Category Archives: Economics

What A Shocker

Supply-side economics works:

The country was facing the largest projected deficit in history when Bush promised to halve it as a percentage of GDP by 2009. Due to high wartime spending and the residual effects of the 2000

Not Trade Deficit, Capital Surplus

The Economist Friday said:

In a rare instance of economic consensus, almost everyone now agrees that the current-account balance, which was over $800 billion in the red at the end of last year, is unsustainable.

They should know that there is no such thing as a consensus of economists. I am not a macro guy, but if the US economy continues to generate capital (intellectual property, companies with lots of educated workers, houses, etc.) at a tremendous rate, then the capital surplus will result in other countries giving us non-capital goods in exchange for our capital goods. A capital surplus and a trade deficit are the same thing.

For all our regulation, taxes and flaws in our judicial system, most of the rest of the globe has less rule of law, higher taxes and more flaws in their judicial systems. The US is a great place to make safer investments like real estate and blue chip corporate bonds. Do you think the Norweigians and Saudis invest their huge current account surplus in their own respectively not so dynamic and not so productive economies?

As I said before, our human and physical captial stock is growing by a lot. Even though the average house price went down for one quarter, it has been growing at 6.5% in money terms for 43 years or 2.1% accounting for inflation. That leads to $440 billion in appreciation of the existing capital stock. The number of homes has also been growing. I estimate this by looking at the home ownership rate, the number of people per household and the growing population. Together they indicate we add another 1.8% a year to the housing stock in numbers. (This could be offset by less rental housing capital, but I doubt it.) So that is about $800 billion we are adding to the housing capital stock and residential housing construction is just 3-4% of GDP.

We can grow the US owned capital stock forever and have plenty left over to sell to foreigners.

Tax Thoughts for the Year

Every year, I do an annual column on taxes. It is a little later this year than last year and all I can say in my defense is that I filed an extension and that Austin is in the hurricane affected areas (at least according to the IRS).

I have a surefire way for taxes to be reduced. Republicans claim to be for low taxes. Democrats should be. Do Democrats really want Republicans to spend more than $2 trillion every year that they are in power on their own things?

Here’s the three point plan:

1. Express tax owed as a percent of the dollar you get to keep as opposed to the last dollar of “gross” income. I put gross in quotes because for most people everything beyond net goes straight to the Government in the form of payroll deductions. In my book, if you don’t get it, it’s not income.

In the top tax bracket (ignoring various phaseouts), if you take home $0.65, you pay $0.35 in income taxes for the privilege. That’s a 54% tax rate if you look at it like sales tax. If you add in medicare, it’s a 57% tax rate. You and your employer pay $36.45 for you to take home $63.55.

Government expenditure can be reported as 25% of private GDP instead of 20% of the economy.

Living in a city where more than 50% of property taxes leave the jurisdiction, I can say from experience that people get real mad when more than 50% of anything is going away (or more than 100% of what stays in the district). Framing it that way will reduce taxes.

2. Report employer “contributions” toward social security and medicare as a percent of net take home pay and lump it together as a sum. Paying 16.6% of take home pay seems more like a crisis than 6.2% and 1.45% of “your share”. I put “contributions” and “your share” in quotes because an employer considers the entire cost of an employee. If that money was not paid as taxes, that could be paid as salary and the employer would still be hiring.

3. Have all people file quarterly tax returns and write a check for their taxes. Dick Thaler has done research showing that the more often people consider their st0ck market portfolio, the more unhappy they become even if the daily fluctuations even out and people make a bundle. They turn out to be extra sensitive to small losses and become more unhappy frequently they consider them.

This can be turned to advantage for tax cutters if people are forced to consider the burden of taxes more than once a year. If instead of direct payroll deductions, taxes were put in a notional federal checking account and taxpayers had to write a big check every quarter instead of be pleasantly surprised by a small refund, we would see a lot of unhappy people.

Only In Zimbabwe

The Mugabe (mis)government has come up with a novel solution to inflation:

Official sources said the recent 150 percent pay rise for soldiers, teachers, policemen and nurses had put a strain on money supply.

Reserve Bank officials told IRIN that plans to print about Zim$60 trillion (about US$592.9 million) were briefly delayed after the government failed to secure foreign currency to buy ink and special paper for printing money.

Brings a whole new meaning to the phrase “not worth the paper it’s printed on.”

This whole article almost reads like something from the Onion, it seems so absurd, but it seems to be a real story. Has any nation in recent history declined so far as the current Zimbabwe has from the Rhodesia of the sixties, then one of the richest nations on the African continent?