Even FOX agrees: the stock market does better under Democrats

I was doing some research on GDP growth per administration and I came across the following news report from Fox Business News. I’m not sure if it made it onto FOX Television or not. My guess is not, but I could be wrong.

Anyway, the headline (which is also the link) says it all:


History Shows Stocks, GDP Outperform Under Democrats

Income Inequality and Economic Growth

Turns out that excess income inequality can hamper growth. That, at least, is the claim of a recent book from the Brookings Institute. Here is an Opinion piece by one of the authors in Reuters. Income Inequality. 

This is a topic that deserves much more discussion, and I’ll get to it soon, I promise.

I think the idea is that when fewer consumers have fewer dollars, because more is accumulated at the top, there is lower economic demand. That seems obvious, but will require more analysis.

River Traffic and Global Warming

According to recent news stories, the Mississippi River is at record low levels, and this has the potential to stop the movement of shipping on the river. This will have a major impact on the transportation of bulk goods, which are shipped up and down the river. The reason the river is so low? Lack of rainfall, obviously, but this lack of rain fall is the product of changing weather patterns. And changing weather patters are the result of global warming. So we can add the cost of shipping to the ledger of global warming.

Here’s the Time Magazine Story: Mississippi River Near Record Low.

The Beginning of the End of Trickle-Down Economics

Economists long ago gave up on the idea of Trickle down economics, or the idea that you cut taxes on the rich to spur economic growth, and this growth at the top will trickle down to the bottom. Even many Republicans have turned on the idea, including David Stockman, who was President Reagan’s budget director. But now one prominent Republican elected official – Bobby Jindal, Governor of Louisiana – has publicly disagreed with the theory.

Here’s the story from Business Week.

This is certainly a good thing for sanity in public policy, though it might be a bad thing in electoral politics. Only time will tell.

Romney and Obama's Gifts

Mitt Romney has said that President Obama won reelection by promising his supporters “gifts.”

According to the Washington Post:

In explaining his overwhelming electoral college defeat last week, Romney said Obama followed what he called the “old playbook” of seeking votes from specific interest groups, “especially the African-American community, the Hispanic community and young people,” the New York Times said. “In each case they were very generous in what they gave to those groups,” he added, according to the paper.

See: Post Article

But this raises a couple of questions for me.

First, why did Asian Americans vote overwhelmingly for Obama?

According to CNN’s post election exit polling, Asian Americans voted for Obama over Romney by a margin of 75% to 26%. See, CNN Exit Polling

If Obama was promising “gifts” to Asian Americans I did not hear it. In fact, to the best of my recollection, few politicians pander to Asian Americans. I wonder how they feel about this? Do they resent not being pandered to, or are they grateful?

But the more important point is if voters only voted for Obama because he essentially bought them off, why did Asian Americans vote so overwhelmingly for him?

Second, why did Jews vote favor Obama by 69%?

After all, Romney attacked Obama for not supporting Israel enough, and promised to be the best friend Israel has ever had (OK, that might be a bit over the top). What did Obama promise the Jews to win their vote?

As far as I can see, nothing.

The fact that Jews and Asian-Americans voted overwhelmingly for Obama puts the lie to Romney’s claims that Obama only won by buying-off interest groups.

I should also note that some Republican’s reject this idea. Louisiana Gov. Bobby Jindal said it was “absolutely wrong.” See Salon article.

Obamacare, Irony and the GOP

In the wake of Obama’s reelection, a number of states have announced that they will not implement a number of state required provisions of the new law. See, “Kansas, Missouri Won’t Set up Obamacare’s State-Run Health Insurance Exchanges “

The specific provision that a number of states object to is the requirement to set up an “Insurance Exchange.”  The Insurance Exchange is basically a marketplace where consumers can go to price and purchase insurance.

The rejection of this provision by conservatives is ironic for two reasons: federalism and the free market.

It is odd that states’ rights conservatives are refusing to implement a state program and allowing the federal government to create and run the program for the state. This directly contradicts the basic idea of federalism, which is that states are better able to create and run programs that affect the state. While it is certainly understandable that state politicians don’t like the federal government telling them what to do – in this case establish an “insurance exchange” – any federalist worth his salt would say that even if the program is mandated the states are better able to create the specifics of the program for the state. I know that these politicians are refusing to act simply out of spite, but the irony of their behavior is laughable.  

But the clear rejection of federalism is only one of the ironies. The other is the rejection of free market principles. The Insurance Exchange is a one stop market for health insurance. It is essentially an Amazon for health insurance. Currently a person shopping for insurance can go to different insurance companies and try to interpret their policies, and then must go to an insurance agent to actually purchase the insurance. As someone who has purchased health insurance as an individual I can tell you that this is a difficult process.

One principle that is supposed to be the foundation of the free market is the free availability of information. A free market only works if purchasers have access to all pertinent information about the product they wish to buy. A consumer can only make an informed choice in the free market if they have all the information they need about the desired product: the price, the quantity, the quality, the selection, the availability of alternatives. Theoretically the free market works best when consumers know the most about the products they want. It is only through that knowledge that consumers can buy the least expensive, or highest quality products, and thus, through the magic of supply and demand, drive costs down.

The purpose of the Insurance Exchange is for each state to provide a comprehensive list of all the available insurance options within the state. This allows the consumer to make an informed choice, and select the insurance policy that best meets their needs. It is a marketplace out of Adam Smith’s dreams. And yet conservatives reject it. It kind of makes me wonder if they think through their policy choices, or if every choice is a simple, and thoughtless, knee jerk reaction.  

Buildings are People My Friends

Former Republican Presidential Candidate Mitt Romney famously said that “corporations are people, my friends.” His comment was in response to complaints by some people about the Supreme Court’s Citizen United case that allowed corporations to donate to political campaigns. I suspect that what Romney was trying to say was that people are heavily involved in corporations, essentially that people create and own corporations, and hence profit from the, and many other people work at corporations, and hence owe their livelihoods to corporations. In this he is correct, but still misses the point.

Exactly the same thing can be said about buildings. People make money from building buildings and from owning buildings, and many people go to work every day in buildings. But we can all see the absurdity in saying that “buildings are people, my friends.” Simply alleging that because many people rely on buildings, or corporations, for their livelihood and well being, does not make a building, or a corporation, a person.

Corporations are an artificial business entity that allows the owners of a business to limit their risk. While this may sound like a dodge, or a way to avoid responsibility, the reality is that this limitation of liability is actually a very good thing. Many high risk endeavors throughout human history might not have been attempted without this limitation of risk. A number of the first American colonies were business ventures and were formed as government chartered corporations. This allowed the investors to invest money in the enterprise without the potential future risk of paying out more of their personal assets should the endeavor fail. Throughout American history corporations have been an important component of the development of canals and railroads and other risky and capital intensive enterprises.

But just because corporations are important does not mean they are without fault. This shield against liability can make a corporation dangerous. The nation’s founders understood this, and in every state strictly proscribed corporations. Most states required that the incorporators obtain a charter granted by the state legislature. This greatly limited the number of corporations, and meant that the incorporators had to convince a legislative body of the need for the corporation and its ability to provide a societal benefit.

It was only after the Civil War, and the growth of large scale industrial companies, that states changed these laws and allowed for general, as opposed to specific, charters of incorporation. But politicians and the courts were still highly skeptical of corporations. Over the years, however, limits on corporations slowly eroded, as business interests lobbied state governments to ease rules and restrictions. Now there are few restrictions on the type and scope of business that a corporation can engage in.

And while most of the largest commercial enterprises in the nation are corporations, and those corporations employ millions of people, and are often the engine of our economy, some owners can and do abuse the corporate form. I am a lawyer and I’ve dealt with business entities that are made up of overlapping and intertwining corporate entities. The purpose for this is not to limit liability but to evade it.

It is very common for the developers of residential real estate to create a corporation for a project – say a residential subdivision –  and then when the project is complete they dissolve the corporation. And then, if there is a problem with a house or a street, and the homeowner or neighborhood association sues, they will be suing a dissolved corporation with no assets. And the developer will move on to another project.  

So Mitt Romney may have been right to suggest that people often benefit from corporations, but that does not make corporations people, my friends, any more than it makes a building a person.




Don't Like the Results, Kill the Report

Apparently earlier this year the Congressional Research Service (CRS) issued a report on the correlation between the top marginal tax rates and economic growth. Spoiler alert, the report found no correlation between lowering the top marginal tax rate (the rate on the so-called job creators) and an increase in overall economic activity. This result, of course, runs counter to the main thrust of the current Republican economic policy, which is to push for lower taxes on “job creators” in order to create more jobs.

So what did the Republicans in Congress do when they got the report? They demanded that the  CRS withdraw the report.  And since the CRS works for Congress, and Republicans are in the majority, they CRS had no choice but to withdraw the report.

But there is magic in the internet. Things really don’t disappear, so the report is available here.

The New York Times story is also available here.

The overall conclusion of the report:

The top income tax rates have changed considerably since the end of World War II. Throughout
the late-1940s and 1950s, the top marginal tax rate was typically above 90%; today it is 35%.
Additionally, the top capital gains tax rate was 25% in the 1950s and 1960s, 35% in the 1970s;
today it is 15%. The average tax rate faced by the top 0.01% of taxpayers was above 40% until
the mid-1980s; today it is below 25%. Tax rates affecting taxpayers at the top of the income
distribution are currently at their lowest levels since the end of the second World War.
The results of the analysis suggest that changes over the past 65 years in the top marginal tax rate
and the top capital gains tax rate do not appear correlated with economic growth. The reduction in
the top tax rates appears to be uncorrelated with saving, investment, and productivity growth. The
top tax rates appear to have little or no relation to the size of the economic pie.

However, the top tax rate reductions appear to be associated with the increasing concentration of
income at the top of the income distribution. As measured by IRS data, the share of income
accruing to the top 0.1% of U.S. families increased from 4.2% in 1945 to 12.3% by 2007 before
falling to 9.2% due to the 2007-2009 recession. At the same time, the average tax rate paid by the
top 0.1% fell from over 50% in 1945 to about 25% in 2009. Tax policy could have a relation to
how the economic pie is sliced—lower top tax rates may be associated with greater income

The Rising Cost of Health Care

The Lane Report has an article titled “The Seven Factors Driving Health Care Cost. ” (Click the title for a link to the article.) Since it was from the Lane Report my assumption was that the seven factors were 1 – 6. Obamacare 7. Medical Malpractice costs. But I was wrong, except for the last item.

According to the article the seven factors are:

1. Paying doctors per treatment and not for health outcomes.

2. A population that is growing older and fatter.

3.  Desire for the newest drugs and treatments.

4. Tax breaks for health insurance, which encourages companies to provide insurance with low deductibles and co-pays for a bigger tax write down, but which allows employees to over-use health care.

5. Poorly informed consumers.

6. Hospital consolidation.

7. Legal issues, like medical malpractice fears and costs, but also fraudulent billing and other issues.

The full report was prepared by the Kaiser Family Foundation and PBS News Hour. It is available here.

The cost of the two main government medical programs, Medicare and Medicaid, are rising at unsustainable rates. We, as a nation, will not get those costs under control until we get the rising costs of health care under control. That is no easy task, but it will only be done by addressing all of the causes, and not simply blaming it on one cause among many.