Greece on the skids?

In the Washington Post Robert Samuelson ponders the fate of Greece, and wonders if it is the canary in the mineshaft:

What's happening in Greece speaks to two larger issues affecting hundreds of millions of people everywhere: the future of the welfare state and the fate of Europe's single currency -- the euro.
....
The threat to the euro bloc ultimately stems from an overcommitted welfare state. Greece's situation is so difficult because a low birth rate and rapidly graying population automatically increase old-age assistance even as the government tries to cut its spending. At issue is the viability of its present welfare state.
Almost every advanced country -- the United States, Britain, Germany, Italy, France, Japan, Belgium and others -- faces some combination of huge budget deficits, high debts, aging populations and political paralysis. It's an unstable mix. Present deficits may aid economic recovery, but the persistence of those deficits threatens long-term prosperity. The same unpleasant choices confronting Greece await most wealthy nations, even if they pretend otherwise.

Barro on the spending multiplier

From his piece in the Wall Street Journal:

I estimate a spending multiplier of around 0.4 within the same year and about 0.6 over two years. Thus, if the government spends an extra $300 billion in each of 2009 and 2010, GDP would be higher than otherwise by $120 billion in 2009 and $180 billion in 2010.
....
When one factors in the typical relationship between tax rates and tax revenue, the multiplier is around minus 1.1. Hence, an increase in taxes by $300 billion lowers GDP the next year by about $330 billion.

Few economists think that the velocity of money is stable enough to predict with any accuracy what would happen if the money stock increased by10%. Why should the multiplier be any more predictable?

Update: More here and here.

Spirituality

From Instapundit:

YOUNG VOTERS WANT SPIRITUALITY, BUT NOT NECESSARILY RELIGION. Well, that’s because religion often tells you to do things you don’t want to do, or to refrain from doing things you want to do, while spirituality is usually more . . . flexible.

Taxes in New Jersey

People respond to incentives:

Several years ago, he recalled, one of his clients stood to make $60 million from stock options in a company that was being acquired by another. Before he cashed out, however, the client put his home up for sale, moved to Las Vegas, and “never stepped foot back in New Jersey again,” Hydock said.
“He avoided paying about $6 million in taxes,” he said. “He passed away two years later and also saved a huge estate tax, so he probably saved $7 million.”

The above quotation is from an article at nj.com, looking at studies showing that the high tax rates in New Jersey are encouraging wealthy people and people with high incomes to move.

Uncertainty and investment

From the campaignspot blog at National Review, a letter from a reader

During the Q&A session, I felt compelled to ask the obvious question:  Did he believe that the healthcare reform and related tax proposals, the proposed cap and trade legislation and the consequent increase in energy costs, the expiration of the Bush tax cuts, the agitation for higher taxes on the wealthy, the proposal to increase corporate tax rates, the proposal  to increase capital gains taxes, the trial floating of ideas such as a national VAT and removal of the earnings cap on FICA, the more robust regulatory bureaucracy . . . did he believe any of these uncertainties were depressing hiring?

He stated yes, without a doubt and proceeded to relay a conversation he had with a local chemical company regarding their 2010 capital expenditure budget.  When asked what the company intended to invest in 2010, the response was ‘nothing,’ not due to a paucity of good opportunities, but because it was impossible for the company to calculate a rate of return given all the uncertainty over cost of labor, energy prices, regulatory mandates and the like.

:

Is fairness a social construct?

Economists have used the ultimatum game to discuss fairness. In this game one player splits a sum of money and the other player either accepts or rejects the split. If the second party rejects the split, neither party gets anything. Many people in the role of the second player will reject splits that they consider unfair to punish the first player even though they suffer a loss as a result.

Joseph Henrich in "Does Culture Matter in Economic Behavior? Ultimatum Game Bargaining Among the Machiguenga of the Peruvian Amazon" (American Economic Review, Sept 2000 pp 973-979; pdf here) found that a pre-industrial group in the Amazon basin did not play the game in the same way most groups in the U.S. play the game.

Machiguenga proposers seem to possess little or no sense of obligation to provide an equal share to responders, and responders had little or no expectation of receiving an equal share nor any desire to punish unequal divisions. The modal offer of 15 percent seemed quite “fair” to most Machiguenga.
This evidence generates at least three important questions: (1) Where do people get their rules, expectations, or notions of fairness from? (2) Why do these rules, expectations, and notions seem to vary among groups of people? and (3) How much can these varying rules, expectations, and notions affect real economic behavior? (p 978)

This result raises the question of whether fairness is socially constructed. If it is, why should we pay attention to it?

A double dose of Bush?

Peggy Noonan in the Wall Street Journal:

But there's something else that has led Mr. Obama to his falling poll numbers. When FDR followed the disaster that was Herbert Hoover, he took a new and different path. The government would now hold a new place in the daily American reality. When Ronald Reagan followed the disaster that was Jimmy Carter, he took a new and different path. The federal government would be pushed back from its intrusions on Americans. But when Barack Obama took over after the disaster that was George W. Bush, he did not, in terms of the most pressing domestic issue after unemployment, take a new and different path. He spent, just like Mr. Bush, only even more. It was as if he were saying, "You think Bush broke the bank? I'll show you what a broken bank looks like." This isn't a departure, it's a doubling down.

(I am not sure that FDR actually did take a much different path than Hoover, but at least he made the public think he was taking a different path. Hoover was an interventionist who had great faith in the ability of government to make the world better, and so was Roosevelt.)

Noonan seems to be suggesting that Obama will not be seeking re-election in 2012. Will others pick up that idea and start asking whether Obama will run in 2012, as so many are asking if Palin will run in 2012?

Who is best for the super rich?

A blog on Vanity Fair reports that Obama is losing his support among the super rich. A lot of people do not realize that he had so much support among those of great wealth in the first place.

By working his charm and displaying certain touches of upper-class refinement, Obama persuaded the super rich to embrace his liberal vision for America.

The conventional wisdom is that the super rich are Republican because that is in their economic interest. After all, the Democrats want tax the rich in order to redistribute income.

However, what the rich want even more than increased wealth is security in their relative standing, and they do not get that from free markets. Free markets promote social mobility, allowing poor people to rise and rich people to fall. A system more favorable to the already-rich is crony capitalism. Moreover, a tax system that features high marginal income tax rates may also be in the interests of the very rich because it can reduce social mobility. High marginal tax rates on income make it more difficult for new people to rise to great wealth, but because the tax is on income and not wealth, it does not threaten the economic position of the already-wealthy. Crony capitalism is very popular in much of the world, and one of its charms for the elite is that it promotes a static social order.

So maybe the super rich were not the rubes that the Vanity Fair piece implicitly suggests they were. Maybe they were voting their economic interest by voting for Obama, crony capitalism, and high marginal income taxes. Why then the disillusionment? The piece is a bit unclear, but hints that the super rich are disappointed with Obama's liberalism. I think this paragraph may tell more:

And more to the point, his demeanor is that of a New England elite; he has the ease and confidence of someone who is well-to-do, and he is buttressed by a long list of friends in high places. Which explains how he initially won the allegiance of the rich so easily. It also didn’t hurt that his predecessor in the Oval Office, George W. Bush, a bona-fide member of the American aristocracy and a conservative Republican, had disappointed so many patrician believers with his problematic presidency.

It may not be the leftism but rather the incompetence of the present administration that makes it uncool to be identified with it.

Some buyers remorse on Wall Street

From CNBC:

“The expectation in Washington is that ‘We can kick you around, and you are still going to give us money,’ ” said a top official at a major Wall Street firm, speaking on the condition of anonymity for fear of alienating the White House. “We are not going to play that game anymore.”

Wall Street fund-raisers for the Democrats say they are feeling under attack from all sides. The president is lashing out at their “arrogance and greed.” Republican friends are saying “I told you so.” And contributors are wishing they had their money back.

The story behind the Keynes-Hayek rap video

Here