Tuesday, June 7, 2011
Newsday and Free Markets
Mr. Akst has finally determined that the free market should dictate prices. He makes a great case for market prices rates for town owned dock space – as public space increase to market rates, private dock rates will come down due to the competition. Exactly, but it is difficult to determine why he does not apply the same solution to every other issue. His past comments about energy, health care, etc. are invariably focused upon how the government needs to fund the solutions. He must own a boat.
Monday, June 6, 2011
Free Market
Mr. Akst has finally determined that the free market should dictate prices. He makes a great case for market prices rates for town owned dock space – as public space increase to market rates, private dock rates will come down due to the competition. Exactly, but it is difficult to determine why he does not apply the same solution to every other issue. His past comments about energy, health care, etc. are invariably focused upon how the government needs to fund the solutions. He must own a boat.
Loose Money
Great news. Banks are making car loans to people with marginal credit scores. That’s wonderful for the auto industry. It’s a free market and they have to do something with all the money that the Fed keeps printing. But once upon a time, banks made lots of mortgage loans to people with marginal credit ratings. As I recall that didn’t work out too well and can’t see how it can work this time. It would be really good if the banks that do this don’t get bailed out again
Thursday, June 2, 2011
Profit Plans
The current economic plan is to set up enemies to blame for whatever goes wrong. While claiming to be a friend of business, this Administration has fed the populist urge to blame banks, oil companies, drug companies, insurance companies and any other industry that makes a profit – unless they are heavily unionized or in Nancy Pelosi’s district. Favorites get waivers from Obamacare and subsidies; those who are not get audited, increasing regulated, don’t get waivers and are blamed for anything that goes wrong.
The latest plan is to eliminate tax breaks for oil companies and make then pay more taxes – a popular stance. The oil companies announce high profits and are an easy target but a thought or two would be instructive.
The first thing to note is that no corporation really pays taxes. Companies get money by selling something to customers; the money corporations use to pay their taxes comes from - customers. Suppose you own a business selling widgets and tomorrow there is an additional 10% widget tax. What do you do? Probably raise your prices about 10%. So who is paying the tax?
It is no surprise that big companies make more profit in total dollars than small ones. They have more invested. It is also no surprise that they make more when prices rise. The reason is profit margin - the return of their money. Suppose you risk $100 in an investment and at the end of a year you have $110. Pretty good these days, you made 10%. But suppose you risk $10,000 and at the end of the year you had $10,010. Both investments made $10 but one guy did well and one guy didn’t because their return percentage was markedly different. Oil companies have billions invested and they make billions but their margin is not particularly high.
Headlines about how much money a company makes in absolute dollars is not particularly informative. But this is helpful to the demagogues who have a need to blame someone else and distract from the Administration’s efforts to raise fuel prices in every way they can. The Secretary of Energy is on record as supporting higher oil prices; the EPA puts all kinds of roadblocks in the path of the oil companies; leases are discouraged; oil flow from Alaska is reduced; drilling is pushed to the most expensive places to drill. All of these things contribute to higher fuel prices. While this is all happening, additional dollars are being printed. When the dollar’s value goes down, oil prices go up. Their need for a scapegoat is obvious.
Ending subsidies is not a bad idea but singling out one industry is and most of the tax deductions under discussion are available to all businesses. Ending all subsidies is a different discussion but the plan to end subsidies for oil and continue to subsidize the energy producers that are currently in favor just creates another Government Motors. Does anyone think these government subsidies will end? If these energy producers need government subsidies to succeed we are only creating another ward of the State.
Whether solar, wind or bio-fuels become economically feasible is something that will be determined in the future. Whether anyone likes it or not, there are no viable and affordable wind/solar/biofuel/hybrid cars available and when they are available, it will be quite a while before people can afford to replace their current cars. While the Administration devotes its efforts to increasing oil prices in order to assist sources that might be of use in 10 years, we get $4+ gas prices.
Administration efforts to increase oil prices and blame the messenger have to stop. More importantly, the reasons for the increases need to be properly identified so that corrective measures can be directed at the real root causes.
The latest plan is to eliminate tax breaks for oil companies and make then pay more taxes – a popular stance. The oil companies announce high profits and are an easy target but a thought or two would be instructive.
The first thing to note is that no corporation really pays taxes. Companies get money by selling something to customers; the money corporations use to pay their taxes comes from - customers. Suppose you own a business selling widgets and tomorrow there is an additional 10% widget tax. What do you do? Probably raise your prices about 10%. So who is paying the tax?
It is no surprise that big companies make more profit in total dollars than small ones. They have more invested. It is also no surprise that they make more when prices rise. The reason is profit margin - the return of their money. Suppose you risk $100 in an investment and at the end of a year you have $110. Pretty good these days, you made 10%. But suppose you risk $10,000 and at the end of the year you had $10,010. Both investments made $10 but one guy did well and one guy didn’t because their return percentage was markedly different. Oil companies have billions invested and they make billions but their margin is not particularly high.
Headlines about how much money a company makes in absolute dollars is not particularly informative. But this is helpful to the demagogues who have a need to blame someone else and distract from the Administration’s efforts to raise fuel prices in every way they can. The Secretary of Energy is on record as supporting higher oil prices; the EPA puts all kinds of roadblocks in the path of the oil companies; leases are discouraged; oil flow from Alaska is reduced; drilling is pushed to the most expensive places to drill. All of these things contribute to higher fuel prices. While this is all happening, additional dollars are being printed. When the dollar’s value goes down, oil prices go up. Their need for a scapegoat is obvious.
Ending subsidies is not a bad idea but singling out one industry is and most of the tax deductions under discussion are available to all businesses. Ending all subsidies is a different discussion but the plan to end subsidies for oil and continue to subsidize the energy producers that are currently in favor just creates another Government Motors. Does anyone think these government subsidies will end? If these energy producers need government subsidies to succeed we are only creating another ward of the State.
Whether solar, wind or bio-fuels become economically feasible is something that will be determined in the future. Whether anyone likes it or not, there are no viable and affordable wind/solar/biofuel/hybrid cars available and when they are available, it will be quite a while before people can afford to replace their current cars. While the Administration devotes its efforts to increasing oil prices in order to assist sources that might be of use in 10 years, we get $4+ gas prices.
Administration efforts to increase oil prices and blame the messenger have to stop. More importantly, the reasons for the increases need to be properly identified so that corrective measures can be directed at the real root causes.
Akst Angst
Mr. Akst’s article (Newsday) about banks is an example of misdirection that would make Houdini proud. The formula is predictable: Lead with something about the Bad Guys - CEO’s make a lot of money and credit card rates are high - to stir the populist pot; link that to the need for unavoidable Government action - holding rates down; and throw in a sympathy line - Grandma is paying for this).
The implications are that Grandma is paying CEO salaries, that Banks are holding down their borrowing rates, and that the government is the white knight that will correct this mess. Well, no it is not.
CEO salaries have nothing to do with Fed Rates or Grandma; perhaps shareholders should hold them more accountable but that is another discussion.
The bailouts (all of them, some of them?) were not unavoidable. The Government’s responsibility was to honor the guarantees they made on the sub prime mortgages that Fannie Mae and Freddie Mac were pushing and securitizing. The sub prime market was their creation in an effort to support the Government’s social policies.
Banks are certainly beneficiaries of the Federal Reserve policy of artificially keeping interest rates low but they do not make the policy and the policy is certainly not unavoidable. It is the Federal Reserve that sets the rate and has printed trillions of dollars in the last few years. This devaluation has made everything more expensive – gas, clothes, food, - everything. This is inflation that Bernanke does not recognize but it does impact Grandma. Her savings have less value and her monthly check buys less but has nothing to do with the banks, their CEOs or their salaries. The Fed is just supporting the Administration’s announced policy of making oil more expensive.
Some banks credit card rates are higher than other - so shop around – some cars cost more than others. It should also be noted that recent Government legislation limits the fees for overdrafts, bounced checks, exceeding card credit lines and such. This spreads the costs for these things from the people who do them to everyone. The government thinks that is only fair but means that Grandma is paying for bounced checks whether she does or not.
Just set up some bad guys – banks, oil companies, insurance companies, drug companies – and link anything that goes wrong to them. It keeps the pressure off of the ineptitude of Government actions.
The implications are that Grandma is paying CEO salaries, that Banks are holding down their borrowing rates, and that the government is the white knight that will correct this mess. Well, no it is not.
CEO salaries have nothing to do with Fed Rates or Grandma; perhaps shareholders should hold them more accountable but that is another discussion.
The bailouts (all of them, some of them?) were not unavoidable. The Government’s responsibility was to honor the guarantees they made on the sub prime mortgages that Fannie Mae and Freddie Mac were pushing and securitizing. The sub prime market was their creation in an effort to support the Government’s social policies.
Banks are certainly beneficiaries of the Federal Reserve policy of artificially keeping interest rates low but they do not make the policy and the policy is certainly not unavoidable. It is the Federal Reserve that sets the rate and has printed trillions of dollars in the last few years. This devaluation has made everything more expensive – gas, clothes, food, - everything. This is inflation that Bernanke does not recognize but it does impact Grandma. Her savings have less value and her monthly check buys less but has nothing to do with the banks, their CEOs or their salaries. The Fed is just supporting the Administration’s announced policy of making oil more expensive.
Some banks credit card rates are higher than other - so shop around – some cars cost more than others. It should also be noted that recent Government legislation limits the fees for overdrafts, bounced checks, exceeding card credit lines and such. This spreads the costs for these things from the people who do them to everyone. The government thinks that is only fair but means that Grandma is paying for bounced checks whether she does or not.
Just set up some bad guys – banks, oil companies, insurance companies, drug companies – and link anything that goes wrong to them. It keeps the pressure off of the ineptitude of Government actions.
Tax Gymnastics
Peter Goldmark’s article (Newsday)about corporations and taxes had three main points: that the US does not tax corporations enough; that corporations keep overseas profits overseas to avoid taxes and that creates jobs overseas; and that there are too many lobbyists and the tax code provisions are too complicated.
The last one is the easiest. Whatever the reason, the tax code is too complicated and has specific provisions that apply only to specific companies or industries. It must be simplified.
The other points can be disputed. Corporations do not pay taxes in any situation. Businesses obtain the money to pay taxes from their customers. A simple quiz is instructive: You own a business selling widgets. Tomorrow the tax on all widgets sold goes up 10%, what do you do? Right. You (the business) raise your prices at least 10%. So who paid the tax? Right again - the customer. The government got more money and the business broke even – assuming sales stayed the same which they probably didn’t – and the customers paid 10% more than they used to for their widgets.
His comment about overseas profits is confusing. There is no doubt that that overseas profits stay overseas because they are taxed if they are brought back into the country. He acknowledges that leaving this money overseas creates jobs overseas and his strong implication is that they should bring the money back and be taxed to pay their share. But bringing the money back would create jobs in this country. The current choice is between avoiding US taxes and creating jobs overseas or bringing the money back and paying taxes which leaves less money for job creation. A simpler solution would be to allow the companies to bring the money back, avoid taxes and create the jobs here. Use the money companies generate overseas to create domestic jobs. What a concept! Other countries funding US job growth for a change.
The last one is the easiest. Whatever the reason, the tax code is too complicated and has specific provisions that apply only to specific companies or industries. It must be simplified.
The other points can be disputed. Corporations do not pay taxes in any situation. Businesses obtain the money to pay taxes from their customers. A simple quiz is instructive: You own a business selling widgets. Tomorrow the tax on all widgets sold goes up 10%, what do you do? Right. You (the business) raise your prices at least 10%. So who paid the tax? Right again - the customer. The government got more money and the business broke even – assuming sales stayed the same which they probably didn’t – and the customers paid 10% more than they used to for their widgets.
His comment about overseas profits is confusing. There is no doubt that that overseas profits stay overseas because they are taxed if they are brought back into the country. He acknowledges that leaving this money overseas creates jobs overseas and his strong implication is that they should bring the money back and be taxed to pay their share. But bringing the money back would create jobs in this country. The current choice is between avoiding US taxes and creating jobs overseas or bringing the money back and paying taxes which leaves less money for job creation. A simpler solution would be to allow the companies to bring the money back, avoid taxes and create the jobs here. Use the money companies generate overseas to create domestic jobs. What a concept! Other countries funding US job growth for a change.
Universally bad
Universal health care might be inevitable but it is not good. We are living in the rubble of an attempt at universal home ownership and the same people who brought us that failed concept have moved on to promoting universal health care. Let us not kid ourselves. The Obama healthcare plan makes no attempt to control cost and counts revenues over a longer period than expenditures even to come close to breaking even. This is a program in which Administration favorites ask for and receive exemptions while others are forced to participate while tort reform, allowing policies across state lines, and other areas of cost control areas are not even considered.
The political party supporting this has a platform based upon convincing the public that the government will provide a house, healthcare and most everything else for free since the other guy will pay for it. The only certainties are that the definition of the other guy will have to continually expand to meet these expectations and that this Administration has created another protected class that will be exempt from the program.
When the voters who get something from the government exceed the voters who pay for government there can be no end and we are approaching that point. Soon the campaign promises will be about universal ownership of a Lexus, a flat screen TV and an iPad.
Why not, the other guy will pay for it?
The political party supporting this has a platform based upon convincing the public that the government will provide a house, healthcare and most everything else for free since the other guy will pay for it. The only certainties are that the definition of the other guy will have to continually expand to meet these expectations and that this Administration has created another protected class that will be exempt from the program.
When the voters who get something from the government exceed the voters who pay for government there can be no end and we are approaching that point. Soon the campaign promises will be about universal ownership of a Lexus, a flat screen TV and an iPad.
Why not, the other guy will pay for it?
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