Tag Archives: economy

Punishment

LOL, this is so funny. Some may have trouble understanding what Mr. Lindsey is saying in this article. Heck I had to read it again slowly to get the full drift. The bottom line is simple, raise the tax and get less revenue. LOL Makes sense to me, What an idiot this president is. That is unless he is doing it as Mr. Lindsey thinks, to punish the rich and the hell with revenue. OMG.

 

And if anyone is qualified to talk on this subject it is certainly Dr. Lawrence Lindsey, former Governor of the Federal Reserve System for six years.

The Biden administration last week proposed to increase the capital-gains tax rate—currently 20% for most assets held for at least a year—to 39.6% for people making more than $1 million. Since capital gains are also subject to the 3.8% Medicare tax, the new capital-gains rate would be 43.4%.

What makes this unusual is that 43.4% is well above the rate that would generate the most revenue for the government. Congress’s Joint Committee on Taxation, which does the official scoring and is no den of supply siders, puts the revenue-maximizing rate at 28%. My work several decades ago puts it about 10 points lower than that. That means President Biden is willing to accept lower revenue as the price of higher tax rates. The implications for his administration’s economic thinking are mind-boggling.

Even the revenue-maximizing rate is higher than would be optimal. As tax rates rise, the activity being taxed declines. The loss to the private side of society increases at a geometric rate (proportional to the square of the tax rate) as rates rise. The government collects more revenue, but its gains slow as the taxed activity declines. The revenue-maximizing rate is the point at which the government starts losing from higher taxes. Tax rates above the revenue-maximizing rate are punitive: The government is giving up revenue simply to punish the rich.

Punishing the rich is distinct from redistribution. Higher taxes on the rich to finance spending, or to transfer money to lower-income people, may be good for society’s welfare. Economists express this idea in a “social-welfare function,” which weights additional income received by different people, usually based on income. The same sum is considered less valuable if it goes to a high-income person than a lower-income one. The weights are subjective and different analysts will choose different weights.

Still, economists can agree that the ideal is to make someone better off without making someone else worse off. The simplest case is a voluntary exchange of goods for money, in which the buyer values the purchase at least as much as the price, while the seller values the money at least as much as the item being sold. Economists call such an exchange Pareto-optimal after Vilfredo Pareto, the Italian economist who formally framed the concept.

There is no choice in paying taxes, and usually the government is better off and the taxpayer is worse off. But above the revenue-maximizing rate, even the government is worse off. This is called Pareto-pessimal.

Generally, the government can raise tax rates and transfer the money to lower-income people, thereby improving social welfare. The government can do this even after incurring the economic burdens caused by higher rates and the costs of transferring money (known as the “leaky bucket”). The trade-off depends on how much tax rates distort the economy, how big the leaky-bucket effect is, and how one evaluates the difference in value of money going to people in different income groups.

As indicated by other proposals, the current administration rates money going to lower-income people extremely highly relative to higher-income people—higher than has traditionally been the case in U.S. economic policy. It also seems to put little weight on excess economic burdens and leaky-bucket costs. The wisdom of those choices will be tested at the ballot box.

But to an economist, a Pareto-pessimal choice is unwise by definition. There is no set of “weights” one can devise to justify this proposal, because there are no highly prized winners to offset the losses to the low-weighted losers.

The concept of social-welfare maximization has been a cornerstone of economic thinking across the political spectrum for the past century. It dates back at least to Adam Smith in the 18th century, and arguably to the 17th, when Jean-Baptiste Colbert, King Louis XIV’s finance minister, declared “the perfection of taxation consists in so plucking the goose as to procure the greatest amount of feathers with the least possible amount of squawking.”

That’s why it is shocking that this policy got past the economists in the administration, many of whom have had long and distinguished careers. The Biden administration is blowing up one of the key concepts that has united the economics profession: maximizing social welfare. It now believes in taxation purely as a form of punishment and is even willing to sacrifice revenue to carry it out.

Mr. Lindsey is president and CEO of the Lindsey Group. He served as a Federal Reserve governor (1991-97) and assistant to the president for economic policy (2001-02).

Originally posted 2021-04-26 15:14:18.

All Dollars and Little Sense

Good day fellow patriots and conservatives. Haven’t posted in a few days as I have been overwhelmed with tales from the swamp creatures and their devious ways. The trial is over, and as we expected he was was found guilty, albeit with Joe and the b**ch from california ( I refuse to capitalize the name of that foreign land) spouting off at the mouth there is lots of ammo for an appeal. Let’s keep praying for it to happen..

And of course the House voted to make DC a state. Oh isn’t that great two more leftist senators and one congressman for the swamp. I don’t hold out much hope from the senate to strike it down; too many leftist republicans in there. So, how will we arrange the stars in the flag?  That will be fun to watch.

From my tone you may wonder what is going on. Well at my ripe age, I refuse to get excited about what happens. Oh, don’t get me wrong. When the war comes, I shall man the lines as I have done before, and if anyone offers me a billet such as a battalion commander, I shall rise to the occasion, as I am sure you will as well.

Had lunch today with two old fellow retired colonels with whom I have served several times, but not seen them in a while — I really don’t know why since we are all retired.  Joining us was another local retired colonel and a retired captain. Of course the items of discussion was a few war stories and lots about the swamp. It’s always a good time when Marine brothers can get together — I miss that.

Okay, what’s the post? Well , as many of you know, I am an Economist by education and full time hobby. I enjoy playing in the market. Today’s post came from my old friend and contributor , Eric Maresca. As a market player I found the article interesting and a dire warning to those who do as I do. Read and learn

By Eric Maresca

The stock market bull rally that got underway after a giant fall last February and ushered in the COVID era has been relentless. Who would believe record highs were even possible after such a swift drop during a pandemic, followed by political turmoil and civil chaos.

After the Federal Reserve cut interest rates again and went on a printing spree pumping trillions into the economy through three stimulus packages, the benchmark S&P 500 and the Dow Jones Industrial Average were catapulted to virgin territory. Likewise, we are in the midst of a cryptocurrency revolution where their hourly values run like an amusement park roller coaster.

With the M1 Money supply – the amount of liquidity available for spending – also at an all-time high at $18.4 trillion, the potential for one of the biggest economic booms in U.S. history is primed.

This optimism has predicted a strong 2021 second half.

The larger concern is 2022 and beyond.

Historically, long periods of low interest rates combined with a growing federal debt is no yellow brick road to Oz. You cannot ignore the laws of physics, gravity, or economics, as the government is spending itself into oblivion. From 2010 to 2019, the aggregate GDP growth was nearly the same Uncle Sam spent in COVID stimulus.

With so much stimulus finding their way to Wall Street, stock prices have been inflated. To underscore how pricey stocks are all you have to do is to juxtapose the price-to-earnings multiple at 31.5 and the price-to-sales at 2.9. At the peak of the dot-com bubble in March 2000, the price-to-earnings ratio was 29 and the price-to-sales ratio at 2.3. In addition, the stock market capitalization-to-GDP ratio that measures markets relative to the economy that peaked in 2000 at 140%, stands today at 190%.

Can you whisper bubble? Such a pop would result in a fiscal 9/11 and catch many nascent investors napping. Many were too young to recall the dot-com bubble burst over a generation ago and will pay dearly.

As the stock market rolls along, so does the national deficit. In fact, it seems to be about the only thing that is mushrooming faster. This should concern plenty, but along the D.C. Beltway such matters are dismissed.

 Stock trading has drawn plenty of new players armed with their “stimmy.” Rather, than paying bills, buying necessities, or paying down their debts, these emerging investors have turned day trading into gamification. With success they gain confidence and buy more shares, but the market’s present trajectory won’t last. When it drops many will see it as a fire-sale opportunity.

The stock app at center stage is aptly named Robinhood having taken its namesake from the English Democrat who robbed from the rich and redistributed their wealth. In this stimulus era of Robinhood fever and GameStop, why waste time researching good companies at reasonable prices, and then waiting years for returns to compound?

Apps like Robinhood, SoFi, Webull, and Public.com can be fun, but addictive, and a bookkeeping nightmare.

Such internet trading platforms make basic tax-abating strategies difficult to implement. Buying and selling stocks by the lot can lower your tax bill by choosing which shares to sell. However, selling specific lots are difficult or impossible to do online as sales are based on a first-in-first-out (FIFO) basis, where the oldest shares are sold first.

These time-honored tactics may be the least of their concerns when the market turns because it will. Once the public buys in, time is short and the potential for disaster gains momentum. When the melt down commences, nearly everyone will lose more on the way down than they made on the way up. Melt Downs do not end quickly, but over time. If the market is one thing – it is unforgiving.

Market peaks are clear in retrospection, but not in the moment, but the warning signs are there.

Do not confuse a bull market for brains.

As the timeworn adage rings: “Markets can remain irrational longer than you can remain solvent.” That applies for booms, too.

Mot people do not have an exit plan like trailing stops that protects your gains and prevents you from losing more money. A diversified portfolio and fixed selling points is always your friend.

In my ECON 101 class the professor told a story that I have found over the years to an absolute. “Put five Economists in a room and ask them a simple question and you will always get at least six answers.” I have been trimming my portfolios for the last two months. I have more cash than I have ever had, upwards of 30% cash, and I keep building it. I have good stocks e.g., DOW down over 300 points today and my portfolio was up 1.9%. But I keep taking some profits and paring down. I believe it is coming folks; somone has to pay the bills the swamp is piling up.  Greg is talking common sense.

Originally posted 2021-04-22 17:16:31.

COVID’s Baby Bust

Another informative and interesting article from one of my favorite contributors, Mr. Greg Maresca. He raises some interesting statistics not often talked about. Thank you sir!

By: G. Maresca

As we observe the one-year anniversary of the World Health Organization’s proclaimed COVID-19 pandemic, one gratuitous prediction failed to materialize.

The combined effects of quarantines and lockdowns were supposed to result in a pandemic baby boom. The boom fizzled out quicker than wearing your mask while showering. As a result, the Brookings Institution reported the nation will experience an 8% decline or 300,000 fewer births.

The baby bust’s prevailing wave will wash over a generation and will have a greater effect on the future than the pandemic that spawned it.

Makes you wonder what else the “experts” got wrong throughout a pandemic that has yet to break the top 20 with the Swine Flu of 2009-2010 ranked 18th, according to LiveScience.com.

The reasons are as plentiful as disposable masks. School closures and public-gathering restrictions along with parents dealing with the stress of coalescing work and supervising their children, who no longer attend school five days a week, has taken its toll. The  Institute reports 34% of women want to delay pregnancy, while a study from the IZA Institute of Labor Economics is predicting a double-digit drop in births this year.

According to a New York Times editorial, “Add these missing births to the country’s decade-long downward trend in annual births and we can expect consequential changes to our economy and society in the years to come.”

University of Southern California demographer Dowell Myers told CBS, America’s shrinking fertility rate is an economic crisis. For generations, the media and academia claimed overpopulation was wreaking havoc with the planet, taking the same line of reasoning as Ebenezer Scrooge who griped about reducing “the surplus population.”

Provided there are no people, what exactly is the planet being saved for?

Paul Ehrlich’s “The “Population Bomb” in 1970 wrongly predicted that “Sometime in the next 15 years, the end will come … an utter breakdown of the capacity of the planet to support humanity.” What did occur, however, was the Western world declared war on fertility and birth rates dropped below replacement.

Demographics have always been the canary in the coal mine. Low birth rates have historically resulted in a loss of population, less ingenuity and economic stagnation as the economy is fundamentally linked to the birth rate. Studies show that for every 1% increase in the unemployment rate is directly linked to a 1% drop in the birth rate. According to a study by the Federal Reserve in 2016, the decrease in fertility rates throughout the ‘60s and ‘70s was the largest factor for declining economic growth after 1980.

If the birth rate is higher than the replacement rate, a nation survives. If the birth rate is below the replacement rate, a nation is dying. The consequences of abortion, contraception, and disdain for the natural law coupled with an aging society has produced a cultural and demographic quagmire with no end in sight.

When the old outnumber the young, who will pay for Social Security and Medicare since existing workers fund those collecting? Moreover, there will be fewer in the work force to pay taxes and keep our economy growing among an aging population.

Throughout the West, governments have tried to increase birth rates through economic incentives like tax credits, paid childcare, and paid parental leave for not just the mother, but father, too. All have been met with little effect as the overall birthrate continues to decline.

Historically, we have solved many of our economic problems that derive from fewer births through immigration – a political football that politicians continue to fumble. One country can increase its demographics with immigration, but globally it remains a zero-sum game.

One of the most interesting and ironic statistics involving birth rates was the one developed country with twice the birthrate of the U.S.: Israel.

Obligation and sacrifice are both four letter words, and byproducts of our loss of religiosity. Many non-religious westerners care little about tradition and history.

Birth rates that have been precipitously dropping for two generations are now below replacement and not expected to increase. The West, having disregarded much of its Judeo-Christian footing, is not interested in reproducing itself as the command to be “fruitful and multiply” has been dismissed along with God who commands it.

Our country no longer recognizes Judeo-Christian values. God helps us.

Originally posted 2021-03-22 16:56:18.

You Stupid!!!

LOL, One cannot say it nor explain it any better than this gentleman does, and does it with clarity and even in a humorous way. 

 

 

Originally posted 2020-10-16 10:20:51.