11
Jun
09

OBR – Bloomberg Snake Pit

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Stupid economists, this is a blog!  I can fucking say what I really think of you!  Oh wait…

Whence on Brighton Rock…

Since I peruse Bloomberg News almost daily nowadays to keep abreast of various and asundry goingson, I have begun to read the opinion columns more often.  Recently, Kevin Hassett’s column on the Obamanomathon caught my eye, but not my fancy.  This is your standard political hackery, which is all the more infuriating because Hassett stumbles upon valid points but consistently avoids not only the larger point that both sides of the political aisle have blood on their hands in the late economic slaughterhouse, but one inherent to the article’s central argument itself.

But who is Kevin Hassett, exactly?  His description on the Bloomberg page informs us:

Kevin Hassett, director of economic-policy studies at the American Enterprise Institute, is a Bloomberg News columnist. He was an adviser to Republican Senator John McCain of Arizona in the 2008 presidential election.

Well, this explains quite a bit.  After all, it was his charge that claimed the nation’s fortunes were sound right after Lehman Brothers when tits to the Big Dipper last fall.  But wait, it gets significantly better.  To the Wikipedia!

Kevin Allen Hassett is an American economist. He is best known for his work in macroeconomics and tax policy and for coauthoring Dow 36,000, published in 1999.

Dow 36,000?  Do tell:

Hassett is coauthor with James K. Glassman of Dow 36,000: The New Strategy for Profiting from the Coming Rise in the Stock Market. It was published in 1999 before the dot-com bubble burst. The book’s title was based on a calculation that, in the absence of the equity premium, stock prices would be approximately four times as high as they actually were. In its introduction, Glassman and Hassett wrote that the book “will convince you of the single most important fact about stocks at the dawn of the twenty-first century: They are cheap….If you are worried about missing the market’s big move upward, you will discover that it is not too late. Stocks are now in the midst of a one-time-only rise to much higher ground–to the neighborhood of 36,000 on the Dow Jones industrial average.”[4] The Dow industrials index closed at 10,681.06 on the day of the book’s publication[5] but by the end of 2004 it remained at essentially the same level — 10,783.01, having dropped over 25% in the meantime but recovered. As of April 14, 2009 The Dow Jones was at 7,904.81 – 78% below his 36,000 prediction.

To be forthright here: seppuku would have been the honorable way out.  This isn’t as bad as Economics Nobel Prize winner Paul Samuelson’s “the Soviets will overtake the US in GDP” blunder (which was published in a text book and for which one of my professors said he should have given back the Nobel), but it’s pretty goddamn bad.  By the way, you can get a used copy of the book for $0.98!  With that kind of money, you could become a shareholder in GM!  Suffice to say, unless this gentleman’s experiences with the vagaries of stock market bubbles have engendered an epiphany akin to being struck from his horse by GOD HIMSELF (or, failing that, Ludwig von Mises), why anyone continues to take advice from a clearly insane man is baffling.  Then again bold predictions, right or wrong, foster notoriety and in politics, particular brands of notoriety doth a career make.

Enough prelude, let’s FJM this shit.

Obama Tells American Businesses to Drop Dead: – Commentary by Kevin Hassett

Oh, that’s a snarky opener!  That probably killed the fifth-graders at Ronald Reagan Elementary!

June 8 (Bloomberg) — I’ve finally figured out the Obama economic strategy.

I’m sensing sarcasm afoot.

President Barack Obama and his team have been having so much fun wielding dictatorial power while rescuing “failed” firms, that they have developed a scheme to gain the same power over every business. The plan is to enact policies that are so anticompetitive that every firm needs a bailout.

Ha!  You see what he did there?  But honestly, accusing the incumbent of dictatorial aspirations (of which Obama has many) is somewhat hypocritical when your party just left a swath of destruction in two undeclared wars while torturing people in secret prisons.  As for anticompetitive economic policies of the previous administration?  Try the 2002 Steel tariff on for size.  That one was so egregious, it even had FOX news frothing at the mouth even in a post-9/11 world.

Once that happens, their new pay czar Kenneth Feinberg can set the wage for everybody and Rahm Emanuel can stack the boards of all of our companies with his political cronies.

Which is quite a bit different than our present system of the boards of all our companies stacking political offices with their cronies.  See, this is the difference between Democrats and Republicans: who’s on which end of the political blowjob.

I know, it sounds like an exaggeration.

In an age of trillion dollar deficits, multiple wars and the end of habeus corpus, it really doesn’t.

But look at it this way.

Clumsy sports metaphor on the horizon.

If there were a power ranking of U.S. companies, like the ones compiled by football writers for National Football League teams, Microsoft would surely be first or second to Google.

Okay, I’m with you.

But last week, Microsoft Chief Executive Officer Steve Ballmer came to Washington to announce what Microsoft would do if Obama’s multinational tax policy is enacted.

“It makes U.S. jobs more expensive,” Ballmer said, “We’re better off taking lots of people and moving them out of the U.S.” If Microsoft, perhaps our most competitive company, has to abandon the U.S. in order to continue to thrive, who exactly is going to stay?

A fair point, but what the fuck did that NFL thing have to do with anything?  How did that make the point any clearer?  Is the point that Microsoft is the top company, so we should listen to them?  But why even bother with a clumsy analogy to “power rankings” that half the readers aren’t even familiar with?

At issue is Obama’s policy to end the deferral of multinational taxation.

The U.S. now has about the highest combined corporate tax rate, second only to Japan among industrialized countries. That rate is so high that U.S. firms have an enormous disadvantage versus competitors. The average corporate tax rate for the major developed countries in the Organization for Economic Cooperation and Development in 2008 was about 27 percent, more than 10 percentage points lower than the U.S. rate.

This is an excellent series of observations.

Tax Burden

U.S. firms have nonetheless prospered because our tax code allows a business to set up a subsidiary in a low-tax country. When that subsidiary earns profits, they are taxed at the rate of that country, and don’t face U.S. tax until the money is mailed home.

The economically illiterate partisan Democratic view is that this practice is unpatriotic and bleeds jobs from the U.S.

Still with you.

The economic reality is that American companies use this approach to acquire market share overseas. The alternative is losing the business to foreign competitors.

Don’t just take my word for it. A recent paper by Harvard economists Mihir Desai and C. Fritz Foley and Berkeley economist James Hines and published in the distinguished American Economic Review, gathered data on American multinationals to explore the impact of foreign investments on domestic U.S. activity.

Encourage Overseas Sales

Their conclusion was striking. The authors found that “10 percent greater foreign capital investment is associated with 2.2 percent greater domestic investment, and that 10 percent greater foreign employee compensation is associated with 4 percent greater domestic employee compensation. Changes in foreign and domestic sales, assets, and numbers of employees are likewise positively associated; the evidence also indicates that greater foreign investment is associated with additional domestic exports and R&D spending.”

So when firms expand their operations abroad, taking advantage of the lower foreign tax rates, it helps their workers in the U.S. Higher sales abroad (surprise, surprise) are good for domestic workers.

It is worth noting that this study, which is confirmed by a boatload of evidence elsewhere, was coauthored by the same James Hines who recently wrote a sweeping review of international tax policy with Obama’s top economist, Larry Summers. Summers has to know what the literature says.

All solid stuff, but something’s awry here…

Inexplicable Stance

So the question is, why does Obama advocate a policy that so flies in the face of everything that economists have learned?

Political expediency?  Wait a tick, you think it’s political expediency and you’re just not saying it, aren’t you?  Clever devil!

How could Obama possibly say, as he did last month, that he wants “to see our companies remain the most competitive in the world. But the way to make sure that happens is not to reward our companies for moving jobs off our shores or transferring profits to overseas tax havens?” Further, how could Treasury Secretary Tim Geithner call a practice that top scholarship has shown increases wages and employment in the U.S. “indefensible?”

And we’ve missed the forest through the trees!  Let’s return back to a few mini-paragraphs ago when our boy Hassett noted that US corporate tax rate is much higher than the rest of the world.  Isn’t the obvious issue the rate itself, not some fucking loophole?  Wouldn’t it make more sense to just decrease corporate or, *gasp* eliminate them all-together (which would also remove the incentive to add leverage as a means of tax sheltering via tax deductibility of interest payments)?  Ah yes, but our companies, and our nation, benefits by this tax loophole by promoting overseas and therefore foreign investment?  I can’t speak for the studies, but I think it probably makes more sense for companies to open up overseas operations because of the attractiveness of the market or the labor pool, not on account of some fucking tax loophole.  The latter sounds like a classic distortion of resource allocation via arbitrary tax rules.  This is not to say closing the loophole is good.  It is to say that high levels of taxes are bad.

I have to admit I am at a loss.

Fuck you, no you’re not.  If you had wound up in the McCain White House, you would have justified whatever economic claptrap that would have come down the pipe (like the 2002 tariff); after all, that’s what the court economist’s job entails.  You’re just pissed that instead of the cushy job in the West Wing, you’re stuck licking the grunt off of Cheney’s asshole at the AEI happy hours.

Maybe it is good politics to bash American corporations,

Now that’s a growth industry!

and Obama isn’t really serious about making this change happen.

Change!  Obama!  Whoooo!

But if the change is enacted, and domestic corporate taxes aren’t reduced to offset the big tax hike,

Ha!  I knew he had it in him!  Finally, at the tail end of the article, he acknowledges the elephant in the room, albeit in the form of a disclaimer on assertions.  But does he expand on this as a policy initiative that should be embraced?  Fuck and no.  He’s a director of economic policy, you asshole, that sort of thing is not practical!

the result will be a flight from the U.S. that rivals in scale the greatest avian arctic migrations.

Ahoy weird metaphors!  You don’t exactly see all the companies fleeing aforementioned tax happy Japan; you just seem them nationalized or heavily subsidized.  Like AIG.  Or Fannie Mae.  Or Freddie Mac.  Or effectively Citigroup.  All done under a Republican administration.

If that occurs, the firms that stay in the U.S. will be at such a huge tax disadvantage that they will absolutely need a “rescue.”

Scare quotes, the jazz hands of the policy wonk ballet!

But you see why Hassett pisses me off.  It’s not just the partisan rhetoric that isn’t even justified based on both parties’ actions.  This is a bad move by Obama.  But the right move isn’t simply tolerating the loophole, but making the loophole a moot point by lowering taxes.  Hassett seems to know this (like Larry Summers, he’s read the literature), but I’m “at a loss” on why he doesn’t state it more resoundingly.  See?  Now I feel like a douche for imitating that fucker.  Okay, fine, I feel like more of a douche.

And now, a video about choices from Charley417:

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