With the fair tax, you end the underground economy. Drug dealers, prostitutes, pimps, illegals -- everybody has to pay the tax at the retail level -- so right now those billions of dollars, that people like you and me are having to make up for, 'cause other folks are working under the table, now everybody's paying into the system. That's one of the reasons that it really is a fair tax.
Drug dealers? Prostitutes? Pimps? We'll somehow start collecting sales taxes from them? What planet is this guy from?
A new email from Jeffrey Wrase (Chief Economist of the Senate Republican Joint Economic Committee) contains vital information that is (of course) being totally ignored by the MSM. We quote from the email in its entirety:
A recent report, published by the Democratic staff of the Joint Economic Committee and titled “War at any Price?” contains a fatal flaw in basic economic analysis that leads to an overstatement of war costs of over $1 trillion. The flaw is that the authors of the document double count resource costs.
There are other difficulties with the estimates of war costs arrived at in the report that I do not address here, but the double counting of resource costs alone leads to an incorrect overstatement of war costs of over $1 trillion.
When accounting for resource costs of war-related expenditures, the authors include direct resource costs (“Direct Appropriations” in Chart 5 of the report) and add to those costs some opportunity costs of the use of those resources. As is taught in any introductory economics course, when thinking about opportunity costs, it is correct to say that use of a resource in one activity has a cost that can be taken to be the value of the foregone opportunity to have used that resource in the next-most-highly valued use. It is fundamentally wrong, however, to take the cost of using a resource in one activity to be the amount of resources used plus values associated with what would have taken place had the resources been used in the next-most-highly valued use. Such an error amounts to double counting and is wrong. The fundamental flaw in economic analysis of double counting in the report by the democratic staff of the Joint Economic Committee leads the report to overstate war costs by over $1 trillion.
In the Democratic JEC report (although it is not entirely clear given the unintelligible and convoluted explanation of “methodology”), the economic cost of the government obtaining a unit of resources today from private investors is taken to be more than one unit, which is incorrect. The report adds to the one unit (direct appropriations) some or all of the return that could otherwise have been obtained in the private sector, had that unit been used for private investment. Those foregone returns do represent opportunity costs, in terms of foregone future investment returns that could have arisen had there not been government borrowing and use of resources today. However, it is incorrect to add to the resource cost of one unit of resources used by the government today the amounts which could have been made available had the resources been used in private investments rather than current war effort expenditure.
Note that the notion that government borrows to obtain resources today does not change the fact that the resource cost of obtaining one unit of resources from the private sector and using it in war efforts is one unit. With capital markets in equilibrium, the present value of the amount government repays over time remains one unit of resources. The Democratic “analysis” is not one of accounting for economic effects of crowding out. Their analysis has no interest rate (or exchange rate) effects, and consequently is not an analysis of possible economic effects of crowding out. Such an analysis is possible, preferably using a dynamic, stochastic, general equilibrium model of the economy (the language of modern macroeconomic analysis), but that is not what the Democratic report performs. Rather, the report simply adds to already-accounted-for costs some opportunity costs associated with government spending, which leads to double counting.
Note, also, that the Democratic JEC “methodology” description makes no mention of differential social rates of return between private investment and government spending. Consequently, the authors of the document cannot be making calculations of costs based on differential returns that they perceive, let alone try to estimate.
Yes, had a unit of resources used by government today on war efforts been used in private investment, the economy would have obtained returns from that private investment tomorrow. The present value of that foregone opportunity is, however, simply one unit—an amount already accounted for in the direct appropriations figure used to tally war costs in the JEC report. To add the foregone return (gross or net) to the current direct resource cost, represented by appropriated current spending, is to double count. One of the first lessons in any elementary introduction to economics is to account for opportunity cost, but not to value the cost of a use of resources by adding to the amount of resources used the opportunity cost of those resources. That represents double counting and is wrong.
The magnitude of the error in the Democratic JEC war cost computation amounts to $870 billion (“Foregone Investment Return”) plus $220 billion (“Interest to Foreign Owners”) shown in Chart 5 of the report. By committing a fundamental error in economic “analysis” alone, the Democratic JEC report overstates war costs by over $1 trillion. The analysis in the Democratic JEC report is fundamentally flawed, and no policy or policy discussion should be based on the findings of the flawed report.
This new treasury study on mobility will blast current "progressive" critiques of the US economy right out of the bathtub. Its strength lies not only in the fact that it agrees with vitually all similar studies carried out using the University of Michigan's Panel Study on Income Dynamics, but, more important, its sample size is massive by comparison with the PSID.
Presumably this is why it is being totally ignored by the the mainstream media.
World War II was hugely romanticized in terms of its fiction. There were unambiguous villains, and the feeling we were fighting the right people over the right issues, as opposed to this war, which many people feel is misguided.
But wait -- aren't all the current Hollywood films made in opposition to the war? Aren't they precisely targeted toward an audience feeling this war is misguided?
I'll be checking with our financial advisor later to find out just how much my mom has actually lost on Citibank. (I'm sort of nervous because I can't remember if she bought it on my advice or not.)
But seriously folks -- this is the sort of event I used to think demonstrated the indadequacies of capitalism, but now realize (or think, hope, etc.) demonstrates the system working exactly the way it's supposed to.
Hold onto Milton Friedman's line of thinking -- the houses built during the boom are still there even though their owners may change and the numbers on a few million pieces of paper may shift around a little. What's changed is how we think about things -- not physical reality itself!
UPDATE: This also illustrates the limitations of large models. Think about it. What failed here are major computational models dealing with $trillions of investors' and financial intermediaries' dollars. How reliable are all those huge global warming models with nobody's dollars at stake? (Or at least with nobody's but your dollars at stake!)
Our sister blog Table Pads has made contact with a cool new (to us at least) web site called Mid Century Modern Interiors. Their posted Haloween photo from 1957 for some reason or other has absolutely captured my imagination:
US GDP today exceeded expectations after growing by 3.9 per cent during the third quarter as the Federal Reserve prepared to announce whether it will cut the interest rate against a weakening dollar.
The rate of GDP outstripped expectations of 3.0 per cent growth, suggesting that the US economy is weathering current global difficulties brought on by the sub-prime mortgage crisis and a lack of liquidity in the financial markets.
The predicted growth rates for the next four quarters are 4.1, 3.7, 3.4, and 3.1 percent, respectively. The higher growth rates in the next two quarters are primarily due to a predicted inventory correction---see variable IVF. The unemployment rate falls slightly to 4.1 percent by the beginning of 2009. The jobs variable, JF, is predicted to increase in the four quarters by 1.5, 2.1, 2.3, and 2.2 percent, respectively.
UPDATE: You should note the "expected" 3.0% growth reflects economic punditry's thoughts as of, roughly, one week ago. The 3.9% model prediction, on the other hand, dates from (roughly) three months ago.
UPDATE II: There's a new forecast memo out. 3.4% growth predicted for next quarter. Please note the above link goes to the current forecast memo, so don't be surprised if the nummbers are different.
