Carpe Diem

Rich Individuals Should Pay More Taxes, But Wealthy Corporations Should Pay Less?

SAN FRANCISCOBill Gates Sr. — father of the co-founder of Microsoft who is the USA’s richest man — is fighting to keep Bush from killing the estate tax that hits the super-rich but also some small-business owners and farmers. His son agrees with him, as do billionaires Warren Buffett, David Rockefeller Sr. and others.

DES MOINES, Iowa (AP)An Iowa Senate committee has approved a bill to grant tax breaks to Microsoft — if the computer giant decides to put a project in Iowa.

As Taxing Tennessee points out, Bill Gates opposes eliminating the death tax but is quite happy to have local and state taxes eliminated for his company, Microsoft, which is holding more than $22 billion in cash, and made about $17 billion in profits last year.

Carpe Diem

Collapse of Credit Markets? The Data Suggest Not




Harvard professor Martin Feldstein, writing in today’s WSJ:

The principle cause for concern today is the paralysis of the credit markets. Credit is always key to the expansion of the economy. The collapse of confidence in credit markets is now preventing that necessary extension of credit. The decline of credit creation includes not only the banks but also the bond markets, hedge funds, insurance companies and mutual funds.

The dysfunctional character of the credit markets means that a Fed policy of reducing interest rates cannot be as effective in stimulating the economy as it has been in the past. Monetary policy may simply lack traction in the current credit environment.

The collapse of the credit markets began last summer when the subprime mortgage crisis demonstrated that financial risk of all types had been greatly underpriced, that the market prices of complex financial assets overstated their true values, and that the credit scores provided by rating agencies are not to be trusted. Because market participants now lack confidence in asset prices, they are unwilling to buy existing assets, thus preventing current asset owners from providing credit to new borrowers.

Comment: What collapse/paralysis of the credit market? The most up-to-date banking data suggest otherwise.

According to quarterly banking data released yesterday by the Federal Reserve on “end of period levels” through the end of 2007 for all banks, bank credit/loan volume is at an all-time record for all types of credit (business, consumer, real estate)! See charts above, click to enlarge. If there is some paralysis/collapse of the U.S. credit markets, how can bank loan volume be at all-time historical record high levels?

Carpe Diem

Brick Wall of Resistance from the Teachers’ Union

New Reason.tv episode with Drew Carey:

Vikki Reyes has had it with Locke High, the school her daughters attend in the Watts neighborhood of Los Angeles. She walked in on class one day and recalls “the place was just like a zoo!” Students had taken control, while the teacher sat quietly with a book.

Frank Wells has also had it with Locke High. When he became principal he says gangs ruled the campus. He tried to turn things around but ran into a “brick wall” of resistance from the school district and teachers union.

Locke seemed destined to languish in high crime and low test scores until Wells, Reyes, and many reform-minded teachers joined with a maverick named Steve Barr in an attempt to break free from the status quo. Their battle is just one example of the charter school education revolt that’s erupting across the nation.

Carpe Diem

Chief Economic Advisor to McCain: Dr. Phil Gramm

NEW YORK (Fortune)Economic conservatives should take heart. John McCain’s chief economic advisor – and perhaps his closest political friend – is the ultimate pure play in free market faith, former Texas Senator Phil Gramm (Ph.D Economics, University of Georgia, 1967).

If McCain follows Gramm’s counsel, and most of his current positions are vintage Gramm indeed, his policies as president would represent not just a sharp departure from the Bush years, but an assault on government growth that Republicans have boasted about, but failed to achieve, for decades.

Carpe Diem

Congress and the Pros/Cons of Artificial Stimulus: They Feel Strongly Both Ways

Let’s hear it for irony. In almost simultaneous events last week, Congress attacked baseball players for taking performance-enhancing drugs while at the same time supporting artificial and temporary stimulus for the U.S. economy no matter what the long-term costs.

Many people don’t like professional baseball players using steroids because they mask the underlying ability of the player. They taint the results.

But so does artificial economic stimulus. Monetary policy accommodation can help people feel wealthier for awhile, but it cannot create wealth. Printing money does not make anyone wealthier. If it did, then counterfeiting should be made legal and everyone in the world would then be wealthy. The same is true for tax rebates. If they really could increase wealth, then why not make them much larger and much more frequent?

In the end, trying to increase spending without increasing the country’s productive capacity is a fool’s errand. Boosting demand without boosting supply causes a misallocation of resources. Like with steroids any boost is temporary and risks longer-term economic problems.

Read the full article here from First Trust Portfolio economists Brian Wesbury and Bob Stein.

Carpe Diem

Change in Cuba, Closing a Chapter of History

1. Internet access in Cuba is highly restricted, but the video above, made by several university students there, was recently leaked to the BBC and posted on YouTube, showing them grilling the speaker of parliament and voicing their complaints about wages, unfavorable currency rules and unfair elections. Things like this have been happening since Raul Castro called for a debate on how Cuba should change in July last year.

2. From a rare Cuban blogger Yoani Sánchez, reacting to Fidel’s retirement (her blog site is Generation Y):

“Maybe things will change now. For me and the young generation, this news comes as a great relief. We’ve never had another president, and we saw him as an obstruction to our country’s development. I’m not saying that’s what everyone thinks; for some this will be a huge shock.

Fidel is a symbol. We hope that his departure will close a chapter of history for the country and help the Cuban government to aim for more political and economic liberty. I do think the country will force its leaders to move on, because we’ve really had enough, we need a change.

But I’d say that the most likely scenario is that we see a Chinese-style regime imposed in Cuba: the development of economic productivity while political liberty is kept to a minimum. And, remember, Castro’s announced that he’ll no longer be head of state, but not that he’ll resign as first secretary of the communist party. So it’s possible that he’ll still have a strong influence in the government.”

Carpe Diem

Record Sales and Profits at Wal-Mart

Wal-Mart Stores, the world’s largest retailer, reported today its renewed focus on low prices paid off with a 4% rise in profit for its fourth quarter as holiday shoppers bought discounted groceries and home electronics as well as health and wellness products.

International growth also helped boost profit and sales. Stores in 13 countries outside the U.S. accounted for about 25% of total company sales in the quarter, up from 23% a year earlier.

Net sales grew 8.3% to $106.27 billion, helped by 18.8% international growth, 6.3% growth at Sam’s Club, and 5.0% growth at U.S. Wal-Mart stores (see chart above, click to enlarge).

“For the fourth quarter, we topped $100 billion in sales, the first time in history that any retailer has reached this milestone in a single quarter,” said Lee Scott, Wal-Mart Stores, Inc. president and chief executive officer. “We had a very strong underlying operating performance, exceeding our expectations for the quarter. In addition to another year of record sales and earnings, we also delivered a record return to our shareholders this year through more than $11 billion in share repurchase and dividends.”

Comment: Another example of a U.S. corporation reporting record sales and profits, partly because of strong global sales. Also, Wal-Mart’s record quarterly sales of $106 billion includes sales through January 2008, suggesting that consumer spending remains healthy through the first month of this year, suggesting that we are not in recession.
Carpe Diem

CAFE is Unnecessary at Best, Damaging at Worst

Lesson Two: Market forces, not government regulation, provide the most effective impetus for higher gas mileage. America’s Corporate Average Fuel Economy (CAFE) law — the latest version of which requires car companies to average 35 mpg across their model lineups by 2020 — provides posturing for politicians and comfort for their more-gullible followers who believe in free lunches. But CAFE, which first became law in 1975, didn’t prevent the SUV boom in the 1990s that environmental groups so disdain.

During that boom both consumers and car companies were reacting to market forces, not CAFE. For consumers, the market force was cheap gasoline. For auto makers it was profits, which are more substantial on SUVs than they are on fuel-efficient small cars. In fact, GM, Ford and Chrysler gravitated toward SUVs because they couldn’t make any money on regular cars.

This sorry situation might change now. Thanks to the new contracts with the UAW — that allow the companies to hire new workers for lower wages and to buy their way out of lifetime health-care guarantees to legions of retirees — the Detroit Three finally might find profits in the smaller, fuel-efficient vehicles that more Americans now want. Likewise, market forces are spurring research on alternative engine technologies that could produce a breakthrough in five to 15 years.

CAFE is unnecessary at best and damaging at worst. The regulatory costs might wipe out much of Detroit’s savings from the new labor agreements.

~WSJ Editorial by former WSJ Detroit bureau chief Paul Ingrassia

Update: Related editorial in today’s Detroit News by its editorial cartoonist, Henry Payne

“California Eager to Hit Detroit with Ineffective Fuel Rules, But Won’t Consider Increasing Gas Tax”:

California already has the power to battle climate change. It, like all other states, can raise its gasoline tax any time it wants. And raising the price of driving by increasing the gasoline tax, most economists agree, is the fastest way to get drivers to drive less and buy more fuel-efficient vehicles.

But there is no groundswell for a gas tax hike in California, where even the nation’s greenest electorate recoils at the idea of putting its money where its mouth is.