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Honda sets too high a price on its 2013 Civic Natural Gas
Howard Richman, 11/30/2012

For 2013, Honda raised the prices for almost all of its Civic models by $160. The one exception was the Civic Natural Gas which it reduced in price by $160. Its manufacturer's suggested retail price will start at $27,255.

Although this was a step in the right direction, it did not go far enough. Honda only reduced the approximately $6,000 price differential between its gasoline and natural gas models by a measly $320 even though a CNG (Compressed Natural Gas) vehicle costs about the same amount to manufacture as a gasoline vehicle. The vehicles are very similar except that the CNG vehicle requires an expensive fuel tank while the gasoline vehicle requires an expensive catalytic converter.

But, at the present price differential, even if a commuter could save $1,000 per year by buying less expensive CNG instead of gasoline, it would still take more than 5 years to recoup the huge difference in purchase price.

Last year, Honda made the Civic Natural Gas available at dealerships countrywide. If, this year, it had reduced its natural gas model's price significantly, there would have been a huge increase in the size of a the CNG car market which Honda currently monopolizes. More CNG filling stations would spring up and the American economy would benefit from the substitution of domestically-produced natural gas for imported oil.

Fortunately for America, other companies are moving much more aggressively than Honda to take advantage of CNG's potential growth. For example, in July GE announced that in a about two years they will market a reasonably priced home filling station for natural gas vehicles. Specifically:...

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Nonsense Proposals by Pres. Obama and the Republican Leaders Are Over-the-Cliff
Raymond Richman, 11/29/2012

The literate public must be very confused about the position of Pres. Obama whose solution to the federal budget deficit is to raise the marginal rates of personal income tax of those households whose income exceeds $250,000. They are no less confused about the position of the Republican leadership in the Congress whose solution to the public deficit is to eliminate some deductions in calculating income that they believe are unjustified, like the deduction of interest paid on home mortgages.

Economists on the left base their support of the President’s view on the fact that it would make the personal income tax more progressive.  Economists on the right argue that higher progressivity would impede investment and prevent recovery from the depressed economy. Investors, they argue correctly, base their decision to invest on the expected returns after tax which is affected by the rates of tax on corporate income.  What is the effect of elimination of the deduction on mortgage interest? The value of a house is equal to the value placed on its occupancy less real estate taxes, maintenance expenses and depreciation. The deductibility of interest paid on a possible mortgage is a benefit of owning the home. It has the same effect as a subsidy to home ownership; in fact, it is a subsidy to home ownership. Eliminating it would have the same effect as a rise in real estate taxes.

One may conclude that raising the rates of income tax on personal incomes over $250,000 will impede investment in all capital assets and delay recovery while elimination of the deduction of mortgage interest will diminish housing values and reduce the demand for new houses. Older houses will simply have less value and the burden will fall on the home-owner at the time the deduction is eliminated.

A needed real major tax reform without these major impediments to investment would be to integrate the corporate income tax and the personal income tax. The corporate income tax makes us uncompetitive in world markets and is a drag on economic growth and employment. The trade deficits to which the corporate income tax has contributed have caused the loss of millions of manufacturing jobs. ...

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$260 billion in deficit cuts is not enough
Howard Richman, 11/29/2012

If they can't agree to bring the budget toward a sustainable balance when the next elections are 2 years away, when will they do it?

According to Politico, the tax increases and spending cuts of the compromise deal being worked out between President Obama and the Republican House leadership will only reduce the federal budget deficit by about $260 billion per year.

Currently the U.S. federal government budget deficit is $1,327 billion per year. Without this deal, the tax increases and spending cuts of the fiscal cliff would have reduced the deficit to $825 billion per year. This deal will only reduce the budget deficit to $1,067 billion per year, resulting in a 6.7% rate of budget deficit growth which is about 4% faster than GDP growth.

Here's how this growing debt to GDP ratio will eventually play out, according to the Congressional Budget Office:

If the fiscal tightening was removed and the policies that are currently in effect were kept in place indefinitely, a continued surge in federal debt during the rest of this decade and beyond would raise the risk of a fiscal crisis (in which the government would lose the ability to borrow money at affordable interest rates) and would eventually reduce the nation's output and income below what would occur if the fiscal tightening was allowed to take place as currently set by law.

And here is how my father, son and I described this future in our American Thinker article about the fiscal cliff (The Fiscal Cliff is a Good Thing):

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No trend in severity of hurricanes since 1900
Howard Richman, 11/27/2012

The U.S. main stream media gave the 2012 election to President Obama by pretending that Hurricane Sandy could have been the result of man-made global warming. If they had wanted to present the truth they would have pointed out that there has been no trend whatsoever in hurricane severity since 1900.

This point was made again on November 27 by Roger Pielke Jr., a professor of environmental studies at the University of Colorado at Boulder. Click here to read his blog entry and see his graph....

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The Going Over-the-Cliff nonsense. What we need to do.
Raymond Richman, 11/22/2012

If the Budget Control Act of 2001 is allowed to take effect, we won’t be going over a cliff. There will be a rise in income taxes to its level ten years ago and a cut in expenditures to their level four years ago. These are the least we should do. The CBO estimates that the cut in expenditures would reduce federal spending by $103 billion and the rise in taxes would increase tax revenues by $399 billion. To put this in perspective, federal receipts were estimated for 2012 at $2,627 billion; outlays, $3,729 billion, and the budget deficit, $1,101 billion. So the reduced spending is only 2.8 percent of 2012 spending and increased tax receipts 15.2 percent of 2012 revenues. To avoid taxing the “middle class”, Pres, Obama would impose a tax increase only on those with incomes over $250,000.  Republicans would not increase taxes at all. These would decrease the rate of increase in the debt hardly at all.

The CBO’s prediction that Pres. Obama’s 2009 $800 billion economic stimulus plan would reduce unemployment to 6.5 percent was wrong. So is their prediction that letting the Budget Control Act take effect would raise the unemployment rate to 9.1 percent. Instead of increasing unemployment it would reduce unemployment. It would restore somewhat investor confidence that the government will gain control over its wildly out-of–control budget. ...

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Book Review of "Here Come the Black Helicopters!" by Dick Morris & Eileen McGann
Raymond Richman, 11/17/2012

Dick Morris & Eileen McGann, Here Come the Black Helicopters! UN Global Governance and the Loss of Freedom (Broadside Books, 2012). 

Dick Morris and Eileen McGann, in this book, warn us that the magnificent USA that our founders created is in danger of merging into a totalitarian world government sponsored by the United Nations and other world agencies that we created since WWII.  Moreover, world government will be a menace to our liberty and our democracy and our self-government, not only at the national level but at the state and local level. None of its advocates suggest that the UN be elected and be responsible to the electorate and if they were by what process. To whom is the UN hierarchy accountable? As the authors write, “the globalists and socialists—who run the United Nations” focus on “environmental problems, such as climate change and ocean acidification .. to implement an agenda of socialist central planning..to curb the.. sovereignty of nation-states, and force them into a global regulatory scheme.”  But their real goal, according to the authors “is to establish a one-world government—dominated by bureaucrats accountable to no one..

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Mark Faber predicts economic future if House Republicans kick fiscal cliff down road
Howard Richman, 11/14/2012

In an interview on CNBC's Squawk Box, Mark Faber, author of "The Gloom, Boom, & Doom Report," laid out the economic future if the House Republicans kick the can down the road in the Fiscal Cliff negotiations.

In his scenario, the fiscal cliff results in nothing more than minor tax increases and minor cuts in spending. Meanwhile, the world economy will continue to stagnate until it goes over the precipice with a "complete collapse of society in 5 or 10 years time".

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The Fiscal Cliff is a Good Thing -- we're published in today's American Thinker
Howard Richman, 11/13/2012

We begin:

The entire discussion of the "fiscal cliff" has things a bit backward. People talk of "going off" the fiscal cliff -- and the natural image is of the disaster that awaits one who tumbles from the edge of a precipice. Instead, perhaps we should say "running into" the fiscal cliff -- the cliff being a force that stops a tumble.

The term "fiscal cliff" refers to the combination of two major policy changes due to go into effect in January 2013:

  1. The sequester. Because the (not-so-)Super Committee succumbed to partisan paralysis and couldn't come up with anything better, the sequester will begin making automatic spending cuts across domestic discretionary (50 billion per year) and defense (50 billion per year) programs.
  2. The Bush and Obama tax cuts expire. The Bush tax cuts increased the deduction for children, cut marginal tax rates, and cut dividend and capital gains tax rates. The Obama tax cut reduced the amount workers pay for Social Security without reducing benefits. In addition, a Medicare "doc fix," which increased reimbursements for hospitals, is due to expire.

Running into a cliff isn't fun. It would raise nearly everyone's taxes. It would cut spending on most of the programs everyone uses. It would temporarily raise unemployment rates. But the fiscal cliff would back us away from a true disaster scenario, and it would slow the growth of the government debt....

To read the rest, go to:

http://www.americanthinker.com/2012/11/the_fiscal_cliff_is_a_good_thing.html

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CBO is Wrong about the fiscal cliff. House Republicans should Stand Strong.
Howard Richman, 11/9/2012

In 2013, when the "fiscal cliff" kicks in (i.e., the end of the Bush tax cuts and the implementation of the Budget Control Act of 2011), the new fiscal responsibility would move the federal budget toward balance. But the incompetent economists at the Congressional Budget Office (CBO) are trying to panic the House Republicans into abandoning fiscal responsibility.

In an incorrect November 8 report (Economic Effects of Policies Contributing to Fiscal Tightening in 2013), the CBO mistakenly claimed that fiscal responsibility (popularly misnamed the "fiscal cliff") would cause unemployment to spike to 9.1% by the fourth quarter of 2013, specifically:

According to the Congressional Budget Office’s (CBO’s) projections, if all of that fiscal tightening occurs, real (inflation-adjusted) gross domestic product (GDP) will drop by 0.5 percent in 2013 (as measured by the change from the fourth quarter of 2012 to the fourth quarter of 2013)—reflecting a decline in the first half of the year and renewed growth at a modest pace later in the year.1 That contraction of the economy will cause employment to decline and the unemployment rate to rise to 9.1 percent in the fourth quarter of 2013.

Have they learned no economics from recent history? Don't they understand yet why the stimulus that Congress passed in February 2008 failed? Don't they yet understand why Obama's Recovery Plan of 2009 failed? Unemployment has been declining due to declining wages, not due to government stimuli. That's why the work force participation rate is declining at the same time that the unemployment rate declines.

As my father, son and I have pointed out through worldwide economic statistics, economic stimuli don't much reduce unemployment in trade deficit countries. That's because the stimulus leaks out as a higher trade deficit. Similarly, fiscal responsibility doesn't hurt. Its effects are softened by a lower trade deficit. The resulting unemployment increase would mostly occur abroad, not in the United States.

The real fiscal cliff would be much worse....

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Employment Data Show No Economic Growth
Raymond Richman, 11/5/2012

On November 2, 2012, the US Department of Labor issued its weekly employment report, the results of sampling households and establishments during the previous week. The household survey, reported that total non-farm employment increased by 171,000 during the month of October, which the Obama campaign and the media widely interpreted as an indication that the economy was growing. According to the BLS, the establishment survey employment series has a smaller margin of error than the household survey because of the difference in their sample sizes. An employment change of about 100,000 is statistically significant in the establishment survey, while the threshold for a statistically significant change in the household survey is about 400,000. The problem is that the media failed to report that in August, 2012, two month’s earlier, the increase was 192,000 and fell in September to 148,000. This does not mean that the data are unreliable, only that it is not convincing that there is growth.

The household survey shows that unemployment increased last month from 7.8 to 7.9 percent. It shows that 12.3 million are unemployed, that 23.7 percent of teenagers seeking work cannot find employment, that 14.3 percent of blacks and 10 percent of Hispanics seeking work are unemployed, but only 4.9 percent of Asians seeking work are unemployed. Is unemployment a cultural phenomenon?

The establishment survey shows that the average number of hours worked per week was 34.4 and that the average earnings per week was $96. Total nonfarm payroll employment increased by 171,000 in October. Employment growth has averaged 157,000 per month thus far in 2012, about the same as the average monthly gain of 153,000 in 2011.

What the data do show is that the economy is stagnating. They do not show that we are on the way to economic recovery. As the BLS employment report itself states, “Total nonfarm payroll employment increased by 171,000 in October. Employment growth averaged 157,000 per month thus far in 2012, about the same as the average monthly gain of 153,000 in 2011....

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Obama Fiddles while China gets Jeep -- we're published in today's American Thinker
Howard Richman, 11/2/2012

We begin:

In December 2011, a few American-made vehicles were getting over China's high 25% tariff barrier, so the Chinese government raised the barrier. According to The Guardian, China raised its tariffs on GM cars by as much as 22% and on Chrysler cars by as much as 15%:

General Motors faces the greatest impact, almost 22% extra on some sports utility vehicles (SUVs) and other cars with engine capacities above 2.5 litres. Chrysler faces a 15% penalty, while a 2% levy will be imposed on BMW, whose US plants make many of the cars it exports to China.

Existing taxes and duties already push up the cost of US imports by 25%, and the new levies make it even more expensive for Chinese consumers to buy American.

GM caved in April when it agreed to build several new Cadillac factories in China. Chrysler caved last week. On October 22, Bloomberg reported that Fiat, Chrysler's owner, is preparing to build new Jeep factories in China and may eventually import Jeeps from China. Here is how the Bloomberg article began:...

To read the rest, go to: www.americanthinker.com/2012/11/obama_fiddles_while_china_gets_jeep.html

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Some recent academic papers on mercantilism
Jesse Richman, 11/2/2012

A number of intriguing academic papers have appeared on mercantilism in 2012.  I summarize a few below.

Chinese economist Heng-fu Zou and coauthor Gaowang Wang presented a working paper on the relationship between mercantilism and global economic growth.  They integrate Zou's 1994 dynamic analysis of the Viner model of mercantilism with Obstfeld model.  The results are potentially quite important, and they point to the importance of including mercantilism in analysis of differential global economic outcomes....

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  • [An] extensive argument for balanced trade, and a program to achieve balanced trade is presented in Trading Away Our Future, by Raymond Richman, Howard Richman and Jesse Richman. “A minimum standard for ensuring that trade does benefit all is that trade should be relatively in balance.” [Balanced Trade entry]

    Journal of Economic Literature:

  • [Trading Away Our Future] Examines the costs and benefits of U.S. trade and tax policies. Discusses why trade deficits matter; root of the trade deficit; the “ostrich” and “eagles” attitudes; how to balance trade; taxation of capital gains; the real estate tax; the corporate income tax; solving the low savings problem; how to protect one’s assets; and a program for a strong America....

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  • In Trading Away Our Future   Richman ... advocates the immediate adoption of a set of public policy proposal designed to reduce the trade deficit and increase domestic savings.... the set of public policy proposals is a wake-up call... [February 17, 2009 review by T.H. Cate]