From the immortal George Costanza:
Why did it all turn out like this for me? I had so much promise. I was personable, I was bright. Oh, maybe not academically speaking, but … I was perceptive. I always know when someone’s uncomfortable at a party. It became very clear to me sitting out there today, that every decision I’ve ever made, in my entire life, has been wrong. My life is the opposite of everything I want it to be. Every instinct I have, in every aspect of life, be it something to wear, something to eat … It’s all been wrong.
At this point, we can more or less officially say California is the George Costanza of states. Here is a state ailing, with fiscal problems far into the foreseeable future, basically openly hostile to business, and with corporations and citizens fleeing for places with more stable property rights and lesser taxes. You’d think that—at a minimum—the state wouldn’t deliberately squeeze out California-based affiliates of Amazon and other internet-commerce businesses, but it is:
The net effect of such a law is not to raise tax revenue to but to push commerce further outside CA.
Yes. And listen to this, listen to this; her uncle works for the Yankees and he’s gonna get me a job interview. A front office kind of thing. Assistant to the travelling secretary. A job with the New York Yankees! This has been the dream of my life ever since I was a child, and it’s all happening because I’m completely ignoring every urge towards common sense and good judgment I’ve ever had. This is no longer just some crazy notion. Jerry, this is my religion.
If every instinct the state has is wrong, maybe California should do the opposite.
Another tremendous, sterling, must-read analysis from John Tamny today over at Real Clear Markets:
Maybe the most amazing thing about S&P’s announcement on the US fiscal situation is that anyone got riled up about it. Here is a good primer on the report, if you haven’t seen it firsthand. We’ve seen many similar declarations—and years ago—from 60 Minutes to The Wall Street Journal.
That I can see, the report didn’t include any new information other than S&P’s own opinion on the matter. S&P cites a relatively large deficit, rising debt, political gridlock—these have been known to bond investors for a long time, yet yields remain tame and government bond auctions are far oversubscribed. Notably, Treasury yields were down yesterday (4/18/2011), and the dollar was stronger (an ironic twist on the whole “risk on/risk off” situation I’ve before noted on this blog as nonsense).
S&P highlights entitlement programs (Social Security, Medicare, and Medicaid) as “the main source of long-term fiscal pressure.” But entitlements are not the equivalent of debt and can be changed by Congress. Government debt could reach troublesome levels at some point, no doubt, but not in a timeframe that matters to stocks near term. This, and eventual similar reports from other ratings agencies (they tend to move together), could even hasten the political response by enabling politicians to use the AAA rating as a rallying cry to push through unpopular measures like entitlement and other spending cuts…and possibly higher taxes (gulp).
Either way, stay cool: this report’s gusto shouldn’t sink stocks longer-term.
I never know if it’s most appropriate to laugh or to cry on tax day. Here are two articles to make you do both:
So Barclays threatened to leave the UK (probably just a political tactic without any real teeth), and Statoil put on hold a $10 billion plan to further develop energy assets tied to a UK-initiated tax hike on so-called “windfall” taxes. Mind you, the reason Statoil says it isn’t doing the projects isn’t because their profits would be diminished, but because now those new projects are explicitly NOT profitable because of the tax. Not good.
This is not the kind of thing you want to see from a country struggling to recover. You want to see an inviting, welcoming business environment—a place that wants to encourage more and new commerce. I’m all for trimming the government budget fat (particularly when it comes to entitlements), but the concept that tax raises is a worthy way to help get your economy out of debt trouble and on firmer footing is asinine.
Ah ha! So, the government feels it must pay up for certain employees for “talent retention,” while justifying layoffs or furloughs of ostensibly less valuable human capital: Cities Find Cash for Managers’ Raises.
And yet, private industry is consistently and constantly vilified for such practices.
Why is it that reaction to high deficits generally leads to more confiscation of private property? In this case, cash money in the form of taxes. It’s never been clear to me why more taxation would get a country out of debt woes (assuming there are truly sovereign debt woes. There are, to be sure, but it’s taken as given far too often these days to my view).
- Osborne Levies Banks, Raises Sales Tax to Tackle U.K. Deficit
- Japan Targets Balanced Budget by 2020 to Contain Debt
After all, if you tax an economy you effectively limit—or create a disincentive for—potential for economic growth. Well, economic growth is the name of the game when it comes to digging out of deficit trouble. Headlines will be dominated with “austerity measures”, and “painful” or “unavoidable” measures. But through history, the best way to solve budget/deficit problems is to fuel a dynamic, diverse economic engine to serve as a growing tax base to service said debt. (Don’t get me wrong, for the Greece ’s of the world austerity probably can’t be avoided—they’re just too small and their economies too narrow.)
What’s “painful” is cutting benefits. Painful, that is, for politicians. The last thing they want to do (as they value their political lives) is hugely cut programs and entitlements. It leads to unrest and protests and weakens their power (just ask Germany ’s Angela Merkel). So they limit that (I’d bet that that most economies, at best, will end up cutting a few percent off their budget when it’s all said and done), but they’ll gladly raise taxes the first opening they get.
For now, these measures seem small enough not to knock the global economic recovery. But this is a topic to keep a close eye on.