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 Richmans' Trade and Taxes Blog

Let 50 different health care flowers bloom!
Howard Richman, 3/28/2012

The U.S. Supreme Court may be about to declare Obamacare to be unconstitutional. This would throw the health care ball back to the states, who can look beyond their borders to find out what works.

Obamacare required much too much in the way of coverage, much too much in the way of "free" care and much to much in the way of mandates. One recently publicized example: It even requires that insurance policies provide free birth control pills to single women attending Catholic universities. The inevitable result: higher premiums, increased government spending, increased business costs, price ceilings, shortages and rationing.

In contrast, some of the states are coming up with economically-sensible plans. Take North Carolina for example. In a class essay, one of my students reported her family's experience moving from New Jersey to North Carolina. She wrote:

I am one of them—those uninsurable children and teenagers who are denied health care insurance due to preexisting conditions. I have severe asthma and am on a long-term asthma controller....

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Pres. Obama Appoints Non-Economists to Key Economic Positions
Raymond Richman, 3/25/2012

Pres. Obama’s latest appointment, last week, of a non-economist as head of the World Bank suggests that he disdains economists. Jim Yong Kim, , currently Dartmouth’s president, was formerly the Chair of the Department of Global Health and Social Medicine at Harvard Medical School, and was a co-founder and executive director of Partners in Health. All preceding appointments to head the World Bank were economists.

Pres. Obama’s first Chairman of his Council of Economic Advisers was Prof. Christina Romer, a Professor of Economics at the University of California at Berkeley. Prior to Pres. Obama’s inauguration, Romer worked with Jared Bernstein on the administration's economic stimulus plan for recovery from the 2008 recession. As a Keynesian, it apparently did not matter to Romer what the money would be spent on; it would stimulate the economy.

When she resigned as chair of the CEA to return to academia, she stated in a speech at the National Press Club that more stimulus was needed. She should have said that more ineffective stimulus was needed! (See below.) The first evidence of the non-existence of the Keynesian multiplier was the downturn in the economy between 1936 and 1937 which occurred as soon as the Roosevelt administration reduced expenditures in preparation for the 1936 election. Additional evidence is very recent. When Recovery Act expenditures moderated in 2010, the temporary increase in employment diminished.

The real architect of the Recovery Act of 2009 appears to have been Jared Bernstein who had no economics degree at all....

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Falling Yuan Latest Failure of Obama's Trade Policy -- we're published in today's American Thinker
Howard Richman, 3/24/2012

Here's how we begin:

Throughout 2011, at President Obama's urging, the People's Bank of China let the Chinese yuan rise slightly versus the dollar. It didn't raise the yuan enough to bring U.S. Chinese trade toward balance, but at least China was appearing to move in the right direction.

But the rise in the yuan stopped on January 1. Since March 1, China has actually been reducing the price at which the Chinese yuan is exchanged for the American dollar, as shown in the graph below:

Follow the following link to read the rest:

http://www.americanthinker.com/2012/03/falling_yuan_latest_failure_of_obamas_trade_policy.html

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Housing, Trade Deficits, and Global Warming Foolishness Caused the Recession: BalanceTrade and the Budget for Recovery
Raymond Richman, 3/11/2012

Notwithstanding that the recesion of 1937-38 indicated that there was no Keynesian multiplier--as soon as the stimulus of the preceding four years was reduced, the economy tanked--Keynesians maintained that the Roosevelt administration reduced its stimulus spending too soon. The same agument is being made by Nobel prize winner Prof. Paul Krugman and former Chairman of the Council of Economic Advisers, Prof. Christina Romer, and many others after the failure of the $800 billion Recovery Act of 2009. 

Keynes was a great English economist who sought a solution to the problem of depressions and business cycles in general. He thought he found the answer and wrote his epic, the General Theory of Employment, Interest, and Money (1936) . While Keynes took a scientific approach to the problem of recovering from a depression, he turned out to be wrong about his “multiplier”; increased government spending creates employment temporarily but the jobs disappear when the stimulus is ended.

Dr. Valerie Ramey, Professor of Economics at the University of California, San Diego recently published in the NBER Working Paper Series the results of her research entitled “Government Spending and Private Activity” in which she concluded that “For the most part, it appears that a rise in government spending does not stimulate private spending; most estimates suggest that it significantly lowers private spending.  .. The results imply a multiplier on total GDP of around 0.5.” And further, “For all but one specification, though, it appears that all of the employment increase is from an increase in government employment, not private employment.”  ...

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The Historical Background of Purim
Howard Richman, 3/8/2012

[Note: I posted an earlier version of this commentary on March 8, 2011.]

For thousands of years people have been inspired by Esther's brave choice when she risked her safety in the king's harem to save the Jewish people from annihilation. Her cousin Mordecai had called her to greatness when he asked her, “Who knoweth whether thou art not come to royal estate for such a time as this?” (Esther 4: 14). She had bravely replied to Mordecai:

Go gather together all the Jews that are present in Shushan, and fast ye for me, and neither eat nor drink three days, night or day; I also and my maidens will fast in like manner; and so shall I go in unto the king; which is not according to the law; and if I perish, I perish. (Esther 4: 16)

Some think that the Book of Esther is fiction. But I do not. It fits too well with what we know about Persian history. Even though the Persian libraries were destroyed by Alexander the Great and the Greek reports conflict wildly, the Jewish account of Persian history is quite consistent. Esther is part of a chain of historic Jewish figures (Mordecai, Esther, Ezra and Nehemiah) who worked together to save the Jewish people at a time of extreme peril. The following timeline shows how Persian and Jewish history fit together:

Each Jewish event is dated as having taken place during such-and-such year of the reign of such-and-such monarch, so the reigns of the Persian monarchs give us the approximate year of each major Jewish event. On the timeline, the Jewish events are shown above the horizontal axis, while the Persian monarchs are shown below....

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Dems and Republicans Should Get the Tax Treatment of Capital Gains Right
Raymond Richman, 3/6/2012

Republicans and Democrats in the House of Representatives and the Senate have little understanding of the nature of capital gains and losses and their appropriate treatment in a system that imposes a progressive individual income tax and a corporate income tax and in which proprietorships, partnerships and corporations are subject to different tax treatments. Republicans advocate zero tax on capital gains and believe that corporate dividends are subject to double taxation, once by the corporation and again by the personal income tax. They believe this justifies a zero tax on capital gains and little or no tax on dividends under the personal income tax. Here is a look at the current treatment of capital gains and what we recommend as the appropriate tax treatment.

From 2008 – 2012, long-term capital gains on assets held more than one year were taxed at a zero rate in 10 and 15% income brackets. Those in the 25-35% income tax brackets were taxed at 15%. Short-term capital gains (on assets held less than one year), were taxable at ordinary rates. Democrats argue for higher rates. The president proposed for 2013 a long-term rate of 10% instead of a zero rate in the two lowest income tax brackets and a 20% rate in the higher brackets. Capital losses offset capital gains and are limited to a deduction $3000. Republicans usually argue for a zero rate on capital gains.What is the appropriate treatment? ...

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Is Nuclear Energy Safe after Fukushima? by Michael Natelson
Howard Richman, 3/3/2012

[Note from Howard: We just published a new working paper by Dr. Michael Natelson. Michael is a retired nuclear scientist from Westinghouse Corporation and a member of the Board of Directors of Ideal Taxes Association. Here is how it begins.]

“In the beginning” there was Einstein’s land mark 1905 paper on Special Relativity. He was primarily concerned with putting the laws of electricity and magnetism on the same bases as the laws of mechanics. They should be the same in all inertial frames of reference. (In an inertial reference frame an object at rest stays at rest, and an object moving with at constant velocity maintains that velocity.) Einstein succeeded making use of the assertion (resulting from the Michelson-Morley experiments (1887)) that the speed of light c (300 million meters/second in vacuum) is the same in all inertial reference frames. The key result in Einstein’s paper relative to “Nuclear Energy” is E=Mc² , the most widely known equation to the educated public. To see how it applies to energy release it is better written as DE=DMc² , the change in kinetic energy of participants in an inelastic collision (as apposed to an elastic (billiard ball) collision) is equal to the change in mass of the participants times the speed of light squared. Given the magnitude of the speed of light, it is easy to imagine a collision that resulted in a modest loss of mass would yield a huge increase in kinetic energy of the final constituents. When Einstein published his papers on this result no such collision (reaction) had been identified, but this did not inhibit people from imagining such a reaction and its possible consequences.

In early 1914, H. G. Wells published his novel The World Set Free. He wrote that in1932 we would discover a means of controlling the rate of radioactive decay of heavy elements, thus releasing large quantities of “atomic energy”. This abundant, and cheep, new energy source would revolutionize the world economy. Not all for the good, massive unemployment of manual laborers would result. Also, “atomic bombs” could be constructed, and with economic/social unrest a cataclysmic “atomic” world war between nation states would take place in the 1950s. As a result of this terrible war, Wells envisioned that the surviving leaders would see that a world governing process was an absolute necessity for mankind’s survival, and that wars between nation state having these weapons would be an anathema.

All Wells’ predictions are not right on the money, but in the large they are remarkable. Einstein’s “equation” did lead to an abundant (if not “cheap) new energy source. And, this “energy source” could yield terrible weapons, which having been used in war once, has lead to some international institutions devoted to world peace and controlling these weapons. Wars between nation states having these weapons have been avoided. One could assume, as I believe Wells would, that this is because of mutual recognition of the horrible consequences of their use (by design or accident).

It is a remarkable coincidence that Wells chose 1932 for the breakthrough development of the mechanism of “atomic” energy release. For in fact James Chadwick discovered the neutron in1932. In 1911 Chadwick’s mentor and colleague Ernest Rutherford had determined that most of the mass of atoms was concentrated in a compact positively charged nucleus surrounded by a cloud of much smaller negatively charged electrons. The make up of the nucleus was not initially understood, which is easily seen by noting that: The lightest atom (element), hydrogen, has one electron. It’s positively charged nucleus is called a proton. The next lightest atom, helium, has two electrons. But it’s nucleus, with twice the positive charge of a proton, has approximately four times the mass of a proton. Chadwick’s neutron has no charge and is slightly more massive than the proton. With a short range, attractive force it can be part of an atomic nucleus, aiding in holding the protons together (At distances larger than the diameter of an atomic nucleus positively charged protons repel, but like the neutron at small distances they also exert an attractive force.). Thus, in the above example, the helium nucleus (referred to as an alpha particle) has two protons and two neutrons.

Now why is the discovery of the neutron the “breakthrough development”? The Hungarian physicist and friend of Einstein, Leo Szilard first saw the answer to this question. A neutral, uncharged, neutron should be able to readily penetrate a nucleus in an inelastic collision, cause the nucleus to split, fission, with a loss of mass and a release of much energy and possibly additional neutrons so as to cause more fissions, i.e. to initiate a chain reaction. Even though fission had not been observed in the early thirties, Szilard prepared a patent based on this idea for a nuclear reactor and assigned it the British government in 1936. (Rutherford had speculated about an energy liberating fission reaction, but with knowledge of only positively charged protons and alpha particles as initiators, he thought these particles would need so much kinetic energy to penetrate a positively charged nucleus that the net energy release would not be of practical use.)

With the discovery of the neutron, the Italian physicist Enrico Fermi began experiments bombarding naturally occurring heavy elements (e.g. Uranium) with neutrons to produce new heavy (transuranic) elements. He received a Nobel prize for this work in 1938. However, the German chemists Hahn and Strassman determined that Fermi had produced lighter elements. Hahn’s long time associate Lisa Meitner and her nephew Otto Frish identified Fermi’s process as fission, and reconciled it with a physics model of a heavy element nucleus absorbing a neutron and becoming unstable, splitting into high kinetic energy lighter elements (fission products), additional neutrons (2 or 3) , high energy electromagnetic radiation (gamma rays) and electrons/anti-electrons (beta particles)....

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