Jan 17, 2012, 3:22 pm EST
I have long advised against direct investment in China. Among the many reasons I am bearish on the country is its vastly distorted economy.
China’s is a command-style economy run by an unelected political party — the Communist Party of China (CPC). The CPC’s policies have resulted in a grand misallocation of capital. A mercantilist currency policy, perverse incentives for provincial-government officials and crude monetary-policy tools have helped inflate a fixed-asset and real estate bubble that makes the U.S. real estate bubble seem trifling.
Economic Growth: China’s Quality Problem
It should be obvious to most observers that things are not as they seem in China. The country has reported GDP growth of 9% or more in every quarter over the last two years, yet the Shanghai Composite Stock Index has plunged more than 30% during that time. If China’s economy were truly booming, Chinese shares would most likely be trending up. When it comes to economic growth, China doesn’t have a quantity problem — it has a quality problem. Read
Jan 17, 2012, 3:06 pm EST
Congress has a lot on its agenda when it reconvenes next week. One of the most closely watched items will be the extension of the payroll tax holiday for all of 2012. Recall the pre-Christmas drama surrounding this issue: while there was bipartisan agreement to extend the stimulative tax break on payrolls through the end of 2012, there was caustic disagreement over how to pay for it. Senate Democrats pushed for a surtax on incomes in excess of $1 million, while Republicans refused to consider tax increases of any kind and wanted to realize the savings through spending cuts.
The tiniest of compromises was agreed upon in the form of a two month extension and a promise to continue the conversation this year. That debate has begun again in earnest. Politico reports that Republicans are proposing to find $24 billion in savings by changing a law that allows undocumented workers to claim the Additional Child Tax Credit. Under current tax law, workers that have an Individual Taxpayer Identification Number, but not a social security number, are allowed by the IRS to claim a tax credit for their children, who are often American citizens. This refundable tax credit is claimed by the poorest of working families: those that make about $21,000 a year.
Cutting the credit for undocumented workers may be great politics in the very short term for some in an election year, as it will allow them to look both tough on immigration and frugal, but this is terrible policy and will ultimately prove to be bad politics as well. Read
Jan 17, 2012, 2:44 pm EST
Voters often respond with loud approval when the government decides to tighten its own belt, but a recent analysis suggests such cuts might be doing more harm than good.
According to the Sunlight Foundation – an organization with a stated goal to “catalyze greater government openness and transparency” – recent and future House cuts threaten the quality of work being done in Congress, and risk higher dependence by politicians on lobbyists.
In early 2011, the House of Representatives voted to cut its operating budget by 5%. That has resulted in a 7.4% cut in salaried staff (948 positions), a 62.5% cut in computer spending and a 30.7% drop in office supply spending. And the 2012 Legislative Branch Appropriations Act will cut into House pockets even deeper, with the branch set to hack off another 6.4% in spending. Read
Jan 17, 2012, 2:06 pm EST
A quick look at last night’s South Carolina debate by politico.com yields a few essential points:
1. Mitt Romney is in for a hard week.
He hemmed and hawed about releasing his tax returns in April, and even though the question was expected, Romney still seemed uncertain in his response. Read
Jan 17, 2012, 9:04 am EST
I will grant that Ron Paul is both intelligent and wise. And yes, it is true, that he is the most effective champion of human liberty in public life and seems to know more about the U.S. Constitution than any other elected official. He does seem to be personally kind and is even patient with the most obnoxious media figures. And it’s clear from his voting record that he is a man of principle and integrity.
Still, I wouldn’t hire Ron Paul…
…to fix my car. He could be a backyard automotive tinkerer for all I know. But there is no public evidence to that effect. Read
Jan 13, 2012, 10:53 am EST
In an August 2011 op-ed piece in the New York Times, Warren Buffett declared that wealthy Americans paid too little in taxes. The response to the piece was predictably partisan, with Sen. Mitch McConnell (R-Kentucky) saying Buffett should feel free to “send in a check” to the U.S. Treasury to assuage his guilt. Sen. John Thune (R-South Dakota) followed that up by introducing the “Buffett Rule Act,” which would allow rich folks to donate more in taxes to help pay down the national debt.
For an interview published in the new issue of Time magazine, Buffett told Rana Foroohar that Thune’s proposal was “a tax policy only a Republican could come up with.” If nothing else, Republican sparring on Buffett’s tax stance seems to have inspired the CEO of Berkshire Hathaway (NYSE:BRK-A) to play along and up the ante. Buffett said would donate $1 toward paying down the national debt for every dollar donated by a Republican in Congress, and for McConnell, $3 for every $1 McConnell donates.
An aide to McConnell told Reuters that Buffett should consider expanding his matching offer to President Barack Obama and his Democrats. Read