Posts Tagged ‘FJM-style


Tooling Around with Kevin Hassett

Yes, kids and kittens, we’re back with our friend, Kevin Hassett.  Hassett has been a busy motherfucker in the weeks since we last flung poo at him, producing a couple of very worthwhile articles:

These tidy analyses demonstrate Hassett’s considerable political prowess as they are rather adept commentaries on pop culture’s treatment of elected officials and the petty wars amongst our betters.  But, never fear, for Hassett never leaves the economic crazy train for long, slanging a remarkably incoherent screed despite the very good points into which he occasionally rambles.  Fire up the FJM machine, the shitter’s full!

Obama Flubs Schumpeter Creative Destruction 101

Commentary by Kevin Hassett

June 22 (Bloomberg) — In his landmark 1942 book, “Capitalism, Socialism, and Democracy,” economist Joseph Schumpeter emphasized the key role that creative destruction plays in generating long-run economic growth. It is the driving force of capitalism.

It’s always fun when Hassett mentions a landmark book because then we can bring up DOW 36,000!  Now in Ninja Text!

That. Just. HAPPENED.

While the used paperback is $0.98 on Amazon, the hardback can apparently be had for $0.01.  Don’t forget the $0.18 audio tapes!  I’m trying to think who would be the most fitting to read it, and I think it’s a tie between Jim Cramer and Lenny Dykstra.

There have been numerous accusations that President Barack Obama is intent on reforming America as a socialist nation.

It sells better with the liberals like fascist does with the republicans.

Obama himself may have fed the beliefs with his own words, saying, as he did, that he believes government should “spread the wealth around.”

Which is naturally code for “sucking up whatever is not nailed down, then taxing nails.”  And remember kids, “preemptive war” is code for “serial rape”.

He also said, back in 2003, that he favors a single-payer system for American health care.

Former Vice President Dick Cheney, asked recently about Obama’s “socialist” policies, responded, “I agree with the criticism without using the labels.”

“But seriously, fuck that Jew.  Wait, are we not talking about Franken anymore?”

Most of Obama’s policies to date are very far from the socialist ideal.

What is the socialist ideal? Canada?  France?  A Buddhist monastery?  Berkley?

They may well move the economy in a direction that a conservative might oppose, but they do not revive the model of the Soviet Union either.

We’re sidling awfully close with preventive detention getting kicked around, protecting the worst civil liberties abuses of the Bush Administration and the wholesale nationalization of industries.  All we need is a menacing national hockey team and a sweet name for our secret police.

Still, there is one aspect of Obama’s policies that gives a student of Schumpeter great pause, and perhaps even some sympathy for Cheney’s answer.

CHENEY DOES NOT NEED YOUR SYMPATHY!  *shoots puppy, claims to be aiming at pheasant, urinates on puppy’s corpse*

Obama and his team seem sharply opposed to the view that creative destruction is a valuable economic force. They seem happy with what might be called destructive destruction — the obliteration of value and wealth without any resulting positive change.

What, like carpet bombing other countries and missile defense systems for no practical reason than to piss off Ivan?

Creative destruction describes the painful effects of innovation and progress. Sometimes great inventions wipe out the existing economy, just as the Internet may be killing print newspapers.

Like DVD porn before them.  So it goes.

In other cases, economic failure clears the way for competition among inventive newcomers. In both scenarios, the nimble and inventive replace the calcified old guard, eventually moving economic welfare to a higher level.

This mention about economic welfare by itself neglects the point about creative destruction.  Economics is fundamentally about the allocation of scarce resources, best implemented by a free market in which property rights are respected, thereby assuring that costs and benefits are borne by those who contribute to them.  When new industries or inventions replace the old, resources are redistributed to a more productive area, through the coordination engendered by the free market system.  This often increases welfare, but the point of economics is coordination between acting humans.  Welfare is a more subjective concept.

No Bank Innovation

The Obama administration has regularly opposed changes that might ignite a positive wave of creative destruction. Banks, for example, engaged in imprudent practices that pushed them toward the brink of bankruptcy. Where are the new innovative banks to replace them?

I don’t know.  How about we ask the Administration that bailed them out?  Can someone get Hank Paulson and GW on the phone?

They don’t exist, because private capital can’t compete with the enormous subsidies flowing from the government to the diseased dinosaurs.

But what of our deflationary spiral if the banks go under?!?!  A fairly bold move to go against the Keynesian orthodoxy so directly.

Make no mistake, there is destruction: investors have seen their wealth destroyed. But the government’s actions have prevented any creative outcome.

And created that destruction in the first place; the Federal Reserve, hard at work.  Governments are creative when it comes to destruction.

Revolutionary Automobile

Imagine the wave of innovation that could be set off if General Motors Corp. and Chrysler LLC were allowed to fail. Existing firms, such as Ford Motor Co., Honda Motor Co. and Toyota Motor Corp., would have vast new markets to compete for. New firms, such as Tesla Motors Inc., whose Model S may well be the most revolutionary automobile to hit the market since the Model T, would not have to compete against cheap, subsidized government-made cars.

It’s probably not the best thing to mention as your free market icon a car company that just took a $465 million loan from the Federal government.  Which was in the Wall Street Journal.  Two days before this article was published.   Perhaps some forms of socialism are more free market than others.

Instead they do have to compete, because it is just unthinkable for Obama to force his unionized political allies to make any sacrifices.

Wait, Obama’s political allies have formed a union?  We demand more time with Bo!  Rahm, get your finger out of that dog’s ass!  I don’t care if it’s dressed like it wanted it!

Obama is opposed to letting failure produce space for creation, but he also is opposed to innovative creation that would have destructive repercussions.

He’s opposed to creation that causes destruction?  Like a stealth bomber or something?  Or is his opposition of creation causing destruction?  WHAT DOES THIS SENTENCE MEAN?  It’s probably the latter, but it’s probably written by someone on a bender.

He has proposed large new increases in business taxes to extract the profits that motivate innovators, and he signaled a willingness to force firms to share their wealth with a resurgent organized labor.

Instead of forcing firms to vie for government contracts for imperialist wars and consolidating energy companies into a government cartel (like the banks!).  But we could always go for broke and use both Bushesque wars and cartelization in addition to socialist policies.  Fascism and socialism together—going both ways in America.  We’ll be the bisexuals of tyranny.

The actions of Obama and other Democrats speak volumes. They are supporting so-called card-check legislation, which would make it easier for unions to organize workplaces. And a provision in the Federal Aviation Administration reauthorization bill passed recently by the House appears to have been specifically designed to allow the Teamsters union to organize FedEx Corp.

Tax on Success

The message is clear. If you succeed and become profitable, Obama will take a big share of your profits for the federal government and give another big share to the unions.

My profits?  I only want them to take other people’s profits, like with steel tariffs and farm subsidies.

The scale of the combined tax that results from this is hard to fathom. Federal Reserve economist Bruce Fallick and I

Of course he worked with the Fed’s people.  But remember, government enforced monetary and banking cartels are not socialism.

estimated in a research paper published in 1996 that unions tend to successfully extract from firms about a third of their profits.

Does this include the portion that would be actually justified by their labor?  Apart from it?  Do I really have to read that paper?  THERE BETTER BE NAKED WOMEN FORNICATING IN THIS PAPER.

Unions seem to calculate their wage demands based on a firm’s profits.

As opposed to fairy tales and acid dreams, like when the US presents ultimatums to rogue nations.

In the new world that Obama is preparing for us, where unions can organize almost everyone, the tax rates from states, unions, and the federal government will approach 70 percent.

“Can”, unfortunately for the commies, does not equal “will”.  For private industry in 2008, the amount of the labor force unionized was 7.6%.  That’s a long way from even a majority, which unionists have never had.

Fun fact however, upwards of 36% of government employees are shaking down the man for a little extra in the pension kitty.  And with Bush and Obama nationalizing everything they could wave their dicks at, this sort of thing portends more poorly for highly regulated industries.  Health care, I’m looking in your direction (oh wait, you’re already run by a cartel).

Again, there’s the destruction. It is the wealth of entrepreneurs that is destroyed.

Like the government sugarbaby, Tesla.  I don’t disagree here, but it should be noted that the absolute height of the socialist folly is believing you can invade another country, destroy it, and then rebuild it in your own image.  That is literally the endgame of central planning.

Such policies will chase the ambitious away from the U.S. and leave the long-run economy a stagnant mess.

Mmmmmm, smells like France.

Path to Socialism

Socialist states emerge over time because entrenched interests like organized labor achieve a position from which they can extract extra sustenance from successful firms.

Or because the nation’s central bank causes an economic meltdown with hyperinflation, helping fuel the National Socialist Workers Party’s rise in Germany ‘round 1930.  As much as I dislike organized labor, the Fed is easily the biggest danger to a free state.

Workers who have won a higher wage than their productivity would rationalize do not want old things to die, or new things to be created.

This is sort of a roundabout way of saying unions are aghast at competition, as their fight for higher wages is typically one against their competitors: other workers.  Hassett’s phrase here seems to paint them as misanthropic curmudgeons who try to douse laptops in holy water while cowering from cell phones.  Unionists don’t mind change as long as they can control it, though I will agree that they have little incentive to innovate, and much to be wary about the competition (see here, US vs foreign auto workers and the resulting tariffs).

Whether he is socialist or not, by embracing the idea of destructive destruction, Obama is giving such stakeholders exactly what they want, and threatening to suck the vibrancy out of our economy.

Hassett inadvertently gives the President a new slogan: Obama will personally suck your vibrancy, America!

On a side note, while Hassett speaks a lot about the damage of proto-socialist policies, I would argue that most Republican platforms subvert the free market framework in a more devious fashion.  The policies of many republican administrations has been to the lower regulations while leaving the regulatory agencies in place, or worse, secretly working those regulations to benefit certain players at the expense of others.  By taking these half measures and outright plunder, they then help precipitate recessions (which the Fed and fractional reserve banking always has a hand in) or business crimes, which are then blamed on these alleged free market policies, which are in reality anything but (closer to fascism than anything else).  In my mind, the Republicans with their limp deregulation efforts, cronyism and aid to moral hazard have done more damage to free market economics by flying their pirate ships under the laissez-faire banner than the socialists who dug their own graves with the millions who suffered under the Soviets and Chinese.

And now, here’s Primus:


OBR – Bloomberg Snake Pit

Vodpod videos no longer available.

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: