Category Archives: Clinton

Clinton, Econ, Elite Media, History, Jobs, Obama, True Talking Points

If There’s No Inflation, Why Are Prices Up So Much?

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If the official inflation rate is next to zero, how come prices are going up so much?

Sarah Palin was blasted by reporters and the Wall Street Journal in 2010 for pointing this out and explaining how food and fuel prices would soon skyrocket.

As this very writer explained in 2010. under Clinton the Consumer Price Index was changed so that government would never have to face the “misery index” and a proper measure of inflation again. They removed “Food & Fuel” from the index, you know, because nobody ever buys that stuff anyways, and they weighted the formula towards housing….. that’s right folks, housing.

When the economy turns south or hits a bump new housing starts talk and housing prices fall, thus showing negative inflation. So when the economy is in trouble and inflation is going up, the government reads it as zero inflation. If we still measured inflation like we used to it would be about 9.3% every year for three years. Of course, every shopper knows this as they see the prices for themselves.

A year later, investment guru Jim Rodgers weighed in, confirming the wisdom of Sarah Palin and this very writer:

U.S. government inflation data is “a sham” and is causing the Federal Reserve to vastly understate price pressures in the economy, influential U.S. investor Jim Rogers said on Tuesday.

The U.S. central bank uses inflation data that relies too heavily on housing prices, Rogers told the Reuters 2011 Investment Outlook Summit, and he criticized the Fed’s $600 billion bond-buying program.

“Everybody in this room knows prices are going up for everything,” Rogers told the Reuters Summit.

Micheal Sivy:

Price hikes for a particular item here or there don’t qualify as inflation. If one thing gets more expensive but something else gets cheaper, that’s what economists call a relative price change. Inflation is a simultaneous increase in prices across the board. Some measures of inflation, such as the GDP Deflator, track price changes that affect businesses as well as those that affect consumers. But the Consumer Price Index is supposed to focus on inflation at the consumer level. And the CPI has recorded minimal increases over the past four years. Since the recession ended, the 12-month change in consumer prices has averaged 2% and has never been as high as 4%.

There are lots of other ways to gauge inflation, however, that give very different signals. Gold was $930 an ounce when the recession ended, and today it’s $1,583. So if you believe in the gold standard, prices have increased 70% in four years – or an annualized rate of 14.2%. Of course, many economists dismiss the gold price as an archaic indicator. So it may be more meaningful to look at price increases over a broad range of commodities. The Reuters CRB Commodity Index, which tracks the prices of coffee, cocoa, copper, and cotton, as well as energy, is up 38% over four years, or 8.6% at a compound annual rate.

Perhaps the most telling indicator – albeit a slightly facetious one – is the Big Mac index, popularized by the Economist magazine. McDonalds hamburgers are available in many countries and their prices reflect the cost of food, fuel, commercial real estate, and basic labor. The price of a Big Mac, therefore, can be used to compare the economies of different countries – or serve as a bellwether of inflation in a single country. Since the recession ended, the cost of a Big Mac in the U.S. has risen from an average of $3.57 to $4.37, or 5.2% a year.

So why haven’t these more rapid increases shown up in the Consumer Price Index? One reason is that the index itself has been modified in a variety of ways over the past 35 years. Fluctuations in home prices have been smoothed out, for example. And the index has been adjusted periodically to reflect changes in what people buy, particularly if they shift from more expensive items to cheaper ones. Such revisions to the CPI have tended to reduce the official inflation rate, on balance. Various estimates of what the annual rate would have been over the past four years if earlier methods of calculation had been continued come up with numbers in the 5%-to-10% range.

Several conclusions can be drawn from all this. First, there is no absolute and objective gauge of inflation. Any particular measure is simply one way of making the calculation, based on a host of assumptions. Second, a number of the costs that middle-class households face are going up considerably faster than the CPI.

2012 Primary, Clinton, Libya, Obama

Will Obama Throw Hillary Under the Bus?

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It seems that the Obama Administration is trying to make Hillary the scapegoat for the embassy attacks, lack of security and lies. Are the Clinton’s going to take this lying down?

http://dailycaller.com/2012/10/12/author-ed-klein-as-benghazi-blame-nears-hillary-clintons-grow-furious/

2012 Primary, Budget, Clinton, Econ, Editorial, History, Obama, True Talking Points

The 1993 Clinton Tax Increases Did Not Cause an Economic Boom…

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The constant blurring of distinctions and the rewriting of history in political communications get really old.

The economy suffered after the Clinton tax increases and that is one reason why the Republican Revolution hit him in 1994 (along with gays in the military and HillaryCare which featured federal health care police with guns). Bill Clinton had campaigned on a tax cut to help get the economy growing again. He delivered just the opposite.

It is important to keep in mind that President Bush 41 went along with Democrats in increasing taxes in violation of his “read my lips no new taxes” promise. At the time Democrats praised President Bush saying “he had grown”, but when the tax increase resulted in a short 1-2 quarter recession the Democrats blasted him for reneging on his no new taxes pledge. Clinton ran against that tax increase and promised to lower them again.

But what about the Clinton economy and the surplus? Well that was in Clinton’s second term when Newt and the House Republicans balanced the budget, passed welfare reform over Clinton’s initial VETO threats and of course, the new GOP majority in Congress cut taxes.

Forbes:

The Dangerous Myth About the Clinton Tax Increase

One of the most dangerous myths that has infected the current debate over the direction of tax policy is the oft repeated claim that the tax increases under President Bill Clinton led to the boom of the 1990s.  In their Wall Street Journal Op-Ed last Friday, for example, Clinton campaign manager James Carville and Democratic pollster and Clinton advisor Stanley Greenberg write the increase in the top tax rate to 39.6% “produced the one period of shared prosperity in this past era (since 1980).”

While this myth is now a central part of liberal Democratic folklore, it is contradicted by the political disaster and poor economic results that followed the tax increase.  The real lesson of the Clinton Presidency is the way back to prosperity lies not through increased taxes on “the rich,” but through tax and regulatory reform and a return to a rules based monetary policy that produces a strong and stable dollar.

The 1993 Clinton tax increase raised the top two income tax rates to 36% and 39.6%, with the top rate hitting joint returns with incomes above $250,000 ($400,000 in 2012 dollars).  In addition, it removed the cap on the 2.9% Medicare payroll tax, raised the corporate tax rate to 35% from 34%, increased the taxable portion of Social Security benefits, and imposed a 4.3 cent per gallon increase in transportation fuel taxes.

If these tax increases were good for the middle class, then they should have been popular.  Yet, in the 1994 elections, the Democratic Party suffered historic losses. Even though Senate Majority Leader George Mitchell had declared the unpopular HillaryCare dead in September of that year, the Republican Party gained 54 seats in the House and 8 seats in the Senate to win control of both the House and the Senate for the first time since 1952.

Second, Messrs. Carville and Greenberg are contradicted by their former boss.  Speaking at a fund raiser in 1995, President Clinton said:  ”Probably there are people in this room still mad at me at that budget because you think I raised your taxes too much. It might surprise you to know that I think I raised them too much, too.”

During the first four years of his Presidency, real GDP growth average 3.2%, respectable relative to today’s economy, but disappointing coming as it did following just one year of recovery from the 1991 recession, the end of the Cold War and the reduction in consumer price inflation below 3% for the first time (with the single exception of 1986) since 1965.

For example, it was a half a percentage point slower than under Reagan during the four years following the first year of the recovery from the 1982 recession.

Employment growth was a respectable 2 million a year.  But real hourly wages continued to stagnate, rising only 2 cents to 7.43 an hour in 1996 from $7.41 in 1992.  No real gains for the middle class there.

However, with his masterful 1995 flip-flop on taxes, President Clinton took the first step toward a successful campaign for re-election and a shift in policy that produced the economic boom that occurred during his second term.

  • Welfare reform, which he signed in the summer of 1996, led to a massive reduction in the effective tax rates on the poor by ameliorating the rapid phase out of benefits associated with going to work.
  • The phased reduction in tariff and non-tariff barriers between the U.S., Mexico and Canada under the North American Free Trade Agreement continued, leading to increased trade.
  • In 1997, Clinton signed a reduction in the (audible liberal gasp) capital gains tax rate to 20% from 28%.
  • The 1997 tax cuts also included a phased in increase in the death tax exemption to $1 million from $600,000, and established Roth IRAs and increased the limits for deductible IRAs.
  • Annual growth in federal spending was kept to below 3%, or $57 billion.
  • The Clinton Administration also maintained its policy of a strong and stable dollar.  Over his entire second term, consumer price inflation averaged only 2.4% a year.

The boom was on.  Between the end of 1996 and the end of 2000:

  • Economic growth accelerated a full percentage point to 4.2% a year.
  • Employment growth nudged higher, to 2.1 million jobs per year as the unemployment rate fell to 4.0% from 5.4%.
  • As the tax rate on capital gains came down, real wages made their biggest advance since the implementation of the Reagan tax rate reductions in the mid 1980s.  Real average hourly earnings were (in 1982 dollars) $7.43 in 1996, $7.55 in 1997, $7.75 in 1998, $7.86 in 1999, and $7.89 in 2000.
  • Millions of Americans shared in the prosperity as the value of their 401(k)s climbed along with the stock market, which saw the price of the S&P 500 index rise 78%.
  • Revenue growth accelerated an astounding 59%, increasing on average $143 billion a year.  Combined with continued restraint on government spending, that produced a $198 billion budget surplus in 2000.

Shared prosperity indeed!  But one created not by raising tax rates on high income but not yet rich middle class families, and certainly not by raising the capital gains tax rate or by imposing the equivalent of the Buffett rule, a new alternative minimum tax of 30% on incomes over $1 million, nor by massively increasing federal spending.

Rather, it was a prosperity produced by freeing America’s poor from a punitive welfare system, lowering tariffs, reducing tax rates on the creators of wealth, limiting the growth of federal government expenditures, and providing a strong and stable dollar to businesses and families in America and throughout the world.

Clinton, Econ, Editorial, Health Law, Herman Cain

Flashback: Analysis of Herman Cain vs. Bill Clinton on HillaryCare

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Notice how Clinton says that it will work because it means that everyone in the business will have to raise their prices the same so it all works out; no it doesn’t. Clinton is engaging in a false assumption that destroys smaller competition and benefits the biggest players in a market.

Cain is explaining that “big pizza” has a higher base percentage of profit, based on both volume and on economies of scale, that gives them lower costs and higher aggregate profitability compared to smaller competitors. While Godfathers has a profitability of 1.5%, “big pizza” has a profitability that is likely close to 6%.

So what does this mean? If Clinton gets his way “big pizza” will not raise their prices at all, on the contrary they will have a sale and keep that sale on till smaller outfits like GodFathers who are forced to raise prices and reduce service via layoffs can’t compete and shut down. At first the barely profitable stores close, then the better ones. The result is more and more markets where “big pizza” progresses its virtual monopoly in each market. With that competition taken out of the picture “big pizza” can charge whatever it likes and prices go up, and the pressure to keep quality up starts to evaporate.

This is why companies like Philip Morris lobbied Democrats to have tobacco taxes and regulations increased.

This brings us to Norton’s First Law:

Big business loves big government, which is why big business loves domestic taxes and regulation because it keeps the small and medium-sized competition out of the competition. It also causes inflation, so ultimately it is you who pays and the poor who are hardest hit. (Big business often gets loopholes written in the laws for themselves such as Nancy Pelosi trying to get a part of the tuna industry exempted from the minimum wage law).