Thursday, October 9, 2008

And Now, From the Bad Idea Department

New Coke. The Edsel. The Hartford Whalers. AOL-Time Warner. Primetime medical dramas on network TV.

Okay, just kidding about that last one. Sort of.

But we all know we've lived through plenty of bad ideas and then said afterwards, "Well, we should've seen that one coming."

While on the subject, the ballot measure to repeal the Massachusetts state income tax is one of the most short-sighted, ill-conceived, and foolhardy ideas I've heard in a long time.

"Taxes," said Oliver Wendell Holmes, are "the price we pay for civilization." It's everything from the lines in the road, the police we rely on for protection, the schools we send our kids to, and, yes, even the state National Guard we might call upon during a time of crisis.

If we repeal the state income tax, guess what? The money for all of that is still going to have to come from somewhere.

And that 'somewhere' might be from something far more regressive than an income tax. Higher user fees, tolls, and sales taxes are just some of the ways we might get whacked.

Those who tout the supposed $3700 "relief" per family this will bring, and mention the state of the economy as a supposed selling point, are being myopic to the point of stupid.
And while we're talking stupid, please bear this in mind the next time you hear someone drop the "G.D." bomb in your presence -- during the G.D. (Yes, I'm refusing to say it), the unemployment rate in this nation topped 25%. Huge swathes of major American cities were essentially shanties. The chattering classes spoke seriously about eradicating capitalism in favor of socialism.

Yes, trillions of dollars of paper wealth have disappeared in the last couple weeks. Guess what? In time, it will all be recovered, and then some. And the national unemployment rate? A whopping 6.1%.

Let's go back to Econ 101 for a second -- if memory serves me, the frictional and the structural unemployment rates combine to form what economists call the "natural" rate of unemployment (i.e. non-cyclical, meaning there is no unemployment caused solely by economic downturn).

No one knows exactly what the natural rate is (hey, n economists in the room means n +1 opinions) but many would peg it somewhere around 6 percent.

So the next time some alarmist tells you we're on a toboggan ride towards a G.D., just ask them when they plan to cancel their cable subscription.

Don't hold your breath waiting for an answer.


kad barma said...

You're right about the tax vote, but don't conclude anything about G.D. G.D.'s based on such a short span of time. Stock prices in '29 hit their bottom within 20 days, but national income continued to decline for four straight years after that, and wound up at less than half of what it had been even *after* the crash. Unemployment spiraled downward for years, too, reaching its nadir of 25% in '33. (It was only 3.2% in '29, and 8.7% in '30).

Whatever's coming, we ain't seen none of it yet. (Here's a hint: if things do repeat themselves, stop worrying about your investments--they were done falling in less than 3 weeks--and get yourself out of debt before deflation busts you).

Matt said...
This comment has been removed by the author.
The New Englander said...

Kad Barma,

Thanks for pointing that out about the crash and how the full effect remained for years.

I don't want to be too much of a Pollyanna about the economic situation (rising food prices, higher gas prices, and wiped-out IRAs aren't exactly good indicators) but I would think (or at least hope) that the safeguards we have in place now like the FDIC would prevent some of what drove things like bank runs back in the day.

Good point about the investments, too...besides, unless you're close to where you plan to start drawing down your IRA or 401k, this is one of those cases where worrying really doesn't help..