May 27, 2018

The Jobs and GDP Growth Aren’t There Because Taxes Weren’t Really Cut

s and p one year triangleU.S. stock markets remain volatile and their direction uncertain, although the S&P 500 may have broken out of what technical traders would call a “bullish triangle,” which began forming after the market fell approximately 12 percent in early February from a high of 2,872 the previous month. However, traders will also tell you every technical pattern can tell at least two stories. One must look to the fundamentals for confirmation, and they have been anything but unanimous on the underlying economy.

Stagnant Growth

Corporate earnings have been strong, but that may not be a real indicator of economic growth as much of the earnings per share increases are due to stock buybacks rather than organically increasing profits. And jobs numbers continue to disappoint. Not only did April’s number come in lower than expectations, January’s number was adjusted down by a whopping 63,000 jobs.

Job growth for the first four months of 2018 is still ahead of 2017, but by a lot less than previously thought and we don’t know if March and April numbers will be adjusted downward. Consumer spending remains weak, and surging energy prices, especially gasoline, may continue to eat up what would otherwise be discretionary spending dollars for average households. While unemployment is at or near record lows, so is workforce participation, a statistic conservatives seem to have completely forgotten about since President Trump was inaugurated.

GDP growth slightly beat expectations at 2.3 percent but is far below the 5.4 percent predicted by the Atlanta Federal Reserve just two months ago. Despite missing the real number by a country mile, the same institution isnow predicting 4.0 percent growth for Q2. Why should anyone expect this “irrational exuberance” to be any more accurate than last quarter’s?

Tax Cuts?

The trump card (pun intended) is supposed to be tax cuts. Although they obviously haven’t delivered the jobs or growth promised to date, sooner or later the supposedly smaller slice the government is taking must result in more domestic investment, jobs, production, and growth.

The problem is taxes haven’t really been cut. They’ve simply been deferred. The federal government is going to spend more this year, and every year for the foreseeable future, than in any year in U.S. history. That spending is ultimately going to be paid with taxes, either now or in the future.

Read the rest at Foundation for Economic Education…

Why the Bull Market May Be a Jedi Mind Trick

Publication1The Bureau of Labor Statistics reported Friday that over 300,000 jobs were created in February, making it the best single-month total since July 2016. And unless you’ve been exploring the Arctic Circle or were kicked off Twitter for expressing politically incorrect views, you know that’s just the latest “great” news about the booming economy, bull market in stocks, and, best of all, the significant new job creation since Donald Trump became president.

Certainly, there is no denying that the stock market has continued to rise, with the S&P 500 up over 27 percent since 11/7/2016, as of this writing. But as for the overall economy and, specifically, job creation, even the Trump-hating liberal media seems to have fallen for an economic Jedi mind trick. Regardless of single-month spikes like the one that occurred last month, it only takes one click of the mouse to see that job creation continued to fallin 2017, as it had the previous two years. Looking at yearly totals over the past ten years, job creation looks a lot more like a protracted version of the last business cycle leading up to the 2008 crash.

Read the rest at Foundation for Economic Education…

Tom Mullen is the author of Where Do Conservatives and Liberals Come From? And What Ever Happened to Life, Liberty and the Pursuit of Happiness? Part One and A Return to Common Sense: Reawakening Liberty in the Inhabitants of America.

Economics Was Invented to Refute Trump’s Tariff Arguments

twoboatsWhen Adam Smith wrote Wealth of Nations, it wasn’t to refute the “godless socialists” 21st-century Republican voters believe are taking over the world. It was to refute the kinds of protectionist ideas championed by conservatives like Edmund Burke and Alexander Hamilton in Smith’s day, Abraham Lincoln eighty years later, and Trump today.

Bastiat remade Smith’s case in 1848. Henry Hazlitt did so again in 1946. Still, these economic fallacies persist because they offer the victims of other bad economic policies villains they can blame for largely self-inflicted wounds.

The Broken Window Fallacy

Every time a Trump supporter sees “Made in China” on a pair of sneakers, he throws up his hands and says, “Do you see that? They’re stealing our manufacturing jobs.” He then repeats a version of Bastiat’s broken windowfallacy. It goes something like this:

China puts tariffs on our products so our exports can’t compete in its markets. But we don’t put tariffs on China’s exports, making their sneakers cheaper than we can make them here. American sneaker manufacturing jobs go to China, but no Chinese manufacturing jobs come to the United States.

Not only do millions of Americans lose their jobs, say the protectionists, but all of the money they would have spent domestically is instead spent in China. This causes other American businesses to fail, cut production, or not expand as much as they otherwise would. The unemployed American factory worker doesn’t eat out at the local restaurant. The restaurant needs fewer wait staff and cooks, who in turn don’t have money to spend on new clothing, etc.

As Bastiat would say, this is “what is seen.” But their argument ignores what is unseen.

What is unseen is the money American consumers no longer have when the tariffs are put in place. For example, the tariff may result in them paying $200 for the same pair of sneakers they previously paid $100 for. That means they no longer have $100 they previously had after buying the sneakers, which they could spend on other products. Whatever jobs they were supporting with that $100 are now lost.

Read the rest at Foundation for Economic Education…

Trump and His Supporters Make the Bubble Economy Great Again

blowingbubbles“Well, you know, the participation rate is going to go down over time because all these boomers are retiring,” said Jon Hilsenrath on Fox Business’ “Mornings with Maria” Friday. Hilsenrath, a frequent guest, was referring to the labor participation rate, which measures the overall percentage of workers who are presently employed. It differs from the unemployment rate in that the latter only counts those actively looking for work.

The Participation Rate

Hilsenrath’s statement would have been rather uncontroversial if it weren’t for the previous, eight-year cacophony from conservatives on how falling unemployment numbers were misleading. After every jobs report during Obama’s presidency, Republicans would, without fail, point out falling participation rate numbers, concluding, “People aren’t going back to work; they’re just giving up looking for work.”

While there undoubtedly were some conservatives who acknowledged that some part of the participation rate decline represented people who were just retiring (perhaps even Hilsenrath himself), this writer never heard it mentioned on a conservative program once. Not a single time in eight years.

Perhaps aware of the context, Hilsenrath went on to say, “The fact that it’s held steady is a sign that people that aren’t aging, you know, older people, are coming back into the labor force and that’s a good sign. I’m watching the unemployment rate today. We talked about this earlier. If it goes below four percent, then that shows me an economy on fire.”

Not to pile on, but even the participation rate “holding steady” began during Obama’s presidency, the last dip below 63 percent coming in 2015, followed by a recovery to 63 percent in early 2016 that has held steady ever since.

The President Doesn’t Really Matter

This is not meant as an endorsement of Obama’s economic policies nor necessarily criticism of President Trump’s. Rather, it is an acknowledgment that long-term trends in these metrics haven’t really changed since 2010, other than a leveling off in the labor participation rate, and neither president has had much to do with them, regardless of what they or their supporters would like you to think.

Read the rest at Foundation for Economic Education…

Tom Mullen is the author of Where Do Conservatives and Liberals Come From? And What Ever Happened to Life, Liberty and the Pursuit of Happiness? Part One and A Return to Common Sense: Reawakening Liberty in the Inhabitants of America.

You Deserve a Tax Break and Your Boss Does Too

taxbreak_mini 3Republicans during the Reagan and Bush administrations had a pretty straightforward fiscal policy: increase federal spending dramatically and cut marginal income tax rates modestly, predicting the resulting economic growth would eventually balance the budget. Both administrations increased spending roughly 80-100 percent, depending upon where you draw the start and end lines, given the government’s fiscal year running October 1 – September 30. Predictably, federal debt exploded during both administrations.

This time around, some things are the same, but some are different. The predictable (and predicted) growth of entitlements and the quasi-religious belief military spending must always increase (the military must be “rebuilt!”) has produced what should be a frightening result: federal debt doubled during a Democratic administration under which federal spending increased a mere 28-33 percent, again depending on where you draw the lines.

It’s All Class Warfare

So, the usual Republican modus operandi is not going to fly this time around. Not only have Republicans run on making government smaller, before again blowing up spending once they got in power, but they’ve railed for eight years against Obama’s debt legacy.

They can’t just ignore deficits as they have in the past and expect to win again in future elections, so they’re left with only one choice: “reform” the tax code so it collects the same or more revenue and sell it as a tax cut.

That’s not to say it’s going to work. Federal tax revenue will likely decrease overall under their plan, despite their efforts to raise taxes on some people while cutting them for others. But Republicans can ignore reality as well as Democrats when they need to. If you doubt that, ask any ten Republicans at random if the government got bigger or smaller while Reagan was president.

Republicans are also virtually identical to Democrats in their Marxist view of society.For Republicans, just like Democrats and communists, it is made up of different “classes” of people, competing with each other in a zero-sum game for pieces of a static, finite “pie.” This is explicit in their rhetoric about “tax cuts for the middle class” or the sublimely obtuse “working class” (doesn’t anyone generating an income, large or small, work?)

While it’s true the idea of classes in society predates Marx, it is his vision which dominates the tax code, most strikingly in its assumption there is some fundamental difference between employees of going concerns and owners.

Read the rest at Foundation for Economic Education…

Tom Mullen is the author of Where Do Conservatives and Liberals Come From? And What Ever Happened to Life, Liberty and the Pursuit of Happiness? Part One and A Return to Common Sense: Reawakening Liberty in the Inhabitants of America.

An Extended Tax Reform Debate Will Subject Us to the Usual Absurdities

liarJohn McCain’s confirmation he’d vote against the House tax reform bill as currently proposed means Republicans won’t be able to lower taxes – for some people – nearly as quickly as most of them want to. In all, three Republican senators have indicated their unwillingness to vote for the plan, meaning Republicans would need Democratic votes to get it through.

As Democratic support is unlikely, the American public will have to endure several weeks or months of grandstanding, proposed amendments, and further neutering of any real benefit to taxpayers. The worst thing about these rituals is they are always largely a debate over absurdities. Here are just a few of the perennial favorites.

Over Ten Years

Both sides of any tax and spending debate use the “over ten years” canard. Those politicians claiming their plan will “balance the budget” claim their bill will do so in ten years, always after increasing spending this year. Those opposing the same plan will pick out spending lines they don’t like, whether increases, decreases, or new spending, and use the ten-year canard to make the impact seem bigger than it is.

For example, if Republicans proposed cutting $100 billion from domestic spending (a mere 2.5% of the overall federal budget), Democrats would wail Republicans were depriving the public of $1 trillion of desperately needed services. Republicans would claim they were saving taxpayers $1 trillion. Neither side would acknowledge the $1 trillion is a rather small percentage of the ten-year federal budget.

In reality, Congress has no power to pass any bill that can’t be changed in as little as two years. Spending bills are debated every year. So, anything politicians say and the media parrot regarding a spending bill’s effects over the next ten years is largely hot air. All that really matters is what their proposals will do next year. And that news is virtually never good.

Read the rest at Foundation for Economic Education…

Tom Mullen is the author of Where Do Conservatives and Liberals Come From? And What Ever Happened to Life, Liberty and the Pursuit of Happiness? Part One and A Return to Common Sense: Reawakening Liberty in the Inhabitants of America.

Trump’s Embargo on North Korea Is the Precursor to a War

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Not even President Trump’s harshest critics blame him for creating the North Korean problem. The Kim Jong-Un regime’s nuclear weapons capabilities and willingness to brandish them goes back over a decade, to when Kim’s father was still the ruler.

And while each successive U.S. administration has approached North Korea slightly differently, one thing has remained constant: tens of thousands of U.S. troops on North Korea’s border, maintaining a standoff that just passed its sixty-fourth year.

The other constant, since North Korea’s first nuclear weapons test in 2006, has been economic sanctions imposed on the regime under the auspices of the U.N. Security Council. These sanctions began strictly limited to trade directly related to the regime’s nuclear program and gradually widened to include financial and other trade categories.

One need only read this morning’s headlines to judge their effectiveness.

But over the weekend, President Trump saw every president before him and raised them with this tweet:

Read the rest at Foundation for Economic Education…

 Tom Mullen is the author of Where Do Conservatives and Liberals Come From? And What Ever Happened to Life, Liberty and the Pursuit of Happiness? Part One and A Return to Common Sense: Reawakening Liberty in the Inhabitants of America.

“Price Gouging” in the real world.

waterArt1Whenever there is a natural disaster, we see two things: the best in human generosity, courage and resilience and the worst in economic ignorance. The former includes individuals rescuing stranded neighbors, volunteers lining up to join charity relief efforts, and corporations martialing their vast resources to pour needed items such as food, bottled water and clothing into devastated areas. The latter includes “economists” repeating the age old broken window fallacy and politicians denouncing and threatening so-called “price gougers.”

Emotions run high during disasters, which is a double-edged sword. The outpouring of sympathy for the victims leads to extraordinary efforts in assistance. But it also leads to irrational resentment of those whose actions are often vital to human survival, but whose motives are judged inferior. These are, of course, the aforementioned price gougers.

One of the weaknesses in rational responses to the accusation of price gouging is just that: they appeal to reason when the accusation is born of emotion. And that disconnect is an irrevocable one until the accuser can be persuaded to look at the situation reasonably. But once so persuaded, the accuser often voices the understandable objection that economic arguments rooted in supply and demand charts and theory are too removed from what the accuser considers “the real world.”

Here, then, is a “real world” scenario in which the actors respond to incentives just as anyone in similar situations have countless times in the past:

There is a hurricane and flooding. Drinkable water is in short supply. A man has $100. He needs a case of water to get his family of three through the week.

He walks into the store, where water is $25/case. There are 4 cases left on the shelf. He needs one, but  can afford 4 and he doesn’t know how long the emergency will last. So, he buys all 4 cases.

Immediately afterwards, a family of five walks into the store with $100. There is no water to buy at any price. This family is now in desperate straits and must look elsewhere to procure what they need to survive.

Can anyone dispute the actors in this little parable have acted rationally and precisely as they would in the real world? No. Neither have any acted in a malicious or overly selfish manner. All have made the best choices among the alternatives presented them.

Now, change the price of a case of water in the above scenario to $100/case. What would be different? Of course, the man with a family of three would now only be able to buy one case of water, giving him what his family needs, but not necessarily as much insurance against future uncertainty as he would like. He gives up a little, but the family of five whose survival was in grave danger in the $25/case scenario is now able to purchase at least one case of water.

In the latter scenario, both families have enough to survive and a strong incentive to conserve water, thereby reducing demand and lowering its price, all other things being equal.

The so-called “price gougers” may have acted in their own interests, but they have not only benefited society economically, they have saved the lives of the family of five. Thus, Adam Smith’s 241-year-old “invisible hand” is confirmed by the real world yet again.

But there are still those who claim that, while the price gougers have acted rationally and within their rights and may even have inadvertently benefited others, they have still acted immorally. In the case of the recent hurricane in Texas, many say,

“No, you don’t understand. Many of these people aren’t even from Houston. They knew the hurricane was coming and bought up a bunch of water at regular prices, with the express intent of coming to Houston and selling it for huge profits, while others were giving water away for free. That’s immoral!”

First, anyone selling water at any price is obviously serving people who don’t have access to the free water. If the buyers had access to free water, they wouldn’t pay for it, at inflated prices or not.

Second, this sanctimonious moralizing begs the question, “Why didn’t you buy up a bunch of water and go to Houston and sell it at regular prices?”

The answers to the latter question are many, but they can be summarized as follows: most people do not have the time, capital or expertise to do what the price gougers did. Who can afford to take off from their own job or cease running their own business to start a whole new one on a few days notice, much less donate their time? Some can, but not most, which is why after all those who can be by charitable work are served, there is still a market for those seeking profits.

Lost in all the moralizing is the reality that the so-called price gougers face all the same challenges as anyone else, having to forego whatever income they otherwise would have earned if not for their disaster-relief project, and face the risk of losing future income because they took off from their jobs or put their own regular businesses on hold. These losses and risks must be compensated, which is another reason they sell products at a premium price, in addition to supply/demand realities.

Thus, in the real world, even with as many people as are able acting as charitably as possible, there is a need for those seeking profits from higher-than-normal margins, whose self-interested actions save lives and mitigate the devastating effects of disasters. Yet, the rest of the world condemn them and governments seek to punish them, threatening not only the price gougers, but those whose lives they may save or whose suffering they may lessen during the next disaster.

Tom Mullen is the author of Where Do Conservatives and Liberals Come From? And What Ever Happened to Life, Liberty and the Pursuit of Happiness? Part One and A Return to Common Sense: Reawakening Liberty in the Inhabitants of America.

Trolling Bernie Sanders Part 1

I know. It’s a little like when Kramer was beating up those ten and twelve-year-old kids at his karate school on Seinfeld. But it’s just too hard to resist trolling the commie con man, if for no other reason than to expose him to his confused supporters. So, by popular demand, some highlights from my past few months trolling Bernie.

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Tom Mullen is the author of Where Do Conservatives and Liberals Come From? And What Ever Happened to Life, Liberty and the Pursuit of Happiness? Part One and A Return to Common Sense: Reawakening Liberty in the Inhabitants of America.

In Defense of Henry Potter in It’s a Wonderful Life


lionel-barrymore-its-a-wonderful-lifeDecember is upon us and that means plentiful opportunities to watch the enduring classic, It’s a Wonderful Life. Unfortunately, the overwhelming majority of viewers completely misinterpret heroic Roosevelt-hater and anti-New Dealer Frank Capra’s dystopian nightmare as a heartwarming Christmas tale. And while this writer likely can’t overcome the emotional appeal of angels getting their wings and other fanciful tripe in the film that help convince audiences to accept absurd economic fallacies, perhaps I can at least disabuse them of the vicious slanders they have heretofore accepted regarding the film’s hero, Henry Potter.

We first hear of Potter from George Bailey’s father, Peter Bailey, who badmouths Potter with the usual left wing falsehoods about businessmen. But during Bailey’s envious rant, we learn something important: Henry Potter is a board member of the building and loan. We later learn Potter is, in fact, a stockholder.

That puts a somewhat different light on his subsequent motion to liquidate the business upon Peter Bailey’s death. Yes, we hear George Bailey repeating the familiar socialist tropes his father did: that Potter only wants to close the building and loan because he “can’t get his hands on it” and considers the little people cattle, etc. But Potter responds with some rather inconvenient facts: the building and loan has been making bad business decisions, providing what we’d now call subprime loans to people who can’t pay them back.

We don’t know how Potter became a stockholder, but the Bailey Building and Loan does not appear to be a publicly traded company. The most likely explanation is Peter Bailey asked Potter for capital, just as George Bailey does later in the film, in between rounds of disparaging Potter as a greedy capitalist. That would be perfectly consistent with today’s “progressives,” who rail against capitalists out of one side of their faces while sucking up to them for money out of the other.

But regardless of how Potter became a stockholder, Peter Bailey has a fiduciary duty to him to run the business for maximum profit, providing Potter and the other stockholders a return on their investments, something George Bailey confirms they never intended to do. Instead, the Baileys squander their investors’ money on a do-gooder, subprime loan scheme to make everyone a homeowner. It worked out in fictional Bedford Falls about as well as it did in early 2000s America.

Meanwhile, the Baileys constantly slander Potter’s rental houses as “overpriced slums.” These are the same Baileys whose housing opportunities are more expensive than Potter’s.

Their accusations constantly beg the question: If Potter’s houses are so bad, why do so many people choose to live in them? It’s constantly implied Potter’s customers have no other choice, but what exactly does that mean? Why has no one else, including any of the businessmen on the board of the Bailey Building and Loan, developed rental properties that are higher in quality, lower in price, or both?

The inescapable truth is Potter is wealthy because he provides a product that most satisfies his customers’ preferences for quality and price. If there were an opportunity to provide a higher quality product at a lower price than Potter was charging, a competitor would do so and take market share away from Potter, until Potter either raised his quality, lowered his price, or both.

The Baileys burn with resentment that so many residents of Bedford Falls prudently choose to live in Potter’s less expensive housing than buy a house they can’t afford, financed by the Baileys’ Ponzi scheme. Thus, even after shirking their fiduciary duty to run the business properly, the Baileys spend decades assaulting Potter’s character in a transparent attempt to lure away his customers.

When the Depression hits and the Bailey Building and Loan is exposed for the fractional reserve fraud it is, Potter offers to come to the rescue with a generous offer to buy out its customers. It is noteworthy there is a run on the Bailey Building and Loan and the local bank, but Potter is financially secure enough to save them both, proving once again he is the only honorable businessman in the film.

But we must give the devil his due. George Bailey, the ultimate huckster, saves the building and loan without Potter’s help, convincing the yokel mob making a run on his business to keep their money tied up in his fundamentally insolvent confidence game.

That brings us to the one regrettable act Potter is guilty of, which is concealing the $8,000.00 the incompetent Billy Bailey inadvertently handed him while attempting to make a deposit. It’s true this was an underhanded act, although not unprovoked.

We don’t know how much Potter had invested in the Building and Loan to become a stockholder, but suspect it was a lot more than $8,000. One could make the case he was merely getting back some of the money the Baileys had previously defrauded him of, but there are courts for such matters and Potter should have sought their help if he had a case.

Nevertheless, two generations of Baileys had led a decades-long assault on Potter’s good name, resulting in most townspeople disliking him, even though he has quite literally saved their lives on numerous occasions. Without him, a large portion of Bedford Falls would be unemployed, have nowhere to live, or both. It is not an exaggeration to say that without Henry Potter, Bedford Falls would cease to exist. Yet, thanks to the Baileys, he is the most hated man in town.

Compare Potter’s vindictive reaction when George Bailey crawls to him for help after the $8,000.00 is lost to Potter’s reaction at the board meeting at the beginning of the movie. At the board meeting, Potter dismisses George’s unhinged attack upon him and redirects the discussion to the subject of the meeting: what is best for Bedford Falls. By the latter confrontation, Potter tries to have George arrested for embezzling.

Potter’s dastardly act is totally out of character with the Potter of the earlier scene or any other event we know of in Potter’s life. As far as we know, he has always been a hard-nosed, unsentimental businessman, but has never committed a crime or held a grudge, as he does now. Everything we know about Potter up to this point tells us his vindictive attempt to have George Bailey prosecuted is precisely the kind of emotional decision-making Potter has avoided for most of his life. That is why he is so wealthy at the beginning of the film.

Everyone has a breaking point. Potter had evidently reached his. Had he been prosecuted for keeping the $8,000.00, which may have been tricky from a legal standpoint, given that Billy Bailey had handed the money to him, he could easily have plead temporary insanity caused by years of psychological warfare waged against him by the Baileys.

We’ll never know, because before Potter has any opportunity to allow his passion to cool and clear up the misunderstanding, George Bailey sets off on his suicide melodrama, followed by a long, self-aggrandizing hallucination about angels and how Bedford Falls would be worse without him. By the time he concludes his childish escape from reality, the same yokels he previously conned during the Depression are now bailing him out once again, foreshadowing so many future bailouts of dishonest financiers whose assets should have been turned over to better management in bankruptcy court.

In one of the darkest moments of the film, George Bailey’s Christmas tree is jostled and one of the bells adorning it rings. George Bailey, now confident he and his fraudulent real estate scheme are safe, suggests the bell signifies an angel has earned his wings, as if his dishonest business dealings and ruthless defamation of legitimate competitors had divine sanction.

Nothing more is heard of Henry Potter, the man without whom Bedford Falls would not exist. He is left friendless and without the one thing he could cling to before George Bailey, the Devil incarnate, wrested it from his grasp: his honor. As the credits roll, evil has triumphed. The economic fallacies inherent in Baileyism become accepted truth, resulting in disaster after disaster, including the most recent in 2008.

Tom Mullen is the author of Where Do Conservatives and Liberals Come From? And What Ever Happened to Life, Liberty and the Pursuit of Happiness? Part One and A Return to Common Sense: Reawakening Liberty in the Inhabitants of America.