Chronicle of the Conspiracy
Saturday, June 16, 2007THE MYSTERIOUS EAST Here's a lesson in comparative advantage. For China, it's manufacturing, not marketing. In my email inbox this morning:
How to cooperate with us?<P>Welcome to our website. the shine international trade co.ltd. all of shine’s staff like to do business with you! the shine company since 1997.we have a lot kinds of thing, we have factory. and we e'en can made something that you want.just you can give us a photo, or you can tell us which kind of things you want. we can give you the best price. best service. You have two kind way to join us.
Posted by Donald L. Luskin at 10:19 AM | link
Friday, June 15, 2007PAUL'S ACHIEVEMENT Ron Paul continues to be my choice for the GOP presidential nomination. An impossible dream? Probably. But David Boaz points out that Paul has done the impossible before:
Given the 98 percent reelection rates for House members, it’s no great shakes to win three terms — or 10 terms — in a row. It’s winning that first one that’s the challenge. And Ron Paul has done that three times.
Posted by Donald L. Luskin at 12:32 PM | link
I KNEW THIS WOULD HAPPEN AS SOON AS THE DEMS TOOK CONGRESS Makes the "culture of corruption" look good by comparison.
Update... One of my Washington sources thinks he knows the culprit. It's either Senator Crapo (R-ID) or Senator Akaka (D-HI).
Update 2... Reader Paul Anderson speculates that "it's revenge for George Allen's 'macaca' affair!"
Posted by Donald L. Luskin at 12:12 PM | link
BIPARTISAN SUICIDE PACT Here's my SmartMoney.com column for today:
OK, let me get this straight.
The unemployment rate is an ultra-low 4.5%, and an all-time record 137 million Americans have jobs, producing an all-time record $13.6 trillion in annual gross domestic product, which includes all-time records for both manufacturing and exports.
No wonder stocks are flirting with all-time record highs, and no wonder I'm bullish.
There's really just one risk right now. With an economy this strong, there's only one thing for Congress to do: ruin it.
Or at least threaten to. Hopefully it's all just talk, like most of what comes out of Congress is. But if the stuff they've been talking about this week actually happens, the reality is that the economy is going to get hurt. And stocks will fall.
I'm bullish on stocks here, but only because I think it's just talk. All the same, you need to know about the threats to the economy and the stock market that are coming out of Washington.
Two really scary bills were introduced in the Senate this week, both by Max Baucus and Chuck Grassley the chairman and ranking member, respectively, of the Senate Finance Committee. One bill is designed to destroy America's trade relationship with China. The other is designed to destroy the private-equity business.
Baucus is a Democrat, and Grassley is a Republican. Think of their two bills as a bipartisan economic suicide pact.
Their China bill is designed to force China to revalue its currency, the yuan. Baucus and Grassley believe — or at least the unions who contribute to their campaigns believe — that China is unfairly competing with American workers by keeping the value of the yuan artificially low, so that prices of Chinese goods and labor are kept artificially cheap.
Under the bill, the Secretary of the Treasury is directed to determine if China's currency is "fundamentally misaligned," whatever that means. If the Secretary determines that it is — after whatever arm-twisting may be necessary to get him to so determine — then the bill calls for a bewildering series of punishments for China: everything from black-balling them at the International Monetary Fund to imposing anti-"dumping" duties to directing the Federal Reserve to intervene in currency markets.
With no shortage of jobs in this country, and with manufacturing output at all-time highs, there's no reason — other than pressure from unions — to tell China what to do with their currency. And moreover, it wouldn't really make any difference if China revalued the yuan anyway. Sure, a more expensive yuan would make Chinese goods more expensive at first. But then the expensive yuan would trigger deflation in China, which would just make those goods cheap again.
All that would happen is that, for all the volatility in currency markets that would ensue, and for all the new tariffs and duties and regulations and interventions, it would be harder to do business between the U.S. and China. Harder to buy stuff from them, and harder to sell stuff to them.
Baucus and Grassley ought to tell the farmers who export food to China that their customer is going away. They ought to tell that to the consumers who won't be able to keep buying inexpensive Chinese goods at Wal-Mart. They ought to tell that to home buyers who won't be able to afford mortgages once China decides it doesn't want to hold $1 trillion in U.S. Treasury bonds anymore.
Even politicians aren't that stupid.
Or are they? Wait till you hear about the other bill that Baucus and Grassley introduced this week.
With stocks near all-time record highs, Grassley and Baucus have a plan to scuttle the private-equity boom — the wave of buyouts of public companies that has created billions of dollars of wealth for shareholders of the acquired companies.
Baucus's and Grassley's bill comes two weeks before the blockbuster initial public offering of Blackstone, one of the biggest private-equity firms. The IPO, if it can even be completed now, will give thousands of individual investors a chance to have a stake in private equity, when that strategy has previously been the exclusive province of institutional investors and ultra-rich families.
The bill requires that all public companies be organized as corporations, and be subject to corporate income taxes. Virtually all private-equity firms are organized as partnerships, which pass through all their profits to shareholders who pay taxes on those profits themselves. That's a real efficiency for shareholders such as pension funds or IRAs, which are tax exempt. Without it, profits would be taxed at 35%, which is the highest corporate tax rate of any developed nation in the world.
Why should a company be able to organize as a partnership so long as it is private — and then when it goes public, suddenly have to be a corporation and pay higher taxes?
Or to put the same thing another way, why should tax advantages only be available to institutions and wealthy families, but not be available to ordinary public shareholders?
More broadly, why is Congress in the business of passing laws that punish success?
The trading alliance between the United States and China has been the most successful bilateral global relationship in history, creating vast new opportunities, efficiencies, growth and opportunity in both countries. The public equity business has help rationalize and reorganize hundreds of companies, creating new wealth and new jobs.
The stock market is near all-time highs because of these successes. Take away these successes, and you take away the bull market. It's just that simple.
I'm betting that neither of these bills passes — or if they do, they will be vetoed. They're just show-trials, staged so that Baucus and Grassley can look like they're fighting for the "little guy" against "the rich."
Or to be candid, they're probably just shakedowns — designed to extract maximum political contributions from the special interests affected most closely by these bills.
But think how much higher the stock market would be if it didn't have to live with threats like these. Mr. Baucus and Mr. Grassley, can't you find another way to make a living?
Posted by Donald L. Luskin at 11:02 AM | link
FROM LITTLE PEOPLE, LITTLE IDEAS Here's a classic example of how a sense of inferiority drives collectivists to a bleak world-view in which the only solution is to give the inferior one and his political cronies the "power" to "do something." Today Paul Krugman -- once described by Newsweek as "gnomish," who once said of himself "I am just not imposing enough in person to be inspiring (if I were only a few inches taller ...)," and who is constantly talking about "little people" (here, here, here, here, and here) -- gripes in a New York Times column today that the "U.S. population is currently at the bottom end of the height distribution in advanced industrial countries."
"This is not a trivial matter," he assures us, confessing that he himself is only 5'7" -- believe me, that's in elevator shoes (I've met him).
The cause? Of course he has no idea at all, but one suspects he thinks the problem would go away under the kind but stern hand of Democratic leadership. He says only,
our relative shortness, like our low life expectancy, suggests that something is amiss with our way of life. A critical European might say that America is a land of harried parents and neglected children, of expensive health care that misses those who need it most, a society that for all its wealth somehow manages to be nasty, brutish — and short.Update... Wait! A counterexample! What about Brad DeLong -- the "hulking man"?!
Update 2... Here's what this is all about. Reader John Kranz says,
I sense a conspiracy of a different sort. N. Greg Mankiw has co-authored a paper to tax based on height. Clearly, Paul Krugman is poised to come out of this enriched.Update 3... One of my clients, who I'm sure would prefer anonymity here (but I will tell you that he is quite tall), sends in this link to NOSSA -- the National Organization of Short Statured Americans. If Krugman is looking for a collective to hive in, this would be the place. Their website homepage even quotes Krugman's fellow liberal Ivy League economist John Kenneth Galbraith saying,
"The bias towards tallness and against shortness is one of society's most blatant and forgivable prejudices."
Posted by Donald L. Luskin at 8:30 AM | link
SPEAKING TRUTH TO PROTECTIONISM Reader Jameson Campaigne is as pissed at the Bush administration for not more articulately standing against protectionism as he is at protectionism itself. Here are his thoughts on how the administration should react to the latest anti-China bill in the Senate:
The way for Bush and the moron public relations people in the White House to handle the China trade issue is to personalize it for the typical American. Someone should do the research, correct my economics, to plug in the real numbers, but say it this way:"Do you want your childrens' clothing and toys to cost five [?] times as much as they do today?Easy to put this in a TV ad, improve the rhetoric and to ask for $20 from "all Americans who wish to spread this message about preserving our low cost of living to every voter." Also in direct mail and email.
Posted by Donald L. Luskin at 12:20 AM | link
Thursday, June 14, 2007BRAVO! Czech president Vaclav Klaus:
As someone who lived under communism for most of his life, I feel obliged to say that I see the biggest threat to freedom, democracy, the market economy and prosperity now in ambitious environmentalism, not in communism. This ideology wants to replace the free and spontaneous evolution of mankind by a sort of central (now global) planning.
Posted by Donald L. Luskin at 12:00 PM | link
THE CHINA BILL A very plugged-in Washington friend, who will only let me identify him as "Mick Danger," has a prediction about the new anti-China bill introduced in the Senate yesterday:
I am going out on a limb (based on gut instinct and 30 years of experience.)I tend to agree. The bill itself is a dog's breakfast of bureaucratic procedures, most of which are entirely discretionary with the Treasury Department. Hard to believe that the Senate would go to the wall with a veto override on something so without substance. That said, I have to wonder whether Bush would even feel he needed to veto it?
Update... Mick replies,
It’s a diplomatic dance with potentially serious consequences, correct? The conventional wisdom is that “nothing” will happen.
Posted by Donald L. Luskin at 10:44 AM | link
Wednesday, June 13, 2007THE DC WAY Reader Bill Sprague comments on my posting yesterday about Washington DC supposedly leading the nation in "gross state product" per capita:
From the same website that gives us DC as the highest gross state product per capita, is this alternate view.Update [6/14/2007]... Reader Dave Ivers comments:
Actually, I think you're missing something even more important. Check out the data from the same site on DC.
Posted by Donald L. Luskin at 8:51 AM | link
THE MYSTERIOUS EAST What's in a name? Too much, apparently, at least when there are too few of them:
With more than a billion people now sharing just 100 surnames, Chinese authorities are considering a landmark move to try to end the confusion, state media reported Tuesday.Thanks to Dave Duval for the link.
Update [6/14/2007]... A reader notes,
The Chinese idiom roughly equal to "Joe Sixpack" is "Old 100 names." Though "Old" in a context like this is vaguely honorific, not disparaging.Update 2 [6/15/2007]... The same reader explains how it is that she knew this...
My husband and I spent a sabbatical year in China, 1987-88, where I was a foreign expert at a university. My job was prepping students who had been approved for study abroad to take the GRE and the TOEFL (Test of English as a Foreign Language). I took two years of Chinese at college (where he taught math) before we went. Didn't keep it up after we got back, but odd bits remain.
Posted by Donald L. Luskin at 8:39 AM | link
LOOK WHO'S CONTRIBUTING TO AL FRANKEN'S SENATORIAL CAMPAIGN Oh, how the mighty are fallen... Mr. Spock, how could you!!? Less surprising (to me) is Ben Stein, the supposed conservative who supports taxing the rich and criminalizing business. From St. Paul:
Legendary Ferris Beuhler actor, game show host, and brilliant conservative. Former speech writer for Richard Nixon and columnist for the American Spectator and Yahoo Finance, among other outlets. One of the finest writers around on politics, economics, and culture, as demonstrated in this listing. In particular, he's one the most articulate and persuasive speakers advocating the pro-life stance in the country.Thanks to Jameson Campaigne for the link.
Posted by Donald L. Luskin at 8:27 AM | link
THE MEGA-HOLOCAUST THAT ALL TOO MANY PEOPLE DENY From this morning's Wall Street Journal:
...the Memorial to the Victims of Communism, dedicated by President Bush yesterday, is striking for its modest proportions: a 10-foot female figure raising a torch at a busy intersection in Washington, D.C. That's a fitting rebuke to an ideology that made a fetish of statuary, and murder, on a monumental scale.
Posted by Donald L. Luskin at 8:05 AM | link
Tuesday, June 12, 2007IS THIS SOME KIND OF JOKE? Yeah. Right. Guess which state is number one in "gross state product" per capita? According to this, it's the District of Columbia. What the hell does DC "produce" other than friction? Thanks to reader Alan Scanio for the link.
Posted by Donald L. Luskin at 12:31 PM | link
ENVIROSOCIALIST UTOPIA? Economist Steve Antler asks,
What's most interesting about the news that (1) China has halted its biofuel drive because of food price inflation and (2) about two-thirds of all Chinese cities lack central sewage treatement and suffer from major air pollution is that centralized socialist planning is supposed to be great at addressing problems like these.
Posted by Donald L. Luskin at 9:52 AM | link
ON "OUT OF CONTROL HEALTH CARE COSTS," WHAT MORE NEEDS TO BE SAID? Steve Landsburg in the Wall Street Journal:
Would you rather purchase today's health care at today's prices or the health care of, say, 1970 at 1970 prices? I don't know any informed person who would choose 1970, which means that despite all the hype about costs, health care now is a better bargain than it's ever been before.
Posted by Donald L. Luskin at 9:36 AM | link
Monday, June 11, 2007HOW DID THIS EVER GET BY THE RADAR? Yes, it's in the New York Times -- a story about a booming economy (rather than a "jobless recovery" or an "imminent slowdown") and government budget surpluses (not "chronic deficits):
State lawmakers across the country, their coffers unexpectedly full of cash, have been handing out tax cuts, spending money on fixing roads, schools and public buildings, and socking something away for less fruitful years.Still, not a word of credit to the Bush administration for shepherding the economy from recession to recovery. And the artful choice of words manages to portray government spending as noble, and tax-reduction as base.
Many states are largely using surpluses to tackle long-term and costly problems like the uninsured and crumbling infrastructures.You see, noble government nabobs "tackle," while beleaguered taxpayers "howl."
Thanks to reader Michael Marx for the link.
Posted by Donald L. Luskin at 8:11 PM | link
GO FIGURE Here are two Chicago bookstores specializing in Communist literature. One is failing, one is thriving. The one that's failing is not-for-profit. The one that's succeeding is for-profit. Do any of these stores' customers see the irony, or the lesson?
Lou Downey, a communist and volunteer at the store, said Revolution has been around for about a decade and also serves as a meeting area for local communists.Thanks to reader Daniel Ambrose for the link.
Posted by Donald L. Luskin at 7:17 PM | link
"TEAR DOWN THIS WALL" TURNS TWENTY Tomorrow is the twentieth anniversary of America's victory in the most important battle of the Cold War -- the moral battle which we won when Ronald Reagan said at the Brandenburg Gate in Berlin,
There is one sign the Soviets can make that would be unmistakable, that would advance dramatically the cause of freedom and peace. General Secretary Gorbachev, if you seek peace, if you seek prosperity for the Soviet Union and Eastern Europe, if you seek liberalization: Come here to this gate! Mr. Gorbachev, open this gate! Mr. Gorbachev, tear down this wall!John Fund has good comments in today's Wall Street Journal:
Reagan first saw the Berlin Wall in 1978, when he told his aide Peter Hannaford, "We've got to find a way to knock this thing down." After Reagan became president, he returned in 1982 and enraged the Soviets by taking a couple of ceremonial steps across a painted border line. Then, in 1987, he overruled his own State Department by giving the momentous speech in which he implored...general secretary [Gorbachev] directly to tear down the wall...
Posted by Donald L. Luskin at 7:43 AM | link
Sunday, June 10, 2007THE MYSTERIOUS EAST Well, the China boom is over. It was fine when they adopted Western-style business practices like McDonalds' fast-food operations. But now they've gone too far. They've adopted our product liability mania, too.
The world's largest restaurant chain, McDonald's Corp., has been ordered to pay a student some 2,200 yuan ($290) after a rat bit her at one of its outlets in northeastern China, media reported on Sunday.
Posted by Donald L. Luskin at 9:38 PM | link
HOYT FLOPS ON DEBUT The debut today of new New York Times "public editor" Clark Hoyt is inauspicious. Like his two predecessors, he manages to discover a fact pattern that shows clear political bias by the Times, yet at the moment of truth fails to call a spade a spade and lets the paper off the hook. The issue in focus is why the Times didn't play the story about the attempt by terrorists to blow up JFK Airport on page one. It's easy enough to expect that the paper downplayed it either (1) to deprive the Bush administration of credit for a victory in the war on terror, or (2) to minimize the war on terror itself, a signature Republican issue. Hoyt writes,
It’s the same question I had when I picked up The Times and The Washington Post on Sunday morning. The J.F.K. story led The Post. On The Times’s front page, there was a one-paragraph promo to the story inside.Hoyt concludes,
Do I think political motives were at work? I can’t read minds, but I believe after talking with these editors that they were focused on the substance of the story, the facts. They were mindful of a history in which terrorism cases have been blown out of proportion. [emphasis added]So which is it? The facts? Or the assumption that the Bush administration can't be trusted, and so its victories must be minimuized? The next sentence in the same paragraph resolves the contradiction:
They were trying to make the right call based on solid journalistic grounds.Which can only mean the treating victories of the Bush administration is "solid journalistic grounds."
Update [6/11/2007]... Reader D. Forbes Tuttle writes,
You quote Hoyt stating, "They were mindful of a history in which terrorism cases have been blown out of proportion."
Posted by Donald L. Luskin at 9:27 PM | link
BLAMEGAME FOR BRAIN-DEAD BEARBLOGGERS The brain-dead bearbloggers -- who have been proven so wrong about the ability of the housing slowdown to throw the overall economy into recession -- are now seizing on a report in the Wall Street Journal about how Alan Greenspan failed to prevent the purported excesses in subprime lending. It's just a garden-variety specimen of the political blame-game; this time, instead of some Democrat blaming some Republican for failing to prevent the terrorist attacks of 9-11, the accusation is that Greenspan failed to fulfill his role as financial system regulator and prevent so-called "predatory lending" (in which lenders execute the nefarious scheme of lending money to unqualified borrowers, thus causing their own bankruptcy). Here's Nouriel Roubini's gloating, smarmy link to it, where in his usual I-knew-it-all-along tone, he says "now the role that the Fed and Greenspan played in allowing this reckless subprime bubble to grow with no control with becoming clearer." And for context, here's his famous post from last year about how the housing slowdown will cause a "tipping point for the US consumer and the effects will be ugly. Expect the great recession of 2007 to be much nastier, deeper and more protracted than the 2001 recession."
Posted by Donald L. Luskin at 9:15 PM | link