Nobody who has made any money seems to want to pay taxes. Despite painstaking explanations that it is in fact tax money that allows our country to operate, one may still hear constant complaining and abject aversion to the very concept of taxes. This is not a political issue as such seeing that both rich Democrats and Republicans find all sorts of creative ways to avoid paying their fair share of taxes. This idea that one should be able to keep all of the money he or she makes is as universal as love and hate. Even if you believe as Dave Ramsey does that one should go about the business of making a ton of money and then giving it all away, the theme is still constant; no taxes to the government. Apparently giving unto to Caesar what is his has become rather passé.

Where the two political sides seem to differ is how much one should be taxed. The Democrats purport that rich folks should be taxed at high amount in order to pay for services for those who are in need as well as the usual list of civil services we all enjoy (cops, firemen, sanitation, etc.) The Republicans counter-argument is that if you leave the tax rate somewhere near the bottom, the money saved in taxes will some how reappear in government coffers by way of an expanding Gross Domestic Product. In other words, let rich folks keep most of their money and the government will still be awash in the billions of dollars it takes to balance the budget. I’m not sure which fight has gone on longer, this one over taxes or the Civil War.

Not even abortion unites conservatives the way the issue of tax cuts does. No matter how far right one is, the thing they all want is a tax cut. They argue that Reagan cut taxes and the economy expanded. They argue that Bush cut taxes and the economy expanded. They argue that taxes were astronomical during Carter’s presidency and that retarded the economy until it was saved by Reagan. Whether we call it Trickle Down Economics, Supply Side Economics or Voo Doo Economics, it’s all the same; if taxes are low then the country will prosper and the GDP will grow exponentially. None of this is true.

The question over tax cuts can leave one scratching their heads wondering if anyone is telling the truth whether or not they work. Certainly pro-tax cut organizations like the Heritage Foundation will make a concerted effort to show how great they are while the opposition shows counter-evidence. So what’s the real answer? This is what I’ve attempted to answer here. Instead of being dependent on other people’s research I’ve pulled about a 100 years of economic data myself from the government’s own published database. I’ve painstakingly recorded the GDP, the top marginal tax rate, and unemployment in the graph below to show in concrete numbers what the effects of tax cuts have been. I will also address the effects of other variables such as federal spending, economic bubbles bursting, corporate scandals and taxation versus incentive to work.

The Effect of Tax Cuts on the Economy

Over the last century the US government has cut taxes a number of times. Conservatives state that when tax rates are lowered, the economy’s GDP improves and living standards increase. It is equally true that when you increase taxes the GDP improves and the living standards increase. In 1933 the top federal tax rate was almost tripled. Yet starting in 1934 the economy was expanding at a double-digit rate and in spite of the increasing federal tax rate of up to 91% continued to expand (with a few hiccups) for the next 30 years, according to the data in the chart above.

Of course there is also evidence in the above chart that despite a decrease in taxes, there was an accompanying contraction in GDP. From 1981 to 1982 the tax rate was dropped by almost 20 points (69.124% to 50%) yet the increase in the GDP dropped from 12% to 4% and did not get to double digits again until 1984. Since 1990 the GDP increase has never risen above 6.5% no matter what the tax situation was.

The arguments in favor of tax cuts have been premised on the idea there is a direct relationship between tax cuts and GDP growth. As is plainly evident in the chart above, not only is there no direct relationship at work but also there doesn’t appear to be any relationship at all. From about 1953 on the economy grows and contracts at no more than 5% regardless of where the tax rate was. The short answer to what the effect of tax cuts on the economy is that there is no effect. It would appear that other factors have a direct relationship on the GDP to explain expansion or contraction and tax cut are irrelevant.

The Effects Of Tax cuts on Employment

Another argument people make in favor of tax cuts is that it is the wealthy that create jobs and as such if you let them keep most of their dough, they will create jobs with them. In short, if you cut taxes, especially on the wealthy, you will create jobs and expand the GDP. This too is a myth based on wishful thinking.

Once again the chart shows that there is no effect on unemployment simply because tax cuts do not effect GDP. For the most part, the unemployment rate inversely follows the percentage increase in the GDP. In other words, in more years than not, if the GDP increased so did employment. This sounds great but if you look at the chart more closely you will see that despite massive changes in the tax rate, the unemployment rate has remained relatively stable within about 5% since 1949. Based on the chart above there is no significant relationship between job creation and tax cuts therefore there is little point in allowing the most rich amongst keep the lions share of their wealth based on the promise of jobs.

Furthermore if you examine the relationship between small business taxes and state GDP you get a 0 correlation coefficient (a correlation coefficient lies in the amount of variation in one variable that is accounted for by the variable it is correlated with. As a rule of thumb, correlation coefficients between .00 and .30 are considered weak, those between .30 and .70 are moderate and coefficients between .70 and 1.00 are considered high) and if you look by state at the relationship between small business taxes and unemployment you get –0.195. Looking at today’s economic environment you have companies with huge capital reserves that are not expanding and therefore not creating jobs. In fact in many cases they are cutting jobs despite receiving gains in net profit. Giving them tax breaks will not change their minds on whether the money earned in their return on investment (ROI – A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments) is worth investing in jobs. When they believe they can make more money by hiring people they will but there is no evidence of this in today’s business culture.

Tax Cuts Pay For Themselves

Proponents of tax cuts argue that if people can keep most of their wealth, they will actually generate more tax revenue by spending than when they are taxed directly. I’ve already established the non-relationship between tax cuts and GDP growth but the idea that collected taxes increases when you cut taxes is a separate issue altogether, except that it isn’t because the GDP and collected taxes are directly proportional. Assuming there is no change in the tax rate when the GDP goes up, tax collections will go up too. This is much the same as when your salary goes up (assuming no other changes) your taxes go up as well. The argument that tax cuts pay for themselves is based on the idea that the economy grows because of the tax cuts. The reality is that the economy grows for many other reasons but not tax cuts. To put it another way, if the government increased it’s budget by 2% and the economy grew 4%, you could say that the 2% paid for itself by the increase in the economy. As long as the economy is growing then government receipts will increase in kind.

Some also argue that whatever the impact of tax cuts may be, the real problem is spending. The argument goes that tax cuts do increase federal revenue but the increase is devoured by increases in spending. It is said that if spending were to remain constant or even decreased, then the evidence of tax cuts expanding the economy would be apparent. The problem with this argument is that relies on the premise that tax cuts increases the GDP when the chart above shows no evidence. Spending ourselves into bankruptcy is a problem to be sure but the solution to insolvency is not more tax cuts. Tax cuts would actually create more problems than it would solve. In what world does one pay his bills when his employer cuts his salary? That doesn’t make any sense in terms of dealing with our deficits and neither does tax cuts.

If Tax Cuts Are Not Relevant to GDP, What Is?

Growth in GDP hasn’t grown much in 50 years. It ebbs and flows but as the chart shows it has remained relatively stable since the 1950’s. There have been a number of variables that have had an effect on the economy in both the long and short term. The primary ones are transportation, communications, computers, and the advent of a truly global economy. Add to this the change in our society from manufacturing to services and you end up still trying to absorb the changes of the last 30 years. So what can the government do to improve the GDP? Probably the best it can do is to encourage innovation. With a 14 trillion dollar and growing economy it is becoming more difficult for any one entity to move the needle.

Conclusion: The Conservative Case AGAINST Tax Cuts

The argument over tax cuts is primarily a political one. Liberals are against them because they want the tax revenue to fund their social welfare programs. Conservatives are for them because either they believe that it will benefit the economy or they are not thrilled about paying for social welfare programs. On the first point, there is no case to be made regarding how helpful tax cuts are to the economy. Since they have no effect one way or the other, saying you are for tax cuts amounts to the same as saying you are for keeping nearly all your wealth because you want to. It is as simple as that. We have a word for that in the English language and it’s called “greed.” Conservatives use the same roads, call on the same police and firemen, are serviced by the same sanitation crews and are represented by the same politicians as the rest of the country so as such, they are responsible for their fair share of taxes as well. The idea that somehow large segments of the population should be above paying taxes is neither conservative nor mature.

Conservatives cannot continue to have a conversation with itself and expect to win elections. I don’t believe conservatives are racist as such. Instead I believe the word we are looking for here is elitist. Conservatives don’t care if you are black or white, but poor or not poor, that’s a whole other problem. If that is not a fair categorization then why when the conservation turns to cutting spending the first thing a conservative suggests is to cut welfare when military spending represents 20% of the overall budget?

There are plenty of conservative solutions to social welfare problems such as the Basic Income Guarantee (see Milton Freidman) but today’s conservative doesn’t even bother to engage in the debate. Instead you have idiots like Walter E Williams suggesting we cut all social safety nets and return to life pre-New Deal (when the solution to poverty was usually death). This is not the way to bring more voters in to the big tent and win elections. It is however the way to prove to the critics that more and more the GOP is the party of filthy rich aristocrats and evangelical middle class Americans. Conservatives should be utilizing the vast cadre of ideas to deal with social problems not ignoring them and then demanding to keep almost all of their income.

Lastly, Dick Cheney once mused that Reagan proved deficits don’t matter. He meant that the average American doesn’t vote for or against a politician based on how much they’ve increased the deficit. That’s not the case anymore as the TEA Party can tell you. It is not conservative to whine about the deficit and then demand a tax cut, therefore making it ever more difficult to balance the budget and pay off the deficit. It is conservative to suggest both tax increases, which have no impact on the GDP, and to cut spending (starting with the biggest items first i.e. military, Social Security, Medicaid and Medicare). To do the opposite of that is to in fact prove the criticism of conservatives that we are all in a state of denial. Fiscal responsibility means paying your taxes as well as curbing your spending. It does not mean everybody keeps all of their wealth and to hell with the rest of the world.

This brings me to Paul Ryan’s Roadmap for America’s Future. While Paul Ryan has recently ruled out a run for the presidency in 2012, establishment conservatives are pointing to his ideas and this very Roadmap as a proper platform to run on.

Fred Barnes of the “The Weekly Standard” recently said of the Roadmap, “It’s not only the freshest, boldest, and most comprehensive Republican thinking, it’s also the most relevant. If Republicans adopt the Road Map as their basic ideological blueprint, it offers them the prospect of a landslide in the midterm election this year, followed by victory in the presidential election in 2012.”

Those on the left including President Obama have criticized the Roadmap for any number of reasons. The problem there is that no conservative will listen to criticisms about anything conservative that comes from the left. Also there are those on the right who are covetous of their leadership positions and don’t want to see the Roadmap propel Paul Ryan into their spot. The unfortunate thing is that there is plenty to criticize about the Roadmap but hardly anyone to do as such as so many in and around Washington DC have some sort of investment in either seeing him prosper or fail. But the Roadmap does need serious independent analysis for voters to take it seriously, regardless of your political philosophies.

The Roadmap has five policy sections to it: Health Care Security; Retirement Sec; Federal Tax Reform; Job Training; Budget Process Reform.

Health Care Security

The first law Ryan wants to pass is the:

▫ Refundable Credit for Health Insurance Coverage. Provides a flat, refundable income tax credit for individual and family purchase of health insurance. The credit may not be used by those enrolled in Medicare or a military health coverage plan.

- Credit Amount. The tax credit equals $2,300 for individual tax filers and $5,700 for joint filers and families.

- Refundable and Advanceable. The credit is refundable, and therefore available to low-income persons with no tax liability. Credit also is “advanceable,” enabling individuals to purchase coverage at the beginning of a year, rather than waiting for their tax returns.

- Assignable. The credit would be forwarded directly to the insurer of the tax credit recipient’s choice, leaving the balance, if any, refunded or billed to the recipient.

- Inflation Adjustable. The credit is adjusted for inflation: specifically, by an average of consumer price index and the percentage increase in the medical care component of the consumer price index.

Ryan’s Roadmap states that, “Equalizing the tax treatment of health care and coverage will give workers and families much more freedom to acquire a plan that best suits their needs. Making health insurance portable means an individual no longer will live in fear of losing his or her health care along with a job. As the marketplace begins to respond to this new patient-centered control, the resulting increase in competition will improve the quality of services and provide more options to meet the diverse needs of Americans, while lowering costs.”

In other words, Ryan is that instead of the emploer buying buing the healthcare the worker will. The benefit of this is that if said worker leaves the company, they will still have their health plan because they bought it separate from the company. However, the cost of most health care plans is much more than the tax credit one receives from the above law, so without income to supplement payments toward the premiums, how does one continue to afford said health plan? In many ways this is the current situation with COBRA. Your old employer has to offer the health care plan for a period of time at their rate. You must also ask yourself, how do you pick the right plan? Do you pick one that covers pregnancy and if not what happens if the wife accidentally gets pregnant after open enrolment? Either way, this will actually make plans more expensive since the risk pools will be smaller. The risk pool will be smaller because the amount of people purchasing a variety of health plans will be too widely stratified.

Ryan purports that competition will lower the cost of health care plans. Even if you could get transparency in pricing most people don’t shop for doctors and procedures on the basis of cost. Most people shop for health providers who they perceive to be fully competent and able to perform the medical service being offered. Think of end of life treatment. How many people say, “Keep me alive no matter what the cost,”? Then there is the case of children born with severe medical problems. Exactly how many people do you know who say it cost too much to save my child from whatever their complex ailment may be? Ryan is applying free market principles to an area that typically has little or nothing to do with the free market. Health care rests on the principle of access and competency, not the price of services rendered. And unlike life insurance and car insurance, health insurance is in fact a necessity, possibly even life or death.

Retirement Security

The next law Ryan wants to pass deals with Social Security.

Creation of Personal Accounts. Beginning in 2012, provides workers under 55 the option of dedicating portions of their FICA payroll taxes toward personal accounts, or remaining in the current Social Security system. Individuals retain the ability to choose shift in or out of their accounts as their tax filing status changes.

The public overwhelming rejected creating private retirement accounts in lieu of social security at the beginning of the second George W. Bush term. Now that we are still dealing with the aftermath of the 2008 economic collapse and recession, most people refer to their 401k as a 201k, that is to say that their investments either have halved or disappeared entirely. One can safely assume that the general public will not be bullish on investing their personal retirements in a dodgy investment market, regardless of any Wall Street regulatory bill or guarantee’s of initial investment. But putting aside the support or lack thereof for private retirement accounts, there is the issue of whether or not the mechanics of this bill are even plausible. Defined benefits usually work better than defined contribution plans. One reason for this is that large numbers of people are in the plan and when there is a downturn the continued influx of money can tide the plan over. When you have a single account the money may not be there when you need it. Then there is the fact that most of us are not financial geniuses and don’t want to spend our days deciding how to invest our money. We all can’t be like JBL from the WWE, watching the stock ticker during the day and wrestling at night.

Ryan wants you to buy annuities with your Social Security account. The end result of that would mean that to just earn a retirement income that equals 150 times the poverty level you would need $200,000 minimum for a lifetime annuity at age 67. For a single person this is $16,350, so for a 67-year-old man this would require the social security account to have $200,000 in it. This would require ( without any capital gains or interest) 16 years at the current maximum wage that is taxed. For someone earning $40,000 a year this would require 41 years. In other words, you’d have to work for 41 years at $40,000 to achieve the minimum retirement benefit. Given the tenuous job market out there it may be unlikely that most individuals will earn $41,000 a year for 40 years or more. So unless this works out perfectly for you, most of us will be shafted come our golden years under Ryan’s plan. This obviously would affect early retirement since Ryan would require that you buy the annuity of 150% of the poverty line.

He also wants to raise the retirement age by indexing it to life expectancy. In other words, if you are around my age (34) the full retirement age is 67 but if life expectancy increases, the retirement age potentially shoots up another 10 years or less. This is the opposite of what the average Republican wants because it amounts to a tax increase. The reason being is that for the same amount of money you invest in Ryan’s Social Security plan you will get less in benefits than you would with the present Social Security plan.

Federal Tax Reform
The two biggest changes in the tax code Ryan proposes deal with revenue projection and taxpayer choice in how they pay their taxes.

Revenue Projections. In combination with [Business Consumption Tax], holds total Federal revenue to no more than 19.0 percent of gross domestic product [GDP] for the foreseeable future.

Offers Individual Taxpayers a Choice. Provides individuals the choice of paying income taxes in either of two ways: 1) under a new Simplified Tax, or 2) under the existing tax code.

Revenue projection says the government will be limited to 19% of the GDP. This is much like Proposition 13 in California (limits property tax to 1% of the value of the home). It is too much of a straight jacket that does not allow the government to do what it needs to do especially in an emergency. Take the current recession; in the year 2009 the GDP had dropped 2.1%. Assuming that we were at 19% in 2008 that would mean we would have had to cut the budget 60 billion dollars. In non-mandatory spending this is the equivalent of the Department of Health and Human Services or the Department of Transportation. We have been spending above 20% since 1950 and have been above 30% since 1980. To cut to 19% we would have to cut $1.4 trillion. This is equivalent to the entire 2010 discretionary budget. Social Security is presently 25% of government revenues and is increasing its share of the budget. This will continue to squeeze the government if the 19% limit is set. In other words, pegging revenues to 19% regardless of the circumstances prevents the government from working effectively. In the event of a crisis, the government would have to figure what it is going to cut before a plan to deal with situation can be formulated (assuming revenues were at 19% already). This is not realistic.

According to Ryan, “The new Simplified Tax broadens the tax base by clearing out nearly all of the existing tax deductions and credits, compresses the tax schedule down to two low rates, and retains a generous standard deduction and personal exemption.” He also wants to repeal the Alternative Minimum Tax, regardless of how you pay your taxes.

By doing this he will shrink the tax base not broaden it. You will lose all those who are presently paying the AMT but more importantly you will lose all those whose only income is a combination of interest, social security, dividends, or capital gains. So if you have $5,000,000 to invest and earn 5% in dividend income ( earning $250,000) you would pay no taxes. So the only people who would be paying taxes are individuals who get a W2, in other words, working people. This is not only patently unfair but also disastrous when it comes to funding the government. Those who currently pay the AMT represent 18 million taxpayers who would be paying less or no taxes with the abolishment of the AMT. With such a large portion of the total revenue now gone, one has to ask, how does Ryan think we’re going to make up all of that lost revenue? There are only two answers to that question; tax increases elsewhere or more deficit spending. I realize he’s depending on non-taxed investments to grow the economy and therefore increase tax receipts but how many times are we going to splay ourselves on the alter of supply side economics only to wind up bleeding on the floor?

In addition, giving the taxpayers two options as to how to calculate their taxes will only increase the complexity of the system while decreasing the forecast ability of the government. This is a sure fire way to increase the cost of filing and increase the cost of government borrowing. In either case, Ryan’s plan will end with a heavier financial burden on the middle and lower classes.

Conclusion

There’s more in Ryan’s Roadmap to look at but these are the most glaring problems. The summation of all of these criticisms is that his solutions are more of the same nonsense that has already been proven not to work or unpopular with the voting public. When the GOP can offer solutions that don’t involve cutting spending back to pre-New Deal levels or reducing tax receipts to unsustainable levels, then maybe the GOP will have platform the average voter can take seriously.

President Obama signed the unemployment extension into law shortly after it clear both the House and Senate on 7/22/2010.

States may now immediately begin the process of disbursing funds, estimated to take between two and four weeks. The legislation restores federally extended benefits — tacked on to state benefits, which last up to 26 weeks — retroactively to June 2 and on to Nov. 30. The maximum number of weeks of benefits is 99.

That’s the news and no matter how you may feel, it’s a fact of life.

But should Congress have passed an unemployment extension? I’m sure many of you are thinking, “Of course they should have, unemployment is through the roof; what’s the matter with you?” Believe it or not, there were some in Congress that thought passing this extension was a bad idea.

One argument went that extending unemployment only encouraged people to stay home and not bother looking for a job. There’s even a study that proposes such: “According to a Journal of Public Economics article, every week a jobless person gets unemployment benefits, increases the length of their unemployment by 1 to 2 days.”

The Wall Street Journal was even kind enough to print a chart for us:

In a New York Times editorial, Paul Krugman explained why this argument is dead wrong:

Do unemployment benefits reduce the incentive to seek work? Yes: workers receiving unemployment benefits aren’t quite as desperate as workers without benefits, and are likely to be slightly more choosy about accepting new jobs. The operative word here is “slightly”: recent economic research suggests that the effect of unemployment benefits on worker behavior is much weaker than was previously believed. Still, it’s a real effect when the economy is doing well.

But it’s an effect that is completely irrelevant to our current situation. When the economy is booming, and lack of sufficient willing workers is limiting growth, generous unemployment benefits may keep employment lower than it would have been otherwise. But as you may have noticed, right now the economy isn’t booming — again, there are five unemployed workers for every job opening. Cutting off benefits to the unemployed will make them even more desperate for work — but they can’t take jobs that aren’t there.

The other main argument is that this benefit extension will result in an almost $34 billion increase in the $1.4 trillion deficit and this should be avoided.

According to Debra J. Saunders, “Sen. John Thune, R-S.D., had proposed paying for an earlier (and costlier) iteration of the bill by rescinding $38 billion in “unobligated” stimulus money and imposing an across-the-board cut of 5 percent on non-defense government agencies. His measure failed. Sen. Tom Coburn, R-Okla., proposed paying for the measure “with $40 billion in cuts (reducing unneeded government printing, cutting non-essential government travel, and eliminating bogus government bonuses) and revenue raisers (selling unneeded government property and collecting unpaid taxes from federal employees).” Destined to fail.”

President Obama countered this argument by dismissing GOP concerns as partisan game-playing. The President argued that historically this sort of legislation was treated as an emergency expenditure and saw no reason to change that. Lastly, he portrayed Republicans as hypocrites for demanding that jobless benefits be paid for but not applying the same standard to their call for an extension of Bush Administration tax cuts that will expire this year.

So there you have it. One side says paying people not work only results in people not looking for work and that jobless benefits will add to the federal debt. The other side says, this is an emergency expenditure and is needed to help people in tragic circumstances. Also that stuff about paying people not work is nonsense.

What do you think? Based on the above arguments and whatever else you may add to the discussion, should Congress have extended jobless benefits?

So we are here to solve a basic whodunit and dispel some of these myths along the way.

We’ll start with the Rights theory, which is as follows: The Democrats including but not limited to Bill Clinton, Barney Frank, Jesse Jackson, Barack Obama and many others were responsible for creating and promoting legislation that coerced bankers to give low-income folks home loans for which they were grossly unqualified. This was done in the name of equality and the idea that it is a human right for every US citizen to own a home of his own. After years of doling out mortgages that were repackaged as ever more complex securities /derivatives, the US banking system found itself leveraged to the hilt and rushing headlong towards a tipping point between money lent and money paid back. Once we went crashing through the tipping point a chain reaction of defaults occurred and like dominoes down went banks, investment houses, insurance agencies and the economy in general. When fingers were pointed at the culprit, they went squarely on first the Democrats and then poor folks. This is a great story except that it’s missing a few details…like inconvenient facts.

Now the Left tells a different tale. The left purports that the banks were not coerced but rather more than happy to make ill-advised loans because it was instrumental in creating vast amounts of quick profits with the intent of selling said products before the inherent risk involved could be felt. Wall Street (investment houses) was clamoring for mortgages that the banks were willing to sell to them so that they could create derivatives for them to sell. What the Left blames the Republicans for is blocking regulation of said derivatives. So essentially you have bankers and traders dealing in monopoly money, claiming it’s real money and punting these farces down the line while the GOP watchdogs turned a blind eye to these proceedings. Had the bankers and traders been regulated, the more toxic trades would have been stopped and thus the economy would not have exploded. This certainly follows the narrative that the GOP and Wall Street are in cahoots with one another to screw “the little guy.” The problem with this story is that while it’s not an out and out lie, it too is neglecting a few inconvenient facts.

Now here’s what really happened, complete with all the facts and figures.

First off we have a premise wherein the Democrats have the power of the Gods to promote their agenda while the GOP remained a minority party helplessly watching as the Socialist Democrat Party wrecked the country. Glen Beck may think this is true but it does not correlate with reality. For the last 30 years Republicans controlled Congress and the Senate for 40% of the time. They controlled the presidency for 73% of the time. They controlled all three branches for 20% of the time. If one is to believe that the Democrats were so successful in pushing their agenda, then one must believe that the Republican Party has shown a prodigious display of incompetence, EPIC FAIL, if you will. Then there is the Regan Revolution. His economic policies supposedly transformed both the US’ and the world economy. He even inspired Margaret Thatcher in England to follow his policies. So if the Reagan Revolution happened, why are the Democrats getting blamed for wrecking the global economy? The answer is that when the facts are inconvenient, we replace them with mythology.

Moving on to the specifics, if you are to place blame for the economic meltdown at the feet of the CRA then you must first realize said legislation was a bi-partisan effort and not the single effort of Saul Alinsky and the congressional Democrats. The CRA was passed in 1977 under President Carter’s watch and was a bipartisan attempt to address the issue of housing discrimination based on racial or ethnic heritage otherwise known as redlining. Now if this were really a poison pill foisted on the banks against their will, one would have to assume that in the 12 years of Republican presidents that followed the Carter administration, somebody would have either done away with the CRA or at least weakened it.

That brings us to President GW Bush. President Bush promoted the idea of an “ownership society,” by providing down payment assistance to the tune of two hundred million dollars annually and a tax credit of 2.4 billion dollars to encourage the production of two hundred thousand affordable homes for low and moderate income families. Meanwhile the Bush administration had been weakening CRA enforcement and the law’s reach since the day it took office. In contrast, the CRA was at its strongest in the 1990s, under the Clinton administration, and up to this point those who had received CRA loans had been paying them regularly. It was only after the Bush administration cut back on CRA enforcement while promoting his “ownership society” that problems arose.

Fannie Mae and Freddie Mac, our national lending institutions, were also encouraged to make more loans during the Bush years. In fact, the leadership of Fannie and Freddie were more than eager to get in on a scheme where they could make loans and then sell them incurring no risk of their own. President Bush substantially increased the financial commitment by more than 440 billion dollars. All of these proceeds were to be directed towards the low and moderate-income market. It is intellectually dishonest to blame the housing bubble squarely on the Democrats when it is clear the Republicans were just as involved in the mess.

However, since the CRA had very little impact on the financial meltdown, all that has been said above is meaningless in a discussion of what went wrong. If you look at the data, not only were there more loans made to higher income buyers but also the bulk of the toxic mortgages belonged to middle and upper class individuals.

From Citizeneconomists.com:

“…while some major retail banks did make subprime loans to minorities in an attempt to satisfy the requirements of the CRA, the problem didn’t become truly cancerous until unregulated financial firms like Argent and American Home Mortgage began to sell “creative financing” to subprime borrowers, many of whom were actually professional people with shaky credit, real estate speculators, and middle class buyers in “bubble” states like California and Florida who were looking to purchase homes priced well beyond their means, egged on by real estate agents who were on a roll.…lending money to poor people and minorities isn’t inherently risky. There’s plenty of evidence that in fact it’s not that risky at all. That’s what we’ve learned from several decades of microlending programs, at home and abroad, with their very high repayment rates. And as the New York Times recently reported, Nehemiah Homes, a long-running initiative to build homes and sell them to the working poor in subprime areas of New York’s outer boroughs, has a repayment rate that lenders in Greenwich, Conn., would envy. In 27 years, there have been fewer than 10 defaults on the project’s 3,900 homes. That’s a rate of 0.25 percent…lending money recklessly to obscenely rich white guys, such as Richard Fuld of Lehman Brothers, or Jimmy Cayne of Bear Stearns, can be really risky. In fact, it’s even more risky, since they have a lot more borrowing capacity. And, here, again, it’s difficult to imagine how Jimmy Carter could be responsible for the supremely poor decision-making seen in the financial system. I await the Krauthammer column in which he points out the specific provision of the Community Reinvestment Act that forced Bear Stearns to run with an absurd leverage ratio of 33:1, that instructed Bear Stearns hedge-fund managers to blow up hundreds of millions of their clients money, and that required its septuagenarian CEO to play bridge while his company ran into trouble.”

More to the point, if you look at the statistics for areas where there were monumental mortgage defaults, the kind that would destroy a multi-trillion dollar economy, you won’t find them in the poor neighborhoods but rather in what were the boom areas of Nevada, California, Arizona and Florida. Specifically, the neighborhoods most to blame for the economic meltdown were more than 80% white and had median incomes of more than $50,000 per year. Again, these folks were not even the target population of the CRA but people who did in fact get suckered into bad financial products by greedy bankers who were being winked at by their friends in Washington. It was like a 1980’s cocaine party that nobody thought would end, until it did.

Now we know it wasn’t the CRA or poor people who killed the economy, and it would also seem like the Republicans, the banks and the Wall Street traders all had a hand in killing the American economy. Where does this leave the Democrats? Just as I said earlier about the Republicans having a great degree of control of the countries political apparatus, so to did the Democrats. In terms of deregulation of derivatives and overall financial regulation, the Democrats had no will to stop any of it. Just as the Republicans were allowing Wall Street to bleed the country dry, so too did the Democrats stand right next to them with little to no objection.

So who really killed the American economy? We did. We the American voters and investors murdered it when we decided to stop doing math, stop paying attention and flushed our collective integrity and common sense right down the drain. Much like the debt and the deficit, you can’t accept what looks like free lunches and then turn around and get angry when the real bill comes due. Also it’s rather silly that pointed examination of an issue gets pushed away in favor of party loyal finger pointing and name calling. Clearly this whole episode is evidence that is almost every case, blame is equally shared between political parties. That’s not intellectually honest, politically literate or emotionally mature. Contrary to popular victim mentality, the US government is not an all-powerful entity that cannot be stopped. If recent elections are any indication, all it takes to stop the government from doing stupid things (like wholesale deregulation of an industry) is to vote the bums out. We murdered our own economy because we didn’t pay attention and we let the good times roll…right out of control.

President Obama says the addition of 431,000 jobs in May proves “the economy is getting stronger by the day.”

Mr. Obama used a quick appearance at a suburban Maryland truck company to discuss the Labor Department report showing unemployment dipped to 9.7 percent last month.

He acknowledged that a surge in Census Bureau hiring helped improve the monthly jobs snapshot, a fact that Republicans have used to cast the jobs figures as less positive than they otherwise appear.<!–

The whole speech can be heard below.

The Economist, a left leaning magazine, has a different view on the matter:

EVEN the banner headline figure on today’s payroll employment report is a letdown. Payrolls grew by 431,000 in May, which is the best monthly performance since early in 2000. But economists had been expecting a much larger rise, on the order of 540,000.

That’s just the beginning of the bad news baked into what looks, on its face, like a lovely jobs report. Most of that big figure—fully 411,000 jobs—is attributable to temporary census hiring. The underlying employment trend looks quite weak. Private employment rose by just 41,000 in May, down from an increase of over 200,000 in April. Several sectors, including construction and retail trade, saw outright declines in employment, and the large growth in federal employment associated with the census was partially offset by continued declines in state and local government employment.

Things look even worse in turning to the household survey. There total employment declined by 35,000. The unemployment rate ticked downward to 9.7%, but that was primarily due to a big drop in the size of the labour force—another reversal of recent trends. And the employment-population ratio ticked downward slightly, to 58.7%. Some other troubling trends continued. The number of long-term unemployed workers grew again, and nearly 6.8 million Americans—46% of all unemployed—now fall into that category. Both the mean and median duration of unemployment increased. The median unemployed worker has now been out of a job over 23 weeks, nearly half a year…this report should serve as a reminder that American labaour markets remain very weak, and the outlook for unemployed workers is not at all promising (particulary for the 60% of jobless Americans who have been off the job for more than 15 weeks)…The longer the unemployed stay unemployed, the greater the odds that structural joblessness increases and becomes a persistent drag on economic performance.

So I think we can safely say that President Obama is trying his hardest to shine up this turd called the economy to the best of his ability…:::sigh:::

var addthis_pub = “markkind”;

We went back and forth about this and my overall thesis was that when the government create jobs it’s stealing from Peter to pay Paul but when private companies come into existence they grow the economy in essence creating new money to enter into the economy. His answer was essentially, what new money do you think is out there, meaning that with the interconnectedness of the modern global economy there isn’t new capital out there to speak of. He then mentioned the principles of Keynesian Economics:

Keynesian economics — proudly proclaiming itself as “modern,” though with its roots deep in medieval and mercantilist thought — offers itself to the world as the panacea for our economic troubles. Keynesians claim, with supreme confidence, that they have “discovered” what determines the volume of employment at any given time. They assert that unemployment can be readily cured through governmental deficit spending, and that inflation can be checked by means of government tax surpluses.

Whether or not my father and the Keynesians are right remains to be seen but according to the below news video, that certain seems to be where we’re headed whether we like it or not.

var addthis_pub = “markkind”;

Remittances, Mexico’s second-largest source of foreign income after oil, plunged 3.6 percent to $25 billion in 2008 compared to $26 billion for the previous year, the central bank said.

The percentage drop is nearly twice what the government had expected for the year, and central bank official Jesus Cervantes said the decline will likely continue this year.

Experts blame a crackdown on illegal immigration that has stemmed the flow of those heading north to seek work as well as the U.S. recession, in which many Mexicans, especially construction workers, have been laid off.

It was the first time remittances have fallen year-to-year since the bank starting tracking the money 13 years ago.

I’ve been saying for years that the Mexican government needs to find another source of income besides remittances. First of all, while I somewhat sympathize with individuals sending money back for their families, I believe that as an overall source of income for the whole country, remittances are illegitimate. That’s like counting on drug dealers to fill your coffers with money spent on rims and gold teeth.

Let’s look at the math here. Peppy the Hard Working Mexican breaks US immigration law by illegally crossing the border into the United States. Peppy then goes to work as a construction worker or works as an unskilled laborer at a reduced cost for the employer (thus undercutting the American citizen who could have had that job but would have been paid more). Peppy then takes the majority of his illegally earned wages and rather than using it to pay American taxes (aside from the occasional sales tax, if that) he sends it to his needy family back across the border in Mexico. Now am I supposed to feel bad that outright theft of American jobs and tax dollars is going down due to strains on the economy? Frankly, if a sour economy forces more of the ILLEGAL aliens to back to their country of origin then I’ll happily continue to live in a recession for at least the next few years. As a matter of fact, this recession may be the best anti-illegal immigration policy we’ve had to date.

“Remittances are the single strongest poverty-reduction tool that many countries have,” said Robert Meins of the Inter-American Development Bank. “This could translate into a great deal of hardship for a lot of people, which I think is underappreciated.”

So what Mr. Meins is essentially saying is that instead of building an economy that rests upon proven industries such as manufacturing, heavy machinery, tourism and exploitation of natural resources to grow their economy and thus reduce poverty, Mexico would rather continue to count a fine combination of quasi-slave labor and welfare from the US government. Not being able to count on welfare is apparently a hardship in Mexico and other Third World countries.

This is the reason why we conservatives fight against illegal immigration. Aside from the fact that it is generally a bad idea for mass amounts of people to flout the law as if it wasn’t there at all, it also encourages dependence rather than innovation, the true instrument of growth and wealth. If we had actually been guarding our borders instead of winking at the millions of illegals here to overtax our hospitals and schools while simultaneously screwing the American or legal alien worker we wouldn’t have a situation where Mexico was basically a dysfunctional welfare state entirely dependent on the United States.

If we were just talking about legal Mexican workers not being able to send remittances then I wouldn’t bother to comment on this bit of news. However, the underlying message of this article is that we should somehow sympathize with millions of lawbreakers who have suddenly fallen on hard times and can’t quite screw this country the way they used to. That’s ridiculous and I for one won’t be manipulated into feeling bad for people who broke the by not coming here in the right way. This is what liberals do. They justify breaking the law or being immoral by showing you pictures of starving children or some such thing that is supposed to tug on your heartstrings. If the Mexicans that risked life and limb to come here illegally put half as much energy in to improving their own damn country instead of stealing from ours, then maybe something besides stolen American dollars, jobs and services would be their second highest foreign income.

Let this be a lesson to the Mexican government; develop your own industries and stop depending on the US to give you welfare via illegal immigration…or just apply for an Obama-Bailout like everyone else.