Category Archives: Economics

Q1 Growth Revised Upward Again

Posted on June 26, 2008 | Comments Off on Q1 Growth Revised Upward Again

The second and final revision of the first quarter’s GDP was released this morning. Growth now stands at 1.0%, up from 0.9%. It was originally pegged at 0.6%.

Contrary to popular belief, the economy is not in a recession.

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Posted in Economics

House Passes AMT Relief… Again

Posted on June 25, 2008 | Comments Off on House Passes AMT Relief… Again

The Alternative Minimum Tax is almost universally hated. It’s basically a second tax code. If your income is high enough, you have to do your taxes twice. Once under the normal tax code, and again under AMT rules. Then you pay whichever is higher.

That’s bad enough. But Congress didn’t index the AMT for inflation when they enacted it in 1969. Almost forty years later, that means as many as 30 million people are subject to AMT. Some of them have incomes as low as $40,000.

This is where Congress gets a chance to look good. Every year, without fail, they pass an AMT relief bill. By sparing over 20 million people the hassle of doing their taxes twice, they earn voters’ gratitude.

Why don’t they just pass a one-and-done permanent AMT repeal or reform? That would be much easier.

Passing a patchwork bill every year means Congressmen get to hold more press conferences and talk to more reporters. It gives voters an annual reminder that their representative is looking out for them. It’s better for getting Votes. That’s why fundamental, permanent AMT reform is unlikely to happen.

Politics is a loathesome business.

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Posted in Economics, Political Animals, Taxation

Has the WTO Gone Bananas?

Posted on June 24, 2008 | Comments Off on Has the WTO Gone Bananas?

Who knew bananas could be controversial? The U.S. and the EU are locked in a heated dispute over banana tariffs. Ecuador, Guatemala, Honduras, and Mexico are also parties to the complaint. The EU gives preferential treatment to former colonies of Britain, France and Portugal for banana imports. That means most of Latin America faces unfair tariffs.

The WTO ruled last month that the EU’s tariffs violate international trade rules. The ruling isn’t the end of the matter, though. The case, which dates all the way back to February 1996, has been further delayed. Brussels objected, so the WTO is granting more time for negotiations.

One wonders what is left to negotiate after twelve and a half years.

If the EU officials had the best interest of their constituents at heart, they would drop their trade barriers. The EU’s preferential treatment of certain countries comes at European consumers’ expense — as well as the banana producers of five nations.

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Posted in Economics, Trade

Obama Now a NAFTA Supporter

Posted on June 18, 2008 | Comments Off on Obama Now a NAFTA Supporter

Now that the primaries are over, Sen. Barack Obama has come out in favor of NAFTA. He told Fortune in an interview that “Sometimes during campaigns the rhetoric gets overheated and amplified.”

I’ll say. On the campaign trail he has called NAFTA both “devastating” and “a big mistake.” He also threatened to unilaterally opt out of NAFTA for six months as a prelude to reopening negotiations.

The U.S. economy has added 26 million net jobs since NAFTA took effect in 1994. Inflation-adjusted worker compensation is up 23%.

Obama’s qualified support of free trade is a welcome change. But it makes clear an unfortunate reality. His earlier rhetoric was either misinformed, or intentionally deceitful.

Neither is an appealing characteristic for a potential President.

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Posted in Economics, Elections, Political Animals, Trade

A New Regulatory Order?

Posted on June 17, 2008 | Comments Off on A New Regulatory Order?

Harvard economist Larry Summers has some ideas for a new regulatory order in the Financial Times. In typical Summers fashion, his recommendations are moderate. His moderation comes at the cost of ignoring incentives.

His first principle is “no regulatory competition.” Regulators shouldn’t compete against each other. Let’s take this principle to its logical conclusion. Only one regulator would be allowed — that would be the federal government. As with most monopolies, bad incentives abound.

It is a good thing that, say, investment firms are free to move to New Jersey if New York’s regulations are too stringent. Or if taxes are too high; the same arguments apply to tax competition. “Forum shopping” gives regulators more incentive to be reasonable.

Summers also expresses concern over regulatory capture. His concern is legitimate, but there’s no correlation with forum shopping, as he implies. Regulatory capture happens when something is regulated. The only way to stop regulatory capture is to stop regulating, period.

When constructing a regulatory order, we have three choices: 1) no regulators, 2) a single regulator (the federal government), and 3) multiple, competing regulators (the states).

I think I know which I prefer. Failing that, I’ll take the third option.

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Posted in Economics, Political Animals, Public Choice, regulation

The Economy: Nothing but Doom and Gloom

Posted on June 12, 2008 | 1 comment

Reuters reports that jobless claims are at a four-year high. Everybody panic!

Wait a minute, hold on. Context, please. Just how were things back in 2004, the last time jobless claims were this high? It turns out GDP grew by 3.1%. The economy also added 1.989 million net jobs that year. I’ll take numbers like that any day.

Reuters suffers from pessimistic bias, like most media outlets. They assume that the current jump in jobless claims is de facto evidence that the economy is in free-fall. Fortunately for all of us, that claim doesn’t hold up against the data.

1 Comment

Posted in Economics, Media

FCC to Nullify Millions of Contracts?

Posted on June 11, 2008 | Comments Off on FCC to Nullify Millions of Contracts?

My colleague Alex Harris is drooling over the latest version of Apple‘s iPhone. In true CEI spirit he added, “Regulators better not get in my way.” Sorry to say, Alex, but tomorrow the FCC is holding a hearing that may do just that.

Here’s what’s happening. Monthly service is cheap, but phones themselves are expensive. A good one costs hundreds of dollars. Many people can’t afford to buy them outright, or don’t want to. Since phone companies want to sell phones, they’ve found a way around that: spread the cost out over time.

Providers often sell their phones cheaply, sometimes even at a loss. Then they make their money back by locking the customer in for a set period of time, usually a year or two. If the customer wants out before then, they have to pay an early termination fee.

The FCC ‘s hearing tomorrow will discuss ways to regulate early termination fees. The fees are unpopular, even though they allow more people to afford better phones.

Some people have complained because they found out about the fees only after signing a legally-binding contract; not everyone can be bothered to read fine print. The FCC claims it is looking out for these people.

They are not. The fees are a good thing. They lower the cost of entry into the cell phone market. Without early-termination clauses, a lot of people would be priced out of cell phone ownership, period. Others would only be able to afford a low-end phone. The FCC’s proposals would hurt these people.

That doesn’t matter when there’s a chance to be seen “doing something.” Ergo, the FCC is considering violating the sanctity of millions of contracts. In Washington, good publicity trumps the rule of law. I wish it were for a better reason than people not reading what they sign.

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Posted in Economics, Law, Political Animals, Public Choice

Let’s Move Election Day

Posted on June 11, 2008 | Comments Off on Let’s Move Election Day

CNN’s Roland Martin thinks that elections should be held on Saturdays, not Tuesdays. He thinks that would increase turnout.

I have a better idea. Move Election Day to Tax Day — April 15. We can decide who gets to spend our money while our tax bills are still fresh in our minds. Politicians would have less incentive to come up with grandiose schemes for spending other peoples’ money.

Besides, I’ve always thought it borderline suspicious that elections are held at the opposite end of the calendar from when we pay our taxes.

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Posted in Economics, Elections, Political Animals, Taxation

Korea’s Beef Standoff Continues

Posted on June 10, 2008 | Comments Off on Korea’s Beef Standoff Continues

There were more street protests in Seoul on Sunday over U.S. beef. The public is scared out of their minds that they’ll get mad cow disease. The domestic beef industry doesn’t like having to face competition. President Lee Myung-bak’s approval rating is lower than President Bush’s. The pending U.S.-Korea free trade agreement is under fire.

Will it pass? The Wall Street Journal Asia, in a standout editorial today, thinks so. The beef outcry is a temporary phenomenon, they believe.

“It’s worth noting that the opposition party hasn’t gained any ground at Mr. Lee’s expense, a sign that the public protests may mask broader support for the free-trade agreement.”

Let’s hope they’re right.

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Posted in Economics, International, Trade

Why Are Energy Prices High?

Posted on June 5, 2008 | Comments Off on Why Are Energy Prices High?

Columnist George Will is on to something here.

“Democracy,” said H.L. Mencken, “is the theory that the common people know what they want and deserve to get it good and hard.”…Disqualified from complaining are all voters who sent to Washington senators and representatives who have voted to keep ANWR’s oil in the ground, and who voted to put 85 percent of America’s offshore territory off-limits to drilling. The U.S. Minerals Management Service says that restricted area contains perhaps… 10 times the oil and 20 times the natural gas Americans use in a year.

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Posted in Economics