Monday, October 31, 2011

The Only Comment Needed on Mr. Cain’s Harassment Issue

And It’s Made by Conservative Columnist Jennifer Rubin of the Washington Post

[Editor's Note:  The Dismal Political Economist was critical of the credentials of conservative Jennifer Rubin who writes an opinion column for the Washington Post’s online edition.  He noted that she had been a lawyer in Hollywood and raised doubt as to how this qualified her to write on political and economic issues.  He may have been too hasty].

Jennifer Rubin,  Conservative who write for the Washington Post  has looked at the fact that Herman Cain while acknowledging he knew of a sexual harassment complaint against him was ignorant of any details of a settlement reached with the complainants.  Here is her reaction.

At the National Press Club, Cain says he recused himself as head of the organization from handling the sexual harassment claim and it was dealt with by the general counsel and human resources person. So he never asked what happened to the accusation? No one ever told him about confidentiality obligations? He never got confirmation that he would be absolved of any personal liability? I am having a hard time understanding how this happened.

So are the rest of us Ms. Rubin, so are the rest of us.

A Rare Stumble by Peggy Noonan in the Wall Street Journal – She Thinks Rep. Paul Ryan is a Serious Thinker

Maybe She Just Never Listened to Mr. Ryan

Saturdays bring the weekly column of Peggy Noonan in the editorial pages of the Wall Street Journal.  This week Ms. Noonan contrasts the policies and persona of President Obama with that of Wisconsin Representative Paul Ryan.  In doing so she deviates from her usually incisive observations on politics, economics and government and drives down the road of Republican talking points.

On the President’s leadership and strategy she says this.

He doesn't seem to be as worried about his country's continuance as his own. He's out campaigning and talking of our problems, but he seems oddly oblivious to or detached from America's deeper fears. And so he feels free to exploit divisions. It's all the rich versus the rest, and there are a lot more of the latter.

Yes, there it is, the old class warfare bit.  The argument that any criticism of economic policy that has delivered huge gains in income and wealth to the very top, brought stagnation to the middle and poverty to the lowest segment is “class warfare”.  And yet somehow escaping attention in all of this is that support of policies by Republicans that would further erode the economic position of the middle class and enhance the position of the wealthy is not class warfare.  When the wealthy attack the middle and low income groups, this Republican policy must exempted from any criticism.

But the real sadness in Ms. Noonan’s current account is her praise for the intellectually bankrupt ideas and policies of Republican Paul Ryan.  Mr. Ryan has gained the reputation of a “thinker”, not because of his thoughts or policies but because people like Ms. Noonan and the Washington Post and other journalists that still have a some shred of credibility left have called him a thinker.  Here is Ms. Noonan on Mr. Ryan.

Which gets us to Rep. Paul Ryan. Mr. Ryan receives much praise, but I don't think his role in the current moment has been fully recognized. He is doing something unique in national politics. He thinks. He studies. He reads. Then he comes forward to speak, calmly and at some length, about what he believes to be true.

which is of course an exact description of Mr. Obama, except his policies and pronouncements do not meld with what Conservatives believe.

What is it that has Ms. Noonan’s admiration?  It cannot be Mr. Ryan’s plan to privatize Medicare, creating a huge shift in health care costs to the middle class.  That would be class welfare.  It cannot be Mr. Ryan’s tax and spending proposals which would benefit the wealthy at the expense of everyone else, that would be class warfare. It cannot be Mr. Ryan’s support of programs to eliminate or sharply reduce environmental regulation which would result in a more polluted environment for everyone and economic gains for the very rich, that would be class warfare.  It cannot be his budget numbers, they just do not add up.

 No, here are the words of Mr. Ryan that have enthralled Ms. Noonan.

"Why have we extended an endless supply of taxpayer credit to Fannie Mae and Freddie Mac, instead of demanding that their government guarantee be wound down and their taxpayer subsidies ended?" Why are tax dollars being wasted on bankrupt, politically connected solar energy firms like Solyndra? "Why is Washington wasting your money on entrenched agribusiness?"

Rather than raise taxes on individuals, we should "lower the amount of government spending the wealthy now receive." The "true sources of inequity in this country," he continued, are "corporate welfare that enriches the powerful, and empty promises that betray the powerless." The real class warfare that threatens us is "a class of bureaucrats and connected crony capitalists trying to rise above the rest of us, call the shots, rig the rules, and preserve their place atop society."

Well let’s see.  It was Mr. Bush and the Republicans who continued to guarantee the debt of Fannie Mae and Freddie Mac, and while Mr. Ryan is correct on the Solyndra debacle, his farm state Republican colleagues are the ones who insist on higher, not lower subsidies for agriculture. And who are these nameless "bureaucrats", what do they do and where are they? 

As for his “corporate welfare” charge, notice again the lack of specificity.  Like every other Conservative who proposed major cuts in government spending or reduction in corporate welfare programs, Mr. Ryan identifies none that he would cut, knowing that once he does so he loses the support of his party and his financial backers.  He has already lost the support of his "replace Medicare with private insurance" plan.  Even Mitt Romney won't go there.

So in the end we are left with empty rhetoric which elevates Mr. Ryan into the role of a “thinker”.  Is it because “he reads”?  Maybe the message here is that politicians, particularly Conservative ones have so little to offer, so little intellectual basis in the ideas, so little programs other than class warfare against the weak, the poor, the young and the uneducated that someone who “reads” is the best that they can offer.

Rise in Medicare Premiums Much Smaller than Rise in Private Insurance Premiums

Proof Again that Private Insurance in Superior to Medicare – No Wait, That’s Not It

The hallmark of Conservative Republican plans for Medicare is to end it as a government health insurance program, and to transform it into a subsidized private insurance program.  The argument, these Conservatives make, is that competition in the private sector will hold down costs.  The problem with this argument, facts, figures and logic just keep getting in the way.

The 2012 increases in basic Medicare Part B premiums has been announced, and it is about 3.5%.  This is less than expected and far less than the 9% increase in private health insurance plans that has just taken place.

Premiums for most Medicare beneficiaries have been frozen at $96.40 a month since 2008. Kathleen Sebelius, the secretary of health and human services, said the small increase in premiums, amounting to less than 4 percent in four years, was “pretty remarkable.” Average premiums paid by workers for employer-sponsored health insurance have increased far more — well over 20 percent since 2008, according to the Kaiser Family Foundation.

Here is a further explanation.

Jonathan D. Blum, deputy administrator of the federal Centers for Medicare and Medicaid Services, said officials were seeing “much lower utilization and spending growth” in Medicare than they had expected.

The public – private partnerships that produced Medicare Advantage programs and the prescription drug program also have good news.

Medicare officials said the modest increase in premiums for coverage of doctors’ services was part of a welcome trend. Earlier this year they announced that average premiums for private Medicare Advantage plans would decrease by 4 percent and that premiums for Medicare’s prescription drug plans would be virtually unchanged in 2012. Both types of plans are operated by insurance companies under contract with the government.

And while Conservatives will point to those results as being evidence that private insurance can work, the fact that Medicare Part B premiums are not rising very fast points to the explanation that it is Medicare’s control of health care expenses, not private competition that is working. 

Of course the Medicare Advantage plans and the prescription plans are group policies, open to everyone and at the same premium regardless of age or health.  The Republican plan would replace these programs with individual private insurance, and the question is still out there as to what insurance companies are going to insure a 75 year old person with serious health issues?

All of this leaves the still unanswered question about the Paul Ryan plan to save Medicare by destroying it.  If private insurance does hold down health care costs, why hasn’t it done so?  Conservatives, get back to us when you have an answer.

Arizona Republicans Attack and May Remove Independent Redistricting Commission

Their Sin, Not Drawing Republican Friendly Boundaries

Arizona is one of the states that thinks that Congressional districts should be drawn on a non-partisan basis, and should not be drawn as to favor one party over the other.  As a result, a Commission composed of two Democrats, two Republicans and one Independent is charged with drawing the Congressional lines.

But Arizona Republican are furious with the Commission.  Why?  Because the Commission is not drawing districts that are favorable for the Republicans.

Under a proposed redistricting map, there is a possibility that Democrats could gain seats in Republican-controlled Arizona, and unhappy national and Arizona Republicans have been livid.

Now the process is not yet complete

The map is currently in a monthlong “public comment” period, in which the commission seeks voter feedback on the map.

But Republicans are taking no chances.  The Republican controlled group

called the Joint Legislative Committee on Redistricting is reviewing the commission’s work. Originally, four Republicans and two Democrats were to have been included in the group, but the two Democrats boycotted the hearings.

And the state's Republican Governor has already taken steps to remove Commission members if they don’t come up with districts to her liking

The GOP governor began the impeachment process for removing members from the Arizona Independent Redistricting Commission by submitting a letter outlining her grievances to commission Chairwoman Colleen Mathis.

“I have issued to each member of the IRC a letter with a detailed set of allegations that rise to the level of substantial neglect of duty and gross misconduct,” Brewer said in a news release.

And if Republican

recommendations are not heeded, Republicans are seriously considering the removal effort, and Brewer’s move Wednesday night is a first step in that direction.

Now fixing Congressional districts is an old game, and one which both parties play when they can, but when there is an independent process that one party tries to upset and intimidate, well, most people would say that such tactics should not be allowed.  But for Republicans, winning trumps everything, even democracy.

California Democratic Gov. Proposes Reasonable Pension Plans for State Employees

The New Reality of Public Employment

Public Employee pensions, particularly in California represent a triumph of politics over economics.  In order to garner support of public employees, public employee unions and public employee union political efforts politicians of both parties supported generous retirement benefits for public workers.  Their rationale was simple, the politicians got the immediate benefits from election or re-election to office, and the costs were pushed down the road to the future.

For California and other states, the future is now.  As a result California Democratic Gov. Jerry Brown has proposed a large reform (cutback) in benefits.

Mr. Brown called for raising the retirement age of new employees who do not work in public safety to 67 from 55. He said employees should pay up to 50 percent of their annual pension costs. To reduce the financial exposure of the state, he said future pensions should be a hybrid of the traditional pension model and a 401(k).

To deal with what have been widely seen as abuses of the retirement system, Mr. Brown said the pensions of all new employees should be based solely on their regular salaries, not taking into account any overtime or bonuses. For existing employees, he said the retirement benefits should be based on an average of the last three years’ salary.

He also said that state employees should be barred from double-dipping: retiring, taking pensions and then taking on another state job.

Now this proposal looks more like the opening offer in a game of bargaining than a final deal.  The retirement age increase will probably not be that high.  But the 50% contribution towards retirement will put California workers in line with private employees, where employers typically match 401(k) contributions dollar for dollar.  As for not allowing overtime or bonuses to be taken into account on a defined benefit pension plan, that is absolutely correct.

The point is that unfortunately for public employees, past governments have made promises current taxpayers are unwilling to keep. 

The fact that Mr. Brown, a Democrat with long ties to labor, is proposing such rollbacks, even if not as far-reaching as those proposed by Republicans, is the latest reflection of how budget shortfalls are changing the playing field for public employees.

Nobody should expect Republicans to support a Democratic Governor’s willingness to take action against public employee pension costs.  There will be no positive editorials full of praise from the Wall Street Journal.  After all, Mr. Brown is doing this reluctantly, not eagerly, and it appears he is refraining from bashing and castigating public employees.  And he has not entered into action to destroy public employee unions.  In Republican eyes all of that means he is not doing this right.

Sunday, October 30, 2011

Mitt Romney’s Policy of “Throw People Out of Their Homes and Onto the Street” Wins Endorsement of Wall Street Journal Editorialists

Finally Mitt Says Something Despicable Enough to Please Conservative Critics

The Wall Street Journal editorial pages have not cottoned to the candidacy of Mitt Romney.  Their main complaint has been his sponsorship of universal health insurance in Massachusetts and his refusal to disavow that position (Mitt:  It’s okay for Massachusetts, it’s not okay for anybody else). 

Recently Mitt took the position that the foreclosure process should go ahead at full maximum speed, that any attempts to help families save their home when they can no longer afford the payments or when the mortgages is higher than the market value should not take place.  Instead maximum effort should be made to foreclosure, evict and force families into, well, into whatever housing they can find. 

The editors of the Wall Street Journal think that this is great policy, and firmly endorse it. 

After five years of politicians trying without success to levitate the housing market by postponing foreclosures, Mr. Romney dared to tell the truth. Parts of the U.S., including Nevada, still have too many homes, and that supply needs to be sold off and fixed up so the market can find a bottom before home prices can start to rise again. The faster that process proceeds, the faster the recovery will take hold.

And even better, the WSJ finds that this policy of forcing folks onto the streets and out of housing is beneficial to the evictees!

To the extent that it encourages a faster recovery it is also more compassionate.

So Mitt, now that you are at least temporarily back in the good graces of the WSJ, here are some ideas that will keep you in their favor.

  1. Repeal Child Labor Laws and the Minimum Wage and send children to work in factories.  This will not only reduce pressure and spending on public schools, leading to tax cuts, it will turn children into wage earners, allowing them contribute to the family income and reduce welfare programs like food stamps and unemployment insurance.

  1. Eliminate Unemployment Insurance:  Conservatives know that unemployment insurance just encourages the unemployed to remain unemployed.  Eliminate it and show how you do have a jobs program.

  1. No Taxes for Millionaires:  Since Conservatives believe that cutting taxes for wealthy people will create jobs, why not go all out and have wealthy people pay no taxes at all. 

  1. Prohibit Women in the Workforce:  The unemployment rate would drop dramatically if women were prohibited from working.  At the very least make it illegal for women to be physicians or lawyers.  This worked well in the 19th century, and the WSJ editorial staff certainly wants to go back to those days.

Mr. Romney is a very wealthy man.  He grew up in a very wealthy family.  Housing was never a concern of his, and today he owns several.  The people that go through foreclosure are scarred for the rest of their lives.  They lose a basic human right, the right to decent housing. That any serious political leader would argue for policy to hasten foreclosure and homelessness is callous beyond pale.

Furthermore, this is not the first time Mr. Romney has shown disdain for middle class Americans; his solution to the auto industry crisis was to force GM and Chrysler through bankruptcy that would have destroyed the companies the destroyed hundred of thousands of jobs. 

Oh, and what about the flip-flop issue?  When Mr. Bush was President and proposed a government agency re-finance housing instead of allow people to suffer foreclosure and be forced into the streets, it seems Mr. Romney was all for that in 2007

Well, the President has taken action that should calm a good portion of the market, which is he said look, these people who borrowed money from the sub-prime world with these reset provisions, where the payments go up in later months, and they were told by their mortgage banker in many cases don’t worry about that, we’ll refinance it when that time comes, well, now the mortgage banker’s gone, they can’t refinance it. And so he’s saying, the President’s saying let’s have the FHA refinance these mortgages. It’s not a bailout, but it is a setting which gives people stability, and will calm the markets to a certain degree.

So for  Mr. Romney  this is not an issue of principle, it's about sacrificing the housing of middle income Americans for political gain.
The Dismal Political Economist has said before, and it bears repeating now that Mr. Romney’s religious problem is not his Mormon religion, it is that he lacks the principles of compassion and decency that is part of any devout religious person. 

French President Thinks Maybe Greece Was Not Ready to Join the EU, Perry Campaign Contemplates Shooting Itself in the Foot, Not Bad News on GDP Growth . . .

And Other News That Begs for Comments

In the middle of the European Union meetings French President Nicolas Sarkozy thought about whether or not Greece should have joined that group and came to this conclusion

the French president appealed for the public to back reforms intended to maintain Greece's membership of the single currency, but acknowledged: "It was an error because Greece entered with false [economic] figures … it was not ready."

Gosh, you think so?

The Rick Perry campaign is floating a trial balloon about whether or not Mr. Perry should skip some debates.  The Washington Post’s great political pundit Chris Cillizza weighs in with this

But, the dominant narrative in the race to date — pushed by his weak debate performances — has been that Perry may not be ready for primetime and that by nominating him the party would be risking what looks to be a very real chance to beat President Obama in 2012.

If Perry doesn’t participate in a series of debates, voters just starting to tune into the race will be greeted with scads of media coverage about whether he is running away from former Massachusetts governor Mitt Romney. Not exactly a good introduction to Perry.

Mr. Perry came into the race with the reputation of being a very astute politician.  Skipping debates would hasten his leaving the race, but not taking that reputation with him.

That Republicans view Massachusetts Senate Candidate Elizabeth Warren a huge threat is becoming evident in the viciousness of their attack ads.  They are blaming her for the violence in the OWS movement,

Just as Democrats tried to tie Republicans to the most extreme tea party activists, the Massachusetts Republican Party is already attacking Democratic Senate candidate Elizabeth Warren as the “Matriarch of Mayhem” for saying she helped create an intellectual foundation for the protests.

To win the Senate race Ms. Warren need to unite and motivate Democratic voters.  Attack ads by Republicans are far more likely to help her than to harm her.  She comes across as a nice person, charging her with fomenting violence makes Republicans look desperate.

The preliminary report on U. S. economic growth in the third quarter 2011 is that the economy grew at an annual rate of 2.5%.  The good news is that this was not bad news.

Ever wonder just how much money the airlines are taking in on baggage charges and other fees.  It is quite a lot.

The country's largest airlines collected $1.5 billion from checked luggage and reservation change fees in April, May and June, according to data released Thursday by the U.S. Bureau of Transportation Statistics

Southwest Airlines remains the largest carrier that does not charge baggage fees.  The fact that they have made this a major part of their marketing campaign means it will be difficult to change that policy, but as Southwest gets a larger market share in the airports it serves, watch for a change in policy.  It may be late arriving, but it’s gotta land sometime.

In a related development several airlines are said to be purchasing the old coin operated toilets for installation on new jets coming into service.  A survey of frequent travelers said that if the airlines followed through on those plans the white airsick bags would find a new use.

The austerity program in Britain that is designed to bring the nation’s deficit down and restore fiscal stability to the country is harming a lot of people.  A whole lot of people.  But not everyone.  Can anybody guess who is not being harmed, whose compensation is increasing tremendously? 

The directors of Britain's largest companies were last night condemned as "elite greedy pigs" for pocketing a 49 per cent pay rise in the past year, while average workers failed even to keep up with inflation.

Unions exploded with fury after the publication of figures that showed how boardroom pay soared in the last financial year, thanks to rising salaries, bonuses and in particular the swelling value of directors' long-term share plans. The statistics, compiled by Incomes Data Services, provide an annual snapshot of executive remuneration, as reported in companies' most recent reports to shareholders, and show that the chief executives of the FTSE 100 largest companies earned an average of £3,855,172 last year. That is an average 43 per cent rise and, adding in other directors, total earnings rose by an average 49 per cent.

It is not clear if Britain is taking its lead from the U. S. or if the U. S. is taking its lead from Britain.  What is clear is that executive compensation trends do not know national borders, and that executives in Britain can be just as greedy as executive in the U. S.

It’s Back! Tax Cuts Pay for Themselves – Dynamic Scoring Lives

No One Can Kill A Good Economic Myth

The Champions of Tax Cuts have always said they pay for themselves.  Tax cuts stimulate the economy producing economic growth, higher incomes and thus higher tax collections.  Although none have actually said it, one can picture Conservatives arguing that cutting the tax rate to zero would produce so much revenue that not only would the budget be balanced, the government would have so much money they would have to be paying taxpayers to take it away.

Texas Gov. and Republican Presidential candidate Rick Perry has resurrected this argument in his tax and spending proposal. 

Dynamic scoring should also be required for tax legislation. The current system of static scoring ignores the fact that people and companies behave differently depending on how they are taxed. Dynamic scoring would take into account the incentives of different proposed tax policies and the increased economic growth and job creation that can result from lower tax rates and long-term predictability of the tax code.

Need a translation?  Dynamic Scoring is the term used to say that tax cuts generate so much revenue that they pay for themselves.

The Wall Street Journal has taken up the cause in its editorial support for Mr. Perry’s plan.  Why?  Because on paper (and in everyone’s world that contains logic and rational thought) Mr. Perry’s plan would produce massive deficits, far more than current legislation and spending.  Here is how the WSJ explains that Dynamic Scoring babble.

One attack on a flat tax is that it won't raise enough revenue to fund the government—as if the current tax code is doing that well. But Mr. Perry and other Republicans shouldn't play this static revenue game. The flat tax is desirable precisely because of its spur to faster growth and more job creation, and the dynamic effect those would have on government revenues. The Perry campaign yesterday released a revenue analysis of its plan by John Dunham and Associates that estimated revenues of $2.781 trillion by 2014 and 19.5% of GDP by 2020 (compared to $2.3 trillion and 15.3% in fiscal 2011).

While this sounds great, those sounds can be drowned out by the facts.  Since 1980’s there have been for experiments in large changes in the tax code.  Let’s see how that worked out.

  1. In 1981 the Reagan Administration pushed through a large tax cut, lowering marginal rates.  In 1982 income taxes were 9.2% of GDP.  In 1986 they were 7.9% of GDP.  Oops.

  1. In 1986 tax reform further decreased marginal rates.  In FY 1987 when the new rates went into full effect income tax revenues were 8.4% of GDP.  In 1993 they were 7.7% of GDP.

  1. In 1993 President Clinton, with no Republican support increased marginal tax rates on high income individuals.  Income tax revenues increased from 7.7% of GDP in 1993 to 9.7% in 2001. 

  1. In 2001-03 the Bush administration decreased taxes and decreased the marginal rates.  In 2002 income tax revenues were 8.1% of GDP.  When Mr. Bush left office in 2009 income tax revenues had fallen to 6.5% of GDP.
   How does the WSJ interpret this data?  Well, this way.

All such estimates are speculative, but the point is that revenue history is on the side of the reformers.

Ok, everybody take a minute to stop laughing and let's go on.

So why does Mr. Perry and his advisors insist on this huge growth in revenues?  Because if they do not, multi-trillion dollars deficits would result.  And if Mr. Perry’s plan were put into place what would happen?  Multi-trillion dollars deficits would result.  Were you not paying attention?

Allan Meltzer, Steven Landsburg Commit Economics Malpractice on Editorial Pages of the Wall Street Journal

Economics Profession Needs a System to Label Quacks – It is Only Right that the Public Be Warned

For some reason reasonable people believe that the scholars of Economics deserve a Nobel Prize category. Apparently those people are not aware of the sheer idiocy that Professors of Economics put forth on the Opinion pages of the Wall Street Journal.  This past weekend was Exhibit A why the Economics Profession needs to get serious about enforcing some minimum standards or at least labeling gibberish for what it is.

With columns by Allan Meltzer and Steven Landsburg we have opinion and analysis so unsupported by logic, facts, data and the generally accepted principles of basic macro economics that one wonders how these two individuals obtained faculty positions at Carnegie Mellon University and the University of Rochester.  They belong on the faculty of Whatsamatta U.

First up we have Mr. Meltzer, writing about how the failure of the stimulus, which was ill designed and inadequate, must mean the Keynesian economics is not valid.  It is as though a medical researcher studying a situation in which the wrong anti-biotic given in a dosage about 1/3 what was needed failed to cure an infection and concluding that anti-biotics don’t work.

Those who heaped high praise on Keynesian policies have grown silent as government spending has failed to bring an economic recovery. Except for a few diehards who want still more government spending, and those who make the unverifiable claim that the economy would have collapsed without it, most now recognize that more than a trillion dollars of spending by the Bush and Obama administrations has left the economy in a slump and unemployment hovering above 9%.

Of course no major Keynesian economists have abandoned the theory.  As for the “unverifiable claim that the economy would have collapsed” without the stimulus, Mr. Meltzer is apparently ignorant of the many studies that have shown just that, including the non partisan Congressional Budget Office.


Here is what GDP has looked like since 2007.  Does anyone other than Mr. Meltzer fail to see where the stimulus impacted the economy, (hint, try mid 2009).  Take a trillion of government stimulus out of the picture and what do you think that picture would look like.?

What are  Mr. Meltzer’s arguments.  Well here are some

Concern over future tax rates is one of the main reasons for heightened uncertainty and reduced confidence. Potential investors hold cash and wait.

Surveys have shown that tax rates play very little role in the investment decision.  The major factor is demand for goods and service.  Who else but an ideological academic would think that business will expand just because taxes are lower, when there is no demand for the additional capacity.

Permanent tax reduction generates more expansion than increased government spending of the same dollars.

Mr. Meltzer fails basic macro economics 101 with that comment.

Keynesian models totally ignore the negative effects of the stream of costly new regulations that pour out of the Obama bureaucracy.

The old “regulations” are the problem argument.  How did lack of regulation of the financial sector turn out in 2007-2009?  Exactly which regulations are the subject of Mr. Meltzer's objections?  Like cuts in Federal spending, the regulations that Conservatives oppose are never named.

By now even the Fed should understand that we do not have a liquidity shortage. It has done more than enough by adding excess reserves beyond any reasonable amount. Instead of more short-term tinkering, it's time for a coherent program to start gradually reducing excess reserves.

This is economic speak for raising interest rates.  Anyone think that is the answer?  Anyone?

Mr. Meltzer has his own prescription for the economy.  It is cutting government spending, lowering corporate income taxes, no new regulations and targeting inflation at 0-2%.  Note to Mr. Meltzer:  Higher inflation resulting from increased demand would be good for the economy right now.  Really, it’s in all the basic textbooks.


Steven Landsburg opines that the Estate Tax, which he like every other Conservative re-labels as the “Death Tax” (because an intellectually fraudulent label like that helps support a cause that is intellectually fraudulent) is actually harming poor people. 

Absent the death tax, we'd have had even more frugality and more resources available for the kind of investments that benefit all of us.

So you don't need rich parents to be a victim of the death tax. You don't need to own a family business or family farm. You only need to be someone who works in a factory or shops in a grocery store or gets sick and goes to the hospital.

The logic, if it can be called that (The Dismal Political Economist is in a charitable mood and will allow labeling Mr. Landsburg arguments as “logic”) is this.  The savings of rich people provide the funding for investments, and if there is an Estate Tax, this encourages rich people to consume rather than save, and so the supply of investment funding is less, which means less investment and lower economic growth.

This is correct, if the year were 1900.  In a developing nation the capital accumulated by wealthy people is necessary to fund investment.  But since the early part of the 20th century we have this new thing, that apparently Mr. Landsburg is unaware of.  It’s called capital markets.  Capital markets provide for the funding of investment by institutions like pension plans, banks, insurance companies, sovereign wealth funds and the like.  Individual funding to the tune of billions or hundreds of millions is simply not a large part of a modern economy, and to the extent that it is, there is ample supply of funds thanks to policies which have allowed the top 1% in the U.S. to accumulate unprecedented income and wealth.

As for the argument that the Estate Tax encourages consumption by rich people, that is an argument for the Estate Tax, not one against it.  Mr. Landsburg, as an academic, is apparently unaware that investment is driven buy consumption.  Investment is made to produce additional goods and service to meet higher aggregate demand (Gee, where have we heard that before). 

To illustrate his point Mr. Landsburg invokes Scrooge McDuck.  Really he does.  Here are his exact words.

If Scrooge McDuck forgoes a private jet so his nephew Huey can have a private jet 20 years from now, we get 20 years of additional production from the factories that can be built in the interim.

Second, don't be so sure Huey ever gets that private jet. He will, after all, be splitting Scrooge's estate with his brothers Louie and Dewey. A hundred million dollar inheritance, split among three children, and then nine grandchildren, and then 27 great-grandchildren, gets whittled down in just five generations to less than half a million per heir—and that assumes that nobody spends anything along the way! So when Scrooge forgoes his private plane, it's likely to be for the benefit of descendants who fly coach.

I'm not just making this up.

No Mr. Landsburg, you are just making that up.  Scrooge McDuck and Huey, Louie and Dewey are Disney characters.  They are not real!  And here is how Mr. Landsburg ends his polemic

But the death tax is a double whammy, compounding the damage by encouraging overconsumption. (The same is true, incidentally, of taxes on interest and dividends.) So my message is this: If you must tax the rich, please do it in a way that minimizes the collateral damage to the poor.

So it is the poor that are being hurt by the Estate Tax.  Ever wonder why these same poor people are not rioting in the streets calling for an end to the Estate Tax which is harming them so much?  Maybe it’s because they are too stupid and lazy to understand the issue, and need academic elites like Mr. Landsburg to explain it to them, to tell them that against all appearances to the contrary, cutting taxes on the super rich is helpful to poor people.

Or maybe they are smarter than Mr. Landsburg, and know that letting someone like, say Mitt Romney pass on hundreds of millions of dollars of wealth to his descendants without a transfer tax (which is what the Estate Tax is) will not benefit them at all.  After all the Estate Tax was cut substantially in the first decade of the 21st Century.  How did that turn out for poor people?  Well great if the objective was to create more of them.

Economic illiteracy and ignorance is a major problem in America.  With people like Mr. Meltzer and Mr. Landsburg holding faculty positions at major U. S. universities one can see why.  But one cannot see how these individuals, and people like them ever got to hold a faculty position at a university in the first place.  Maybe economics does need professional licensing, or at least minimum standards. 

It would be very refreshing if people like Mr. Meltzer and Mr. Landsburg were more honest with everyone.  They should just say that they support policies that favor the wealthy, that they don’t really care about the middle and lower income groups, and that the wealthy pursue these policies because they have unlimited greed and desire for more money and more political power, and that is whey they want tax cuts for the wealthy and the elimination of the Estate Tax. They would still be wrong, but at least they would be honestly wrong, not intellectually wrong.

But as much as one is tempted to believe otherwise, it appears that people like Mr. Meltzer and Mr. Landsburg actually believe what they write.  This puts them into a recognized category, and so despite their advanced degrees and academic credentials we can label them for what they are, "useful idiots" to the Conservative cause.