Franklin Delano Roosevelt and Barack Obama

Franklin Delano Roosevelt is, along with Abraham Lincoln, one of Barack Obama’s heroes, as Barack Obama is among the first to point out. Accordingly, Obama is pursuing a number of the same disastrous economic policies that Franklin Roosevelt pursued, which policies only served to keep the United States depressed for years. 

Yes, the truth about Franklin Delano Roosevelt, which people on both sides of the political spectrum hate to hear, is that he not only did not bring this country out of the Great Depression: he prolonged it for well over a decade. 

By the time FDR’s reign of destruction was through, the United States was still in a deep depression, and the interventionist precedents he established, which served only to keep the country depressed, haunts America to this very day. 

Never again, until Barack, has an American president so brazenly and so consistently demonstrated this lack of regard for individual human beings; and never since Barack has a president stomped so savagely upon the unalienable right to life and property. 

Franklin Roosevelt died on April 12, 1945. 

It was not until 1947, when wartime controls and government spending finally ended and free markets were at last allowed to operate somewhat freely – i.e. without the stranglehold of the federal government – that this country at last began to emerge from its eighteen-year depression.

That depression was much exacerbated by the interventionist Herbert Hoover, but Franklin Delano Roosevelt took interventionism to a whole new level. 

Quoting FDR’s own economic adviser, Rexford Tugwell:

“The ideas embodied in the New Deal Legislation were a compilation of those which had come to maturity under Herbert Hoover’s aegis. We all of us owed much to Hoover” (Rexford Tugwell, 1946).

One of FDR’s first acts as President was to close down all banks, a maneuver he hoped would prevent scared depositors from withdrawing their savings. 

What this maneuver actually did, however, was intensify the public’s panic. It didn’t improve banking at all, nor did it help in any way with the Great Depression.

Unemployment rates over the course of the Great Depression looked like this:

• 1929: 3.2 percent
• 1930: 8.7 percent
• 1931: 15.9 percent
• 1932: 23.6 percent
• 1933: 24.9 percent
• 1934: 21.7 percent
• 1935: 20.1 percent
• 1936: 16.9 percent
• 1937: 14.3 percent
• 1938: 19.0 percent
• 1939: 17.2 percent
• 1940: 14.6 percent

FDR averaged 17.7 percent unemployment, which is staggering: to be more precise, FDR’s unemployment average was more than five times the 1929 level. 

Many FDR apologists like to cite the 1933 to 1940 drop in unemployment as the greatest drop, percentage-wise, in the unemployment rate ever by an American President. Of course, what this fails to take into account, among a litany of other things, is the fact that centralized banking, as opposed to privatized, through the artificial manipulation of interest rates, caused the problems to begin with, and the subsequent interventions, first by Herbert Hoover and then by FDR, exploded those problems astronomically, as testified by the unprecedented unemployment rates that decade saw: in other words, 14 percent unemployment, is, by any legitimate standard, ghastly, and only a lunatic or a fool would call it “a success.” 

Quoting economists Richard Vedder and Lowell Gallaway, who used statistical models to evaluate the results of FDR’s New Deal: 

“The Great Depression was very significantly prolonged in both its duration and its magnitude by the impacts of New Deal programs.” 

As Ludwig von Mises correctly noted, in the absence of government intervention, unemployment is always voluntary. Yet over ten million Americans were unemployed in 1938. 

Compare that to the eight million in 1931. 

Fact: not until FDR conscripted millions of men and sent them off to war did unemployment levels truly come down to manageable levels. Which, however, was hardly the end of the Great Depression; for unemployment, as everyone knows, is only one of several components. Thus:

In terms of aggregate production, statistics show no recovery until after World War II ended, when the size of government was at long last reduced. 

The gross national product (GNP) didn’t recover to 1929 levels until 1940.

Personal consumption was 8 percent lower in 1940 than in 1929.

Net private investment, the backbone of a healthy economy, from 1930 to 1940 was negative $3.1 billion, a breathtaking figure.

Because of FDR’s mind-spinning interventionist policies, European nations came out of the Great Depression years ahead of America.

FDR believed that the Great Depression was caused by low wages. That was his fatal flaw. Because, in fact, the truth was the diametric opposite, as we now know: low wages (and prices) were caused by the depression. 

And yet based upon this stupendous misunderstanding of basic economics, FDR proceeded to mandate wage and price controls, which thus kept the American people in a state of poverty for well over a decade.

When prices and wages are forced by government, the demand for labor is necessarily reduced. Why? 

Because in order to stay in business, businesses must turn a profit; so that when wages and prices are forced, businesses must adjust their employment and spending accordingly, or they run out of money. They must therefore cut back on workforce, and they must decrease output. In this way, forced wages create unemployment. You see, not even FDR can subvert economic law. 

This is the most basic cause and effect process you can imagine: employers simply cannot pay out money that they don’t have. 

Production and production alone generates wealth. That’s another crux, and FDR’s interventionist policies crippled production. 

By means of the National Industrial Relations Act (NIRA), FDR’s First New Deal sought to turn United States agriculture, and other industries, into a massive government cartel. 

It was at this time also that FDR began restricting production, so that unemployment began increasing.

The NIRA failed spectacularly, but in the process, it gave birth to another disaster: the National Recovery Administration (NRA).

The NRA was bureaucratic up to the gills, and, among other things, it required every businessperson to sign a pledge to observe FDR’s job-destroying minimum-wage laws, his maximum-hour laws, and his prohibitions on “child labor” (i.e. teenage labor), and so on.

Prices were therefore not permitted to rise above or fall below “costs of production,” regardless of consumer demand.

Quoting historian John T. Flynn:

[Code-enforcement police] roamed through the garment district like storm troopers. They could enter a man’s factory, send him out, line up his employees, subject them to minute interrogation, take over his books at the instant. Night work was forbidden. Flying squadrons of these private coat-and-suit police went through the district at night, battering down doors with axes looking for men who were committing the crime of sewing together a pair of pants at night (John T. Flynn, The Roosevelt Myth, 2007).

Countless people across America were arrested and sentenced to jail or prison for invented crimes like “pressing suits of clothes for thirty-five cents when the Tailors’ Code fixed the price at forty cents” (Ibid).

FDR also made the private ownership of gold illegal.

He nationalized gold stocks.

He created an abortion called the Agriculture Adjustment Administration (AAA), which implemented a government cartel on agriculture markets, and which quite literally paid millions and millions of dollars to farmers for slaughtering their livestock and burning their fields, while the rest of the country starved. 

Under the AAA, one sugar refining business was paid $1 million to not refine sugar. 

He made null and void all existing contracts that promised to pay in gold, which was an act of pure and simple theft, and which in any case did not inflate prices, as was his whole intention in making gold illegal in the first place.

In 1935, the United States Supreme Court ruled that Roosevelt’s NRA and AAA were unconstitutional.

It’s worth noting also, if only for posterity sake, that the NRA and the AAA were both explicitly modeled after Mussolini’s fascist system, of which FDR was an explicit admirer. 

FDR also emulated Mussolini’s propaganda campaign against freedom and free-markets. Under the Second New Deal, Roosevelt’s AAA, which the Supreme Court had declared unconstitutional, was, however, resurrected under the “soil conservation program.” 

It too paid taxpayer money to farmers for not producing.

A number of other programs that the Supreme Court ruled unconstitutional were simply reenacted by FDR under different names as well. 

Many of these unconstitutional programs, also modeled after European fascism, are still in place today.

The Second New Deal, announced on January 4, 1935, introduced a number of new programs, in addition to the renamed old, each one equally unconstitutional, though never, alas, brought before the court. 

There was, for instance, the National Labor Relations Act.

There was the Fair Labor Standards Act, which amounted to more job-destroying minimum-wage laws.

There was the Works Progress Administration.

Of course too there was the egregious and now bankrupted Social Security Act, which, among other things, forgot to take into account increasing life expectancies, and so was doomed to fail from the start, a fact which, unfortunately, most Americans don’t realize even today. 

Also, the Norris-LaGuardia Act, which Herbert Hoover made into law in 1932, was much more stringently enforced under FDR’s authoritarian hand, thereby making it impossible to prosecute against labor union violence, of which the whole history of labor unions is largely composed. 

Extortion by unions was under FDR legally permitted, as long as that extortion concerned “the payment of wages by a bona fide employer to a bona fide employee” (Congressional Record 78th Congress, first Session, House, 1934).

There were in addition, of course, the interminable taxes imposed upon businesspeople, which taxes siphoned money out of the private sector and increased unemployment, as taxes against entrepreneurs always and inevitably will, since they take away the capital that is normally used to reinvest and thus produce.

Indeed, tax increases (much of which were used to pay FDR’s bureaucrats) were as responsible as anything else for annihilating the American economy. 

Quoting FDR’s adviser Harry Hopkins: 

“I’ve got four million at work [in federally created jobs], but for God’s sake, don’t ask me what they are doing.”

This same Harry Hopkins again: “We shall tax and tax, spend and spend, and elect and elect.”

Even prior to World War II, government spending under FDR doubled and then some. 

Government spending went from $4.6 billion in 1932 to $9.1 billion in 1940.

Over $23 billion in deficits were accumulated. 

Current profligacy makes these numbers look comical, and indeed in terms of sheer profligacy, Barack cannot be matched; but one must not fail to take into account the times. 

Deficits annually during FDR’s reign averaged 42 percent of the federal budget, a truly incredible figure, especially considering that in 1932 FDR had the nerve to campaign against budget deficits, and he even vociferously denounced them. 

The primary purpose of FDR’s preposterous New Deal spending – at least, according to many – was simply to ensure his reelection, because he, like his protégé, was another power-mad politician. Accordingly, he gave free money to hoards and hoards of poor people in exchange for the vote.

What follows is from the Official Report of the U.S. Senate Committee on Campaign Expenditures, 1938:

• In one Works Progress Administration (WPA) district in Kentucky, 349 WPA employees were put to work preparing forms listing the electoral preferences of every employee on work relief. Many of those who stated that they did not intend to vote for Roosevelt were laid off.

• In another Kentucky WPA district, government workers were required, as a condition of employment, to pledge to vote for the senior senator from Kentucky, who was an FDR supporter. If they refused, they were thrown off the relief rolls.

• Republicans in Kentucky were told that they would have to change party affiliations if they wanted to keep their WPA jobs.

• Letters were sent out to WPA employees in Kentucky instructing them to donate 2 percent of their salaries to the Roosevelt campaign if they wanted to keep their jobs. 

• In Pennsylvania, businessmen who leased trucks to the WPA were solicited for $100 campaign contributions.

• As in Kentucky, Pennsylvania WPA workers were told to change their party affiliation if they wanted to keep their jobs. Many people refused and were fired.

• Government employment was increased dramatically right before the elections. In Pennsylvania, “employment cards” were distributed that entitled holders of the cards to “two to four weeks of employment around election time.”

• A Pennsylvania man who had been given a $60.50-per-month white-collar job was transferred to a pick-axe job in a limestone quarry after refusing to change his voter registration from Republican to Democrat.

• Tennessee WPA workers were also instructed to contribute 2 percent of their salaries to the Democratic Party as a condition of employment.

• In one congressional district in Cook County, Illinois, the WPA instructed 450 of its employees to canvass for (Democratic) votes around election time in 1938. The men were all laid off the day after the election.

(Cited in John T. Flynn, The Roosevelt Myth, and How Capitalism Saved America, by Thomas Dilorenzo.) 

In the words of historian Stanley High: 

“In states like Florida and Kentucky – where the New Deal’s big fight was in the primary elections – the rise of WPA employment has hurried along in order to synchronize with the primaries” (Stanley High, “The WPA: Politicians’ Playground,” Current History, 1939).

In 1969, when all this evidence about New Deal spending came into the light, FDR apologists (i.e. academics) immediately began making excuses and rationalizing FDR’s disgustingly biased spending – for instance, the fact that residents of western states received 60 percent more federal money than residents of southern states. All the excuses these academics have made are factually inaccurate and have been refuted, many times over, by people like Jim F. Couch and William F. Shugart, in their excellent book Political Economy of the New Deal.

Franklin Roosevelt was, to quote one David Gordon, “a vain, intellectually shallow person whose principal interest was to retain at all costs his personal power” – i.e. “total subordination of his country’s welfare to his personal ambition” (David Gordon, “Power Mad,” 1999).

FDR had no grasp of economics, and in fact was really just another garden-variety politician, much like today’s world leaders, but more so.

In 2005 Dems Blocked GOP Proposals to Fix Social Security… Today Social Security Is Officially In the Red

Posted by Jim Hoft on Sunday, October 30, 2011, 8:58 AM

In 2005 Congressional Democrats blocked Republican proposals to save Social Security.

Then they wildly cheered their own obstructionism during the State of the Union Address the following year.

Today Social Security is in the red.

(The Washington Post)


As Americans were focusing on Barack Obama’s record debt and unemployment the last two years, Social Security went cash negative this past year.

The Washington Post reported, via Free Republic:

Last year, as a debate over the runaway national debt gathered steam in Washington, Social Security passed a treacherous milestone. It went “cash negative.”

For most of its 75-year history, the program had paid its own way through a dedicated stream of payroll taxes, even generating huge surpluses for the past two decades. But in 2010, under the strain of a recession that caused tax revenue to plummet, the cost of benefits outstripped tax collections for the first time since the early 1980s.

Now, Social Security is sucking money out of the Treasury. This year, it will add a projected $46 billion to the nation’s budget problems, according to projections by system trustees. Replacing cash lost to a one-year payroll tax holiday will require an additional $105 billion. If the payroll tax break is expanded next year, as President Obama has proposed, Social Security will need an extra $267 billion to pay promised benefits.

But while talk about fixing the nation’s finances has grown more urgent, fixing Social Security has largely vanished from the conversation.

Lawmakers in both parties are ducking the issue, wary of agitating older voters and their advocates in Washington, who have long targeted politicians who try to tamper with federal retirement benefits.

New Target of Blame for Scott Olsen Injury...the Jews!

Morgen on October 29, 2011 at 1:12 pm 

Of course, of course.

That’s Michael Rivero from the Israel-bashing, conspiracy site WhatReallyHappened.com via the Ruthless Truth (lol) blog. Is Rivero a lefty? I really don’t know, or care. When you get far enough out there on the fringes on either side, it doesn’t even matter. You’re just a kook.

I may be going against the grain to say this, but I actually don’t think there is a significant amount of anti-semitism amongst the OWS crowd. No more than the left-leaning population in general. But what there is a preponderance of is fringe characters in general, and fringe views of all sorts. I mean really fringe. The 99%? More like the .01%.

By the way. Pretty sure the reason he wants the name of the Oakland police officer who (allegedly) pulled the trigger on the canister which hit Olsen is because the OWS crowd has put a reward out for this. Because this is exactly what peaceful protesters do. I’m sure they just want to protect this officer from any retribution.

Europe runs out of money.

Forgive Us Our Debts

By CHRISTOPHER CALDWELL

       

London

As they do every few weeks, the leaders of the European Union met in Brussels on Wednesday, October 26, to solve their finance problems once and for all. As the sun rose on Thursday they emerged with a document that resembled an Obama budget—crystal-clear about its aims and aspirations, opaque about how it intends to achieve them. There is a reason for that. It is that these aims and aspirations are growing less and less realistic.

Back in 2010, when the crisis seemed confined to the Greek government’s inability to repay its lenders, the Europeans thought they could fix things by having its various neighbor countries chip in 45 billion euros ($65 billion) to throw at the problem. Eighteen months later, the crisis is as complicated as a Rube Goldberg machine and more dangerous. The particular corner of it they dealt with last week has three intertwined aspects, and to solve one of them is to exacerbate the other two:

(1) Greece is so totally bust that it required not only a fresh bailout totaling $185 billion but also a 50 percent “haircut” imposed on its creditors. In other words, if you lent the Greeks money by buying their government’s bonds, you lost half of it. (But don’t feel too bad—a lot of Greeks got to retire at 60 with pensions you paid for.) That “solves” the Greek solvency problem for a time, but it is a dangerous remedy.

(2) It is dangerous because it means that loss of confidence in Europe’s institutions moves from the periphery (Greece and Portugal, say) towards the core (France and Italy, say). If Greece can stiff its creditors and stay in the euro, might that not be a tempting option for other countries? Consider Italy, the third-largest economy in the eurozone, with a debt-to-GDP ratio over 100 percent. “Contagion” is the word for the presence of nervous thoughts like these in bondholders’ heads, and the only way to protect against its spread is to build a “wall of money” around the least reliable-looking debtors. Unfortunately, Europe is out of money. The only “wall of money” it can erect is a virtual wall of borrowed money.

(3) And that adds to a danger that is already present in the Greek bailouts. European banks hold a lot more sovereign debt (government bonds) than U.S. banks do. If some of that is going to get paid back at 50 centimes on the euro, then these banks are neither as wealthy nor as stable as they appear to be. That means banks are going to have to revise their business models. What European authorities insisted on this week was that they raise their capital ratios to 9 percent. There are two ways banks can do this. They can either hold more money or lend less. Europe’s leaders pretend they’re going to hold more. But since Europeans have already tapped every domestic source of capital, there is no place to get more. That means banks are going to lend less. Which in turn means the risk of recession has just risen significantly.

A lot about this deal makes it likely that Europe’s leaders will be back at the negotiating table before their seats have cooled.

For one, the debt of Greeks and others seems to be, as the Germans grumble, a “barrel without a bottom.” A European economist told me in the summer of 2010 that a Greek default was inevitable, and that the European bailout was designed to keep the country afloat until it could get back into “primary balance”—i.e., paying its bills except for its interest payments—in 2013. But this new bailout, haircuts and all, does not envision Greece reaching primary balance for a decade, and then only with the help of the most grinding austerity program enacted in our lifetime. At that point, in the 2020s, the country will be back to a situation where its debts are “only” 120 percent of GDP. Is that politically sustainable in a riot-prone democracy like Greece’s? One suspects not.

Another problem is that the deal is not having the desired effect in Italy, the primary candidate for contagion. Bond yields in most European countries fell in the immediate aftermath of the agreement, but not in Italy. Italy has the third-largest bond market in the world—almost $3 trillion—and over the summer the European Central Bank bought tens of billions’ worth of Italian bonds to keep Italy’s borrowing costs down.

Working up an austerity plan for the Italians was a top priority at last week’s summit. Silvio Berlusconi’s coalition partners have resisted it, and in one sense they are right to see the demand as unfair—at about 4 percent, Italy’s budget deficits are low by comparison to the rest of the European Union (and far lower than the United States). And there is one boast that Italians can make that few other countries can—its finances are roughly in the same shape they were a decade ago. Under Berlusconi, Finance Minister Giulio Tremonti was a highly capable economic steward. His reputation in Italy has something in common with that of Paul Volcker in the United States. What spooked bond markets over the summer was Berlusconi’s quarreling with Tremonti, not the “bunga-bunga” (to use his term) that he indulged in with young women.

At last week’s meetings, Europe invited a new player into its finance crisis: China. Europeans have talked about “levering up” their $625 billion European Financial Stability Facility (EFSF), established last year to prevent a Greek contagion. It has been topped up and tapped into since and now has only about half its original lending power. In order to obtain the funds necessary to shore up Italy’s bond market, the Europeans reckon they need to more than double the size of the EFSF. Levering up means using the money they have in the EFSF as security to raise even more on the capital markets. In the present depressed state of the world economy, “the capital markets” means China. With an astonishing lack of sangfroid, Klaus Regeling, the head of the EFSF, landed in Beijing on Thursday afternoon to press his case. He must have headed straight for the airport the moment the agreement was signed.

Years ago, China might have fallen for the trick that Europe intends to pull, basically trying to get money for Greece and Italy by waving around the triple-A credit rating of Germany and other countries that have stocked the EFSF. But today it is likely that China will insist on guarantees that it be paid before European taxpayers in any default scenario. In an interview with the Financial Times the day after the agreement, Li Daokui, a member of the central bank monetary policy committee, gave evidence of a real canniness. “The last thing China wants,” he said, “is to throw away the country’s wealth and be seen as just a source of dumb money.” Li indicated that the Chinese might ask European leaders to refrain from criticizing Chinese economic policy as part of the deal.

Perhaps Europe has reached the point where its only route out of bankruptcy is this kind of vassalage. To escape a debt crisis, an economy needs to be capable of growing. It is far from clear that Europe can do that. It has two problems. One is technological. Much of Europe lacks the technological wherewithal to claim an ever-increasing share of the world economy. Spain, for instance, during its long, construction-based boom, developed a good deal of national expertise in .  .  . what? Pouring concrete? 

A second problem is demographic. Italians have one of the lowest birthrates known in any society since the dawn of time; what it will look like in 40 years is anybody’s guess, but one fairly conservative demographic projection shows its population decreasing by 10 percent, to 54 million, at midcentury. Debt, alas, is contracted on a per-country, not a per capita basis, and this kind of population loss (especially when accompanied by rapid aging) can render debt impossible to pay down. 

Europe’s leaders are welcome to congratulate each other on finally resolving their debt crisis. 

They will likely have many more opportunities to come up with such “final resolutions” in the months and years ahead.

Christopher Caldwell is a senior editor at The Weekly Standard.

There Aren’t Enough Millionaires

By Kevin Williamson

 

The rich can’t fund our deficits.

This may sound like a liberal parody of conservative economic thinking, but let me put it out there: America’s problem is that the rich don’t have enough money.

There, I said it. Let’s rumble.

When it comes to the Scrooge McDuck set, the problem isn’t that they’re not rich enough, it’s that there aren’t enough rich — not enough to do what liberals want to do, anyway, which is to balance the budget by increasing taxes on them. Let’s deploy some always-suspect English-major math:

There are lots of liberal definitions of “rich.” When Pres. Barack Obama talks about the rich, he’s talking about people living in households with income of more than $250,000 or more, the rarefied caviar-shoveling stratum occupied by the likes of second-tier public-broadcasting executives, Boston cops, nurses, and the city manager of Lubbock, Texas (assuming somebody in her household earns the last $25,000 to carry her over the line). Club 250K isn’t all that exclusive, and most of its members aren’t the yachts-and-expensive-mistresses types.

Nonetheless, there aren’t that many of them. In fact, in 2006, the Census Bureau found only 2.2 million households earning more than $250,000. And most of those are closer to the Lubbock city manager than to Carlos Slim, income-wise. To jump from the 50th to the 51st percentile isn’t that tough; jumping from the 96th to the 97th takes a lot of schmundo. It’s lonely at the top.

But say we wanted to balance the budget by jacking up taxes on Club 250K. That’s a problem: The 2012 deficit is forecast to hit $1.1 trillion under Obama’s budget. (Thanks, Mr. President!) Spread that deficit over all the households in Club 250K and you have to jack up their taxes by an average of $500,000. Which you simply can’t do, since a lot of them don’t have $500,000 in income to seize: Most of them are making $250,000 to $450,000 and paying about half in taxes already. You can squeeze that goose all day, but that’s not going to make it push out a golden egg.

But like certain other exclusive clubs, Club 250K has an inner sanctum, a special club within the club, the champagne room of socioeconomic status. And that is Club 1: the million-dollar-a-year club. Not the millionaires’ club — lots of the people earning $1 million in any given year do not have $1 million in assets — but, still, a million a year, even in rapidly depreciating U.S. dollars, is not too shabby. But the trouble for liberals is, Club 1 is really, really exclusive: Only 0.2 percent of U.S. households have incomes that high, meaning that there’s only about 200,000 of them. And like Club 250K, Club 1 is bottom-heavy: There are a lot more $1 million men than there are $6 million men. And there are a whole heck of a lot more $6 million men than there are $60 million men.

You want to tax Club 1 to get rid of the deficit, you have to hit each of those 200,000 households with an average tax hike — not an average tax bill, but tax increase — of $6 million. And a lot of those Club 1 households don’t have $6 million in income to start with, much less $6 million left after the taxes they’re already paying.

Every time you raise the threshold for eating the rich, you get a much, much smaller serving of meat on the plate — but the deficit stays the same. The long division gets pretty ugly. You end up chasing a revenue will-o’-the-wisp.

So, what about Lloyd Blankfein and Charlie Sheen and Tiger Woods? What about these people? You can tax the striped pants off of them, but you won’t get enough money to balance the budget. If you’re doing it, you’re probably mostly doing it because it feels good. (And, yes, that does make you a bad person.)

Correction: You can try to tax the striped pants off of them. Lloyd Blankfein and Tiger Woods and Charlie Sheen have a lot of discretion about when, where, and how they get paid. Lloyd Blankfein does not look at a pay stub every two weeks and shake his head sadly, and make sad little sighing sounds; guys like that do something about it. They move to low-tax jurisdictions. They defer. They incorporate. They set up enormous trusts to keep their ne’er-do-well nephews in boat shoes and gin and political office while avoiding taxes. They lawyer up. They will play the game, and they are better at it than you are.

So, how about taxing people who make less than $250,000? That’s probably whom you want to tax, since they are the ones who have the money (Counterintuitive, I know.) The Bush “tax cuts for the rich” cost the Treasury about $800 billion in forgone revenue; the Bush tax cuts for the middle class cost trillions – 2.2 of them, to be precise.

Repealing all of those Bush tax cuts, for rich and middle class alike, gets you about $3 trillion — over ten years. The deficit is running from a third to almost half that every year. Will not balance. Does not compute.

Just as supply-siders are naïve to think that tax cuts are going to magically empower us to grow our way out of this mess, progressives are naïve to think that there is some magically delicious pot of Lucky Charms at the end of the IRS rainbow that is going to get us out of this in some kind of obvious or straightforward fashion. No, tax cuts do not pay for themselves, but supply-side effects are real things, and jacking up tax rates to the level necessary to sustain current levels of government spending is going to have real economic consequences, some of which could in aggregate mean that you don’t collect the taxes you thought you were going to collect. This is doubly true when you already have the second-highest business-tax rate in the developed world and other significant economic challenges, like a backward K–12 education system making the work force less competitive and public infrastructure that is being neglected in favor of gimmicky political shenanigans.

Capital is sensitive — it just wants to be loved! — and it will go where the love is, where it can be fruitful and multiply. Setting trillions of dollars’ worth of it ablaze on the altar of Washington’s self-importance every year is not going to get it done, and there simply aren’t enough rich people for us to pillage or enough loot to make it all work. We have finally, as the lady predicted, run out of other people’s money.

— Kevin D. Williamson is a deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, just published by Regnery.

Government Owned a Big Share of Subprime Mortgage Market

Say Anything blog calls attention to this report from Investor’s Business Daily:

based on the number of toxic loans in the system in 2008, the government was responsible for not just a simple majority, but more than two-thirds. It’s quantifiable — 71% to be exact (see chart). And the remaining 29% of private-label junk was mostly attributable to Countrywide Financial, which was under the heel of HUD and its “fair-lending” edicts.

Here’s the pie chart:

There’s got to be a comeback for this, so what is it?

5 Reasons Why Income Inequality Is A Myth — And Occupy Wall Street Is Wrong

By James Pethokoukis

October 18, 2011, 10:54 am 

 

Sorry, the story just doesn’t hold together. According to left-wing think tanks, columnist and bloggers—and, of course, the Occupy Wall Street radicals—the top 1 percent have been exploiting the 99 percent for decades. The rich have been getting richer at the expense of the middle class and poor.

Really? Just think for a second: If inequality had really exploded during the past 30 to 40 years, why did American politics simultaneously move rightward toward a greater embrace of free-market capitalism? Shouldn’t just the opposite have happened as beleaguered workers united and demanded a vastly expanded social safety net and sharply higher taxes on the rich? What happened to presidents Mondale, Dukakis, Gore, and Kerry? Even Barack Obama ran for president as a market friendly, third-way technocrat.

Nope, the story doesn’t hold together because the financial facts don’t support it. And here’s why:

1. In a 2009 paper, Northwestern University economist Robert Gordon found the supposed sharp rise in American inequality to be “exaggerated both in magnitude and timing.” Here is the conundrum: Family income is supposed to rise right along with productivity. But median real household income—as reported by the Census Bureau—grew just 0.49 percent per year between 1979 and 2007 even as worker productivity grew four times faster at 1.95 percent per year. The wide gap between the two measures, if accurate, would suggest wealthy households rather than middle-class families grabbed most of the income gains from faster productivity.

But Gordon explained that this “compares apples with oranges, and then oranges with bananas.” When various statistical quirks are harmonized between the two economic measures, Gordon found middle-class income growth to be much faster and the “conceptually consistent gap between income and productivity growth is only 0.16 percent per year.” That’s barely one‐tenth of the original gap of 1.46 percent. In other words, income gains were shared fairly equally.

2. A pair of studies from 2007 and 2008 conducted by the Federal Reserve Bank of Minneapolis supports Gordon. Researchers examined why the Census Bureau reported median household income stagnated from 1976 to 2006, growing by only 18 percent. In contrast, data from the Bureau of Economic Analysis showed income per person was up 80 percent. Like Gordon, they found apples-to-oranges issues such as different ways of measuring prices and household size. But in the end, they concluded that “after adjusting the Census data for these three issues, inflation-adjusted median household income for most household types is seen to have increased by 44 percent to 62 percent from 1976 to 2006.” In addition, research shows that median hourly wages (including fringe benefits) rose by 28 percent from 1975 to 2005.

3. A 2008 paper by Christian Broda and John Romalis from the University of Chicago documents how traditional measures of inequality ignore how inflation affects the rich and poor differently: “Inflation of the richest 10 percent of American households has been 6 percentage points higher than that of the poorest 10 percent over the period 1994–2005. This means that real inequality in America, if you measure it correctly, has been roughly unchanged.” And why is that? China and Wal-Mart. Lower-income families spend a larger share of income than wealthier families on goods whose prices are more directly affected by trade. Higher income folks, by contrast, spend more on services which are less subject to foreign competition.

4. A 2010 study by the University of Chicago’s Bruce Meyer and Notre Dame’s James Sullivan notes that official income inequality statistics indicate a sharp rise in inequality over the past four decades: “The ratio of the 90th to the 10th percentile of income, for example, grew by 23 percent between 1970 and 2008.” But Meyer and Sullivan point out that income statistics miss a lot, such as the value of government programs and the impact of taxes. The latter, especially, is a biggie. The researchers find that “accounting for taxes considerably reduces the rise in income inequality” over the past 45 years. In addition, “consumption inequality is less pronounced than income inequality.”

5. Set all the numbers aside for a moment. If you’ve lived through the past four decades, does it really seem like America is no better off today? It doesn’t to Jason Furman, the deputy director of Obama’s National Economic Council. Here is Furman back in 2006: “Remember when even upper-middle class families worried about staying on a long distance call for too long? When flying was an expensive luxury? When only a minority of the population had central air conditioning, dishwashers, and color televisions? When no one had DVD players, iPods, or digital cameras? And when most Americans owned a car that broke down frequently, guzzled fuel, spewed foul smelling pollution, and didn’t have any of the now virtually standard items like air conditioning or tape/CD players?”

No doubt the past few years have been terrible. But the past few decades have been pretty good—for everybody.

 

Posted by Predictable-History at 2:55 PM

Job Creation: Bush vs. Obama

October 12, 2010 2:41 P.M.

By Veronique de Rugy  

According to Florida congresswoman Debbie Wasserman Schultz, President Obama is on pace to create more jobs in 2010 than President Bush did in his eight years of office.

“On the pace that we’re on with job creation in the last four months — if we continue on that pace — all the leading economists say it is likely that we will — we will have created more jobs in this year than in the entire Bush Presidency,” Wasserman Schultz, a Democrat from Weston, said on FOX News.

Let’s look at the Bureau of Labor Statistics data.

During the Bush presidency, net total employment went up by 1.08 million jobs. So far, during the Obama presidency, total employment has been reduced by 3.3 million jobs.

Under Bush, private employment shrank by 673,000 jobs, federal employment grew by 50,000 jobs, and government employment grew by 1,753,000 jobs.

Under Obama, the private sector has shed some 2.9 million jobs while the federal government has grown by 40,000 (after growing massively, the federal workforce shrank throughout the summer). Total government jobs, however, shrank by 357,000 jobs, mainly because of cuts at the state and local levels.

Now, we can’t really compare these numbers, because we have eight years of Bush data and only two years of Obama data. That’s why the chart below looks at the average monthly job creation under each president. There were more jobs created monthly under President Bush than under President Obama. Overall, most of the net jobs created under Bush were created in the government; many private sector jobs have been destroyed under Obama; and the number of government jobs has decreased, even though federal employment has grown.

Report Card on Effective Corporate Tax Rates: United States Gets an F

By Kevin A. Hassett, Aparna Mathur 

No. 1, February 2011

At 35 percent, the US statutory corporate tax rate is the highest among all the countries in the Organization for Economic Cooperation and Development (OECD). Since the 1980s, other OECD economies have been steadily lowering their tax rates, but the United States has not cut its top statutory rate since 1993. In the OECD, the United States also has higher-than-average effective average and effective marginal tax rates, which are the best indicators for capital investors of their true tax liability. Policymakers seeking to understand why some companies are moving plants abroad should consider the impact of tax rates on competitiveness. The Obama administration and the 112th Congress should lower effective tax rates so the United States can compete in the global economy.

Key points in this Outlook:

*  Effective corporate tax rates are a better measure of competitiveness than statutory rates. 

*  Even by this measure, the United States does much worse than the other OECD countries.

    

* Corporate tax revenue in the United States is consistently lower than revenues in other  OECD countries, despite higher US corporate tax rates.

* To bring investment and jobs back to the United States, policymakers should cut effective tax rates as part of an overhaul of the US corporate tax code.

The White House and congressional Republicans are moving toward a consensus that the US corporate tax code needs a broad overhaul. President Barack Obama called on Congress to lower the corporate tax rate in his State of the Union speech on January 25,[1] and key congressional committees are addressing the issue. House Ways and Means Committee chairman Dave Camp (R-MI) held his first hearing in January on a corporate tax overhaul, and the Senate Finance Committee, led by Senator Max Baucus (D-MT), has also held hearings on broad-based tax changes. Treasury Secretary Timothy Geithner has hinted that the proposed changes may include lowering the top corporate tax rate, which currently stands at 35 percent. However, in an attempt to remain revenue neutral, the cut in the rate would be accompanied by base-broadening measures and the elimination of certain loopholes and deductions under the current system.

While there is broad consensus that the high statutory corporate tax rate in the United States makes investments here uncompetitive relative to those in other OECD economies, some question the extent to which effective taxes paid by corporations are equally high. This Outlook examines relative tax rates in the United States and OECD economies, with a special focus on effective average and effective marginal tax rates. Unfortunately, even by these indicators, the United States competes poorly in the global economy.

 

Statutory Tax Rates

 

The statutory corporate tax rate is imposed by law on the earnings of capital in the corporate sector of the economy. Many countries, including the United States, apply statutory tax rates to taxable corporate income according to a schedule--that is, they tax different portions of taxable income at different rates. We have limited our comparisons to the top corporate tax rates in those schedules, as these apply to a majority share of corporate income. An international comparison of intermediate statutory corporate tax rates, for example, would add little information about investment incentives because most corporate investment is undertaken by corporations that face the highest statutory rates. In addition to national taxes, many subnational governments impose corporate income taxes. These are deductible from the central government rates in some countries.

The top national statutory corporate tax rates in 2010 among the thirty-one members of the OECD ranged from 8.5 percent in Switzerland to 35 percent in the United States (see table 1). Hence, within the OECD countries, the United States has the highest statutory tax rate at the national level. The picture changes only slightly when we add subnational corporate tax rates to the top national rate. In the United States, the average top statutory rate imposed by states in 2010 added just over 4 percent (after accounting for the fact that state taxes are deducted from federal taxable income) for a combined top statutory rate of 39.2 percent. Among all OECD countries in 2010, the United States had the second-highest top statutory combined corporate tax rate, after Japan's rate of 39.5 percent. In 2011, the United States will have the highest national and combined corporate tax rates in the world when Japan introduces a planned 5-percentage-point reduction to its top rate.[2]

TPO No. 1, February 2011 Table 1               

Top combined statutory rates among OECD countries, excluding the United States, have fallen from an average of about 48 percent in the early 1980s to 25.5 percent in 2010 (see figure 1). The main wave of reforms occurred in the mid- to late-1980s but has continued in the 1990s and through the 2000s. In fact, the OECD average fell almost 9 percent from 2000 to 2010. The United States, however, has not reduced its top statutory rate since 1993.

If we look at the frequency distribution of countries (using a kernel estimator) at different tax rates in 1981, 1996, and 2010, we see a striking change in the US position relative to other OECD countries (see figure 2). In 1981, the bulk of OECD countries had an average combined tax rate of slightly above 47 percent. The US rate was about 3 percentage points higher than that, at 50 percent. In 1996, the US tax rate was close to the average for OECD countries, at approximately 39 percent. However, in 2010, with no change in the top rate since the 1990s, the United States was among only four other OECD countries that had tax rates above 30 percent. Thus, the competitive gap between US and OECD corporate tax rates has opened up since the 1990s primarily because of widespread and substantial rate reductions abroad, rather than any significant corporate tax increase in the United States.

Effective Tax Rates

The statutory tax rate is an imperfect measure of tax competitiveness because it does not take into account the breadth of the tax base.[3] This causes countries with high rates and a narrow base, such as the United States, to appear less competitive. "Effective" tax rates resolve this issue by taking into account tax offsets, the present value of depreciations, and other deductions that narrow the base.

Effective tax rates can be measured using an approach outlined in a 1999 paper by economists Michael Devereux and Rachel Griffith. Extending a literature that dates back to the early 1960s, they propose that effective rates be explored using two main measures. The first is the effective marginal tax rate (EMTR), which applies to marginal investment projects in which the last unit invested provides just enough pretax return to cause the project to break even after taxes. In other words, the marginal investment equates the net present value of the income stream to the net present value of the investment costs.

The EMTR would always be applicable under the assumption that "all potential investment projects that earn at least the cost of capital will be undertaken."[4] However, in the real world there are many cases when an investor must make a choice between two projects that each earn more than the minimal return required to make the project worthwhile. The effective average tax rate (EATR) summarizes the distribution of tax rates for an investment project over the range of possible profitability levels. When deciding between mutually exclusive projects in which the net present value of the income streams is greater than the pretax net present value of the investment costs, the EATR will inform the decision.[5] That is, the EATR is likely the right rate to consider when exploring whether taxes are inducing companies to locate plants abroad. Conditional on that decision, the EMTR will inform the scaling of the project. If the concern is the observation that many profitable plants have been moved abroad, then the right effective rate to inspect is the EATR.

We computed the EATR and the EMTR for all countries in the sample and for each time period using the methodology outlined by Devereux and Griffith, assuming fixed parameter values for the economic depreciation rate, the inflation rate, and the annual discount rate. A detailed discussion of the methodology is in the appendix.

Effective Average Tax Rates. Our analysis finds that the United States' performance in the global economy does not look much better when scored with EATRs than when scored with the top statutory tax rates. The kernel densities show that the United States has moved far to the right of the mode of the OECD distribution. Or, more accurately, the OECD has moved to the left (see figure 3). In 1996, the United States' EATR was slightly below the OECD average, 29.2 versus 30.2. In later years, the OECD average improved by almost 10 percentage points to 20.6 while the United States' EATR remained relatively unchanged. In 2010, the US EATR was 29 percent. Table 2 shows our calculation of the EATRs for the OECD countries.

 

Effective Marginal Tax Rates. The United States compares slightly more favorably to other OECD countries on the EMTR. However, even its EMTR is significantly higher than the OECD average. According to the distri-bution charts, in 1981 the United States was left of the mode; however, in the intervening years the rates in other countries declined, leaving the United States with one of the highest EMTRs (see figure 4). In 2010, the US EMTR was 23.6 percent, relative to the non-US OECD average of 17.3 percent. All the rates are available in table 2.

A criticism of our methodology might be that we are unable to calculate effective tax rates for all countries using actual data on tax liabilities expressed as a fraction of profits. The lack of internationally comparable data for such an exercise is clearly a constraint. The World Bank approximates the effective rate using an alternative methodology.[6] This approach considers a representative company in a typical year of operation and computes the taxes it would pay if located in different countries as a percentage of its financial income using standardized financial accounting (a "book" measure of effective tax rates). Table 2 shows the effective rates computed by the World Bank using the book method. While the actual value of the rates computed varies under our methodology relative to the World Bank methodology, as we may expect, there is little improvement in the US position relative to other countries.

Tax Revenues

Any discussion of tax rates is incomplete without an analysis of trends in corporate tax revenues. With the US corporate tax rates so high, one might expect the share of revenues from corporate capital to be higher in the United States than in other OECD economies. This is not the case, however. As figure 5 clearly shows, except for a brief period in the 1990s, US corporate tax revenues have been consistently lower than those of the OECD economies.

In 1981, the United States raised about 2.3 percent of GDP from corporate tax revenues, but between 2000 and 2004, it raised between 1.7 and 1.9 percent. The number in 2005 was slightly higher than in 1981, leading to the upward spike in figure 5. The figure also shows that for the United States, revenues dipped substantially below the OECD average in 1983 and 1987 and surpassed it in 1995.

For the average OECD country, corporate income tax revenues relative to GDP increased between 1981 and 2008 from about 2.4 percent to 3.9 percent, before declining precipitously in the aftermath of the Great Recession. For the United States, however, revenues have shown a slight uptick in recent years, narrowing some of the revenue gap with the OECD economies. The glaring result from comparing the relative tax position of the United States to its relative revenue position is that despite (or perhaps because of) its relatively higher corporate tax rates, the United States earns less federal revenue from corporate income as a percentage of GDP than the average OECD economy.

This pattern is consistent with the literature that explores the responses of tax revenue to changes in the corporate tax rate. Alex Brill and Kevin A. Hassett found significant evidence that a reduction of the corporate tax rate in the United States would increase corporate tax revenue.[7]

Discussion and Conclusion

The United States is currently underperforming in global tax comparisons. The United States' top statutory tax rates will soon be the highest in the OECD, and the US effective average and effective marginal tax rates are far above the OECD average. Any effort at corporate tax reform is therefore incomplete without a push toward addressing not only the high statutory rates, but also the relatively high effective average and marginal rates. These rates are the best indicators for capital investors of their true tax liability--much more so than the statutory rates. By our calculation, the US statutory rate is nearly 10 percentage points higher than the effective average rate and nearly 17 percentage points higher than the effective marginal tax rate. Relative to other OECD countries, the United States is one of the worst performers on this score. The effective average tax rate for all OECD countries excluding the United States is 20.6 percent, while the effective marginal tax rate is 17.3 percent. The corresponding values for the United States are 29 percent and 23.6 percent. Therefore, while much media attention has been focused on the statutory rates, policymakers should address the urgent need to reform effective rates as well.

Kevin A. Hassett (khassett@aei.org) is a senior fellow and the director of economic policy studies at AEI. Aparna Mathur (amathur@aei.org) is a resident scholar at AEI.

Matthew Jensen provided excellent research assistance for this Outlook.

View this Outlook as a PDF

View the Appendix as a PDF

Notes

1. White House, "Remarks by the President in the State of the Union Address," news release, January 25, 2011, www.whitehouse.gov/the-press-office/2011/01/25/remarks-president-state-union-address (accessed February 2, 2011).

2. Kosaku Narioka, "Japan Economy Minister Expects 5% Corp Tax Cut to Help Growth," Dow Jones, December 22, 2010.

3. See Jane G. Gravelle and Thomas L. Hungerford, "Corporate Tax Reform: Should We Really Believe the Research?" Tax Notes (October 27, 2008): 419; and Aviva Aron-Dine, "Fiscally Responsible Corp. Tax Reform Could Benefit the Economy," Tax Notes (August 18, 2008): 691.

4. Ibid.

5. Many examples of mutually exclusive projects arise when each project depends on economies of scale. Fixed costs involved in undertaking both projects can make it more profitable to undertake only one.

6. According to the World Bank Doing Business 2011 report, the US book effective tax rate in 2009 was quite high by global standards, ranking 162nd out of 183 countries (89th percentile), and was also high compared to OECD member countries, ranking 3rd highest out of 30 (90th percentile). The book effective rate places the United States a little better than the statutory rate does, but not much. Another way to calculate effective rates is to divide the actual amount of corporate income tax paid by the pretax profit. See World Bank, Doing Business 2011: Making a Difference for Entrepreneurs (Washington, DC, November 4, 2010), www.doingbusiness.org/reports/doing-business/doing-business-2011 (accessed February 2, 2011).

7. Kevin A. Hassett and Alex Brill, "Revenue-Maximizing Corporate Income Taxes: The Laffer Curve in OECD Countries" (AEI Working Paper 137, Washington, DC, July 31, 2007), www.aei.org/paper/26577.