Tax cuts & other incantations

Political campaigns are like ancient military campaigns. The magic words must be spoken before the battle begins. Once they were words like "Ish-ca-bib-el," but today they are "cut taxes and government waste." No campaign can start without them. Neither the ancient nor the modern incantations have any reference to reality. You do not hear politicians say what specific public services will be cut after cutting taxes This is because you don't hear citizens demanding less highway maintenance, larger class sizes, less medical care for the elderly, and a smaller army. All hail Ish-ca-bib-el" and the Tooth Fairy that brings us good things for free.

Fannie & Fredie

The Secretary of the Treasury is advocating Federal loans at low interest rates to the mortgage firms known as Fannie and Freddie. This proposal while laudable in purpose further increases the Federal debt. Why do we do it that way? Is money in short supply such that there is a real opportunity costs if diverted? I do not think so. There is plenty of unused capacity in the real economy. There is no reason for taxpayers to consume less so that these mortgages can be extended. Why does not the Federal Reserve and the Treasury simply write a check to Fannie and Freddie? We do it the old way only because we are locked in to old customs and obsolete institutions. It is time for modernization of fiscal policy. I call it zero interest public debt.

Inflation

Inflation is in the news and blamed on the rise in oil and food prices. But, inflation is defined as a rise in the general price level, not the rise in the price of particular items. The only way that the rise in oil prices can cause inflation is if the banking system accommodates it by an increase in the money supply. If the money supply is constant, then a price rise for oil means a price drop for other things depending on their relative demand elasticities. The popular misconception of inflation causes us to look at the wrong policy options.

Big Oil Defends Profits

Recently top executives of the five largest oil companies said they were helpless to reduce profits even when Exxon's annual profit increased from $11.5 billion to 40.6 billion in the past five years. Executives claim that it is simply impersonal supply and demand. They are only partly right. High profits in theory should increase supply, but these oligopolies have no incentive to build new refineries, which they have not done for 40 years. The industry points to things like terrorists destroying oil installations in Nigeria. I wonder why? Perhaps if the oil companies would share a bit of their wealth with the local people, they would help protect the installations rather than destroying them.
When Stephen Simon, vice of Exxon was asked how much his salary was, he claimed he did not know. This is unbelievable, it must be nice to make so much money you can't remember how much!

EPA Raises Ozone Standards

The Environmental Protection Agency recently lowered the level of allowable amount of ozone in the air from the present standard of 84parts per million to 75. The EPA's independent science advisory panel unanimously recommended a standard of 60 to 70 parts.
John M. Balbus, a physician and the chief health scientist at the Environmental Defense Fund, said, “Clearly at some point you get to a level where additional benefits just aren’t worth it, but I don’t think we’re there at 75.” “The E.P.A.’s own risk estimates show that between 75 and 70, there will be hundreds more deaths and thousands more visits to emergency rooms, and hundreds of thousands of more lost school days,” he said. Tens of millions of people live in counties that do not meet the current standard of 84. And the timetable for meeting the new one could be decades. In practice, standards are ceremonial to a major extent.
Oil and chemical companies lobbied intensely against the new standard claiming it would trigger layoffs and erode U.S. economic competitiveness. Must we damage our health to have a healthy economy?
Regulation does not create costs where there were none before. It is a matter of who bears the costs. Medical treatment is a cost of making chemicals as much as labor or raw materials. Raising the price of a product is a signal for consumers to buy less of some products and more of others (depending on the elasticity of demand). The same business interests that usually claim the economy is self-regulating and will respond to changes in relative prices seem to ignore their preaching in the case of polluting products. A price increase and lower demand for chemicals may decrease the use of resources in their production and increase demand for other goods. Inputs can't move to new uses that consumers prefer without some transaction costs. Perhaps we should admit it and share some of the transition costs of resources trapped in chemical production, rather than let the prospects of these costs paralyze us and prevent the healthy environment that many prefer to having more plastics, etc.
I have some sympathy for Sen. George Voinovich from economically stressed Ohio, but the answer is not to damage our health to maintain the status quo.

War Profiteering

"KRB, the largest private contractor for the Pentagon in Iraq, has two shell companies in the Caymans.... Because the companies are offshore, neither KBR nor the workers must pay Social Security and Medicare taxes ... according to (the Boston Globe)." "When KBR set up the second of its two shells in the Caymans, it was still owned by Halliburton. Halliburtons's chief executive then was Mr Cheney."
Source: Toledo Blade, March 14, 2008.
Why do we put up with this? Is it because any criticism of the administration's Iraqi policy is subject to the charge of being unpatriotic?

Iraq Policy Failures

Bush supposedly attacked Iraq to improve life of Iraqi citizens.
But, what is the evidence?
1. American soldiers dead—4,000.
2. Iraqi citizens dead—180,000 as reported by Iraqi Ministry of Health (other estimates are considerably higher.
3. Internal citizen displacement—2 million.
4. Refugees fled to other countries—2 million more.
5. Dollar cost to date-- $3 trillion. (And electricity and water are problematic.)
We have done much more harm than good, and staying only makes it worse.