Do As I Say, Not As I Do

Joe Biden says that you should give him more of your money so that he can send it to those who need it. But how generous Joe has been with his own money? Up until he became Vice-President and his tax returns attracted scrutiny, the Bidens never gave more than $1000 in charitable gifts. It's always easy to be generous with other people's money.

Underestimating the Overtaxed

A recent Rasmussen poll reveals the incredible difficulty of overcoming false perceptions when it comes to the level of taxation.

56% of Americans think they we are "overtaxed" today. Okay.  Only a bit more than half. Not too disturbing until you look at the numbers from another recent poll which asked what they thought someone with a gross income of $60,000 paid in combined income and payroll taxes. Only 11% gave the correct answer, which was "more than $15,000".

So if 56% of Americans think we are overtaxed now, imagine what the number would be if they knew what the actual level of taxes was!

Bond/Equity Divergence

There is no doubt that the public has been rejecting stocks in favor of bonds over the last five years. The equity markets are seen as "risky" and the bond markets as "safe", and with so much economic uncertainty around the world, investors are opting for "safe".





But history tells us that there is also no doubt that this pattern cannot continue. It will reverse at some time. And when it does, it will do so rapidly -- just like the tech stock reversal in 2000 and the housing investment reversal in 2007. The timing is what is unknown, and with investor mindset increasingly short-term, that's an important question. Remember the famous "call" by economist Robert Shiller that stocks were "irrationally exuberant"? It was made in 1996 -- four years before the market peak. I suspect equity weakness will continue until the prospects for growth appear much better, and that won't happen until governments stop draining the private sector to support the unsustainable and uneconomic levels of spending they have adopted over the last 25 years. When will that happen? We'll get one clue for the US in November and another when the EU reaches a true crisis point.

Not Like Europe?

Recently one of the more often invoked warnings has been: We don't want to become like Europe running up unsustainable debt. Guess what. We're leaving them in the dust.

Reality vs. Hope

A critical question in this election -- especially now that the selection of Paul Ryan makes it more likely that real economic issues will be discussed -- is how much economic reality the American public will be able to swallow this year. A majority (or close to majority) of the public has a vested interest in rejecting economic realities in favor of wishful thinking (in 2008 they called it Hope).


Reality says “that which you tax you get less of, and that which you subsidize you get more of”. Hope says you can increase taxes on producers (e.g. younger workers and entrepreneurs) to support non-producers (e.g. retirees and welfare slugs) without affecting economic growth.

Reality says that Medicare “as we know it” is unsustainable. Hope says we can squeeze out another few years before the sh*t really hits the fan.

Reality says all decisions involve tradeoffs. Hope says that Wise Men can treat resources as unlimited.

Reality says you cannot borrow to a point where debt service consumes much of your future production. Hope says The Rich will cover it.


Reality says that wages are determined by what you can produce that is valuable to others. Hope says that wages should be determined by what seems "fair".

Reality says that in order to cut up pies, you must first produce them. Hope says that pies are a given, and that the real question is how big each person’s slice should be.

Reality says that everything government spends must first be taken from the private sector. Hope says that government can create economic activity by spending other people’s money.

Reality says that economic decisions are best made by people when they vote with their own dollars. Hope says that economic decisions are best made by people when they vote at the polls to use other people's dollars.

Reality says that the only way you can lose weight is to exercise more and eat less. Hope says that there is a pill you can take or a device you can buy on QVC that will cause you to lose weight.

Reality says that children have to grow up to be adults. Hope says that, like Peter Pan, you don’t have to grow up if you simply wish hard enough.

In short, Reality sucks. It involves more effort than much of our current population seems willing to exert. The promises of Hope are always just one more government program away.

Tax Breaks for Oil Companies

How many times have you heard someone claim that we need to get rid of "tax breaks for oil companies". The next time you hear that comment you might actually want to ask what they think is the current level of taxation. Below is a summary of taxes and profit from Exxon-Mobil over the last ten years. It's paid taxes equal to roughly THREE TIMES their profit. Is this still not enough? And from whom does Exxon get the money to pay those taxes? For the most part it would be the customers who buy Exxon's products. That would be you.

The Incredible Shrinking Workforce

Headline from the Seattle Times last week: Encouraging Job Numbers*. Yes, there were more new jobs created in July than in June, but this is a bit like getting excited that the Mariners scored more runs yesterday than they did the day before. Neither observation addresses the underlying nature of what's really happening.

In July, the labor force participation rate fell to 63.7%. Over the last twelve years this rate has been dropping steadily . What do you do when you drop out of the labor force? One way or the other you live off the produce of those who are still working.

You simply cannot have a growth economy based on fewer people working and more people not working.  And it not likely that government practices which penalize people who work in order to subsidize people who don't will turn that trend around. This is not something that can be cured with a stimulus bill or a temporary reduction in payroll taxes or even a change of administrations. This is something that requires a fundamental change in economic thinking.

* Do you remember what the headline was in July, 2008 when unemployment ticked up to 5.7%?