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Tag Archives: economics

Obama Touts “Inclusive Capitalism”

In an interview with Ezra Klein of Vox, President Obama said traditional market forces that used to redistribute income are failing and the time for government to do it instead has arrived.

The interview, which ran today, was conducted January 23.

Touting what he referred to as inclusive capitalism, Obama made the case for what actually sounds a lot like socialism.

So part of our job is, what can government do directly through tax policy? What we’ve proposed, for example, in terms of capital gains — that would make a big difference in our capacity to give a tax break to a working mom for child care. And that’s smart policy . . .

We also still have to focus on the front end. Which is even before taxes are paid, are there ways that we can increase the bargaining power: making sure that an employee has some measurable increases in their incomes and their wealth and their security as a consequence of an economy that’s improving. And that’s where issues like labor laws make a difference. That’s where say in shareholder meetings and trying to change the culture in terms of compensation at the corporate level could make a difference. And there’s been some interesting conversations globally around issues like inclusive capitalism and how we can make it work for everybody.

Capitalism, Obama indicated, is no longer working to get enough money out of the hands of the rich and into the hands of workers:

I think that part of what’s changed is that a lot of that burden for making sure that the pie was broadly shared took place before government even got involved. If you had stronger unions, you had higher wages. If you had a corporate culture that felt a sense of place and commitment so that the CEO was in Pittsburgh or was in Detroit and felt obliged, partly because of social pressure but partly because they felt a real affinity toward the community, to re-invest in that community and to be seen as a good corporate citizen.

Today what you have is quarterly earning reports, compensation levels for CEOs that are tied directly to those quarterly earnings. You’ve got international capital that is demanding maximizing short-term profits. And so what happens is that a lot of the distributional questions that used to be handled in the marketplace through decent wages or health care or defined benefit pension plans — those things all are eliminated. And the average employee, the average worker, doesn’t feel any benefit.

Obama, singing from the traditional Leftist hymnal, said we must “make sure” that “folks at the very top are doing enough of their fair share.” He complained about the “winner-take-all aspect of this modern economy” and the need to be “investing enough in the common good.”

Because, you see, you didn’t build that. And you don’t own it either.

White House Suggests Combating Deficit with More Spending

No, it’s true. This is not one of my satire pieces. That’s what they did, in a statement released this morning, and White House Press Secretary Josh Earnest even flagged the statement for reporters traveling with President Obama in Asia so they didn’t miss it.

The news was that the Congressional Budget Office released a report stating that the deficit had come down a little bit more, to the lowest point of the Obama presidency and to a place that is just below the average for the last 50 years.

Buhhhht . . . the average for the last 50 years is pretty bad and has resulted in our current $18 trillion in debt. The estimate also doesn’t include a bunch of spending and tax cuts that routinely get “extended” by Congress, to the tune of more than $1 trillion over ten years.

And the deficit is set to start rising again in just a couple of years, to heights rivaling the levels of the last recession. And that’s all assuming we don’t have another recession.

The White House acknowledges this, and suggests a fix:

CBO’s longer-term budget and economic projections confirm the need for Congress to act to strengthen our economy for the middle class while putting our debt and deficits on a sustainable trajectory, including by making the investments that will accelerate economic growth and generate good new jobs for our workers to fill.

Investments. Get the joke? Investments are what liberals call spending. That will cure the deficit.

And so I’m headed out right now to Dairy Queen to work on my diet.

News Alert: Income Inequality is Not What You’re Being Told

You may remember that President Obama was to make the scourge of income inequality the laser focus of the remainder of his presidency. We have’t heard much about it lately, because, with the exception of golf – or winning an election – our president is not really able to maintain his focus on anything for particularly long or with much consistency.

Well it turns out Obama’s erratic attention to the matter may be warranted.

Writing in the Wall Street Journal, former Sen. Phil Gramm and Michael Solon explain a study questioning whether income inequality is really the exploding problem it’s made out to be.

Gramm, who, you might know, was an economist before he got into politics, notes that the income inequality argument is driven by “a now-famous study” by economists Thomas Piketty and Emmanuel Saez. But there are problems with their methodology:

The Piketty-Saez study looked only at pretax cash market income. It did not take into account taxes. It left out noncash compensation such as employer-provided health insurance and pension contributions. It left out Social Security payments, Medicare and Medicaid benefits, and more than 100 other means-tested government programs.

Realized capital gains were included, but not the first $500,000 from the sale of one’s home, which is tax-exempt. IRAs and 401(k)s were counted only when the money is taken out in retirement. Finally, the Piketty-Saez data are based on individual tax returns, which ignore, for any given household, the presence of multiple earners.

The new study by Economists Philip Armour and Richard V. Burkhauser of Cornell University and Jeff Larrimore of Congress’s Joint Committee on Taxation fills in the missing data.

Gramm and Solon write:

The result is dramatic. The bottom quintile of Americans experienced a 31% increase in income from 1979 to 2007 instead of a 33% decline that is found using a Piketty-Saez market-income measure alone. The income of the second quintile, often referred to as the working class, rose by 32%, not 0.7%. The income of the middle quintile, America’s middle class, increased by 37%, not 2.2%.

By omitting Social Security, Medicare and Medicaid, the Piketty-Saez study renders most older Americans poor when in reality most have above-average incomes. The exclusion of benefits like employer-provided health insurance, retirement benefits (except when actually paid out in retirement) and capital gains on homes misses much of the income and wealth of middle- and upper-middle income families.

Messrs. Piketty and Saez also did not take into consideration the effect that tax policies have on how people report their incomes. This leads to major distortions. The bipartisan tax reform of 1986 lowered the highest personal tax rate to 28% from 50%, but the top corporate-tax rate was reduced only to 34%. There was, therefore, an incentive to restructure businesses from C-Corps to subchapter S corporations, limited-liability corporations, partnerships and proprietorships, where the same income would now be taxed only once at a lower, personal rate. As businesses restructured, what had been corporate income poured into personal income-tax receipts.

So Messrs. Piketty and Saez report a 44% increase in the income earned by the top 1% in 1987 and 1988—though this change reflected how income was taxed, not how income had grown.

An equally extraordinary distortion in the data used to measure inequality (the Gini Coefficient) has been discovered by Cornell’s Mr. Burkhauser. In 1992 the Census Bureau changed the Current Population Survey to collect more in-depth data on high-income individuals. This change in survey technique alone, causing a one-time upward shift in the measured income of high-income individuals, is the source of almost 30% of the total growth of inequality in the U.S. since 1979.

What this study demonstrates is that the United States, as you may have suspected, is not just a place of opportunity for the wealthy.

As long as I have a chance to better my position, what really do I care if there is substantial income inequality? Should I be keeping track of whether my rich neighbor is driving a 2009 Porsche or a 2014 Porsche? How does it benefit me to resent the success of others?

Besides, wealthy people rarely store their income in old Maxwell House cans. They spend it or invest it. Either they are making money with their money, or someone else is.

Everyone I’ve ever worked for was wealthy. Well, until I started working for myself. Should I have resented them for giving me a job and paying my health insurance out of their pocket? Should I have wished they had less money so they could pay me less and maybe fire one of my co-workers?

Here’s a toast to the wealthy. Most of you earned it through sacrifice, hard work, and risk. May this always be a country where you will be comfortable keeping your wealth, and where others will be free to rise up the income ladder and join you.

The Redistribution Recession

There are reasons why five and a half years into the Obama presidency things are still crummy and uncertain.

As I’ve mentioned before, specific statist and redistributionist policies have kept a lid on growth. It’s not an accident that President Obama has been unable to bounce the economy out of recession like Reagan or either of the two Bushes did.

The Wall Street Journal the other day excerpted a speech by University of Chicago economics professor Casey B. Mulligan, given on receiving the Hayek Prize on June 25 from the Manhattan Institute for his book “The Redistribution Recession”.

He provides some illustrations of Obama policies that have kept the economy in neutral. Or in reverse. It’s called “help” by Democrats, and “free stuff” by conservatives, like me. Free stuff is okay when you’re in a fix, but free stuff become deleterious when you keep getting it. Or when you’re not in a fix. And that’s what’s happening to people.

Mulligan writes about Food Stamps:

Participants are no longer required to seek work and are not asked to demonstrate that they have no wealth. Essentially, any unmarried person can get food stamps while out of work and can stay on the program indefinitely.

Mortgage  relief:

People who owed more on their mortgage than their house was worth could have their mortgage payments set at a so-called affordable level—in government-speak, that means that you pay full price for your house only if you have a job and earn money.

Bankruptcy law:

There were new rules for consumer bankruptcy, with special emphasis on the amount that consumers were earning after their debts were cleared.

Unemployment insurance expansion, which adds to unemployment:

The federal unemployment-insurance expansions were paid by taxpayers generally, which means that an employer could lay off as many people as he wanted without adding to his federal tax burden.

Obamacare, which makes it easier to lay people off:

Lay somebody off during the crisis and, for the first time, among other things, the employer wouldn’t have to pay for former-employee health insurance.

These are no doubt just a few examples.

All the “help” increases what Mulligan calls the “marginal tax rate,” or the extra taxes paid and subsidies forgone by people who choose work over welfare.

“Waves of new programs increased the typical marginal tax rate from 40% to 48% in two years,” Mulligan writes.

People are much smarter than policymakers in Washington think. They will make rational decisions about what’s best for them, as opposed to doing what policymakers think is best for them.

Mulligan offers up an odd story to demonstrate the facts on the ground:

I met a recruiter—a man whose job it is to find employees for businesses and put unemployed people into new jobs—and he described the trade-off pretty well. Stacey Reece was his name, and he said that in 2009 his clients again had jobs to fill. But he ran into a hurdle he hadn’t seen before. People would apply for jobs not with the intention of accepting it, but to demonstrate to the unemployment office that they were looking for work.

As Mr. Reece described it, the applicants would use technicalities to avoid accepting a position. The applicants would take Mr. Reece through the arithmetic of forgone benefits, taxes, commuting costs and conclude that accepting a job would net them less than $2 per hour, so they’d rather stay home.

The circumstances we find ourselves in, and have found ourselves in, are not the fault of George W. Bush. They are not mostly due to some unique “financial” recession. They result from the incorrect policy choices made by the current administration.

That is, they are Obama’s fault.

Economy Contracted by 3 Percent in First Quarter

The final assessment by the Commerce Department is in, and the growth rate for the first quarter of 2014 was in fact not a growth rate at all, rather, a contraction of 2.9 percent.

It’s the fastest rate of decline since 2009. Commerce had previously estimated a one percent retreat.

The cold weather explains some of this. But a little chilly air should not throw the U.S. economy for such a dramatic loop.

Things seem to be picking up, but it’s looking like the 2014 rate of growth might not even reach 2 percent.

The big culprit in the latest adjustment is consumer spending, which grew just 1 percent, less than previously thought. So let’s keep talking about income inequality, because destroying the job-making class is really going to put money in people’s pockets.

Meanwhile, President Obama today fired his economic team and called advisors who have departed back in for a tongue lashing.

Sure, right.

Why Employment is Really Declining

Every month, we get some kind of increase in the jobs numbers – often lackluster and barely ahead of population growth – and every month, the White House effuses that we’ve seen 20 months in a row of job growth while carefully adding, in case those without jobs start bitching about it, there’s more work to do.

Well, turns out there’s even more work to do than the White House lets on.

Writing in the Wall Street Journal today, economist and former Bush economic advisor Edward Lazear notes that employment has actually fallen in four of the last six months because the number of hours worked has declined.

Stated simply, while more people are working, they’re working fewer hours. And if you turn those fewer hours into jobs by adding them up into 40-hour work weeks, then the number of jobs being lost has outpaced the number gained since September.

Lazear writes:

The average workweek in the U.S. has fallen to 34.2 hours in February from 34.5 hours in September 2013, according to the Bureau of Labor Statistics. That decline, coupled with mediocre job creation, implies that the total hours of employment have decreased over the period.

The labor market’s strength and economic activity are better measured by the number of total hours worked than by the number of people employed. An employer who replaces 100 40-hour-per-week workers with 120 20-hour-per-week workers is contracting, not expanding operations. The same is true at the national level.

The total hours worked per week is obtained by multiplying the reported average workweek hours by the number of workers employed. The decline in the average workweek for all employees on private nonfarm payrolls by 3/10ths of an hour—offset partially by the increase in the number of people working—means that real labor usage on net, taking into account hours worked, fell by the equivalent of 100,000 jobs since September.

Likely part of the reason hours are declining is that companies are trying to get below 50 full time employees so they are not subject to Obamacare.

The workforce participation rate is at historic lows. Nevertheless, “We’re on the right side of the issue of that matters most to the public: Jobs and the economy,” declared White House senior advisor Dan Pfeiffer Sunday.

Delusional, perhaps. A hint that aggressive spin is on the way, for sure. Or maybe it’s because White House economists really do presume work is a bad thing and people don’t want to do it.

From each according to his ability, to each according to his need!

White House Fails Econ 101. Seriously.

Oh no. I knew that at the root of the failure of President Obama’s economic policies is a failure to understand fundamental economics.

You remember a few days ago when the Congressional Budget Office found that Obamacare will induce people to work fewer hours and quit their jobs because with the new benefit – basically a form of unearned salary from the government – it will be less sensible to work at all.

And so White House economic officials, who also have degrees in Spin Theory, took to the podium of the briefing room and the North Lawn of the White House to plow new economic ground – this could get them all the Nobel Prize – by declaring that disincentives to work are A GOOD THING!

You know, people now have “choices,” like they can stay at home and take care of children – while others who are supporting them work and ignore their children – or even somehow, though they couldn’t afford health care, scrape together enough money to start a business!

Well, you can only get to such illogical theories when you are having trouble with economics 101, as did White House National Economic Council Director the other day.

“I think that, you know, people are taught in Economics 101, that, you know, if price goes up, there must be a little less supply,” he said.

W w w w w w w w.

W w w w w w what? How do run the White House economics shop and even accidentally make such a mistake.

Below is a supply curve. It’s actually the second things you learn in Economics 101, after you learn the demand curve. It states that price goes up as supply goes up. That is, as demand increases, producers can make more stuff and charge more for it.

Here’s a supply curve.

pizza_supply_curveAs you can see, in the real world, outside the West Wing, the owners of Tony’s Pizzeria satisfy growing demand not by sweetly charging less, but by raising the price as much as they can possibly get away with it.

People will work harder – make more pizzas – for more money. But then, that’s a mystery to a White House that thinks, you didn’t build that.

Speaking of working harder for more money, Sperling also thinks that increasing the minimum wage will induce people to work less:

But they also know what it’s like to see a friend, a neighbor, where one spouse goes back to work, who would prefer maybe not to work. Maybe they’re working part-time just to supplement the family’s income. And they think, if that family member is making that sacrifice — spending less time with the child — then they should be making a decent living or be able to work less because they’re getting a decent wage.

Here’s the silliness capture by video cameras:

Wo wo wo wo woah.

Wo wo woah.

Higher wages are an incentive to work. Do these Obama folks have any idea how normal people’s brains work? The appetitive nature? The bedrock of economics?

This is something called called a labor supply curve. It shows that, at the lower level of wages we’re talking about at least, as wages increase, the amount of work performed rises.

Labor supply curve


Because if you pay people more they work more, not less.

Given the kind of thinking we’re hearing out of the White House, we can begin to understand why they believe open-ended government largesse is going to improve the economy.

Economics is at its heart about human nature. The White House doesn’t understand human nature. And so it doesn’t, whether its officials have PhD’s or not, understand economics either.

H/T to Dr. Tony Lima at, who alerted me to Sperlings problems with the supply curve.

Economy Posts Modest, but Deceptive Growth

The economy expanded at a rate of 2.8 percent during the third quarter, but the higher-than-expected growth is not as good as it seems because the improvement from the previous quarter was due to inventory building. From the Wall Street Journal: The stronger overall growth was a result of businesses restocking their shelves, a factorContinue Reading

Obama Wins; Market Tanks

Because people who have skin in the game understand economics. The country voted for higher taxes – including higher capital gains taxes – and more regulation. And so, the stock market reacted rationally, plummeting 350 points in the first two hours of trading. As of 11:35 am ET, the Dow Jones Industrial Average stood atContinue Reading

Boy, This is Getting Old

From the White House Council of Economic Advisers Chairman: The Employment Situation in May Posted by Alan B. Krueger on June 1, 2012 at 9:34AM EDT Problems in the job market were long in the making and will not be solved overnight.  The economy lost jobs for 25 straight months beginning in February 2008, and overContinue Reading

Raise Oil Taxes! Does Obama Get Economics?

I just want to know if President Obama ever took an economics course in college. I’m convinced the reason that we can’t get a look at his transcripts is not because his grades were bad, but because of the courses he took. Anyone who went to college, especially a liberal arts college, and especially aContinue Reading