Taking On Robert Reich And The Myth Of The 'Non-Working Rich'

Serious policy should be based on facts, not on anecdotes cherry-picked to match a political agenda. Before sweepingly concluding that the “fabulously wealthy” who “have never worked” are “undermining the moral foundations of American capitalism,” Reich should do his homework. His only offered evidence is that “six of today’s ten wealthiest Americans [most notably the Wal-Mart Waltons] are heirs to prominent fortunes.” Reich, in his usual fashion, simply assumes what he says is true. 


go to forbes.com

Phoenix Shows Romney Right and Obama Wrong

I wrote the following advice to President Obama in late August:

“Instead of trying to prop up the overbuilt housing market, the President should propose measures to allow the economy to work off its excess inventories of housing and to find a bottom in housing prices. Only after the bottom is reached will construction resume.” 

In a campaign appearance, Mitt Romney came to the same conclusion, saying that we must let the housing market clear and then we can have a recovery. Romney was widely ridiculed and has said little since then. In the meantime, Obama has tried one scheme after another to keep housing prices up and foreclosures down.

Today’s Journal’s Rise in Phoenix Housing Prices Shows Path for Other Cities shows the wisdom and courage of Romney’s words.  Phoenix’s housing prices fell  fifty five percent and its foreclosure rate rose to number three in the nation, but Phoenix housing prices are turning around.  Whereas, housing prices continue to fall nationwide, Phoenix’s are rising as low prices have brought new buyers into the market. Buyers from Canada are flooding the market and investors are bidding for blocs of homes, which they put on the rental market. Owners of underwater homes are being offered purchase contracts which allow them to stay in their houses as renters.

As one expert notes: “Phoenix has hit bottom.”  This means that Phoenix will be among the first cities to experience a revival in homebuilding and the jobs that go along with it.

I remember well the housing bust of Houston as oil prices plummeted in the 1980s. No one propped up mortgages. Underwater homes went on the market. The inventory disappeared, and housing construction revived.

This is simple economics of supply and demand.

What appears to liberals as mean spirited capitalism actually shortens the period of pain and accelerates the recovery.  I guess they will never learn this elementary lesson.

A Shame the Republicans Must Let Politics Trump Economics

The extension of the payroll tax holiday is bad economics. It may be good politics, or avoids a bad political outcome.

Economists know that temporary tax breaks have little or no effect on aggregate demand. Reducing payroll taxes for the rest of the year only increases the unfunded liability of social security and increases uncertainty.  The net effect on growth and employment of extending the payroll tax reduction is likely to be negative. It is bad economics to all but die hard Keynesians.

Republicans are going along with bad economics because they are unable (or unwilling) to make the powerful economic case for ending the tax break. The longer it lasts, the more likely it is to become permanent, with disastrous results.

I guess we have little confidence in the good sense of American voters. If they are worried about the solvency of social security, clearly they could be made to understand that you don’t take away a large portion of its funding, for uncertain and unlikely short term gain.

Republican leaders wilt when they hear the President speaking about the extra $1,000 in the pockets of U.S. households.

Too bad.

Obama, Jobs, and Keystone. This is As Silly As It gets

Barack Obama quote:  "However many jobs might be generated by a Keystone pipeline, they're going to be a lot fewer than the jobs that are created by extending the payroll tax cut and extending unemployment insurance."

I leave it for Principles of Economics students to tear this one down.