Capital Commerce
-
Romney’s Plan to Save Manufacturing
Continue reading… 0 CommentsLots of free-market types were aghast at Mitt Romney’s appeal to Michigan voters that as president he would use government to help the auto industry, as if he was advocating some European Union/Japan-style industrial policy:
I am convinced that Michigan can once again lead the world's automotive industry. But it means we're going to have to change things in Washington. We're going to have to go from politicians who say they are “aware” of Michigan's problems to have a president instead who will actually take action to do something about them.
-
Quick Hits for Jan. 18, 2008
Continue reading… 1 Comment- Market strategist and blogger Don Luskin sees the current weak patch as an opportunity for major tax reform.
- John Tamny of RealClearMarkets thinks tax cuts still work as a political and economic issue and extols the continued critical role of the entrepreneur.
- Mark Perry of the Carpe Diem blog reminds that “fiscal stimulus” eventually comes from higher taxes or higher deficits.
-
Henry Paulson: Blame the Machines
Continue reading… 0 CommentsIn today’s White House briefing about President Bush’s ideas for fiscal stimulus, Treasury Secretary Henry Paulson made a good point about machines and our manufacturing base:
You may not know it, but who is the largest manufacturer in the world? The U.S., by a lot. It's fascinating. When I had looked at the data in 1950...manufacturing jobs in the U.S. were about 30 percent of the country then, and there are about 15 million manufacturing jobs, OK? Today, we've got the same 15 million manufacturing jobs; they're about 10 percent. But the output has gone up seven times over that period, and...our manufacturing base is two-and-a-half times larger than China, it's bigger than Japan, it's bigger than Germany. This is a story about automation.
-
An Economy of Fear
Continue reading… 0 CommentsWhat's wrong with the economy and the market right now? A lack of credit? A lack of buying power? Nope, I think it's a lack of confidence about tomorrow. Poll after poll shows people fairly sanguine about their current financial situation but worried about what's coming next because of the housing downturn, the subprime mortgage mess, and rising oil prices.
The whole environment reminds me of the pessimistic period right before the liberation of Iraq back in 2003—and right before a great four-year run of rising stock prices, rising incomes, and rising job growth. (All despite a quadrupling of oil prices. Wow.) Take that supposedly weak retail sales report from yesterday. As even the bearish gang at Goldman Sachs notes:
-
Michigan GOP Voters Fret Over Deficit, Pick Romney
Continue reading… 0 CommentsOne of the interesting exit-polling factoids to come out of last night's GOP presidential primary in Michigan was that a bit more than half of voters were more interested in having the next president focus on cutting the deficit than focus on cutting taxes. (As if one precluded the other, but anyway....) Yet they voted for Mitt Romney rather than John McCain, whose domestic policy agenda is built around cutting government spending.
Now I tend to doubt whether most people differentiate among the current budget deficit, national debt, long-term entitlement funding problems, and the trade deficit. It all probably sounds like different slices of the same problem to the average person: a managerially inept and incompetent federal government that can't plan for a war, deal with natural disasters, or balance its books. That attitude may have helped give Romney the super CEO an edge over McCain the deficit hawk.
-
Quick Hits for Jan. 15, 2008
Continue reading… 0 Comments1) With the results of the Michigan primary just hours away, my guy John Tamney, editor of RealClearMarkets, has little sympathy for the U.S. auto industry:
In truth, Michigan's economic malaise to a high degree results from the historical inability of its car manufacturers to shed workers that no longer provide value to its operations. Union pressure has made this process difficult, and the "loud sucking sound" has been capital fleeing a state unwilling to accept economic reality. Painful as layoffs are, had Michigan's auto companies addressed redundancies long ago they would be better off today, not to mention how honest appraisal of workforces would have enabled redundant workers to seek more productive employment elsewhere.
2) Larry Kudlow offers some tasty behind-the-scenes morsels about the McCain economic agenda:
Sen. McCain has tasked Jack Kemp with pulling together a growth package that will probably include a corporate tax cut. But it is all very much up in the air right now. Phil Gramm has proposed a doubling of the mortgage interest deduction, but key McCain staffers oppose this. Over in the Romney camp, tax strategists Caesar Conda and Vin Webber had hoped to get a stronger supply-side message for Michigan, but the clock ran out.
3) Where is the consumer recession? Retail sales were down 0.4 percent in December, but there is a silver lining here, courtesy of JPMorgan economist Michael Feroli: "It appears that November sales borrowed some from December sales. For the two months taken together, core retail sales increased at a 5.25% annual pace, in line with the trend over the last two years."
-
Ways to Boost the Greenback
Continue reading… 1 CommentMarket guru Ed Yardeni of Oak Associates offers a fix for the falling dollar:
So far, the weak dollar hasn't caused the dire consequences predicted by those who (rightly) have been most bearish on the dollar for the past few years. Bond yields haven't soared and neither has inflation. This statement isn't completely accurate. Corporate credit quality spreads are widening significantly and food and energy inflation have risen sharply. The benefits of a weaker dollar should also be put in the balance. US exports have gotten a lift and US profits have gotten a boost from the weak dollar. Those who advocate a stronger dollar mostly endorse policies that would depress domestic demand in the US. These Puritans are basically favoring a recession to purge the US economy of its excesses. So they believe the Fed is making a mistake by lowering interest rates. Most of them are very wealthy individuals, who would remain very wealthy even during a recession. I would prefer to see another round of significant and permanent cuts in marginal tax rates on personal incomes and capital gains, and a big reduction in the corporate tax rates as the best way to lift the economy and the dollar.
-
Where's America's Sovereign Wealth Fund?
Continue reading… 2 CommentsLooking for cash to shore up its balance sheet, Citigroup said today that it has received a $12.5 billion investment from outside investors, including the Government of Singapore Investment Corp. and the Kuwait Investment Authority. That follows a $7.5 billion cash infusion from the Abu Dhabi Investment Authority. Merrill Lynch and Morgan Stanley have also been the beneficiaries of investment dough from foreign sovereign wealth funds.
But what if America had a national sovereign wealth fund? (States, of course, do have pension funds that invest in the market.) Wouldn't there be tremendous political pressure to use it to prop up struggling banks? Better "us" doing it than "them" would surely be the reasoning. And, indeed, we almost did have a SWF of sorts. Back in 1998, President Clinton proposed taking $600 billion in projected budget surpluses and investing in the stock market as a way of bolstering the Social Security system. Free-market types objected to the plan, saying it was tantamount to government ownership of private companies and would create a sort of next-generation socialism. Yet had it happened, it might well have morphed by now into a more traditional SWF that would take equity stakes in companies around the world to boost returns.
-
Michigan Primary: A Graveyard for Reaganomics?
Continue reading… 6 Comments"Supply-side economics had a good run, but continual tax cuts can no longer be the centerpiece of Republican economic policy," New York Times columnist David Brooks recently opined. "Smart Republicans are groping for a new economic model, and as they do, Republican economic policies are shifting. The entrepreneur is no longer king. The wage-earner is king. As the presidential campaign rolls into Michigan, it's clear that Republicans are adjusting their priorities to win back the anxious middle class."
Specifically, this "new model" of Republicanism would focus less on taxes and more on worker worries about education, healthcare, job volatility, and America's long-term debt burden. And indeed, parts of such a new approach can already be seen creeping into the agendas of the various GOP candidates. Mitt Romney wants government to spend more money on basic scientific research. Mike Huckabee wants to create a prevention-based healthcare system. John McCain advocates a "wage insurance" program for workers. Fred Thompson wants to slash projected increases in Social Security payments.
-
A Bidding War Between Obama and Clinton
Continue reading… 7 CommentsSo Barack Obama saw Hillary Clinton's $70 billion fiscal stimulus plan (a $30 billion housing fund, $25 billion for home heating, $10 billion for broadening unemployment insurance, and $5 billion for energy investment) and raised her $5 billion. Obama's plan:
• Provide an immediate $250 tax cut for workers and their families.
• Provide an immediate, temporary $250 bonus to seniors in their Social Security checks.
• Provide an additional $250 tax cut to workers and an additional $250 to seniors if the economy continues to worsen.
• Provide relief to homeowners hit by the housing crisis.
• Provide aid to states hardest hit by the housing crisis to avoid a slash in services.
• Extend and expand unemployment insurance.
-
McCain's New Square Deal
Continue reading… 2 CommentsWall Street seems to be on full-blown recession watch, while Main Street is pretty sure a downturn is on its way. Yet even with Democrats referring incessantly to a "middle-class squeeze," some GOP hopefuls have still been talking up the six-year economic expansion. Worried workers? Blame the media, not the Bush boom. As Mitt Romney—second in Iowa, second in New Hampshire—told me a few weeks back, "There's no question that the media shapes a good deal of public perception, and there is nothing that sells like fright."
Expect that sanguine attitude to change. This week's Republican primary is in Michigan, where the unemployment rate is 7.4 percent, the highest in the nation. Then, next up, on January 19 is South Carolina, which has the country's fourth-highest jobless rate. What's more, the two big Republican caucus and primary winners so far have been John McCain and Mike Huckabee, candidates who haven't been running "Morning in America" campaigns. Huckabee has blasted Wall Street greed and CEOs offshoring jobs to China. McCain continues to insist that voting against the Bush tax cuts was the right move, partly because they were too heavily weighted toward the rich—though now he's for keeping them—and has been critical of the "power of pharmaceutical companies."
-
Economy Vexes GOP at South Carolina Debate
Continue reading… 9 CommentsThe Republican presidential contenders might want to watch a bit more CNBC or Fox Business Network. The first question from moderator Chris Wallace of Fox News at last night's GOP debate in Myrtle Beach, S.C., was about the chances of an impending recession and what actions the candidates would take as president to prevent or minimize one. In short: Are they in favor of short-term fiscal stimulus and, if so, what kind?
But Mitt Romney, John McCain, and Rudy Giuliani all gave answers mostly about what they would do to ensure the long-run growth of the economy and appeared unaware of the fiscal stimulus debate currently happening in Washington and being closely watched by Wall Street. Only Fred Thompson seemed to have actually read the morning papers or been thoroughly briefed on the subject. And only Mike Huckabee, and Romney to a lesser extent, made a real effort to acknowledge American's widespread economic anxiety. It will be interesting to compare the GOP debate answers to the stimulus plan Hillary Clinton is supposed to unveil today. Anyway, here's a brief analysis of how the candidates responded to Wallace's critically important question:
-
Mitt Romney, Trekkie
Continue reading… 1 CommentLast night's GOP debate also confirmed for me that Mitt Romney is a closet sci-fi geek. He answered a question about foreign policy saying that it was like "three-dimensional chess," a game that exists in the universe of Star Trek:
Today, foreign policy is no longer like it was in the last century, which was more like a game of checkers that was our side and their side. We tried to get friends and allies and go after each other. Now foreign policy is more like three-dimensional chess, where we have to understand all the players throughout the world and develop strategies to help move the world towards more stability and safety for ourselves.
Now remember, Romney has also said his favorite book is Battlefield Earth, an L. Ron Hubbard novel about an alien invasion. Moreover, he claims his favorite TV show is Lost. Indeed, when Romney gave his big religion speech a few weeks back, his words seemed to echo character Jack Shepherd, the show's heroic doctor. Here's a line from that speech: "Freedom and religion endure together or perish alone." And now a famous line from the character on the show: "Live together, die alone, man." Think about it, people.
-
Don't Fret, Sovereign Wealth Funds
Continue reading… 0 CommentsOur guy John Tamny, editor at RealClearMarkets, has some insightful thoughts on sovereign wealth funds:
When it comes to trade, mercantilist politicians from both sides of the aisle regularly express their displeasure with our mythical trade deficit. They also consistently rail against money being sent overseas, but as the actions of certain SWFs indicate, those dollars must eventually return to the United States; in this case as investment in blue-chip investment firms. And while the aforementioned investment won't factor into governmental calculations of our trade deficit, we should consider this a "teaching moment" for those who presume trade doesn't balance. We let others make for us what's not in our economic interest to create, and the money returns in many forms, including as jobs creating investment.
Furthermore, with the dollar's weakness already well-chronicled, would we prefer that SWFs hailing from the "wrong" parts of the world simply exchange their dollars for euros, pounds and yen? If we ignore how actions such as this might weaken the dollar further, would we somehow feel better if instead of investing in American companies, the sovereign funds in question were to re-direct their capital to France, England or Japan?
-
Bernanke Gives Investors, Market a Boost
Continue reading… 0 CommentsFrom Michael Darda, chief economist at MKM Partners:
It would appear the [Federal Open Market Committee] has decided to throw inflation caution to the wind and countenance aggressive further easing action, which may include a 50 [basis point] rate cut on or before January 30. We think this will be bullish for sectors and countries that benefit from reflation, a weak dollar, and a steepening Treasury yield curve. These would include, but are not limited to 1) emerging markets, 2) Treasury Inflation Protected Securities (TIPS), 3) junk bonds, 4) equities vs. Treasuries. Within the equity market, we favor energy, materials, industrials, technology and financials.
-
McCain Adviser: Let Fed Fix the Economy
Continue reading… 0 CommentsJust recently I chatted with Douglas Holtz-Eakin, the former director of the Congressional Budget Office and a current economic adviser to John McCain's presidential campaign. (He's also a senior fellow at the Peterson Institute for International Economics.) I asked him what he thought of the idea of temporary fiscal stimulus for the economy. Both President Bush and Congress seem intent on offering up packages.
Speaking strictly for himself and not the campaign, Holtz-Eakin said he didn't think too much of the idea, noting that the economic consensus is "that for short-term fluctuations in the economy, the best course of action is to let the Fed handle it.... [It's difficult] to get the right package through Congress in a timely fashion. The notable exception was 2001 when the tax cut arrived at exactly the right moment."
Plus, stimulus can turn into an excuse for pork-barrel spending. Holtz-Eakin recalls testifying before Congress back in 1993 when the Clinton administration was considering an infrastructure spending package to stimulate the economy. Boston Mayor Ray Flynn was there, too, and told Congress he had a whole slate of projects ready to go if Uncle Sam came through with the dough. "See, you usually end up with a lot of junk," Holtz-Eakin says. A better move, he argues, would be to get rid of all the uncertainty for households through something like eliminating the alternative minimum tax.
-
Bernanke Termination Watch
Continue reading… 0 CommentsFrom the AP:
Federal Reserve Chairman Ben Bernanke pledged Thursday to slash interest rates yet again to prevent housing and credit problems from plunging the country into a recession. The Fed chief made clear the central bank was prepared to act aggressively to rescue a weakening economy. 'We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks,' he said.... Bernanke has come under criticism for not acting more aggressively to deal with the economy's problems."
My take: Interestingly, former Reagan administration economist Martin Feldstein—a longtime skeptic of fiscal stimulus—is so worried about the economy that he has advocated temporary tax cuts and rebates to boost the economy. He was on President Bush's short list to replace Alan Greenspan as Fed chairman, as was Glenn Hubbbard, formerly the chairman of the Council of Economic Advisers and currently dean of the business school at Columbia University. Both men might want to start donating some campaign cash to Hillary Clinton and Barack Obama, since the odds are growing that the next president—particularly if it's a Dem—will not renominate Helicopter Ben.
-
Giuliani's Shock-and-Awe Tax Plan
Continue reading… 6 CommentsMy pal and blogger Andy Roth over at the Club for Growth just sent me this E-mail with a few more details and a sprinkling of analysis about Rudy Giuliani's $6 trillion tax plan, which would be the largest tax cut in the history of the American republic. Actually, of any republic—ours, Rome's, Greece's. Just huge:
$6.3 trillion over 10 years.
Make permanent the Bush tax cuts NOW...not in 2010
Permanently index AMT and then eliminate it when practical (no timetable).
Get rid of the Death Tax
Lower cap gains and dividend rate to 10% and index to inflation.
Lower corp rate from 35% to 25%.
Trio of tax free savings accounts—Roth style—available to ALL income classes.
- Retirement account ($5000 year/single, $10k year/couple, draw only at retirement)
- General account (same limits, available at any time for any reason)
- Lifetime skills account (only for education, job training, $1000 year/single)
Tax simplification strategy—one page tax return
Three rates—10% (40k), 15% (150k), and 30% (150k+).
It's an optional tax plan. You can pick it or the current tax code. Unlike [the Fred] Thompson plan, you can opt in and out any year. Four major deductions remain:
- Mortgage
- Charitable
- State and Local taxes
- Child tax credit
This plan would be huge. It would be 4% of GDP. By comparison, [the George W. Bush] tax cut was 1.3% of GDP. Reagan's was 1.9% of GDP.
-
Are We Talking Ourselves Into a Recession?
Continue reading… 0 CommentsGoldman Sachs, now firmly in the recession camp as of last night, might have been a bit hasty in throwing in the towel on the economic expansion. This from the Associated Press: "The Labor Department reported that 322,000 persons filed applications for jobless benefits, down by 15,000 from the previous week when claims had declined by 20,000." A nice data point for those of us who still doubt a recession is on its way. As economist Bruce Kasman of JPMorgan notes: "It is the norm for claims to have increased by roughly 20 percent in the year before a recession begins and before the unemployment rate begins moving higher. Thus far, the rise in jobless claims is modest, more consistent with a sustained growth moderation than a recession."
Ed Yardeni of Oak Associates also makes a good point about recession fears, arguing, for instance, that analysts totally misinterpreted an AT&T earnings report:
No busy signal at AT&T? The stock market sold off...partly on news that the giant phone company said that consumers aren't paying their bills and are getting disconnected. Is the economic situation really deteriorating so rapidly? I don't think so.... I read a transcript of the company's presentation. The CEO said, "So we're really experiencing some softness on the consumer side of the house from the economy." That's all I could find.... It's OK to be pessimistic about bad stuff that is happening in the economy. It is OK to be optimistic about the good stuff. But we should be realistic, and objectively analyze the incoming data, especially during such a controversial period as now. In other words let's not exaggerate either way. The U.S. economy isn't booming. It is slowing, but it isn't in a recession yet, though it does seem to be heading in that direction. December's survey of small businesses was surprisingly mellow, with virtually no indications that small businesses are being forced to retrench as a result of a credit crunch. Most of the recent weakness in the Small Business Optimism Index is based more on anticipated rather than actual conditions: "Two-thirds of the decline in the Index since September came from two components: the outlook for real sales and expectations for business conditions six months from now. The deterioration of expectations triggered a pull-back in the labor market indicators that accounted for the remaining third of the decline."
-
Quick hits for Jan. 10, 2008
Continue reading… 0 Comments1) FOB (Friend of the Blog) John Tamny of RealClearMarkets gives the shiv to the idea of fiscal stimulus.
2) Larry Kudlow, another great FOB, expertly dissects the New Hampshire primary for its economic meaning.
3) Don Boudreaux over at Café Hayek takes issue with the idea of the "disappearing middle class."
