Some Chicago Boyz know each other from student days at the University of Chicago. Others are Chicago boys in spirit. The blog name is also intended as a good-humored gesture of admiration for distinguished Chicago School economists and fellow travelers.
Inc Magazine asserts that a dramatic increase in the number of start-ups is key to economic recovery, and proposes a 16-point plan to accomplish exactly that. I agree with the premise–start-ups are indeed key to the economy–but find quite a few flaws and omissions in the plan, along with some good ideas.
Read the article first, then come back, read my commentary, and join the discussion if you feel so inclined.
Dr. Paul Craig Roberts, the famous Reagan administration economist and now an embittered and cranky paleoconservative social critic, penned a short but intriguing American “collapse” scenario set in the near future. Some of what Roberts writes fits neatly with the thesis in Joseph Tainter’s The Collapse of Complex Societies
….As society broke down, the police became warlords. The state police broke apart, and the officers were subsumed into the local forces of their communities. The newly formed tribes expanded to encompass the relatives and friends of the police.
The dollar had collapsed as world reserve currency in 2012 when the worsening economic depression made it clear to Washington’s creditors that the federal budget deficit was too large to be financed except by the printing of money. With the dollar’s demise, import prices skyrocketed. As Americans were unable to afford foreign-made goods, the transnational corporations that were producing offshore for US markets were bankrupted, further eroding the government’s revenue base.
Check out Bruce Bartlett on the VAT here. Rather than surrender, as Bartlett does, why not win?
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Premise 1 – As our Federal government runs away from the entitlement mess they themselves created, some states are starting to see bankruptcy looming on the horizon. As the left clamors for tax increases to feed the beast, the right sits back and says “no” to everything, ignoring the fact that the left is going to get their tax increases by simple operation of time and demography. This may be good strategery in the short term, but the right is setting itself up for miserable failure, as they will forced to become the “tax collector for the welfare state.”
Premise 2 – The reliance on the income tax as a revenue generator has failed miserably. First, the right, since the 1980s, has been so successful in removing much of the working poor and middle class from the tax rolls. This makes much of the electorate immune to what is now pretty much a siren song for “tax cuts.” This has resulted in dramatically weakening one of the right’s most powerful political tools.
Second, the income tax is a horrible way to collect revenue. When times are good, only the rich now pay, and when times are bad, revenues collapse, as we can see in places that rely on the steeply progressive income tax (CA and National Budget). Add to this fact the negative impact that progressive income taxation has on investment and incentives, and you have a very destructive tax.
Premise 3 – The right, and this includes the libertarian and conservative think tank sector as well as the Republican party, is making a substantial strategic error in ignoring the potential (political and economic benefits) of a massive tax swap. By dissing every proposal for revenue increases (and No, tax cuts aren’t going to work with a $1.4 trillion deficit and a hangover from a 25 year spending/debt/tax cut binge), the right is falling for the trap of arguing for tax cuts for a shrinking class of people while arguing against a superior policy – namely broadening the tax base and making everyone pay for the welfare state that still has substantial political support.
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If the above premises are substantially true – and I can make an extended and extensive case that they are – then our “center-right” leadership is failing us in merely saying “no” to all tax proposals, and gambling on the ability to drag this cycle of stupidity around one more time.
Deflation: John Mauldin
Inflation: Ambrose Evans-Pritchard
Both of these well-written articles make for sobering reading. See also my March 2010 post an architect of hyperinflation.
Hot Air links to this speech against the feds’ moratorium on drilling by Gov. Bobby Jindal and picks out the following key phrase: “let us go back to work!”
Is there a better way to summarize the spaghetti-diagram of legislated rules and regulations that bind, hold-down, dampen, repress and retard the engines of economic growth? Why hire that extra person when you don’t know who will staff the latest alphabet soup regulatory agency and what the regulations will be? Because you know, it’s all so empirical and science-y, man, watch and learn:
1. Legislate new regulatory board.
2. Staff new regulatory board.
3. New regulatory board writes new regulations.
4. ?
5. 10% GDP growth! Yeah for us!
By the way, America’s biggest cheer-leader had the following to say in his press conference with UK PM Cameron:
And, in fact, in the first G20 visit that I made, in April to England, I was very clear to the rest of the world that what they cannot rely on is an economic model in which the United States borrows — consumers in the United States borrow, we take out home equity loans, we run up credit cards to purchase goods from all around the world. We cannot alone be the economic engine for the rest of the world’s growth. So that rebalancing ended up being a central part of our long-term strategy working with the G20
Mr. President, I know you mean well but you are ONE MASSIVE DOWNER.