My thoughts, upgraded.

I saw this article on MSNBC.com, originally from the New York Times. It is an interesting read, evidently Barack Obama was a super smart lecturer at the University of Chicago Law School (disclaimer, I am a grad of the Chicago GSB), who was a great speaker, able to debate ideas with the best of them, and he never stated a position that could hurt him. I think it is this last point that could derail him.

If you look at the issues page of his campaign site, he has the same generic Democratic ideas that have been watered down to appeal to the Center. Here’s the deal, if I wanted someone to peddle Democratic Ideas to me, I would have voted for Gore, or Kerry. The thing is, is that I think Barack is capable of the “REALLY BIG IDEAS” (Prof. Gould, I did pay attention in class), and I would change my vote Barack if he would express them. Instead I get: I’ve got change you can believe in, the same tripe the Democrats have been shilling for 20 years, but dressed up in flowery rhetoric. I don’t want that.

I want: I am going to change the tax structure by raising income tax, but lowering corporate taxes. The tax revenue will remain neutral until corporations start paying out more of the earnings they are keeping. You see, the trickle down people almost had it right, if you lower the tax rate on businesses they grow, but because they aren’t people they don’t hold onto cash. They spend the cash either as dividends, as capital investments, or increases to salaries. Which every way they choose GDP grows, people have more money, and the tax base growth increases tax revenues. If you charge people one or two percent more of the income in taxes, but increase their wealth by three, four, ten percent, their happier. It’s a win-win.

On a related note, I’m glad John McCain (my boy) said that everything was on the table for Social Security, even payroll taxes. I’ve been DAMN tired of him being a shill for the tired old Republican line. In 2000, McCain was the man of un-assailable integrity who had big ideas to run the country by. The only ‘maverick’ idea he’s kept is giving amnesty to the 12 million illegal immigrants that are here. (I’m going to go out on a limb and say I support that, too) Allowing a discussion about raising the payroll tax to facilitate talks to craft a common-sense solution seems like a GOOD thing, not a right-wing thing, but a good thing. It is good to see that McCain isn’t tied to trying to be Mr. Traditional Republican 100% of the time.

So, to conclude, McCain still has my vote because he has expressed his big ideas before, and might agian reclaim them; rather Barack Obama might eventually express his big ideas once he gets the job. I guess a bird in hand beats two in the bush.

Later,

B

Wow, again wow.

I saw the Dark Knight last Saturday, and all I have to say is: Wow!

Normally, I don’t let my hopes get up around the summer fare in movie theaters; not because I’m some hoity-toity movie snob, but; rather, because I love big summer blockbusters, from the original Star Wars movies, to Jurassic Park, to E.T., to Pirates, and such. The problem has been that for most of the recent summers the bug summer movies have been formulaic and the only thing that makes them big is that they are sequels or that they have action flick stars in them. But that isn’t the problem this summer, I liked the new Indy Movie, I loved Iron Man, I’ve heard good things about Hancock from non-critic type people, loved Wall-e, and I enjoyed Harold and Kumar escape from Gitmo. So my expectations were raised for the Dark Knight.

So, with my expectations raised I did have a lurking fear that the Dark Knight would disappoint me, I mean, nothing can live up to the hype that it has been receiving. Every once in a great while, I am dead wrong, by a lot. The Dark Knight was AMAZING. I am thinking about making a trip to the IMAX theater at the new swank mall to see it. Heath Ledger does deserve an Oscar nod for his Joker role. What’s more amazing is that Christian Bale was not upstaged by Ledger’s performance. Adam Eckhart and Gary Oldman both gave good performances, too. Now, this movie was even more dark (in tone as well as lighting) than Batman Begins, and much more so than the artsy Batman movies of the 80’s and 90’s.

What topped off my movie going experience was the trailer for the new Terminator movie starring Christian Bale as John Conner. It looks awesome.

Later,

B

A New Record

This morning was a new record for me.

Stoopid V-8. Stoopid Shell gas. Stoopid inflation.

More musings on my vote.

Well, I have to give Barack Obama much credit. He, and his campaign, have not made any mistakes here recently. They do not take any risks at all, they have a huge lead, and they are protecting it at all costs. This guy is a media darling, his campaign knows value of high production moments, and the guy delivers a speech like I’ve never seen before. I hope that this guy will be our Kennedy, Lincoln, Churchill, etc. He needs to be the guy that can inspire a nation.

He is my fear; he’ll be Bill Clinton, Part II, The Big Disappointment Strikes Back. Bill Clinton had great promise, and his presidency went well because he always did the most popular thing. Bill Clinton came into the Whitehouse with great promise. He was going to be the guy who transformed America and recaptured her glory. But, alas, instead of being the Democratic Ronald Regan, he became the divisive catalyst that polarized American politics. Clinton became the poison he was, I think; because he stood for nothing but what was most popular. Sure, he was left of center most of the time; but he was whatever was most politically convenient. He had convenient women, he lied about them when it was convenient; he loved the poor and oppressed, but let them die when it was convenient (Rwanda, anyone?); he compromised his stated values when it became necessary to improve his position.

So far, I’ve seen Obama tack to the center, and maybe that’s okay. Most candidates, Republican and Democrat, must pander to their respective party’s more hardcore constituents to gain the nomination, because it is these cooks who vote in primaries, and these hardcore constituents tend to be much further from the center. So, I’m giving Obama a pass. Maybe he is more main stream, or maybe he is more left-wing; but either way, he is moving his position to gain the election. Such is necessary, to some degree, from any candidate.

But here is the deal: when will Obama state his true values; and, when it be politically inconvenient for him to stand by those ideals, will he stand steadfast to them? Since I don’t know this about Obama, I still favor McCain.

Another thing I haven’t seen, is how does Obama do in non-scripted moments? When he has a teleprompter, can control the topics, and has a high production value situation: there are none better. What happens when he is under pressure and dealing with the un-known? Will he still be Obama the orator, or a befuddled, stammering mess? Can he defend his policy plans, or will he implode like he did with the capital gain tax revenue questioning? McCain’s not the greatest, but he deals and adapts well. This is another reason from me to stay with McCain.

One thing that is interesting, now that high gas prices have curbed our consumption, and politicians have started to talk about making real, hard decisions to end out dependence on foreign oil, crude prices have started to fall. I just hope that two things happen: 1) we actually carry out most of these plans, and, 2) I hope gas prices fall.

Later,

B

A week of surprises

So, this week has been an interesting one. I had two occurrences, while dissimilar and completely disconnected, that equally disconcerting. They are a traffic ticket and flowers.

I got the traffic ticket Monday. I was traveling East through the intersection of Broadripple Avenue and College Avenue and I looked up at the light. I couldn’t see what color the light was, because the lenses were foggy and the sun was setting behind me. Also adding to the situation was that traffic in front of me was continuing through the intersection, the other direction was still stopped, and in general the intersection was very busy. I knew something was amiss when this guy turned left right in front of me, and gave me a really dirty look. My suspicions were confirmed when two patrol cops, who were doing no turn on red stops, motioned me over for blowing the red light. Needless to say, the guy wasn’t swayed by my explanation of difficulty in seeing the light.

The second thing that got me out of sorts was that my mom sent me flowers for my birthday. Now, I appreciate the thought, and it is a nice arrangement of flowers; but I maintain that flowers are for women and bees. (I do not think that the bees would care for the big mylar balloon that said ‘Happy Birthday’) All of my female friends, and my gay friends, thought it was sweet; but they agreed that it was most likely lost on me. My straight guy friends mocked me, which is to be expected.

Anywho, go Boilers and go Browns. I can almost smell football season.

Later,

B

What my vote costs?

Upfront: I'm a John McCain Supporter. I’ve donated to his campaign, and more than just a trivial amount. Proudly, I supported him in the Summer of 2007 when everybody and their brother was writing him off.

With that disclaimer being said, my vote is for sale. (Not literally Mr. FBI man, but in a figurative way) The question is this: what is the cost? The cost is the first candidate that comes out ands talks tough about reducing inflation. The first guy that comes out and says he is going to put pressure on Bernanke to raise the Fed Funds Rate is going to get my vote.

Why is this important? Because all commodities are affected by inflation. While not all of the price of a commodity is due to inflation effects, some of it is. (We would still have higher gas prices, but they would not be as high) When the cost of money is high, it is expensive to have money tied up in a commodity, when the cost of money is low, it is cheap to hold commodities.

Here is an example: I have a $1,000, and I want to buy a futures contract to get corn delivered to me in October. Now, the price I pay is the Cost of the Corn (c) times the Cost of Capital (1+i): (c) x (1+i). For our example, lets say the base case is this: a contract costs $10, $9 for the corn and $1 for the interest. Therefore, I can but 100 contracts for Corn. Lets say our friend, Mr. Bernanke, lowers the Fed Funds rate and makes money cheaper. So, for a while, the cost of the contract would be $9.50; $9 for the corn, and $.50 for the money. So now I can buy 105.2 contracts. What happens is this, everybody can buy those extra 5.2 units of corn, so the demand on corn goes up. When the demand goes up, prices will follow to reduce demand to the capacity of corn produces. So balance is restored to something like this: a contract costs $10; $9.5 for corn, and $0.50 for interest.

The actual machinations for this process are much more complex, but in a nutshell, that’s how Fed Funds Rate affects commodity prices. The draw back is that expensive Fed Funds Rates increase the borrowing costs for business, home owners, and other borrowers of money. The problem is that the Fed is working so hard to keep the Financial Sector going that it has let inflation go crazy. Having Freddie, Fannie, Bear, Lehman, Goldman, etc still functioning is VERY important; but those results have to be weighed against the impact of a family of four paying $300 a week for groceries. Maybe there can be some more pain in the Financial Sector so the rest of the Country is driven over the edge.

Regards,

B

P.S. To see some excellent ecomonics discussion from the liberal point of view, go here.

Things on my mind

So, I've been listening to Barack Obama giving speech after speech on how he is going to make America better. First let me say that this man is such a good speaker that I really want to believe in what he is saying. He says many wonderful things: health care for everybody, taxing the really rich, fair wages for women (it is debatable if women are really that under paid), and less dependence on foreign oil. Sadly, the cold-hearted analyst in me prevents me from failing for this comforting rhetoric.

First I will take on the two ideas of healthcare and women’s fair wages. The burden for both of these initiatives will fall on the employer. Both of these initiatives will result in a greater cost of employment, or in effect, raise the price floor on labor. As this graph from a previous post shows: when a price floor is above the demand-supply equilibrium, consumption of the good, labor in this case, goes down. Now, should women be paid less for being women? No. Should there be remedies for such bigotry? Yes. However; the study that everyone quotes, the American Association of University Women, shows that, controlling for all other factors, that women near what the men make, and the situation is getting better for every new generation of women. Healthcare is a whopper in which no one, my self included, seems to have a good answer on. Senator Obama’s plan is bold and expensive. There has to be an equilibrium where the trade off in getting people the basic human need of healthcare provided is balanced against the health of the economy. I don’t think Senator Obama’s plan is thoughtful enough of the equilibrium.

On taxing the rich, I think Obama might be half right. I think that income taxes can be raised on people who make more than $250,000; especially if there are more and more opportunities for people to make that much. However; I think he needs to pull his heard out of his rear-end and understand that he can lower other taxes to grow the economy. He needs to leave the capital gains tax at 15%, and lower the corporate taxes to 15% also. When the capital gains taxes were lowered to 15% there was an explosion of capital gains activity; because, unlike income, recognizing of capital gains can be timed to favorable conditions. Lowering the corporate tax rate will increase formation of new, and growth of old corporations by the fact of making it easier for companies to earn a return. By lowering the threshold for a business to be profitable, more people will start more companies. More companies means more people making money, more people paying taxes, more people getting health insurance, more welfare recipients becoming self-supporting wage earners, and a host of other social benefits. That is where I have a fundamental disagreement with Barack Obama. I believe in growing the economy is best way to get out of the current mess.

The second thing on my mind is this. How weird it would be to have a radio controlled valve that could allow you to choose to shoot blanks or live rounds. My only fear is that the neighbor might get a new garage opener, and poof, a baby is on the way.

Later,

B

Why the short term view hurts

When one makes a decision, one must look at the long term impact as well as the short term impact. In late August 2007 I had a Cadillac SRX that was three years old and had 120,000 miles on it. The thing about a Cadillac SRX is that it is built on the Sigma platform, and the only cars built on the platform are the Cadillac STS, CTS, and the Buick Enclave and GMC Arcadia. Why is that important? Because when the brake pads need replaced it costs $180 for the non-OEM pads instead of $20. This is because everything on the high end platforms is performance/luxury parts, and they ain’t cheap. A second thing about my SRX is that I wrecked, slightly, when I first had it, and I must have bent the right front mounting bracket for the strut. That thing would burn through a strut in 3,000 to 20,000 miles; and that was a $500 repair bill.

So, taking all of those things into account, I decided to get a new car. Now, I like my vehicles nice. I like the to be somewhat trendy / eye-catching. I like them shiny and new too. So, for me it was down to a Buick Enclave (same exact thing as a Cadillac SRX, just $5,000 less) and a GMC Serria Denali. The Enclave was tight, it had the back up camera, telescoping and automatically controlled steering wheel, and all of the other things that make a vehicle go from okay to WOW! The problem was that they were so popular at the time that GM wasn’t offering any discounts. The GMC was equally tight. It is a pickup truck, it has most of the same features the enclave did (no auto steering wheel settings and it only has back up radars, no camera) and, in addition, it has a 405-hp V-8 engine. Did I mention that it is a big, black, beautiful pickup truck; and GM was offering deals to get them off the lot?

Well, the little economic cars didn’t get a second look. The small Buicks and Pontiacs just didn’t rate a look. Sure, they were $15,000 to $20,000 cheaper, and they got 30+ m.p.g.; but they didn’t make me go wow. So guess what happened, I bought the Denali pickup truck.

Flash forward 10 months. I am paying $4.20 a gallon for a truck that gets 14 miles to the gallon. On a good week, I get this kind of picture. I have gone from a weekly gas expense of around $25 to something like $100. That is an extra $3,900 a year in gas costs. If gas stayed at the $2.50 a gallon cost, my cost would still have gone up to $60 a week. Think if I had bought a car that got 35 m.p.g., my costs would be somewhere around $40 a week in gas. But, still, I wanted to be WOWed when I bought the truck; and, I guess, I still am.

Later,

B

Ahh, what a summer it is shaping up to be

First of all, for those who know me, I survived the Fourth of July just fine. My traditional partner in crime was a wimp, and scurried off to the in-laws house. I also played it low key and didn't light a single firework. (That is some what sad, but we all mature, eventually, right?)

Well, I must say that I am enjoying this summer. The weather in Indy has been quite nice, other than a few powerful storms. There have been plenty of fun little tings to do around Indy. And lets not forget the movies, ohh, the movies.

This summer has seen a renaissance, if you will, of the movies. There's the new Indiana Jones movie, which was good. My second favorite movie of the summer, Iron Man, would be a number one movie most summers. Harold and Kumar Escape Gitmo was funnier than I anticipated. The new Hulk movie looks good, and would have been seen in the theaters if gas wasn't $4 a gallon. My number one movie of the summer, so far, is Wall-E, and regardless of what this douche-bag writes, it is pure entertainment fun; not some gripping political commentary to turn kids on to environmentalism. I am looking forward to The Dark Knight, and, to a certain degree, Tropic Thunder. All-in-all, the summer is great, but I think the best movie is coming out February 13th: Friday the Thirteenth (remake).

Another great happening this summer was Eli’s dedication / blessing. It was so much fun to see Erica, Maddy, Jess, Baby Barb, Mom, Dad, Sara, Mark, and Eli; and to spending some time with my family was epic. Taking the 130lb TV up to Sara and Mark’s, and moving it into their apartment was quite the happening, too. (Not to be confused M. Night Sham-a-lam-a-ding-dong’s new movie, The Happening)

The thing that would cap off this summer would be going to Chicago to see Jeff, Jess, and all the other Chicago friends I have. It would be the next level of awesome if my friend Liz came down from Milwaukee, but seeing as she is running her shop (click on the link to the right); she said I’m out of luck. Well, maybe getting a girlfriend would make the summer awesome, too; but no one is holding their breath on that.

Well, really, the thing that would make this the greatest summer ever would be if I got a chance to see Luke. Seoul is too expensive to visit; however, Luke is scheduled to be home in either September or October. Still, it would rock major league to go see Luke whilst he is living in South Korea. Also, click on the link to Luke's blog, you'll find out that he's one of the funniest writers there is.

Later,

B

Taxes, Kurt Hauser, and the Election

Hi all,

As some of my previous posts have pointed out: I am a dork. More precisely, I am a economics dork. Recently, David Ranson published a column in the Wall Street Journal that claimed that regardless of the marginal income tax rate on the highest earners in the country, tax revenue remains, roughly, about 19.5% of GDP. Mr. Ranson called this the Hauser Effect after Kurt Hauser, the person he credits as first bring up this phenomenon. Mr. Ranson goes on to claim that this means that regardless of what the tax rate is, the rich are willing to pay only so much in taxes; therefore, high tax rates on the rich are pointless.

Well, there are two things about this article that set the economics world a blazing: 1) it is specific conclusion drawn from two general data points, and, 2) it is right leaning. I will address point two first. Liberals (they like to be called ‘progressives’ now, but a rose by any other name is still a slack-jawed, mouth breathing, hippie, liberal) went ape-shit over this (rightly so, probably.) This conclusion undermined their argument for justice, and the rich doing their (extra)part for being so rewarded by society. The idea that the lefts plan to redistribute wealth by taxing income of the top earners falls flat in practice was a slap in the face. This finding could not stand, and they set about discrediting the thesis.

Which brings me to point one. They might not be that far off. There are plenty of valid criticisms of the Hauser Model presented in the article, here, and here. There are a couple of really good criticisms that get at the heart of Ranson’s analysis, and a couple of good criticisms that point out some context around the Hauser effect.

The context arguments complement the foundational arguments, so I will address them first. The graph (courtesy of the WSJ) shows that tax income stays around 19.5% despite the changes in the tax rate. What the WSJ fails to mention is the changes to other taxes that occurred when the top tax rate was changed. For example: when the tax rate was lowered in 1986 several loop holes where closed, payroll taxes were increased, etc. This led to an increase in other tax revenues, while the taxes collected from the top earners went down. (See the Congressional Budget Office site for historical data.)

So, with that little bit of context, we get a chief criticism of the article, and the Hauser Effect: it contrasts the change in the top marginal income tax rate against total tax revenues, as a percent of GDP. The total tax revenue is not solely dependent upon the revenue of the top earners, it has many components: income tax, social security tax/payroll taxes, corporate taxes, excise taxes, and 'misc' (wtf?). So, in any given year, the income tax revenues might have gone down(up) with a corresponding offset to the other taxes going up(down). Furthermore, the revenue from income taxes is not solely dependent on the highest marginal income tax rate. There are several tiers to the income tax, and a gain(loss) in the highest marginal income tax bracket can be offset by a loss(gain) in the lower income tax brackets. A more appropriate graph would be on where the revenue from the top marginal income tax bracket, as a percent of GDP, was compared to the top marginal income tax rate. The findings, I suspect, would be more ambiguous that Ranson's article asserts.

One thing that bothers me about this whole discussion, people are arguing about taxing the rich, and if it pays off. One thing that the graph makes quite clear to me is that tax revenue is about 19.5% of GDP. The real discussion shouldn't be does taxing the rich move that closer to 20%, 21%, 25%, etc; but, rather, what strategies can be exercised to grow the GDP? An analysis of which policies (lower income taxes, lower corporate taxes, more free trade, etc) have had the greatest impact on raising the GDP, and we should ensure that our government follows, and builds upon those policies.

The argument presented in the column is simple: rich people will only pay so much, in absolute dollars, in taxes, and they will hide, divert, re-class income, or simply reduce how much they earn to avoid taxes; and thus, the effect is they earn less in taxable income, which reduces the total GDP, so their taxes, as a percent of GDP, remains neutral. This conclusion is incorrectly drawn from the data presented. The thesis could very well be true; however, a more precise analysis of the correct data must be done to determine the validity of this conclusion.

Well, I am all dorked out, and looking forward to a four day vacation.

Later,

B