wealth.

Reinfeldt has been widely credited with steering Sweden through the global financial crisis at the end of the last decade, consolidating its position as perhaps the healthiest economy in Europe.  After 8 years of lower taxes and more economic freedom, Swedes could not resist the siren song of more government spending for political handouts.  The center-left Social Democrats based their campaign on increasing government spending by 40 billion crowns ($5.6 billion) on job schemes, education and healthcare to be financed by raising personal income taxes from a maximum rate of 57% to 60% as well as company taxes.

Welcome to Sweden!

Saturday, September 13, 2014

Drip, Drip, Drip: US Troops in Iraq Number Over 1600

A post of August 13, 2014, counted 875 U.S. Security Forces in Iraq.  In early September, another 350 were dispatched to Iraq, followed by an announcement of another 475 at the end of the second week in September.  During the third week of September, total "boots on the ground" will exceed 1,600.

The Pentagon denies "mission creep."  Each additional block of troops has been assigned well-defined objectives.

Any guesses on the number by election day (November 4) or at year's end?

Nobel Peace Prize anyone?

Saturday, August 23, 2014

Racial Classification: Politics of the Future?

Written in 1980 with the late L.H. Gann, a prophetic warning that ethnic politics would transform the U.S. from a nation of individual rights into group rights, with all its destructive consequences.

Monday, August 18, 2014

Chicago vs. St. Louis: More Than a Baseball Rivalry

The website Spot Crime displays local daily crime statistics for such categories as shooting, assault, burglary, vandalism, and so forth.

Take a look at the reports for Chicago and St.Louis County, in which the suburb of Ferguson is located.  (City of St. Louis crime data can be found here.)

Hone in on Ferguson.  It is virtually crime free.  One heartbreaking fatality has set the community ablaze, with media from around the world wondering if a new race war is about to break out across America as occurred in U.S. cities in the 1960s.

Compare the Greater St. Louis area with Chicago, home of President Barack Obama, Mayor Rahm Emanuel, Secretary of Education Arne Duncan, Reverend Jesse Jackson, and other prominent national figures.  Week after week Chicago is plagued with shootings, burglaries, assaults, and every other version of crime.  Scroll down the list of crimes by date and the numbers are truly shocking.  Where are the international media?  Why hasn't the governor of Illinois called up the National Guard to patrol the streets of Chicago?

Just asking....

P.S.  By way of disclosure, the proprietor of Thoughtful Ideas grew up and attended university in Greater St. Louis.

Wednesday, August 13, 2014

What is the Threshold for "Boots on the Ground?"

On Tuesday, August 12, 2014, another 130 U.S. military personnel arrived in Iraq to help relieve the dire situation of tens of thousands of Yazidi and other Iraqis trapped on a hill by the Islamic State (IS) fighters.  These additional troops were not sent to "engage in combat operations."

Their boots are literally on the ground (barring some levitation device that keeps them off the ground).  They are armed.  They will no doubt be authorized to shoot back at IS fighters if fired upon.

The total of U.S. Security Forces now numbers 875.

Evidently the phrase "boots on the ground" is not to be taken literally so long as the president and the secretary of defense say they are engaged in non-combat operations.

Doubletalk anyone?

Wednesday, June 25, 2014

Why President Obama Ordered 300 Special Forces Personnel to Iraq

Three hundred Spartans held off thousands of Persians for three days at the Battle of Thermopylae in summer 480 BC to buy time for Greeks to mobilize their defense against Persia.  Perhaps the 300 U.S. Special Forces all descend from Sparta and they, too, will hold the line against ISIS (ISIL) 40 miles north of Baghdad to allow the main forces opposing ISIS to mobilize (but not pay the ultimate price of the Spartans).

Themistocles, Athen's naval commander, subsequently defeated the Persian navy in late 480 BC at the Battle of Salamis, followed by a Greek army thrashing the Persians at the Battle of Plataea in 479 BC.  The main forces opposing ISIS--Iraqi militias, Syrian air and ground forces, Iranian Revolutionary Guards, U.S. air forces, and other anti-ISIS military--can counterattack, recover all territory held by ISIS, and end the global threat from these ultra-jihadist rebels.

Makes sense?

Thursday, June 19, 2014

Those Whom the Gods Would Destroy

They first make mad with delusions of democracy in the Middle East (save for Israel).

Wednesday, June 18, 2014

Memo to Bret Baier and Greta Van Susteren

You had Hillary Clinton at your disposal for 30 minutes overlapping your shows on June 17, 2014.  Neither of you asked the one question that Hillary has never answered.

Where were you and what were you doing between 10:00 PM and 6:00 AM the night of the attack on the U.S. Benghazi consulate that killed our Ambassador and three other Americans?

Was it because that if you did, and if Hillary Clinton becomes the next U.S. president, she will cut off Fox News from any other interviews?

Wednesday, June 4, 2014

Five More Easy Steps to Government Of, For, and By the People

1.  Any federal government official who does not obey a court order (save for an appeal) within 30 days shall be removed from office and banned for life from any other federal government employment.

2.  End costly presidential entourages (two jumbo jets, helicopters, limousines, security personnel) to annual international meetings that accomplish little more than photo-ops and lowest common denominator statements of cooperation. These include the G-7, G-8, G-20, G-35, Asia-Pacific Conference, NATO, United Nations General Assembly opening, and so forth.  Lower-level officials can attend meetings at vastly lower cost and work out the details for a joint statement.

3.  Congressional leaders (Speakers, Majority Leaders, Opposition Party Leaders, and Committee Chairs) shall be term limited.

4.  No Member of congress shall chair more than one special hearing a year to prevent the excessive politicization of important matters.

5.  Congressional hearings shall consist solely of questions directed to witnesses by members and their replies.  Members shall not make opening, politically-charged statements.  All testimony shall be submitted in advance and posted on the Committee’s website before hearings begin.  Any violation of these rules shall preclude the Member of Congress from chairing another hearing for the duration of the Session.

Tuesday, June 3, 2014

Five Easy Steps to a More Open, Transparent, Limited Federal Government

1.  Limit each congressional bill to one subject.  No riders, amendments, or attachments that are not integral to the subject shall be included.  Any member of Congress who attempts to attach a non-integral addition shall lose his/her right to introduce legislation for the remainder of that Session.

2.  Limit each Member of Congress to introducing one bill per session.  Any member who attempts to introduce more than one bill, even if the first bill fails to be passed into law, shall lose the right to introduce legislation in the next Session.

3.  After 10 bills are passed into law in any Session of Congress, every subsequent bill enacted into law shall require the repeal of a law whose costs shall equal that of the estimated costs of the new legislation.

4.  Congress shall enact new penalties for federal government officials.  Any head of a federal agency or department who fails within sixty days to produce documents requested by a congressional committee charged with its oversight shall be removed from office without pay or pension and precluded for life from any other federal employment.  His/her successor, the number two person in the agency shall have 15 days to comply or face similar punishment.  The process shall continue until all political appointments in that agency have been removed from office.

5.  Any government official lying under oath to Congress shall be removed from office without pay or pension and precluded for life from any other federal employment.

6,  All five measures shall be adjudicated within 72 hours by an Independent Panel of seven American adult citizens that excludes all members of Congress, the Executive Branch, the Judicial Branch, and their employees.  Except for reimbursement of expenses, panel members shall serve for a maximum term of three years without pay and thereafter be precluded for a minimum of five years from federal government employment or eligibility for federal contracts.

(Details of the panel’s selection shall be presented in a subsequent post.)

Wednesday, May 28, 2014

China Grows, America Stagnates, Europe Declines

For the past few years, most Western “China experts” have predicted China’s Imminent Collapse (CIC).  They cite heavy investment, high savings, dependence on exports, rapid credit creation, property bubbles, declining trade surplus, capital controls, corruption, and so on.

While down from 9-10% growth rates in previous decades, China still grows at 7.5-8%.

How can this be?

The recipe consists of  hard work, rigorous study, personal and national ambition, trial-and-error policies, with an overriding emphasis on growth and jobs.  Sound policies coupled with competent leaders have unleashed the productive potential of the Chinese people, which had been suppressed by the ultra-leftist policies of Mao Zedong.

As China grows, America stagnates and Europe declines.  American businesses and individuals are heavily taxed and regulated, and successful individuals and enterprises are denounced for being productive and seeking profit.  Meanwhile, the number of individuals on government disability has passed 10 million and 5% of the adult population has dropped out of the labor force. A third of university graduates live with their parents.  K-12 education shows no improvement.

European prospects are downright depressing.  It’s ironic that Frenchman Thomas Piketty’s book on  “Inequality” has become a global best-seller, surpassing 300,000 sales.  Amazon can barely keep the book in stock.  Piketty calls for 80% marginal tax rates on high-income earners and redistribution of wealth to reduce inequality.  If adopted, these measures will worsen Europe’s failing “social market economy.”  In the European Parliament elections of late May 2014, voters rejected Piketty’s ideas in France, Britain, Denmark, and other European Union countries.  European leaders are mouthing tax cuts and less regulation as solutions to decline.

Europe is a continent of monuments, museums, churches, and castles served by high-priced hotels and restaurants, hardly a foundation for growth and jobs.  Good thing that Chinese tourists are visiting Europe in ever-rising numbers.  (The proprietor of Thoughtful Ideas, who travels frequently to Europe and speaks passable Chinese, has been watching this trend for years.)

At 7% growth, China’s economy will quadruple in 20 years, far surpassing the combined output of America and Europe.  Who would have thought this possible 30 years ago?

Thursday, January 2, 2014

Legalized Marijuana in Colorado--Bending the Health Care Cost Curve

It is alleged that marijuana reduces pain.  If correct, will less money be spent on both prescription and over-the-counter pain relief medicine?