It's nice to be back in St. Cloud. I was expected to leave for another conference tomorrow overseas, and when I called to suggest I would not fly on the Fourth of July there was a momentary pause on the other side. "Oh, that's your Independence Day, isn't it?!?" Yes, and I'd like to have it with my family. (I'll have to skip fireworks, as I leave early Sunday.)

Labels: America, Freedom

Just wonderin', as have several people who've emailed me about this cover. There were a stack of these in my office this AM. There's a suggestion that I should now work for free instead. I prefer the infinite price idea to justify my constant complaint of being underpaid and overworked.

Thanks to our local communications staff who put that together; I wasn't as enthused about the cover as others, but it seems to have gone over well. I am deeply grateful to this university that has given me plenty of opportunities to be successful and in my corner when I am. When I do write critically of the school on this blog, I hope readers understand it's the disappointment one feels when a loved one doesn't meet the ideal vision one has of it. It has long been populated with wonderful people, most of whom are friendly even when in deep disagreement. One can hardly ask for more.

Labels: economics, SCSU

This graph shows the unemployment rate compared to the stress test economic scenarios on a quarterly basis as provided by the regulators to the banks (no link).

This is a quarterly forecast: the Unemployment Rate in Q2 was higher than the "more adverse" scenario.

Note also that the unemployment rate has already exceeded the peak of the "baseline scenario".

From Calculated Risk, hat tip to Henry Blodget, who correctly adds:

The larger story here, unfortunately, is that the Obama administration continues to blow its credibility on the economy. By being too optimistic from the get-go, the administration is opening the door for critics and opponents who are already arguing that the Obama plan has failed.

The only surplus this administration has is in hubris. See my posts here and here for more on overselling your forecast.

Labels: economics, Obama

...about the gold standard. I was surprised she decided to do this topic, and when she sent me a draft of it I was quite surprised how much she had learned.

But after World War I came the Great Depression. Country after country abandoned gold standard after the Depression. During World War II the allies held a meeting at Bretton Woods, N.H., to establish that the dollar was fixed to gold and everyone fixed to dollar. But that ended in 1971 because the United States didn’t want to play by those rules either.

I asked [St. John's economics professor Louis] Johnston if the gold standard made sense for today, and he argued that it would not. “Governments have no better sense of what a currency ‘ought’ to be than anyone else, so there is no case to give a government a monopoly in this area. Let markets determine what the value of a currency will be.”

It turns out the value of our currency is not assured by government promising to convert money to gold. Instead, it depends on government doing those things that a gold standard would require. If we have the gold standard and no discipline, it fails. If we have the discipline, we don’t need a gold standard to tell us what our dollar will be worth 20 years from now.

Do we have that discipline now?

See also, as always, the Concise Encyclopedia of Economics.

Labels: economics, money

On Independence Day, July Fourth, Americans fly more American flags than possibly any other national holiday. Why? I believe at some level we know how fortunate we are to live in a country with the ideals and subsequent freedoms that we have. At times, we take them for granted, but underneath, I hope we realize that we, indeed, are very fortunate.

Yesterday we replaced our tattered flag with a bright, new one. With the flag came an insert covering all aspects of flying our flag - everything from: Displaying the flag properly, folding it correctly, respecting it, and basic facts. You can go here for details.

We must remember that freedom isn't free, people have died for our freedom, and because of our ideals, our flag is recognized around the world. Some will debate as to why, but the most telling reason is the answer to this question: "If all nations of the world had open immigration, where would people choose to go? The USA." Our flag represents freedom for everyone, everywhere.

Happy Independence Day

Labels: Fourth of July, Freedom

I have some experience with other countries' independence day celebrations, but Canada's was different. A day of celebration, downtown Vancouver was full of families with flags and Maple leaf tattoos. I saw several military platoons around the waterfront. The fireworks left much to be desired but the people were in a good and festive mood.

I have to say I ignored Vancouver as a destination wrongly. It is a great city. Sort of Euro but without the attitude. Talking to Canadians reveals people who are curious about America but not envious or dismissive of our country. It had been 13 years since I last was here. I won't wait so long next time.

For all who will be around for the Fourth of July, our Independence Day, this is an invitation to participate in a Tea Party, hopefully near you. Those in the Twin City Metro area are welcome to join all independent minded people at the Capitol in St. Paul to celebrate our freedoms between the hours of 3 and 6. Afterwards, depending on your schedule, you may want to stay for great fireworks.

For those of you outside the metro area, go here to find a location that hopefully is near you.

Happy Birthday, USA!

Labels: Fourth of July, Freedom

Did someone pinch about 17,500 ounces of gold from the Canadian mint?

The Royal Canadian Mint is missing about C$18.8 million ($16.2 million) worth of gold and has not ruled out theft even as it continues to try to solve the mystery, according to an official on Tuesday.

An independent review by of the Mint's records found a discrepancy of 17,500 troy ounces of gold -- worth about C$18.8 million at current prices -- between the Mint's accounting and its physical count of precious metal done at the end of 2008.

The Mint refines 5.4 million troy ounces of gold a year, turning raw metal and scrap jewelry into 400-ounce bars.

The bars that the Mint makes out of scrap gold weigh about 27.5 pounds (12.5 kilos). It's a bit heavy to sneak out under a skirt or coat. And you'd have to take out 44 such bars for a theft that large. Mint officials say they had a lot of gold come in when prices rose above US$1000 an ounce. Hard to believe they'd end up with an explanation "we were swamped."

The mint's management has been told by government it will not get any bonuses until they find the gold. That should be reassuring. Wouldn't firing someone be the normal thing?

Labels: economics, money

Canada spends about $3600 per person on health care. That's about half what the US spends, and some think we need to spend less and be more Canadian. Well, some Canadians want to be more American, too.

"Any wait time was an enormous frustration for me and also pain. I just couldn't live my life the way I wanted to," says Canadian patient Christine Crossman, who was told she could wait up to a year for an MRI after injuring her hip during an exercise class. Warned she would have to wait for the scan, and then wait even longer for surgery, Crossman opted for a private clinic.

As the Obama administration prepares to launch its legislative effort to create a national health care system, many experts on both sides of the debate site Canada as a successful model.

But the Canadian system is not without its problems. Critics lament the shortage of doctors as patients flood the system, resulting in long waits for some treatment.

"No question, it was worth the money," said Crossman, who paid several hundred dollars and waited just a few days.

So without denial of any service to anyone else, Ms. Crossman spends $700 to get her treatment. She upgraded her health care, of her own volition, with her own resources. I would not have thought anyone could object. But,

"Private clinics don't produce one new doctor, nurse, or specialist. All they do it take the existing ones out of the public system, make wait times longer for everybody else while people who can pay more and more and more money jump the queue for health care services," said Natalie Mehra, member of the Ontario Health Coalition.

..."One can understand that this is evolving and a mix of private and public seems to be favorable in some context. On the other hand, we need to be really careful that we're not treating health care the way we treat a value meal at McDonalds," Dr. Michael Orsini from the University of Ottawa told FOX News.

Ms. Mehra is economically illiterate. An increase in demand for doctors -- by paying them more -- will increase their income and induce young, smart people into medicine who now go elsewhere. (That is, if the medical profession allows medical schools to admit however many they want.) The fixed-pie thinking of Mehra -- if you get one more doctor in your private clinic I get one less doctor in my public medical factory line -- is a static thinking that fails to understand incentives. If you would just allow them to work, you could have as many doctors as you'd like.

But Dr. Orsini thinks there's something entirely different about health care. That appears to be the dominant thinking in Canadian public policy. They should talk to more Ms. Crossmans. Health care is a scarce good: People economize by seeking value for their dollar. The only reason someone would not want a patient to seek value is that that person -- the doctor, the government, the bureaucracy -- doesn't want to cede the power of being able to make that choice for them.

Labels: economics, health care

Tim Horton's is returning to its roots, and it's taxes that done it:

In a clear indication that Canada is starting to be considered a low-tax place to do business, Tim Hortons Inc. announced yesterday plans to shift its base of operations from Delaware to Canada for tax purposes.

Further, analysts indicate this is also a sign of unease among corporations regarding the U. S. business environment, where taxes are likely heading upward to deal with trillion-dollar deficits and proposed health-care reforms and the White House is looking to crack down on companies that invest abroad.

The move by Tim Hortons makes good on a promise contained in the company's filing with U. S. securities regulators earlier this year, in which it said it was exploring such a reorganization because it could potentially drive down its effective tax rate closer to Canadian statutory levels.

In Canada, the federal corporate tax rate is headed to 15% in 2012, and the federal Conservative government has called on the provinces to get to a 10% business levy by the same time frame--for a combined 25% rate on corporate income. Alberta is already at 10%. British Columbia will be there in 2011, Ontario by 2013, and New Brunswick will go down further, to 8%, in 2012.

In the United States, the top corporate tax rate is in the mid-30% range. As a result, the United States now has about the highest combined corporate tax rate, second only to Japan, among industrialized countries.

And note that, thanks to outsized budget deficits, we're probably heading higher. The Canadians are noticing:

The retailer said in recent filings it expects its effective tax rate to be in the 32%-to-34% range in 2009. In 2008, it paid US$139.2-million in income taxes.

With the reorganization, Tim Hortons could generate "quite a bit" of savings on taxes paid because the income earned in Canada would be taxed at the lower Canadian rate, said John Wonfor, national tax partner at BDO Dunwoody. Its income from U. S. operations would still be taxed at U. S. rates.

Plus, Mr. Wonfor said Canada's fiscal framework looks much healthier compared with the United States, which means the country's policy-makers can likely maintain its lower tax rates. Meanwhile, U. S. taxes are bound to climb, he added.

Finally, there is the current White House proposal to remove the incentives for U. S. companies to invest overseas, and curb the use of offshore jurisdictions by companies and investors.

"If the U. S. tightens up on the tax treatment on foreign income, many Canadian companies -- as well as other foreign entities operating in the U. S. -- might look to put headquarters and holding company functions in Canada since dividends from foreign affiliates are not taxed by Canada," said Jack Mintz, a public-policy expert from the University of Calgary and a renowned tax expert.

Rust never sleeps, and capital is quicksilver. It's not going to wait around for our rapacious Washington elite to feast upon it.

Eventually, American companies will either have to withdraw from global competition and compete solely at home, or they will have to move out of the US in order to return to an equal tax position as their competition, whose governments only tax them on domestic earnings.

The more I think of this, the less I think it's the tax rate that matters as much as the Obama Administration's spending plans. Suppose they cut the corporate tax rate but leave the spending alone. Does anyone think it wouldn't lead to an increase in individual income taxes? An increase in the tax on dividends would hurt corporations as much as an increase in their corporate income tax. A VAT without a cut in income taxes would kill US businesses. So too would increasing interest rates through more government borrowing, or inflation if they print money to pay deficits. What matters is spending. Pawlenty is right: They need to stop.

Labels: donuts, economics

Regardless of what one thinks of his music or his life choices, it is easy to recognize how enormously productive Jackson was. He broke all the records for album sales, put MTV on the map and propelled music videos into the mainstream.

He created something out of nothing. He used his talent, hard work, and creativity to please the ears and eyes of consumers around the globe. If Jackson--or any entrepreneur for that matter--had asked a certain kind of economist whether he should pursue this line of work, this innovation, he would have been told it was foolhardy. "If there really was a market for that kind of stuff, someone would have done it already," they would say. But this is a static view of the world.

In reality, the economy is dynamic. And what allows that dynamism, what creates the environment for entrepreneurship, is the institutional framework--property rights, the rule of law and even the level of common trust among citizens. These factors cannot be quantified or easily measured, so they are often overlooked.

And yet without these social attributes great talent goes wasted around the world. The U.S. is blessed in countless ways, but do we really think we are just "lucky" to have so many talented people who live here? Would Michael Jackson have been just as successful if he had been born in France or Ghana? Of course not.

The good news is that singers like Shakira, who is from Columbia, and movies like Slumdog Millionaire, based on a book by an Indian novelist, suggest the environment necessary for success is spreading--even in the developing world.

Brian Wesbury and Robert Stein yesterday. My mind turns to these things while traveling. Canada is a great country, but how much of its greatness comes from its proximity to the US? How much of Mexico's growth? How do these institutional frameworks spread?

Please note that this week and next, postings will be at odd times due to time shifts. I will update via Twitter whenever possible, so be sure to follow me there.

Labels: economics