The G.E. Rule – Part 2

In an earlier post I proposed The G.E. Rule, which is that no company should pay more tax than General Electric, the nations largest corporation and President Obama’s favorite company.   Since G.E. pays ZERO taxes, this would end income tax at the business level and solve a plethora of major problems today:

• Unemployment would plummet
• Growth would flourish
• Capital would flood into the US
• Your pay would go up
• Your company would be able to compete with the Big Boys who currently buy influence
• Your health insurance choices would be yours and not your boss’s (it would end the corporate deduction for employer insurance) 
• You could leave your job and not worry about your health insurance 
• Dividends and capital gains could be taxed at the same rates as income (Obama’s  Buffett Rule would be satisfied)
• Overseas profits could be repatriated instantly
• It would end taxation without representation 
• It would satisfy the Tea Party and end Stealth Taxes (all taxes would be transparent to voters once and for all)
• Most corporate lobbyists would be out of a job
• Crony capitalism would be seriously wounded
• Washington’s manipulative power would be greatly reduced
• Prices on all goods and services would plummet 
• Stocks would be rationally valued as the double taxation would end (this would end stock bubbles like the Tech Bubble of the 90s) 
• Companies, even Warren Buffett’s Berkshire Hathaway, would pay dividends

And this is just a partial list of instant benefits from The G.E. Rule.  (Update:  For much more on this, check out my older post - GE is Right!) 

Of course, this would be politically impossible because almost no politician in Washington wants to cede power to business, markets, or voters.  Lobbyists would freak out.  In fact no politician, even Ron Paul, is proposing anything like this.  If I was a Republican frontrunner, I’d take a good hard look at The G.E. Rule.       

If I was Mitt Romney... Part 2

If I was Mitt Romney - I'd fire back at Romneycare critics and say, "Look,  everyone keeps citing similarities between Romneycare and Obamacare but this misses the point; it's the differences that matter.  Chimpanzees and humans share 90% of their DNA, yet no one would confuse a human with a chimp.  Romneycare and Obamacare do share some DNA but they are very different animals.  Romneycare was a plan to prevent freeloading, and that was its only purpose.  Obamacare is a direct line to socialized medicine, and was specifically designed for that purpose."  Game. Over.        

If I was Mitt Romney...

If I was Mitt Romney - I'd fire back at Romneycare critics and say, "Look,  Massachusetts is a little different.  Context is everything.  You try Governing a state made-up of Barney Franks!"  Game. Over.      

The GE Rule

President Obama is making his "Buffett Rule" a central part of his re-election campaign.  According to Obama's "Buffett Rule", Warren Buffett should pay a higher tax rate than his secretary.  Currently, Mr. Buffett pays about 15% tax on his dividends and capital gains, while his secretary, who lacks dividends and cap gains, pays perhaps a 35% income tax on her last dollar of salary earnings.

Unfortunately, like most of Mr. Obama's statistics, this one is misleading.  Worse still, his cynical bet that he can pedal this nonsense and ride it back into the oval office is, I fear, not really a long shot.  With most Obama voters being either government dependents, government employees, the liberal professoriat,  the liberal media, student dependents, artists, union members, or the uneducated,  this kind of arcane taxation issue will never be understood.

The truth is, Mr. Buffett is actually paying about 45% total tax because his income is taxed twice.  All dividends and capital gains are double taxed - once at the corporate level and once at the personal level.  Moreover, this double taxation amounts to Taxation Without Representation.  If one is taxed twice, shouldn't one be able to vote twice?   Didn't we fight a revolution over this very concept?  Isn't this what the original Tea Party was about?

I say Republicans should campaign on the "GE Rule".  General Electric, President Obama's favorite corporation pays ZERO income taxes!  That's right, one of the largest corporations in the US pays nothing.  This is due to cozy relationships with lawmakers and effective lobbying efforts which have resulted in loopholes and kickbacks in all the right places.  Smaller corporations could never afford that kind of influence and it represents everything that is wrong with the Crony Capitalism model favored by Obama and the Democrats.

I say, let every corporation pay ZERO income tax.  Let everyone enjoy the "GE Rule".  End corporate lobbying.  End Taxation Without Representation.  End double taxation on dividends and capital gains.  And, finally, make the dividend and capital gains rates the same as the income tax at the individual level.

The GE Rule would satisfy the Buffett Rule, the Tea Party Rule, the Crony Capitalism problem, and the excessive lobbying problem.  A Magic Bullet if ever there was one.  

(Update: Check out GE Rule - Part 2)

Demand Side Economics - Update

Investors Business Daily - Lawmakers Proposed 1 Trillion in New Spending Last Year

The NTUF analysis found that congressional Democrats are by far the biggest spenders. Last year, 692 spending-hike bills had either all or majority Democratic sponsorship. Republicans, in contrast, sponsored just 126 such bills.

At the other end of the spectrum, GOP lawmakers introduced 172 bills that would have cut federal spending, compared with just 33 such bills offered up by Democrats.

As I've said, the "Demanders" are still in-charge!

(Hat tip:  Instapundit )

Honey, I blew up the world! (And still got a second term!)

We are just now getting a glimpse of Fed transcripts from 2006, and the view is not encouraging.  But is anyone who pays attention really surprised?  I wrote this a year ago, just before Ben Bernanke's reappointment as Fed Chairman: 

Listen to any Ben Bernanke detractor and they’ll sing basically the same tune, which goes something like this: “Ben Bernanke is a an excellent academic economist and an honorable guy who performed well this past year as Fed Chairman, but he was right there at Alan Greenspan’s side in the early 2000’s when interest rates were kept too low for too long. Those low rates helped cause the housing bubble which eventually burst and collapsed the global financial system in 2008. That kind of negligence should not be rewarded with a second term.”

I have trouble disagreeing with much of that, except that there is a far better and more compelling reason to lay some blame for the financial collapse with Fed Chairman Bernanke. I haven’t heard the following argument from anyone in the economic press, so that could either mean I’m out of my mind, or everyone else is missing something. Read on, and judge for yourself.

First a little history: Below is the Fed Target Rates for the last 10 years. The period most Bernanke detractors are focusing on is the period of low rates from roughly 2002 through 2004 when he was Alan Greenspan’s right-hand man.

Ben Bernanke became Fed Chairman February 1, 2006 when the Fed Target rate had already been raised by Greenspan to 4.25%. The day Bernanke became Chairman, he raised the Target Rate to 4.5%, but he didn’t stop there. He kept raising until July 1, 2006 when the Fed Funds Target hit 5.25%. So from July 1, 2004 to July 1, 2006 the Fed raised it’s Target Rate from 1.00% to 5.25%, an increase of 425% in 24 months.

What effect did all those rate increases have on the yield curve and why would that matter? Well, as most economists will tell you, nothing screams recession quite like an inverted yield curve (when long term rates are lower than short term rates) and forcing one is economic poison.

In January, just before Bernanke became Chairman, the yield curve was essentially flat with a slightly positive bias, but that quickly changed. Bernanke’s first raise to 4.5%, resulted in a slightly negative yield curve and again, he kept raising the Fed Target all the way to 5.25% by July 1, 2006. By November 2006, there was a clear downward trend in yields. (see chart below).

Why did Ben Bernanke keep raising interest rates in the midst of a housing bubble, with an election coming up in November 2006, and a yield curve already threatening negative by late 2005? Why did he persist and force the yield curve decidedly negative by mid 2006 which threw us into recession and crashed the housing market? No one but Ben Bernanke knows for sure, but in my humble opinion, if there is a smoking gun against him, it is this and not the period from 2002 to 2004, before he was even Chairman!

In Hebrew, Shalom, which is Bernanke’s middle name, can mean Hello, Goodbye, or Peace. I say Goodbye, and leave us in Peace, but I don’t see that actually happening. In a political and economic climate where a tax cheat can get Senate approval to be Treasury Secretary, a reckless but honorable Fed Chairman is virtually a shoo-in.

(For further encouragement, Treasury Secy. Tim Geithner was a Fed official in 2006!)

The Tebow Test

Reflections on the GOP primaries and Tim Tebow:  

During post-game analysis in the midst of Denver's winning streak, I heard Jimmy Johnson, ex-coach, superbowl winner, and football analyst, opine that he’d never seen a quarterback get more out of his teammates and inspire them to play-up than Tim Tebow.  It reminded me of Harry Potter, the average wizard who manages to pull off amazing feats against all odds with the help of his loyal group of friends, without whom he would not be nearly as magical.  Sunday he did it again against the heavily favored Steelers.

And this brings me to the GOP primaries.  Being a chief executive is never a solitary endeavor despite what we’ve heard.    Good executives are team leaders.  Sure, “the buck stops here” and “it’s lonely at the top”, but look at any effective leader and you will find a team inspired by his/her example.  

The questions for voters are these:  Who will build a team and inspire them to play-up when the game is on the line?  Who has done that in the past?  Who has maintained good relations with former teammates?  Who can lead by example?    Are ideology and oratory enough?  What value should be placed on effective leadership experience?  Who is capable of turning adversaries into allies?  

In other words, who in the GOP field can pass "The Tebow Test"?

(This is an UPDATE of an earlier post by the same name.) 

The Batman Primaries

Check out this cartoon for more commentary on the 2012 race:  Useful Idiots

Christmas Charade

Pundits on the right are declaring “Boehner Blinks” and “House Republicans Cave”, while the left is gleefully touting “Obama Wins” and “Victory”.  Pardon me for not sharing in either the glee of the left or the shame of the right over the payroll tax charade.  Neither is justified.  To make my point I cite these three axioms of politics:  

1. Pandering always trumps austerity when a single group is given a choice.   (The only way to lose a pander is to pander to a narrow group and impose austerity on a broader group, or blatantly pander to buy votes, and get caught.)  
2. Presidents always have the upper hand against opposition in congress.   (Forget the bully pulpit, network face-time, press office, etc.  Presidents can outmaneuver congress the way a Porsche outmaneuvers a freight train, even before taking the bully pulpit into account.)
3. No party can lead while controlling only half a branch of the legislature.  (When Newt Gingrich and the Republicans succeeded in working with  Bill Clinton to get all those landmark agenda items through, like a balanced budget, welfare reform, and capital gains tax cuts, they controlled both the Senate and the House.  Republicans today have only the House.)

What this means is that all the handwringing and celebrations going on are unwarranted. For one, this outcome was about as unpredictable as a sunrise.  Second, the principled but impolitic stand of the House Republicans will be forgotten in a matter of minutes.   And finally, aren’t House approval ratings already in single digits?   Does it matter if they go lower?

That’s not to say there weren’t winners and losers in all this.  Obama clearly has won a PR battle and will benefit in the polls.  On the losing end:  everyone who will inherit this mess.

Oh, and Merry Christmas!   

Obamaball

Have you seen the movie “Moneyball” or read the Michael Lewis book by the same name?  To make a long story short, it is a true story about winning baseball games without superstars by taking a deeper look at the statistics and analyzing them in a better way.  Baseball and economics share a fondness for statistics so the question arises, could economic statistics reveal a similarly undiscovered strategy for the economy like what Oakland General Manager Billy Beane did in “Moneyball”?  Moreover, could the President's economic plan ,“Obamaball”, be that strategy?  

Baseball stats and economic stats are not all that comparable.  In baseball there have always been nine members on a team, ninety feet has always been the distance between bases, sixty feet six inches has always been the distance from the mound to the plate, the bat is always wood, there are three outs, three strikes, four balls, nine innings, and so forth.  Therefore, an ERA has always been an ERA, an AVG has always been an AVG, and R, H, and E have always been R, H, and E.   

If only things were as simple in economic statistics, especially since the big ones all come from the government.  Unlike baseball, the government is always changing how they measure and what they measure.  Sometimes the statistics change because of an unintended consequence from a change in a law.   Sometimes it is for practical reasons.  And sometimes it just seems political.   After all, government economic stats come from the very government they sit in judgment of!

Here are four key statistics which form the basis for much of the economic rhetoric heard today.  In all four cases these statistics fail the baseball test.   

•       Inflation (CPI)– Not only has the Bureau of Labor Statistics changed the way it measures inflation over the years, notably in 1980 and 1990, but they cannot avoid relying on prices for manufactured imported goods which tell us more about foreign labor markets and regulations than they do about our own currency.  When these changes are backed-out, the actual inflation rate is about 2.5% higher than what is reported.  What makes inflation so problematic is that all other measures of economic performance are “inflation adjusted” and thus dependent on an accurate inflation number to start with.  Even corporate earnings must be weighed against an accurate inflation measure.

•       Economic Growth and Recession  (GDP) – GDP numbers are all adjusted for inflation too and thus suffer the effect of any inflation inaccuracies.  That is why a 2.0% annual growth rate based on a “GDP Deflator” which is under-measured by 2.5% feels exactly like, well, a -.5% growth rate.  That is how GDP can be reportedly rising by 2% yet polls can show most people believe we are still in recession.  The people are probably right.

•       Unemployment (U3) – You’d think that “unemployment” would be a cut-and-dried statistic:  “The number of people not employed as a percent of the labor force”.  But that’s not how the government does it.  In fact, if every single person in the US was collecting unemployment, disability, welfare, food stamps, or some other form of assistance but not actively seeking a job, the official unemployment rate in the US would be…0%!  The way we measure, we could have no one working and still have zero unemployment.  If we corrected for just this issue and undid the error back to Barack Obama’s inauguration, the real unemployment rate would be 11%.  If all the nonsense is removed, the actual number is close to 23%.    

•       Income Inequality (1% vs. 99%) – Much of the recent rhetoric about the 1% vs. the 99% is based on a CBO report from October of this year, which has numerous issues.  In order to measure income inequality, the CBO used a government measure based on income tax returns from 1979 to 2007.  Not 2010, which should have been available, but 2007, right before the financial meltdown in the midst of a bubble!  Second, many returns in the top brackets include corporate pass-through income, which is a recent phenomenon and makes income tax returns meaningless for measuring changes in personal wealth.  Moreover, tax rates changed constantly from 1979 to 2007 making any trends difficult to discern.  These are just a few of the problems making this CBO report useless for analyzing trends.

And then there’s the economic analysis.  Here are four big economic issues and the current administrations analysis along with some questions.    

•       Arguably the biggest economic issue of our time is the financial crisis of 2008 and its aftermath.  According to President Obama’s analysis, greedy fat-cat bankers largely caused the whole thing.   Isn’t that like blaming a plane crash on gravity?  Aren’t gravity and greed constants?  Are bankers today greedier than they were, say, in the 1950s?  Were there any sub-prime loans back then?  Where did sub-prime loans come from?  Wasn’t the President part of the chorus demanding sub-prime mortgages in the 90’s and didn’t he then protect and subsidize the dangerous practice through his support of Fannie Mae and Freddie Mac as a US Senator?

•       Once the analysis points to greedy bankers, it’s a short leap to blaming the continued malaise on the same class, which the President has made the theme of his re-election campaign.  So what has prevented Obama from stopping the greedy and the rich from continuing the malaise?  Didn’t he have two solid years of filibuster-proof control of the entire federal government?  Didn’t they pass Dodd-Frank?  How then can he explain MF Global and Jon Corzine (D-NJ), the newest example of greedy fat-cat banking failure?  Why did Obama and the Democrats keep the Bush tax cuts “for the rich” back in 2010 when they were set to expire?  How does this all add-up?  

•       If greedy bankers caused a financial crisis, what better way to fix it than to go on a 5 Trillion dollar spending and borrowing binge, right?   Who will pay for the extra 5 trillion in borrowing? Does that even matter as long as the inevitable collapse is timed to occur after the Obama reign?  Can “the rich” possibly make-up the difference if the top 10% of the country earn 40% of the income and pay 70% of the income taxes already?

•       If the financial crisis was due to greedy rich bankers, then the healthcare crisis must also be caused by greedy rich insurance companies and greedy rich doctors, right?   What better way to fix it all then to put the federal government in-charge of the whole thing?  Aren’t Medicare and Medicaid both disasters from a sustainability standpoint?  How can putting the same government in-charge of the entire industry be a good thing?  How can Obama claim the “free market” has failed in healthcare when it hasn’t been involved in healthcare since WWII when employers got to deduct premiums but individuals did not?      

So this is it in a nutshell:  President Obama, the General Manager of our team, has looked at the statistics, done his analysis, and believes he has saved us from a Great Depression, free markets don’t work, greedy rich people caused all the problems in the first place, the government’s job is to re-distribute wealth, and borrowing 5 trillion is OK as long as it blows-up on someone else’s watch.  

Welcome to “Obamaball” where all the stats are rigged and all the analysis is wrong.