Carpe Diem

More On Why Inflation Will NOT Be A Problem

Exhibit A: See graph below (click to enlarge) of the Adjusted Monetary Base, from the St. Louis Federal Reserve, from 2002-2007. Notice the decline in growth from 10% to 2%, suggesting a deflationary trend in high-powered money.

Exhibit B: See graph below of the Adjusted Monetary Base vs. M1 Money Supply, from 2002-2007. Notice that as the growth in high-powered money growth, controlled by the Fed, has come down from 10% in 2002 to 2% in 2007, the M1 Money Supply has stablized at about $1.36 trillion.

Carpe Diem

Don’t Like the Bush Tax Cuts? Don’t Pay Them! Pay Your Taxes Under Old Rates From 2000 or 2001

SAN FRANCISCOBuffett indirectly blamed the Bush administration for a tax code he said is out of whack.

“In the last seven-eight years what has happened is that the super-rich have gotten a huge break,” said Buffett, one of the world’s richest people with a net worth of $52 billion, according to Forbes magazine.

In a previous post, I challenged proponents of tax increases to raise taxes on themselves immediately by making a voluntary gift to to the U.S. Treasury, and not waiting for the Bush tax cuts to expire. After all, if forced increases in taxes are desirable by future changes in the tax code, then voluntary tax increases by rich taxpayers like Buffet and the Clintons right now should be desirable.

Here’s another idea for Buffet and the Clintons. If they think that the tax codes in previous years were more equitable, fair and desirable then they can pay under the old rates for their 2007 tax returns. Here are the tax rates for 2000 (highest rate 39.6%), 2001 (highest rate 39.1%), and 2002 (highest rate 38.6%). In other words, if they don’t like the Bush tax cuts (highest rate 35%), they don’t have to accept them, they can file under the pre-Bush tax rates, i.e. the Clinton tax rates.

Carpe Diem

It Wasn’t a Tax Cut for “The Rich,” It Was a Tax Hike

Based on the latest available tax data, no Administration in modern history has done more to pry tax revenue from the wealthy than the current one, says the Wall Street Journal today. Consider:
  • For 2005, the richest 1% paid about 39% of all income taxes that year (see chart above).

  • The richest 5% paid a little less than 60%, and the richest 10% paid 70%.
  • The richest 1.3 million tax-filers — those Americans with adjusted gross incomes of more than $365,000 in 2005 — paid more income tax than all of the 66 million American tax filers below the median in income; ten times more.

For the political left and most of the media, this means only that the rich are getting richer. However:

  • The rich showed more rapid gains in reported income shares in the 1990s than in the first half of this decade.
  • The share of the richest 1 percent jumped to 20.8% of total income in 2000, from 14% in 1990, but increased only slightly to 21.2% in 2005.
  • Notably, however, the share of taxes paid by the top 1% has kept climbing this decade — to 39.4% in 2005, from 37.4% in 2000.
  • The share paid by the top 5% has increased even more rapidly.

In other words, despite the tax reductions of 2001 and 2003, the rich saw their share of taxes paid rise at a faster rate than their share of income. This makes it hard to pin their claim of “rising inequality” on the Bush tax cuts, though the income redistributionists are trying. By this measure, the Clinton years were far worse for “inequality.”

Conclusion from the WSJ: “We hate to break up the media’s egalitarian chorus with these details, but facts are facts. If Democrats really want to soak the rich, they’ll keep tax rates where they are, or, better, lower them some more.”

(HT: NCPA)

Carpe Diem

Goldilocks Sets Record: 51 Months of Job Growth

According to the BLS labor report on December 7, “Nonfarm payroll employment continued to trend up in November (94,000), and the unemployment rate held at 4.7%.”

What didn’t get reported anywhere in the media (that I could find), and was only reported by the White House, is that November 2007 marked the 51st straight month of employment growth, setting an all-time record for the longest continuous run of job growth on record (back to 1939, see chart above). The previous record of continuous job growth was set back in the July 1986 to June 1990 period, when there were 48 straight months of employment growth.

Bottom Line: In each of the last three months (September, October, and November), the Goldilocks economy has set new all-time records for continous monthly job growth, and yet this has gone virtually unreported. Never before in U.S. history have we experienced an extended period of job growth like in the last four years, and all we hear about are recessionary fears, and gloom and doom.

Carpe Diem

Chocolate Goes Global

The World Is Flat, and Chocolatiers Want to Coat It

NY Times: Swiss chocolatiers, having long ago conquered markets in Europe and North America, are now aiming at the vast expanses of Russia, India and China, making Swiss chocolate a case study in globalization.

Reminder: Trade works both ways. As economies like India, Russia, China, and Brazil become wealthy and prosperous by producing goods and services for the U.S. and European markets, the workers of those economies also become increasingly wealthy and prosperous consumers of American and European products.

Exhibit A: Swiss chocolate.

Carpe Diem

Finally, Some Relief for Double-Standard, Racist, and Insane Drug Sentencing for Baking Soda

WASHINGTONThe Supreme Court on Monday (December 10) said judges may impose shorter prison terms for crack cocaine crimes, enhancing judicial discretion to reduce the disparity between sentences for crack and cocaine powder.

WASHINGTON The U.S. Sentencing Commission voted unanimously Tuesday (December 11) to allow some 19,500 federal prison inmates, most of them black, to seek reductions in their crack cocaine sentences.

Four of every five crack defendants is black. Most powder cocaine convictions involve whites.

Even after the change, prison terms for crack cocaine still are two to five times longer on average than sentences for powder cocaine, the result of a 20-year-old decision by Congress to treat crack more harshly.


See previous CD posts
here and here. Note that crack cocaine is powdered cocaine + baking soda.

Carpe Diem

Gene Fama: Hardest Workin’ Man in Finance/Econ

From the Minneapolis Fed’s interview with University of Chicago economist Eugene Fama (pictured above):

Fama’s work transformed Wall Street, and later Main Street, by giving rise to a proliferation of low-cost index funds, as many questioned the value of paying for active portfolio management. “If one takes into account the higher initial loading charges of the mutual funds,” he observed over 40 years ago, “the random investment policy outperforms the funds.”

Mpls. Fed: How do you view the suggestion that some CEOs are overcompensated?

Fama: If it’s a market wage, it’s a market wage. They may be big numbers; that’s not saying they’re too high. It’s easy to say that people are paid too much, but when you’re on the other side of the fence trying to hire high-level corporate managers, it turns out not to be so easy.

Mpls. Fed: I understand that you work every day, even holidays. Is that right?

Fama: Right.

Mpls. Fed: That’s an amazing work ethic.

Fama: Not really.

(HT: Marginal Revolution)

Carpe Diem

Quote of the Day, Chart of the Day

“Inflation is always and everywhere a monetary phenomenon, in the sense that it cannot occur without a more rapid increase in the quantity of money than in output.”

~Milton Friedman in his book “Monetary History of the United States 1867-1960,” (co-authored with Anna Schwartz)

Exhibit A: See chart above, click to enlarge. Monthly data for CPI and M1 are from the St. Louis Federal Reserve.
Carpe Diem

Market Signals Suggest Low Inflation, Stable Dollar

The top chart above (click to enlarge), shows the one-year percentage forward premiums and discounts for the USD vs. other currencies, based on current quotes for one-year forward exchange rates. The USD is now selling at a one-year forward premium vs. at least a dozen currencies, suggesting that the value of the USD has stabilized and might start appreciating in 2008.

The bottom chart above displays gold futures trading on the NYMEX, and shows moderate annual increases in the price of gold over the next 4 years of about 4%. Since gold is a hedge against inflation, the moderate increases in gold prices through 2011 indicate that there are no inflationary pressures building in the U.S. economy.

Bottom Line: These direct market signals suggest that: a) the fall of the USD is probably over and we can expect an appreciation of the USD vs. the pound, rupee, peso, etc., and b) the current rise in inflation (4.29% increase through November 2007) is probably temporary, and we can expect lower inflation in 2008 and beyond. See related previous post here.
Carpe Diem

Put Your Tax Money Where Your Political Mouth Is

Challenge: If taxes increases for “the rich” are a good thing, 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 like Warren Buffet who wish to make a general donation to the U.S. government into an official account called “Gifts to the United States.”

Question: What if Edwards 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?

This is from a previous CD post, and I mentioned on Larry Kudlow’s radio program today that I would re-post instructions on how politicians and Warren Buffet can pay extra taxes to the U.S. Treasury.