Category Archives: Economics

Death and Taxes?

The GOP – well, at least one Congressman, Rep. Devin Nunes (R-CA) – is proposing to overhaul our onerous tax structure with a plan that actually ain’t half bad.  Excerpt:

“We’re trying to fundamentally change the code,” Nunes told host Stuart Varney. “We’re getting rid of the income tax. We’re doing something that hasn’t been done in 100 years.”

“We’re moving to a consumption system — to a cash flow system,” Nunes said. He explained what that would look like in practice: “You take your income minus your expenses, and whatever’s left over, you pay a tax on that.”

He added that “this is a very simple system, yet it’s a dramatic departure from the confusing tax code that we have now.”

Nunes argued that the changes would increase economic growth and bring jobs back to America so we can be “the most transparent, business-friendly nation state in the world.”

He said that under the new system, the biggest winners would be wage earners and small businesses because “they will be on the same playing field as other businesses in this country.”

Speaking as one of those small businesses, I like the idea.  It might not be my ideal plan, but it would be a good start.  Like lots of small businesses, ours operates as an LLC, meaning the business income is in effect our personal income – so we pay personal taxes on the proceeds of our business.  This bill would eliminate that distinction, simplifying the tax code for everyone and accomplishing one of the GOP’s stated goals – broadening and simplifying the tax code.

Hopefully it will result in every working adult having some skin in the game, but I doubt that will be the case.  I’d like to see everyone having some skin in the game, but in today’s environment, that may be too much to hope for.

Animal’s Hump Day News

Happy Hump Day!

Ever tried an Airbnb stay?  I haven’t, even in all my travels, but I’ve considered it, and would avail myself if the housing matched the site where I was working.  But around the country, the hotel industry is engaging in the Aristocracy of Pull to shut Airbnb down.  Excerpt:

New York officials are on the job, protecting the world from the likes of Hank Freid and Tatiana Cames by slapping the two with a combined total of $17,000 in fines.

What threat to life, liberty, and property did this dastardly duo pose?

They were renting rooms to willing customers, the bastards. Fried and Cames were slapped for violating laws prohibiting apartment owners from renting rooms for less than 30 days if they’re not living on the premises, and a further law passed last year that banned advertising such rentals. It’s a direct strike at innovative home-sharing services like Airbnb and the people who use them that parallels similar attacks around the country.

“The law signed today will provide vital protections for New York tenants and help prevent the continued proliferation of illegal, unregulated hotels, and we will defend it,” New York Attorney General Eric Schneiderman (D) trumpeted last October.

Maybe I’m the suspicious type, but I think those “vital protections” Schneiderman refers to are against competition to the established old-school hotel industry. Just last summer, the Office of the New York State Comptroller fretted that the hotel business in New York City wasn’t doing as well as hoped. “Despite impressive gains, the average room rate (i.e., the average cost of renting a hotel room) has not yet reached its prerecession level” and, in fact, “room rates declined slightly in 2015.” This bums officials out, because “New York City collected a record $1.8 billion in tax revenue from the hotel industry in fiscal year 2015” and officials want to keep scooping up that revenue and maintain close, personal friendships with the people who generate that kind of cash.

Look carefully, True Believers, at that last bit.  New York City wants to prevent homeowners from voluntarily leasing a portion of their home to willing short-term renters, in a purely voluntary transaction in which both parties realize a gain.  Why?

Tax dollars.  The City of New York, it seems, is of the opinion that those tax dollars are theirs by right, and that the Airbnb renters are defrauding them of their due.  Why, it’s damned near medieval.

Incidentally, the same thing happens with the taxicab companies when they campaign against ride-sharing services like Uber and Lyft.  They can’t compete in the open market, so they enlist government cronies to shut their competitors down with excessive regulations.

The only open and fair competition is in the open market, where business models succeed or fail for the only reason tolerable in a free society – because they succeeded or failed in attracting customers.  President Trump has vowed to reduce business-killing regulations that add no value.  He should look into this.

Animal’s Daily Air Traffic News

Who wouldn’t like to make air travel easier, cheaper and more efficient?  If you travel a lot, like yr. obdt., then y ou’d probably like to see that happen.  If you work for the Federal Aviation Administration, apparently the answer is “probably not.”  Excerpt:

In an era of smartwatches and driverless cars, Americans traveling by air sit in planes guided by World War II-era technology, while the Federal Aviation Administration spends billions on its never-ending “NextGen” upgrade.

Started in 2004, NextGen was supposed to replace the outdated radar, radio communications, and strips of paper still used by air traffic controllers. Once in place, this satellite-based system would let planes travel more direct routes, improve safety margins, and save travelers billions of dollars a year.

But NextGen has been fraught with delays and cost overruns and, despite having spent $7.4 billion over the past 12 years, is still 13 years away from being finished.

Up north, meanwhile, the Canadian air traffic control system — which is the second busiest after the U.S. — has already deployed truly state-of-the-art technology throughout its system, letting it handle 50% more traffic while trimming its work force by 30%.

What’s the difference? In 1996 Canada sold its government-run air traffic control to a nonprofit corporation called Nav Canada. User fees finance its operations and pay for upgrades, and Nav Canada is free of the suffocating bureaucracy and endless budget battles that plague the U.S. system. The Canadian government’s role is limited to regulating Nav Canada for safety.

Other industrialized nations have taken similar steps. But in the U.S., any such talk has been blocked by Democrats, for whom privatization is a dirty word.

There’s nothing that motivates people, whether they be individuals or joined together in a corporation, like the profit motive.

It shouldn’t be too hard to come up with a system to privatize the air-traffic control system.  Set up a system of standards – on time departures and arrivals (barring those that are the airline’s fault) certain budget and personnel requirements.  If the first contractor can’t do it, find another that can.  The precedent is just over the border in the Great White North.

What the article here misses is the reason the Democratic party so ardently opposes such a measure; the public-sector unions, who are deep in the Democrats’ pockets – and vice versa.

That shouldn’t be enough reason to put up with a broken system.

Rule Five Tax Reform Friday

There’s been a lot of talk lately about what the GOP will do in the way of tax reform.  Speaking as a pretty hardcore libertarian, I’m guessing (in fact, I’m pretty damn certain) it won’t go far enough to suit me.

Let me tell you why.

Barry Goldwater once said “I have little interest in streamlining government or in making it more efficient, for I mean to reduce its size. I do not undertake to promote welfare, for I propose to extend freedom. My aim is not to pass laws, but to repeal them. It is not to inaugurate new programs, but to cancel old ones that do violence to the Constitution, or that have failed their purpose, or that impose on the people an unwarranted financial burden. I will not attempt to discover whether legislation is “needed” before I have first determined whether it is constitutionally permissible. And if I should later be attacked for neglecting my constituents’ “interests,” I shall reply that I was informed that their main interest is liberty and that in that cause I am doing the very best I can.”  I agree wholeheartedly; but there’s an important distinction to point out.

There are basically two types of libertarians.  There are anarcho-libertarians, who hope for a society with no government at all, where all government functions are fully privatized and all interactions are voluntary.  I don’t think this is a realistic viewpoint.  An anarcho-libertarian system is dependent on a perfect society, and relies on perfect (or at least pretty damned good) people.  The other type, of which I am a member, are the minimum-government or ‘small-statist’ libertarians, who seek (as Goldwater did) to reduce government to the minimum possible.  I see government as an evil, but a necessary evil, one that needs to be chained in place and confined to a few narrow purposes – otherwise liberty is forever endangered.

So, how does that relate to taxation?  The key word is voluntary.  Now, no system of taxation is ever completely voluntary.  Look at the structure of taxation as it exists today; if I were to start a charity, no matter how worthy, I couldn’t come take you and lock you in a cage for not contributing to my charity.  But we allow government to do what private citizens cannot do.  In this case, we allow government to initiate the use of force to obtain compliance.

That’s a terrible, dangerous power, and must be tightly restricted.  Right now, it’s not.  The Imperial Leviathan grows more powerful with each passing year, and on tax policy, President Trump is proposing to rearrange the deck chairs on the Titanic.  Here is his tax reform plan; the four primary points are:

  1. Tax relief for middle class Americans: In order to achieve the American dream, let people keep more money in their pockets and increase after-tax wages.
  2. Simplify the tax code to reduce the headaches Americans face in preparing their taxes and  let everyone keep more of their money.
  3. Grow the American economy by discouraging corporate inversions, adding a huge number of new jobs, and making America globally competitive again.
  4. Doesn’t add to our debt and deficit, which are already too large.

Don’t get me wrong; as proposed Imperial reforms go it’s one of the better of a bad lot, except for that last bit, which strains credulity just a tad.  But it’s just a reform of the existing system.  That, in my considered opinion, doesn’t go far enough.  It still depends on an involuntary surrender of the citizens’ productivity, a requirement backed up (maybe indirectly, but even so) by men with guns.

I’d rather junk the whole corrupt, overly complicated system.

Instead of taxing production, let’s tax consumption.  There’s already one such proposed system in the pipeline, where it has been sitting for quite a while with no progress; that would be the FairTax.  A consumption-based tax system, like the FairTax, would increase the tax base enormously, from maybe 155 million taxpayers to over 300 million – including tourists, temporary residents, and even illegal aliens.  It would tax the underground economy (drug dealers and con men buy cars, houses, and computers, among other things, and would pay the tax on those items.)

But most importantly of all, it would make the tax system as voluntary as a tax system would be; every consumer has to consume a certain amount (some proposals exclude essentials like groceries, rent/mortgage, and tuition) but one can pick and choose.  Another advantage, and this is a big advantage where privacy is concerned, is that the free citizens won’t be required to disclose all of their financial affairs to the Imperial and various State governments.

I’d like to see more talk about this, but I’m resigned to it not happening.  In the meantime, I’ll settle for the new arrangement of deck chairs.  I guess.

Rule Five CalExit Friday

Could California leave the union?  Well, since I’m on an extended project in Silicon Valley right now, I sure hope that if they do, they give me some time to scoot for home before sealing the borders.  There is some talk about a tax revolt on the part of the California state government,

 As a practical matter, though; could California leave the Union?  Probably not.  (Even though there are days when I think it might just be a good thing for the rest of the U.S. if they did.)  There are an awful lot of details that the CalExit proponents aren’t thinking about.  Let’s look at some of those details.

  1. Federal land in the state.  Almost half of the state’s area is Federally owned; National Forest, BLM, military bases, and so forth.  What would become of those Federal lands?  Would the new California national government pay the United States fair value for those lands?  Or would the state just seize the properties?  If so, how?  Which brings us to:
  2. The military.  Never mind for a moment that the several military bases in California are Federal property, and that the soldiers, sailors, Marines and airmen on those bases work for the Federal government and are sworn to uphold and defend the Constitution of the United States, not the state of California.  Would California start their own military?  Their own army, navy, and air force?  How would they pay for it?  More to the point, who would serve in it?  Who would lead it?  There is no Lee in California; no Longstreet, no Jackson.
  3. Water.  California doesn’t have enough native water to support its population.  Instead, they depend on water from the Colorado river.  If California secedes, how will they pay for this water?  Rivers can be dammed and/or diverted.  Colorado, Nevada and Arizona could certainly find good use for the 4.4 million acre-feet of water that go to California every year.
  4. Electricity.  California imports about 1/3 of its electricity from its neighboring states.  Given that the state is not fond of building new power plants – at least, the wealthy coastal elites who effectively run the state are not fond of building new power plants – what will California do for power?  Will the continue to pay to suckle at the United States’ power grid?  If so, how will they pay for it?
  5. Currency.  Will California start coining money?  Who will set monetary and fiscal policy for the new nation – the people who are running California’s economy now?  Welcome to the Greece of the West, folks.
  6. Politics.  California is a big, sparsely populated red state dominated by a few densely populated bright blue population centers – primarily Los Angeles and San Francisco.  The state’s farmers and tradesmen are ruled, effectively, by a well-off coastal elite.  Suppose rural northern California, the Central Valley, and maybe Orange County refuse to go along?  What if those areas vote to stay in the United States?  Will the new California national government stick to their newly found principles of self-determination and allow those areas to remain?  And if they do, how will a tiny coastal nation consisting of a couple of major cities and a few hundred miles of coastline feed itself?  Speaking of which:
  7. Food.  California is largely desert.  The fertile Central Valley produces less and less food all the time, strangled by excessive rules and regulations from the state and (to be fair) the Imperial government.  Should the secession prove acrimonious, could California find the wherewithal to release Central Valley farmers (if there are any left) to start producing grain and truck crops?
  8. Foreign Affairs.  Who would California’s international allies be?  The most obvious one is the mother country – the United States – but just as in the first time this was tried, it’s likely there would be some hard feelings.  Nations have no permanent friends, only permanent interests; who would serve California’s interests in an alliance?  Mexico?  China?

There’s also the 1861 question; should California announce their secession, would President Trump send in the Army to force them to remain?  If so, California wouldn’t be able to resist the way the old Confederacy did.  It’s highly doubtful half the professional U.S. military would defect to fight for California.

Honestly, the folks agitating for a secession of California aren’t thinking this thing through.  The one thing California would have to do to make it as a separate nation is to switch political philosophies and adopt personal liberty, free markets, and minimal intervention by government in the economy and the property rights of its citizens – and this, True Believers, is everything that California is not.  It would be a matter of decades at the most before California sank into a Venezuelan quagmire.  We don’t need that on our western border, and California’s citizens don’t need it in their bank accounts.

Animal’s Hump Day News

Happy Hump Day!

Moving into the third full workday of the Trump Administration, finally the always-worth-reading Dr. Victor Davis Hanson has weighted in.  Excerpt:

One reason that a personally popular, landmark Barack Obama failed as president — aside from doubling the debt, institutionalizing zero interest rates, leaving a mess in the Middle East, and using his un-Midas touch to undermine nearly everything he tapped, from health care to immigration law to race relations — was that he was the first modern president under whose tenure the economy never reached a modest 3 percent economic-growth rate. Had Obama just achieved 4 percent economic growth, Hillary Clinton would be president. In other words, economic growth and perceived prosperity cut a lot of political ties.

In other words, economic growth and perceived prosperity cut a lot of political ties.

The election of Donald Trump has turned everything in the political world, from the trivial to the existential, upside down. He is the first non-politician without military experience to become president. The polls and press caricatured him for nearly two years as a classic loser. He won despite being outspent and out-organized, and without real support from his own party or the mainstream conservative press. The Left is rightly convinced that he is a danger to the postmodern redistributive state. The Never Trump Right is still invested in his eventual implosion, issuing “I warned you about him” messages in a nonstop effort of self-justification.

Interestingly, Rasmussen’s Presidential Tracking poll as of yesterday has President Trump’s approval rating moving sharply up; his disapprovals are heading down.  If you listen to Rasmussen, President Trump is making friends and influencing people.

And it’s important to note that most of the actions he has taken in this flurry of activity have been aimed at the economy.  If he can deliver…  As Dr. Hanson concludes:   Economic growth cuts through political orthodoxy; economic stagnation intensifies it. Regrettably or not, prosperity, not character per se, determines a president’s political fate.

Here’s where I find myself in the odd condition of disagreeing with Dr. Hanson, a man whose intellectual acumen I have admired for decades.  Her Imperial Majesty Hillary I lost this election in part because of the lackluster Obama economy; but mostly she lost  the election because she was a lackluster, unenthusiastic candidate; because she was the most deeply and fundamentally corrupt political figure since Huey Long, maybe since Nero; and because she ran a perfectly lousy campaign.

But on the main point he’s right.  Economics can make or break a President.  This one will be no different.

Animal’s Daily News

A great deal of the hand-wringing over the Electoral College and the results of the recent election is due to the undue influence big states like California have on national politics – or how they would, were it not for the Electoral College.  Here’s an interesting idea how to fix that – re-draw state lines along population and cultural lines.  Excerpt:

The answer lies in limiting state size to a human scale in which human beings can still associate, travel, and trade across jurisdictional boundaries without incurring a great cost. The standard for “great cost” is subjective, of course, and over time has changed substantially. The cost of traveling 50 miles in the 16th century, for example, is significantly different form the cost of traveling the same distance today. 

There are ongoing attempts by geographers, however, to determine the “natural” size of a region that encompasses a population’s economic, political, and social institutions. In a recent study, for example, Garret Dash Nelson and Alasdair Rae attempted to identify regions that “have been substantively tied together by the forces of urban development, telecommunications, the frictionless circulation of capital, and the consolidation of both public and private institutions.” 

Basing their standard of scale on tolerance for commute times, the geographers selected 50-mile commutes as an indicator of how closely tied together is a specific region.

Here’s the commute time map and the resulting new state-line map:

Here’s my concern with this idea; note how the new, proposed state lines are drawn.  Note that they are all centered on major metropolitan areas.  Given the increasing urbanization of our population, that’s not surprising.

But the political divides in our country now are primarily rural v. urban, with some suburbs going either way (as you might expect.)  This proposal places a major urban area at the heart of each of the new States; that alone threatens to aggravate this divide.

It’s more likely that the United States will balkanize altogether.  Alaska and Texas in particular have more than sufficient infrastructure and resources to go it alone, given their current populations.  I’ve written on the subject before, and I think it’s a far more likely outcome than completely re-drawing State lines.

But either would signal the end of the United States as we know it.  I hope I don’t live to see either happen.

Animal’s Daily News

It seems small-business optimism is on the way up.  I wonder why?  Excerpt:

Optimism among America’s small businesses soared in December by the most since 1980 as expectations about the economy’s prospects improved dramatically in the aftermath of the presidential election.

The National Federation of Independent Business’s index jumped 7.4 points last month to 105.8, the highest since the end of 2004, from 98.4. While seven of the 10 components increased in December, 73 percent of the monthly advance was due to more upbeat views about the outlook for sales and the economy, the Washington-based group said.

The share of business owners who say now is a good time to expand is three times the average of the current expansion, according to the NFIB’s data. More companies also said they plan to increase investment and keep hiring, which reflects optimism surrounding President-elect Donald Trump’s plans of spurring the economy through deregulation, tax reform and infrastructure spending.

“Rising confidence adds to the economy’s upward momentum,” Jim O’Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York, said in a note. At the same time, the “NFIB membership appears to be disproportionately Republican, so it is possible that the data will start overstating strength, opposite the pattern during the Obama administration.”

The NFIB report was based on a survey of 619 small-business owners through Dec. 28. Small companies represent more than 99 percent of all U.S employers, according to the U.S. Small Business Administration. A small business is defined as an independent enterprise with no more than 500 employees.

Why is this important?  Because small businesses are the engine of job growth and job creation in our economy.  Take a look at this line from the story:  The share of business owners who say now is a good time to expand is three times the average of the current expansion, according to the NFIB’s data. More companies also said they plan to increase investment and keep hiring

That’s key.  A big company like Ford or Microsoft is fairly stable; they hire, but mostly to replace employees lost through attrition.  But a small business may have two employees this year, ten next year, and a hundred the year after that.

That’s where job creation happens.  That’s where economic growth comes from.  And the incoming Trump Administration, at least as judged by this group of small business owners, is expected to be great for small business.

One of the most onerous burdens a small business has to deal with (bear in mind yr. obdt. is a small business owner) is Imperial taxes and regulation; The Donald has promised to ease both of those burdens.  If he can do this, and if it’s the only thing he manages to do in the course of his administration, he will have justified the votes of the people who supported him.

Animal’s Hump Day News

Happy Hump Day!

Guess which American cities are going broke.  Excerpt:

Chicago and New York rank at the bottom of a new analysis of fiscal strength based primarily on data from 2015 financial reports issued by the cities themselves. The analysis includes 116 U.S. cities with populations greater than 200,000. See the full rankings here.

Chicago’s position at the bottom of the ranking is no surprise to anyone who follows municipal finance. The Windy City has become a poster child for financial mismanagement, having suffered a series of ratings downgrades in recent years. Aside from having thin reserves and large volumes of outstanding debt, Chicago is notorious for its underfunded pension plans.

For example, the city’s Municipal Employees’ Annuity and Benefit Fund (MEABF) reported $4.7 billion in assets and $14.7 billion of actuarially accrued liabilities at the end of 2015, representing a funded ratio of just 33 percent. The actuarial calculations rely on a controversial practice of discounting future benefits at a rate of 7.5 percent, which is the assumed return on the fund’s portfolio return. If a more conservative assumption was employed, MEABF’s liabilities would be higher and its funded ratio lower.

And:

While Chicago’s place at the bottom of the list is unsurprising, New York City’s position — just one step above — was unexpected. An extended bull market and soaring real estate prices have pumped money into the Big Apple’s coffers. Total municipal revenues rose from $60 billion in 2009 to $81 billion in 2015. But the city has been spending the money almost as quickly as it has been coming in.

At the end of its 2015 fiscal year, the city’s general fund reserves amounted to just 0.67 percent of expenditures — well below the Government Finance Officers Association recommendation of 16.67 percent (equivalent to two months of spending). A city’s general fund is roughly analogous to an individual’s checking account.

Here’s the common thread at the root of all these municipal bankruptcies:  Public-sector unions.

I have no issue with unions in private business, as long as membership in said unions is strictly voluntary, and as long as unionization in those businesses is by secret ballot.  In these cases, contracts are decided between the union membership and the employer.

Public sector unions are different.  Public sector unions negotiate their contracts with the very politicians whose campaigns they (heavily) fund.  That is a deep and fundamental conflict of interest that cannot be reconciled.  No less than Franklin Roosevelt agreed that this conflict of interest should preclude the legality of public sector unions.

There is no better illustration of such conflict than the cities of Chicago and New York.  Public sector employees typically enjoy benefits far, far above any equivalent worker in the private sector (when was the last time you heard of a private company offering a defined-benefit pension plan?) and pay that is at least on a par, if not above the private sector.

It’s driving our major cities into bankruptcy.

Goodbye, Blue Monday

Goodbye, Blue Monday!

Thanks as always to Pirate’s Cove and The Other McCain for the Rule Five links!

The Donald takes office in just a few more days.  On his way out the door, President Obama has been singing his own praises, not least on job creation and the economy; trouble is, his praises ain’t very praiseworthy.  Excerpt:

The last jobs report of President Obama’s presidency came out on Friday. What it says about his economic performance can be summed up in one word: Lackluster.

The Bureau of Labor Statistics reported Friday that the economy created a modest 156,000 new jobs in December, while the unemployment rate remained essentially unchanged at 4.7%.

Reuters, however, took this news as evidence that the economy is nearing full employment, and the White House boasted that it marks the 75th consecutive month of job growth — “more than two years longer than the next-longest streak.” The current unemployment rate is as low as it was just before the recession hit.

But look at the job market in the proper context, and Obama’s record is pretty dismal.

Consider that in 2016, the number of jobs grew by 2 million. Sounds impressive, doesn’t it? But the working-age population increased by 2.8 million.

Since 2010, the population climbed by an average of 2.5 million a year. Job growth, however, has averaged 2.2 million.

So while Obama brags about 15-plus million new private sector jobs created since early 2010, what he leaves out is that the population of people who can work climbed by almost 18 million.

The genesis of this awful job growth, of course, is our awful economic growth; during the entire Obama tenure GDP growh has never exceeded 3%.  Compare that to the Reagan recovery!  In 1983, the year the Reagan tax reform took effect, the nation saw over 7% growth, and no less than 3% growth for the rest of the Reagan/Bush41 years.

Money matters.

The Donald has sworn to fix all that.  Whether he will or not remains to be seen; some of his promised policies may well start a trade war, which won’t be good for anyone involved.  Still; if he focuses on tax reform and regulatory reform, he could accomplish a lot.  We’ll see.

The IBD article concludes:  Our view has consistently been that the economic recovery from the Great Recession could have been — and should have been — very robust. And that the only reason it wasn’t is growth-choking policies imposed by Obama: Dodd-Frank, ObamaCare, tax hikes, huge new regulatory burdens.

If Trump manages to turn these policies around, we have no doubt that the days of mediocre job growth will be a thing of the past.

The election just past was about jobs and economic growth, more than anything else.  That’s what The Donald has to deliver – or he’ll be turned out in 2020.

So far he’s making all the right noises, but as they say, talk is cheap.