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Minimum Wage Is Too High For Paul Krugman

February 20, 2013 By: Scott Spiegel Category: Economy

Wage_labour.svgIn his State of the Union Address last week, President Obama called for yet greater federal interference in the economy via a $1.75 per hour minimum wage hike, from $7.25 to $9.00, with additional increases tagged to inflation.

New York Times gossip columnist Paul Krugman opined that, “surprisingly,” increasing the minimum wage may be good policy: “Why ‘surprisingly’?  Well, Economics 101 tells us to be very cautious about attempts to legislate market outcomes.”  No, I didn’t make up that disclaimer; that’s just Krugman trying to sucker you in with a little false modesty.  Don’t worry—he still comes out all in favor of the wage increase.

And what an increase it would be: Raising the minimum wage $1.75 an hour would be by far the biggest single hike since the federal minimum wage was established in 1938.  The next biggest increase—of $0.70 an hour—occurred three times in 2007, 2008, and 2009, when newly sworn-in Democrats spiked the rate three years in a row.  Before the 2006 wave of Democrats rode into power, the minimum wage had never increased more than $0.50 at a time.

The proposed 24% increase would be the largest hike by percentage since 1974, when Congress raised it 25% from $1.60 to $2.00.

So what’s the argument for raising the minimum wage?  Proponents claim that raising it:

(1) Is moral, because workers at the bottom of the economic ladder will earn more;

(2) Helps the economy, because those workers will spend more and stimulate the economy;

(3) Increases employment, because more spending will lead to more hiring.

(Never mind that the employers who will supposedly do all that extra hiring will be the ones paying their workers to buy more of their products in the first place.)

In contrast, opponents argue that raising the minimum wage:

(1) Is immoral, because it restricts employers’ ability to hire low-wage workers, and thus reduces their employment;

(2) Hurts the economy, because it forces employers to direct financial resources in less efficient ways;

(3) Decreases employment, because small businesses can’t keep up with the need to increase all of their workers’ wages to maintain relative parity.

So what happens after minimum wage increases take effect?  Do employers hire more or less?  Does the economy improve or worsen?

To answer this question, I took a look at all federal minimum wage increases since World War II, to see what transpired after these hikes—in particular, what happened to the unemployment rate and the gross domestic product (GDP).

First I looked at the monthly U.S. national unemployment rate following the passage of each post-WWII federal minimum wage increase, to see what effect minimum wage legislation had on employment.  I found that the average unemployment rate during the first full month after each minimum wage increase, for all increases from January 25, 1950 to July 24, 2009, was 6.00%.  From three months out through ten months out, the average monthly national unemployment rate progressed as follows: 6.01%, 6.09%, 6.10%, 6.11%, 6.13%, 6.23%, 6.25%, and 6.33%.  So over the ten months following mandatory federal minimum wage increases, the unemployment rate steadily and reliably increased, on average a third of a percentage point from what it had been upon passage of the law.

Next I looked at the quarterly percent change in GDP following passage of each hike, to see what effect minimum wage legislation had on GDP.  The average percent change in GDP for all quarters from 1950 to 2012 was +3.31%.  In contrast, the average percent change in GDP during the first full quarter after each wage increase was +2.48%, almost a full point lower.  In the second quarter after the wage increase, the percent change was +3.00%, and in the third it was +2.63%.

These aren’t huge differences, largely because many factors besides minimum wage affect employment and GDP.  Other economists have done more detailed studies and isolated the deleterious effects of minimum wage laws.  But even my cursory analysis confirms that Krugman and his ilk are loons if they think that placing restrictions on employers’ hiring practices—which is what minimum wage laws do—will somehow increase hiring and strengthen the economy.  (Other pet theories of Krugman’s are that wearing leg irons helps you walk faster and having laryngitis makes you speak more mellifluously.)

Krugman pooh-poohs the detrimental effects of minimum wage increases: “Now, you might argue that even if the current minimum wage seems low, raising it would cost jobs.  But there’s evidence on that question…  And while there are dissenters, as there always are, the great preponderance of the evidence from these natural experiments points to little if any negative effect of minimum wage increases on employment.”

Krugman is such a pathological liar that when he says “the great preponderance” of evidence shows “little if any” negative effect, you know he’s brushing aside mountains of data contradicting his position.  Krugman cites just one paper titled “Why Does the Minimum Wage Have No Discernible Effect on Employment?,” published by leftist D.C. think tank the Center for Economic and Policy Research, whose founder recently authored a book called “The End of Loser Liberalism: Making Markets Progressive.”

If liberals want a minimum wage hike, why don’t they just come right out and demand more redistribution of wealth from the bourgeois to the proletariat?  Could they spare us the act of dressing up their request in convoluted economic theories using data that can be manipulated to give them any results they want, and whose conclusions no one with common sense believes?

Previously published in modified form at Red Alert Politics


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Runaway Domestic Spending Makes Democrats’ Hearts Quicken

January 16, 2013 By: Scott Spiegel Category: Economy

love-money-valentines-day-spending-68652560036_xlargeDemocrats beat Republicans in the fiscal cliff standoff by pressuring them to agree to raise taxes on high-income earners with no accompanying spending cuts.  They argued, persuasively to the American people, that the revenue shortfall the federal government faced required such a move to make up the difference.

Raising taxes on the upper 2% of income earners isn’t nearly enough to plug our budget deficit, to say nothing of our long-term debt.  The only way to do so is to immediately enact drastic, painful, across-the-board entitlement spending cuts that slap us with the reality of our historically dire situation.

Naturally Democrats prefer to keep spending levels right where they are and raise more taxes.

Naïve political observers assumed that, once House Republicans had caved on the fiscal cliff, they would have some leverage in getting Democrats to agree to spending cuts in the upcoming battle over raising the federal debt limit.  Republicans, the thinking went, could insist that, since they had agreed to raise $620 billion in revenue from taxes, Democrats would have to give in and accept cuts in exchange for raising the debt limit.  House Speaker John Boehner in particular seeks a dollar-for-dollar spending cut-to-borrowing limit ratio.

But no—Democrats continue to display their congenital intransigence to cutting a single dollar from a single program anywhere, anyhow, anytime, except for the military.

We’ve come to the point in the evolution of the Democratic Party where there’s truly, fundamentally, literally nothing they’re willing to consider cutting.  Nothing.  Nada.  Zilch.  Zip.  Niente.

Don’t believe me?  I’ll prove it to you.

Former House Speaker Democrat Nancy Pelosi, when recently asked whether her party would consider enacting spending cuts on Social Security, Medicaid, and Medicare, responded that we had already done so… by passing Obamacare.

As CBS News reports: “Asked if Democrats are ready to significantly reform entitlement programs to address the deficit, Pelosi said, ‘We already have,’ pointing to the Affordable Care Act’s $716 billion in Medicare provider cuts.’”

Everyone, including Pelosi, knows these cuts are fake, in that they: (1) limit Medicare’s growth rather than shrinking Medicare, (2) target insurance companies and hospitals, who will simply pass the costs on to consumers, and (3) won’t ever take place, because they’re slated to unfold over the next 10 years, and will be demolished by subsequent Congresses, as such future-situated cuts always are.

If Democrats are unwilling to shrink entitlement programs, how about altering the age at which people are eligible for them?  Off the table.  Pelosi “replied with a quick ‘no’ when asked whether she supports raising the Medicare eligibility age…  She also seemed disinclined to consider any cost of living adjustment that could reduce Social Security benefit payments, saying, ‘I do not think we should do anything to Social Security that reduces benefits to the beneficiaries…’”

So no cuts, no alterations, no adjustments.  Nothing that “reduces benefits to the beneficiaries,” which means nothing.

How about other non-military domestic spending programs?  Nope.  As the L.A. Times reports, “The president said he was open to seeking spending cuts generally as part of an effort to reduce the country’s deficit, but he stressed that such reductions can be made ‘without shortchanging things like education, job training, research and technology, all of which are critical to our prosperity in a 21st century economy.’”

So no cuts to “education, job training, research and technology,” or anything that is “critical to our prosperity in a 21st century economy,” which Democrats will argue is everything.

And on and on: Senate Budget Committee Chair Patty Murray wants to preserve every penny of Head Start.  Mother Jones wants to maintain federal funding for food stamps, Supplemental Security Income, extended unemployment benefits, education grants and college loans, housing assistance, community health centers, heating bill payments, and milk for babies.  Senate Majority Whip Dick Durbin and White House spokesman Jay Carney cheerfully agree that Social Security does not contribute to our federal deficit, because apparently it’s free.

It’s finally starting to dawn on Republicans that Democrats have no intention of ever cutting spending.  As the Wall Street Journal notes in an interview with the Speaker on the fiscal cliff talks, “What stunned House Speaker John Boehner more than anything else during his prolonged closed-door budget negotiations with Barack Obama was this revelation: ‘At one point several weeks ago,’ Mr. Boehner says, ‘the president said to me, “We don’t have a spending problem…”’  Mr. Boehner says that after he recovered from his astonishment… he replied… ‘Mr. President, we have a very serious spending problem.’ He repeated this message so often, he says, that toward the end of the negotiations, the president became irritated and said: ‘I’m getting tired of hearing you say that…’”

(Meanwhile, the shaggy, autistic homeless man named Paul Krugman argues that we could end the recession, if only we just wildly increased federal spending over the next two years to levels that would make Obama blush.)

Want to know how dire Democrats’ spending addiction has become?  It has even overpowered their abiding compulsion for raising taxes.

When Democrats agreed to the sequestration deal in 2011, they calculated that Republicans’ aversion to the deep military cuts that were to accompany the deal’s domestic cuts would give them a strong leverage point later on.  But inside sources suggest that Democrats now actually fear sequestration more than the GOP.  Democrats appear willing to forego tax increases for the sake of not having a single dollar cut from their beloved domestic programs.

Democrats love weakening the military and adore raising taxes, but both flirtations are now trumped by their giddy, rosy-cheeked infatuation with runaway domestic spending.

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Liberal Myths: Holiday Edition

December 12, 2012 By: Scott Spiegel Category: Economy

three donkeys copyHow many liberal myths can a mainstream news announcer cram into one innocent, 90-second, top-of-the-hour news briefing?  On WABC’s New York affiliate one recent December evening, I counted eight.

First the news reader (as they more appropriately call them in Japan) cheerfully announced that seasonal hiring—inventory control agents, sales clerks, deliverymen—was way up this year compared to last year; that increased holiday spending was a sign the economy was improving; and that goods being purchased in the U.S. are unfortunately being made more often overseas.

There’s three myths right there: (1) elevated part-time hiring reflects economic health; (2) consumer spending drives growth; and (3) trade imbalances are harmful.

(1) That retailers are hiring more temporary help isn’t a sign the economy is thriving; it’s a sign there are more underemployed workers taking part-time work below their skill level.  If permanent, full-time employment were stable, we wouldn’t see such a leap in short-term hiring during peak economic season.  Increased part-time hiring also reflects employers’ reluctance to take on “full-time,” 30-hour-a-week employees whom they must soon provide health insurance per Obamacare.

(2) Consumer spending does not drive economic growth; investment and production do.  There’s nothing to consume if manufacturers don’t have the capital and the optimism that investing in productive enterprise will be worth it.  And manufacturers don’t think production will be worth it if they’re saddled with confiscatory tax rates, burdensome regulations, and long-term uncertainty.  Consumer spending is the last step in the economic chain of production, not the first.

(3) Trade imbalances reflect the fact that some countries have more stable economies and reliable currencies than others, the latter of whom must depend more on tangible production efforts to demonstrate they have something of value to trade.  Trade imbalances also signal advanced nations’ capacity to provide high-tech, intangible services and sophisticated knowledge transfer that aren’t as concrete or visible as shiploads of dry goods.

After this trio of falsehoods, the announcer chirped that gas prices were lower than they’d been in months—a boon for the economy—but higher than this time last year, which could reflect rising wages.

There’s two more myths: (4) seasonal fluctuations in gas prices reflect economic growth; and (5) high gas prices reflect improving wages.

(4) Gas prices are always higher in the summer; this is a reliable, cyclical variation, and gas prices declining from June to December say nothing about comparative economic performance at the end of the year.

(5) Our current high gas prices are less likely a reflection of increasing income—which we know is at historically low levels—and more likely the result of instability in the Middle East (due to our President’s weak foreign policy), forecast scarcity of oil (due to drilling restrictions), and looming inflation (due to the Federal Reserve’s currency devaluation).

After a commercial break, the reporter referenced the recent renewal of the Kyoto Protocol and uncritically repeated the news that (6) scientists are alarmed because 2012 is on track to be one of the hottest years on record.

(6) The Met Office in Great Britain recently released a report showing global temperature the same in 2012 as it was in 1996.  The period over which no global warming has been taking place (1996-2012) is thus the same length as the period over which it was supposedly taking place (1980-1996).  But never mind: news outlets such as The New York Times inveigle us to “Bundle Up: It’s Global Warming.”

The announcer then mentioned Obama’s recent trip to Michigan to grandstand on the end-of-the-year fiscal showdown, and parroted his claim that (7) spending cuts must be balanced with tax increases to balance our budget.  The announcer concluded that (8) the Dow Jones Industrial Average was up slightly due to optimism over progress in the fiscal cliff talks.

(7) Liberals refuse to understand that revenue increases are not the same as tax increases.  One means more money going to the government; the other means a higher percentage of people’s income being taken from them.  Paradoxically, lowering marginal tax rates on high-income earners increases revenue, because then they don’t scale back their investment and hiring to avoid being gouged.  Cutting taxes increased revenue under JFK, Ronald Reagan, and Bill Clinton.  Yet liberals forever believe Republicans want the government to run with no revenue.

(8) No one can say on any given day why the Dow is up or down, and analysts frequently project their prejudices onto such causal pronouncements.  It’s equally possible that the DJI is up because investors believe little progress is being made as the end of the year approaches, automatic budget cuts are going to kick in, and we’re finally going to start reining in spending.

At this rate, the mainstream media will soon be reporting flying reindeer sightings.

(For more liberal howlers, see Liberal Myths: Tax Day Edition!)

Previously published in modified form at Red Alert Politics


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Obama Was Dealt a Dream Hand

November 07, 2012 By: Scott Spiegel Category: Elections: 2012

No modern American president has ever been granted the opportunity President Obama received to preside over explosive economic growth while in office if he had simply left well enough alone.

Consider this: Politically speaking, if a president assumes office during a recession, the luckiest time for him to do so is around twelve months in, when the economy is near rock-bottom and ready to come roaring back.  If he plays his cards right, he can take credit for some of the recovery by claiming that his policies contributed to it.  What’s least fortunate is to assume office near or before the start of a recession, because then the downturn occurs entirely under his watch and everyone blames him for it.

Harry Truman took office two months into the 1948 recession—a precarious position, because unemployment plunged for a year under his watch before recovering.  Eisenhower assumed office six months before the 1953 recession and was forced to serve as the face of twelve months of decline.

Kennedy was fortunate enough to assume office nine months into the 1960 recession, one month before the recovery, the latter of which he sustained by cutting income taxes for all earners.

Nixon assumed office eleven months before the 1969 recession and presided over twelve months of decline.  Reagan took office six months before the 1981 recession and endured sixteen months before the recovery.  Bush assumed office two months before the 2001 recession and held office through ten months of decline.

When did Obama take office?  A whopping thirteen months after the start of the 2007 recession, the longest lag time any president has experienced while assuming office near the start of a recession since the Great Depression.  Only Kennedy came close to being as lucky, and he didn’t squander his luck.

The economy had been hemorrhaging jobs for a year before Obama took office; the sharpest decline was behind us.  Job losses would have continued for several months under Obama no matter what he did, but no one would have blamed him for that if had he appropriately positioned the country for recovery.  Had he governed like a fiscal conservative, à la Bill Clinton, Republicans would have been delighted and vindicated, even if his policies hadn’t yielded immediate results.  Democrats would have griped, but they would have covered for Obama.

But that’s not how Obama governed.

Obama blew his chances via massive deficit spending, threats to raise taxes, nebulous business regulations, and expensive new entitlements.  Obama was dealt the opportunity of a lifetime to preside over historic recovery and growth, without his having to lift a finger for the country.

Instead, he chose to lift a finger to the country.

Obama was also dealt a dream hand on national security.  In their tepid reelection endorsement, The Economist claimed Obama had been “left with a daunting inheritance” from Bush.  On the contrary.  It was a piece of cake for Obama to end the Iraq War, since all he had to do was follow to the letter the Status of Forces Agreement for the drawdown of troops that Bush had set up for him before he left office.  (It was Bush who was dealt the atrocious foreign policy hand: the 9/11 attacks that happened months into his first term and were the culmination of twenty years of Islamist attacks against the West.)

It was easy for Obama to order the surge in Afghanistan—though he dawdled for months doing it anyway—because he had the successful example of the counterinsurgency operation Bush had ordered General David Petraeus to execute, at great political cost, in 2007 (the one Obama opposed and Biden called “dead flat wrong”).  It took the Bush administration years to discover counterinsurgency as the optimal strategy for winning the Iraq War.  Obama had a textbook example of how to do it in Afghanistan, and the same generals to implement it, right in front of him.

Obama was gifted mountains of intelligence, obtained through enhanced interrogation techniques he opposed, that led the U.S. military to the hideout of Osama bin Laden, and to the call any sane President would have made to order Navy SEALs to kill him.

Obama received the Nobel Peace Prize for delivering fruitless campaign speeches about how he would sit down with dictators and charm them into cooperation.

Obama’s dream hand extended to his party’s majority in the House and supermajority in the Senate, which allowed him to get his stimulus bill, the Dodd-Frank banking bill, Cash-for-Clunkers, the Fair Pay Act, and other major legislation passed.  Obama apologists have bragged about how much he got done, in part because of Democratic majorities in Congress.

Obama was given a generalized, all-purpose benefit of the doubt like no other modern president.  Months into office, while economic indicators were plunging, everyone on both sides of the aisle lamented what a bad hand he had been dealt.  But who would have imagined that his supporters would be reciting that excuse four years later for why unemployment the Friday before Election Day was higher than when he took office?  Who would have guessed that the strongest argument for reelecting Obama would be “He was dealt a bad hand”?

Obama had the entire mainstream press except Fox News on his side.  Reporters covered for him, asked fawning questions, failed to ask tough questions, kept quiet during long stretches without press conferences, colluded to shield him, and coordinated to attack his opponents.  In the final months of the election, Democrats gained momentum and Republicans suffered demoralization from a cadre of shameless, biased pollsters who used ridiculous weighting models to spread the meme that Obama was up 5 to 15 points in key swing states and the election was over.

What other modern American president has enjoyed such a deep reserve of good will, tolerance, patience, and protection from the press, the public, politicians in and out of his party, and leaders and peoples of the free world?

Most presidents would be deeply envious to receive the welcome Obama got when he took office.  Fortunately Mitt Romney is tough enough to thrive without it after he is inaugurated.

Previously published in modified form at Red Alert Politics (Part 1 and Part 2)

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No, We’re Not Better Off

September 05, 2012 By: Scott Spiegel Category: Economy

Just in time for the Democratic National Convention, Obama supporters are happily claiming that, why, yes we are better off now than we were four years ago, thank you very much.

For starters, they’re touting Vice President Joe Biden’s bumper sticker slogan “Osama bin Laden is dead, and GM is alive.”

Actually, bin Laden and top al Qaeda members killed in President Obama’s wanton drone attacks should be alive and getting waterboarded in Gitmo for all the intelligence we can wring out of them.  General Motors should have gone through bankruptcy proceedings and, if it couldn’t shake off its bloated union benefits packages and improve its efficiency, died.

But I think what Democrats are crowing about is the general economic picture.  They would have us believe that, even if job growth isn’t picking up quite as much as we would like, at least it’s better now than it was near the start of the recession.

No, it’s not.

It’s not even as good as it was when Obama took office.

Consider the Federal Reserve Bank of Minneapolis’s post-WWII recession and recovery employment and GDP data, which every conservative politician and Romney supporter should familiarize himself with.

These data show that the percent change in total U.S. employment in July 2008—four years prior to the most currently available data—was -1%.  In July 2012 it was -3%.

Using the first month of Obama’s presidency as a baseline, percent change in employment was still slightly higher in January 2009 than it is now.

When Obama supporters brag that he added 4.5 million jobs to the economy, the proper response is, “Yes—if you count only the jobs added since January 2010 and not the ones lost in the prior 12 months.  There are still 400,000 fewer people working today than there were in January 2009.”

A better way to analyze the data than comparing the economy today with the economy four years ago is to ask whether we’re better off now than we were at the equivalent point in time following other recessions.

No, we’re not.

July 2012 marked 55 months since the start of the December 2007 recession.  The monthly percent change in employment for all other 10 postwar recessions at 55 months out ranged from 1% to 12%, with an average of 7%.  Again, in July 2012 monthly change in employment was -3%.

In other words, every single other post-war recession saw an actual recovery that culminated in a positive monthly change in employment by four-and-half years out—and usually much sooner—and not a fake recovery that left the economy worse than it was at the start of the recession.  The Obama recovery stands historically alone in its decrepitude.

Since Obama’s presidency started 13 months into the 2007 recession, let’s look at percent change in employment 55 months after each recession’s start minus change in employment 13 months into the recession.  This method shows us how Obama performed, without holding him responsible for what happened when he wasn’t president.  Has the economy improved as much in the 42 months of Obama’s presidency as it did during the equivalent 42-months for other recessions?

No, it hasn’t.

The difference in monthly employment from 13 to 55 months after the start of the other 10 recessions ranged from 3% to 16%, with an average of 9%.  Under Obama, the difference from 13 to 55 months is just under 0%.  Obama actually drove down monthly employment since taking office.

Even if we grant Obama a full 12-month grace period, as he prefers, and run the numbers from 25 to 55 months—equivalent to January 2010 to July 2012—Obama’s performance is still dismal compared to other recessions, at under 3%.  Only the 1953 recession was worse.  The remaining nine recessions ranged from 3% to 12%, with an average of 7%.

How about quarterly percent change in GDP?  We’re 18 quarters out from December 2007.  Is GDP on par with where it was 18 quarters out from other recessions?

No, it isn’t.

Percent change in GDP for the other 10 postwar recessions ranged from 9% to 27%, with an average of 16%.  Percent change in GDP is currently at 2%.

Let’s take a step back.  Unemployment is stuck where it was in January 2009.  Poverty is up.  Food stamp use is at a record high, and median income is down.  Inflation is up since 2009, and gas prices have doubled since Obama took office.

By what possible metric can Obama claim that we’re better off now than we were four years ago?  Our social networking prowess?  (Oops—bad example.)

The Obama campaign is now so desperate to prevent analysts from scrutinizing the employment and GDP numbers that it’s running interference by firmly warning Democratic officials who stray from campaign orthodoxy on the economy’s improvement that they’d better get in line if they want a future in politics.

The only sense in which we’re better off now is that we may have only four more months instead of four more years to endure this miserable president.

Previously published in modified form at Red Alert Politics

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“Hope and Change”: Rhetorically Proximate to Higher Taxes

May 30, 2012 By: Scott Spiegel Category: Economy

In the waning days of the Obama Dynasty, liberals have been rolling out graph after graph purporting to offer voters ironclad proof of one crackpot Keynesian notion after another.

Last year Nancy Pelosi’s office posted a risible graph showing that President Obama had increased the debt far less than George W. Bush and all other Republican presidents over the last thirty years.  It was later revealed that Pelosi’s office had mistakenly counted spending in Obama’s first year as Bush’s, and that based on debt as a percentage of GDP—the more relevant measure—Obama was the most profligate spender of the lot.  Fact-checking website PolitiFact awarded the graph a “Pants on Fire” rating, and for a while we didn’t hear any more crowing about Republicans outspending Democrats.

Last week the meme was resurrected via a surprising graph showing that in his three-and-a-half years in office, Obama halted and even reversed the growth in federal deficits, whereas recent presidents—especially Bush—increased it.  Within days, John Lott, Ann Coulter, and other commentators tore apart this graph by pointing out that it insanely counted all of Obama’s first-year spending as Bush’s, this time intentionally.

In addition, Bush, Obama, and Congress blew up federal spending in FY 2009 due to the banking crisis.  Yet Obama continued spending at that level long after the financial panic ended, thus turning exorbitant, unprecedented spending levels into the new baseline.  Rex Nutting, author of the MarketWatch piece that caused a ruckus last week, offered the typical excuse for Obama: he had to engage in wild spending to stave off a looming depression.  So why didn’t Obama slash spending after the crisis was over?  If Obama is such a warrior for fiscal restraint, why don’t his projected budgets to 2020 rein in federal spending to pre-2008 levels?

Since liberals can’t win arguments by presenting actual data, their newest gambit appears to be presenting “hypothetical” graphs that explain why the economy thrives under liberals and weakens under conservatives.

The latest graph floating around the Web shows how progressive taxes stimulate growth, whereas regressive or flat taxes slow it.  According to the authors’ explanation, no one wants to be taxed at an exorbitant rate, so business owners will reinvest money into their companies in excess of what they need to live on, thus creating jobs.  In contrast, under a lower rate, business owners sit around on their money, because they have no fear of being outrageously taxed.

There’s so much wrong with this absurd graph that it’s hard to know where to start.  First of all, it completely ignores corporate taxes, which eat up reinvestment funds and keep them from being returned to the company.  Instead they get diverted to pay for things like fortune tellers at federal conferences in Las Vegas.

For another thing, the graph implies that companies are taxed based on net profit, when in fact they are taxed based on total revenue.  Such a policy creates a disincentive to reinvest and grow, since growth means that more of a company’s revenue will eventually be confiscated by the government no matter what the company does with it.

In addition, most companies do reinvest most of their profit, in order to stay afloat, so raising taxes merely hinders their ability to carry out that action.

Moreover, progressive tax rates reduce the incentive to go into business at all, given the likelihood that a successful businessman can soon expect to become the target of ravenous politicians.

Also, people who are ambitious enough to start businesses generally don’t sit around on their money and brag about how rich they are; they usually start more companies and get richer.  At any given point in time, most rich people’s money is tied up in investments, not wound around cardboard rolls to be used as toilet paper.

Also, to the extent that companies are sitting on their money, it’s because of the regulatory uncertainty the Obama administration is sowing regarding tax rates and the health care industry.

Also, even if all of the above weren’t true, it’s still not the government’s business to tell companies how much of their income to keep and how much to reinvest.

Other than that, the graph is spot-on!

In a speech last week defending his attacks on Bain Capital, Obama implied that in his private sector career Mitt Romney was trying only to make a profit and didn’t care about creating jobs.

Newsflash for liberals: The purpose of starting a business is not to create jobs.  No one invests inordinate amounts of time and risks enormous sums of capital for the privilege of someday being able to pay strangers’ salaries.

The purpose of starting a business is to make money.  To make money, you need employees, but you don’t try to maximize the number of employees in your hire or their remuneration rates; in fact, you try to minimize both, while still getting the same amount of work done.  (The opposite is true if you work for the federal government, in which case you try to maximize the number of employees and the size of their salaries, and minimize the amount of work they do.)

Jobs are an after-effect, a by-product of wealth creation—an important one, but not something that precedes revenue generation.  I promise you, “job creation” doesn’t even make the top 100 goals an entrepreneur sets for himself when starting a new company.  (It did, however, make the top 5 list for Obama’s 2009 stimulus bill, right after paying off his campaign donors, subsidizing unions, funding ACORN, and enriching incompetent solar panel companies.)

To paraphrase MSNBC’s Chris Hayes, President of the Involuntary Veterans’ Modesty Association: Democrats’ airy-fairy economic theories make me uncomfortable, because they are rhetorically proximate to skyrocketing taxes and a federal takeover of the economy.

In their desperation to get Obama reelected, Democrats have proven that they will try anything to fool Americans into accepting higher taxes, including pushing pseudo-economic rationalizations for why sky-high tax rates are Miracle-Gro for the economy.

Previously published in modified form at Red Alert Politics


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Rush Deconstructed for the Media Matters Crowd

December 22, 2010 By: Scott Spiegel Category: Media

Rush Limbaugh
Cover of Rush Limbaugh

The congenitally leftist site Media Matters regularly collects “controversial” quotes by conservative personalities and displays them on its website for liberals to gawk at.  It’s supposed to be self-evident to visitors how insane these statements are.

Evidently this soft-sell strategy works, as evidenced by the reams of snarky remarks dumped in the comments section by loyal readers.

Rush Limbaugh is of course a favorite target of Media Matters.  Please join me while I deconstruct a sampling of contentiously worded but eminently sensible recent Rush quotes (thanks to David Swindle for post idea):

“Continued unemployment benefits increases unemployment”

Rush bemoans the fact that recent Republican opposition to extending unemployment benefits has been based, not on the philosophy behind endless benefit extensions, but on the technicality of paying for them.  Rush points out the fact that it’s easier for people to accept a $325 a week check than to look for a job.  Subsidizing something (unemployment) gives you more of it; taxing something (working) gives you less of it.  Contrary to Nancy Pelosi’s claims, unemployment benefits do not increase employment.

Everything Obama has done has been “an attack on the greatness of this country”

Rush cites the following disasters in Obama’s first term: ObamaCare, intrusive financial regulations, a moratorium on drilling, bank and auto company bailouts, and the stimulus bill.  So where does Rush get it wrong?  Is it part of America’s manifest destiny to impose socialized medicine, constrict financial institutions, ban exploration of natural resources, keep bad businesses from failing by punishing good ones, and spend trillions of dollars we don’t have on projects we don’t need?

Requiring insurers to cover preexisting conditions “isn’t insurance, it’s welfare”

Eric Cantor recently announced that Republicans would not seek to completely get rid of the health care reform bill; some elements will be kept, such as coverage of preexisting conditions.  Rush argues that forcing insurance companies to accept people with preexisting conditions is welfare.  Insurance companies stay in business by getting many people to pay premiums; if they had to provide coverage to anyone who wanted it, people would simply wait until they suffered catastrophes and then purchase insurance.  Thus, coverage of preexisting conditions = free money = welfare.

“The Constitution is an obstacle to [liberals], it’s a Bible to me”

A caller wants to know how to bridge the gap between liberals and conservatives.  Rush tells him that the things the two sides want done are incompatible, and that the left is no longer on the same page as the right.  Rush is willing to compromise on policy details but not on the Constitution.  When you have Democrats being caught admitting they don’t worry about the Constitution, or trying to redefine it as involving more than protecting “negative liberties,” then there’s no room for negotiation.

Obama didn’t lobby for 2022 World Cup because he is a “guaranteed loser … talk to Chicago about that”

Obama failed to win the 2016 Olympics for Chicago, guarantee carbon emission reduction concessions at Copenhagen, help candidates in Virginia, New Jersey, and Massachusetts, and get G-20 members to agree to currency inflation.  He is, in every sense of the term, a loser.  Yes, he won the 2008 presidential election—and an electoral victory gives one power, but does not produce actual results.

Past terrorists have been “young male Muslim Arabs,” and now “everybody has to be groped”

Rush addresses dissatisfaction over the Transportation Safety Administration’s decision to use invasive full-body scanners and “enhanced pat downs.”  We know who the enemy is in the war on terror, what they look like, their national origins, their ages.  But for some reason we’re supposed to suspend logic and pretend anyone could be a terrorist.  Police officers profile suspects all the time, and residents of high-crime neighborhoods are grateful they do.  If a suspect is a young, African American male, should police waste time stopping middle-aged white men and Hispanic grandmothers to prove they’re not racist?

Some Republicans are “gun-shy about defending the rich,” but “I, of course, do not have that problem”

Rush discusses a column in which Thomas Sowell expresses concern about the GOP losing the tax extension debate.  Sowell notes that tax cuts for the rich raise revenue and create jobs.  Republicans have that fact on their side, but they have to explain it to the public.  Decades of pounding from the mainstream media have left the GOP queasy about speaking up.  Sowell notes that we just won a landslide and asks, Why are we afraid to speak up?  Rush’s answer: The GOP does need to speak up, but in the meantime, I’m going to do it for them.

“Secondhand smoke is harmless”

A recent study by a Swedish health board claims that secondhand smoke kills more than 600,000 people each year.  Rush notes that the World Health Organization conducted a worldwide study in 2001 that found that secondhand smoke has no impact on health, but suppressed the study, because its findings were politically incorrect.  Rush observes that liberals lie about global warming, DDT, and other supposed health risks in order to control people’s lives, so until there is better evidence about secondhand smoking, we shouldn’t give them the benefit of the doubt on this.

To African-Americans: “The Democrat party is the party of keeping you poor and downtrodden”

A caller asks why the media don’t focus on the fact that if the Bush tax cuts are not extended, the lowest tax rate would increase from 10% to 15%, a 50% increase, which would disproportionately affect African Americans.  Rush points out that Democrats are not the party that is best for African Americans but rather the party of segregation, Jim Crow, and the KKK.  Until FDR used electoral strategies to turn African Americans his way, this voting bloc had consistently voted Republican.  LBJ expanded this strategy with his Great Society in the 1960s, and Democratic presidents from Carter to Clinton to Obama continued it, with the result that illegitimacy and dropout rates are now higher in African American communities than in the 1950s.  So remind me: how are Democrats the party that’s best for African Americans?

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I Guess Tax Cuts Stimulate the Economy After All

July 28, 2010 By: Scott Spiegel Category: Economy

The IRS Has My Money
Image by scott*eric via Flickr

Conservatives have been pounding their fists and screaming for decades that tax cuts stimulate the economy.  With lower taxes, investors and business owners can provide more capital for new ventures and engage in more hiring, because they know less of their profits will be confiscated to pay for things like solar panels at the White House.

Tax cuts don’t revive the economy the second they’re passed—no one, not even Rick Santelli, ever said they did.  They don’t do so a few weeks later; they don’t always do so in time for the next election.  But eventually they do.

Tax cuts trim government revenue temporarily, but soon increased growth from lower tax rates results in net revenue increases.

In contrast, tax increases—which is what the impending reversal of the 2001 and 2003 Bush tax cuts would amount to—shrink the economy by decreasing hiring and investment.  Regarding the Bush tax cuts, that’d be a combined tax increase to the tune of half a trillion dollars over the next decade.  (Pop quiz: If Rhode Island and Massachusetts’ tax structures were switched, would John Kerry still take the trouble to dock his yacht in another state, even though it would cost him half a million dollars a year in taxes?)

It’s really not that complicated.

Imagine that you run a lemonade stand and make $100 profit a day, and the Obama administration taxes you at 50%, for a government revenue total of $50.

Now imagine that the incoming Christie administration slashes that rate to 20%.  Instead of worrying about paying your bills and staying afloat, and resenting the government’s punishing your entrepreneurship, you hire more workers and eventually expand to five franchises.  At $20 in taxes per stand, you are now sending twice as much revenue to the government as before.

Leftists refuse to see the economy as dynamic and capable of expansion; they view it as a fixed pot that must be redistributed from oppressors to oppressed.

The 1990s were prosperous, not because Bill Clinton was a laissez-faire capitalist extraordinaire—though he was forced into the role of pseudo-free-marketer by Republican Congressional majorities after 1994—but because of the cumulative effect of Reagan’s policies throughout the 1980s.  Reagan campaigned on the idea of permanent tax cuts across the board and enacted them while in office; they remain largely in effect to this day.  The degree of certainty, stability, and flexibility that this consistent posture afforded investors and business owners over the next two decades should not be underestimated.

Reagan steadfastly resisted the call of Congressional Democrats and some Republicans to ramp up government spending during the early 80s recession.  Under his administration, deficit as a percentage of GDP never rose above 6.0%.  By 1987 it was down to 3.2%.

In contrast, the Office of Management and Budget expects the deficit-GDP ratio to be 10.0% in 2010 under Obama, and to barely decline in 2011.

During his presidential campaign, Obama was not shy about promising to let Bush’s tax cuts expire in 2011 if elected.  When Charles Gibson asked Obama why he would support an increase in capital gains taxes, even though raising them in the 1980s decreased revenue and lowering them in the 1990s and 2000s increased revenue, Obama insisted he would do it “for purposes of fairness.”  In other words, Obama feels obligated to make rich people suffer for the sin of being productive, even if that means poor people will suffer more in the long run.

In the spring of 2009, Obama and Congressional Democrats passed their poorly designed, massively irresponsible stimulus spending bill.  Before passage, Obama warned that without the $787 (now $862) billion bill, the unemployment rate might rise to 8.0%.

When unemployment hit 10.0% in 2010, Obama’s new tagline became, “Yes, but it’s not 12 or 13, or 15.”

Democrats’ halting efforts to offer targeted tax cuts to special interest groups as part of the stimulus bill were not convincing.  Giving a tax break to a “green” company that wouldn’t survive on its own does not create the wealth that a tax break for an independent, self-sufficient, productive company would.

Now that it’s become obvious to everyone except Paul Krugman that runaway government spending does not mysteriously create wealth, Federal Reserve Chairman Ben Bernanke has been caught admitting to the House Financial Services Committee last Thursday, 18 months after the stimulus bill has had a chance to work but failed, that extending the Bush tax cuts will strengthen the economy.

Bernanke was quick to walk back his statement and claim that extending the tax cuts is just one way to stimulate the economy.  (One way that works, he did not say in so many words, but give him credit for letting the genie out of the bottle.)

Since the end of last Thursday, the Dow Jones has rallied some 200 points to 10,500, after have troughed earlier in the week at just above 10,000.

Last month Obama economic advisor Christina Romer and her husband published a paper in The American Economic Review demonstrating that tax hikes hurt economic growth.  Their article included the following takeaway: “Our estimates suggest that a tax increase of 1 percent of GDP reduces output over the next three years by nearly 3 percent.  The effect is highly significant.”

Over the weekend, Republican senators revived the idea of extending the Bush tax cuts.  Now even some Democratic senators are talking up the idea, including Evan Bayh, Kent Conrad, and Ben Nelson.

So I guess tax cuts stimulate the economy after all, according to our liberal president’s Federal Reserve chairman, his economic advisor, and multiple Democratic senators.  It used to be newsworthy when we discovered that Obama’s associates and cabinet nominees were terrorists, communists, and Maoists.  Lately the scoop seems to be that a few of his cronies, if allowed to speak freely, occasionally have some sane ideas about how to run the country.

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If At First You Don’t Succeed, Fail, Fail Again!

July 08, 2009 By: Scott Spiegel Category: Economy

Five months after the stimulus bill was passed, we can now say that we’ve witnessed the following under-stimulating results.

Payrolls are falling more than forecast, with employers having cut 467,000 jobs in June, following a 322,000-job decline in May.  Factory jobs fell by 136,000 after dropping 156,000 in May.

Unemployment is at 9.5%, the highest level in 15 years, and is projected to exceed 10% by the end of 2009.  Some economists expect it to remain at historically high levels for years.

The average workweek is at 33 hours, the lowest in 45 years.

Average weekly earnings are down to $611.

The national debt is $11.5 trillion.  The Congressional Budget Office projects the deficit for 2009 to be almost $2 trillion and for 2010 to be more than $1.4 trillion.

The Treasury is increasing its sale of debt to pay for spending.  Treasury offered $1 trillion in notes and bonds in the first half of 2009 and plans to offer another $1 trillion by the end of 2009.

Colin Powell, of all people, is alarmed that Obama’s spending orgy may be swelling government and the national debt: “I’m concerned at the number of programs that are being presented, the bills associated with these programs and the additional government that will be needed to execute them…  [We have] a huge, huge national debt that, if we don’t pay for [it] in our lifetime, our kids and grandkids and great-grandchildren will have to pay for…”  Now he tells us!

Jared Bernstein, chief economic advisor to Joe Biden, whose office is managing the stimulus, says, “It’s working, it’s demonstrably working.”  According to Bernstein, $200 billion in stimulus money has already been obligated or spent.  Case closed!

Note to Bernstein: In order to demonstrate causality, you have to show that: (1) there was a cause, (2) there was an effect, and (3) the cause influenced the effect.  Defenders of the stimulus bill are still stuck on #1: as of June, only 10% of all stimulus funds had been distributed.  Bernstein’s $200 billion “obligated or spent” figure—eerily reminiscent of the administration’s “jobs saved or created” trope—is untrustworthy, because the administration has already been caught lying about money committed to spending projects.

Given the miserable failure of the stimulus bill, naturally Congressional Democrats want… another stimulus bill!  According to House Majority Leader Steny Hoyer, “We need to be open to… further action.”  Democratic Senator Sheldon Whitehouse said that another stimulus would “probably take place towards the end of the year.”  Second-ranking Senate Democrat Dick Durbin said he would leave any decisions on passing another stimulus bill to “the president’s evaluation”—and we all know how cautious Barack “Fiscal Restraint” Obama will be.  Stan Collender, former Congressional budget analyst, said that another stimulus bill may be possible if the economy gets worse: “Right now it doesn’t seem to be justified…  Come September, it might be.”

The first stimulus package was “a bit too small,” according to Laura Tyson, member of Obama’s Economic Recovery Advisory Board.  Paul Krugman writes in the New York Times, “O.K., Thursday’s jobs report settles it.  We’re going to need a bigger stimulus.”  Biden advisor Bernstein says, “There is no conceivable stimulus package on the face of this earth that would fully offset the deepest recession since the Great Depression.”

Let’s see: the stimulus bill committed a record $787 billion in spending.  Tyson says it should have been “a bit” bigger.  Congressional Democrats and Krugman wanted it much bigger.  Bernstein admits it would have to be infinitely big to work.  Can we give Bernstein the award for inadvertent honesty on this one?

The clincher that the stimulus bill was an abject failure—and that another stimulus bill would be a repeat failure—is the fact that Wall Street has just hit a 10-week low after talk of a second stimulus package recently began.  Amateur analysts suggest that chatter about another stimulus bill is making investors nervous, because—get this—it shows that the economy might not be recovering.  According to Hugh Johnson of Johnson Illington Advisors, “When there’s talk about another stimulus plan, that adds fuel to that fire, it intensifies the concerns about the timing and strength of the recovery.”

Is it possible, just possible, that investors are nervous, not because Congress’ hinting at a second stimulus package implies the economy is not recovering—which I think they can figure out on their own—but because Congress is hinting at a second stimulus package?

If Democrats aren’t persuaded by Republicans’ argument, backed up by ample historical data, that spending vast quantities of wealth not yet created does not stimulate the economy in the long term, could they at least admit their little experiment failed and try the Republican option for a change?

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How Much Is That Carbon in the Window?

April 28, 2009 By: Scott Spiegel Category: Environmentalism

Paul Krugman’s recent column, “An Affordable Salvation,” gushes about how, now that the “junk science”-loving (and Nazi-hugging) former occupant of the White House is gone, we can finally start saving the planet.  And it won’t cost much, either!  That is, if only we can get cap-and-trade skeptics to stop practicing “junk economics.”

“The best available estimates,” according to Krugman, suggest that turning industrial civilization green will basically be painless, and in the end will actually be good for us.  Perhaps his “best available estimates” include the recent, breathless press release from the Environmental Defense Fund: “For about a dime a day we can solve climate change, invest in a clean energy future, and save billions in imported oil.”  New EDF slogan: Saving the planet and 90 cents will get you a cup of coffee!

In the Rube Goldberg scheme of alternative energy sources, permits, taxes, carbon credit swapping, and rebates known as “cap-and-trade,” I count at least six additional charges consumers will directly or indirectly face.  First, there is the cost of less efficient “green” energy production, which will be passed on to consumers.  Second, there is the charge for emissions permits, which will also be passed on to consumers.  Third, there are the private and governmental bureaucratic costs of administering this system.  Fourth, there are costs from lobbying and inefficient allocations of carbon credits to congressional districts in exchange for pro-cap-and-trade votes, to industries in exchange for union support, and to companies in exchange for campaign contributions.  Fifth, there are inefficiencies that will result from the illegal selling and trading of credits and the costs of prosecuting this corruption.  Finally, there’s the cost of industry leaders and investors’ uncertainty regarding possible cap-and-trade regulations the government could decide to introduce or expand any time it wants.

But, Krugman reassures us, carbon credits would become a “scarce” resource, just like oil, land, and water; he adds that the “magic” of the free market should allow it to “cope” with emissions limits just fine.

Any idiot realizes that natural resources are not the same thing as artificial, government-imposed restrictions.  The former allow us to be productive; the latter prevent it.  Legal leg irons are not amenable to expansion through scientific innovation.

Mocking laissez-faire capitalists for believing the free market is “magic” is a straw man—no one ever said the marketplace could compensate for unpredictable, industry-destroying, government-imposed limits, which preclude the very existence of the free market.  How’d the “magic” of the marketplace do in overcoming “scarce” resources in the former Soviet Union?

In case we’re still not persuaded that cap-and-trade isn’t suicidal folly, Krugman tempts us that “committing ourselves now might actually help the economy recover from its current slump.”  This, from an “economist” whose patron saint is John Maynard Keynes, who once famously said that the government could stimulate the economy by putting money in jars, burying them, and paying unemployed people to dig them up again.

If “green” business were profitable, wouldn’t companies already be doing it?  If alternative forms of energy were so efficient, would they need massive government subsidies to keep the companies that produce them from going bankrupt?

Krugman argues that cap-and-trade would “create major incentives for new investment—investment in low-emission power plants, in energy-efficient factories and more.”  All of which, of course, are less efficient and less preferable to investors.  Cap-and-trade might allow for “major technological innovation,” as he claims, but at the cost of discarding already profitable, more efficient innovation.

The “argument from economy” is designed to reassure those who think cap-and-trade is necessary that it is affordable, and those who think cap-and-trade is not necessary that it at least will not hobble our economy.  But those who are rightly skeptical of cap-and-trade should be aware that it is anything but a harmless indulgence.

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