National Economic Systems: An Introduction for Intelligent Beginners – 2

Part Two: Taxing the Rich.

I argue in Part One of this essay that the stimulus package could not possibly stimulate the economy the way a stimulus package is supposed to do. That is, the present stimulus package cannot shorten or lessen the current recession by stemming the growth of unemployment and by jump-starting the national economy, the way Keynesian economics has it. I suggested there had to be another agenda for this massive spending of public money.

Recessions – two consecutive quarters when the national economy contracts instead of expanding – are common under capitalism, in market economies. They wane, whether or not anyone does anything about them. This fact makes if difficult to assign credit to government measures designed to lessen or shorten recessions when economic indicators do look good. Economic indicators don’t look good right now, although some of the press is announcing the beginning of the beginning of the end of the recession.

At any rate, the recession will end eventually. That is, economic growth will resume. I would bet on it but I don’t know when. When growth resumes, we will be left with the second economic crisis facing us. That second crisis is less routine, more extraordinary, and more worrisome than the first crisis, the recession itself. It’s massive public indebtedness. I have to go into the reasons why the Federal Government is even able to incur massive debt. Continue reading

Illegal Immigration: Bad Faith and Mental Confusion

When I have insomnia, I watch the news and news commentaries in a language other than English. Looking at the same object from different angles makes you smarter, I think. So, the less I sleep, the smarter I become, and the smarter you become, indirectly (to a very small extent, I realize).

Early in the morning, there is a long interactive discussion about immigration on Univisión’s “Despierta America “(“Wake up America”) First comes a badly illustrated, falsely descriptive jeremiad by a Hispanic immigration advocate. He is what I called in academia, a “professional Mexican.” I don’t know what he is getting at. He is not doing anything useful. He only perpetuates a sort of 1970s exploitation narrative that does not even make me feel young. The advocate complains bitterly of course, that today or yesterday, several hundred illegal immigrants, presumably all with a rap-sheet, have been gathered nationwide for deportation. The charming and beautiful anchorpersons play along. Everybody refers to “immigration.” No one ever says, “illegal” immigration or even “undocumented” immigrants. Next comes an immigration lawyer. He takes questions on-air from callers who want help to fix their status as people who entered this country illegally, some, several times. Still, there is no reference to illegal immigration in general; the topic is still simply “immigration.” The show remains on “immigration, “ no qualifier. It makes you wonder if there are any people from Spanish-speaking countries of the Western Hemisphere who ever entered this country legally.

The confusion between immigrant and illegal immigrant in this largest of Spanish-language television networks in the whole world, Univisión, constitutes a massive exercise in collective bad faith. It’s not going to help in the next political stage. No wonder conservative stay pissed off. No wonder their anger at illegal Hispanic immigrants sometimes comes to resemble anger at Hispanics in general.

Speaking of conservatives and of their distaste for illegal immigration, it does not help that they are confused on several important points. The fact that this country does not seem to be able to control its borders, the fact that its official immigration policies do not serve our interests, that’s all bad enough. We, conservatives, don’t need, in addition, to entertain and to propagate false notions of the burden immigrants, legal and illegal impose of us.

First, let me repeat that immigrants earn slightly more money on the average than the native-born. In our economic system, this means straightforwardly that immigrants contribute more, on the average than the native-born. Second, there is a widespread idea that illegal immigrants (illegal) consume government services while they don’t pay taxes. However common this belief, it does not withstand the most superficial examination. Here is why: It’s probably true that illegals avoid paying the federal income tax and also what state income taxes there are. That would be because they fear that filing government paper entails a risk of detection and of deportation. They routinely exaggerate the risk but it’s understandable.

Illegal immigrants however cannot avoid any indirect taxes or most other taxes, be they property taxes (that support schools), sale taxes, or excise taxes, including both federal and state tax on fuels. You might think that’s not much until you remember that 46 or 47 % of Americans do not pay any federal income tax. It’s likely that the % of Americans not paying state income tax is identical or, even higher. Thus, only illegal immigrants who situate themselves somewhere near the top 50% income bracket or within it would have to pay income tax at all if they filed. How many can that be? Think it through, don’t dismiss the thought out of hand.

What am I telling you?

It’s likely that illegal immigrant pay something close to their normal share of all taxes. I mean of the taxes they would have to pay if they were legal immigrants or US citizens. Not worth getting into a tizzy over, I say!

I know I have not dealt with payroll taxes, including taxes that support Social Security and Medicare. It’s likely that, by and large, illegal immigrants don’t pay those either. Reason is fear of detection again (see above). I know what you mean. I am with you. I wish they would pay those, right now, or at least, tomorrow. Please, follow through with this thought also. You will be amazed.

Bad faith, intellectual dishonesty on the one side; utter confusion fed by angry indignation on the other. It does not look good unless some conservatives will come to their senses. (Hint: The Wall Street Journal does a good job on the topic of immigration but it’s doing it so quietly hardly anyone is paying attention.)

PLEASE, THINK OF FORWARDING TO YOUR CONSERVATIVE FRIENDS.

Language and Informational Prisons: The Case of Arabic

What language you are born into matters. It matters because it’s a means of communication and it matters even more because it’s a kind of soft prison. I regularly turn off the French language media because I become cumulatively irritated at the number of absurd statements I hear coming out of the mouths of presumably university-educated French newsmen and newswomen. There are fewer absurd affirmations in the news in this English-speaking country simply because good information is more abundant in English than it is in French.

We are used to believing that whoever is intelligent is also well informed. The reverse, we know, is not true. There are plenty of people who accumulate information and who are perfect fools. The best way I have heard it put is from an anonymous author played recently on my local radio station (KSCO Santa Cruz 1080 AM): Being aware of the fact that a tomato is a fruit is to be well-informed; to abstain from putting tomatoes in a fruit salad is to be wise!

The assumption that intelligent people are automatically well informed is so general that when we come across someone who is obviously intelligent but ill-informed we study him like an infinitely interesting creature. I have known several people like that in my life. They drove me crazy. One I know now, is smarter than I, I suspect but nearly everything he believes to be true is false. My friend has made a philosophical decision not to have any electronic media in his house. He usually carries a book. Over time, I have come to suspect that he does not read very well, that he is dyslexic (whatever that means) or something like that. In general, we don’t think enough of this rare case: The ignorant intelligent person. Continue reading

Breakfast Spoiled by “Liberal” Paean

This morning’s Wall Street Journal had an op ed piece (may be gated) by one Alan Colmes whose book “Thank the Liberals for Saving America” is just now coming out.  It’s a paean to the “liberal” policies of Lyndon Johnson and his successors, featuring a big photo of LBJ and Lady Bird under a “great society” banner.  I had to turn the page quickly as I was in the middle of breakfast, but have now reopened and read the whole thing.  Since the chances of the Journal publishing a rebuttal from me are essentially nil, I decided to inflict my response on my readership.  Both of you.

The piece brought back memories of the visceral disgust I used to feel at the sight of LBJ when he was in office even though I wasn’t much attuned to politics in those days.  I would be hard pressed to say who’s worse, Obama or Johnson.

To begin with, Johnson was a blatant criminal.  He and his wife got rich by manipulating radio and television licenses in Texas.  He stole the primary election in 1948 which got him into the Senate.  He may have been complicit in stealing Texas electoral votes in 1960.

But what of the article?  Most of it is a recitation of the accomplishments of “liberal” programs including food stamps, health care, bailouts, marriage equality, and women’s rights.  In essence, he tells us that the beneficiaries of “liberal” welfare programs benefited from them, and they’re not all lazy bums.

Well, duh.  This is the sort of shallow thinking that characterizes “liberal” discourse.  No recognition of short-term or long-term consequences.  No acknowledgement of public-choice insights into the perverse incentives of welfare administrators whose primary motive is to retain and expand their empires.

An overlooked consequence: the erosion of incentives to take responsibility for one’s own life; instead these programs have instilled a world-owes-me-a-living attitude which by now spans multiple generations of welfare recipients.

An overlooked consequence: the massive buildup of debt.

An overlooked consequence: the loss of personal freedom that must follow the loss of economic freedom as Hayek so eloquently showed in “The Road to Serfdom.”

An overlooked consequence: the insight of Mises that interventions invariably lead to outcomes contrary to the intentions of the intervenors, who then call for yet more interventions.  In our mixed economy, a blend of free markets and government force, markets take the blame for every problem.  And so the market takes the blame for everything.  As Jeff Hummel says, market failures are to be cured by more government; government failures are to be cured by more government.

Thanks to the “liberals” and the conservatives who have failed to mount a principled opposition in domestic affairs, and thanks to both parties who have launched disastrous foreign wars, we are hurtling toward an American brand of fascist dictatorship.

Around the Web: Lazy Saturday Edition

I’m not actually being lazy, I am just doing a bunch of homework (wink wink).

Knowledge is Power, so let the WikiWar begin!

Illegally Wiretapped? In the US? Sorry, but the courts won’t help you.

Can Syria’s Christians Survive?

Public ignorance about Paul Ryan and federal spending.

Around the Web

Lots of great stuff I’ve been meaning to link to lately.

A historian from Hillsdale College, Paul Moreno, has a piece in the WSJ about Congress’s power to tax.

Some sexy chick (also from the WSJ) writes about Obama’s Imperial Presidency. Again, this is in the Wall Street Journal.

A quick heads up on pieces in the Wall Street Journal. Usually, when you click on the link it says access is restricted, but if you copy and paste the title of the piece into a Google search bar then you will be able to access the entire article. Cool, huh?

Obama’s Scramble for Africa. From AntiWar.com.

An economist at Cal State Northridge has a great piece on damn lies and statistics. It’s also about the Obama administration. (h/t Steve Horwitz).

Bernard K. Gordon writes in Foreign Affairs about the necessity of the Trans-Pacific Partnership.

And in a prophetic piece (ie it was written in 1991-92) by former Secretary of State James Baker, this very good lawyer sizes up the situation in Asia. Also from Foreign Affairs.

Around the Web: Left and Right Edition

Some sense is finally being made on foreign policy in the Wall Street Journal (h/t Jacques)

Jury nullification in New Hampshire!?! Please buh-lieve it!

When Left links up with Right

Will Wilkinson (of the Economist) and Nick Gillespie (of Reason) take turns ganging up on a recent hit piece of libertarianism in the New York Times. Libertarianism, if you will remember, is the best of both the Left and the Right (with none of the nastiness).

And on Leftist-but-realist (a rarity I assure you!) Stephen Walt’s blog over at Foreign Policy, a Cato Institute foreign policy wonk gets his due.

“European Project Trips China Builder”

That is the headline of this piece in the Wall Street Journal. An excerpt:

Chinese companies have wowed the world with superhighways, high-speed trains and snazzy airports, all built seemingly overnight. Yet a modest highway through Polish potato fields proved to be too much for one of China’s biggest builders […]

It remains unfinished nearly three years after contracts were awarded to Chinese builders. The Polish government is warning there will be detours around the highway’s “Chinese sections” when the soccer championships begin […]

The project raises questions about Beijing’s strategy of pitching state-directed construction firms as the low-cost solution to the world’s infrastructure needs […]

Covec [the state-run construction company responsible for the failures] was thin on management expertise, lacked financial skills and didn’t understand the importance of regulations and record-keeping in public works projects in the West, according to numerous people involved in the project […]

Organizing actual construction proved harder. To manage the project, Covec brought in Fu Tengxuan, a 49-year-old railway engineer, who spoke only Chinese and appeared to have little authority, telling colleagues that headquarters in Beijing needed to approve even the purchase of an office copier […]

Although the funding of Chinese projects in other areas such as Africa and Asia is often murky, analysts say that Beijing regularly foots the bill […] Continue reading

National Economic Systems: an Introduction for Intelligent Beginners

Part One: Stimulation.

This essay does not require any specialized or advanced knowledge of economics. It does require an open mind and moderate alertness.

It’s must be difficult for the average working stiff with a job or school attendance, or both, a mortgage, and a family, to make sense of the daily economic news. It’s not because you are ill-informed, it’s because the media gives economic news in bits and pieces without tying them together, and usually without context. I suspect few of the big media commentators understand the context or try to link the fragments, anyway. Those who do understand tend to assume that everyone is aboard the same train they are riding. They don’t have much to say to those who are still at the station.

Major exceptions are the Financial Times, which has a strong pro-Obama bias, and the Wall Street Journal, which does not. Even with those, you have to read them every other day to get the big picture. So here, is the straight dope. (If you are concerned about my qualifications, a valid point, you will find a link to a fairly up-to-date version of my vita on the front of this blog.)

We are not facing one economic crisis but two. One is more or less routine, the other is almost unprecedented. The mildly re-assuring noises the media are currently making are about the first crisis, the almost-routine crisis only.

The first crisis is a conventional recession. Recessions are historically a normal part of capitalism. Healthy capitalist economies are on a growth path most of the time. There are several measures of economic growth and contraction. The easiest to understand is Gross Domestic Product, “GDP.” There are criticisms of this measure but we don’t care right now, for our narrow purpose.

GDPs grow at varying rate at different times and in different countries. A US GDP growth of 3.5 % per year makes nearly everyone happy. Countries that are at an early stage of development, such as India, and have a long way to go, often experience annual growth of 6% or 7%. China’s GDP growth has often topped 10% .Western European countries have been pleased with annual rates of growth of 2% for many years. There is a lesson here; don’t lose track of it.

National economies don’t always expand, sometimes, they contract. That’s a lot like the income of someone on an hourly wage instead of a straight salary. The prodigious economic growth of western countries under capitalism in the past 150 years is made up of series of expansions followed by contractions. We had overall growth because the contractions were both less in magnitude and shorter in duration than the periods of expansion.

The word “recession” means either two consecutive quarters of contraction of the national economy or it means any damn thing you want. Serious people only use the term in connection with the definition above. That’s what I do because I try to be a serious person.

Recessions are tricky because you only know about them after the fact, when the national statistics come out. Anyone who says, “We are in a recession” is either speculating or making propaganda. Economic commentators try to read the existence of a recession, and the waning of a recession, by studying other economic events. Those are events believed to be associated with recessions and to which numbers are attached that are collected frequently.

Here are two main ones: Unemployment figures and stock market indexes. There are others you can learn about if you become interested. When national unemployment goes down and the main stock market indexes go up for a while, commentators tend to announce the end of a recession. I think that liberal commentators give those a lot of weight under Democrat administrations, and conservative commentators under Republican administrations.

The reading of these signals is not an exact science, by a long shot. I just believe those readings are better than nothing if you take care to follow several. That’s a big “if,” of course.

Incidentally, there are very good scholarly, academic studies regarding the connections between various indicators and economic growth/contraction. I suspect few commentators keep abreast of those. I wouldn’t be surprised if it were none. I would be pleasantly surprised if some did.

Now, on to the current situation. When President Obama took office, it’s pretty clear the US was in a recession, or entering one. The President had nothing to do with it. There was much discussion everywhere about whether his buddies in Congress caused it. Fact is that there have been recessions with Republican as well as with Democratic administrations, and with Congressional domination of one or of the other major party.

The political elites of most countries, including many American Republicans believe in something called “Keynesian economics.” You don’t need to read Keynes to know as much as they do. Here is the gist: In modern developed societies, the government is such a large economic actor that it can influence decisively the path of the national economy. Thus, Keynesians believe that government has the power to stop or to improve on recessions. Governments may do this by engaging in spending, public spending, spending tax money, or borrowed money. (Keep I mind that, with the interesting exception of a few oil rich countries, governments have no money except what they can take in taxes and what they can borrow.)

Real conservatives, and libertarians who are not especially conservative, think that Keynesian economics is a dangerous hoax. They argue that government spending aggravated and deepened past recessions including the one associated with the Great Depression of the nineteen thirties. Fortunately, we don’t have to consider here who is right. (Full disclosure: I am one of them.)

A point that’s not in dispute is that government spending usually entails bigger government debt. More on this later.

Keynesian public spending is forthrightly intended to stem the spread of unemployment. The reasoning is simple: When people lose their job, or fear losing their job, they, and often, their neighbors, spend less. This lowered spending in turn slows down the national economy. This induces more unemployment: If I stop buying my daily latte because I am unemployed, or I fear I might soon be, and if others do the same, the barrista at my local coffee shop will lose her job. And so forth.

The fewer people earn a living, the smaller the national economy. If I merely forgo buying a car for the time being, the indirect effects on the national economy are even worse.

Hence, good Keynesian government spending should have very quick effects. It should stem the spread of unemployment rapidly and durably. It used to be the case that government had the ability to spend money quickly through public works. Hitler, for example, reduced quickly very high German unemployment by hiring the unemployed, and many underemployed, essentially to dig holes: Go to work in the morning; get a government check in the evening; spend the next day.

This approach has become difficult to employ for a variety of reasons, including permitting processes related to safety and to environmentalist zeal. Thus, if my city of Santa Cruz decides to build another breakwater for its harbor today, it’s unlikely anyone will get a paycheck for handling a tool for eighteen months, or more. Most past recessions lasted less than eighteen months.

As I write, only 10% or 15 % of the stimulus package money decreed by the President has been spent. Either, that’s not enough to stem the spread of unemployment, or, it’s not really a spending spree intended to stimulate. If the latter, what’s the purpose?

There is a beginning of an answer if you look at parts of the package that have a well-known name attached. One such is financing for a train from Disneyland to Las Vegas. It was put in by Harry Reid, the Senate Democratic Leader. There is no way the bulk of the corresponding money will be spent until five or even six years from now, except for studies employing a handful of specialists. Those specialists are not suffering from high unemployment, by the way. This part of the package does nothing to put to work Tom, Dick and Harry. The money won’t be spent for a long time because such a project needs a lot of planning, including for permitting to satisfy environmentalists.

What is the real purpose of this part of the stimulus package, then? At least, it makes Harry Reid look good with his voters. At worst, Harry Reed is using his muscle in Congress to satisfy special interests. I don’t know if the latter is true. I have not researched it. It’s plausible.

My conclusion: Even if you subscribe to Keynesian views on how to jump-start a national economy in recession, the measures taken by the administration six months ago do not work and cannot work.

Those who say, “Give it time” don’t know what they are talking about. The essence of government spending for stimulus purposes is speed. If you don’t stop and reverse unemployment quickly, the recessionary spiral worsens. If you did nothing at all, it would stop on its own, in good time, anyway.

Why do I care about the stimulus package’s lack of effectiveness?

Two reasons. First its part of a mass of unprecedented government spending. I mean unprecedented in the absence of a major war, like WWII. It increases public, government indebtedness to a worrying extent. Public debt has consequences, in the long run and in the not- so-long-run. More on this in the next episode of this posting.

The second reason, I care is that I detect a social and political project markedly different from the one announced by the administration in the current oversize government spending. I have not become a conspiracy theorist. I am relying on public information, including the President’s own past statements, those of his close advisers and, above all, my knowledge of what went on in Western Europe between about 1980 and 2000. I will address this alternative project in a subsequent posting also.

You have been good but there will be a quiz!

Current events update:

The Wall Street Journal has a good discussion of the Maine public health plan in today’s issue. It’s on p. A12, in the editorial section. It’s a fiasco. We care because it has important features in common with what we know of Obamacare.

Cool people tend to dismiss Rush Limbaugh, even conservatives. Limbaugh is bombastic and he exaggerates. That’s vulgar. However, he must have an army of good researchers because he comes up within a short time with hard evidence of allegations against his political adversaries. One of the wildest allegations from the right is that Obamacare entails “death boards.” Well, what do you know: Today, on-air, he reads excerpts from a Veterans Administration practitioner guidebook that sounds for all the world to me like a “death book.”

The convicted mass murderer of 270 people  in the air over Lockerbie, Scotland receives a hero’s welcome in his home-country of Libya. He had been freed on compassionate grounds by the gutless Scottish Minister of Justice. (Yes, there is such a thing.) I saw it on television. This is not hearsay.

I think the enthusiasm greeting him in Libya should be written in the accounts book. It should enter into any calculus, side-by-side with collateral damage, next time this country has reason to consider bombing anything in Libya. It should not be long.

It’s unreasonable to treat in exactly the same way those who hate us and those who harbor sheer evil in their hearts, and our old friends. The stupid  Scots should get a pass. The evil  Libyans shouldn’t. There is no ethical system in the world that requires that this country do otherwise, not even Christianity. You are supposed to forgive your enemies after they have stopped harming you, not while they are cutting your throat, not even when they are impotently clamoring  their wish to do it.

By the way, I am told by those who should know that Arabs respect this kind of thinking.

Around the Web

At Last, Some Bright Spots in Indian Country (if you can’t view it, just copy and past the title and Google it).

The enduring failure of democracy promotion abroad.

Borderlines. A blog about maps.