Thomas Sowell: 

…It was not that many years ago when there was moral outrage ringing throughout the media because lenders were reluctant to lend in certain neighborhoods and because banks did not approve mortgage loan applications from blacks as often as they approved mortgage loan applications from whites.

All this was an opening salvo in a campaign to get Congress to pass laws forcing lenders to lend to people they would not otherwise lend to and in places where they would not otherwise put their money.

The practice of not lending in some neighborhoods was demonized as “redlining” and the fact that minority applicants were approved for mortgages only 72 percent of the time, while whites were approved 89 percent, was called “overwhelming” evidence of discrimination by the Washington Post.

Some people are more easily overwhelmed than others, especially when they find statistics that seem to fit their preconceptions. But if we do what politicians and the media seldom bother to do– stop and think– an entirely different picture emerges.

In our own personal lives, common sense leads us to avoid some neighborhoods. If you want to call that “redlining,” so be it. But places where it is dangerous to go are often also places where it is dangerous to send your money.

As for racial differences in mortgage loan application approval rates, that does not tell you much if you are comparing apples and oranges. Income, credit history and net worth are just some of the things that are very different from one group to another.

More important, in the same ways that blacks differ from whites, whites differ from Asian Americans. The fact that whites are turned down for conventional mortgage loans, and resort to subprime loans, more often than Asian Americans do is seldom reported in “news” stories about lending practices, even though such data are readily available.

Shocking as it may be to some, lenders are in the business of making money, and they don’t much care whose money it is, so long as they get paid.

Politicians, on the other hand, are in the business of getting votes, and they don’t much care whose votes it is– or what they have to say or do in order to get those votes.

It was government intervention in the financial markets, which is now supposed to save the situation, that created the problem in the first place.

Laws and regulations pressured lending institutions to lend to people that they were not lending to, given the economic realities. The Community Reinvestment Act forced them to lend in places where they did not want to send their money, and where neither they nor the politicians wanted to walk.

Now that this whole situation has blown up in everybody’s face, the government intervention that brought on this disaster in is supposed to save the day.

Brian Wesbury, chief economist at First Trust :

Late next week the government will release initial estimates of real economic activity in the second quarter. Not long ago, in early April, when the quarter was just beginning, the consensus forecast for Q2 2008 real GDP growth was 0.0%, with as many economists predicting contraction as were predicting growth.

Now, three months later, the consensus is up to 2.2%. And no surprise - we are forecasting a 3% growth rate, more bullish than almost any other economist.

Yes, it is true that the home building and autos sectors have been hammered. But, it is not true that this weakness has spread. Outside those sectors, the economy is not just healthy but downright strong, reflecting relatively low tax rates and loose monetary policy.

California has suffered under one-party rule for more than a decade. Sure, we have a Republican-lite governator, and he’s vetoed some of the most outrageous schemes cooked up by the Democrats, but he can’t hold back the tide.

So the Democrats, many of whom regard those who earn profits as dirty exploiters, have created one business disincentive after another — taxes, regulations, onerous labor laws, global warming laws, land use restrictions etc.

Any half-wit could predict that businesses would exit the state or choose to grow their operations in friendlier venues. Alas, the ruling class in Sacramento is comprised of economic quarter-wits.

With the state’s unemployment now at 6.9% the blame will fall squarely on … Bush. But in the same decade Ohio drove jobs away with dumb policies, and then blamed NAFTA, Texas added 1.6 million new jobs. Policies have consequences.

A symbol of California’s car culture is now picking up and moving a big chunk of its operations out of state. Earlier this week, the California State Automobile Association, an affiliate of the national AAA, announced it is closing all three of its call centers in the state at a loss of 900 jobs. Spokeswoman Cynthia Harris was quite blunt about the reason: “It costs more to do business in California than other states.” Her group will now will be answering calls from California motorists from new centers in lower-cost Arizona and Oklahoma.

Few entities in California are better known than the California State Automobile Association, which for decades has provided the car-happy state with auto insurance, towing services and travel planning. Its departure is one more sign that California’s current tax and regulatory climate is driving jobs away. California’s liberals seem oblivious to such developments. One-seventh of California’s pending $101 billion state budget is red ink, the result of the state’s leadership once again failing to rein in spending and develop a less volatile tax base. The Democratic legislature has proposed over $8 billion in higher taxes to plug part of the gap, but for the last month there has been a budget stalemate as the GOP minority refuses to consider higher taxes and Governor Arnold Schwarzenegger dances between the two sides.

The state’s Democrats not only insist on higher taxes, but are blocking a proposal from Gov. Schwarzenegger to limit future spending increases to the growth of the state’s population and inflation in an attempt to cushion the impact of future economic downturns. “I think that we have to be very, very careful about tying the hands of future governors and future legislatures,” says Democratic Assemblyman Dave Jones. Apparently, he and his colleagues prefer tying the hands of California businesses so they feel compelled to flee the state.

This post goes back two years, but it still makes a good point about the way numbers are used to create illusions about the vanishing middle class.

Don Boudreaux got out his 1975 Sears catalog (note: the middle class person today would shop via the Internet, a major boon) and compared costs versus wages.

Here’s what I found:

Sears’ lowest-priced 10-inch table saw: 52.35 hours of work required in 1975; 7.34 hours of work required in 2006.

Sears’ lowest-priced gasoline-powered lawn mower: 13.14 hours of work required in 1975 (to buy a lawn-mower that cuts a 20-inch swathe); 8.56 hours of work required in 2006 (to buy a lawn-mower that cuts a 22-inch swathe. Sears no longer sells a power mower that cuts a swathe smaller than 22 inches.)

Sears Best freezer: 79 hours of work required in 1975 (to buy a freezer with 22.3 cubic feet of storage capacity); 39.77 hours of work required in 2006 (to buy a freezer with 24.9 cubic feet of storage capacity; this size freezer is the closest size available today to that of Sears Best in 1975.)

Sears Best side-by-side fridge-freezer: 139.62 hours of work required in 1975 (to buy a fridge with 22.1 cubic feet of storage capacity); 79.56 hours of work required in 2006 (to buy a comparable fridge with 22.0 cubic feet of storage capacity.)

Sears’ lowest-priced answering machine: 20.43 hours of work required in 1975; 1.1 hours of work required in 2006.

A ½-horsepower garbage disposer: 20.52 hours of work required in 1975; 4.59 hours of work required in 2006.

And so on.

Not real estate. And not oil.

Oil prices tumbled below $130 a barrel for the first time in more than a month Thursday, as crude’s dramatic slide entered a third day accompanied by a sharp sell-off in natural gas.

The declines accelerated amid growing concerns that the weakening economy and creeping inflation are eroding demand for fossil fuels in the U.S. and other large energy-consuming nations.

Growing concerns for whom?

My second day in Atlanta, and several things stand out. One, this is a city where the black middle class is very robust. When I lived in Miami 20 years ago, it was commonly held that blacks with ambition moved to Atlanta. It’s quite striking and quite inspiring, remembering as I do the days prior to the passage of the Civil Rights Act.

I’m at the Hyatt Regency. With 1600 rooms, it could pass as a small town when it’s at capacity. And it is. The AME Zion church is holding its conference here. Microsoft has 18,000 people in town for an international gathering (my seatmate on the flight out was coming from Sydney — a 24 hour trip.) I’m here photographing yet another conference.

The other striking thing is CNN, which is headquartered not far from where I sit. I haven’t watched much of CNN in years, but you can no more avoid it than you can expect to be served Pepsi in this city. TVs are everywhere, even the Landmark Diner where I walked to last night to avoid another buffet.

As I ate my meal, I stared at a muted CNN with Lou Dobbs and a graphic that read “The War on the Middle Class.” Dobbs plays the same part as Bill O’Reilly — angry outraged smart guy. Or seemingly smart.

The War on the Middle Class. Hmm. Waged by whom? Must be those ultra-rich people who pay 40% of the taxes — 70% if you include the top 10% of wage earners. Clever people they, bringing down the middle class with such tricks as $4/cup coffee, vitamin water, widescreen TVs and $2500 barbeque grills — stuff the middle class has been scarfing up like suckers. Poor us.

The sense I got from seeing CNN — again as I ate breakfast — is that stockbrokers will be leaping from skyscrapers any moment now. Sheesh. Remember when Bush, post-election 2000 but before inauguration, was accused  by Clintonians of “talking down the economy?” He was merely pointing out the fallout of the tech bubble and the slowing economy. If that was talking down the economy, CNN is in full shout.

The market is down. One possibility is the market pricing in the cost of an Obama reign.

Investors this summer have been placing their bets on an Obama presidency, and for the most part that hasn’t been good for the market.

Without giving him a chance to explain himself in detail on the campaign trail or at the Democratic National Convention, they are voting with their shares by tossing financial, health insurance, manufacturing and high-dividend stocks into the ash can, and are growing skeptical about energy companies as well.

It’s not that major institutional investors don’t like the man — far from it. He has many backers among the financial elite, including multibillionaires George Soros and Ron Burkle. And it’s not that there aren’t many other reasons for investors to sell stocks now, as the global economy tangles with the terrible twin beasts of bank deleveraging and inflation.

It’s just that Obama’s rhetoric on taxes and health care is scaring common wealthy people with large capital gains from investments made over the past decade, and a lot of them don’t want to wait around to see whether it’s just populist fluff that might be set aside once he takes office.

Plus, the Democrats who run Congress know that a weaker economy favors their nominee — and they are loath to pass banking or trade legislation now to improve the nation’s industrial standing over fears that it could backfire and give comfort to the Republicans. And finally, there is a well-founded anxiety that one-party rule in Washington for at least the next two years will bring about the sort of abuse of power that has gotten both parties into trouble over the past few decades.

Debra Saunders: 

America’s sky is falling. A Los Angeles Times/Bloomberg poll conducted last month found that 78 percent of Americans think that the country is heading in the wrong direction.

Of course almost 4 in 5 Americans think the country is heading to heck in a hand basket. The news media are stuck in one gear when it comes to reporting economic news — Armageddon.

As Hillary Rodham Clinton supporters so aptly noted, many journalists are besotted with Barack Obama. That makes them open to any bad news that can be tacked onto Republican George W. Bush.

But it’s more than liberal bias. Journalists are convinced that the American economy is collapsing and going down the tube because our industry is collapsing and going down the tube.

So if you say the economy is “slowing,” as Republican presidential candidate John McCain has said, you’re insensitive. If you are in touch, you are supposed to ignore the .6 percent GDP growth in the fourth quarter of 2007 and 1 percent growth in the first quarter of 2008 because that belies the belief that the U.S. economy is in recession.

Remember the “misery index” — the combined rate of unemployment and inflation that peaked at 22 percent under President Jimmy Carter? Forget it. Not enough misery. In 2004, Democratic presidential candidate John Kerry had to throw in extra statistics to inflate the Bush misery index because the combined unemployment and inflation rate was about 8 percent.

Lately, news stories report on American fears about inflation, without reporting the rate of inflation. It’s about 4.2 percent. With the unemployment rate at 5.5 percent, the “misery index” is around 10 percent.

Yes, gasoline prices are up.

Granted, higher prices at the pump are forcing some Americans to cut back and have had a ripple effect throughout the economy. After years of arguing that greener energy policies don’t hurt the economy, but instead create jobs, Democrats and talking heads should be cooing about the new economic horizons unfolding.

The housing bubble burst. A lot of people — including this writer — have seen the value of their homes drop, and those who have to sell quickly won’t get the price they expected two years ago. Is there anyone who did not think that eventually housing prices would deflate? Is there a new law of economics that says: What goes up cannot come down?

The boost in the foreclosure rate to close to 2.5 percent shows the raw side of a market correction made worse by shabby lending practices that lured some people to buy homes they could not afford. Some families will experience the heartbreak of losing those homes, but also some families who had been priced out of the market now can reach for that dream. Thanks to improved federal regulations, they stand a better chance of holding onto it.

Senator John McCain has spent the week trying to tell people that he feels their economic pain. So it was more than a little unhelpful when one of his top economic advisers was quoted Thursday as saying that the United States was only in a “mental recession” and that it had become a “nation of whiners.”

 The adviser, former Senator Phil Gramm, Republican of Texas, sought to clarify his remarks Thursday by saying he had been referring only to some of the nation’s leaders.

I don’t want a president who feels my pain. I want a president who understands economics sufficiently not to cause pain with ignorant, but politically expedient, policies.

So three cheers to Phil Gramm. The WSJ profiled him recently.

“They didn’t live up to what they promised to do. Power corrupted them. They spent lots of money and tried to buy votes. Republicans concluded that they could make voters love them by governing the way Democrats did.”

So says former Texas senator and current John McCain economics adviser Phil Gramm.

When he rode off into the political sunset in 2002 for a high-rolling investment banking job at UBS, there was joy among many of his liberal colleagues on Capitol Hill. For two decades the man who came to be called “Dr. No” had earned a reputation as a one-man wrecking crew of big-government legislative priorities. “I consider defeating Hillary health care as one of my greatest accomplishments,” he says.

A look at the record confirms that Mr. Gramm played a decisive role in nearly every fiscal conservative victory in the 1980s and ’90s – from the Reagan budget and tax cuts to the Gramm-Leach-Bliley banking reforms of the late 1990s.

Mr. Gramm tells me he’s been “intentionally invisible” since leaving Washington “so that he could devote his full energies” to the art of the deal on Wall Street. This is his first lengthy interview on politics in years.

I chased him down in New York. The man is always crisscrossing the globe these days. Mr. Gramm is now 65 years old, but remarkably unchanged in appearance from the first time I met him 25 years ago. He is still long and slim and slightly-hunched over, with the same professorial glasses. And of course, there is still the Texas drawl.

He is most eager to talk about his transition to Wall Street. Mr. Gramm has been a key instigator of some of the biggest money-making UBS deals of recent years, including most recently the Visa IPO, the most profitable public offering ever. Just as in the Senate, he says, to succeed, “you have to do a tremendous amount of homework and always be more prepared than the other guy.”

Most of his former colleagues probably can’t fathom why Wall Street bankers make tens of millions of dollars in salaries and bonuses each year. How would he justify these fat pay days? “It’s simple,” he lectures, sounding very much like the Texas A&M economics professor that he was in the 1970s: “In economics, we define labor exploitation as paying people less than their marginal value product. I recently told Ed Whitacre [former CEO of AT&T, who retired with a $158 million pay package] he was probably the most exploited worker in American history because he took Southwestern Bell, which was the smallest of the former Bell companies, and he turned it into the dominant phone company on earth. His severance package should have been billions.”

Mr. Gramm says that today there is “a lucrative premium for talent. When we were all hunters and gatherers, and you were better with a bow and arrow than I was, there were limits on how much more game you could kill than me. Today, CEO decisions about whether to acquire or not acquire a company, to shut down one part of the company or not shut it down, get into a market, get out of a market, where those decisions mean billions of dollars, is it surprising that people are willing to pay tremendous amounts of money for people who make those decisions right?”

So what if a President Barack Obama were to impose 50% or 60% tax rates on these CEOs and other big earners? Mr. Gramm pounces: “When you help a company raise capital, to put its idea to work, and you create jobs, those jobs are the best housing program, education program, nutrition program, health program ever created. Look, if a man in one lifetime is responsible for creating 100 real jobs, permanent jobs, then he’s done more than most do-gooders have ever achieved.”

I plead ignorance about high finance, but I know enough (unlike some in Congress) that our financial system constitutes a sophisticated ”ecosystem” in which various elements interact. For the most part, this produces widespread wealth and prosperity.

As high gasoline prices and an election year fuel the need for scapegoats, some clumsy Congressional clods have been cursing speculators in futures and threatening to do something.

But futures serve a purpose.

Southwest Airlines paid $1.98 per gallon for jet fuel during the first quarter of 2008. The same fuel cost American Airlines $2.73, and United $2.83 per gallon during the same time period.

Southwest Airlines has been hedging fuel costs since 1999 – a practice which has saved the carrier $3.5 billion. At times the hedging has meant the difference between operating at a profit or a loss. In the first quarter of this year, the airline enjoyed hedging gains of $291 million.

Hedging is a strategy that allows a company to protect itself against rising prices for commodities, by locking in pre-set prices.

From trades it has made over the years, Southwest has managed to hedge 70 percent of its anticipated fuel requirements for 2008, at $51 per barrel rather than the current market price of over $140 per barrel.

“We view our program as insurance,” noted Paul Jacobson, Delta Air Lines Inc. treasurer. “Our goal is to minimize the volatility of fuel expenses. To do that, you’ve got to be in the market actively without an opinion as to what energy prices will do.”

Hedging carries risks, however. If fuel prices drop, airlines stand to lose money, and their options will expire.

Last week, news reports noted that “speculators” included such staid entities and teachers’ pension funds and the like. Better drag ‘em before Congress.

Rich Newman at US News shed some light with “6 Myths about Oil Speculators.”

So now we know who’s really responsible for $4 gas. Finger-pointers from Washington, the International Monetary Fund, and even Saudi Arabia no longer seem to buy the idea that the demand for oil around the world is simply growing faster than the supply, driving prices to record highs close to $140 per barrel. There must be a more nefarious reason, it seems. So now entering this drama is a villain everybody can hate: The Evil Speculator.

At recent congressional hearings, politicians and energy experts argued that speculators have artificially added $30 or more to the cost of a barrel of oil, turned oil trading into a global poker game, and doubled the price of gasoline practically overnight.

But who are these party crashers? Where did they come from? How are they doing this? And who can stop them? We’d all like to see a superhero swoop in and smite the speculators, saving Gotham from the peril of $4 gas. The only problem is, speculators aren’t quite the bogeymen that politicians want us to think—and they even play an important role in the oil markets and the global economy. Some major misconceptions:

Speculators are inherently bad for the economy. There’s no doubt that speculators are out to make money, by buying a commodity like oil (or gold, or real estate) when they think the price is likely to rise and they’ll be able to sell for a profit. But they also help sustain the market for buyers and sellers and provide ways for individuals and businesses to offset risks.

Many companies, for instance, want to lock in the price they’re going to pay down the road for petroleum products and other supplies they need to run their businesses. So they make agreements with suppliers on a price they’ll pay next year, or the year after, when they actually take possession of the oil. Buying and selling such “futures contracts” makes these companies speculators by definition, since they’re placing a bet on the future price of oil.

Companies doing this kind of hedging include gasoline refiners, airlines, shipping companies, and others that spend a lot on fuel or petroleum. Often they use investment banks or other intermediaries to arrange the deals. They might be gambling, but this kind of speculation actually helps companies run their businesses more smoothly, and if they guess right on future prices, it may give them a competitive advantage against other companies that don’t plan as prudently.

There‘s a Speculator Star Chamber somewhere. Global markets are so abstruse to ordinary folks that it’s easy to imagine a cabal of evil geniuses pulling the levers from some fortified complex in London or Geneva. But that’s the Hollywood version. “The market is so competitive that that’s nonsense,” says Bob Hodrick, a finance professor at Columbia Business School. “There’s no way for everyone to communicate and get together and say, ‘We’re going to buy and drive the price up.’ ” There are thousands of investors around the world placing bets every day on whether oil prices will go up or down—and they have no way of knowing who their fellow speculators are. All they know is the current price, shown on a computer monitor, plus whatever their own research tells them.

Robert Samuelson:

Tired of high gasoline prices and rising food costs? Well, here’s a solution. Let’s shoot the “speculators.” A chorus of politicians, including John McCain, Barack Obama and Sen. Joe Lieberman, blames these financial slimeballs for piling into commodities markets and pushing prices to artificial and unconscionable levels. Gosh, if only it were that simple. Speculator-bashing is another exercise in scapegoating and grandstanding. Leading politicians either don’t understand what’s happening or don’t want to acknowledge their complicity.

Granted, raw-material prices have exploded across the board. Look at the table below. It shows price increases for eight major commodities from 2002 to 2007. Oil rose 177 percent, corn 70 percent and copper 360 percent. But that’s just the point. Did “speculators” really cause all these increases? If so, why did some prices go up more than others? And what about steel? It rose 117 percent—and continued increasing in 2008—even though it’s not traded on commodities futures markets.

A better explanation is basic supply and demand. Despite the U.S. slowdown, the world economy has boomed. Since 2002, annual growth has averaged 4.6 percent, the highest sustained rate since the 1960s, says economist Michael Mussa of the Peterson Institute. By their nature, raw materials (food, energy, minerals) sustain the broader economy. They’re not just frills. When unexpectedly high demand strains existing production capacity, prices rise sharply as buyers scramble for scarce supplies. That’s what happened.

We’ve had a demand shock,” says analyst Joel Crane of Deutsche Bank. “No one foresaw that China would grow at a 10 percent annual rate for over a decade. Commodity producers just didn’t invest enough.” In industry after industry, global buying has bumped up against production limits. In 1999, surplus world oil capacity totaled 5 million barrels a day (mbd) on global consumption of 76mbd, reckons the U.S. Energy Information Administration. Now the surplus is about 2mbd—and much of that in high-sulfur oil not wanted by refiners—on consumption of 86mbd.

Or take nonferrous metals, such as copper and aluminum. “You had a long period of underinvestment in these industries,” says economist John Mothersole of Global Insight. For some metals, the collapse of the Soviet Union threw added production—previously destined for tanks, planes and ships—onto world markets. Prices plunged as surpluses grew. But “the accelerating growth in India and China eliminated the overhang,” Mothersole says. By some estimates, China now accounts for 60 percent to 80 percent of the annual increases in world demand for many metals.

Commodity-price increases vary, because markets vary. Rice isn’t zinc. No surprise. But “speculators” played little role in the price run-ups. Who are these offensive souls? Well, they often don’t fit the stereotype of sleazy high rollers: many manage pension funds or university and foundation endowments. Their modest investments in commodities aim to improve returns.

Thomas Sowell:

If anyone suggested that Tiger Woods should try to be more like other golfers, people would question the sanity of whoever made that suggestion.

Why should Tiger Woods try to be more like Phil Mickelson? If Tiger turned around and tried to golf left-handed, like Mickelson, he probably wouldn’t be as good as Mickelson, much less as good as he is golfing the way he does right-handed.

Yet there are those who think that the United States should follow policies more like those in Europe, often with no stronger reason than the fact that Europeans follow such policies. For some Americans, it is considered chic to be like Europeans.

If Europeans have higher minimum wage laws and more welfare state benefits, then we should have higher minimum wage laws and more welfare state benefits, according to such people. If Europeans restrict pharmaceutical companies’ patents and profits, then we should do the same.

Some Justices of the U.S. Supreme Court even seem to think that they should incorporate ideas from European laws in interpreting American laws.

Before we start imitating someone, we should first find out whether the results that they get are better than the results that we get. Across a very wide spectrum, the United States has been doing better than Europe for a very long time.

By comparison with most of the rest of the world, Europe is doing fine. But they are like Phil Mickelson, not Tiger Woods.

Minimum wage laws have the same effects in Europe as they have had in other places around the world. They price many low-skilled and inexperienced workers out of a job.

Because minimum wage laws are more generous in Europe than in the United States, they lead to chronically higher rates of unemployment in general and longer periods of unemployment than in the United States– but especially among younger, less experienced and less skilled workers.

Unemployment rates of 20 percent or more for young workers are common in a number of European countries. Among workers who are both younger and minority workers, such as young Muslims in France, unemployment rates are estimated at about 40 percent.

…even vacations from economic reality.

Getting the French to Work

Christine Lagarde, the country’s first female minister for finance and the economy, says it is time for French people to “roll up their sleeves” and stop thinking about holidays.

The former international lawyer, impressed by the work ethic during her time in the US, is intent on instilling the same spirit in her countrymen and women.

Her approach is calm and conciliatory, bearing little resemblance to the fire and brimstone of her boss, Nicolas Sarkozy.

Yet Christine Lagarde shares the president’s convictions when it comes to the French and the world of work.

Until three years ago she was chairman of the law firm Baker and McKenzie, whose main offices are in Chicago.

Her entry into French politics was sudden.

Called up by the former government of Dominique de Villepin, she left the US on a Tuesday afternoon and was at her desk as trade minister the following morning.

Rapid progress

She says she was struck on her return by an “ethical change” in the French.

“Instead of thinking about their work, people were thinking about their weekend… organising, planning and engineering time off,” she says.

Not that Christine Lagarde believes that life should be “work and nothing else”.

Looking out from her office window in the huge Soviet-style finance ministry, she points out the barges on the River Seine below - a reminder she says, of how slow things can be when other events are moving at high speed.

Making rapid progress recently has been the minister’s pet project, a bill to modernise the French economy.

Last week it passed its first reading in the National Assembly and will shortly go before the Senate.

“More enterprises and more competition” were the objectives, she told parliament earlier this month, in order to obtain three concrete results: “more growth, more jobs and more purchasing power”.

How ironic that as some in France are realizing the benefit of behaving like the US, we have a presidential candidate and party eager to emulate the Europeans.

The Bush tax relief that played such an integral role in our emergence from the last recession and in our admirable growth for over six years will expire at the end of 2010. That event, if allowed to occur, will represent the largest tax increase in American history — as much as $2 trillion over 10 years by some estimates. This compares with the Clinton tax increase that was scored at $240 billion over five years. 

But first, any honest discussion on taxes must begin with an honest examination of who pays. For 2005, the most recent year for which information is available, IRS data indicate that taxpayers with an adjusted gross income in the top 25 percent of the population bore 86 percent of the federal income tax burden. If you expand it to the top 50 percent, the number jumps to 97 percent. In other words, the bottom half of the country pays a paltry 3 percent of the country’s taxes. This proves, in part, the steep progressivity of the income tax system. 

 But what about the Bush tax cuts? They only favor the wealthy, right? Again, let’s go to the facts. Since 2000, when President Bush entered office, the share of federal tax liabilities borne by the lowest and middle quintiles has decreased, while the share borne by the highest quintile has increased. In 2000, the lowest quintile bore 1.1 percent of total federal tax liabilities compared with 0.9 percent in 2004, the year that all of the Bush tax cuts were in effect. Thus, the federal tax liability of the lowest quintile dropped 18 percent. However, the highest quintile paid 67.2 percent of these liabilities in 2004, an increase of 1 percent in their liability since 2000, when they paid 66.6 percent. Far from favoring the wealthy, these numbers suggest that the wealthy are bearing more of the tax burden 

The Department of the Treasury recently released a paper studying the impact of letting tax relief expire: “A four-person, one-earner family with wage income each year of $40,000 in 2007 dollars would see a tax increase of $2,345; a four-person, one-earner family with wage income each year of $80,000 in 2007 dollars would see a tax increase of $2,000; a three-person, one-earner family with wage income each year of $40,000 in 2007 dollars would see a tax increase of $1,655; and a head of household with two children and wage income each year of $30,000 in 2007 dollars would see a tax increase of $1,615.” 

More than 116 million Americans would see their taxes go up. And small businesses that pay their taxes based on individual rates (which is most of them) could see their effective rate rise to more than 44 percent. 

No matter how stupid Democrats are economically, you can always count on them for a good slogan. Their latest: “You can’t drill your way out of this.”

With record oil prices caused (mostly) by supply shortfalls, the obvious solution is to increase drill for more. Instead the Democrat plan has been:

• sue OPEC for not pumping more oil to sell us, while putting our oil off limits
• penalize oil companies by seizing some of their profits (which belong to millions of citizens with IRAs, mutual funds etc.)
• nationalize oil refineries
• “invest” tax dollars in alternative energy technologies

The latter would make Uncle Sam a venture capitalist. As we write, thousands of venture capitalists, who evaluate business ideas for a living, are risking their own dollars on new technologies — who wouldn’t want a piece of a company that owns the future?

Yet Dems think government can pick energy ventures better than the pro’s. These are the same Democrats who this week had to concede the Senate couldn’t run a lunch room profitably and outsourced the job to the private sector.

And the very Democrats who condemn Bush for not planning for every contingency in the war on terror cannot grasp the idea planning for tomorrow. Thus drilling in ANWR is dismissed as having no effect on today’s “crisis.” But if Bill Clinton had not vetoed ANWR drilling, we’d be pumping it today.

As food prices rise and shortages loom, one would think that planting more crops would be the obvious step, and it is. But you can’t eat today what you plant today. So by Democrat logic, there’s really no point in increasing the food supply — you can’t plant your way out it.

Via Maggie’s Farm, there’s this cooked up by the Republicans.

How do you say, “don’t keep on truckin” in spanish? 

A national truck driver’s strike in Spain may be winding down, but it has brought the already-troubled Spanish economy to a standstill. It has also highlighted what happens when a welfare state goes wild.

Some 90,000 self-employed hauliers say they are protesting the soaring cost of diesel fuel, which has climbed to 1.30 euros/liter (about US$8 per gallon) from 0.95 euros one year ago. Skyrocketing fuel prices are, clearly, a big problem all over Europe. But what really irks Spanish truckers is their exposure to the reality of market economics.

They are angry that an economic downturn in Spain has reduced the demand for their services. There is now too much trucking supply for too little trucking demand, which according to the basic laws of economics implies lower transport prices.

So the truckers want the government to bail them out via artificial price supports. They are demanding that the government impose a market-distorting minimum transport tariff, a solution that would allow hauliers to continue with business as usual while passing the additional costs over to consumers.

The government has proposed setting aside 55 million euros to encourage early retirements from the over-saturated sector. But the striking truckers are not interested in compromise. Indeed, they are betting that the government will cave in to their demands. After all, the Spanish government always gives in to labor unrest.

And that’s just the beginning. Read on.

In politics, “change” is just shorthand for “me, not him.” Brian Wesbury makes the case that when people yearn for change, it’s really because they’ve had too much of it to digest.

…what everyone seems to want – change. Sen. Obama promises to provide “Change We Can Believe In.” Sen. McCain suggests that “the choice is between the right change and the wrong change.” If it’s the war that is the focus of all this talk about change, well, that’s understandable, and maybe people really do want change. But if it’s the economy, it’s hard to imagine that change could happen any faster.

In fact, the U.S. economy (really, the global economy) is transforming at an absolutely astounding rate. We’re living in Internet Time, where policies and their consequences travel the world at the speed of light. The normal human reaction to such a rapid pace of change is to be overwhelmed, stressed out, anxious and fearful. As a result, it is probably true that when voters listen to talk about change, what they really hear are promises of “no change,” which would be a huge difference from the status quo. They just want things “the way they were.”

Look at the chart nearby. America’s manufacturing output, as measured by the Federal Reserve, is up seven-fold since 1950, but manufacturing jobs as a share of all jobs have fallen to 10% from 30%. Your grandfather and father may have worked for General Motors (and joined the UAW), but it’s likely that you don’t and won’t.

The problem, if it really is one, is not foreign competition or evil financiers. It is technology and productivity. In the 10 years ending in 2007, durable goods manufacturing productivity averaged an annual growth rate of 4.8%. In other words, if real growth is less than 4.8%, the sector needs fewer workers year after year.

For the economy as a whole, overall U.S. business productivity rose 2.7% at an average annual rate during the decade ending in 2007, 1.7% in the decade ending in 1997 and 1.4% in the 10 years through 1987. Change is everywhere, and it’s accelerating.

This has happened before – in the Industrial Revolution – where the political environment bred America’s first real populists, people like William Jennings Bryan and Theodore Roosevelt. Bryan was perhaps the best orator of American political history, and like Mr. Obama, he could affect people emotionally. Roosevelt, like Mr. McCain today, was a true American hero and one tough guy. History may not be exactly repetitive, but it sure seems to move to similar rhythms.

Unfortunately for the American economy, the populist movement of the late 19th and early 20th centuries led to a rapid growth in government intrusion into business activity. The populists didn’t like the gold standard and demanded more government regulation.

In 1913, the Federal Reserve System was created and the income tax was introduced to pay for a growing government. And then, during the Great Depression – which was caused by the new Fed, trade protectionism and tax rate increases – a massive expansion in government took place. Forty years later, in the malaise of the late 1970s and early 1980s, the U.S. finally figured out what it was doing wrong. By returning to hard money under Paul Volcker, and lower taxes and less regulation under Ronald Reagan, the high-tech leg of the Industrial Revolution began.

The fruits of this are plain to see. Rather than watching the sun set on the U.S., as many believed would happen in the early 1980s, the U.S. has experienced one of the greatest booms in wealth creation in world history. And the impact of our technological innovation has helped lift untold numbers out of poverty.

This technology has created massive amounts of change. Like the Industrial Revolution before it, the current transformation is anything but pain-free. It’s what Joseph Schumpeter called creative destruction. Google, Craigslist and Microsoft have been prospering. General Motors, United Airlines and the New York Times have not. In the midst of layoffs in the newsroom, it’s hard to see anything good happening in the rest of the economy.

What kind of “change” do we really need?

Americans have had it so good, for so long, that they seem to have forgotten what government’s heavy hand does to living standards and economic growth. But the same technological innovation that is causing all this dislocation and anxiety has also created an information network that is as near to real-time as the world has ever experienced.

For example, President Bush put steel tariffs in place in March 2002. Less than two years later, in December 2003, he rescinded them. This is something most politicians don’t do. But because the tariffs caused such a sharp rise in the price of steel, small and mid-size businesses complained loudly. The unintended consequences became visible to most Americans very quickly.

Decades ago the feedback mechanism was slow. The unintended consequences of the New Deal took too long to show up in the economy. As a result, by the time the pain was publicized, the connection to misguided government policy could not be made. Today, in the midst of Internet Time, this is no longer a problem. So, despite protestations from staff at the White House, most people understand that food riots in foreign lands and higher prices at U.S. grocery stores are linked to ethanol subsidies in the U.S., which have sent shock waves through the global system.

This is the good news. Policy mistakes will be ferreted out very quickly. As a result, any politician who attempts to change things will be blamed for the unintended consequences right away.

Unless they’re Democrats with the news media covering for them.

Both Mr. McCain and Mr. Obama view the world from a legislative perspective. Like the populists before them, they seem to believe that government can fix problems in the economy. They seem to believe that what the world needs is a change in the way government attacks problems and fixes the anxiety of voters. This command-and-control approach, however, forces a misallocation of resources. And in Internet Time this will become visible in almost real-time, creating real political pain for the new president.

In contrast to what some people seem to believe, having the government take over the health-care system is not change. It’s just a culmination of previous moves by government. And the areas with the worst problems today are areas that have the most government interference – education, health care and energy.

It’s bitter laugh time when Obama bitches that Bush has “no energy policy” as Patrick Casey makes clear:

The Democrats have a standardized talking point against any domestic drilling (in  ANWR, the Midwest oil shales and off-shore), settling on the comeback: “It won’t help us today.” Energy-savvy Republicans too often respond “If Clinton hadn’t vetoed ANWR, that oil field would have been producing three years ago.” While technically correct, the retort doesn’t hit the Democrats where they are weakest.
Battle of the Narratives
Blame for the rise of gasoline prices (and everything else dependent on petroleum) is a political commodity right now, with each side seeking to hold the other culpable. The Democrats are avoiding their traditional environmental arguments for good reason.
If the voters see environmentalists, tree-huggers, and their Democratic political minions as causing $4 or $5 dollar a gallon gasoline, along with the rise in consumer prices across the board because of the increase of the cost of oil used as an ingredient in many products, they will blame the Democrats.
And frustration with environmentalism is starting to show up in the polls, which are indicating an increasing call for domestic drilling from the American public. 
With most of the TV interview time on the major networks and cable news stations limited to a minute or so, there is a very short window in which a politician can get out an effective message. Even worse is the decreasing sound bite time used in non-interview style news reports. According to a recent study, that’s down to 7.7 seconds. So it’s vital for the GOP to develop a quick response to the Democrats’ argument that will focus attention on the positives of the GOP argument.

What is that effective message? Here’s a suggestion. It should be used every time a Democrat marches out their new favorite line:
Every solution currently under consideration by the Democrats and Republicans is a future solution. Oil drilling and processing is a present-day technology that offers the quickest solution to our energy needs. As the other technologies are gradually proven and perfected and go on-line, we can then reduce our dependence on oil.
A sympathetic news media will often grant time for the Democrats’ counter argument, which is likely to be: this “solution” won’t solve the problem of speculative  investors forcing up the price of oil.
The Republicans’ retort to that excuse should be along the following lines:
Right now, with the Democrats in charge, global investors realize that Congress will never allow the United States to develop its own energy reserves. With a Democratic President it would be even worse.  If the Democrats stop their obstruction of drilling, that would immediately put downward pressure on such speculation in the oil futures markets.
Or the Democrats might respond by suggesting that we regulate the commodities market, especially the oil commodities market NYMEX. The GOP response should be:
If the Democrats go after NYMEX, then oil speculators will move the futures markets overseas to a more friendly economic host, such as Dubai. We must address the fundamentals of supply and demand, instead of blocking every chance we get to create jobs and wealth in America through domestic production..

The sun has been lying low for the past couple of years, producing no sunspots and giving a break to satellites.

Dana Longcope, a solar physicist at MSU, said the sun usually operates on an 11-year cycle with maximum activity occurring in the middle of the cycle. Minimum activity generally occurs as the cycles change. Solar activity refers to phenomena like sunspots, solar flares and solar eruptions. Together, they create the weather than can disrupt satellites in space and technology on earth.

The last cycle reached its peak in 2001 and is believed to be just ending now, Longcope said. The next cycle is just beginning and is expected to reach its peak sometime around 2012. Today’s sun, however, is as inactive as it was two years ago, and scientists aren’t sure why.

“It’s a dead face,” Tsuneta said of the sun’s appearance.

Tsuneta said solar physicists aren’t like weather forecasters; They can’t predict the future. They do have the ability to observe, however, and they have observed a longer-than-normal period of solar inactivity. In the past, they observed that the sun once went 50 years without producing sunspots. That period, from approximately 1650 to 1700, occurred during the middle of a little ice age on Earth that lasted from as early as the mid-15th century to as late as the mid-19th century.

Meanwhile, this week Democrats nearly wrecked the US economy over global warming fears.

Last week Democrats tried to kill the economy in the name of solving a problem that doesn’t exist. Republicans should hang this bill around their necks in every district where an incumbent voted for the woefully misnamed and deservedly DOA Climate Security Act, technically S.3036. Asking Americans to pony up even more at the pump with already record gasoline prices creeping higher almost daily seems offensive enough.

But compelling such burden under the guise of moral imperative to curb global warming at a time when the planet is actually cooling rings downright obscene. And that’s why last week’s cavalcade of Senators opposing the Act — which would have directed the EPA to decrease emissions of greenhouse gases — entirely on economic grounds was so confounding.

Don’t get me wrong — the fiscal arguments against the bill’s draconian business regulations were inexorable — its massive consequent spike in energy costs would be nothing short of ruinous to the nation. An April EPA analysis of the bill estimated a 53 cents per gallon increase in the price of gasoline and a 44% jump in electricity costs by 2030 should it become law.

Even those figures precariously assumed a 150% increase in nuclear and “significant use of biomass” for electricity generation; otherwise costs will be “significantly higher.” Add a projected net loss of almost a trillion dollars in GDP by that very same year and this blatantly socialistic power-grab attempt deserved the pauper’s funeral it received on financial grounds alone. That’s without even considering that there’s no proof whatsoever that the actions of mankind can influence global temperatures even one degree Celsius in either direction.

The laws of economics, once again, come as a surprise to some. 

Bad news out today on the unemployment front — a big jump from 5.1 to 5.5%.

However, within the numbers are some interesting details.

First, the number didn’t spike due to a big loss of payroll jobs — those declined only by 49,000 in April. That would be only .0004% in an economy of about 138 million workers.

Instead, the number jumped because of a surge of new people who came into the job market looking for, but not finding work. The overall unemployment number is about 8.5 million, and the increase last month represented about 860,000 new job seekers — only 49,000 of whom had lost a job elsewhere.

Further, the unemployment rate for the 16-24 age group was up dramatically compared to other groups. Unemployment in that group rose 2.4%, compared to increasing by only .4% in the group of workers 25 and older.

ftportfolios.com

Who does this age group represent? How about high school and college students coming into the job market for the summer.

And what do many such job seekers get paid? Minimum wage –which Congress increased last year from $5.15 to $5.85, and which will increase again next month to $6.55, and then again next year to $7.25.

Here’s a personal case study in how that works to squeeze workers out of the minimum wage job market:

My parents own an ice cream shop, and rely heavily in its operation on eight 16-20 year olds working part-time schedules of 16-24 hours a week, along with one full-time manager who is assisted by my parents in their free time. Over the course of a 7 day work week, they typically employ the part-time workers for a total of about 340 hours a week.

Raising the minimum wage by .70 increased their straight wage expense by $240 a week, or about $1000 a month. But it had collateral consequences as well, as their worker’s comp. and unemployment insurance costs rose in relation to their payroll, as did their payroll tax contributions. The combination of wage increase and the various increases that spin off that wage increase was about $1500 a month. This is against a total wage expense for the part-timers of about $8000 a month.

Now, the ice cream parlor business is somewhat inelastic from a price stand point — people won’t continue to pay higher and higher prices for an ice cream cone when the alternative is simply to do without. So, that increase in operating expense could not, in total, be passed on to the customers. Instead, my parents worked a few more hours themselves and trimmed back on the hours they had the part-timers working. When one of the part-timers quit, they didn’t hire a replacement for her.

Now, the same thing is going to happen next month — another increase of .70 per hour, totaling about $1500 a month in additional operating expenses is going to kick in. This will come on top of significant increases over the past year in product costs — multiply the increased cost of milk you are paying at the supermarket several times over and you get a feel for the increased cost of buying ice cream on a large scale for a business establishment.

Yes, oil jumped again and the Dow dropped 395 points. But the big picture is where to remain focussed. To help with that, this essay by Patrick Toomey from Imprimis:

THERE IS a debate going on today over whether our economy is in recession. Polls show sagging public confidence. But some perspective is sorely needed. The fact of the matter is that we in the United States, and to a lesser degree the entire world, have just lived through—and continue to live in—the greatest period of prosperity in human history. Over the last 25 years, more wealth has been created, more people have been lifted out of poverty, standards of living have been elevated more dramatically, and the quality and length of life have improved, more than ever before in recorded history. Unfortunately, as Larry Kudlow says, this is “the greatest story never told.” We need to start telling the story, and also to think about its causes.

First, let us focus on the United States (and I say this with full knowledge that the State of Michigan is a unique exception among the 50 states to America’s extraordinary recent prosperity; but the causes of Michigan’s peculiar problems are a topic for another day): Average economic growth in the U.S. has not only been positive for almost the entire last quarter century, but for much of this period the rate of growth has accelerated. Our nation’s total economic output in 1982 was $5.1 trillion; last year it was $11.3 trillion (in real 2000 dollars). Per capita economic output in 1982 was $22,400; last year it was $37,807 (in real 2000 dollars). The average unemployment rate in the 1970s was nearly seven percent; it has been declining, on average, every decade since, and has remained below five percent since 2003. The service sector of our economy has been on fire, growing from $1 trillion in 1982 to $5.5 trillion in 2006. And do you know how far back one has to go to find the year when America’s total manufacturing output peaked? All the way back to 2007! Yes, U.S. factories produced more last year than in any previous year in our history. That’s the “hollowing out”—as its critics like to say—of America’s economy.

This expanding economy has, of course, resulted in huge gains in wealth. The Dow Jones Industrial Average began the 1980s at 825; today, despite its recent declines, it remains above 12,000, a 1,400 percent increase. And with the democratization of the capital markets that has occurred through savings programs like IRAs and 401(k)s and investment vehicles like mutual funds, the average family’s wealth has grown dramatically, too. In 1983, 19 percent of American households owned stocks; in 2005, 50 percent were investors. In 1989, the median family net worth was $69,000; in 2004, it was $93,000.

These gains in income and wealth have resulted directly in a better standard of living for virtually every segment of American society—including the poor. Among families living below the official poverty line in the early 1970s, less than 40 percent had a car, almost none had color televisions, and air conditioning was virtually unheard of; in 2004, 46 percent owned their own homes, almost 75 percent owned a car (indeed, 30 percent owned two or more cars), 97 percent had color TVs, and 67 percent had air conditioning. The poor in the U.S. have an average of 721 square feet of living space per person, as compared with 430 in Sweden and 92 in Mexico.

Similarly, technology has become accessible to all sectors of society. There were 9.8 million cable TV subscribers in 1975, and 65 million in 2006; 2.1 million personal computers in 1985, and 243 million in 2007; 340 cell phone subscribers in 1985, and 243 million in 2007.

Health indicators track similarly. Infant mortality dropped from 20 deaths per 1,000 people in 1970 to seven deaths per 1,000 people in 2002. In 1980, American life expectancy was less than 74 years. Today it is 78.

Nor is America totally unique in this regard. While we have led the world in most measures of prosperity and growth, other countries have been enjoying the broadest expansion of wealth in history as well. A recent issue of The Economist documents the tremendous worldwide improvement in both the social conditions in poor countries and the alleviation of poverty: Between 1999 and 2004, some 135 million people emerged from destitution, and there are now twice as many countries with fast-growing economies as there were in 1980.

Keys to Prosperity

This long period of sustained economic growth and the huge quality-of-life improvements it made possible didn’t happen by accident. They were a result of a major expansion in economic freedom, initially in the U.S., then increasingly around the world. This expansion took many forms, but three of the most important were a dramatic reduction in marginal tax rates, a series of major deregulations, and a broad expansion of trade. (more…)

IBD: 

While some companies like British Petroleum run endless ads touting their capitulation to the global warming religion by saying they are “beyond” petroleum, Exxon Mobil has been refreshingly unapologetic about developing the resources beneath our feet and making money doing it.

Speaking to reporters after the annual meeting of Exxon stockholders Wednesday, CEO Rex Tillerson shoved political correctness aside and insisted the science on climate change is not settled and “that to not have a debate on it is irresponsible” and that to “suggest we know everything about these issues is irresponsible.”

Also irresponsible is to ignore the growing energy requirements of the U.S. and world economy, hoping they will be met solely by sources such as biofuels which actually harm the environment by leading to cutting down forests and disturbing the soil to plant crops destined for our gas tanks, releasing huge amounts of CO2 in the process.

Tillerson says that “everyone agrees that notwithstanding the growth in all other options for supplying energy, renewables, nuclear, biomass alternatives, you are still going to require substantial fossil fuels to meet energy needs, and two-thirds is going to come from oil and natural gas.”

He spoke of Exxon spending $8 billion of its profits on the Kearl oil sands project in Alberta, Canada. This project alone is aimed at recovering between 4.5 and 6.5 billion barrels of oil.

Finding such oil takes money and expensive technology. That money comes from profits.

NYT:

As Iowa Job Surplus Grows, Workers Call the Shots

On a recent evening here, Greg Tew, 28, considered the question: What is it like to work in a state that is creating more jobs than workers? He was sitting in the lobby of a new hotel in downtown Des Moines, part of an extensive redevelopment investment to attract workers to Iowa.

“It is noticeable,” Mr. Tew, a computer programmer at EMC Insurance Companies, said of the jobs surplus. “You’re a hot commodity. Salaries go up just because companies are fighting to retain the talent they have.”

His friend Stacy Berenguel, 28, a financial advisor at Citi Smith Barney, said that while she was very conscious of talk of a national recession, some of her friends in Iowa were switching jobs over company amenities, like fitness centers. “Even when I’ve had friends laid off, they had no problem finding jobs,” she said. “So I’m willing to take financial risks, like splurging. Last weekend I went to Chicago and shopped for clothes and shoes. It was great. There were sales everywhere.”

Are these the voices of a nation looking at recession?

As rising unemployment and layoffs beset workers around the country, Iowa faces a different problem: a surplus of jobs. Or to put it another way: a shortage of workers.

A survey of companies by Iowa Workforce Development, a state agency, found as many as 48,000 job vacancies, in industries including financial services — Des Moines trails only Hartford as the nation’s insurance capital — health care and skilled manufacturing. One estimate projects the job surplus to reach 198,000 by 2014, with vacancies increasingly in professional positions. Greater Des Moines alone faces a shortfall of 60,000 workers in the next decade.

The sorry truth about the “European model“ won’t dissuade the socialists lurking in the Dem Cong, but it’s still fun to see the facts in black and white.

The Association of European Chambers of Commerce in Brussels warned that the transatlantic gap had widened yet further in the past five years by all key measures, despite the pledge by EU leaders at the 2000 Lisbon summit to transform Europe into the world’s “most dynamic knowledge-based economy” by the end of the decade.

It found that the European Union’s research and development levels were achieved by America as long ago as 1979, while the lag time on per capita income is 18 years.

It will take the EU until 2072 to reach US levels of income per capita, and then only if the EU income growth exceeds that of the US by 0.5pc,” the study said.

That puts them 75 years behind the US. If current demographic trends persist– Europeans are slowly dying off and being replaced by Muslim immigrants — Europe never will.

Of course, by then, Europe will be a backwater to the US, India and China.

 Someone grab Sen. Dick Durbin and force him to read this:

The biggest factor in the skyrocketing price of gasoline is the historic ascent of crude oil, which has surged from $45 per barrel in 2004 to more than $135 this past week. Gasoline in Phoenix averaged $3.69 a gallon Friday, and AAA Arizona experts predict that instead of falling like normal after the holiday weekend, prices will continue to rise across the state.

In the first quarter of this year, based on a retail price of gasoline that now seems like a steal, $3.11 a gallon, crude oil accounted for all but about a dollar, or 70 percent, of the cost, according to the federal government.

The rest is a complex mix of factors, from the cost of turning oil into gasoline to taxes to marketing costs to, sometimes, nothing more than the competitive whims of local station owners.

The price of oil

The knee-jerk villains in all this are the oil companies, fat with multibillion-dollar profits, frequent targets of populist anger. But wait: The oil companies don’t set the price of oil or the cost of a gallon of gasoline.

Anger such as this from Durbin on Wednesday, when he worked himself into a self-righteous voice and demanded from oil execs:

“Does it trouble any of you when you see what you are doing to us, the profits that you are taking, the costs that you are imposing on working families, small businesses, truckers, farmers?”

Enough Durbin, back to reality.

Prices are a function of the open market, the result of futures contracts being traded on the New York Mercantile Exchange, or Nymex, and other exchanges around the world.

Buying the current July crude-oil futures contract means you’re buying oil that will be delivered by the end of July. Most investors who trade futures have no intention of ever accepting the underlying oil. Like stock investors who frequently buy and sell their holdings, they’re simply betting that prices will rise or fall.

Of late, on the Nymex, oil futures have been rising.

Oil is a free market, unlike say, food. Senator Durbin and a bi-partisan gang, saw to it that Americans will pay a high price for food, regardless of what happens on the open market.

It would be great if a family could subpoena Durbin to appear on their door step, where they could demand:

“Senator, does it trouble you when you see what you are doing to us, the costs that you are imposing on working families because you sold your integrity to agribusiness?”

What a putz…

“It strikes me that this is the right situation for a president to step in, for a president of the United States to step in. I think the president should be calling you all before his little meeting place, the White House, and talking about what you are doing to the American economy.

“Does it trouble any of you when you see what you are doing to us, the profits that you are taking, the costs that you are imposing on working families, small businesses, truckers, farmers?”

So said Senator Dick Durbin (D), proud supporter of the farm bill (see the post below) to a line up of oil executives.

One of them had the nerve to talk back, noting that Congress prevents them from drilling in many parts of the US, thus reducing supply and (gasp!) making us more dependent on foreign oil.

“As repetitive and uninteresting as it may sound, the fundamental laws of supply and demand are at work,” said John Hofmeister, the president of Shell Oil Company. “Oil exporting nations, as has been said, are managing their natural resource development and production to supply their local and global markets in their own self-interest.”

Translation: you loudmouth moron, this is a fact of life and you know it.

Did I miss something or during the great housing boom (bubble?) when “greedy” homeowners were reaping 20-50% gains on their houses due to laws of supply and demand, did Dick Durbin summon Realtors before a committee to bitch about that?

Or will Durbin jump on this market driven event?

It’s a good time to be in the business of selling smaller cars, according to some Northern Nevada auto dealers.

“We’re pretty much sold out of our (Honda) Civics,” said Frank Anderson, new car manager of Bill Pearce Courtesy Honda. “We’re pretty much pre-selling everything we’re getting allocated.”

In the past year, the average used small-car price has gone up 2 percent in the United States, from $9,278 to $9,470, according to wholesale auto auction data collected by the National Automobile Dealers Association released Wednesday. There’s evidence prices are accelerating, according to recent data from J.D. Power and Associates.

Small car price increases? Quick, hold a hearing, pass a law!

I was taken aback yesterday to see a column by Thomas Frank on the editorial pages of the WSJ. He’s one of many lefty journalists proclaiming the death of the American middle class.

Median “nonelderly” household income, we find, fell consistently through the first half of this decade, despite the solid economic growth enjoyed by the country as a whole.

Some nonmedian folks did just fine, of course: The top 20% of households earned more, after taxes, than the rest of the country combined in 2005, while the topmost 1% of the population took home more than the bottom 40%. The top-earning hedge fund manager of 2007, in fact, made about as much last year in nominal dollars ($3.7 billion) as J. Paul Getty, one of the richest men in the world, was worth in the mid-1970s.

…The feeling I get from absorbing all these facts about the state of labor comes close to the nauseated dread that washes over me when I stay up late to read one of those what-if stories in which Hitler wins World War II. Could this really have happened to my country?

It has not merely “happened”; it has been done to us. The distinction is an important one to keep in mind as we survey the ruins of the affluent society. What has overtaken America’s working people is not a natural disaster like “globalization,” and not even some kind of societal atavism in which countries regress mysteriously to their 19th-century selves. This is a man-made catastrophe, a result that proceeded directly from the deliberate beatdown of organized labor and the wrecking of the liberal state.

You get the idea. Of course, whenever I hear such piffle I wonder who’s buying all that Starbucks coffee. And the big screen TVs. And the SUVs that now cost a fortune to fill up.

But leave it to the WSJ commentors to rip Mr. Frank a new one. Karl Kleimenhagen wrote:

Mr. Frank claims to be “fascinated by the mechanics of this huge social reconfiguration,” yet it seems to me he misses the obvious, root cause.

The decades following WW-II were ones of relatively tight labor supply in the U.S. The last two decades have seen a worldwide glut of labor as 1/3 of the world’s people suddenly burst into the capitalist markets.

There will always be a supply/demand response between labor and capital. When labor is tight, it will be able to capture a greater part of the profits. When labor is in excess, capital will keep the greater part of the profits. This seems to be what we see today, with Western laborers gathering a smaller share while those that manage capital (financiers, engineers, etc.) getting a greater percentage.

Felix Sonderkammer wrote:

Frank mentions that real wages have increased only 1% since 1979, but he ignores many important considerations. One of them is that the same real wage allows more consumption now than it used to. Wages must not only be adjusted for inflation, but purchasing power. No money in 1979 could buy some of the products that one can easily buy today, and this is true for more things than just electronics.

By all measures, Americans today consume far more than they did in 1979. Another form of compensation that Frank does not adequately consider is non-wage benefits. Health insurance and other employment benefits now account for 30% of worker compensation, far more than they did in 1979. For better-informed and more rational treatments of the “wage stagnation” claim, see the following:

http://www.fcpp.org/main/publication_detail.php?PubID=1649

http://www.heritage.org/research/economy/bg1978.cfm

And Robert Damon:

Let’s see, first we’re blaming tax cuts, which were actually tax rate cuts. If you’d like to check the website for the federal reserve, you’ll see that because of the economic activity the tax rate cuts generated, we collected more revenue each succeeding year than ever was collected in history, paid largely by the so-called wealthy. In fact the lower 50% of earners now pay only 3% of the income taxes. In fact the deficit was due to disappear in 2009. That’s been put on hold by the so-called “stimulus package”.

Next you blame trade agreements, overlooking the fact that Mexico, Canada and the US have all increased jobs in each of their countries by spurring the economic growth that trade agreements have always created. Have you reviewed the history of tariffs and what they’ve done to our economy in the past? By the way, has worker productivity increased 60% because they’re working harder or because of the development of faster production methods?

You may have a point regarding plutocracy, but it’s kind of a silly one. Rule by the wealthy has been a world norm since the beginning of time. Look what happened with the French Revolution and the Russian Revolution, both attempting “rule by the people”. The American Revolution while certainly not producing a perfect result, surely was a wonderful foundation. If you don’t like rule by the wealthy, why don’t you encourage people to vote? Typically less that 50% of people technically eligible to vote ever bother to register, much less vote. Like you, they seem to just like to complain.

And Peter Orazem, a professor of economics at Iowa State: 

Some data from the Bureau of Labor Statistics
http://data.bls.gov/cgi-bin/dsrv

Since 1979, real output per hour for nonfarm business has increased 40%. Real hourly compensation (wages and benefits) has increased 22%. The correlation between output per worker and compensation between 1947 and 2007 is .98.

Whether deliberate or sloppy, people who focus on wages rather than total compensation ignore the fact that benefits are now 29% of compensation and that firms have an incentive to offer compensation in benefits (paid in pre tax dollars) rather than having their workers pay for these same benefits with after tax dollars. The fact that benefits have risen in cost faster than inflation has added to the differential rate of growth of benefits versus wages.

Labor’s share of total production is 2.7% lower than it was in 1992 and 5% lower than it was in 1979. Maybe that is a U turn, but it is certainly not the dramatic change suggested by the uninformed blather by Frank.

Conservatives are happier than liberals, studies show.

I’ve noticed this myself: liberals (in general) do tend toward a gloomier worldview. For libs, either something awful is coming — overpopulation, a new ice age, nuclear destruction, global warming — or else something awful is extant, such as racism, gender inequality, evil corporations earning profits etc.

That conservatives are happier must really irk liberals, adding to their gloom (after all, happiness should be equally distributed, no?). Thus they publish stories such as this, on MSNBC:

Individuals with conservative ideologies are happier than liberal-leaners, and new research pinpoints the reason: Conservatives rationalize social and economic inequalities.

Regardless of marital status, income or church attendance, right-wing individuals reported greater life satisfaction and well-being than left-wingers, the new study found. Conservatives also scored highest on measures of rationalization, which gauge a person’s tendency to justify, or explain away, inequalities.

The story is illustrated with a photo featuring a clean-cut couple with the fella wearing a dorky bow-tie.

Rationalize inequality? Look around — we’re all born unequal. Yes, we’re all created to have equal rights, but we’re manifestly unequal in intelligence, drive and talents. Variations in any of those three explains a lot, maybe the most, about where we find ourselves in life.

Does it take a study to explain that to liberals? Probably.

Conservatives believe in equality of opportunity, not equality of outcomes. To demand the latter is to contradict human nature. Liberals make themselves miserable by agitating for the impossible, wearing their frustration as a badge of moral superiority.

Their unhappiness matters not until they start tampering with the economic engine that has enriched everyone in our country.

Today, even the poorest American lives better than a wealthy person from a century ago — better food, better healthcare, better life expectancy, better working conditions etc. Instead of acknowledging this astonishing progress, liberals dwell on the fact that other Americans have more.

To which I say: thus it always was and always will be. Get used to it or stew in it.

A roundup:

European retail sales declined 1.6 percent in March, the most since at least 1995 and twice as much as economists forecast, as soaring fuel and food costs sapped consumer spending.

Meanwhile, in the US:

U.S. productivity started the year on surprisingly firm footing thanks to a big jump in manufacturing productivity, suggesting U.S. firms are adjusted quickly to the economic slowdown by shedding workers and cutting back on hours worked.

Labor costs, meanwhile, grew at their slowest annual pace in four years, which should provide some relief to Federal Reserve policymakers that the foundations for noninflationary growth remain in place despite a severe housing slump and record-high energy prices.

Nonfarm business productivity increased at a 2.2% annualized rate in the first quarter, the Labor Department said Wednesday. Wall Street economists had expected.

The Economist:

THERE is a fascinating and important ongoing debate concerning recent growth in American income inequality. Just a few weeks ago, the Economist highlighted recent work by Paul Krugman suggesting that trade was playing an increasing role in widening income gaps. In response, Josh Bivens, whose work was featured in that piece, wrote that trade could possibly be blamed for a third of the rise in inequality.

I thought it was important to point out that the problem wasn’t wage gaps, but the failure of American workers to respond to them. Slowing educational attainment has meant more unskilled American workers and fewer skilled workers, a supply situation which has pushed wages apart.

I found it interesting then when Mark Thoma featured a comment from Paul Krugman today, downplaying the role of education in inequality by saying it could only be blamed for a third of the rise in inequality. As Mr Thoma notes, this is probably a conservative estimate. In the pecking order of inequality causes, education is clearly a bigger factor than trade. This become all the more important when one considers that improving educational attainment is good for economic growth, while curtailing trade is bad.

At any rate, Mr Thoma makes his observation while mentioning some new research on American education from VoxEU. That research says that educational attainment is very closely related to parental education level. No surprise, then, that most of the increase in attainment between 1979 and 1997 was due to demographic factors–a more educated parental cohort, in other words. Once that factor is held constant, response to diverging wages has been quite disappointing.

The authors of the study–Joseph G. Altonji, Prashant Bharadwaj, Fabian Lange–offer potential explanations for the lack of adjustment, but they conclude that none of the best candidates are without criticism. The question, they say, remains open.

Actually, the Great Depression seems like the permanent mood of libs — they’re always gloomy about some imperfection in life.

Whatever happened to the Great Depression? Not the real one from 70 years ago, the lost decade of unimagined misery and Steinbeckian angst, the worst period in the history of modern capitalism. I mean the replay we were promised this year. The one we were told was the inevitable counterpart to the greatest financial crisis since a couple of medieval Italians first sat down on a Florentine bench and invented the word “bank”.

I don’t know about you but I feel a bit cheated. There we all were, led to believe by so many commentators that the sub-prime crisis was going to force the United States into a new era of dust bowls and breadlines, a slump that would call into question the very functioning of the capitalist system in the world’s largest economy. Carried away on the surging wave of their own economically dubious verbosity, the pundits even speculated that this unavoidable calamity might presage some 1930s-style global political cataclysm to match.

Well, it’s early days, to be fair, but so far the Great Depression 2008 is shaping up to be a Great Disappointment. Not so much The Grapes of Wrath as Raisins of Mild Inconvenience. Last week the Commerce Department reported that the US economy – battered by the credit crunch, pummelled by a housing market collapse and generally devastated by the wild stampede of animal spirits – actually grew in the first three months of the year.

The rate of expansion – 0.6 per cent – was weak for sure, and it followed a previous quarter of identically weak growth at the end of 2007, but as Depressions go it was singularly unGreat. In the 1930s, you’ll recall, GDP fell by more than 25 per cent. Even the periodic mild recessions we’ve had in the past 20 years at least resulted in some declines in economic activity.

Lest you object – perhaps fairly – that the GDP data are way too backward-looking to be of any use, last week we also got the news that the labour market, the canary in the coalmine of economic data, is actually improving. The US economy lost 20,000 jobs in April, while the unemployment rate ticked down a little to 5 per cent. You don’t have to compare this performance to the Great Depression to think it looks, as downturns go, really quite uplifting. It is, in fact, the gentlest start to a period of labour market weakness since the 1960s.