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Romney’s Plan to Save Manufacturing
Tweet Share on Facebook January 18, 2008 CommentLots of free-market types were aghast at Mitt Romney’s appeal to Michigan voters that as president he would use government to help the auto industry, as if he was advocating some European Union/Japan-style industrial policy:
I am convinced that Michigan can once again lead the world's automotive industry. But it means we're going to have to change things in Washington. We're going to have to go from politicians who say they are “aware” of Michigan's problems to have a president instead who will actually take action to do something about them.
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Quick Hits for Jan. 18, 2008
Tweet Share on Facebook January 18, 2008 Comment (1)- Market strategist and blogger Don Luskin sees the current weak patch as an opportunity for major tax reform.
- John Tamny of RealClearMarkets thinks tax cuts still work as a political and economic issue and extols the continued critical role of the entrepreneur.
- Mark Perry of the Carpe Diem blog reminds that “fiscal stimulus” eventually comes from higher taxes or higher deficits.
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Henry Paulson: Blame the Machines
Tweet Share on Facebook January 18, 2008 CommentIn today’s White House briefing about President Bush’s ideas for fiscal stimulus, Treasury Secretary Henry Paulson made a good point about machines and our manufacturing base:
You may not know it, but who is the largest manufacturer in the world? The U.S., by a lot. It's fascinating. When I had looked at the data in 1950...manufacturing jobs in the U.S. were about 30 percent of the country then, and there are about 15 million manufacturing jobs, OK? Today, we've got the same 15 million manufacturing jobs; they're about 10 percent. But the output has gone up seven times over that period, and...our manufacturing base is two-and-a-half times larger than China, it's bigger than Japan, it's bigger than Germany. This is a story about automation.
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An Economy of Fear
Tweet Share on Facebook January 16, 2008 CommentWhat's wrong with the economy and the market right now? A lack of credit? A lack of buying power? Nope, I think it's a lack of confidence about tomorrow. Poll after poll shows people fairly sanguine about their current financial situation but worried about what's coming next because of the housing downturn, the subprime mortgage mess, and rising oil prices.
The whole environment reminds me of the pessimistic period right before the liberation of Iraq back in 2003—and right before a great four-year run of rising stock prices, rising incomes, and rising job growth. (All despite a quadrupling of oil prices. Wow.) Take that supposedly weak retail sales report from yesterday. As even the bearish gang at Goldman Sachs notes:
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Michigan GOP Voters Fret Over Deficit, Pick Romney
Tweet Share on Facebook January 16, 2008 CommentOne of the interesting exit-polling factoids to come out of last night's GOP presidential primary in Michigan was that a bit more than half of voters were more interested in having the next president focus on cutting the deficit than focus on cutting taxes. (As if one precluded the other, but anyway....) Yet they voted for Mitt Romney rather than John McCain, whose domestic policy agenda is built around cutting government spending.
Now I tend to doubt whether most people differentiate among the current budget deficit, national debt, long-term entitlement funding problems, and the trade deficit. It all probably sounds like different slices of the same problem to the average person: a managerially inept and incompetent federal government that can't plan for a war, deal with natural disasters, or balance its books. That attitude may have helped give Romney the super CEO an edge over McCain the deficit hawk.
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Quick Hits for Jan. 15, 2008
Tweet Share on Facebook January 15, 2008 Comment1) With the results of the Michigan primary just hours away, my guy John Tamney, editor of RealClearMarkets, has little sympathy for the U.S. auto industry:
In truth, Michigan's economic malaise to a high degree results from the historical inability of its car manufacturers to shed workers that no longer provide value to its operations. Union pressure has made this process difficult, and the "loud sucking sound" has been capital fleeing a state unwilling to accept economic reality. Painful as layoffs are, had Michigan's auto companies addressed redundancies long ago they would be better off today, not to mention how honest appraisal of workforces would have enabled redundant workers to seek more productive employment elsewhere.
2) Larry Kudlow offers some tasty behind-the-scenes morsels about the McCain economic agenda:
Sen. McCain has tasked Jack Kemp with pulling together a growth package that will probably include a corporate tax cut. But it is all very much up in the air right now. Phil Gramm has proposed a doubling of the mortgage interest deduction, but key McCain staffers oppose this. Over in the Romney camp, tax strategists Caesar Conda and Vin Webber had hoped to get a stronger supply-side message for Michigan, but the clock ran out.
3) Where is the consumer recession? Retail sales were down 0.4 percent in December, but there is a silver lining here, courtesy of JPMorgan economist Michael Feroli: "It appears that November sales borrowed some from December sales. For the two months taken together, core retail sales increased at a 5.25% annual pace, in line with the trend over the last two years."
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Ways to Boost the Greenback
Tweet Share on Facebook January 15, 2008 Comment (1)Market guru Ed Yardeni of Oak Associates offers a fix for the falling dollar:
So far, the weak dollar hasn't caused the dire consequences predicted by those who (rightly) have been most bearish on the dollar for the past few years. Bond yields haven't soared and neither has inflation. This statement isn't completely accurate. Corporate credit quality spreads are widening significantly and food and energy inflation have risen sharply. The benefits of a weaker dollar should also be put in the balance. US exports have gotten a lift and US profits have gotten a boost from the weak dollar. Those who advocate a stronger dollar mostly endorse policies that would depress domestic demand in the US. These Puritans are basically favoring a recession to purge the US economy of its excesses. So they believe the Fed is making a mistake by lowering interest rates. Most of them are very wealthy individuals, who would remain very wealthy even during a recession. I would prefer to see another round of significant and permanent cuts in marginal tax rates on personal incomes and capital gains, and a big reduction in the corporate tax rates as the best way to lift the economy and the dollar.
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Where's America's Sovereign Wealth Fund?
Tweet Share on Facebook January 15, 2008 Comment (2)Looking for cash to shore up its balance sheet, Citigroup said today that it has received a $12.5 billion investment from outside investors, including the Government of Singapore Investment Corp. and the Kuwait Investment Authority. That follows a $7.5 billion cash infusion from the Abu Dhabi Investment Authority. Merrill Lynch and Morgan Stanley have also been the beneficiaries of investment dough from foreign sovereign wealth funds.
But what if America had a national sovereign wealth fund? (States, of course, do have pension funds that invest in the market.) Wouldn't there be tremendous political pressure to use it to prop up struggling banks? Better "us" doing it than "them" would surely be the reasoning. And, indeed, we almost did have a SWF of sorts. Back in 1998, President Clinton proposed taking $600 billion in projected budget surpluses and investing in the stock market as a way of bolstering the Social Security system. Free-market types objected to the plan, saying it was tantamount to government ownership of private companies and would create a sort of next-generation socialism. Yet had it happened, it might well have morphed by now into a more traditional SWF that would take equity stakes in companies around the world to boost returns.
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Michigan Primary: A Graveyard for Reaganomics?
Tweet Share on Facebook January 15, 2008 Comment (6)"Supply-side economics had a good run, but continual tax cuts can no longer be the centerpiece of Republican economic policy," New York Times columnist David Brooks recently opined. "Smart Republicans are groping for a new economic model, and as they do, Republican economic policies are shifting. The entrepreneur is no longer king. The wage-earner is king. As the presidential campaign rolls into Michigan, it's clear that Republicans are adjusting their priorities to win back the anxious middle class."
Specifically, this "new model" of Republicanism would focus less on taxes and more on worker worries about education, healthcare, job volatility, and America's long-term debt burden. And indeed, parts of such a new approach can already be seen creeping into the agendas of the various GOP candidates. Mitt Romney wants government to spend more money on basic scientific research. Mike Huckabee wants to create a prevention-based healthcare system. John McCain advocates a "wage insurance" program for workers. Fred Thompson wants to slash projected increases in Social Security payments.
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A Bidding War Between Obama and Clinton
Tweet Share on Facebook January 14, 2008 Comment (7)So Barack Obama saw Hillary Clinton's $70 billion fiscal stimulus plan (a $30 billion housing fund, $25 billion for home heating, $10 billion for broadening unemployment insurance, and $5 billion for energy investment) and raised her $5 billion. Obama's plan:
• Provide an immediate $250 tax cut for workers and their families.
• Provide an immediate, temporary $250 bonus to seniors in their Social Security checks.
• Provide an additional $250 tax cut to workers and an additional $250 to seniors if the economy continues to worsen.
• Provide relief to homeowners hit by the housing crisis.
• Provide aid to states hardest hit by the housing crisis to avoid a slash in services.
• Extend and expand unemployment insurance.
