Mish Shedlock on Krugman

An interesting discussion of our current econoic situation, with an emphasis on a critique of Krugman. 

Austerity? Austerity? We Don’t Need No Stinking Austerity!

There is a lot of talk about how the people in recent elections in Europe have rejected "austerity." In fact there has been no austerity at all. At best there was a very small cut in spending, as the following chart shows. 

 

Click here for an article about this. 

Why then is there all the hubbub? It is simple—most people do not understand how out of control spending is. There are very few countries where spending is in line with income. This cannot continue forever. 

In the US we have the same kind of hubbub. The Ryan budget is supposed to cut spending, and this is so unChristian, so unCatholic, of Ryan. But when you look at the Budget Ryan proposed, he cut nothing but ObamaCare. In fact that is the main difference between this proposed budget and Obama's proposed budget. Both proposals grow federal spending by an unsustainable amount. I have blogged about this before. 

‎2013 will be an interesting year economically. While I am not a Keynesian, the ending of the Bush tax cuts, the ending of the temporary payroll tax reduction, and the new ObamaCare taxes are going to really suck things out of the economy. I am afraid that when this happens and the effect is temporarily bad, the incoming president will instead postpone these taxes again.

As Herb Stein said, what can't continue won't. There will come a time when investors will refuse to reinvest and buy new government debt. I have been predicting this will happen in 3 to 7 years. I would rather be wrong than right on this prediction. 

I will not be surprised, but most people will. 

Paul vs Paul

The Ron Paul vs Paul Krugman "debate" was interesting. I had just finished the eBook about the two and their predictions over the last ten years. The book points out that both Pauls predicted the various booms we seem to be cascading from one to another. The difference is that Ron Paul thought the bubbles were bad, and Krugman was calling for them. I cannot recommend the book unless you are very deep in the weeds with these kind of issues.

Will People Believe Ron Paul?

Krugman has an interesting advantage in such predictions. When he calls for qualitative easing of a certain size, and the easing is only 80% of that number, Krugman can claim that the easing, the printing of computer money, was a failure because it was not big enough.

If you missed it, here is the video of the exchange:

One final interesting point: despite the breaking of the rules by various Republican party mucky mucks, Paul is continuing to pick up delegates at a surprising clip. You remember Romney winning Iowa, and then later it was decided that Santorum actually won? Well, do you care to guess who actually got the most delegates? That is right, Ron Paul did. Is it being reported that Paul now controls the Massachusetts delegation? He controls the Louisiana delegation. He just won the Nevada delegation. There are a lot of Paul supporters who are required to vote for someone else, but only on the first ballot.

If you the type to notice this kind of thing, and the Nevada delegation is not seated, then you will know that the powers that be are worried. I am not predicting a Paul nomination, but it may not be the coronation of Romney that one might expect.

Romney might get a wedgie—and his special underwear may not save him.

Do Not Feed the Beast

There is a lot of buzz about rich people paying more in taxes. Warren Buffet begged to pay more in taxes, as if he could not just write a check to the government if he wanted—it is even tax deductible. He complained that his "secretary" paid more as a percentage than he did. A little calculation led to the conclusion that this was true only if she made more than $250,000 a year. Buffet's executive assistant makes a salary, most of Buffet's income is in the form of dividends and capital gains. There is a natural difference between the two. Without factoring in inflation, a high marginal tax rate for capital gains can result in an actual loss once inflation is factored in.

Buffet also completely ignores the taxes his company pays. The reason for the lower rate for dividends is to avoid paying taxes twice on the same income. Buffet pays more than 40% of a good percentage of his income if this is factored in. The corporate tax rate is among  the highest in the world. But if Buffet really wanted to pay more in taxes you think he would just pay the back taxes his company, Berkshire Hathaway, owes. It may be as much as a billion dollars.  

Stephen King recently joined the chorus to pay more in taxes. In an article of profanity-filled Ad Hominum attacks, Stephen King begged for more taxes. I will not quote him as it is difficult to find a section that I wish to repeat. I would call for a boycott of his books if I actually read any. 

If we did tax 100% of all income above $250,000, it would not balance the budget. Of course it would raise no money the second year. If one really wants to raise money sustainably, you have to tax the middle class. This is why the Bush tax cuts should and probably will expire next year. Even the "apocalyptic" Ryan budget only reinstates about 1/2 of the cuts. Obama proposes that 3/4 of the cuts be maintained. The truth is we need all this money. Tax the rich more? Sure. Tax the middle class, tax the poor, tax everyone…we have no choice.

Pretty, but very hungryBut even if taxes are raised, it will not be enough. The Beast is ravenous. It needs money to pay for the probable coming war on Iran. (I will be blogging on this tomorrow.) The Beast needs money to kill people overseas. (I will blog about this next Wednesday.)

I urge everyone not to feed the Beast any more than is required. A hungry beast is dangerous, so be sure to pay all required taxes, but as Judge Learned Hand (what a great name for a judge) said, there is no obligation not to structure one's life to minimize taxes.

I cannot follow my next piece of advice, as I live on a rock at 6700 ft., but if you can, grow your own food. Keep your expenditures low and get out of debt (this I can do, and am doing.)

Do not feed the Beast.

The Tax Man

I did not realize there were Beatles cartoons. Rather silly, but the song Tax Man is at the end.