Carpe Diem

Challenge: Raise Taxes on Your Rich Selves Now!

All of the major Democratic presidential candidates would allow the 2003 tax cuts for wealthier households to expire. Most support raising the cap on income subject to Social Security taxes. Some want to raise taxes on capital gains and other investment income.

On Capitol Hill, a leading Democrat – Rep. Charles Rangel - has proposed an additional tax on wealthy people and a levy on hedge fund managers to help pay for easing taxes on the middle class.

In 2005 (most recent year available) it took income of $145,283 to be in the top 5%, according to IRS data. Members of Congress earned a base salary of $162,100 in 2005, putting each member of Congress into at least the top 5% category and making them part of the group most would agree is “the rich.”

Given Bill Clinton’s $9-10 million in income from speeches in 2006 (see a list here), the Clintons are probably the kind of super-rich Americans in the top 1/10 of 1% that John Edwards has in mind when he unveiled his plan to raise taxes on the rich: “The top 300,000 income-earners in America now make more than the bottom 150 million combined. Our tax code has shifted most of the burden onto the backs of working Americans.”

When a presidential candidate like John Edwards or Hillary Clinton, or a tax-raising member of Congress like Rep. Rangel, tells us that they think taxes should be raised on the rich (which includes themselves), isn’t it a fair question to ask them how much they voluntarily added to their tax bill this year, and how much they plan to add next year? After all, if they think “the rich” should pay more taxes, shouldn’t they already be doing so voluntarily?

Challenge: If taxes increases for “the rich” are a good thing, the members of Congress and presidential candidates (all part of either “the rich” or “super-rich”) don’t have wait for the Bush tax cuts to expire or for Congress to pass new tax legislation, they can immediately raise taxes on themselves voluntarily by making a gift to the U.S. Treasury.

Here is the link to the Treasury’s website with instructions for politicians, presidential candidates, or any citizen who wish to make a general donation to the U.S. government into an official account called “Gifts to the United States.”

For example, what if Edwards, Rangel or Clinton proposed legislation to force everybody to “donate” 5 pints of blood every year. Wouldn’t it be a lot more credible if they were already donating blood themselves right now voluntarily, and not waiting until they were forced to “donate” blood by their own legislation
Carpe Diem

Quote of the Day: You Can Fight Or Ignore Economics, But Economics Will Win Every Time

Attempting to put all the drug dealers in jail is simply not possible. There is a demand for their job function, so the only effect of jailing somebody who has taken on that job is to create a job opening at a higher pay rate.

The War on Drugs is a War on Economics. You can ignore economics if you want. You can even fight economics. But economics is going to win every time.

~The Angry Economist

Carpe Diem

Alcohol Nannies and The New War On Alcohol

David Harsanyi, a columnist at the Denver Post, is the author of the book “Nanny State: How Food Fascists, Teetotaling Do-Gooders, Priggish Moralists, and Other Boneheaded Bureaucrats Are Turning America Into a Nation of Children.”

Part of the book was published in the November issue of Reason Magazine as an article titled “Prohibition Returns! Teetotaling do-gooders attack your right to drink.”

A D.C. police officer who arrested a middle-aged mother of two driving in Georgetown after eating in a restaurant and having only one glass of wine (only 0.03% BAC), was quoted as saying “If you get behind the wheel of a car with any measurable amount of alcohol, you will be dealt with in D.C. We have zero tolerance …. Anything above 0.01, we can arrest.”

Note: That would mean that .0001 of you blood is alcohol.

From the article:

Drinking is under attack these days in ways we haven’t seen since the failed experiment with national alcohol prohibition in the 1920s. Indeed, for many neoprohibitionists, that experiment wasn’t a failure at all, since it did cut alcohol consumption, which is all that matters. We can see that mentality today in policies that go beyond preventing drunk driving or punishing drunk drivers and aim to discourage drinking per se.

Pretty scarcy stuff from a very interesting article.

(HT: Society and Money)

Carpe Diem

Top Ten Reasons That $100 Oil Won’t Last

1. The amount of oil in storage tanks around the world is near all-time highs.

2. Supply below ground is abundant. The world’s proven reserves are now at 1.4 trillion barrels, up 12% in the past 10 years.

3. Production is set to increase. Sustained high oil prices have encouraged drilling. There are 45% more oil rigs in service today than there were three years ago.

4. The cost of production is much less than $100 a barrel, about $4-30 per barrel. Oil prices can fall heavily without making any of this production uneconomic.

5. Iranian exports aren’t likely to be cut.

6. High prices are pulling back demand. Oil consumption in the U.S. fell by 1.3% in 2006 and world-wide demand grew only 0.60%.

7. High prices are forcing governments to cut subsidies (Iran, China), which should curb demand growth.

8. On a relative basis — comparing the amount of energy bought with a dollar’s worth of oil with a dollar’s worth of natural gas — the price for natural gas is now about half that of oil, further suggesting that $100 oil is not sustainable (see chart below from today’s NY Times).

9. A weak dollar doesn’t justify $100 oil. Since Aug. 22, the dollar is down by only 8% against a basket of currencies while the oil price has risen by 40%.

10. Speculation is artificially boosting prices.

Source: Wall Street Journal article “Why $100 Oil Can’t Float

Carpe Diem

Quote of the Day: It Takes A Lot of Pretending

It takes faith to believe in global warming.

You need to pretend the sun is not the major factor in how warm Earth is at any given time.

You need to pretend that your choice of light bulb can really impact the temperature of the planet.

You need to pretend deviating temperatures of the past, before industrialization, didn’t mean anything, while deviating temperatures in the industrial age spell doom and gloom.

You need to pretend that buying carbon credits from Al Gore will actually save the planet.

You need to pretend massive, government-forced redistributions of wealth can reduce the temperature of the planet.

That’s a lot of pretending.

~Joseph Farah

Carpe Diem

Goldilocks or Recession? Goldilocks!

Thursday Night Lineup

DEBATE: GOLDILOCKS OR RECESSION?…Mark Perry, University of Michigan economics professor and Carpe Diem blogger will join the market panel in a look at what’s ahead for the economy.

Thanks to an invitation from Larry Kudlow, I appeared on a segment of “Kudlow and Company” last night, featuring a discussion based on this recent
CD post, and this CD post, with a nice presentation of the graphs from those posts.

My position is that we aren’t headed for a recession for the following reasons:

1. We won’t have a recession unless and until the Business Cycle Dating Committee of the National Bureau of Economic Research says so, and that committee doesn’t look at the value of the dollar, oil prices, financial sector troubles, or even the stock market, when it determines that a recession has started. It looks at industrial production, employment levels, real personal income, and real manufacturing and trade sales. In the discussions about recession, too much attention is paid to the subprime crisis, the falling dollar, the stock market and oil prices, and not enough attention is paid to the 4 variables that really matter – and none of them show any weakness, see this CD post and this CD post.

2. If the serious S&L crisis in the 1980s, when almost 1,500 banks failed (about 1 out of every 10), didn’t cause a recession, then a subprime mortgage crisis by itself won’t cause a recession. The banking sector has never been more stable than it is today – not a single bank failed in 2005 or 2006 (out of about 8,000), and only 3 have failed in 2007. That has to be a record unmatched at any other time in U.S. history.

3. Consider that in 1987, at the peak of the S&L crisis, there were 184 bank failures (3.5 every week) AND the stock market crash in October, with a 22.6% decline in one day (October 19) and a 31% decline in a week. That would be equivalent today to a 3,000 -4,000 point drop in the DJIA. Further, the unemployment rate in 1987 was 6.2% (vs. 4.7% today) and the 30-year mortgage rate was 11.26% (vs. 6% today). If the economy of 1987 was able to survive a major banking crisis and Black Monday without going into recession, today’s much stronger and more stable economy will continue its expansion. See this CD post.

4. The significant increase in derivatives trading and risk-management instruments has helped insulate the U.S. economy from recent credit shocks, oil shocks and a falling dollar. See this CD post.

5. The U.S. economy is much more energy-efficient today than ever before – energy consumption per dollar of real GDP today is about half of the level in 1980 – and can absorb high oil prices better than ever before. See this post.

6. Oil prices will probably start falling by next year – futures trading indicates a price in the low 80s by 2009. And see yesterday’s WSJ article “
Why $100 Oil Can’t Float“: “The fundamentals give a clear message: The price is too high to be sustainable.” Expect falling prices.

7. The weak dollar has significant benefits for the U.S. economy: Surging, record-high exports, adding about a percentage point to real GDP, see today’s trade report, showing a 13.6% increase in exports since last year.

Carpe Diem!

Carpe Diem

Are Oil and Gas Prices at Record Levels? Yes & No

The Washington Post ran an article on Wednesday titled “Oil at Record Price? That Depends“:

Cambridge Energy Research Associates says the record is $99.04 a barrel, a level it said was reached in inflation-adjusted terms in April 1980.

The International Energy Agency agrees that April 1980 was the peak month, but it said that the price would translate to $101.70 a barrel today.

The Energy Information Administration says that the previous inflation-adjusted record, $93.48 a barrel, was set in January 1981.

That would make the price reached yesterday (Tuesday, Nov. 6), $96.70 a barrel on the New York Mercantile Exchange after a $2.72 increase, a new record closing price.

MP: One issue that adds to the confusion about record-high oil and gas prices is that we have daily price information for oil and gas, but we only have price index data with a lag, and that price index data is required to adjust for inflation. For example, we won’t have October CPI data until November 15, so we can’t even accurately compute real oil and gas prices in October until late next week.

Another issue is whether or not gasoline prices (which consumers care more about than oil prices) are at record-high levels, especially since oil prices have been rising more than retail gasoline prices (see bottom chart above). Notice the breakdown of the historically close link between oil prices and gas prices in the last few months. Since late August, oil prices have increased by about 40% and gas prices by only 15%.

Using monthly gasoline price data from the Energy Information Administration back to 1976, and CPI data through September (and estimates for October and November), the top chart above shows monthly inflation-adjusted gas prices (in November 2007 dollars) from January 1976 to November 2007.

Bottom Line: The record for inflation-adjusted retail gasoline prices was set in March of 1981, when prices peaked at $3.35 per gallon. With current gas prices averaging $3.013 per gallon as of November 5 according to the EIA, we’re still 11% below the record price for gas.