Things that make go hmm….

Here is a nice article from The Economist on the General McChrystal kerfuffle.

THE national security adviser of the world’s greatest superpower is a “clown”, its vice-president a nobody and its president “uncomfortable and intimidated”. With those words the officers around General Stanley McChrystal, the American commander in Afghanistan, engulfed America in a storm as damaging to its war effort as any Taliban raid. America rightly sets great store by civilian control of its armed forces and on June 23rd a distinctly unintimidated President Barack Obama made General McChrystal pay for his insubordination with his job. But presidential decisiveness cannot conceal a deeper truth. America and its allies are losing in Afghanistan.

Here is a nice article on some current macro-economic issues. The most prominent issue is can we spend our way out of a recession. The economists fall into two camps. On one hand the fans of John Maynard Keynes think we can increased government spending can stimulate our economy and will pay for itself by increased GDP and tax revenues. On the other hand the economists who are fans of Friedrich von Hayek and Ludwig von Mises warn that increased government spending inevitably fails to improve the situation beyond that which would have occurred during a normal recovery. A good argument was made by Amity Shlaes in her book, The Forgotten Man: A New History of The Great Depression, that increased government spending during the The Great Depression extended the problem. An interesting bit of trivia is that Friedrich Hayek’s 1944 book, Road to Serfdom, recently made #7 on the Amazon best seller list. Here is the cartoon version,  One of current economic questions that concerns our future is whether government spending on expanding welfare and unemployment benefits is better at stimulating job growth than spending on road construction and defense. Here is an excerpt on the Wall Street Journal view on the subject. Although I do not believe the “Keynesian multiplier” is negative, I suspect the multiplier is less than one. As Senator Levin might complain, “The stimulus was a sh***y deal”.

President Obama’s tragic mistake was to blow out the U.S. federal balance sheet on spending that has produced little bang for the buck. The fantastical Keynesian notion (the "multiplier") that $1 of spending produces $1.50 in growth was long ago demolished by Harvard’s Robert Barro, among others. That $1 in spending has to come from somewhere, which means in taxes or borrowing from productive parts of the private economy. Given that so much of the U.S. stimulus went for transfer payments such as Medicaid and unemployment insurance, the "multiplier" has almost certainly been negative.


My inner engineer has been painfully searching for the technical details of the BP spill disaster. For a disaster with so much publicity I find it amazing that the technical details of how the well failed and how the oil companies are implementing new safeguards to make sure it does not happen on any existing or proposed wells is not discussed by the media. In fact most of my links I collected on the subject over the last couple of weeks no longer work. The best source on the subject that I found is The Oil Drum. The administration has been remarkably quiet at justifying the drilling moratorium and almost no effort at getting ahead of this issue since it has a major economic effect on the Gulf states. So I was not surprised Judge Feldman’s decision. The interesting issue for me is how the BP spill was handled compared to how the FAA handles an airplane crash. I remember several times the FAA grounded planes for inspection and repairs. If you use the FAA as your benchmark there are some fundamental problems with the way the MMS and the administration handled this problem. You do not need to complete the review to start implementing new safeguards. If these new safeguards have already been implemented by the oil and the drilling companies, these companies need to start re-establishing public confidence long before the MMS and the administration gets their act together.

Here is another interesting article about rising tax rates. I know several Democratic pundits have argued that we are the most under-taxed people but my gut and my checking account agrees with this article.

Here’s why: taxes are already rising to record levels, with or without legislative changes. It’s not clear why they should rise further, as Hoyer urges.

“If tax increases of this magnitude were proposed explicitly, there’s little chance they could pass Congress.”

As I argued in the Wall Street Journal in 2008, the income tax code is inadequately indexed for the growth of incomes. The income tax brackets””the dollar amounts that designate the tax rates that apply to an individual’s income””are indexed only for inflation, while incomes tend to rise about 1 percent faster than inflation each year. The result is that a greater and greater share of individuals’ incomes will fall into higher tax brackets, increasing taxes even if the formal tax rates remain the same.

The effects of this are larger than you’d think. According to Congressional Budget Office (CBO) data, individual income tax receipts averaged 8.15 percent of Gross Domestic Product from 1953 through 2008. Due to the recession, this year they’re projected to equal around 8 percent of GDP.