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Short Term Policy Horizons

Firms Shy Away from Spending-  Eric Morath in the WSJ

Companies appear reluctant to step up spending on the basic building blocks of the economy, such as machines, computers and new buildings. The broadest measure of U.S. business investment advanced 2.2% from a year earlier in the third quarter, the Commerce Department said last week, marking one of the worse performances of the six-year-old economic expansion.

Other measures show an even gloomier picture. A gauge of capital expenditures—orders for nondefense capital goods excluding aircraft—declined 3.8% through the first 10 months of the year compared with the same period in 2014, according to government estimates.

Weak investment restrains economic output, one key reason the economy has struggled to grow faster than 2% in recent years. The weakness also saps the economy’s future potential. Capital expenditures are an important ingredient in improving employee productivity, which has grown at an anemic pace in recent years but is critical to workers’ wages and corporate profits.


the article omits any consideration of the toxic mix of stupidly cheap money and tipping point friction costs, including the unfriendly reception given to capital. I also contend that the lack of faith that any tax policy will survive more than a single  Congressional session chills the willingness to invest for the long term. The problem isn’t short term thinking of business, it is the short term horizon of policy makers.

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Smothered in Quasi-Socialism

Bernie Sanders Rally in Los Angeles

from Mona Charen at National Review, How Bernie Sanders Became the Conscience of the Democratic Party

The idea that “the rich” sit permanently atop a pyramid of worker drones is false. Consider the companies that were once ubiquitous but are now ailing or gone: The Sharper Image, Borders, Circuit City, Polaroid, Yahoo!, Sears, and Toys-R-Us. Creative new competitors take their places. A U.S. Treasury study in 2006 found that among taxpayers in the highest brackets in 1996, 30 percent had dropped below that ten years later, with 2.6 percent dropping all the way to the bottom. Among those in the lowest income quintile in 1996, more than half had moved up ten years later.

A dynamic economy grows out of respect for free markets, willingness to take risks (which includes tolerance for failure), reliable protection of property rights, future focus, light regulation, and openness to ideas. These traits traditionally made the American economy the most innovative in the world. From aeronautics to computers to medical equipment to energy to retailing to entertainment, U.S. creativity has produced the world’s most prosperous middle class. We still lead the world in patents, and we’re still inventing new business models like Uber and AirBnB. But we’ve layered so many stones onto the shoulders of businesses that the engine of innovation is slowing. For the first time since the 1970s, more businesses are dying than being born. In 2000, the U.S. ranked second in the world in economic freedom according to the CATO Institute. Now, we’ve dropped to 16th.

Contra Sanders, we’ve been smothered in quasi-socialism for the past six years. The U.S. economy desperately needs a shot of capitalism and growth. The middle class stagnates and poverty increases. The rich, as in Venezuela, Cuba, and Sweden, are making out fine in Obama’s America. It’s the middle class and the poor who need capitalism to lift them.

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Localized Regulations

from The Wall Street Journal Encouraged by the Feds, Cities Are Punishing Business by John Ella

The challenge for employers is not only the cost of higher wages or paid sick time. Multistate employers compelled to monitor new developments in thousands of cities instead of 50 states find the task overwhelming. Employers also have to track where each of their employees lives, or moves to, and works. Complying with the three-tiered patchwork of federal, state and local regulation means more opportunity for contradiction, as some laws’ requirements are the opposite of other laws. Changing a national payroll system to comply with the paid sick-leave ordinance in Passaic, N.J., might violate the law in San Francisco.

A backlash is already under way. Twelve states, including Florida, Georgia and Wisconsin, have enacted laws barring local governments from requiring businesses to provide paid sick leave. Fifteen states, including Pennsylvania and Colorado, have banned the enactment of minimum-wage requirements anywhere in the state.


A vibrant local economy is the best bet for workers. Such proliferation of localized mandates is the opposite of what is best for workers.

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Driving Corporations Overseas

from the Wall Street Journal, The Corporate Tax Political Divide

 ‘Why is the tax code making it better for foreign companies to invest in the United States than U.S. companies?” That was the pungent question posed by Pfizer Chairman and CEO Ian Read in an interview last week with this newspaper. Washington has no good answer, and President Obama shows no inclination to reform the worst system of corporate income taxation in the industrialized world. So Mr. Read’s Pfizer, currently located in New York, is considering a merger with Dublin-based Allergan. Basing the combined company in Ireland would free up more cash for shareholders, employees and research.

And yes, moving the business overseas would ironically make it easier to invest in the United States, thanks to the insane tax burden the Treasury now applies when U.S. firms want to bring profits back from overseas and invest them at home.

Mr. Read was speaking in general terms and not discussing the particulars of the potential merger his firm is now discussing with Allergan, but he neatly explained the competitiveness problem faced by U.S. companies. He noted that after paying Irish corporate income taxes, a firm based there still retains roughly 88 cents on each dollar of profits, which it can choose to invest in the U.S.

But if a U.S. company makes the same dollar in Ireland and pays the same local tax to Irish authorities, its 88-cent after-tax profit gets whittled down to 65 cents if the money is invested in the U.S. That’s because the U.S. is one of a small handful of tax collectors worldwide that demands to be paid even after a domestic company has already paid the overseas territory where it made the money.

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The Accumulation of Friction Costs


from the Wall Street Journal, The Golden Goose is on the Run by Bob Funk:

There is a disconnect today between what government experts say about the economy when they crunch the numbers and what employers throughout America say when they make hiring and wage decisions. Businesses, small and large, are holding back. Six years after the Great Recession officially ended, many worry about another downturn and fear new governmental intrusions.

For decades, most businesses operated, innovated and expanded despite what was happening in the nation’s capital, or perhaps even oblivious to it. But now the goose that laid the golden egg is on the run. Free enterprise, which made the economy grow and produced rising wages for middle-income Americans, is under assault.

Too many policy makers evaluate new interventions—labor rules, wage laws, environmental regulations—only by what they hope to accomplish. They do not consider the consequences, the unintended effects, and the trouble that their policies will cause for employers and workers, especially when the burdens are placed one on top of another.


Regulation are often considered, rationalized and justified in a vaccuum.  Funk is correct to look at the accumulated effect of a steady stream of regulations. Like bricks in a pick up truck and Stanislaw Lec’s admonition, “every snowflake pleads innocent but it is still an avalanche.”

Regulations and rules roll out for years after its authorizing laws have been passed and forgotten. The difficulties and frustration faced by the businesses affected rarely attract a fraction of the attention the legislation did. There is often a chasm between the intentions and the enactment and results of the legislation.

The first rule of economics is scarcity. The first rule of politics is to ignore the first rule of economics. Money spent to comply with regulations is money not available to hire and raise wages. The stifling effect of the accumulation, uncertainty, and cost of regulation means businesses never start.  It is no coincidence that more businesses are closing that starting.