Archive for September, 2011

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The flat income tax is fair and relatively efficient

September 30, 2011

President Obama claims that billionaires should not pay a lower average tax rate than janitors –  and almost everyone would agree with that remark.  Almost certainly, the remark is reflected in the current reality of the U.S. tax code. Few janitors – with the exception perhaps of those employed by Warren Buffet – pay higher average tax rates than the well-off. Most janitors pay no federal income taxes at all and may even be net recipients from the IRS through the earned-income credit.

If we tweak the President’s words just  a little to say that janitors should pay exactly the same average tax rate as billionnaires, then I am on board for this ride to tax reform. For this is the nature of the flat tax proposal in its most unblemished form.

This would require the elimination of the payroll tax and the corporate income tax. it would require the withdrawal of all tax credits throughout the entire economy. It would require the elimination of all personal exemptions, irrespective of income level.

Such a solution draws all employed  individuals/households into the income-tax  net – bringing all 50 per cent of the households that currently do not pay income taxes – but do pay payroll taxes – fully into the federal income tax system. This is good for democracy, because it confronts everyone with the marginal cost of government as outlined in their regular pay packet. No one, henceforth, will vote for bigger government knowing that it is costless to his own paycheck.

Because the rate is flat, the average equals the marginal rate, mimimizing the excess burden that is always associated with an income tax. Because exemptions are prohibited by law, there is no point in diverting resources wastefully into rent-seeking for special interest sub-groups.  Wealthy individuals who currently support charities in part for the tax deductions, henceforth, would support them because of the benefits that they are perceived to provide. 

GOP presidential candidates have run on the flat tax proposal before; but they have never gained the White House on that issue. However, times are  changin’ and it now may be within the realms of possibility for a Democratic incumbent to run for re-election on the flat tax, as his only hope for victory. That would be an enormous high five for Democracy!

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President Obama and the swing vote

September 29, 2011

“In recent weeks, President Barack Obama has demolished any expectations that he would seek re-election by returning to his idealistic rhetoric of 2008, when he promised to heal America’s political divisions.  Instead, Mr. Obama shrilly insists his Republican opposition puts party ahead of country with policies that would  ’fundamentally cripple America.’  He pits American against American on the basis of their bank accounts, saying it’s time for ‘millionaires and billionaires to pay their fair share.’  And he’s again turning to preposterous straw man arguments, such as when he told Congress earlier this month that Republicans would  ’just dismantle government, refund everybody’s money, and let everyone write their own rules, and tell everyone they’re on their own.’ ” Karl Rove,  ‘Obama’s Risky Run to the Left’, The Wall Street Journal, September 29, 2011

  President Obama will not lose solid Democratic votes in 2012 by the use of such shallow left-wing rhetoric. A September 18, 2011 Gallup Poll shows 88 per cent of Democrats favoring him over Rick Perry and 85 per cent over Mitt Romney. However, Mr. Obama’s slash-and-burn attack on the GOP surely will cost him support among swing voters.  And swing voters inevitably will determine the outcome of what promises to be a close-run election.

As Karl Rove suggests, many 2008  swing voters are already disenchanted with President Obama, as is evident from his job approval ratings.  In January 2009, his job approval rating was 67 per cent. By September 25, 2011 it had fallen to 41 per cent. 

It is worth looking more closely at how far the President’s job approval ratings have fallen among five groups that will be vital to his securing re-election in November 2012.  Among the young, it has plummeted from 75 to 45 per cent; among independents, it has collapsed from 62 to 36 per cent; among women, it has dropped from 69 to 43 per cent; among college graduates, it has fallen from 69 to 45 per cent; among Hispanics it has fallen from 74 to 51 per cent.

Note that, among these five critically important groups, only Hispanics currently rate the President favorably by a group majority. Note that in 2008, Obama secured the support of a super-majority of each of these groups’ members.

In November 2012, the Republican candidate will not need to carry these groups. All that is needed is that he should cut into the President’s 2008 numbers. And that will surely occur if the President continues to hurl his rhetoric to the far-left of the voter distribution. Given the President’s lurch to the left, all that the GOP requires for victory, in an election that will be dominated in any event  by the poor economy, is to select a candidate who will hone to the median of the voter distribution, as defined separately in economic and in social policy-space.

By avoiding  Christian evangelist candidates, and by favoring economic competence and executive experience,  the 2012 presidential election should be a safe-bet for the G.O.P.  Given the importance of such a victory, the claims of Mitt Romney of Massachusetts – the Massachusetts health care debacle nothwithstanding –  now cannot be ignored.

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On being responsible for one’s own behavior

September 28, 2011

Michael Jackson was a fading pop star who had degraded his body over many years of drug abuse.  He had allowed himself to become addicted to at least  two  extremely dangerous drugs – propofol and lorazepam.  Taken separately, they are usually administered under hospital supervision.  Taken together, they are lethal.

Jackson had no intention of taking up residence in a long-term care facility. So he set up his own anaesthesia labority in a private residence.   He  hired a personal  physician – Dr. Conrad Murray –  at an exorbitant salary to obtain these drugs for him and sometimes to administer them on his behalf.  In the event that the good doctor failed to provide a sufficient dosage, Jackson had no inhibitions about adding to the dose as the mood took him.

Jackson was a drug addict. He had set himself on the road to an early death knowing full well the dangers that such addiction posed.  His exit no doubt was a relief to Jackson, though  a chronic reduction in life-style benefits enjoyed by his co-dependent sycophantic entourage, including an extended family that thrived on his fame.

So just what the L.A.  District Attorney hopes to achieve by indicting Dr. Murray on manslaughter charges, other than in pursuing media publicity, I find it difficult to imagine.  If a fading pop star wishes to leave the stage of life, that should be his choice, and his alone. Each of us bears responsibility for our personal  lifestyle choices. And third parties should not be held responsible for the character- weakness, self-abuse, and misuse of wealth that so typically follows  unjustified media adulation.

Michael Jackson desperately wanted to sleep. Well, he has achieved his objective – forever. Let it be!

 

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Reforming federal income taxes

September 27, 2011

President Obama is currently engaged in a 2012 election campaign that bottom-feeds into his left-wing base by charging wealthy Americans with free-riding on their country by paying unfairly low federal income taxes. Ironically, in the  midst of  this knee-jerk, anti-rich campaign, the president halted his journey to reward the biggest tax  free-loader of them all – Warren Buffet – with the Presidential Medal of Honor for out-free-loading all his billionaire peers, and thus, by Obamanic criteria, for dis-honoring the nation that he professes to love.

Warren Buffet, despite a request from The Wall Street Journal  (See WSJ, September 27, 2011) refuses to make public the federal income tax forms on which he rests his case. So, most likely, the Berkshire man has crept his way into presidential favor by understating  the level of his federal income taxes.  Or alternatively, he has engaged not just in efficient tax avoidance, but in effective tax evasion, that might come to light should some sharp Wall Street Journal eyes light upon discrepancies in his 1040 submissions to the I.R.S.

Nevertheless, as I have suggested in earlier columns, some overall increase in federal tax revenues is required, given the magnitude of the federal debt and the aging of a United States population that unfortunately has been weaned onto a system of retirement entitlement programs that can be scaled back, but only slowly. Efficient tax reform can achieve a modest increase in federal tax revenues, while returning the U.S. economy to a higher rate of economic growth than is currently achievable.

First, let it be emphasized that President Obama speaks in terminological inexactitudes  when he charges the wealthy with  tax freeloading.  The facts expose his lack of truthfulness. The richest 1 per cent of all Americans pay more than a quarter of all federal taxes and 40 cent of all federal income taxes, while making less than 20 per cent of pre-tax income. By any measure of proportionality, their contribution is more than ‘fair’. The President’s campaign trail rhetoric is simply out of line.

Efficient tax reform, neverthless, may result in the wealthy paying more taxes, just as other Americans will also pay more, in order to elevate the federal revenues from 15.5 to 20 per cent of gross domestic product.  The route to that goal should be the elimination of all tax exemptions – without exception -  for all individuals in society, and by imposing a flat rate percentage income tax across the board, irrespective of household income. Payroll taxes would disappear, as would corporate taxes, in order to eliminate double-taxation.  Capital gains and dividends would be taxed flat rate exactly the same as earned income.

Because the flat rate would be low, excess burdens would fall. Tax avoidance would no longer be meaningful and tax evasion incentives would fall significantly. Dynamism would be restored to the United States economy.

Now there is a campaign promise that you could take to the people, Mr. President. It would be an election winner. But you will not take that route, for sure, because, sadly, you are an ideologue and not a statesman – not even an efficient vote-maximising  politician.

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Posted in budget deficits, do well while doing good, economics and public choice, liberty and classical liberalism, political philosophy, property rights, relevance of economic knowledge, Uncategorized | 1 Comment »

Vlady rematerializes as Russia regresses to feudalism

September 26, 2011

Vladimir Putin has been preparing for re-materialization since spiriting out of Russia’s presidency in 2008.  He returns in a body rejuvenated by hair transplants and face-lifts, much like aging Hollywood freaks who aspire to youthful roles on the silver screen.  

He returns to the political arena with a bizarre country and western public relations makeover, burnished by riding Harley Davidson motorcycles bare-chested, while singing ‘Blueberry Hill’ off-key and live, for hopefully screaming teenage fans.  Vlady’s implanted hair may be too thin for a Willie Nelson ponytail, his smile too mean, and his eyes too empty; but Willie, nevertheless, appears to be the role model to which Vlady currently aspires.

Except that Willie is a good’ ol’  tax-evadin’ free-market capitalist who would not be seen dead in Vlady’s feudalist domain. And who would never imbibe anything as potent as a Vlady-made cup of tea brewed out of some enticing nuclear facility. Unlike from President Obama, there will be no Vlady reset forthcoming from Willie Nelson, however much Vlady courts a Russian-style Grand Ole Oprey audience.

For sure, Willie Nelson would not look into Vlady’s eyes and identify an uplifting soul. Willie would look into Vlady’s eyes and identify Ol’  Nick himsel’: the Devil that will take Russia back into the stone age.

Vladimir Putin has finally cut his puppet’s strings.  Medvedev has decided to step down from Russia’s presidential election in 2012, rather than risk the ‘cup of  tea’ resolution.  Russia’s electorate will confront Hobson’s choice, as Leviathan demands subservience or Siberian exile in the Hobbesian social contract through which the Russian people prostrate themselves collectively before the jack-booted feet of  their Tsar.  

Hopefully, Tsar Putin will not follow the example of Tsar Stalin in imposing death by starvation on total populations that challenge his feudal authority, as Stalin did with respect to the Ukraine in 1932. But, as Machiavelli noted in the early sixteenth century, it is far better for a Prince to be feared than to be loved.  For love is under the control of the bestower; whereas fear is under the control of the Prince.

When an entire people chooses serfdom over freedom, feudalism over democracy, one cannot have much sympathy for the fate that awaits them under the rule of a malevolent Leviathan. For every Russian surely understands that Vladimir Putin is the Devil, however much he pretends to be the Savior of his nation. When they vote in the upcoming Russian elections, they will surely not be voting for Paradise Regained.

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Posted in media rhetoric, nature of an autocracy, Personality Disorders Among Politicians, political corruption, political philosophy, progressive socialism, Uncategorized, war and peace | Leave a Comment »

Desperate Obama attempts to reforge Jesse Jackson rainbow coalition

September 25, 2011

In the 1984 presidential elections, Jesse Jackson dragged the Democratic Party to the left tail of the voter distribution  through his bitterly-fought primary campaign against Walter Mondale and Gary Hart. Gary lost his Hart to Donna  (Miami)  Vice and Walter Mondale’s blood pressure soared as he was forced to leave the middle political ground to the Great Communicator. The outcome was an electoral landslide, with Walter Mondale winning only the State of Minnesota and the District of Columbia. And even the Great Communicator had no chance of charming a D.C. electorate composed of a non-functioning majority that could barely read and write.

Jesse Jackson’s path to Democratic Party ruin was the so-called Rainbow Coalition, forged on the anvil of ethnic and social  minority groups: blacks, Hispanics, Muslims, gays, feminists, and hard-left socialists. Mondale beat him out, but only by nurturing  Rainbow aspirations at some significant post-primary electoral cost. Essentially, the Great Communicator wiped him out.

Barack Obama, confronts no primary challenge. However, first term failure is an albatross that he has forged for himself.  Fearful to hug a middle ground that is massively disenchanted by his apparent lack of presidential smarts, Obama is moving leftwards of his own volition, in the hope that 2012 will not repeat 1984. He does so, however, from a standing much less favorable than that of  the Reverend Jackson.

Surely, Jackson could not call on the Jewish vote- too many anti-Semitic slurs in his past for that. But he was highly revered among the rest of the Rainbow environment.  Like Barack Obama in 2008, Jesse Jackson in 1984, despite his personal wealth and lifestyle, was able to masquerade as a member of the Rainbow. In 2012, however, President Obama’s record has set him apart. The Rainbow, for the most part, does not now love Obama as much as once it did.

Among the black electorate, Obama retains majority support. But that majority has fallen dramatically  through the long hot summer of 2011 – specifically by 25 points since mid-April, from 83 per cent to 58 per cent.  Even among blacks, Obama’s favorable rating has fallen below 50 per cent among those aged between 18 and 29, whose job prospects are in tatters, with unemployment raging around 20 per cent.

In 2008, Obama did not have a problem with left-leaning Jews, who were notably suspicious of Hillary Clinton’s inability to stop hugging the wives of Muslim terrorists. By effectively throwing the Israeli prime minister out of the White House for standing up for his country, President Obama has put those votes into the deep freezer. Rick Perry will mop up the Jewish vote if he wins the Republican primaries and goes head to head with Obama  in support of Israel’s right to exist.  When the Democratic Party cannot win an election in Brooklyn and Queens, the writing is clearly on that particular wall.

In 2008, Obama did not have a problem with Hispanics, most of whom considered him to the be their best hope against the illegal immigration backlash. In 2012, those votes also are less secure. Unemployment in the construction industry has taken a heavy toll on the Hispanic population. Reverse migration south of the border is one memento of the Obama administration. Rick Perry’s one million job growth in Texas tends to look good in such circumstances.

So Obama’s Rainbow Tour may perform about as well as that undertaken by Eva Peron on behalf of Argentina. Her Rainbow Tour started well – in General Franco’s national socialist Spain. It fared less well in post-Fascist Italy and disastrously in post-Vichy France. If one reads D.C. for Spain, Michigan for Italy, and Florida for France, one can see where this electoral strategy will end up. And if one reads the People for the Pope, well Evita pretty much received the bird* when she visited the Holy Man in search of absolution for the sins of her early years!

* See Tim Rice’s ‘Rainbow Tour’  lyric in Evita.  Ironically, ‘Rainbow Tour’ was sung by Antonio Banderas as the disenchanted Che Guevara as he watched over the transformation of  the Peronistas from populism to national socialism.

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Posted in economics and public choice, Personality Disorders Among Politicians, political corruption, political philosophy, pro-union policies, progressive socialism, relevance of economic knowledge, Uncategorized, war and peace, weakening of the dollar | Leave a Comment »

Bob Lucas leads Chicago economics into a Keynesian free fall

September 24, 2011

“If you think Bernanke did a great job tossing out a trillion dollars, why is it a bad idea for the executive to toss out a trillion dollars?  It’s not an inappropriate thing in a recession to push money out there and trying to keep spending from falling too much, and we did that.” Robert E. Lucas, The Wall Street Journal, September 24, 2011

One would expect such fallacious remarks to emanate from  East Coast Nobel Prize winning economists  such as Paul Krugman and Joseph Stiglitz.  When the words pour out over the forked tongue of a Chicago, Freshwater economist like Bob Lucas, one knows that the disease has metastasized and is now spreading out of all control. 

We’re all Keynesians now’ crowed Richard Nixon in 1968, just at the moment when the profession was waking up to the Keynesian fallacy. Well, it turns out that Tricky Dick was focused on the long term, rather than the short, and that he had Nobel Prize winner Robert Lucas firmly in his sights.

There may be some residual hope for Chicago Economics. Lucas has now turned 74 and has moved into retirement, at least from undergraduate teaching. So the minds of the young will not be exposed to the economic mis-perceptions  that Helman W. Watkins Jr. met when he interviewed the Nobelist for his WSJ column. Unfortunately, there is yet another Benedict Arnold – in the form of Richard A. Posner  – still wandering the hallowed corridors of that once great program.  And it must be remembered that Barack Obama was allowed ten totally unproductive years in the Chicago Law School, learning from Judge and Senior Lecturer  Richard Posner, while awaiting his opportunity for a Liberal-Democrat bid for the  White House.

In any event, and for whatever reason, it turns out that Bob Lucas was an early advocate  for Obamanomics:

“I ask about a report that he voted for Barack Obama in 2008, supposedly only the second time he had voted for a Democrat for president.  ‘Yeah, I did.  My parents are dead for a long time, but my sister says, “You have to vote for Obama,for what it would have meant for Mom and Dad.’  I felt that too.  It’s a huge thing. This history of racism has been the worst blot on this country.  All of a sudden this charming, intelligent guy just blows it away. It was great.’ ” Holman W. Jenkins, Jr., ‘Chicago Economics on Trial’, The Wall Street Journal, September 24, 2011

Well, it was a momentous shift to the left for the United States. And President Obama really did help to blow the United States economy downwards  on its free fall into Second World status.  Just as Bob Lucas (and Richard Posner)  have done their level best respectively to blow Chicago Economics and Chicago Law downwards  from Freshwater to Saltwater status in one generation. 

 Let us hope and pray that Bob Lucas’s loss of focus is a monetary mis-perception that triggers just a real, Pareto-optimal economic cycle and not a permanent  prisoners’ dilemma  downshift in real economic performance.

If not, then there is a great deal of ruin in this particular Nobel Prize in Economics. And let us keep our fingers firmly crossed lest another Nobel Prize might be under consideration for the second Benedict Arnold on the Chicago faculty!  Or even, once Barack Obama is ejected from the White House, for the newly-returned Third Man.  After all it is the Swedish Academy that awards the Nobel Prize in Economics.

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Posted in budget deficits, economics of John Maynard Keynes, failure of macroeconomic theory, monetary policy, political philosophy, progressive socialism, relevance of economic knowledge, Uncategorized | 1 Comment »

Obama moves into the red corner

September 23, 2011

President Obama has now clarified his own ideology with respect to taxation policy in the United States. The color is red. The creed, kindly put, is progressive socialism.  More crudely put, the creed is communist.

Obama talks taxation fairness, rather than tax efficiency. He views the economy as a zero-sum game – in which the less productive members of society transfer the earnings of the more productive into their own bottomless pockets at a zero cost to the nation’s wealth. Obama understands economics at about the level of a medieval priest. Hand over your wealth to the Church, or sacrifice your immortal soul to Hell.  As with the medieval priests, Obama talks to the People in a dead language. Plain English is dangerous, because the People might then realize that the priest stands naked before the multitude.

So let us, in this column speak in the language of the King James Bible.  Let is tell the United States taxation story as it really is, and not hide behind the obscurity of a long-dead tongue:

1.  Tax policy is unfairly and inefficiently skewed in the United States. But not in the manner that President Obama would have us believe.  It is unfairly and inefficiently skewed against the more productive members of society.

2.  The top 1 per cent of income earners in the United States currently pay 40 per cent of all personal federal income taxes. 

3.  The top 1 per cent of all income earners in the United States pay more personal federal income taxes than the bottom 95 per cent combined.

4.  The top 20 per cent of income earners pay almost 100 per cent of all personal federal income taxes in the United States.

5.  50 per cent of all households in the United States pay no federal income taxes at all.

6.  Counter to the smoke blown across the nation by Warren Buffet, millionaires in the United States pay significantly higher average proportions of their income in federal taxes than do those less well-off.  Specifically, the typical household with more than $1 million in annual income - albeit not perhaps the ruthless tax avoiders epitomized by Mr. Buffet – pay an average of 29.1 per cent of their income in federal taxes.  Typical households earning between $50,000 and $75,000 per annum pay an average of 15 per cent of their income in federal taxes.  Typical households earning less than $50,000 per annum pay an average of 12.5 per cent in federal taxes, most in the form of social security (payroll) taxes.

7.  Since social security taxes are designed as an investment for retirement, they ought not to be viewed as down-payments on the cost of government. So the bottom half of the household pyramid makes no contribution whatsoever to the running of the federal government. Such households free-load on defense, on infrastructure, on federal education outlays, on Medicaid, on social services, indeed on everything federal. Yet, they vote on all such issues. Truly this is a reversal of the 1776  Revolutionary War Cry: representation without taxation!

8.  The higher the marginal rate of income tax, the exponentially higher is the associated excess burden. This is the well-known logic of public finance. So the efficiency cost of leveraging higher marginal tax rates against the more productive members of society is increasingly high. If President Obama is too economically illiterate to comprehend such logic, then surely at least one of his economic advisers has stumbled across this truth.

9. What Comrade Obama surely does comprehend is the reality that voters can be bribed into voting for socialism.  If  lunches can be provided  apparently for free, the line at the lunch counter will be long and increasing.  Only when the quality of the food deteriorates to the point where it becomes inedible, will the free-loaders pause, look at the weavils on their plates, and wonder whether they might fare better elsewhere.

10.  It took the Soviets more than 70 years to challenge their deteriorating ‘free’ lunch buffet. By that time the life expectancy at birth  for the average Russian male had fallen below 60 years. Do Americans truly desire to replicate that experiment?  Warren Buffet would have Americans ignore the truth. His surname is ironically appropriate for his cause. Buffets, typically provide a very unhealthy diet.

Hat Tip: Wayne Allyn Root, Obama is right: Let’s give Democratic constituencies all the fairness they can handle’, The Washington Times, September 22, 2011

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Let’s not twist again

September 22, 2011

“Come on let’s twist again like we did last summer

Yea, let’s twist again like we did last year

Do you remember when things were really hummin’

Yea, let’s twist again, twistin’ time is here

Yeah round  ’n up ‘n down we go again

Yea, let’s twist again, twistin’ time is here.

Chubby Checker Lyrics, 1961″

 Chubby Checker’s  twistin’ time is here again!  On September 21, 2011, The Federal Reserve Open Market Committee  announced its decision to revert to a 1961 policy twist designed to reboot the United States economy.  The stock market saw the policy for what is was worth: the Dow Jones Industrial Average dropped 283.82 points on the news flash.

 Ben Bernanke has done it again! When Bad Ben is about to make a policy statement, sell the U.S. stockmarket short and you will make a packet. That is what happens when progressive socialists occupy positions of authority in a market economy.

To be fair, the problem does not lie entirely with Bernanke and the other six stagflationers on the Federal Reserve Open Market Committee who voted with him, though it surely does not lie with the three dissenters who stood up for price stability and sound money.  The problem lies also with the dual  mandate Congress gave the Fed – to pursue maximum employment and stable prices over the long term. 

 This dual mandate is not required of central banks in the rest of the world, where the pursuit of stable prices is the only mandate imposed.   The current state of economic knowledge does not support the dual mandate, since the goals of maximum employment and price stability often appear to be in conflict. Monetary policy should be restricted to promoting sound money and price stability. Laissez-faire capitalism,  operating under sound money and the rule of law, will do the rest. 

The F-twist, in its 2011 manifestation, involves the Federal Reserve selling off immediately $400 billion of  its  Treasury notes due to mature within three years or less while simultaneously purchasing $400 billion of  Treasury bonds  at the long end of the market – with six to 30 year maturities.  The intent of the F-twist is is to put further downward pressure on longer-term interest rates and to help to make broader financial conditions more accommodative. With long-term interest rates already at historic lows, this policy is unlikely to promote an investment boom across the United States.

The F-twist goes further than this.  The Fed will also invest the principal payments that it receives on its asset holdings into mortgage-backed securities, rather than into U.S. Treasuries.  The objective here is to reduce yet further mortgage rates, thus supporting the housing market.  With mortgage rates already at historic lows, this policy is unlikely to reverse the downward trend in house prices or materially to reduce the foreclosure overhang that is the key symptom of house-market disequilibrium in the United States.

The F-twist clearly worsens the balance sheet of the Federal Reserve. With its balance sheet distorted  by excessive long maturity holdings, should sound money require significant increases in long-term rates of interest, the Fed’s assets could be halved or more as bond prices collapse.  With its balance sheet distorted by holding high risk securitized mortgages, if foreclosures get back on track, significant portions of the Fed’s assets may turn out to be worthless.  Both possibilities render the Fed a hostage to fortune.

If the Fed were restricted to a single mandate of  ensuring sound money, it would more likely acknowledge the evident truth of September 2011. The United States economy is experiencing a capital strike that will continue until President Obama is removed from office, be it in 2012 or in 2016.  Few firms will invest in market development or will hire new employees while uncertainty about the future of the federal debt and question-marks over the direction of progressive socialism hang over the market-place.

Only the political market-place can clear those uncertainties and determine whether the United States will continue on its current trajectory into Second World status, or whether it will recover its exceptionalism and, once again, show other nations a clean pair of economic heels.

Unfortunately no agency of government can twist its way around that epochal  choice. It can only take the economy round ‘n round and up ‘n down again!

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Posted in budget deficits, economics and public choice, economics of John Maynard Keynes, failure of macroeconomic theory, Housing market economics, media rhetoric, monetary policy, mortgage crisis, political philosophy, politicization of the Fed, progressive socialism, relevance of economic knowledge, Uncategorized, weakening of the dollar | Leave a Comment »

Poverty in America

September 21, 2011

“It’s official: There are now more poor people in America than at any other time in the 52 years records have been kept.  We knew that the 2010 poverty numbers released by the Census Bureau on sept. 13 weren’t going to be good.  They turned out to be, in the words of brookings senior fellow Ron Haskins, ‘extraordinarily bad.’  More than 15% of Americans live below the poverty line.  The total rose for the fourth consecutive year.  For a family of four, poverty means scraping by on roughly $22,000 a year.” Rana Foroohar, ‘The Truth About the Poverty Crisis’, Time, September 26, 2011

Now let me be clear. It is never going to be comfortable for an individual or a household to be located at the bottom of the income pyramid anywhere in the world. Whether the poverty is absolute or relative it is bound to hurt those who suffer from it. And it is insensitive, and indeed unwise, for those who find themselves higher up the ladder to make light of the suffering that is involved.

However, there is a big difference between absolute poverty and relative poverty and that difference, also, should not be ignored. By absolute poverty, I mean a level of income that is insufficient to provide sufficient calories for a healthy human body, that is insufficient to provide minimal shelter and minimal protection from excessive heat or excessive cold, that is insufficient to provide basic education for children, basic health maintenance, and necessary contact with other members of the society.

Only by choice does anyone in the United States suffer from absolute poverty thus defined. The government provides schooling for the young, food stamps for the impoverished, medicaid for the poor and sheltered housing for many of those displaced from other forms of accommodation. These provisions are not accounted for in the nominal incomes that define relative poverty in the United States. In and of themselves, they go far to ensure that absolute poverty does not inflict anyone save those who choose to live as vagrants on the streets and out of reach of the social service providers.

So what does relative poverty, as defined by the Census Bureau for a family of four in the United States, actually mean? How does $22,000 per annum for such a family compare with average household incomes in the United States and elsewhere?

Well, the median household income in the United States is approximately $50,000 per annum. So the impoverished family is living less than half as well as the average household. And that will not be comfortable in a country where comparative living standards are transparent to all.

But the United States is a rich country, ranked ninth in the world both by the International Monetary Fund and by the World Bank for 2010. So $22,000 per annum looks a lot better as we slide not so very far down those rankings. Specifically, to The Bahamas, ranked number 31 in the world, with an average annual household income of $21,879, which is below the U.S. poverty line.

Ranked in descending order from The Bahamas, we find Portugal ($21,559), South Korea (20,591), Bahrain ($20,475) all in the low 20s.  Not too far below in the rankings, but significantly worse off in terms of the numbers, we find Czech Republic ($18,288), Croatia ($13,720), Hungary ($12,879) and Chile ($11,828).

So an impoverished household in the United States lives twice as well as the average household in Chile. And Chile is viewed as an up-and-coming relatively affluent country even by the upwardly mobile standards of Latin America.  The world’s average household income in 2010 was $9,218, significantly less than one half of the poverty line household income for the United States. The median household income in the People’s Republic of China is less than one-third of the U.S. poverty line. The cost of living in China exceeds that in the United States, and government-provided social services for the Chinese poor are virtually non-existent.

So is the U.S. poverty glass half empty or half full?  Half empty in the sense that impoverished households live half as well as  average U.S.  households. Half  full in the sense that such impoverished households live twice as well as the average Chilean household,  and three times as well as the average Chinese household.

So if one has to be poor in this world, it is  better to be poor in the United States than almost anywhere else. Cold comfort to be sure. But far better than what might otherwise be the case. The grass does not appear to be greener on the other side of the poverty street.

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