The worst tax
Richard Rahn
Rank the following taxes from best to worst: individual income taxes; payroll taxes, corporate income taxes, sales or consumption taxes, and residential property taxes. The vast majority of economists would rank the corporate income tax as being worst and the sales tax and residential property tax as the best.
Unfortunately, the corporate income tax is often the favorite tax of fiscally irresponsible politicians because it is not easily seen. In fact, the corporate tax is paid by workers in lower wages and fewer new jobs, by consumers in higher prices and by savers and investors in lower rates of return. The Organization for Economic Cooperation and Development (OECD), based in Paris and not known for favoring lower taxes, published a new study last month, "Tax and Economic Growth," which provides more evidence that the corporate income tax interferes most (as compared with other taxes) with proper resource allocation, productivity growth, and economic efficiency.
Last week, the U.S. Government Accountability Office (GAO) released a study that showed 28 percent of large companies paid no corporate income tax in 2005 almost always because they had made no profit. Rather than thoughtfully considering whether the corporate income tax should be reduced or abolished, several bluster brains in the U.S. Congress used the report as an excuse to attack corporations. Sen. Byron Dorgan, North Dakota Democrat, who is a big supporter of agricultural subsidies to millionaire farmers and foolish corn ethanol mandates, which are neither cost-effective nor reduce total carbon emissions, demanded that big corporations pay "their fair share" of taxes. Mr. Dorgan, of course, ignored the fact that only people - again, workers, consumers, and/or savers and investors - pay taxes. He also did not explain how it is "fair" that U.S. companies are already more heavily taxed than their foreign competitors, even neighboring Canada.
The United States' corporate income tax rate now is more than 50 percent higher than the OECD members (major industrial countries) average.
Before the Reagan administration, the U.S. had a 50 percent corporate tax rate, and most other countries had similar high corporate tax rates. During the Reagan administration, the United States sharply reduced its corporate tax rate and other nations followed the lead.
As the benefits of corporate tax reduction quickly became obvious, most countries kept cutting their corporate rates. The Irish cut their rate to 12.5 percent and went from being the poor man of Europe to the second-richest on a per capita income basis. The formerly communist countries of Eastern and Central Europe are now in the process of besting the Irish, by going to low flat-rate systems on both personal and corporate income. As the accompanying chart shows, the Bulgarians are the most recent to join the flat-rate club with a 10 percent rate on both corporate and personal income.
There are a number of very high-growth countries, such as the United Arab Emirates (UAE), and financial centers, such as Cayman, that have no corporate or individual income tax at all. They rely primarily on sales or consumption taxes, property taxes and fees for government services. And for the most part they have done very well by their citizens.
Assume you are a businessperson who has just developed a greatly improved electric car battery that you expect to sell in most countries around the world. Would you set up your business in the United States, which has the highest corporate tax rates in the world?
What does it say about those U.S. politicians who rant about U.S. companies moving their businesses to other countries and U.S. citizens moving their capital elsewhere, when many of those same politicians oppose tax rate reductions and even advocate tax rate increases?
Corporate leaders have a fiduciary responsibility to their stockholders to maximize profits. If a country has tax and regulatory provisions that make its companies noncompetitive, the company has no choice but to move.
Businesses will continue to flee the United States, and new companies that intend to sell globally will be less likely to establish their companies in the U.S. as long as the U.S. is less globally attractive because of high tax rates and excessive regulatory costs.
The corporate tax should be abolished because it is the most destructive tax. In a typical year, it only produces about 10 percent of federal revenue. This static revenue loss would be quickly made up by the increase in shareholder dividends that should no longer have a tax preference (in the way that sole proprietorships, partnerships, and limited liability companies are now taxed), and through the additional productivity, international competitiveness and job growth that would result from abolition of the corporate income tax.
Sen. John McCain has said he wants to cut the corporate tax rate to 25 percent and not raise individual tax rates. Sen. Barack Obama has not yet proposed a reduction in corporate tax rates, and has proposed increasing the top marginal individual rates so that the United States would have some of the highest individual tax rates in the world.
Given the above information, do you think the United States will gain more jobs and become more internationally competitive under Mr. McCain's or Mr. Obama's tax plan?
Richard W. Rahn is a senior fellow at the Cato Institute and chairman of the Institute for Global Economic Growth.
Thursday's Daily NewsAndrew Roth
THE DAILY NEWS
We Can't Tax Our Way Out of the Entitlement Crisis
- Glenn Hubbard, WSJ
Why Corporate Tax Is The Worst Tax
- Richard Rahn, Washington Times
A Senator in the 'No'
- Edwin Feulner, Heritage Foundation
Fairness Down Your Throat
- IBD Editorial
Free Market Medicine
- Paul Howard, National Review
Interview with Jim Rogers About China
- Keith Fitz-Gerald, Seeking Alpha
Fat Chance: Banning Fast Food
- Sara Wexler, American.com
Stevens Sets Up Fund to Pay for Legal Bills
- Manu Raju, The Hill
The Production Value of Brett Favre
Skip Sauer, The Sports Economist
PODCAST: Interview with Carla Howell -
The Glenn and Helen Show
Commentary by John M. Berry
Aug. 21 (Bloomberg) -- U.S. inflation reached its highest level in more than a quarter-century this summer. The good news is that the worst of the price increases probably is behind us.
The surge in commodities prices, especially for oil and food, drove the year-over-year increase in consumer prices, to 5.6 percent in July. Now, with the prices of oil, corn, copper and many other commodities in retreat, the month-to-month changes in the consumer price index will settle down.
The bad news is that the drop in inflation won't be sudden, because many businesses are trying to pass on their higher costs to their customers. For instance, utilities in Virginia and New Hampshire recently got permission from regulators to raise electricity rates because of increased fuel expenses.
What's reassuring is the absence of signs that the surge in inflation has triggered a wage-price spiral. Many companies have managed to boost productivity enough to offset much of the increase in their labor costs.
While that's hardly cause for celebration among workers who have seen their inflation-adjusted pay fall, some of that loss is being regained as the cost of gasoline comes down.
The average cost of all grades of gasoline declined by 37 cents a gallon, or 8.9 percent, to $3.79 over the five weeks ended on Aug. 18, according to the Energy Information Administration. Over the same period, diesel prices plunged 55 cents a gallon, or almost 12 percent, to $4.22.
Skewed Comparison
When the Labor Department issues its report next month on the CPI for August, it may show an even higher year-over-year increase than July's. But that may be the result of a 0.2 percent decline in the index in August 2007 that will drop out of the year-over-year calculation.
It's unlikely that falling motor-fuel prices will be enough to cause the overall August CPI to decline, since they account for only 5 percent of the index.
The break in commodity prices is also good news for Federal Reserve officials, whose prediction that inflation would moderate was based largely on the expectation that such prices wouldn't rise forever.
Fed officials more closely watch the personal consumption expenditure price index, which is a broader inflation measure than the CPI. At the June 24-25 meeting of the Federal Open Market Committee, most officials said they expected PCE inflation of between 3.8 percent and 4.2 percent this year, falling to 2 percent to 2.3 percent in 2009.
For interest-rate policy purposes, officials place even more emphasis on core PCE inflation, which excludes food and energy. Their projection for the core measure this year was a 2.2 percent to 2.4 percent increase, falling to 2 percent to 2.2 percent next year.
Central Banks
A key issue for the Fed is whether the broader CPI rate would fall toward the core measure, or the core measure would rise toward the CPI. Some central banks, including the European Central Bank and the Bank of England, have formal targets for the change in overall inflation rather than for the core, and some officials at those banks have criticized the Fed's focus on the core.
``Many participants expected that persistent economic slack and a flattening out of energy and other commodity prices in line with futures market prices would cause overall inflation to decline noticeably in 2009 and 2010,'' Fed officials said in explanation of their June economic projections.
At the same time, the summary said, a significant majority of FOMC participants ``saw the risks to the inflation outlook as skewed to the upside.''
Now, two months later, those risks haven't disappeared, though they have diminished.
Commodity Prices
Commodity prices haven't just stopped rising, they have declined. And so long as the outlook for economic growth is weak in the U.S. and Europe, and slowing in many other regions, a quick rebound in commodity prices seems unlikely.
Similarly, productivity growth was strong in the first half of this year, and while slower economic expansion in the second half probably means productivity gains will be smaller, they won't disappear.
For all this country's inflation problems, they aren't as bad as in much of the world. While inflation rates aren't higher in Europe, wage demands there may make them harder to contain.
Those challenges are nowhere near as bad as those confronting emerging markets. In those economies, food and energy are a much larger share of household expenses than in industrial nations, and so far central banks have not raised interest rates as much as may be needed to curb inflation.
Mounting Inflation
``In emerging and developing countries, inflationary pressures are mounting faster, fueled by soaring commodity prices, above-trend growth, and accommodative macroeconomic policies,'' the International Monetary Fund said in its World Economic Outlook released last month.
Inflation is forecast to reach 9.1 percent in these countries this year, dropping to 7.4 percent in 2009, the IMF said.
While the U.S. inflation outlook has improved, there is still a risk that something goes wrong. And even if it doesn't, the Fed's 2 percent target for the overnight lending rate is too low to be maintained indefinitely.
That said, it's ``a good time to be patient, because I do think we will see better news on the inflation front,'' in part because of falling oil prices, Gary Stern, president of the Minneapolis Federal Reserve Bank, said yesterday in an interview.
Thrust into the role of financial firefighter, Federal Reserve Chairman Ben Bernanke has taken unprecedented steps over the past year to battle the nation's worst credit and financial crises in decades.
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Rick McCharles Jackson Hole, Wyoming, site of the Fed conference. |
For many, the verdict is still out on if he opened up the hoses too widely.
While intended to prevent a broader economic meltdown, the Fed's actions have drawn some criticism on Capitol Hill and elsewhere about whether taxpayers are being put at risk and if expanded safety nets will encourage financial companies to gamble more recklessly in the future.
The Fed's handling of the credit, financial and housing debacles—which have badly burned the economy—is likely to spur debate at a high-profile conference this week in Jackson Hole, Wyo.
This year's forum will examine past and present financial crises, and the challenges confronting Bernanke and other central bankers as they try to help stabilize financial markets worldwide.
Sponsored by the Federal Reserve Bank of Kansas City, the three-day conference opens Thursday with a reception for Fed policymakers, economists, academics and international central bank officials.
The main attraction—a speech by Bernanke on financial stability—comes Friday morning, followed by a raft of academic papers and discussions.
At last year's conference, Bernanke was taking heat about whether to start lowering interest rates. He signaled the Fed stood ready to do so. It cut rates seven times from September through April.
The economy is the top concern for voters and of keen interest to presidential contenders Sens. Barack Obama and John McCain, who are gearing up for their party's conventions.
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Financial and credit problems are expected to smolder into next year. The International Monetary Fund has described the financial shock as the biggest "since the Great Depression."
But Bernanke—a scholar of the Depression—has said while the current experience is not "remotely like" that, the ongoing financial distress in the U.S. is among "the most severe episodes of the post War era."
The roots of the current crisis can be traced to lax lending for home mortgages—especially subprime loans given to borrowers with tarnished credit—during the housing boom.
Lenders and borrowers were counting on home prices to keep zooming. But when the housing market went bust, home prices plummeted.
Foreclosures spiked as people were left owing more on their mortgage than their home was worth. Rising mortgage rates also clobbered some homeowners.
"As we look back on it, we see that there were just some serious failures in the management of risks," Bernanke told Congress last month. "The regulators bear some responsibility on that."
As financial companies racked up multibillion-dollar losses on soured mortgage investments, and credit problems spread globally, firms hoarded cash and clamped down on lending.
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Mary Altaffer / AP Federal Reserve Chairman Ben Bernanke. |
That crimped consumer and business spending, dragging down the national economy _ a vicious cycle the Fed has been trying to break.
To brace the wobbly economy, the Fed has slashed its key interest rate by a whopping 3.25 percentage points, the most aggressive rate-cutting campaign in decades. Yet, those cuts also aggravated inflation.
The Fed has taken a number of unconventional—and some controversial—actions to shore up the shaky financial system and to get credit—the economy's lifeblood—flowing more freely.
In the broadest expansion of its lending powers since the 1930s, the Fed agreed in March to let investment houses draw emergency loans directly from the central bank. At the time, the Fed feared other investment banks could be in jeopardy after a run on Bear Stearns pushed it to the brink of bankruptcy.
As part of JPMorgan Chase's [JPM 36.26 
-0.74 (-2%) 
] takeover of the failing company, the Fed provided a $28.82 billion loan.
In July, the Fed said troubled mortgage giants Fannie Mae [FNM 4.85 
0.45 (+10.23%) ] and Freddie Mac [FRE 3.16 -0.09 (-2.77%) ] also could tap the program.
For years, such lending privileges were extended only to commercial banks, which are subject to stricter regulatory supervision.
Fannie and Freddie's problems continued this week as concerns over their capital-raising abilities and the prospect of a government bailout caused shares of both to plunge.
The Fed also gave banks another way to tap short-term loans and let investment firms swap risky investments for super-safe Treasury securities.
Those programs aim to help squeezed financial companies overcome credit problems so they can keep lending to customers.
Some critics worry the Fed actions could put taxpayers on the hook for billions of dollars and create a "moral hazard," where financial companies might feel more inclined to take extra risks in the future because they believe the Fed will ultimately bail them out.
Bernanke has repeatedly defended the Fed's decisions saying they were needed to avert a financial catastrophe that could have plunged the economy into a deep recession.
The Fed chief also has said he doubted taxpayers would suffer any losses. The Fed "never lost a penny" in past lending maneuvers, Bernanke said.
Some economists and lawmakers blame former Fed Chairman Alan Greenspan for feeding the housing bubble that eventually burst by leaving rates at extraordinary low levels for too long.
The Greenspan Fed in the summer of 2003 dropped its key rate to 1 percent, the lowest in more than four decades. The rate stayed there for a year before the Fed started raising rates to curb inflation.
Greenspan also has been criticized for failing to crack down on certain dubious lending practices that led to the explosion of risky subprime mortgages. Greenspan has said the benefit of expanded home ownership in the U.S. was worth the risk.
Bernanke, who took over the Fed in February 2006, pushed for tougher regulations in this area, which were adopted in July.
Worried about inflation, the Bernanke Fed has halted its rate-cutting campaign. The Fed is expected to leave rates at the current 2 percent, a four-year low, when it meets on Sept. 16 and probably through the rest of this year.
But Richard Fisher, president of the Federal Reserve Bank of Dallas, wants to boost rates, fearing inflation could get out of hand.
If more Fed members join Fisher's camp next month, Bernanke will find himself trying to douse more fires: a Fed fragmented over when to boost rates, and heightened concerns about inflation engulfing Wall Street and Main Street.
It’s back to basics to dress up the Windows brand
By Richard Waters
It is written somewhere in the newspaper columnists’ code of conduct that you should never take pot shots at an easy target. For readers it has all the suspense of watching fish being shot in a barrel. It also feels morally reprehensible – the journalistic equivalent of deliberately kicking a small dog.
So be warned: this is one of those columns that breaks the code of conduct.
There is no other way to write about Microsoft’s generally woeful handling of its Windows brand, and the marketing of the Windows Vista operating system. On any financial measure you care to take, Windows and the Office suite of software applications are two of the world’s most successful commercial products. The problem is that they generate as much enthusiasm as a bowl of cold porridge.
Microsoft faces a fundamental problem . Many users do not want to upgrade to new versions of the software. If there is a value proposition, Microsoft has failed to explain it to its customers.
Bill Eline, chief information officer of Parker Hannifin, a Midwestern manufacturer with $10bn (€6.8bn, £5.4bn) in sales, is typical. “We are delaying deployment of Vista as long as possible,” he told me the other day. “It doesn’t really bring any value at all to us.”
Surely, I ventured, there is at least some small benefit to switching to the latest versions of Windows and Office, once you get over the hassle? “We’d much rather stay with the ones we have,” he replied. “It’s just more stuff people don’t know how to use.”
When users of your flagship products feel like this, it is usually a sign that you are in trouble – though thanks to its PC software monopoly and the very long time it takes for new computing architectures to take hold, it could be many years before that trouble becomes apparent.
So how could you make people actually get a lump in their throat when they think about Windows? That is the challenge before Crispin Porter Bogusky, the advertising agency Microsoft has hired to devise a breakout campaign for Windows. The agency has experience of this kind of thing, having recently breathed life back into the moribund Burger King brand.
It is worth going back to advertising basics. The key to successful product positioning, according to David Ogilvy, the legendary adman, is to give a clear explanation of “what the product does, and who it is for.”
Writing in Ogilvy on Advertising, he gave the example of Dove soap. He could have positioned it as a detergent bar for men with dirty hands, but instead sold it as a toilet bar for women with dry skin. Soap advertising never looked back.
The positioning of the Windows brand has failed to meet this simple test. Consider the “what it does” part. Yes, it is an operating system, but how does that make your life better or help you succeed with the opposite sex? Confusing the picture, Windows is also the name of a group of online services under the Windows Live banner. Windows Live OneCare is a fine service – I know, I use it – but I am at a loss to see what it has to do with my PC operating system.
Compounding this problem has been the lack of a clear message around Vista. This is not just a marketing problem: it has its roots in the development process that gave birth to the much-maligned piece of software.
I am still struck by something Ray Ozzie, Bill Gates’s successor as chief software architect, told me soon after he joined Microsoft three years ago. He never personally gives the green light to a new software project, he says, until the developers have written down, on a single sheet of paper, exactly what benefits this new product is meant to bring to customers.
Vista’s planners fell into the trap of taking a product that was already trying to be all things to all people, then setting out to improve it across the board. No single change to the software has stood out.
That has left the field wide open to Apple, which was quick to step into the vacuum. It is pretty clear from Apple’s cheeky ads what Windows does: it crashes, exposes its users to viruses and generally turns them into tedious, colourless characters.
This leads to the second problem that Microsoft has failed to address in its marketing: who is Windows for?
The problem, again, is partly a function of the product’s massive success: after all, Windows is for everyone. To be more precise, it is for software developers who write programs to run on it, for corporate IT professionals who have to keep battalions of PCs running and for you and me, the average customers, who just want to do basic stuff.
The brains at Crispin Porter no doubt have a solution for the revival of the brand. But here is mine – free of charge.
First, restrict the Windows brand to the computing platform, not the services that run on it. Digital life is getting difficult: you can rely on Windows to make it all fit together. It just works (despite what Apple says). Windows users may not be hip, but they are cool, got-it-together kind of people, they have an edge in their understated, laid-back way.
Next, make sure the marketing types have a say early on about the next Windows (due in 18 months). It needs to make life better in some way. The implicit claim “Now with More Window!” is not enough.
Then focus all the company’s efforts on building new service brands to run on top of Windows. This is where the users’ passion really gets ignited. Oh, and lay off the cold porridge.
Stephanie Tubbs Jones, RIP
August 21, 2008
The Associated Press unwittingly produced some gallows humor yesterday afternoon in retracting a mistaken report:
EAST CLEVELAND (AP)--Kill the APNewsAlert saying U.S. Rep. Stephanie Tubbs Jones has died. A doctor says she is in critical condition.
Tubbs Jones, a five-term Democrat, had suffered a brain aneurysm, and a later AP report blamed "various Democratic officials who spoke on condition of anonymity" for the initial false report:
According to AP Washington News Editor Matt Yancey, the AP had spoken earlier to Democratic and Republican officials about Tubbs Jones' condition and they declined to speak on the record or on background. One of the Democratic officials later called back and, willing to speak on condition of anonymity, said Tubbs Jones had died.
That official later told the AP that both Speaker Nancy Pelosi's office and House Democratic Whip James Clyburn's office, as well as Ohio Gov. Ted Strickland's office, had been told that Tubbs Jones was dead. One Democratic leadership office sent out e-mails about 1 p.m. to other Democratic lawmakers' offices saying she had died.
"Once Nancy's notified, I've never seen it wrong before," the official said, again speaking on condition of anonymity.
Nancy's notification notwithstanding, a Cleveland Clinic doctor informed reporters at a news conference "that Tubbs Jones was in critical condition with limited brain function." A few hours later, she did die. She was only 58.
In a way, she died as she lived--not surrendering until she absolutely had to, not even a few hours too soon. Her most memorable political act was recounted in the New York Times on Jan. 7, 2005:
A single senator--Barbara Boxer, a California Democrat who was sworn in Tuesday for a third term--joined Representative Stephanie Tubbs Jones, Democrat of Ohio, in objecting to Ohio's 20 electoral votes for Mr. Bush, citing voting irregularities in the state.
The move turned what would have otherwise been a polite ceremony into a political and historical drama. Mrs. Boxer said she had acted "to cast the light of truth on a flawed system which must be fixed now."
Instead of holding a courteous joint session to certify the election, lawmakers were forced to retreat to their separate chambers for two hours of debate and a vote on the challenge. Democrats, nearly all of whom conceded that Mr. Bush was the rightful winner, said the move cast a needed spotlight on voting rights. Republicans called it waste of time.
The objection was overruled, 74-1 in the Senate and 267-31 in the House.
This year Tubbs Jones backed Hillary Clinton for president. As an AP obit reports:
She switched her backing to Sen. Barack Obama in June, but said he could not win unless Clinton's supporters rallied behind him. She also said Obama should consider Clinton as a running mate.
The odds of that are minuscule, but Mrs. Clinton will get a roll-call vote at next week's Democratic Convention. She will not win it, but she will come closer than the 2005 challenge to Ohio's electoral votes.
Crisis of Faith
Are liberals beginning to sour on Barack Obama? Just last month, we noted that no one was daring to make jokes at his expense. Even The New Yorker explained that its cover depicting him as a terrorist was actually meant to make fun of Republicans. But that may be changing. Kevin Drum of The Washington Monthly notes this quote from Obama in 1995, "telling a story about the first time his grandmother came to Chicago to meet his in-laws":
My grandmother walks in, it's all black people in the room, she's the only white person there except for my mother, and she's feeling a little nervous and a little out of place. And she suddenly sees this table set with fried chicken, and succotash, and a jello mold, and suddenly she realizes that she has a culture that she's sharing with all these people.
Quips Drum: "Ah, the healing balm of Jell-O™. It really does bring us all together." Bah-dum-bum!
OK, Drum should keep his day job. (Actually, he's moving to Mother Jones, where his comedy stylings are at risk of being overshadowed by David Corn's.) But this does show that the reverence for Obama is fading.
Meanwhile, one Joel Hirschhorn of DissidentVoice.com seems to have thrown in the towel on the Obama campaign, writing a column in which he imagines a McCain victory:
The final results are in on this historic November day. Despite the hundreds of millions of dollars he raised, Barack Obama has lost the 2008 presidential election. American voters have boldly spoken truth to arrogance. Turned out that all those pre-election opinion polls that showed Obama's inability to get over 50 percent support were prescient. Much of the public was never comfortable with Obama, though he clearly was so comfortable acting like he already was president. . . .
Jon Stewart and other late-night comics will feast on these election results, as they should. I can't wait to hear jokes about Obama's wife becoming a more vocal and militant critic of the good old USA, now that she has proof positive that so many Americans are stupid white racists.
Ok, Hirschhorn isn't exactly Henny Youngman either, but he does begin one paragraph with what may be the funniest four words in the English language: "Cynthia McKinney wisely noted . . ."
Over at Time, Joe Klein criticizes Obama for being too cool:
When [Rick] Warren braced him on abortion, Obama fumbled around, attempting to sound reasonable. He should have said straight out, "We're gonna disagree on this one. I respect your view on abortion, but I'm pro-choice . . . And you know, Pastor Rick, Jesus never mentions abortion in the Bible. He did say, though, that it's easier for a camel to go through the eye of a needle than for a rich person to enter heaven. Now, that's a metaphor--but it's also good tax policy. Unlike John McCain, I want to make it easier for rich people to go to heaven." . . .
The last question at the North Carolina town meeting came from a homeless veteran who said more than half of the 200 people living in his shelter were veterans too. Obama gave a solid, substantive answer. What he should have said was, "That's outrageous! Why don't we go over there right now--I'd like to thank them for their service and see what we can do to help." That sort of spontaneity--that sort of real passion--is what's missing from this candidacy. I suspect Obama will have a hard time winning unless he finds some of it.
Well, technically Obama isn't yet the nominee. Maybe next week enough superdelegates will withhold their support to force a second ballot. Obama's people are never going to back Hillary Clinton, but maybe there's room for a compromise candidate. We have someone in mind--a guy who knows exactly what to say to win over skeptical voters. Joe Klein for president!
Can This Marriage Be Saved?
Probably not. Democrats are angry at Sen. Joe Lieberman, a member of their caucus, who has endorsed John McCain for president and plans to speak at the Republican National Convention next month, Politico reports. Rep. Rahm Emanuel accuses Lieberman of selling out his "principles":
"Hey, I'm all for having friendships regardless of party labels, but I'm also for my principles," he added. "And Joe has fundamental differences with McCain on the environment, a woman's right to choose. . . . What you can't do anymore is just roll your eyes and say, 'Oh, that's just Joe.' Lieberman knows what he's doing and there are consequences."
Of course, Lieberman agrees with McCain and disagrees with many in his own party on defending America, which we would argue is more important than "the environment" or "a woman's right to choose." Politico also notes that Senate Democrats are more circumspect in their criticism of their wayward colleague:
Jim Manley, spokesman for Senate Majority Leader Harry Reid, said Lieberman "can speak to whatever group he wants but that doesn't change the fact that John McCain is a flawed candidate."
In private, members of the Democratic caucus talk openly, and with relish, about making Lieberman pay--but his Senate colleagues have been far more reluctant to cry for his scalp in public.
Lieberman stands accused of party disloyalty, but the party hasn't exactly been loyal to him. First it rejected his bid for renomination in 2006, then most of its members endorsed his challenger when he decided to run as an independent.
Despite this betrayal, Lieberman remained loyal to the Democrats, caucusing with them and thus casting the deciding vote that made Reid rather than Kentucky Republican Mitch McConnell majority leader. For this they plan to repay him by giving him the boot once they no longer need one man with courage to make a majority. If this were really a matter of principle, they'd have booted him in January 2007, when it would have cost them something.
Metaphor Alert
"Democrats privately and publicly are questioning whether Obama has a second act beyond his message of change and wondering whether he can throw an effective punch against a Republican Party willing to play hardball."--Associated Press, Aug. 20
Gripe Nuts
New York's Daily News reports that Olympic superstar swimmer Michael Phelps has struck a product-endorsement deal with Kellogg's that will put his name on boxes of Frosted Flakes, the sugar-coated corn cereal with the tiger for a mascot. Not everyone is happy about this, and we don't just mean the folks at General Mills:
"I would not consider Frosted Flakes the food of an Olympian," said nutritionist Rebecca Solomon of Mount Sinai Medical Center.
"I would rather see him promoting Fiber One. I would rather see him promoting oatmeal. I would even rather see him promoting Cheerios."
Really? And how many Olympic medals has Solomon won? As it turns out the answer is zero, even when you count her entire country.
It's a Good Time for a Hunger Strike
"With DNC in Mind, City Bans Carrying Urine, Feces"--headline, Rocky Mountain News (Denver), Aug. 4
With DNC in Mind, City Bans Carrying Urine, Feces
"Pigeon in Custody for Drug Smuggling"--headline, Telegraph (London), Aug. 21
Not as Impressive as Obama's Parting the Red Sea
"McCain Hope to Turn the Tide in Great Lakes Area"--headline, Associated Press, Aug. 21
'Who Invited These $#@!#s to the Rally?'
"Geopolitical Tensions Rally Crude"--headline, WSJ.com, Aug. 21
Should Be Easy to Find, if They Don't Use an Arab Map
"US Airways Seeks Philadelphia-Tel Aviv Route"--headline, Associated Press, Aug. 19
'This One's on the House'
"Suit: Restaurant Gives Man 9-Foot Tapeworm"--headline, Cape Cod Times (Hyannis, Mass.), Aug. 20
Who Needs the Big Bang?
"PNM Adds Incentives to Boost Number of Solar Systems"--headline, New Mexico Business Weekly, Aug. 19
Everything Seemingly Is Spinning Out of Control
• "Global Warming Pushes Peru to Pick Coffee Earlier"--headline, Reuters, Aug. 20
• "U.S. Amish Population Surges and Spreads: Study"--headline, Reuters, Aug. 20
• "Foursome Turns Violent, Ends in He Said, She Said-He Said, She Said"--headline, Capital Times (Madison, Wis.), Aug. 19
• "World Is Growing Ever Smaller"--headline, Arizona Daily Star (Tucson), Aug. 21
News You Can Use
• "Shrink the Bottle, Save the Planet"--headline, Globe and Mail (Toronto), Aug. 20
• "Beware of the Left-Wing Liberals"--headline, Baxter Bulletin (Mountain Home, Ark.), Aug. 21
Bottom Stories of the Day
• "North Korea Declares Sweden an Enemy"--headline, Local (Sweden), Aug. 19
• "Huckabee Says He'd Consider VP Offer"--headline, Associated Press, Aug. 19
• "Canada and Latvia Cheer as Monopoly Goes Global"--headline, Reuters, Aug. 20
• "MSNBC Changes Prime-Time Lineup"--headline, New York Times, Aug. 20
Bag Man
Yesterday's New York Times carried an op-ed defending Russia's invasion of Georgia:
Russia did not want this crisis. The Russian leadership is in a strong enough position domestically; it did not need a little victorious war. Russia was dragged into the fray by the recklessness of the Georgian president, Mikheil Saakashvili. He would not have dared to attack without outside support. Once he did, Russia could not afford inaction.
The author? One Mikhail Gorbachev. We thought this name sounded vaguely familiar but couldn't quite place it, so we did a little research to find out who he is. We found this headline from FunReports.com: "Mikhail Gorbachev Advertises Louis Vuitton Bags to Make His Living."
OK, so why does the New York Times think a purse salesman is qualified to opine on Caucasian affairs?
Commentary by Caroline Baum
Aug. 21 (Bloomberg) -- Talk about anchored.Inflation expectations are so weighted down that investors are buying 10-year Treasuries yielding 3.8 percent with inflation running at 5.6 percent.
Federal Reserve policy makers couldn't ask for a stronger mooring in the face of disappointing inflation news. A pair of reports on consumer and producer prices for July showing year- over-year increases of 5.6 percent and 9.8 percent, respectively, the fastest pace in 17 and 27 years, failed to rattle the U.S. Treasury market.
There are two schools of thought on why Treasuries are expensive relative to inflation and an expected onslaught of supply to finance the growing federal deficit. The Bush administration projected a record $482 billion deficit in the fiscal year that begins Oct. 1.
The first holds that bonds are mispriced. Buyers are either complacent or smoking something stronger than tobacco. Even if they are in full command of their faculties, they are choosing liquidity over yield.
``Investors are willing to take a lower yield on risk-free investments'' in light of questions about the solvency of Fannie Mae and Freddie Mac and systemic risks the Fed is working to mitigate, says Greg Ehlers, a managing partner at Navigate Advisors, a Stamford, Connecticut, brokerage firm.
The other school sees the market as forward-looking. Inflation may be elevated now, but bonds are telegraphing better (inflation) or worse (economic) news, depending on one's reference point, ahead.
Great De-leveraging
Investors may be willing to accept a lower yield in exchange for assurances of timely payment of principal and interest. But why would they knowingly tie up money for 10 years in anticipation of a negative return when they have the option of investing for a shorter term or buying inflation-indexed bonds (TIPS), which offer a real yield plus compensation for actual inflation?
Answer: Because enough folks expect the great de-leveraging under way, with its contractionary effect on money and credit, to pare inflation so that the return on a nominal 10-year note will exceed that on 10-year TIPS.
Michael Pond, interest-rate strategist at Barclays Capital Inc. in New York, isn't a buyer of that idea.
``In 2003, the Fed forcefully put a floor under inflation,'' cutting the overnight rate to 1 percent, where it overstayed its welcome, Pond says. ``They will not let inflation go much lower'' than it was then.
He has a point. The Fed wants to avoid deflation at all costs, even the ``good'' technology-driven kind.
Still, there are good reasons to think inflation is peaking. Commodity prices, which don't cause inflation but can be a reflection of it, are falling.
Margin Squeeze
Before you get too excited about the potential for soaring producer prices to be passed through to consumer prices, consider what's been happening to the relationship between consumer goods prices and producer prices of finished consumer goods.
``The ratio is trending lower, indicating that businesses are unable to fully pass on their higher costs to consumers,'' says Northern Trust Corp. chief economist Paul Kasriel. ``Even with necessities like gas, refiners can't pass on the full cost of higher crude,'' which is manifesting itself in weak refinery profits, he says.
In other words, it's a profit margin story rather than an inflation story.
Consumers, for their part, aren't likely to act out on their elevated inflation expectations. The idea that consumers hoard in anticipation of higher prices is a theory in need of a reality check, according to Doug Lee, president of Economics from Washington, a private consulting firm in Potomac, Washington.
Born to Hoard
Lee deconstructed the CPI and found that 59 percent of the index is services, which can't be hoarded. Of the 41 percent of the CPI that is goods, or commodities, 11 percent is durable goods, ``which are expensive, purchased infrequently and therefore unlikely to be hoarded,'' Lee says.
Throw in 14 percent for food, much of which is perishable, and 10 percent for energy, which is hard to store unless you happen to own a corner gas station, and there's a whopping 6 percent that is subject to hoarding.
In all fairness, the Fed is more concerned about a wage- price spiral than hoarding behavior, a subject I addressed in a recent column. Labor has neither the power nor the wherewithal to command a higher wage when unemployment is rising.
The yield on the 10-year Treasury note plummeted 200 basis points to about 3.3 percent between June 2007 and March 2008. Yields shot up 100 basis points before they started falling again in June.
Theory of Relativity
And for good reason. With a growing belief that the Treasury will have to inject capital into Fannie and Freddie, even debt holders have become gun shy. This week, Freddie Mac sold $3 billion of five-year reference notes at a yield of 4.172 percent, the highest spread over like-maturity Treasuries in at least 10 years.
Foreign central banks holdings of agency securities have leveled off in the past month, according to data on the Fed's custody holdings for foreign central banks. And yes, their purchases of Treasuries have shot up.
``The supply of debt hasn't gone up as fast as the demand from credit-risk-averse official investors,'' says Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey.
Treasuries can stay expensive longer than the shorts can stay solvent, to paraphrase the late economist John Maynard Keynes.
Keynes also said that ``when the facts change, I change my mind.''
It may be that the fundamental facts -- on inflation and growth -- will change so that it's perceptions about yields, not the reality, that is altered.
Aug. 21 (Bloomberg) -- U.S. and Iraqi negotiators produced a draft agreement on how long U.S. troops will stay in Iraq and the scope of their mission after 2008, Foreign Minister Hoshyar Zebari said, adding that a process leading to parliamentary consideration will begin tomorrow.
Secretary of State Condoleezza Rice, in a briefing with Zebari in the Iraqi capital, said today the plan contains ``aspirational timetables'' for a pullout. She didn't offer details. While Rice declined to answer a question on the issue of immunity of American forces under the agreement, she said the U.S. would respect Iraq's sovereignty.
``We are very close to finalizing this very important agreement,'' Zebari said. All issues have been addressed in the draft, which will be presented to Iraq's executive council before lawmakers take it up for approval, he said.
Under the proposed agreement, U.S. forces would withdraw from Iraqi cities and towns to nearby bases by next summer, and American combat forces would aim to leave the country by 2011, the Wall Street Journal reported, citing Iraqi Deputy Foreign Minister Mohammed al-Haj Humood.
The U.S. aims to complete the status of forces agreement before a United Nations mandate expires at the end of this year. President George W. Bush and Prime Minister Nuri al-Maliki agreed July 18 on what the White House called a ``general time horizon'' for the reduction of U.S. combat forces.
Not Complete
A White House spokesman, Gordon Johndroe, told reporters in Texas that discussions with Iraq on the military status accord aren't complete. He wouldn't say when the deal would be wrapped up.
Zebari said the agreement addresses the ``temporary presence'' of U.S. forces and their mission. He reiterated that Iraq would not be used as a base from which to attack any other country.
The agreement has potential ramifications for the U.S. presidential election. The presumptive Democratic nominee, Barack Obama, has called for the U.S. to set a schedule for withdrawal from Iraq; his Republican rival, John McCain, opposes a timetable and says U.S. forces must remain for as long as necessary to achieve security.
Larry Sabato, a political analyst at the University of Virginia in Charlottesville, said both Obama and McCain may derive some benefit from the agreement.
McCain, Surge
``It helps McCain because he can say, `This is happening due to the success of the surge that I backed and Obama opposed,''' Sabato said, referring to the U.S. troop buildup ordered by Bush last year.
At the same time, a troop agreement may well reduce the saliency of Iraq as a campaign issue, and that would work to Obama's advantage, he said.
``If Iraq is not at the top of the agenda, something else will be, and it'll be the economy,'' Sabato said. ``Who benefits from that? There's absolutely no way John McCain can win on the economy.''
Michael O'Hanlon, a foreign-policy analyst at Washington's Brookings Institution, said the Bush administration will want to keep the agreement's redeployment goals as loose as possible to give the U.S. maximum flexibility in case violence worsens.
He said Iraqi officials want the agreement to include withdrawal objectives as an affirmation of their country's sovereignty. They also understand the need for flexibility in the face of an uncertain security situation, he said.
Voter Views
After the economy, U.S. voters say the most important issue for presidential candidates Obama and is the war in Iraq, with 31 percent picking that issue as their top priority, according to an Aug. 15-18 Bloomberg/Los Angeles Times poll.
As U.S. casualties in Iraq have declined this year, voters are increasingly seeing McCain as better able to succeed in the Iraq conflict. By a margin of 43 percent to 36 percent, they say McCain, a senator from Arizona, is better suited than Obama, a senator from Illinois, at achieving success in the war, according to the poll.
Two days after al-Maliki agreed with Bush in July on a pullout timeframe, the Iraqi leader told a visiting Obama that he hopes U.S. troops will depart by 2010, while not explicitly expressing support for Obama's proposed 16-month timetable. Al- Maliki has said Iraq can take care of its own security with the country's current police and armed forces.
The U.S. has cut its presence to around 146,000 troops in Iraq from a peak of more than 160,000 late last year during the surge.
Brigades Leave
The Pentagon said in July that it had completed removing all five army brigade combat teams sent to Iraq as part of the military buildup to quell sectarian violence and fight al-Qaeda.
To reach the preliminary agreement with Iraq, the Bush administration dropped its position that U.S. contractors maintain their immunity from prosecution under Iraqi law, the Journal reported. Joint U.S.-Iraqi committees will deal with issues of immunity for U.S. military personnel, the newspaper reported, citing Humood.
The contractor issue has resonated in Iraq because of accusations that Blackwater Worldwide, a Moyock, North Carolina- based security company hired to protect U.S. diplomats, shot dead innocent Iraqi civilians while guarding convoys. Blackwater has said its guards acted in self-defense in the September incident.
While Iraqi lawmakers will review the proposed agreement, the Bush administration has rejected contentions by members of Congress in Washington that they also should have a say on the terms.
Johndroe said the agreement wouldn't require ``specific congressional approval'' because it's not a treaty. Some Democratic lawmakers say they want a congressional review to understand what obligations Bush may be imposing on his successor.
Aug. 21 (Bloomberg) -- Commodities headed for their biggest weekly gain in 33 years as oil rose for a third day and a weakening dollar revived demand for raw materials as alternative assets.
The Reuters/Jefferies CRB Index of 19 commodities soared 3.3 percent to 404.38 at 1:52 p.m. in New York. A settlement tomorrow at that level would mark a 5.8 percent gain for the week, the most since July 1975. The dollar dropped the most in six weeks against the euro today and oil jumped as much as 5.6 percent.
The rebound in the CRB and a resumption of the dollar's decline may stall a rout in commodities that that has sent the index down 15 percent from a record on July 3. Raw materials priced mostly in dollars often move in the opposite direction of the U.S. currency.
``The bounce in the dollar had caused people to sell commodities aggressively, and a lot of that selling became overdone,'' said Chip Hanlon, who helps manage $1.5 billion at Delta Global Advisors in Huntington Beach, California. ``This move may tell us that those downtrends are over. Commodities could continue to rally from here.''
Every commodity on the CRB except hog futures moved higher today. Cocoa jumped 6.8 percent, silver rallied 5.3 percent and crude oil gained 4.4 percent. Oil and gold both headed for their biggest one-day advances since June. Platinum jumped 6.6 percent, the most since September 2001.
Chinese Demand
Commodities also gained today on speculation demand will increase from China as the country resumes work at factories and infrastructure projects that were shut or slowed during the Olympics, which end Aug. 24.
``China's demand is very important to the commodity markets,'' Hanlon said. ``Now that they're ready to start bringing back factories that had been idled, I wouldn't be surprised to see demand start to pick up again there. Their long-term outlook for growth and development hasn't changed.''
The CRB has more than doubled since 2001 as demand surged in China, the world's fastest-growing major economy. Mining and oil companies, farmers and other commodity producers have struggled to keep up with rising consumption as harsh weather and labor unrest disrupted supplies.
``Until either a lot of supply comes on stream or the economy collapses, the bull market will continue,'' said investor Jim Rogers, who in April 2006 correctly predicted oil would reach $100 a barrel and gold $1,100 an ounce.
Top Gainers
Today's gains in the CRB were led by nickel, which rose 8 percent.
Cocoa rose the most since November 2004 in New York. The International Cocoa Organization said a global deficit will be twice as large as previously expected, with output trailing demand by 88,000 metric tons in the year through September, up from an earlier forecast of 41,000 tons.
``That news, along with dollar weakness, powered strong early-morning gains,'' Dan Vaught, an analyst for Wachovia Securities LLC in St. Louis, said today in a report.
The UBS-Bloomberg Constant Maturity Commodity Index rose 4 percent to 1,508.63. A settlement at that price would mark a 6.8 percent gain this week, the most since the data starts in 1997.
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