New Jersey Survival

Caveat Emptor!     http://www.nakedcapitalism.com/

Jeffey Frankel
Politicians have always faced the temptation to give their constituents tax cuts. But in recent decades “conservative” presidents have enacted large tax cuts that have been anything but conservative fiscally, and have justified them by appealing to theory. In particular, they have appealed to two theories: the Laffer Proposition, which says that cuts in tax rates will pay for themselves via higher economic activity, and the Starve the Beast Hypothesis, which says that tax cuts will increase the budget deficit and put downward pressure on federal spending. It is insufficiently remarked that the two propositions are inconsistent with each other: reductions in tax rates can’t increase tax revenues and reduce tax revenues at the same time. But being mutually exclusive does not prevent them both from being wrong.

The Laffer Proposition, while theoretically possible under certain conditions, does not apply to US income tax rates: a cut in those rates reduces revenue, precisely as common sense would indicate. As detailed in a new paper of mine “Snake-Oil Tax Cuts,” for the Economic Policy Institute, this conclusion was the outcome of the two big experiments of recent decades: the Reagan tax cuts of 1981-83 and the Bush tax cuts of 2001-03. It is also the conclusion of more systematic scholarly studies based on more extensive data. Finally, it is the view of almost all professional economists, including the illustrious economic advisers to Presidents Reagan and Bush, even though it contradicted the views of their employers. So thorough is the discrediting of the Laffer Hypothesis, that many deny that these two presidents or their top officials could have ever believed such a thing. But abundant quotes show that they did.

The Starve the Beast Hypothesis claims that politicians can’t spend money that they don’t have. In theory, Congressmen are supposedly inhibited from increasing spending by constituents’ fears that the resulting deficits will mean higher taxes for their grandchildren. The theory fails on both conceptual grounds and empirical grounds. Conceptually, one should begin by asking: what it the alternative fiscal regime to which Starve the Beast is being compared? The natural alternative is the regime that was in place during the 1990s, which I call Shared Sacrifice. During that time, any congressman wishing to increase spending had to show how they would raise taxes to pay for it. Logically, a Congressman contemplating a new spending program to benefit some favored supporters will be more inhibited by fears of constituents complaining about an immediate tax increase (under the regime of Shared Sacrifice) than by fears of constituents complaining that budget deficits might mean higher taxes many years into the future (under Starve the Beast). Sure enough, the Shared Sacrifice approach of the 1990s succeeded. Compare this outcome to the sharp increases in spending that took place when President Reagan took office, when the first President Bush took office, and when the second President Bush took office. As with the Laffer Hypothesis, more systematic econometric analysis confirms the rejection of the hypothesis.

These matters are not solely of interest to historians or economists. The presidential campaign of Senator John McCain appears set to drive its wagon down the same road in which Reagan and Bush have already worn deep ruts. The candidate is apparently selling the same snake oil: he says he believes that tax cuts increase revenues. His principle policy director disavows the Laffer Principle, just as the economists who advised Presidents Reagan and Bush did. But the views of the economic advisers are not what determines what these presidents do.

“The Queen in Alice in Wonderland said that, with practice, she was able to believe as many as six impossible things before breakfast. Most of us are more limited in our capacity for credulity. If John McCain believes both the Laffer Proposition (tax cuts raise revenues) and Starve the Beast (higher revenues lead to higher spending, anathema to conservatives), then as a good conservative, his duty is clear. He ought to run on a truly novel platform of higher tax rates! Why? Higher tax rates would reduce revenues (this is what Laffer says would happen) and thereby reduce spending (this is what Starve the Beast says would happen).

Seriously folks. If McCain continues to propose extending the Bush tax cuts, he should at least be forced to choose between the Lafferite defense and the “Starve the Beast” defense. Only then can the rest of us know which of the two mutually inconsistent propositions to refute.

by Bill Bonner“This is a society of true believers. The belief in democracy, market economics and the importance of religion is far more pervasive here than Marxism ever was in Russia.”
- Michael Ignatieff, The Daily Telegraph

It is the Fourth of July. Should we hang out the red, white, and blue bunting from our office balcony…or the black crepe? Should we whine about the America we have lost, or give a whoop for what we have left of it?

That star-spangled banner still waves, but does it still fly over the land of the free, we ask? Or over a country with a spy camera on every street corner…a nation so deeply in debt that freedom has become a luxury it can no longer afford?

Whatever direction we take, we trip over a contradiction. Things always seem to be black and white at the same time.

That is why we took up tango, dear reader. People who dance the tango or write poems don’t let contradictions bother them. They glide across the floor and enjoy themselves. As far as we know, no serious tango dancer has ever committed suicide. It’s the mathematicians and engineers who blow their brains out.

An ideologue or a mathematician cannot tolerate contradiction. His little world has to fit together neatly, like a crossword puzzle. It is ‘cat’ in one direction and ‘day’ in the other. Each intersection has to work perfectly.

But that is not the way real life or real people work. A healthy woman loves her husband, but often hates him too. She has two eyes, and sees a slightly different view of him with each of them. What is wrong with that? Likewise, even a man with only a single eye cannot help but notice that the world is menaced by inflation and deflation at the same time…and that America is both free and un-free at exactly the same moment.

What we have come to dislike about the neo-conservatives is not that their view of the world is right or wrong – for how could we know? – but that it is so small. They are true believers in a very tiny world…one with no room for mystery, contradiction, ignorance or humility. It has to be small; otherwise they could not understand it.

Neo-cons think they can see what no mortal has ever seen: the future. That is the twisted genius of the ‘Preemptive Attack’; they stop the criminal before he has committed his crime!

They think they can know what no mortal has ever known: not only what is good for himself and his country…but what is good for the entire world. And they intend to give it to them, whether they want it or not. In today’s email box, for example, George W. Bush himself sends us the following message:

“…liberty is God’s gift to humanity, the birthright of every individual. The American creed remains powerful today because it represents the universal hope of all mankind.”

Here we will take a wild guess: there are probably more than a few bipeds hobbling around the planet for whom the “American creed” is not so much a hope as a dread.

But the president continues:

“We are winning the war against enemies of freedom, yet more work remains. We will prevail in this noble mission. Liberty has the power to turn hatred into hope.”

“America is a force for good in the world,” continues the leader of the world’s only super-duper power, “and the compassionate spirit of America remains a living faith. Drawing on the courage of our Founding Fathers and the resolve of our citizens, we willingly embrace the challenges before us.”

America’s citizens, meanwhile, are deeply in debt. They see little choice but to back the system, such as it is. Free or un-free, they could care less. Just keep the money flowing. They have come to rely on government. They need Fannie Mae…and unemployment insurance…and social security…and jobs…and the Fed…and fiscal stimulus. Or, at least, they think they do.

After 50 years of the Dollar Standard boom, the average American finds himself less free than ever. He is a slave to the highest government spending and biggest public debt burden in history…and to the heaviest mortgage and other private debt load ever. He has mortgaged up his house…he has taken the bait of credit-card lenders. Now he has no freedom left; he must keep a job…he must pay attention to the Fed’s rates…he must have an interest in George Bush’s government (for now he depends on it)!

“July 4 should be about celebrating freedom and independence,” wrote Richard Benson, published in this week’s Barron’s, “yet the bankers are the only people jumping for joy. Never have Americans owed so much in terms of their total debt, the ratio of total debt to income and the amount of cash flow the debt needs to serve it. Americans used to believe that if they were debt-free, they were free. Today, Americans just want the freedom to borrow more, even if it means they are on the way to becoming enslaved by their debt.”

The average citizen is only a few paychecks from getting put out of his house. He no longer has the freedom to step back…to reflect…to think…to wonder about things…or enjoy the contradictions. Instead, he must listen to the words of economists as if they meant something…and bow before the politicians who control his livelihood…and place himself at the beck and call of every government agency with a dollar to spend.

The message from George W. Bush concludes with an endearing personal note, in which “Laura joins me in sending our best wishes for a safe and joyous Independence Day…”

Laura who, we wondered? Oh yes…the First Lady.

How we got to be on a first-name basis with the woman, we don’t know. We have never even met her. Why she should wish us a happy day, we don’t understand. But these are the peculiar, baroque eccentricities of America that make it such an endearing place to its citizens and such a rich treasure for contemporary ethnologists and stand-up comics.

They, too, will wonder about the contradictions. Why do Americans celebrate “freedom” ever more loudly, while becoming ever less free…? How can they crow about the “home of the brave” when they attack pitiful, third world nations that can’t defend themselves? How can they ballyhoo their own independence when their armies occupy two foreign nations?

Most people will ignore the contradictions altogether. Many will see them as hypocrisy. Some will be outraged. And a few will hear the off-tempo tango beat, and enjoy the holiday anyway.

Bill Bonner at Daily Reckoning : http://www.dailyreckoning.com/

The indictment of the Bush administration for its conduct of the war on terrorism is both familiar and increasingly insistent. In the aftermath of 9/11, it is charged, the White House responded in ways that not only traduced the U.S. legal system but radically transformed it, stripping American citizens of time-honored rights, trampling on the fundamental premises of our Constitution, and bringing shame on our country for extreme and illegal practices in the treatment of suspected adversaries.

Across seven years, a vast journalistic and legal literature has catalogued the depredations allegedly visited on the American constitutional order. Numerous lawsuits challenging the administration’s counterterrorism policies, brought by groups ranging from the American Civil Liberties Union to the Electronic Frontier Foundation, are moving up and down the rungs of the federal court system. The issues have been caught up in the presidential election contest, with both Hillary Clinton and Barack Obama slamming George W. Bush for having breached the proper channels of executive-branch power, and castigating John McCain for carrying the President’s banner.

At stake are legal and policy questions that are exceptionally complex, involving a clash between the exigencies of national security and the most cherished provisions of our civil and political order. Has there indeed been a fundamental shift to our common detriment? If so, how did it happen, and why?

Read the entire article at Commentary>>>>>

www.commentarymagazine.com

Ron Paul writes at ICC http://www.informationclearinghouse.info/article18870.htm about the disconnect between Bush policy and intelligence estimates. Huh????

The latest National Intelligence Estimate has been greeted by a mixture of relief and alarm. As I have been saying all along, Iran indeed poses no quantifiable imminent nuclear threat to us or her neighbors. It is with much alarm, however, that we see the administration continue to ratchet up the war rhetoric as if nothing has changed.

Indeed nothing has changed from the administration’s perspective, as they have had this latest intelligence report for some time. Only this week has it been made known to the public. They want it both ways with Iran. On the one hand, they discredit the report entirely, despite it being one of the most comprehensive intelligence reports on the subject, with over 1,000 source notes in the document. On the other hand, when discrediting it fails, they claim that the timing of the abandonment of the weapons program, just as we were invading Iraq, means our pressure must have worked, so we must keep it up with a new round of even tougher sanctions. Russia and China are not buying this, apparently, and again we are finding ourselves on a lonely tenuous platform on the world stage.

The truth is Iran is being asked to do the logically impossible feat of proving a negative. They are being presumed guilty until proven innocent because there is no evidence with which to indict them. There is still no evidence that Iran, a signatory of the Nuclear Non-Proliferation Treaty, has ever violated the treaty’s terms – and the terms clearly state that Iran is allowed to pursue nuclear energy for peaceful, civilian energy needs. The United States cannot unilaterally change the terms of the treaty, and it is unfair and unwise diplomatically to impose sanctions for no legitimate reason.

Are we to think that Iran hasn’t noticed the duplicitous treatment being received by so-called nuclear threats around the globe? If they have been paying attention, and I think they have, they would see that if countries do have a nuclear weapon, they tend to be left alone, or possibly get a subsidy, but if they do not gain such a weapon then we threaten them. Why wouldn’t they want to pursue a nuclear weapon if that is our current foreign policy? The fact remains, there is no evidence they actually have one, or could have one any time soon, even if they immediately resumed a weapons program.

Our badly misguided foreign policy has already driven this country’s economy to the brink of bankruptcy with one war based on misinformation. It is unthinkable that despite lack of any evidence of a threat, some are still charging headstrong into yet another war in the Middle East when what we ought to be doing is coming home from Iraq, coming home from Korea, coming home from Germany and defending our own soil. We do not need to be interfering in the internal affairs of other countries and waging war when honest trade, friendship, and diplomacy are the true paths to peace and prosperity.

What?…me worry?