Friday, August 3, 2012

Busting Economic Myths

Gird thyself, some of liberals' most cherished economic myths are about to be busted.  These are the key parts, but check out the full articles for even more good info.

Myth #1: Eeeeevil oil companies get richer than anyone else from higher gas prices.

You may blame high gas prices on rich oil company executives or greedy gas station owners. The truth is that governments rake in a larger profit at the pump than anyone—and with gas taxes on the rise in many parts of the country, there's no relief in sight.

The price of a gallon of gas is based on the combination of four costs: that of crude oil, of refining gas, of distribution and marketing, and of taxes.

Crude oil costs make up about 76% of the cost of gasoline, according to U.S. Energy Information Administration (EIA). Thus $2.66 of a $3.50 gallon of gasoline is set before the oil is even refined. Global markets, reacting to supply and demand, determine the cost of crude oil. Just like any commodity, from gold to corn, a shortage in supply or an increase in demand leads to a rise in prices.

Refining oil is the next step in the process—and the next expense for drivers. Gasoline is extracted from crude oil and additives, including lubricants and detergents to reduce engine deposits, are added. As of January 2012, the EIA found that refining was responsible for 6% of the cost of gasoline.

Distribution and marketing—the part of the process most apparent to consumers—constitutes another 6% of gas prices. That portion of the cost includes the shipping and transportation of the gasoline, a markup to cover retailers' expenses, and any advertising created to appeal to customers.

The remaining 12%—or almost 50 cents per gallon today—goes directly to federal, state and local governments in an array of sales and excise taxes. The federal gas tax is 18.4 cents on every gallon of gasoline sold in America. State gas-tax rates vary from a low of eight cents per gallon in Alaska to a jarring 49 cents per gallon in New York. Other states where it's steep to fill up include California and Connecticut—each with 48.6-cent-per-gallon gas taxes—and Hawaii, at 47.1 cents per gallon. ...

Put this all together, and government makes far more from gas sales than all of the oil companies put together. Exxon, for example, made only seven cents per gallon of gasoline in 2011. That's a drop in the bucket compared to the nearly 50 cents per gallon that federal, state and local governments rake in on an average gallon of gas pumped in the U.S.

Myth #2: Higher taxes = better economy

With the prospects for a postrecession economic rebound fading, it has grown increasingly obvious that the United States must eventually raise taxes or cut spending. President Obama claims we can raise taxes on those earning over $250,000, to avoid spending cuts with little, if any, effect on growth because growth was faster in the 1990s and in the 1950s and '60s when marginal income-tax rates were higher.

The evidence doesn't support Mr. Obama's conclusion.

President Clinton raised taxes in the 1990s and the economy grew. So does that mean it would grow today if we did the same thing?

Commercialization of the Internet lifted the Nasdaq from 800 in 1995 to 4,500 in 2000, the largest five-year gain of any major index in American history. Put bluntly, increased payoffs for successful investment and rising equity values simply dwarfed offsetting increases in marginal tax rates. The taxes themselves didn't increase growth.

The story is similar for the Eisenhower and Kennedy eras, when top marginal rates were high. The economy rebounded from two decades of underinvestment, first from the Great Depression and then from World War II.

Large corporations like General Motors raced to capitalize on markets unleashed from wartime rationing and controls. A postwar increase in college graduates raised productivity and opened new avenues for investment. Dramatic improvements in agricultural productivity lowered the cost of food to 10% of GDP from 25%. Oil was a fraction of today's price and dollar-an-hour offshore labor was inconsequential. Mass markets were fostered by TV and interstate highways.

Meanwhile, weakened by the war, slow to educate their workforces, and fragmented into smaller markets, Europe and Japan remained weak economic competitors until the 1970s.

No such favorable circumstances lie on the horizon today. Rising real-estate values prior to the 2008 financial crisis accelerated economic activity just as a 30% drop afterward decelerated it. Without a foreseeable rise in asset prices, high taxes and government spending will have a more dampening effect on growth.

Today, federal, state and local spending has reached 38% of GDP. In the late 1990s, it was only 33%. Throughout the 1950s and '60s, it was only 28%. The notion that the robust economy of the 1950s, '60s and '90s proves that historically high government spending and taxes have little, if any, negative effect on growth is naïve.

What does this history really teach us? Expectations of growing wealth drive investment and risk-taking up and down.

Do increased government consumption and higher marginal tax rates on successful investors and risk-takers raise expectations of increased investment and wealth in the future? No. When the government consumes income that would otherwise be invested, it slows growth no matter the tax rate. ...

Higher taxes on the most productive workers to fund increased government spending reduces incentives, and redistributes and consumes income that would otherwise fund private investment. Expectations of lower investment and slower growth lower asset values and slow economic activity. Until circumstances improve, lowering the trajectory of unproductive government spending provides our best opportunity for growing economic activity today.

Myth #3: There's a recovery going on

The U.S. economy added more jobs in July than in any month since February, but the unemployment rate ticked up, signaling that the U.S. recovery, while not headed for a stall, remains too weak to bring down high unemployment.

Employers added 163,000 jobs in July, far above the paltry 64,000 they added in June, the Labor Department said Friday. Sectors such as manufacturing and restaurants stepped up hiring and companies added temporary workers, a sign they expect more business. While the government lowered its estimate for June's job gains, it raised the figures for May by a similar amount. Economists had expected gains in July of only 95,000.

That's 40+ consecutive months with unemployment above 8%.  The Dems are quick to say we need to raise taxes in order to get things moving, but let's look at some facts first.  From 2003 to 2008, the eeeeeevil George W. Bush managed to achieve 45 months of unemployment below 5.5%, largely due to his tax cuts.  In fact, he never had a period of time that was over 8%, and only a single month past 7% - December of 2008, in which the incoming pure-Democrat majority was already cranking up the economy-busting policy rhetoric after jacking up the spending for the previous two years of running both the House and the Senate.  Given the tired (yet obsessive) Democrat talking point that Bush's tax cuts were only for the rich, I'm pretty sure I'd rather have tax cuts for the rich on an indefinite basis because everyone benefited from it.

Anyway, back to the original article.  How can jobs be added but the unemployment rate goes up?  This explanation from February -- in which the rate was also 8.3% -- shows it's all in how the White House jiggers the numbers:

When Barack Obama entered office in January, 2009, the labor force participation rate was 65.7%, meaning nearly two-thirds of working age Americans were working or looking for work.

When the recession supposedly officially ended in June, 2009, the labor force participation rate was still 65.7%.

In the latest, much celebrated, unemployment report, the labor force participation rate had plummeted to 63.7%, the most rapid decline in U.S. history.  That means that under President Obama nearly 5 million Americans have fled the workforce in hopeless despair.

The trick is that when those 5 million are not counted as in the work force, they are not counted as unemployed either.  They may desperately need and want jobs.  They may be in poverty, as many undoubtedly are, with America suffering today more people in poverty than in the entire half century the Census Bureau has been counting poverty.  But they are not even counted in that 8.3% unemployment rate that Obama and his media cheerleaders were so tirelessly celebrating last week.

If they were counted, the unemployment rate today would be a far more realistic 11%, better reflecting the suffering in the real economy under Obamanomics.


Compare Obama's recovery 2.5 years after the recession officially ended with the first 2.5 years of the Reagan recovery.  By that point, Reagan's recovery had created 8 million new jobs, the unemployment rate had fallen by 3.6 percentage points, real wages and incomes were jumping, and poverty had reversed an upsurge started under Carter, beginning a long term decline.  In the second year of the Reagan recovery, real economic growth boomed by 6.8%, the highest in 50 years.

In contrast, under Obama's non-recovery America has suffered the longest period of unemployment this high since the Great Depression, with record numbers fleeing the work force in despair.  More than four years after the recession started, we are still over 5 million jobs below the peak before the recession. Real median family income has fallen by 10%, all the way back to 1996 levels.  More Americans are in poverty today than at any time since Census began keeping poverty records over 50 years ago.

But it gets regrettably worse when you look at the overall unemployment picture.  First, we must understand the terminology.  According to the Bureau of Labor Statistics, "Persons marginally attached to the labor force are those who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the past 12 months. Discouraged workers, a subset of the marginally attached, have given a job-market related reason for not currently looking for work. Persons employed part time for economic reasons are those who want and are available for full-time work but have had to settle for a part-time schedule. Updated population controls are introduced annually with the release of January data."

Basically, 'unemployed' means you don't have a job but want to get one.  The widely reported 'unemployment rate' is the U3 statistic, which is formally defined as:

Total unemployed, as a percent of the civilian labor force (official unemployment rate)

That's the number that can easily be jiggered into something more palatable by simply reducing the size of the work force (if there is any rational reason for the work force shrinking since the Obama administration took office, I'd love to hear it).  It's simple fractions, really.  Anyway, the real unemployment rate (U6) figure is defined as:

Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force

In common parlance, these are people who don't have a job and have stopped looking for one for whatever reason.  Right now, the U6 rate is 15%.

In fact, according to economist James Pethokoukis, the total number of net jobs created since January of 2009 is a whopping 33,000.  That's 33,000 jobs in 3.5 years.  Not much of a recovery.  Indeed, a second Obama term will be terminal.  

The desperation to spin the real numbers is somewhat revealed in that the White House went out of its way to specify that unemployment wasn't actually 8.3%, but rather 8.254%.  Right.  Try explaining that comforting detail to the roughly 25-45 million Americans who don't currently have a household income.

I saw a TV ad the other day, and I actually agreed with what Barack Obama said:

In the ad, debuting this week in key battleground states, Obama looks directly into the camera and stresses the stakes of the election.

"You have a choice to make," he intones. "It's a choice between two very different plans for our country."

I agree.  We can go back to the terrible, terrible Bush years of 5-7% GDP growth and 5.5% unemployment and the 6.8% growth of the Reagan recovery...or we can continue the socialist economy-busting policies of Barack Obama that have set records for their economic destruction.

You get to pick on November 6th.

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