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 Richmans' Trade and Taxes Blog



"Green" Energy Is an Economic Disaster in the Making
Raymond Richman, 4/29/2011

Increasingly, questions are being raised about the “science” of anthropogenic global warming. For all practical purposes, there is no dissent at American universities. What little there is has been and continues to be stifled. Billions of dollars of research is being funded by the U.S. government but none of it goes to any scientist who challenges the notion that man’s consumption of fossil fuels is responsible for global warming.   Some physicists have protested and a Senate committee has listed the names of a couple of hundred academicians who believe the theory to be baseless. There is a growing awareness among what is a small band of scientists that we have a lot to learn about the causes of climate change.

A novel experiment known as CLOUD, is being conducted at CERN in Geneva, Switzerland  under the direction of  Prof. Jasper Kirkby (jasper.kirkby@cern.ch). The CLOUD project is an attempt to ascertain whether and how cosmic rays from outer space may be affecting the earth’s climate.  It includes among its collaborators, besides CERN, such institutions as Caltech, U Frankfurt,  FMI  Helsinki, U Helsinki, U Innsbruck, UEF Kuopio, U Leeds, Ift Leipzig, U Lisbon, LPI Moscow, PSI, RAL, U Reading, INRNE Sofia, U Tampere, and U Vienna. The experiment is taking place at the CERN Proton Synchrotron and aims to study, under controlled conditions, the effects of cosmic rays on aerosol nucleation and growth, cloud droplets and ice particles. In earlier studies, Prof. Kirkby made some palaeoclimatic reconstructions which showed that the climate has frequently varied during the last 10,000 years by amounts comparable to the past century’s warming. Since man was not burning fossil fuels until the last two centuries, his studies have cast doubt on the current theory that anthropogenic greenhouse gases are responsible for global warming. 

While the world awaits the results of the CLOUD experiment, many  political leaders around the world have become aware of the enormous government subsidies required to induce production of “green energy”, its few benefits, and its negative economic effects....

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GDP growth was just 1.8% in first quarter. New Depression not Over.
Howard Richman, 4/28/2011

According to preliminary estimates released this morning by the BEA, economic growth slowed dramatically from 3.1% during the fourth quarter 2010 to just 1.8% during the first quarter of 2011. The following table shows the contributors to economic growth, and how they have been changing:

Contributors to Real GDP Growth
Year 2010-1 2010-2 2010-3 2010-4 2011-1
Household Consumption 1.3% 1.5% 1.7% 2.8% 1.9%
Business Fixed Investment 0.4% 2.2% 0.2% 0.9% 0.1%
Government Consumption -0.3% 0.8% 0.8% -0.3% -1.0%
Net Exports -0.3% -3.4% -1.7% 3.2% -0.1%
Inventory Change 2.5% 0.8% 1.6% -3.2% 0.8%
Total Change in Real GDP 3.7% 1.7% 2.5% 3.1% 1.8%

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Obama, Bernanke and Congress losing war against supply and demand in housing market
Howard Richman, 4/26/2011

The just-released Case-Shiller data for Feb. 2011 shows that despite the expensive efforts by Obama, Bernanke and Congress to control prices, house prices are again in free fall:

CaseShillerThru0211.gif

My father, son I predicted this in the April 14 American Thinker (House Prices in Free Fall). We wrote:

In June 2006, house prices peaked as supply increased faster than demand and the housing price bubble stopped expanding. Starting early in 2009, the Federal Reserve, Congress, and the Obama Administration spent hundreds of billions of dollars trying to keep house prices from falling. They subsidized first time home buyers, bought mortgage-backed securities, subsidized mortgage buyers, and took other measures. Apparently, these subsidies only slowed the fall in house prices.

If current trends continue, real house prices (house prices after subtracting inflation) will likely lose about a quarter of their real value over the next 4 years. If inflation continues at about 2%, this would produce a four year fall in actual house prices of about 4% per year.

It may soon become clear that the Federal Reserve and the federal government wasted hundreds of billions of dollars simply to delay an inevitable fall in housing prices. Economic historians may compare their policies to the pervasive price subsidies that eventually bankrupted the Soviet government.

Meanwhile, the Republicans in Congress have been foiled by lobbyists from their attempt to end the bleeding. AP reports:...

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How to achieve Economic Recovery and Full Employment --Balance the Budget and Balance Trade
Raymond Richman, 4/24/2011

Princeton Professor Alan S. Blinder in an opinion piece in the Wall St. Journal on April 10, 2011 excoriates Rep. Paul Ryan’s plan for reducing the federal budget deficit as just about the worst conceivable, far inferior to the Bowles-Simpson and the earlier Domenici-Rivlin budget cuts proposal. Republican Sen. Paul Ryan’s  plan would reduce the deficit by $4.4 trillion over ten years by repealing Obamacare, substituting private health plans and making block grants to the states for Medicaid. It also imposes hard spending caps on domestic spending.  What is Prof. Blinder’s principle complaint?  It is regressive, it is “reverse Robin Hood redistribution.”  He ignores the fact that the bulk of government expenditures disproportionately “benefits” lower-income families, from public schools, parks and libraries to entitlements like medicare. Too bad he did not analyze similarly Pres. Obama’s economic stimulus plan.  He would find that Pres. Obama had sold out the American worker in the name of climate change.

If Prof. Blinder were to do that, he would discover real regressivity. About a third of the nearly $800 billion stimulus plan simply kept teachers and other state and municipal employees in their jobs. These are by no means an underpaid group. Teachers get superior annual salaries for working less than ten months a year. That apparently is what Prof. Blinder meant when he said the Recovery Act prevented a depression.  It obviously did not increase employment in the private sector.

And talk about regressive, about a third of the Recovery Act’s billions went to uneconomic wind and solar plants that in addition to the direct subsidies for their construction are subsidized by the higher prices guaranteed them for the electricity they produce  – double or triple the cost of electricity produced by natural gas, coal, or nuclear energy. Worse, these plants hire very few permanent workers. As we reported previously, a $220 million wind or solar plant creates only about 40 permanent jobs. WOW! Each sustainable job created required $55 million of expenditure per job. Not only a really regressive expenditure but one quite likely to usher in another depression when manufacturers flee abroad as a result of rising energy prices....

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Unlike other fuels, the Opportunity Cost of using Uranium for Electricity Generation is Negligible
Michael Natelson, 4/20/2011

[Michael Natelson Ph.D. is a Nuclear Engineer and a member of Ideal Tax Association's Board of Directors]

As a result of the tragic events in Japan much has been written and broadcast concerning the future of nuclear power. Scenarios have ranged from modest delays in deployment of new plants to forgoing in time the nuclear option entirely. Many of the benefits and costs/risks have been discussed, but a key grand scale motivation for pursuing nuclear energy from fission reactors is omitted. Uranium, and ultimately Thorium, fueling reactors could supply the bulk of humanity’s electrical energy needs for several thousand years. This is possible because these elements are abundant in the earth’s crust, and the reactor technology to exploit them has progressed to an industrial scale and continues to improve. 

The “motivation” I refer to above, however, is based on the fact that Uranium and Thorium have negligible substitution-value. They have no other significant economic application.

This is not true for other sources of electrical energy.  Obviously, coal, oil and natural gas are excellent chemical feed stocks. It is already clear that it makes no sense to burn oil to generate electricity. It is much more valuable as an energy source for transportation. Burning gas in combined cycle turbine generators with thermal efficiencies of~60% is attractive at today’s gas prices, but with modern home heating furnaces at better than 90% efficient this use might be a better choice if we are to burn this finite resource.

One can also think about “substitution-value” as applied to the resources needed for electrical energy generation from “renewable” sources. The land needed per Watt for solar, biomass and wind farms could have other uses....

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EPA disses Congress
Howard Richman, 4/16/2011

Environmental Protection Agency (EPA) administrators are refusing to come to Congressional hearings on new EPA regulations. Here's a selection from an article by Robin Bravender posted at Politico.com:

Of three Energy and Commerce Committee hearings held this week on controversial EPA rules, the agency sent an administration witness to just one.

Rep. Henry Waxman of California, the top Democrat on the panel, sent a letter Tuesday to top committee Republicans saying the EPA couldn’t make it because the majority didn’t give either the EPA or the Democrats enough advance notice. He asked Republicans to make “greater efforts in the future to ensure that the committee is able to hear from administration witnesses by providing adequate notice.”...

Meanwhile, Congresssional Republicans with some Democratic support are doing their best to rein in the agency. An editorial (EPA's days as 'rogue agency' are numbered) in the Washington Examiner reports:...

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Rand Paul: We need to cut spending. The American dream is at stake.
Howard Richman, 4/15/2011

According to the Congressional Budget Office, the 2011 budget compromise will not even cut $38 billion from the federal budget, just $352 million (essentially zero). The Tea Party is not pleased, and they have an articulate leader in Kentucky Senator Rand Paul. Here is a video of his latest speech on the Senate floor:

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Our capital gains commentary - House Prices in Free Fall - was published this morning by the American Thinker!
Howard Richman, 4/14/2011

Here is a selection:

In 1951, Congress, at the urging of President Truman, instituted the roll-over treatment for taxation of capital gains from home sales, an economically sound treatment of capital gains. As a result, from 1951 through 1997, whenever a homeowner sold his or her primary residence to buy another residence, the capital gains tax was deferred, not forgiven. In technical parlance the gain was rolled-over until the new home was sold. Homeowners would typically build up their equity in one home, sell that home, and then use their savings to make a down payment on a larger home. During that period, there were large changes in interest rates, yet real home prices were quite stable.

In 1997, a foolish Congress, at the urging of a foolish President Bill Clinton, eliminated the capital gain tax on homes sold by most homeowners. This change immediately stimulated the housing price bubble. It told speculators that the capital gain that they would earn would be tax free if they bought a house in the expectation of a rise in its market value and sold it at a higher price. Under the new provision, almost anyone who had lived in a house for 2 years of the past 5 years could sell the house free from capital gains tax. The new policy encouraged people to gamble on real estate. They saw that houses were going up in price year after year. What an easy way to make money!

To read it, go to: http://www.americanthinker.com/2011/04/house_prices_in_free_fall.html

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Exports down. Imports down. Growth estimates down.
Howard Richman, 4/13/2011

The trade data for February that were released on April 12 by the BEA show a fall in both U.S. exports and imports. The fall in imports suggests that U.S. demand is faltering, while the fall in exports suggests that world demand for U.S. products is stagnant. As a result, several groups have revised downward their estimates of first quarter U.S. growth to a paltry 1.5%. 

Although most articles reporting the new trade data herald the tiny improvement between January and February, the annual trend is actually quite negative. In February 2010, the seasonally adjusted U.S. monthly trade deficit was $39.7 billion, while in February 2011 it had risen to $45.8 billion, as shown in the graph below:

DeficitWithWorld0309to0211.gif

Meanwhile, the U.S. trade deficit with China also continues to run above last year's levels, as shown by the blue line being above the red line every month for the past twelve months in the not seasonally adjusted graph below:...

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Huckabee taking a tough stance on trade!
Howard Richman, 4/11/2011

I'm getting excited! Now two Republican candidates are taking a tough stance on trade, Trump and Huckabee!

President Obama's wimpy trade policy which lets China steal U.S. industries could be a big issue in the election. Listen to this interview with Huckabee:

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American People the Big Losers in the Budget Deal
Howard Richman, 4/11/2011

Dick Morris has a pretty clear assessment of what happened. He wrote (It's no deal, it's a sellout):

John Boehner has just given away the Republican victory of 2010 at the bargaining table. Like the proverbial Uncle Sam who always wins the war but loses the peace, he has unilaterally disarmed the Republican Party by showing that he will not shut down the government and will, instead, willingly give way on even the most modest of cuts in order to avoid it. He now has no arrows left in his quiver....

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Trump rising rapidly in GOP polls
Howard Richman, 4/6/2011

Donald Trump, the only potential candidate for President who has been calling for a 25% tariff on Chinese goods, is rising rapidly in the polls. As a result of this stance, he was received very well on the Michael Savage radio talk show and the Rush Limbaugh radio talk show.

In February, the Newsweek Daily Beast Poll reported that he was running fourth with just 8% support. Now according to the WSJ/NBC poll he is tied for second with 17% support:...

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The Korea Free Trade Agreement would Enable Korean Mercantilism
Howard Richman, 4/5/2011

The so called Korea US "free trade" agreement (KORUS) would not only permit continuing South Korean currency manipulation, thus costing U.S. jobs, but it would also prevent the United States government from responding to the trade imbalances created by currency manipulations. 

According to Frederal Reserve Chairman Ben Bernanke (see Figure 8), from September 2009 to September 2010 the South Korean government devoted 4.24% of its country's GDP to the purchase of foreign exchange reserves. In other words, South Korea is one of the many mercantilist countries which has been accumulating currency reserves in order to beggar its trading partners.

Sam Wilford summarizes the worst aspects of the agreement (Korea Free Trade Agreement Plagued with Problems). His first point is bad enough:

Projections from the U.S. International Trade Commission show no net gain in jobs from KORUS, while the Economic Policy Institute projects a loss of 159,000 jobs during the first seven years of the deal. Most economists also expect the deal to further widen America's trade deficit with South Korea. The 70,000 jobs promised by the president don't account for the jobs that will be lost with this shoddy agreement.

But his second point is simply terrible. It would prevent the American government from responding to South Korean mercantilism:...

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Obama reverses fall of house prices -- in Washington DC
Howard Richman, 4/1/2011

CaseShillerWashington0811.gif

As shown in the graph above, since January 2009, President Obama has successfully turned around the fall in house prices, but only in Washington DC.

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    Wikipedia:

  • [An] extensive argument for balanced trade, and a program to achieve balanced trade is presented in Trading Away Our Future, by Raymond Richman, Howard Richman and Jesse Richman. “A minimum standard for ensuring that trade does benefit all is that trade should be relatively in balance.” [Balanced Trade entry]

    Journal of Economic Literature:

  • [Trading Away Our Future] Examines the costs and benefits of U.S. trade and tax policies. Discusses why trade deficits matter; root of the trade deficit; the “ostrich” and “eagles” attitudes; how to balance trade; taxation of capital gains; the real estate tax; the corporate income tax; solving the low savings problem; how to protect one’s assets; and a program for a strong America....

    Atlantic Economic Journal:

  • In Trading Away Our Future   Richman ... advocates the immediate adoption of a set of public policy proposal designed to reduce the trade deficit and increase domestic savings.... the set of public policy proposals is a wake-up call... [February 17, 2009 review by T.H. Cate]