Someone stop this man

A few short months ago Overstock.com CEO Patrick Byrne’s response to an earnings disappointment was “my bad”. He also blamed short-selling on a “Sith Lord”. Now he is at it again. Here are his comments from a recent interview with Bloomberg:

“I can tell you they are going to come after me in January,” Byrne said. “They are trying to get the FCC (Federal Communications Commission) to launch an investigation. They are trying to get the DoJ (Department of Justice) to investigate me. Some of the officials are monsters. You’ll probably read a headline that I was stopped with drugs or a dead body.”

You simply cannot make this stuff up.

This is more like it

The Wall Street Journal has a great editorial about the economy:

The 3.5% to 4% rate of growth in 2005 has been especially remarkable given eight Federal Reserve Board interest rate hikes, oil prices as high as $70 a barrel, and one of the most devastating natural disasters in American history. Yes, fourth quarter GDP may come in softer thanks to limping auto sales, but the entrepreneurial U.S. economy will still have grown at about twice the pace of Old Europe in 2005. As economist Michael Darda of MKM Partners, puts it: “This is the most derided and ridiculed growth cycle in post-World War II history, even though by many measures, including productivity and corporate profits, it’s one of the most impressive.”

It only gets better. Read the whole thing.

More from the NYT

If you make more than $200,000 per year, the New York Times does not think that you need “bigger write-offs for a spouse, their children, and other expenses, like mortgage interest on a vacation home.”

There are two problems with this claim. First, the “rich” are not getting bigger write-offs relative to the non-”rich”. The first President Bush, in an effort to reduce the deficit, limited these very deductions for those making over $200,000 per year.

Secondly, the venom of the Times editorial staff can seen on the page near the mention of a vacation home. Why shouldn’t the “rich” be able to deduct their mortgage interest? After all, whether or not the “rich” purchase a vacation home may have a lot to do with incentives like tax deductions. When people buy second homes it benefits more than just the “rich” people that buy them. For example, the “rich” do not physically build their houses, they do not install the carpeting, do the electrical work, or the plumbing. Those jobs are all done by the middle class. So perhaps this deduction is worth the benefit.

The New York Times will forever continue on its plan to end prosperity once and for all. In the meantime, here is to hoping that the “rich” will continue to build vacation homes.

Groundbreaking analysis

Sometimes I wonder why I even bother to read the New York Times. Other than providing fodder for this blog, there are few (very few) examples of what I find fair and interesting. Take, for example, today’s groundbreaking report: “U.S. Growth May Hinge on Business”

More on the inverted yield curve

I can remember sometime during elementary school, my fellow classmates and I were handed an assignment. Even today I recall thinking that the exercise was quite simple. It was a cause and effect analysis of historical events. This make me wonder, if the exercise was so simple, then why does the mainstream media have such a hard time grasping the concept?

In recent days the mainstream press (at least in the financial world) has been covering the inversion of the yield curve ad nauseam. They claim that the inversion of the yield curve is surely a sign of a coming recession. After all, the last four recessions were preceded by its inversion. This logic is backwards. Simply because something happened prior to an event does not mean that it caused the event. If, for example, the last four times the yield curve had inverted a recession followed, then there would be evidence that this change signaled the recession. However, the yield curve inverted in 1998 and a recession did not follow.

There are many reasons to be optimistic about the economy. We are seeing strong productivity growth, a reduction in unemployment, double digit profit growth, and an increase in consumer confidence. Why the negativity?

Will China surpass the United States?

Over at Bloomberg, John Berry claims that the Chinese economy will not surpass that of the U.S. He claims:

China’s economy is growing so fast that estimates of its long-term prowess are bordering on the absurd.

After Chinese statisticians recently sharply revised up their estimate of economic output in 2004 to $1.93 trillion, some analysts said that in 35 years it would overtake the U.S. economy.

No way, no how. The U.S. simply has too big a lead, with gross domestic product last year at $11.73 trillion.

His reasoning relies mostly on mathematics. The Chinese would have to grow their economy by double digits to surpass the U.S. in less than 40 years. I completely agree that the Chinese economy will not become larger than that of the U.S. However, I have a different reason.

Although China has allowed free market reforms to take hold under the communist regime, the country is still run by communists. Milton Friedman famously linked the importance of political freedom to economic freedom. That link is true even today. The Chinese are still not politically free. They are concerned with political corruption and the confiscation of their land. Currently there is no organized threat to the Chinese government and thus the government has little reason for reform. Until the Chinese are politically free, they will be unable to surpass the economic prowess of the U.S.

A blow for protectionism

The Byrd Amendment, which the Wall Street Journal calls “nothing more than a wealth transfer from U.S. consumers and industries that use imports to a small network of savvy protectionists”, has been repealed. Indeed the vast majority of the money was distributed to only 30 companies and impeded trade progress. This is a victory for those of us who still value free trade.

Anything for the agenda

The New York Times is apparently willing to run any op-ed that will plug their nationalized health care agenda. Today, it is a piece written by Robert Fitch who begins, in Times fashion with doom and gloom:

As most Americans are aware, our auto industry is in a crisis.

Workers’ wages are falling, and hundreds of thousands of jobs are being sent offshore. America’s largest parts supplier, Delphi, filed for bankruptcy protection, and General Motors, Delphi’s main customer, may too, if a threatened United Auto Workers strike occurs next month. Meanwhile, Ford and its main parts supplier, Visteon, seem to be skidding down the same road.

The sky is falling!

Exactly what jobs in the auto industry have been sent offshore? Those being sent offshore are largely unskilled jobs. Additionally, Toyota has been sending jobs offshore for years…TO THE UNITED STATES.

Then the protectionism is coupled with the big government health care plan:

How did we get here? There are many causes: poor car designs, high pension costs, increased foreign competition. But much of it comes down to the overwhelming health insurance costs borne by the auto makers. This is why the union’s president, Ron Gettelfinger, has urged Congress to enact sweeping health insurance reforms.

If the government paid everyone’s health insurance bills, as those in Canada and most of Europe do, Detroit’s Big Three could save at least $1,300 per vehicle. Profitability would return. With deeper pockets, the auto makers could afford to pay their suppliers. Communities would be spared layoffs.

At what cost? Steven Landsburg explains in his book, The Armchair Economist:

One of the first rules of policy analysis is that you can never prove that a policy is desirable by listing its benefits. It goes without saying that nearly any policy anybody can dream up has some advantages. If you want to defend a policy, your task is not to demonstrate that it does some good, but that it does more good than harm.

Even if we assume that the auto industry would benefit from the government paying for health care, it is simply not the case that the average American would also benefit. I have detailed before why government health care is not the answer, but put simply, Americans would see an increase in their taxes and a decrease in the quality of their care. Additionally, having the government run the health care system does little to reduce the price of health care, which is the problem.

Furthermore, Mr. Fitch uses a ranking system from the World Health Organization that lists the United States as ranked 43rd among world health care systems. However, he failed to mentioned that the United States was ranked number 1 in “responsiveness to patients’ needs”. He also failed to mention how many Canadians come to the United States to see doctors.

The auto industry’s problems are deeper than pensions and health care. The industry needs to deal with their programs that pay workers to sit at home until a job opens, which costs $800 million per year. So before the industry makes a great leap, perhaps it can begin with baby steps.

Inversion

The yields on bonds have inverted. Many are crying recession. I am not. There are many factors that determine the yield on bonds, including foreign buying. The record trade deficit may be playing a role in that there are more countries holding U.S. dollars than at any other time in history. I do not, by any means, think that the U.S. needs to reign in the trade deficit, however, it is time for the Federal Reserve stop raising rates.

Related posts:

Trade Lesson

Corporate tax rates

The Wall Street Journal has a great editorial about corporate tax rates. The WSJ’s table, shown above, reveals that “America now imposes the highest corporate income tax rate among the 30 wealthiest countries.” Additionally, they point out that:

Ironically, those in Congress who moan about offshore investing and “out-sourcing jobs” are the biggest defenders of America’s highest-in-the-world corporate tax rates. Instead, Congress should be doing more corporate tax cutting. The clear beneficiaries would be U.S. firms and their American workforce.

Protectionism does include high tax rates. Read the whole thing.