The View From 1776

Democrats, the Fed, and Milton Friedman

Liberal Democrats are economic ignoramuses and they hope that the voters are too.

Posted by .(JavaScript must be enabled to view this email address) on 11/22 at 01:32 AM
  1. Mr. Brewton, is the huge deficit under Bush part of your sound economic practices? Is it an means to an end?

    One idea Milton Friedman helped put into practice that he regretted was the payroll tax, allowing the government to immediately tax people's earned income.

    In being party to this practice Friedman felt that he had a hand in the growth of government, because this easy access to cash propelled government. Big government went against his beliefs. Even under Margaret Thatcher, an exponent of Friedman's principles of laissez faire economics, government grew in size.

    Margaret Thatcher did warn about unintended consequences. Milton Friedman did leave us with some unintended consequences.
    Posted by .(JavaScript must be enabled to view this email address)  on  11/22  at  09:46 AM
  2. You are correct David that Bush has contributed to the problem in that he didn't veto what Congress passed and actually supported much of what they passed. He fell for the Government spending trap to create jobs. He fell for socialism's feel good policies. But, this is nothing new. We have done it for decades with each decade raising the debt. Even under Clinton the debt went up every year, just not as fast. Just like now that tax revenues from business has risen dramatically and reduced the rate of growth in debt but not the growth itself, we see debt rising still.

    As long as we have the "tax the wealthy and business" policies that drive business and better paying jobs out of the U.S. and mandatory COLA increases on entitlement spending, we will continue to increase the debt. If we try to raise taxes, we will get a short burst of tax revenue followed by a decline as more business and investment wealth leave the U.S. like it always does once the lag factor kicks in.

    Here is a good graph of Corporate profits as a percent of GDP. I have added the terms of Presidents and who controlled Congress during the years the chart covers. As you can see, credit and blame can go to both parties.

    As you can see, we were driving profits and thus tax revenues from profits down every decade for 50 years with two things. Our own policies and the policies of other nations that began to compete with us for business, wealth, and jobs. They increased their tax revenues at the same time, too.

    However, the real enemy which you correctly touched on was employee taxes. When we passed the 16th amendment we set the stage for what we see now. Don't get me wrong, we would have still paid taxes to support the federal government but the states would have collected them based on how the people in each state wanted them collected and whether they came from paychecks or other tax methods, "we the people" would have been in contro. The ability of the Federal government to tax individuals was greatly feared by the founders. The Supreme Court ruling that allowed "direct tax" on wages was the nail in the coffin for that constitutional roadblock. (yet many say that ruling has been mis-interpreted)

    Some courts say the income tax is a direct tax, whereas other courts say it is an indirect tax. It gets even worse, there are court rulings saying that the income tax is both direct and indirect, that it is neither or that the issue is irrelevant.

    Direct tax or indirect tax?

    At the time the Constitution was written in 1787, there were only two authorities upon which the framers relied for the terms
    Posted by JanPBurr  on  11/22  at  01:28 PM
  3. Mr. Airth's comment is not correct with regard to:

    "One idea Milton Friedman helped put into practice that he regretted was the payroll tax, allowing the government to immediately tax people
    Posted by .(JavaScript must be enabled to view this email address)  on  11/22  at  04:15 PM
  4. Mr. Brewton, this is what I read in an obituary:
    Posted by .(JavaScript must be enabled to view this email address)  on  11/22  at  05:49 PM
  5. I found an interesting article about Milton Friedman and the fog that exists between the ideas of liberal and conservative. (He often insisted that he was not a conservative but a "whig" liberal.) It certainly squares with the difficulty I've had in defining the two concepts.

    Here is the link.
    Posted by .(JavaScript must be enabled to view this email address)  on  11/23  at  04:34 PM
  6. I agree with both sides of the comments thus far. In a nutshell, (1) the Republicans have not done a good job of avoiding unnecessary spending that has burgeoned our deficits and national debt, giving unnecessary popularity to the failed claims of the liberals, and (2) democrats really don't have a clue as to how stop meddling and to let an economy take care of itself.

    Both parties are full of themselves rather than what is best for the country, but if I were compelled to chose, I would be with the Republicans.

    God be praised that I am not thus compelled.
    Posted by Frank Staheli  on  11/24  at  05:24 PM
  7. I know how readers of this column feel about the "liberal media", but I think this analysis by James Surowiecki in a recent issue of the New Yorker is relevant. The focus is how the stock market reacts to elections, which is a reasonable proxy for the economy as a whole.

    Regarding the 2006 midterm elections:
    "Wall Street pundits forecast a future of tax hikes and new regulations, and suggested that if Democrats took both the House and the Senate there would be a
    Posted by .(JavaScript must be enabled to view this email address)  on  11/27  at  12:15 PM
  8. Actually, it depends on which market. The stock market looks good but the bond market which has more investors, I believe, thinks we are in for a recession in 2007. It will take the "shake-out" time for us to know what will happen. Also, some of the markert uphoria is over a "gridlocked" Congress in which each side has the potential to block the other's bad policies. The stock market actually prefers "less government" as happens when neither party can advance great spending programs or significant changes in taxes.

    Even many democrats are saying that not much change will be forth-coming but, that will depend on how influencial the leadership is over new Democrats that ran on "reduced spending." Also, a common mistake on tax rate changes is to look at the short term. It usually takes a couple of years before the real impact is felt in Business. The best way to look at it is over "decades" to see what is the real trend. Here at the Tree of Liberty forum is a graph that shows who was in the White House, and how had control of Congress for the last 70 years.

    Thanks to John Mauldin at InvestorsInsight we can get a better picture of the long term trends and his weekly email alerts have been covering the housing downturn, it future effects in 2007 (about 2 years after it started which is about right) the bond market and its differing view of the economy from the Stock Market, and also what is going on in the world market we now have to compete in more than ever.

    I think we will see a good market or at worst a sideways market for a few months before we get the downturn most are saying must happen due to our economic policies.

    What I also find is that very few economic analysts are trustworthy because few are of the caliber of a Friedman and even he, had a hard time because the world market is changing so fast that the impact of it can sometimes outweigh what happens here in domestic policy. We are, for example, not having as much loss of buying power because the Chinese, India, Taiwan, Vietnam, etc. grwoth is pumping low price goods into America for workers with stagnamt wages to maintain a fairly high standard of living. But, the manufacturing jobs continue to leave as do many high tech jobs.

    The tax cuts we got helped but they are the wrong kind. Tax cuts to workers are popular and easier to pass but the tax cuts Ireland did where they left taxes high on workers and cut taxes on wealthy investors and Business income are harder to pass but in the long run grow economies and eventually wages much faster if a nation doesn't go nuts with immigration to keep wages low.

    Also, neither party is really leading the nation well and thus, the market may look at other factors now instead of who is in power. The growth of the world market means many international, U.S. companies are profitable from their foreign operations. Thus, the stock market can continue higher if those companies are driving it even though things aren't that great.

    For example, GM is making very good profits in China and the more they shed their U.S. operations the closer they come to overall profitability. IBM, Drug companies, Microsoft, Archer Daniels. mining companies, Haliburton, Exxon, etc. are all companies that are making large amounts of money but making it overseas. Thus, you can still buy profitable U.S. stock and drive the market up, even, potentially, in a recession here if those foreign profits are high enough to keep overall profits high.

    If you look at the chart I linked to, you will see that manufacturing corporations (most are on the stock market) have become less of an impact on the U.S.GDP dropping from 30.4% in the 50's to a current 13-14%. Translate that into the stock market and you have companies that don't affect the market in the same way they use to affect it. Before, profits from overseas were a small portion of their profits. For some, now, they are the major portion of their profts. However, if we continue to see this trend and we continue to "punish" companies here, they will have no reason to stay here and pay any tax to the U.S. when they can make more and have less tax overseas.

    Posted by JanPBurr  on  11/27  at  01:36 PM
  9. Already, since Sarbanes-Oxely we are seeing more and more reluctance of foreign investment in the U.S. Also, fewer and fewer are listing on the U.S. stock market due to Sarbanes-Oxley and other expensive regulations that have to be passed on in prices.

    Again, why let the election affect much since when it comes to "big government" neither party is very different and voters aren't going to let either party significantly reform social security, Medicare, other entitlements, litigation costs, compliance costs, healthcare (going national healthcare is not reform but rather making the problem worse but voters seem to support it). Thank goodness many workers are investing more and more of their 401K's and IRA's in emerging market mutual funds or diversified funds that allow foreign investment of mutual funds from workers and investment in U.S. international companies that are making profits around the world. Those workers will do much better than those who think they will have social security to fall back on.
    Posted by JanPBurr  on  11/27  at  01:39 PM
  10. It is not just the Sarbanes-Oxely act that t is discouraging foreign investment in the U.S. A lot of these investors don't what to go through the hassle of getting the require documents to come to America to do business or deal with the draconian measures put in place by the Bush administration, because of its fight on terror.

    A separate reason why there are fewer foreign business deal in America is because places like London are more welcoming and closer to the growing business action in Asia.
    Posted by .(JavaScript must be enabled to view this email address)  on  11/27  at  04:20 PM
  11. Congress is the one that put those in place over the last 50 years. This is a trend demanded by voters to punish "big business" because we have unethical people in business just like we do in politics in both parties and voters in both parties. Immoral and unethical behavior is very popular with millions and millions of people now and our government reflects that immorality in many ways including more and more laws that are almost useless because we don't enforce the ones we have let alone the new ones.

    Instead, we the people demand they be "protected" from making bad investment and consumer decisions with more and more laws and regulation that drives the cost of goods and services up so much we start buying cheaper foreign goods and services. You can't have a moral business community in a society that is made up of immoral people who are always looking for the easy way out like "winning the lottery" so they can get rich without working for it or getting the skills that would provide them with the opportunities for that wealth.

    Instead, many think the government ought to take wealth away from those that did earn it and "give" it to those who didn't. Fortunately, other nations are realizing the futitlity of that and have abandoned much of socialism for capitalism and "ownership" by the working class.

    The Democrats are even worse in this area than Repubicans and are responsible for 40 years of business leaving the U.S. They have also blocked social security privatization which is what almost every other nation that is reforming social security programs is using. They have blocked good energy policies, good, tax policy that would stop many businesses from leaving. They want to spend even more than the Republicans have but, want to cut defense and raise taxes to pay for it.

    First, voters have to wake up and start acting morally responsible and then they have to start being active in the primaries of both parties and finding moral candidates that the people can trust to reform entitlements, curb the 100 million immigrants both parties want to bring here legally over the next 20 years, and reform our tax policy so we can compete with the tax rates of the rest of the free market economies.
    Posted by JanPBurr  on  11/27  at  05:22 PM
  12. Jan,
    You had me until here:

    "The Democrats are even worse in this area than Repubicans and are responsible for 40 years of business leaving the U.S. ... They want to spend even more than the Republicans have but, want to cut defense and raise taxes to pay for it."

    Care to back that up with some references? I find it hard to believe that anyone wants to spend more than Republicans have in the last 6 years.
    Posted by .(JavaScript must be enabled to view this email address)  on  11/28  at  10:04 AM
  13. Some people are so bias against Democrats that they will say anything to make them look bad, even if it doesn't make any sense. And we get a lot of that here.
    Posted by .(JavaScript must be enabled to view this email address)  on  11/28  at  10:52 AM
  14. Actually it was interviews on shows like meet the Press, some interviews with the leadership about how they want to increase spending on lower income but want to raise taxes on business and the top 5% of income earners. They don't make any secrets about what they want to do. They are open and honest about their agenda. They believe that socialism works. I respect them for that openess.

    I do think that now that they are in office, they will possibly find that the spending increases and tax changes are not as easy to do as they hoped. I think there will be a gridlock and that, more than either party, will bring spending down. But, if they let the tax cuts expire as they have said they may do, that is a tax increase whether they actually pass a tax increase or not. They admit that too. Education is one area they want to spend more on along with more in helping illegal immigrants, welfare recipients, healthcare, etc.

    All of their plans call for more spending in these areas. A national healthcare plan as some in the Democratic party are calling for would be a huge expense. Also, Senate bill If enacted,
    The Comprehensive Immigration Reform Act (CIRA, S.2611) would be the most dramatic change in immigration law in 80 years, allowing an estimated 103 million persons to legally immigrate to the U.S. over the next 20 years
    Posted by JanPBurr  on  11/28  at  12:07 PM
  15. There is nothing new about what the Repubicans were doing and virtually any of the spending they did, was passed by Congress and could have been blocked by Democrats. The McCain/Kennedy compromises for some of the spending is an example of how both parties were involved in those spending increases. You scratch my back and I scratch yours.

    Remember, I don't consider either party worthy of much praise. Neither party is leading the nation back to our founding principles at this time.

    When you look at their agenda, as they themselves present it, you can see they are going to have to spend more, not less. Also, if they try to use "Business" to fund it, why would you think business won't just leave and go to nations with better business policies? Why stay here and pay more when other nations are cutting the cost of doing business and taxes on business, wealthy people investing in business, and using other pro-business policies to attact our businesses to them.

    How, in a free country to do you "force" business to do anything when they can leave. Also, those that stay have to pass all, not part, but all costs on in the prices they charge. That means we lose buying power and either buy more low price foreign goods and services, or buy less of what we make here. That means we lose jobs either way which adds to welfare rolls and raises costs.

    What they want to do with energy will drive more companies to drill and seek oil in other nations, not the U.S. If they are going to promote alternate fuels, which are all more expensive than oil and subsidize them, that will increase spending, not reduce it. If they raise taxes on the wealthy, will they not invest more, not less in tax free securities? Will they not invest more overseas? Will they not put more in foundations and charitable trusts that aren't taxed?

    Name the programs that Democrats are going to impliment to make "life better" that isn't going to increase government spending? Negotiating drug prices? We are already seeing drug companies leaving the U.S. in droves and going to places like Ireland. Do you want more of that?

    Remember, we did that with vaccines and from 21 companies we have dropped to about 4 world wide now that make some of the vaccines we need causing problems during outbreaks with supply. Will "controlled prices" do what happened to gas prices in the 70's?
    The rapid increase in crude prices from 1973 to 1981 would have been much less were it not for United States energy policy during the post Embargo period. The US imposed price controls on domestically produced oil in an attempt to lessen the impact of the 1973-74 price increase. The obvious result of the price controls was that U.S. consumers of crude oil paid about 50 percent more for imports than domestic production. Put another way U.S producers received less than world market price.

    I am sure you remember that fiasco of government trying to "control prices." Drug companies are no different than oil companies in that they will go where the business policies are better. Now, if the drug companies leave, how do you force them to sell to you at a loss or low profit level?

    Currently thirteen (13) of the top fifteen (15) companies in the world have substantial operations in Ireland. In total there are eighty-three (83) facilities employing more than 17,000 people in Ireland.

    Ireland is now one of the world
    Posted by JanPBurr  on  11/28  at  12:14 PM
  16. Here is another "open" comment from a Democrat
    Posted by JanPBurr  on  11/28  at  12:28 PM
  17. Here are some more stats that show many politicians don't understand tax policy.

    Two new studies from the Tax Foundation and the Maine Heritage Policy Center drive the point home.

    The Maine study showed the ten states with the lowest taxes between 1994 and 2004 experienced 32 percent higher personal income growth and 79 percent higher employment growth than the ten states with the highest tax burden.
    Arizona's tax cuts on Business created a 1.4 billion surplus and allowed some tax cuts on personal taxes.

    That is true supply side economics. You don't start wtih tax cuts on the lower levels but on the higher levels and let the benefits trickle down kike Ireland has done for 20 years.

    What is interesting is that some nation that "did it right" have become spoiled again and are calling for some of the "old destructive" tax policies to return, I guess, in the name of "fairness." Too bad "fairness" ends up hurting the worker more than any other group of people in a nation the lets "fairness" overrule common sense and good economic policy for long term benefits. The evidence is out there. All we have to do is examine the policies of nations in decline and those on the rise to see what works and what doesn't work.
    Posted by JanPBurr  on  11/29  at  01:00 PM
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