LALARRY

What are They Thinking ?

from today's wsj

This information may well shed light on whether Saddam planned the insurgency that we and the Iraqis are now fighting, or whether he canoodled with Islamist terrorists, as some of the documents already translated suggest. Only this week, we are learning from the new book on Iraq by Michael Gordon and Bernard Trainor that many of Saddam's own generals believed he had weapons of mass destruction and was prepared to use them. So much for the allegation that "Bush lied" about WMD; Saddam lied to everyone.

This information may well shed light on whether Saddam planned the insurgency that we and the Iraqis are now fighting, or whether he canoodled with Islamist terrorists, as some of the documents already translated suggest. Only this week, we are learning from the new book on Iraq by Michael Gordon and Bernard Trainor that many of Saddam's own generals believed he had weapons of mass destruction and was prepared to use them. So much for the allegation that "Bush lied" about WMD; Saddam lied to everyone.

All of these issues are highly relevant to the ongoing debate over how the U.S. is fighting both in Iraq and in the larger war on terror, and where we should go from here. The Iraq War is a long way from being over, and anything we can know about the accuracy of our judgments before and during the fight is well worth trying to uncover and understand.

Now the logic here (also put forth by that genius O'reilly) escapes me: Hussein kept his generals in the dark by lying and giving the impression there was an active wmd program. Saddam told the truth to the outside world by denying he had an active wmd program (or at least being ambiguous). So Saddam" lied to everyone"  about the (non) existence of an active wmd program. Sorry I don't get it.

So why does it change anything for people like me that believe in this scenario. Intelligence arguing that Saddam had wmd was ambiguous at best, as it went up the chain it was skewed to make the case that the wmd program was active with exhibit A Powell's distortions presented at the UN. And the assertions by Cheney that there was a saddam link to 9/11 were at best distortions. So does tht mean "bush lied" ? You be the judge, but it is incontrovertible that the case for war was chock full of distortions.

btw several wsj pieces asserted these documents would show an active wmd program was in existence on the eve of the war and the weapons transported to Syria. The WSJ has also carried pieces from the Weekly Standard's Stephen Hayes flogging the idea that Saddam had active and fairly extensive ties to al Qaeda. Now the WSJ is hoping to find evidence of Saddam's "cannoodling" with terrorists. Is it going to be an aha moment when we find that canoodling was an ample causus belli and constituted a threat to world peace ?

I do agree with this however:

The Iraq War is a long way from being over, and anything we can know about the accuracy of our judgments before and during the fight is well worth trying to uncover and understand.

Judging from what has been published so far from the book we will learn among other thngs that the US totally underestimated the likelihood of civil unrest in Iraq (Saddam didn't lie about that one to his Generals, he was consistently wary of that) and the milirary was undermaned for the job, lagely due to pressure from Rummy limiting the number of troops. I am awaiting the publication of the book as much as the WSJ guys. Btw if "the iraq war is a long way from being over " refers to the civil war, I agree with the WSJ 100%.

How Do You Say Incredibly Out of Touch In Arabic

From today's WSJ editorial

Hope for the latter is strengthened by our familiarity with the good sense of most Iraqis and the knowledge that the violence on both sides is the work of a few. Despite the hardships of the past few years, most Iraqis pride themselves on their cosmopolitanism and bridle at questions about their ethnic or sectarian background. "I am an Iraqi" is a common reply.....

all pictures are from the wsj website

Most important, perhaps, President Bush should not underestimate his personal popularity among Shiites and the extent to which his words can have a calming effect. His statements condemning the mosque attack have been helpful but don't go far enough. A televised address to Iraqis would be in order -- or perhaps even a visit to convene a conference of national unity and seal an agreement on a new government

WSJ website identifies picture at left as a Pakistani mob burning American and Israeli flags in response to the bombing  of the iraqi mosque (makes sense to me ...not !!)

If they were a bit familiar with the Iraqis, the folks at the WSJ would know that the Shia are blaming the Americans for giving the Sunni more power and the Sunni are blaming the Americans for not protecting them from the quasi governmental Shia millitia carrying out mass killings.

This Gang Can't Shoot Straight Supporting the Guy That Couldn't Shoot Straigh

In  a satiric piece on the press reaction to Dick's shooting incident a WSJ editorial contained the following whoppers.

5:30 p.m., Saturday (all times Central Standard Time). Mr. Cheney sprays Harry Whittington with birdshot, and the Secret Service immediately informs local police. Who is Harry Whittington and whom does he lobby for? Does he know Scooter Libby?

I don't know about Mr. Whittington's activites, but the hostess at the ranch, Katherine Armstrong has lobbied for several companies that have done significant business with the government (see the earlier post)

WSJ:

11 a.m. Katharine Armstrong, owner of the ranch where the shooting took place, blows the story sky-high by giving the news to the Corpus Christi Caller-Times. According to Ms. Armstrong, Mr. Cheney told her to do what she thought made sense. Has Ms. Armstrong ever worked for Halliburton?

Actually no. But her mother, longtime Republican insider Anne Armstrong, is a member of the Haliburton board and recruited Dick C to join her on that board.

Insert Nonsense and Distortions, Press Spin Cycle Button

The WSJ has been peddling the "supply side " economics laffer (laugher) curve nonsense for years. The "theory" argues that tax cuts generate so much new economic activity that the new tax revenues from such activity offset the initial loss in tax revenues. WSJ op ed page hack has gone as far as to assert on several occasions on CNBC that the tax cuts are "self financing" i.e. enough new tax revenue is generated to fully offset the iniital loss in tax revenues.

Reagan budget director David Stockman wrote

In The Triumph of Politics, :

[T]he whole California gang had taken [the Laffer curve] literally (and primitively). The way they talked, they seemed to expect that once the supply-side tax cut was in effect, additional revenue would start to fall, manna-like, from the heavens. Since January, I had been explaining that there is no literal Laffer curve.

This morning the WSJ returns to this hackneyed line of "thought". But even they can only muster the most paltry of evidence and know state:

And no supply-sider we know -- and we know them all -- claims that all tax cuts pay for themselves on a dollar-for-dollar basis

I guess the WSJ editorial board hasn't met one of its own members - Stephen Moore, or at least doesn't know what he says on television....And read the above carefully. Bottom line tax cuts will add to the deficit indefinitely.

Cuts in marginal income tax rates, on the other hand, have demonstrated over the years that they have a big impact on investment and work decisions and thus recoup much of the revenue that "static" models estimate they will lose. Harvard's Martin Feldstein has done research calculating that marginal rate cuts yield back at least one-third of their projected revenue loss.

....And read the above carefully. Bottom line: tax cuts will add to the deficit indefinitely. There is no way the budger will be cut enough to offset 2/3 of the revenue loss from tax cuts. And note the current budget projections assume no changes in the AMT at the same time the administration is proposing limits on it.

So now we're down to 1/3 recovery of the projected income loss not 100% and given the source, let's just say it's on the optimistic side.

For a more down to earth view: (from wikipedia )links are to the original sources.

In 2005, the Congressional Budget Office released a paper called "Analyzing the Economic and Budgetary Effects of a 10 Percent Cut in Income Tax Rates" [2] that casts doubt on the idea that tax cuts ultimately improve the government's fiscal situation. Unlike earlier research, the CBO paper examines the budgetary impact of any possible macroeconomic effects of tax policies, i.e., it attempts to account for how tax cuts affect the overall size of the economy, and therefore influence future government tax revenues; and ultimately, deficits or surpluses. The paper's author forecasts the effects using various assumptions (e.g., people's foresight, the mobility of capital and the ways in which the federal government might make up for the lost revenue). Even in the paper's most generous scenario, only 28% of lost tax revenue is recouped over a 10-year period after a 10% tax-rate cut. The paper points out that these shortfalls in revenue would have to be made up by federal borrowing: the paper estimates that the federal government would pay an extra $200 billion in interest over the decade covered by his analysis. The 10% tax cut would result in a 1% increase in gross national product. The paper appears to focus on Federal government revenue only and does not look at the total public sector revenue (i.e., it does not include increases in local and state government revenue).

Remember, the additional debt never goes away, it just grows and compounds ,as does the cost of servicing it, eventually offsetting any increase in gnp as well. Think of maxing out all your credit cards, buying a new car and building an addition to your house. You've generated lots of economic activity in the short term but it all went into consumption. In the long term as the debt burden hits, you'll have to cut back economic activity to service the debt.

back to the WSJ:

He's also shown that such cuts have an especially large impact on the decisions of household second-earners, typically women, to enter the workplace. A 50% marginal tax rate on the next dollar of income -- the combined state and federal burden in such high-tax states as New York and California -- reduces greatly the incentive for a spouse to trade staying home for a 40-hour week.

On this one, let's just say attributing causation to a single factor in economic research is not easy. If Professor Feldstein is studying the impact of the 2001 cuts, I might speculate that some of those new household secon earners (re)entering the workforce might be a function of the decline in real wages by workers over the period since 2001 (actually earlier). I'll try to track down the actual research.

and here's one that clearly demonstrates that the WSJ op ed folks must not read the rest of the newspaper:

Cuts in capital gains tax rates have had an even larger revenue payback over the years, because they raise the after-tax return on capital and because of the incentive they give investors to lock in a profit by selling stocks and thus creating a taxable event. The 2003 tax cuts on capital gains and dividends have been producing far more revenue than the official estimates expected, including a surprise $100 billion windfall last year. As White House Budget Director Josh Bolten told Congress last week, that's real money even in his business.

Let's examine this one again. Record housing boom, sale of a house generates capital gains taxes, capital gains rates cut but a "surprise windfall" of capital gains tax revenue. Would you attribute this to a one time benefit of a historically anomalous housing boom, largely caused by lower interest rates for which the Federal Reserve is responisble or..."sale of stocks."  ?California has has a massive "windfall gain" in tax revenues, to the best of my knowledge states like Michigan have not. Any guesses why ?

Another point, the tax motivated sales of stocks described above would be a one time event. Once one has taken unrealized capital gains on stocks held for a long period of time - the marginal increase in tax revenue has been realized. That's what a "windfall is. After that the same investors will buy new stocks and hold on to their long term gains. When they sell the tax revenues will be lower due to the reduced tax rates. The only way tax revenues would go up would be if the investor increased the frequency of his trading activity. And that doesn't add any new investment capital to the economy- it's just the same money floating around.

I manage investments, here's what I see in the real world as a consequence of the tax cuts among my clients:

1. No one moves money from bonds or cds into much riskier stocks just because the tax on dividends or capital gains has been reduced. On a risk return basis that would be crazy - on a risk adjusted basis, the cut in taxes doesn't offset the increase in risk. Bottom line no infux of new investment capital due to tax changes.

2. Yes, people are a bit more prone to take profits on long term capital gains due to the lower tax rates, creating a bit of a windfall for the treasury. Recently many people took that money out of stocks and into real estate speculation - I'm not sure that is a net benefit to the economy. Others may increase their stock trading, which does nothing to raise the level of investment in the economy.

3. I, along with many, many investment advisors and news/magazine articles have recommended people hold a higher proportion of dividend paying stocks in their portfolio to take advantage of the big decrease in tax rates to 15% (previously taxed at the ordinary income rate). The net effect of this is zero in terms of new investment in the economy it's money moving from one stock to another. No one is going to reallocate funds from  4% on a CD with principal protection to a stock yielding 4% with risk of capital loss. So going forward: lower revenues for the Treasury and no net increase in investment in the economy.

bottom line: once again WSj has the spin cycle on high speed

Nonsense from the Opinion Journal on the State of the Union's Best Idea

If you've ever read the WSJ's Opinion Journal "best of the web" you would notice it reads like it was compiled by smug 25 yr old . It is, the editor, James Taranto is a recent  UCLA grad and editor of their student newspaper.

Take this comment on the State of the Union address:

One decidedly false note came when Bush complained that "America is addicted to oil" and promised new government programs aimed at a great goal: to replace more than 75% of our oil imports from the Middle East by 2025." This seemed just like wrongheaded palaver, boob bait for bobos. If we're going to democratize the Middle East, why do we need to reduce imports of oil from the region?"

Hey James, don't look now but you're reinforcing the claims of every "wacko lefty" and Arab extremist i.e. it's all about the oil. The only reason the US cares about democracies in the ME is to get more secure access to the oil . Add to that the inconvenient facts that democracy hardly guarantees a regime that will provide us with a cheap, secure access to oil . Heard about Venezuela ? think the Iraqis, like the Russians, like the Saudis won't be cutting deals with China ?

He also should take a gander at his own newspaper. Saudi Arabia provides 7.3% of our oil consumption, far more than any other ME country. Last time I looked, we weren't exactly promoting democracy there. And if it came, the new government could hardly be expected to be more pro US than the current one.

And as far as I'm concerned democracy in the Arab world at this point is a case of : one man, one vote , one time.

Take Truth Rinse in Distortions and Unsubstantiated Assertions, Publish , Repeat Frequently

WSJ Jan. 19

"...No proof exists that lower emissions reduce global warming. The idea that human activity influences climate change one way or another is far from proven, given the overwhelming role nature itself plays in atmospheric changes. And if the warming trend of recent decades continues -- by no means a certainty -- it might well be a boon to humanity"

well at least they know how to make lemonade out of lemons

They Get It Wrong Again

Friday WSJ Michael Oren of the conservative Shalem Center in Israel contributed this superficial analysis of the Sharon Era. Knowing how he presents things, I think it was another example of him acting not as an academic analyst as "hasbarah" (propaganda for Israel)

Among his inaccuracies:

"Now, with his withdrawal from the political scene, Israel stands to enter a new phase in its national existence. Less divided, perhaps, and more certain of the borders it wants and the type of society it aspires to create"

NYT Sunday

in favor of dismantling settlements as part of a peace settlement:

favor 61% oppose 39%

oppose dividing Jerusalem with East Jerusalem as capital of a Palestinian State

oppose 60% support 40%

A far more insightful analysis was presented by "revisionist" Israeli historian Benny Morris of Ben Gurion University in the NYT:

Many expected, and some feared, that Mr. Sharon would continue with such unilateral steps to separate the two peoples and physically consolidate two separate states. Unilateral, because he believed (as I do) that there was and is no viable Palestinian peace partner. The Palestinian national movement, he believed, still, in the deepest, immutable recesses of its heart, aspires to Israel's destruction and replacement by an Arab-majority state, a "one-state solution." That aspiration is why Yasir Arafat rejected the two-state compromise proposed by Mr. Sharon's predecessor, Ehud Barak, and President Bill Clinton in 2000 and it is why, from the militant Islamic members of Hamas through the Palestinian president, Mahmoud Abbas, the Palestinian national movement refuses to give up the "right of return" of the refugees, the demographic battering ram with which it hopes, ultimately, to bring Israel down.

Now, hopes for further daring steps like a unilateral pullout from parts of the West Bank have been dashed. What successor, however peace-minded, will have the political will or ability to do something so bold and politically problematic? It is profoundly unclear who will win the coming elections and with what sort of mandate: Ehud Olmert, the deputy prime minister who is Mr. Sharon's likely successor as head of the new Kadima list (a party without institutions or structure and a leadership composed of Shimon Peres, the former Labor Party leader, and former Likud stalwarts); Amir Peretz, the new blue-collar chief of the Labor Party; or Benjamin Netanyahu, the resurrected head of the truncated Likud?

What is likely is that there will be no clear mandate for any party or leader. Moreover, none of Mr. Sharon's probable successors to the premiership is made of that leadership stuff that ultimately endeared him to the majority of Israelis

Their editorial page got it way wrong on Friday is well, more on that later.

Can We Put These Lies to Rest

I thought I'd put together some of the wsj oped ed distortions which are often flogged by Stephen Moore of the WSJ editorial page on the Larry Kudlow CNBC diatribe show.

Some things might not be clear from the long post yday so i'll do it briefly here:

The WSJ end of year” economic review” was typically full of distortions

• The BLS (bureau of labor statistics) has an alternative measure of unemployment which includes the discouraged and those working part time ready, willing and desirous of working full time. Add all those in and you get to 8.7% as of Nov (bls website) not the 5% number commonly used.

• Moore and the

  WSJ said inflation adjusted earnings are up since 2001. I couldn’t find their source (other than a Treas Dept press release) but nov 03 – nov 05 and nov 04 -05 avg hourly real earnings are down (bls website)

Wsj editorial pointed out large job gains in medical technology and software financial servicesl offsetting losses in manufacturing.

Nov 2004 – Nov 2005 job growth:

Software design 5 000

Financial services (I guess including mortgage clerks and tellers) 13 000

Food services 38 500 (how do you spell McJob) (bls website)

Wsj pointed out median net worth of $100k . I loved your median height example. 70% of that growth 2000 – 2005 was from real estate (fed website)

WSJ pointed out the large gains in productivity (note: that means more work down with fewer workers) and argues next year workers will get wage increases to reflect it. SInce wages have not kept up with productivity gains or increases in profits in the last 5 years, why would one expect it going forward.

Tax cuts will be self financing says

Moore

. Can we PLEASE bury that one. Daniel Altman wrote about a CBO study in Sun NYT. It is more devastating than he wrote. The full study is here .A 10% tax cut would generate tax revenues to offset at the very most 25% of the lost revenue in the first ten years. They don’t even bother to calculate beyond that because the consequences are so devastating to the deficit and the cost of financing it.

Do These People Know Any Economics ?

One would expect folks at the WSJ to have at least of a modicum of knowledge about how markets work. But their ignorance never ceases to amaze me.

In an article that points out that owning a prius is probably not the most efficient vehicle if one seeks to conserve gas consumption and save money, Holman Jenkins  includes this whopper:

....But doesn't saving oil have benefits beyond the dollars saved -- for instance, postponing the doom of civilization?

No: If Prius owners consume less, there's less demand, prices will be lower and somebody else will step up to consume more than they would at the otherwise higher price. That's the price mechanism at work. Oil is a fantastically useful commodity. Humans can be relied upon to consume all the oil they'd be willing to consume at a given price.

note the illogic here:

oil is a finite resource, demand from China and India is growing exponentially and increases in energy prices are a net tax on the economy.

In order to keep oil prices anywhere close to current levels, US demand would have to be reduced to offset the market impact of demand from elsewhere in the world. Otherwise the US economy is simply being taxed with the proceeds of the tax, in the form of higher oil prices, going to the Saudis, Venezuelans and other oil producers.

Use of more fuel efficient vehicles in the US will hardly spur a drop in oil prices, if we are lucky it will slow the price increase. To posit that more fuel efficient vehicles in America would have no positive impact on our economy is nonsense. If US consumers reduce their energy consumption, the economy is more productive it functions like a tax cut (i can hear the WSJ folk waking up about now) there is a wealth transfer away from the Saudis, Venezuelans and crew and into the hands of American consumers. Sounds good to me.

But wouldn't using less oil make us less dependent on Mideast imports?

Just the opposite: In the nature of things, the cheapest oil is consumed first, and Mideast oil is the cheapest. Drive a Hummer if you want to reduce America's reliance on Arab oil. Indeed, if we could all just pull together and drive gasoline prices high enough, we'd be able to satisfy all our fuel needs next door from Canadian oil sands.

Now this one shows true lack of understanding of makets. If the whole country drove Hummers and increased oil consumption you wouldn't reduce our dependence on Mideast oil, you would just make us dependent on Mideast AND Canadian oil.

Say oil from the Canadian Oil Sands is only profitable at $80/barrel. That could only happen if supply met demand @ $80.

The following would happen:

1. Saudis would produce to their capacity. Their oil costs less than $10/barrel to bring to market so they make a profit of $70 vs the current $50

2. Canadians begin producing oil from the tar sands and ship @ $80 barrel and make a modest profit

So the canadians make a bit of profit, the saudis and others make even more profits and everyone can drive a Hummer. And at $80 a barrel which would be over $3/gallon for gas there would be giant sucking sound on the economy . But certainly the US dependence on MidEast oil has not diminshed.

Say at $90/barrel and $4.00 a gallon, the combination of a slower economy and changes in consumer preference (people trade in their Hummers for more efficient vehicles)

What happens then:

1. US oil consumption drops and the price of oil falls dramatically to what looks like the  reasonable price of $70/barrel.

2. Canadians shut down the tar sands since they are unprofitable.

3. Saudis, Venezuelans et. al. make $20 less/ barrel

So the US still consumes the same amount of Mideast oil, it no longer consumes Canadian oil  AND the economy gets the stimulus of lower energy prices.

sounds good to me

French Riots: Another One I Agree With...We're On a Roll

This one from super conservative Daniel Henninger. Not surprisingly he uses the opportunity to slam French economic policy as well. Surprisingly, I agree with him on much of that too.

French Lessons
November 11, 2005; Page A10

Rioting by Muslim youth in some 300 French cities and towns seems to be subsiding after two weeks and tougher law enforcement, which is certainly welcome news. The riots have shaken France,....

In particular, some longstanding conceits about the superiority of the French social model have gone up in flames. ....

* * *

The first thing that needs illuminating is that, while the overwhelming majority of rioters are Muslim, it is premature at best to describe the rioting as an "intifada" or some other term denoting religiously or culturally inspired violence. And it is flat-out wrong to claim that the rioting is a consequence of liberal immigration policies.....

For France, the good news is that these problems can be solved, principally be deregulating labor markets, reducing taxes, reforming the pension system and breaking the stranglehold of unions on economic life. The bad news is the entrenched cultural resistance to those solutions -- not on the part of angry Muslim youth, but from the employed half of French society that refuses to relinquish their subsidized existences for the sake of the "solidarity" they profess to hold dear. So far, most attempts at reform have failed, mainly due to a combination of union militancy and political timidity

Above all, those who want America to emulate the French social model by mandating health and other benefits, raising tax burdens and entrenching union power might take note of just how sour its promises have become, especially its promises to the poor. In the matter of "solidarity," economic growth counts more than rhetoric

I wouldn't go as far as the above however, at least on health care and taxes. Ironic that when the Euro was formed one of the conditions was that all countries must keep their budget deficits below 5% of GDP. And the WSJ and other conservative economists were quick (correctly ) to praise the move. We're not at 5% yet but if the tax cuts are extended to 2010 we will be there soon.And as far as health care, we spend more on healthcare than France have a higher infant mortality rate and a lower life expectancy. So something must be amiss imho.