The strange research of John Bates Clarck medal winner Emmanuel Saez

27 april 2009

The case for higher taxes is based on the (false) assumption that the top tax payers in the US have more than doubled their share of income since 1980. The statistics is from the research of John Bates Clarck medal winner Emmanuel Saez with Thomas Piketty.

He has made has made his research available to the general public in his article Striking it Richer:The Evolution of Top Incomes in the United States. He claims that the top tax payers income has gone up dramatically, doubled. However if you scrutinize his research as Alan Reynolds has in WSJ article The Top 1%…of What? You find that the effect is imaginary, only an effect of changes in tax law, the actual underlying income is the same since 1980. Instead of having corporate income business owners changed the status of the corporations from C-corp to S-corp status. income reported as corporate income no was reported as individual income, however the total sum of income is the same. See Piketty/Saez rebuttal, extremely weak in my opinion.

To try to legitimize income redistribution with research is  in my opinion necessary but to try to do it with misleading research is dishonest, it is much more fair to use pure ideological arguments of class warfare. But unfortunately the American people does not support income redistribution unless you can substantiate it.

If Saez won the John Bates Clarck medal for this, his research one must wonder what the prize committee was thinking? Political maybe or just populist as was the Nobel Committees selection of Paul Krugman, a brilliant economist but a populist and biased partisan propagandist.

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US the Sweden of the 1970s? A rematch between responsible liberalism vs social democracy

23 april 2009

In the US we are now seeing the debate that Sweden had in the 1970’s. Should you have a Big Government, statist state or should you keep the system as it is but put into place legislative frameworks for the citizens to make their own choices within these frameworks or should you take away choice altogether because a small minority cannot make rational choices?

I am extremely disturbed that the US seems to be going the way of Sweden in the1970’s. It led to disaster from a point of economic power and prosperity but also for individual liberty. In Sweden there used to be a saying that Sweden have a capitalist economic system for corporations but have socialized the individual. It was before 1990 a near perfect corporatist state.

Up until 1968 the political opposition in Sweden, mainly Folkpartiet, the Responsible Liberal Party, had been in fierce opposition to socializing polices. However the SocialDemocrats changed tactics and abandoned pure socialism to what Nobel Laureate and party leader Bertil Ohlin called ”central directive and regulation socialism”.

During the student and worker uprising of  1968, intellectuals became infatuated with Maoism,  all parties en Sweden became radicalized and the opposition against socializing policies and corporatism stopped. Sweden’s decline started, taxes were raised by 50 % overnight and the Public Sector tripled in size.

Sweden was in 1970 the world’s third strongest economy and declined to the 17th, our welfare system could not be sustained because of lower growth the lead to lower tax revenues than calculated. Entrepreneurs and venture capital had been run out of the country because of the extreme, punitive tax system and the constant attention of the Swedish Tax Authorities. In fact tax evasion and avoidance had become a national pastime for all and the Shadow Economy sector prospered.  

By the 90’s and small and medium sized business owners had all but been eradicated, as result Sweden still has least small and medium sized business owners in all of the developed countries (OECD). Not only that in Sweden because of the corporatist polices of strong interaction between labor and  large corporations and government not one single new job has been created in the Private Sector, all new jobs were created in the Public Sector.

So should the US steer the course that Sweden did 1970-1992 semi-socialized statism, massive intervention  as well as high taxes or should we adopt polices Sweden applied after its banking sectors financial meltdown in 1990-1992 and that lead to the Swedish model being the envy of most US liberals i.e. tax cuts, deregulation and abandoning the corporatist model of cooperation between labor and large corporations ?

From Bertil Ohlin’s Memoirs “Socialistisk skordetid kom bort”(”The Socialists crop was never harvested”) 1940-1951 Bonniers 1975.

Bertil Ohlin was not only a party leader but also a professor of Economics as well as Nobel Laureate. He won the prize for the Heckscher-Ohlin theorem.. He was the founder of The Stockholm School of Economics a forerunner to Keynes.

In particular, responsible liberalism saw it as a danger to the liberty of its citizens the development of the growth of an increasingly centralized political power. The SocialDemocrats [Swedish Big Government statists,] were always adherents of such practices that increased the political influence.

Only when a very strong case could be presented could we in Folkpartiet [Swedish Responsible liberal party] agree to such measures. We preferred makings laws that put a framework in place and with full freedom within this
framework. The SocialDemocrats always wanted to increase what they called “the Societies influence” and minimized the individual’s right to self-determination both in private as well as in business life. Instead of the old ”nationalization policy, pure socialism” we now saw on the horizon the beginnings of a new ”central directive and regulation socialism” [In the US called Statism] emerging which, however – it must be stressed – was strongly opposed by us and the other parties in opposition and only developed very slowly after1948.

Responsible Liberalism?

22 april 2009

I moved to the US from Sweden. I became interested in what US liberalism stood for. As soon as I understood I shook my head in disbelief. In my opinion they had totally lost their way. They talked and acted like old school Big Government statists at best and socialists at worst. US Libertarians with a capitol L was not even close to classic liberals, the likes of Adam Smith and John Stuart Mill.

Then I found the Responsible Liberalism of former California Governor Pat Brown. In his inaugural speech presented January 5, 1959 he put into words exactly how I felt what a progressive classic liberalism was about. It was not class, racial or gender divisive politics of the poststructuralist left but pragmatism and realism, politics of vision and hope:

The essence of liberalism is a genuine concern and deep respect for all the people. Not monuments or institutions or associations, but people. Not one race, or one creed, or one nationality, but all the people. When people come first and special privilege is scorned, government is truly liberal.

In a liberal atmosphere, the individual stands secure against invasion of his dignity or intrusion on his conscience. He has the right to require justice and fair play, the right to demand protection from economic abuse and selfish threats to his security. At the same time, government must not, in naïve good intention, stifle his initiative or smother his growth. Men must indeed have freedom to breathe the air of self-respect.

A liberal program must also be a responsible program, a reasonable, rational, realistic program. We must know how much it will cost and where the money is coming from. Benefits must be measured against burdens. A program which pampers the people or threatens our solvency is as irresponsible as the one which ignores a vital need. But we will always remember that there is a difference between responsibility and timidity, and we are resolved to be governed more by our hopes than by our fears.

The Swedish Psyche, the extreme rationalist. A Viking tradition.

15 april 2009

Be cautious. It’s a national trait explored on the first page of Modern-Day Vikings (2001). Labelled as “a practical guide to interacting with the Swedes” the opening lines quote the Hávamál, verses of Old Norse poetry dating back 1,000 years.

“Praise not day until evening, no wife until buried, no sword until tested, no maid until bedded, no ice until crossed, no ale until drunk.

It was the politicians, central banks and financial authorities that created the entire crises

14 april 2009

The best book on the crash is as yet only published in Swedish, in July the English version will be available. ”“A perfect storm: How the State, the Capital, you and I sunk the world economy.”

The author is Johan Norberg, author of ”In Defence of Global Capitalism” and the foremost debunker of Naomi Klein’s lies and myths in ”The Schock Doctrine- The Rise of Disaster Capitalism”. His rebuttal in the article  ”The Klein Doctrine: The Rise of Disaster Polemics”

Johan Norberg writes in a Swedish news paper column as follows:

[My translation]

”In my [Johan Norberg] book “A perfect storm: How the State, the Capital, you and I sunk the world economy (Hydra publishers) I explain how consumers, home buyers, banks and mortgage institutions created an unsustainable housing and credit bubble. But the most provocative for left-wing economist Lars Pålsson Syll is that I also show that it was the politicians, central banks and financial authorities that created the entire environment that stimulated most of these aberrations.

Let me briefly describe some of the key facts:

1) Monetary policy: To avoid a crisis after the IT bubble and the terrorist attacks of September 11, 2001 the U.S. Federal Reserve lowered key interest rate from 6.25 to 1.75 percent in 2001, then lowered it further to 1 percent in June 2003 and kept it there for a full year before it began to gently raise it. It was so cheap to borrow, new money poured into the U.S. housing sector, prices doubled in five years.

2) Capital Imports: China and a number of other major emerging economies would not allow the market to control the exchange rates and suppressed domestic consumption by political means. Instead, exported capital on a massive scale to the U.S.,that further drove down interest rates and inflated the credit bubble even more.

3) Housing: Even when fighting one another both Republican and Democratic politicians argued that more and more people should own their homes. This was put into effect by a battery of rebates, subsidies, mortgages and diverse guarantees. Both the Clinton and Bush administration tried to ensure that more and more loans were given to people who the market did not previously regard as creditworthy.

The single most important factor was the huge, government-sponsored mortgage institutions Fannie Mae and Freddie Mac. In 2004, when the bubble expanded at its worst, the Bush administration mandated that the proportion of loans that should go to low-income earners should be increased from 50 to 56 percent.

4) Housing Bonds: Fannie Mae and Freddie Mac launched synthetic mortgage backed securities, which contained elements of several hundred loans, which in its turn were resold to investors. Wall Street banks became increasingly interested in these risky products when credit rating agencies Moody’s, Standard & Poor’s and Fitch said they were almost risk free.

But these institutions became deceptive to accommodate well paying clients. They could get away with it and still maintain their position because they had been given a monopoly by public regulators – banks was forced to have more capital if they purchased securities that had received poor ratings these institutions and many mutual and pension funds were by regulators banned from buying any at all, so everyone who wanted sell securities had to go to the major credit rating agencies. No matter how badly they misbehaved, they had retained their monopoly.”

Why have we let the Eyore and Henny-Penny liberals hijack liberalism?

28 mars 2009

Why have we let the  Eyore-liberals, the Gloom and Doom liberals hijack liberalism?  They are angry at everything that dares to breathe optimism, enlightenment and enjoyment of life. They cannot see the progress in individual freedom and the rise in  prosperity the world has gone through, in their utopianism they can only imagine a perfect world so they only concentrate on the wrongs remaining instead of looking at the actual progress, big picture. Their world view could also be called Henny-Penny liberalism, some small thing is wrong somewhere in the world and hence the sky is falling down, the world as we now it is going to end. Everything is going hell and only a bigger and stronger government with unlimited power can fix it.

A Swedish classic liberal wrote and I could not have written it better as regards to former communists and socialist now becoming Eyore-liberals, statists:

”The result of this new version of liberalism that puts materialism, economic equality as its primate is not that liberty and freedom is preserved instead a government bureaucrat will in each individual case measure your freedom to see if you are entitled to it or, if they must restrict it to meet other objectives. This new liberalism is paternalism; patronizing and technocratic. Its representatives,  who in their pompous ”pragmatism” believe themselves to be above the Rule of Law and ethical principles,  are cut and dried, well drilled and believe themselves to be more intelligent and more well  informed, as to be able to dictate how others should live their lives in all areas, big or small.

If socialism is like being beaten by the high school bully, this new liberalism is getting dressed down by the class disciplinarian, Dudley Do-right. It’s physically less damaging, but no less damaging to your self-esteem.” [ My translation of  part of Mattias Svensson’s text ”Ior-liberalernas utmaning” (The Challenge of the Eyore-liberals.)

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Stimulus: Svenska mediers naivitet och Obama dyrkan

10 februari 2009

Jag blir lite upprörd när jag läser svenska journalisters naiva artiklar om USA (naiviteten kan dock vara rent ideologisk, de ser endast det de vill se, har ideologiska skygglappar). Vidare blir jag förvånad över du referensen till Paul Krugman som Nobel pristagare och ekonomisk expert.

Paul Krugman är måhända expert inom allmän ekonomisk politik, han fick sitt Nobel pris för något helt annat. Svensk  media låter får Paul Krugman som en opolitisk, oberoende expert men när han uttalar sig gör han det som en mycket parti anstruket, ideologisk socialdemokrat. I USA kallad ”a very partisan left-liberal”. I USA ligger Paul Krugmans åsikter långt till vänster ut på det ekonomisk spektrumet, ungefär en amerikansk Lars Pålsson Syll. Svensk media får honom att låta mainstream, när han i själva verket är extrem. Vid genomgångar av Paul Krugmans opinions artiklar i New York Times och hans New York Times blogg som gjorts, så har det visat sig att han kraftigt går emot majoriteten av vad forskare säger, han går även emot vedertagen ekonomisk praktik. Paul Krugman tubbar på fakta, verkligheten för att vinna ideologiska poänger. Paul Krugman bör kallas vid sitt rätta namn, en ledande opinionsbildare och vänster ekonom. Hans åsikter blir dock inte mer legitima för att han är Nobelpristagare, faktiskt är det så att i mina ögon de blir mindre värda eftersom han vet bättre, han har fakta men förtiger eller döljer dessa. I historien har vi haft Nobelpristagare mycket duktiga sådan men med politiska åsikter rakt uppåt väggarna.

När det gäller Obama administrationens stimulans paketet så är det så att ingen vet vad som kommer att fungera. Om jag förstått det rätt så anser alla att detta är en unik siutation. Alltså finns det inget facit utan endast åsikter. Jag gillar inte när politiker eller journalister försöker ge sken av att åsikter är fakta. När det gäller stimulanspaketet så vet vi av den japanska erfarenheten att trots att Japanerna mångdubblade sitt budget underskott, den mest massiva stimulanspaketet i modern tid så misslyckades de kapitalt att stimulera ekonomin. Japanerna fick ett förlorat årtionde.

Det som Japanerna gjorde var en massiv stimulans av ekonomin vilken fallerade, varför tror då svensk media att denna massiva stimulans ska lyckas när inte Japanerna klarade av det? Roosevelts New Deal lyckades inte heller, de massiva stimulanser hade knappt någon inverkan på arbetslösheten, den gick ner från 25 % till 17 %, inga nya långsiktiga, verkliga jobb skapades, se Amity Shales The forgotten Man om myten om Franklin D. Roosevelts New Deal.

Det andra felet Japanerna gjorde var att de inte ingrepp tillräckligt aggressivt i bankerna. De tillät bankerna att behålla värderingen av tillgångarna, dvs de vägrade spräcka tillgångsbubblan och låta fastighetspriserna sjunka till botten. De kapitaliserade inte heller upp bankerna. Av den japanska läxan förstår vi att man inte ska ha massiva stimulanser av ekonomin men att tillgångsbubblan måste spräckas och att man behöver en bankakut som den svenska. Dvs vad TARP gör. Det som behövs är fullföljandet av TARPen samt förmodligen mer pengar men något massivt stimulanspaket behövs knappast. Det som behövs är dock en förstärkning av de sociala skyddsnäten, satsning på infrastruktur och forskning kring alternativa enerigkällor men vi talar då om ett par hundra miljarder inte tusentals miljarder i verkningslösa ideologiskt färgade reformer förklädda till stimulanspaket. Om Barack Obama och Demokratern vill ha massiva reformer får de ta det den normal lagstiftningsvägen samt finansiera dessa med skattehöjningar, inte via budgetunderskott, en evig statsskuld ökning.

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