Saturday, February 24, 2018

Koch Brothers Group Launches Ads Against Tax Breaks for Amazon HQ2

Tax cuts for me but not for thee?

An advertising campaign opposing tax breaks for Amazon's proposed second headquarters has been launched by an advocacy organization linked to the conservative billionaire Koch brothers.

The ad geo-targets the American markets that Amazon is currently considering as a location for HQ2.

“While small businesses and young entrepreneurs struggle,” Generation Opportunity's ad states, “government cuts special deals with Amazon, a corporation that raked in $175 billion last year! Does this look like a company that needs taxpayer cash?” the ad asks.

Tax cuts certainly should be more broad-based but the advocacy should be for more tax cuts nit objecting to tax cuts others are getting.


(via Channel9 Denver)

Mark Your Calendar: New Fed Chief to Testify Before House Panel

For the first time, new Federal reserve chairman Jerome Powell will deliver the semiannual monetary policy testimony on Tuesday, Feb. 27 before the U.S. House of Representatives’ Financial Services Committee.

The hearing will be held at 10 a.m. ET.

(Note: The date of the testimony was changed, it was initially scheduled for Wednesday, Feb. 28.)

Powell is not an economist. He was trained as a lawyer. This testimony will give us a sense as to the economic views of the economists inside the Fed that he is relying on.

My expectation is that he will come out as a mild monetary inflationist ---just enough to get the economy into serious trouble.

I have marked my calendar.

Powell will also deliver the semiannual monetary policy testimony before the Senate Banking Committee on March 1.


Friday, February 23, 2018

THIS IS GOOD: A Protectionist is….

Tim Worstall writes:
A protectionist is someone who argues that you should be poorer so they can be richer.

Thank You, Janet Yellen and Ben Bernanke

Jamie Dimon, Chairman, CEO, and President, of JPMorgan Chase
J.P. Morgan Chase unveiled plans Wednesday to replace its existing New York headquarters with a new 2.5-million-square-foot complex.

The building will be the largest bank building in the world and will be built at 270 Park Ave in New York City on the same property where JPM has its current headquarters.

The current building at Park Avenue between 47th and 48th Streets was constructed in 1950 and meant for 3,500 employees. Employees will be relocated to nearby facilities during the construction.

The new headquarters will house 15,000 of the bank’s employees and is expected to be between 70 and 75 stories tall. The current structure is 52 stories.

Jamie Dimon, the bank's Chairman, CEO, and President,, could have never pulled this off without massive money printing by former Fed chairs Ben Bernanke and Janet Yellen over the last 10 years.

The question now becomes will the Fed still be able to keep the economy in boom phase until the new building is expected to be complete in 2024. Given the expected price inflation acceleration on the horizon, it says here that the Fed won't be able to pull it off.


(via CNBC, The New York Times and Bloomberg)

Venezuelans Lost On Average 24 Pounds Last Year

This is what happens when price controls, socialism and hyperinflation are mixed.

According to Reuters, Venezuelans reported losing on average 11 kilograms (24 lbs) in body weight last year and almost 90 percent now live in poverty.

The data comes from a study on the impact of  the devastating economic crisis and food shortages.

The annual survey, published on Wednesday by three universities, is one of the most closely-followed assessments of Venezuelans’ well being.

Last year, the three universities found that Venezuelans said they had lost an average of 8 kilograms during 2016. This time, the study’s dozen investigators surveyed 6,168 Venezuelans between the ages of 20 and 65 across the country of 30 million people.

“Income is being pulverized,” Maria Ponce, one of the study’s investigators, told a news conference at the Andres Bello Catholic University on Caracas’s outskirts.

“This disparity between the rise in prices and the population’s salaries is so generalized that there is practically not a single Venezuelan who is not poor,” she said.

Prices in Venezuela rose over 4,000 percent in the 12 months to the end of January, according to various studies.


Thursday, February 22, 2018

Protectionists and the 50 States

By Don Boudreaux

A Protectionist is Someone Who…

… believes that we Americans would be even wealthier than we now are if each of the 50 states were a sovereign nation that restricted its citizens’ abilities to import goods and services not only from Europe, Asia, and other far away places, but also from each of the other 49 states.  After all, if creating artificial scarcities in the United States is key to increasing each American’s access to goods and services, imagine how much richer we Americans would be if we in Virginia enjoyed the artificial scarcities created by the government in Richmond obstructing our access not only to goods and services sold by the likes of Canadians and the Chinese, but also to goods and services sold by the likes of North Carolinians, Marylanders, Californians, Hawaiians, and Americans in other states.  Ditto for Louisianans whose wise leaders in Baton Rouge obstructed their ability to import goods and services not only from places such as Mexico and Japan, but also from places such as Mississippi, Texas, New Jersey, and other U.S. states.  Ditto also for Oklahomans, Nebraskans, Minnesotans, Floridians, Vermonters, Arizonans, Alaskans, and citizens of each of the other states.

Or put somewhat differently, a protectionist is someone who regards American courts as having visited upon Americans a curse rather than a blessing through these courts’ consistent interpretation of the U.S. Constitution as meant to create among these united states a free-trade zone.

The above originally appeared at Cafe Hayek.

The Time Schumpeter Attacked Bastiat

By Henry Hazlitt

Frédéric Bastiat was born at Bayonne, France, on June 29, 1801. His father was a wholesale merchant, but Frédéric was orphaned at the age of nine and was brought up by his grandfather and his aunt.
He seems to have had a good, though not an extraordinary education, which included languages, music, and literature. He began the study of political economy at nineteen and read principally Adam Smith and Jean-Baptiste Say.
Bastiat's early life, however, was not primarily that of a scholar. At the age of seventeen he went to work in his uncle's counting-house and spent about six years there. Then he inherited his grandfather's farm at Mugron and became a farmer. He was locally active politically, becoming a juge de paix in 1831 and a member of the conseil genéral of the Landes in 1832.
Bastiat lived in a revolutionary period. He was fourteen when Napoleon was defeated at Waterloo and exiled to St. Helena. He lived through the Revolution of 1830. But what first inspired his pamphleteering activity was his interest in the work of Cobden and the English Anti-Corn-Law League against protection. In 1844 he rose to immediate prominence with the publication of his article on "The Influence of French and English Tariffs on the Future of the Two Peoples" in the Journal des économistes.
Then began the outpouring of a brilliant series of articles, pamphlets, and books that did not cease till his premature death in 1850. There came first of all the first series of Sophismes économiques, then the various essays and the second series of Sophismes, and finally, in the last year of his life, the Harmonies économiques.
But the list of Bastiat's writings in this short span of six years does not begin to measure his activities. He was one of the chief organizers of the first French Free Trade Association at Bordeaux; he became secretary of a similar organization formed in Paris; he collected funds, edited a weekly journal, addressed meetings, gave lecture courses — in brief, he poured out his limited energies unsparingly in all directions. He contracted a lung infection. He could breathe and nourish himself only with difficulty. Finally, too late, his ill-health forced him to Italy, and he died at Rome, at the age of forty-nine, on Christmas Eve, 1850.
It is ironic that the work which Bastiat considered his masterpiece, the Harmonies économiques that cost him so much to write, did far more to hurt his posthumous reputation than to help it. It has even become a fashion for some economists to write about Bastiat patronizingly or derisively. This fashion reaches a high point in an almost contemptuous one-page notice of Bastiat in the late Joseph A. Schumpeter's History of Economic Analysis. "It is simply the case," writes the latter, "of the bather who enjoys himself in the shallows and then goes beyond his depth and drowns…. I do not hold that Bastiat was a bad theorist. I hold that he was no theorist."
It is not my purpose here to discuss the

Pay Attention Donald Trump: A Protectionist is Someone Who…

By Don Boudreaux

.... believes that rickshaws are a much better means of urban public transportation than are busses or subways because the number of workers required to transport any given number of passengers is much higher with rickshaws than with busses and subways.  The protectionist – assuming (contrary to fact) that he or she has any capacity for consistency in thought – would lobby to prohibit busses, subways, and even taxies, bicycles, and skateboards on the grounds that these transportation options employ fewer urban-transportation workers than would be employed by a policy of using only rickshaws.

The above originally appeared at Cafe Hayek.

Wednesday, February 21, 2018

Do Sales Taxes Get Passed On To the Consumer?

At the post, Seattle Residents Will Outsmart the Socialist 'Behavior Control' Soda Tax, Peter Kapeel asks:
How is this story reconciled with Rothbard's discussion in MES on sales tax. Rothbard (Austrians) said that sales taxes do not get passed on to consumers because prices are determined by the consumers, not the cost of production. Is this simply an immediate run effect that will lead to a decline in prices at these stores?
 RW response:

The issue of sales taxes is a very complex one. The best short answer is that you can't just pass a tax on to consumers.

That said, after a tax is implemented sometimes prices will climb sometimes they won't.  It depends on the demand schedule for a good and also the products involved in producing a good.

Let us say, by way of example, that ice cream is made up of just two ingredients, milk and sugar.

Let us further assume that the milk and sugar are non-specific goods, that is they have plenty of uses well beyond making ice cream and the market for the ingredients is robust and not dependent on ice cream demand.

So if, say, a 10% tax is placed on ice cream, ice cream producers won't be able to "push" the tax back down on milk and sugar producers because the milk and sugar producers have plenty of other outlets where they can sell their product and they won't budge on price.

If margins are tight at the ice cream maker, the only thing he will be able to do is raise his price by 10%. Depending on the demand schedule, this could very well result in some marginal buyers no longer buying ice cream. So it is not really increasing the price to all consumers, it is pushing some consumers out of the market.

Let us consider another situation. There are three ingredients that make up ice cream, milk, sugar and, just for illustrative purposes, a special glue that holds ice cream together, Unlike milk and sugar, this special glue does not have other demand, it is a specific good for ice cream and that is all. There is no other market.

So let's say that the 10% tax is put on. The ice cream maker doesn't really want to raise prices because he will lose the marginal buyers,  but this time, unlike in the first example, he has options.

The milk and sugar producers still won't negotiate with him to lower their supply prices because they have other markets where they can sell their products, but the special glue maker has no other markets. Therefore the ice cream maker can go to the glue maker and say, "Hey, I have to cut what I pay you buy X amount because of this tax." Since the special glue maker has no other market to sell to, he takes the hit and absorbs the tax.

These two examples are just generalizations to give a sense of what can occur, you can really spin out many, many permutations. The point is, it is not as simple as slapping a sales tax on and the consumer gets hit with the tax.

Many things can happen. Indeed, in Rothbard's discussion, he recognized such when he wrote about another possible permutation:
It is true that a tax can be shifted forward, in a sense, if the tax causes the supply of the good to decrease, and therefore the price to rise on the market. This can hardly be called shifting per se, however, for shifting implies that the tax is passed on with little or no trouble to the producer. If some producers must go out of business in order for the tax to be "shifted," it is hardly shifting in the proper sense but should be placed in the category of other effects of taxation.

Risky Crypto Bet Blows Up Dennis Gartman's Retirement Account

Sixty-seven-year-old Dennis Gartman, longtime publisher of a namesake daily investing newsletter and television commentator, just blew up his retirement account.

Bloomberg reports Gartman pt a stock called Riot Blockchain Inc. in his very own retirement account.

Here's the play-by-play from Bloomberg:
The stock lost a third of its value on Feb. 16 after CNBC broadcast an investigative story on the biotech-company-turned-blockchain-startup. The Suffolk, Virginia-based commodities trader and economist might have been hoping to strike it rich and retire early, but he may end up working a few extra years now.

“Friday was one of the worst days we have suffered through in a very long while,” he wrote in the Gartman Letter on Tuesday. “We were long of a sizeable position in a blockchain focused company that was the victim of a CNBC expose, which sent the shares down more than 20 percent and which sent us ‘down’ for the year to date, having been up about 6 percent previously.”
The firm announced in October that it was rebranding itself from Bioptix Inc. to Riot Blockchain after years of lackluster stock performance and minimal revenue growth, a move that led the shares to more than quadruple. The euphoria didn’t last.

Will Rand Paul and Elizabeth Warren Stop a Trump Fed Nominee Who Wants to Insert Magnetic Strips Into US Currency?

Marvin Goodfriend 
I have already pointed out that Marvin Goodfriend would be a dangerous addition to the Federal Reserve Board of Governors because of his desire to tax money in checking accounts during recessions via a "negative interest rate."

It turns out that Goodfriend's plan is even more horrific than I originally was aware.

Reuters reports:
Goodfriend's idea was to insert magnetic strips into the bills. Each time the cash was returned to a bank, the money would be taxed at a pre-determined rate. That would discourage individuals from hoarding cash and remove one obstacle for central bankers in setting negative rates.
Reuters calls this insanity "creative thinking." It is Keynesian aggregate demand policy on steroids.

There are two senators, from opposite sides of the aisles and political spectrum, who might be able to stop Goodfriend's confirmation.

Here's Reuters again:
 Even so, the idea of a tax on cash is politically toxic. Senators Rand Paul and Elizabeth Warren - two lawmakers often on opposite ends of the ideological spectrum - have denounced Goodfriend's idea, and may now put his nomination in jeopardy.
Rand does a lot of good but if Warren can somehow play a role in stopping Goodfriend from getting on the Board, it will probably be the best thing she has ever done in the Senate.


STOCKMAN: "The Education of Mick Mulvaney—-He’s No David Stockman!"

Mick Mulvaney
This is excellent.

David Stockman, with plenty of justification, links to a National Review essay by Veronique de Rugy, The Education Of Mick Mulvaney, where she writes:

I am incredibly disappointed to see my hopes about budget director Mick Mulvaney go up in flames. See, I thought that as a budget director, he would be more like David Stockman than many of the successors we have had since he left his job after serving in the Reagan White House...What I am most disappointed by is what looks like a total abdication of what made him such an unusual Republican representative. As I wrote:
Better yet, like Stockman, he isn’t afraid to go after the Republican sacred cow—defense spending

It is really difficult for me to understand how anyone bought into anyone who joined the Trump administration. Trump has only hired clowns, yes men and generals. This was obvious from the start.

This is what I wrote about Mulvaney when he was confirmed in February of last year:
I do not expect much positive from Mulvaney.
During Senate confirmation testimony, he said he was in open to raising Social Security taxes via raising the cap on Social Security payroll taxes, as well as being open to cutting benefits via raising the retirement age to extend the program’s solvency.
However, he said he was in favor of raising military spending. He said he backed Trump’s plans to boost military spending.
That said, it is good to see de Rugy take on a Trump hire, something a lot of libertarians are still not doing.


Tuesday, February 20, 2018

The Projected Federal Deficit Over the Next 10 Years

Via Veronique de Rugy and Justin Leventhal.

Note: These are conservative deficit numbers. I believe that interest rate costs alone are underestimated by hundreds of billions.


Thomas Sowell Agrees With Ron Paul About the Federal Reserve

Sowell is pretty good here and shocks the establishment interviewer Paul Robinson.


Seattle Residents Will Outsmart the Socialist 'Behavior Control' Soda Tax

LOL. The Seattle socialists think they are going to collect oodles of cash with their creepy soda tax.

Charles Hughes explains why they won't:
Seattle recently became the latest major city to enact a sweetened beverage tax. In response to the new levy, some retailers have calculated how much of the price is due to the tax, and customers are reeling from sticker shock. One local reporter found thatthe tax added $10.34 to a case of Gatorade, bringing the final price to more than $26.00....  
One of the justifications for beverage taxes is that customers will respond to price changes by reducing consumption of taxed beverages. The mechanism here is straightforward: tax something to get less of it. If people were to substitute diet sodas or other, less-harmful beverages for sugared sodas, they would be healthier

The City of Seattle denies that consumers respond to higher prices. On the city government’s website explaining the tax, the Finance & Administrative Services Department takes pains to mention explicitly that the “tax is not collected by the retailer nor is the tax burden intended to fall onto the consumer. The intent of the sweetened beverage tax is to tax the distributions of sweetened beverages into Seattle for retail sale in Seattle.”  
If the burden of the tax is supposed to completely bypass the consumer, as unlikely as that might be, what would drive them to substitute away from the unhealthy products that the government is taxing in the first place?Whatever the City states, not all of the tax will be borne by distributors, some of the burden will fall on stores and consumers, and they will respond to the change in price in some way. The less-visible Frequently Asked Questions document for the tax acknowledges this, as “the ordinance does not prohibit a business from passing on the expense of this tax.... 
>Many people are likely to avoid the tax by traveling to other untaxed locations to purchase groceries. Costco tells its customers about locations outside the city that are not subject to the beverage tax. One customer told KIRO, a local news station, that she would go to the location in a nearby town. People will undoubtedly follow her lead, so the tax will have limited success in its health-related goals while also harming local businesses and failing to generate tax] revenue.

Monday, February 19, 2018

WAR: Per Bylund vs. Nassim Nicholas Taleb

Per Bylund, Assistant Professor of Entrepreneurship & Records-Johnston Professor of Free Enterprise in the School of Entrepreneurship at Oklahoma State University, and an Associated Scholar with the Mises Institute, tweets out:

For the record, I do not believe it is necessary for a professor to have been an entrepreneur to teach the theory of entrepreneurship, any more than it is necessary for a surgeon to jump and touch a basketball rim to perform knee surgery.

That said, I suspect that many academic economists are confused about entrepreneurship because they have never seen it up close, the way a fat knee surgeon who was stuck on an isolated island with other fat people might find it difficult to believe that some humans can jump and touch a basketball rim 10-feet high.

It would not be impossible for a fat knee surgeon on such an island to consider how a person could jump to touch the rim but it would take a superior mind to conceive of such.

As far as teaching entrepreneurship rather than entrepreneurial theory, what can be done in a classroom is extremely limited.


More Evidence of the High Collateral Damage of a War on Cash

By Lawrence H. White

The leading arguments for banning large-denomination currency notes are those made in a much-cited working paper by Peter Sands and at book length by Kenneth Rogoff. They have been rebutted persuasively by Pierre Lemieux and Jeffrey Hummel in their respective reviews of Rogoff’s book. I have previously offered my own rebuttals here and here.
The justification for returning to the topic now is that two recent reports, issued by the Federal Reserve Bank of San Francisco and by the European Central Bank, provide new evidence on the public’s use of large-denomination notes. This evidence is essential to any serious evaluation of proposals to ban large-denomination in notes in the United States and Europe.
The Sands and Rogoff argument assumes that the users of large bills are almost entirely criminals; use by innocent citizens is rare. Rogoff writes in his book:

New Fed Chairman Powell Taps Two Money Printers as Advisers

Jay Powell
Federal Reserve Chairman Jerome Powell has tapped two Keynesian specialists to serve as senior advisers, reports The Wall Street Journal.

In other words,  we get the first indication that Powell, a lawyer, will rely on theories that have led the Fed to a string of failure including 18 recession since the start of the Fed and a price level increase over the same period in excess of 2,500%.

Jon Faust, a professor of economics at Johns Hopkins University, will return to the Fed to advise  Powell on a part-time basis. He served as a senior adviser to Powell’s predecessors, Ben Bernanke (who ushered in the 2008 financial crisis) and Janet Yellen.

Faust will spend one day a week at the Fed until completing his teaching duties for the current academic term. His role after that hasn’t been determined, according to WSJ.

Antulio Bomfim, an economist in the Fed’s monetary affairs division, also will serve Powell as a special adviser. Bomfim served as an economist at the Fed from 1992 to 2003 and returned to the central bank as a senior adviser in 2016.

These guys have no clue what is ahead for them. The years ahead will not be the same as the smooth ride years of Yellen. And they have no clue how to deal with crisis. Incredibly ,they are even musing now about the desirability of greater than 2% price inflation. We are headed far beyond 2% price inflation without any help from these characters.


Greg Mankiw Slams Trump's Asinine Mercantilist Position on Trade

Greg Mankiw
Greg Mankiw, the Robert M. Beren professor of economics at Harvard University and multi-millionaire economic textbook salesman, writes in The New York Times:
When President Trump imposed tariffs on imported solar panels and washing machines, I was reminded of a line from George Orwell: “We have now sunk to a depth at which the restatement of the obvious is the first duty of intelligent men.”

While Orwell’s comment was focused on military and political issues of the late 1930s, my subject is economics, and to most people in my field, the benefits of an unfettered system of world trade are obvious. Any good student of Econ 101 can explain the logic.

But in light of the growing evidence of the Trump administration’s apparent disdain for free trade, from the recent tariffs, to a report recommending fresh quotas or tariffs on steel and aluminum, to its earlier rejection of the Trans-Pacific Partnership, it may be worth reviewing the theory, as well as the evidence that convinces economists that the theory is right.

The place to start is 18th-century Scotland. Adam Smith’s book “An Inquiry Into the Nature and Causes of the Wealth of Nations” is often credited as the beginning of economics. The case for free trade is one of its major themes.

Smith argued that trade among nations is like trade among people. No one feels compelled to sew his own clothes and grow his own food simply to keep busy. Instead, we find employment doing what we do best and rely on other people for most goods and services. Similarly, nations should specialize in producing what they do best and freely trade with other nations to satisfy their consumption needs.

.This argument was expanded by David Ricardo in the 19th century. Ricardo addressed the question: What if one nation does everything better than another? His answer was that trade depends on comparative advantage — how good a nation is at producing one thing relative to how good it is at producing another.

Ricardo used England and Portugal as an example. Even if Portugal was better than England at producing both wine and cloth, if Portugal had a larger advantage in wine production, Portugal should export wine and import cloth. Both nations would end up better off.

The same principle applies to people. Given his athletic prowess, Roger Federer may be able to mow his lawn faster than anyone else. But that does not mean he should mow his own lawn. The advantage he has playing tennis is far greater than he has mowing lawns. So, according to Ricardo (and common sense), Mr. Federer should hire a lawn service and spend more time on the court.

By the way, Ricardo was not merely a theorist. He was also a successful stock trader and a member of Parliament. During his political career, he fought for free trade, notably, by opposing the Corn Laws, which imposed tariffs on grain imports.