Now that President Obama has submitted a stimulus package I am struck by the fact that the Republican in have returned to their standard of trying to stimulate business through tax breaks and tax credits. They use the excuse that businesses will hire more people if government would only give businesses tax credits for every additional person they hire. The problem is that this is pure bull ****. The demand for labor is derived from the demand for the goods and services businesses sell. When businesses get stimulus credits they are only applying for money based upon people they would have hired anyway. They believe that they are not doing anything wrong because they feel that the money is going for hiring people and since they’re hiring, why shouldn’t they get the stimulus money. The forms that are completed merely move numbers around to prove that the stimulus got them to do the hiring. It is a shell game on a massive scale.
To understand what I’m talking about you only need to look at the CFO.com article of Sept. 24, 2005 entitled “Tax Breaks Don’t Boost Investment.” This article looked at the effect of tax credits on business investment and found that the companies with tax breaks cut their investments by 22%. The article concluded that investment was based more on the demand for a company’s goods than on the cost of making the investment. In other words, the demand for any production input is based upon the demand for the goods and service the inputs produce not on an artificially reduced price of the input. The only effect of the incentives is to increase after tax profits. Investing in tax credits for hiring will get you the same returns as you would have earned with Bernie Madoff.
Almost every human endeavor has economic implications. As a result, this blog will be addressing many issues. Some of the issues will obviously be economic in nature. Other issues will have strong economic implications. Either way, the discussions are on topic.
Friday, January 23, 2009
Wednesday, January 07, 2009
On Proportionate Responses
The recent actions by Israel have been condemned by many churches and governments. Their main complaint is that the Israeli actions are out of proportion to the Hamas offenses. They imply that they would not be condemning Israel if the responses had been proportional. We need to look at this issue in light of the facts:
1. Hamas launches rockets into Israel specifically aimed at civilian targets.
2. Hamas places its leadership and military centers specifically in civilian locations
3. Hamas locates rocket launchers in or near schools, hospitals, and civilian neighborhoods
4. Israel tries to target only Hamas leadership, military, and launching sites
Given these established facts, we can only conclude that:
1. Hamas doesn’t make a distinction between civilians and combatants unless it meets its political agenda
2. This agenda places Palestinian civilian at risk intentionally.
3. Hamas wants to increase Palestinian civilian casualties because it makes Israel look bad
Given these fact and conclusions I have to conclude that the criticizing governments and churches want the following actions that would be proportional responses:
1. Israel should start lobbing rockets into civilian neighborhoods regardless of whether Hamas has facilities there
2. Israel should make elimination of any concept of a Palestinian State a part of its political goals in the same manner that Hamas has the elimination of Israel on its agenda
3. Hamas fighters captured in battle should be held without notification of their being held.
4. Bodies of Hamas fighters killed in battle should be held and implications made that they are alive and will be returned if certain concessions are made by Hamas.
Do the churches and governments really want proportional responses? If they do, they will be instrumental in perpetrating a higher level of civilian suffering than has been seen to date.
1. Hamas launches rockets into Israel specifically aimed at civilian targets.
2. Hamas places its leadership and military centers specifically in civilian locations
3. Hamas locates rocket launchers in or near schools, hospitals, and civilian neighborhoods
4. Israel tries to target only Hamas leadership, military, and launching sites
Given these established facts, we can only conclude that:
1. Hamas doesn’t make a distinction between civilians and combatants unless it meets its political agenda
2. This agenda places Palestinian civilian at risk intentionally.
3. Hamas wants to increase Palestinian civilian casualties because it makes Israel look bad
Given these fact and conclusions I have to conclude that the criticizing governments and churches want the following actions that would be proportional responses:
1. Israel should start lobbing rockets into civilian neighborhoods regardless of whether Hamas has facilities there
2. Israel should make elimination of any concept of a Palestinian State a part of its political goals in the same manner that Hamas has the elimination of Israel on its agenda
3. Hamas fighters captured in battle should be held without notification of their being held.
4. Bodies of Hamas fighters killed in battle should be held and implications made that they are alive and will be returned if certain concessions are made by Hamas.
Do the churches and governments really want proportional responses? If they do, they will be instrumental in perpetrating a higher level of civilian suffering than has been seen to date.
Friday, January 02, 2009
STOP BLAMING FDR
Paul Krugman and other economists have been attributing the 1937 recession to actions by FDR. They say he was merely following advice regarding the attempt to cut spending and balance the budget. However, whatever FDR did, there still would have been a recession. This is because the Fed, which is independent of the executive, raised the reserve requirement substantially during the same period. From 1917 until August 1936 the Central Reserve City Banks had a reserve requirement of 13% Starting if August of 1936, through May if 1937 , the Fed raised the rate to 26%. The rate for Reserve City Banks went from 10% to 20% an d for country banks the rate went from 7% to 14%.
The reserve requirement is the percentage of deposits that banks are required to hold at the Fed. This is money that cannot be loaned out. If the reserve requirement is raised banks have to either gather in a large number of new deposits and/or reduce lending. Given that the recovery was still ongoing, substantially increasing deposits was problematical. Instead, given the substantial increase in the Reserve Requirement, banks had to virtually halt all new lending. This alone would have caused what we now call a recession. (Note: I believe that FDR coined the term "recession" as a description of a slowdown in economic activity at this time)
So stop blaming FDR.
The reserve requirement is the percentage of deposits that banks are required to hold at the Fed. This is money that cannot be loaned out. If the reserve requirement is raised banks have to either gather in a large number of new deposits and/or reduce lending. Given that the recovery was still ongoing, substantially increasing deposits was problematical. Instead, given the substantial increase in the Reserve Requirement, banks had to virtually halt all new lending. This alone would have caused what we now call a recession. (Note: I believe that FDR coined the term "recession" as a description of a slowdown in economic activity at this time)
So stop blaming FDR.