In reading the economic news of late, and trying to stay up-to-date on the debt talks in Washington via VOA, I am so amazed at the lack of institutional knowledge, both in the media, and in the responder’s/commentor’s to these news stories. Is this just another disconnect, or is it truly a lack of education, and understanding of institutional knowledge?
There is so much Republican talk about losing jobs because of potential tax increases, yet as an economist, I have never seen any empirical data that demonstrates this thesis (high taxes means fewer jobs? – show me the hard evidence that supports this). Additionally, I am reminded of the higher tax rates when Bill Clinton was president, and we only had 2% unemployment, and a booming economy that handed GW a $4 trillion dollar government surplus. So is this a disconnect? ? And if it is, why aren’t more people seeing it? Is the nation that lacking in education?

Here’s the scenario: A story is written by some wannabe journalist, quoting some wannabe lawmakers, during this current debt debate. Regardless of how ignorant either the lawmaker or the journalist is, there is always some poster/commentor who states that they are a business owner, and taxes have nothing to do with their decision to hire people. Which of course is followed by several other posters/commentors saying how stupid this person must be, and that of course taxes mean a lot to businesses. And they expound endlessly about how taxes reduce their income, and therefore their ability to hire new workers…. This disconnect is so obvious, at least to me as a trained economist and accountant, that I laugh at first, only to cry later at the bigger problem going on here….

In Blog entries before now, I have given what I called Economics 101 lessons, and Business 101 lessons. Yet I guess it’s time for another. Business does not pay taxes. Let’s say this again – BUSINESS DOES NOT PAY TAXES…. Want proof? Sure …. Look at any (ANY) income statement from ANY company in the US (world maybe). What is covered in an Income Statement? It’s a report of Income and Expenses, with the result to have NET Income at the end…. So, companies make income from sales, subtract expenses they have in the operation of their company, and then pay taxes on the NET, or the remainder. Which is called income…. But let’s look closely at those expenses…. Yep, there it is. Inside these expensed items is one called TAXES, and after all, taxes are a cost of doing business, and should be expensed.
But if they have subtracted the expense of the taxes they have paid, then essentially they are in fact, NOT PAYING THEM… They are merely collecting them from their customers, and passing it along to the government. ANY economist will tell you that business is the biggest tax collector for the government, not the IRS.
Is this such a difficult concept to understand that neither lawmakers nor the public understands it? Not for the pols…. Many (not all) lawmakers know it, but want to keep the myth alive so that they can attack big business on certain issues, and look good to the (uneducated and uniformed) public.

It's one of our nations biggest disconnects, and the public buys into it.

Our nation has become disconnected from the TRUTH.

Here's an example of the kind of dichotomy, or 'disconnect' that I see with how the Tea Party is portrayed, and how it acts. First, please read this story:
http://www.reuters.com/article/2011/06/06/us-usa-fed-diamond-idUSTRE75500120110606

Here is a Nobel Prize winning economics professor at the Massachusetts Institute of Technology. Yet somehow, for some reason, he is not 'good enough' to be on the Federal Reserve's Board of Governor's. Why? Because Republican Senator Richard Shelby, one of the most 'partisan' GOP Senator's in government has blocked his nomination.
Why? Is this a case of Republican score settling as suggested in the article.
"Diamond's nomination fell victim to Republican score settling -- under Democratic control, the Senate in 2008 blocked a nominee of Republican President George W. Bush."
Or is this perhaps a more sinister problem happening within the US today.

Here is the disconnect I see (that apparently no one else does), when it comes to the GOP and the Tea Party members. The Tea Party says they want 'less government', but having political sway with how the Fed is run would be 'more government' not less. Additionally, having political sway over Fed policy would be more akin to the way in which the People's Republic of China operates its monetary policy, than the way in which America operates. Yet who screams the loudest when it comes to railing against China's policies than the GOP? Are we to emulate the actions of a 'one-man-rule' system? Is the GOP ultimately saying that they don't want a 'two-party' system? That they want politicians to govern how the US economy will be run?  Doesn't anyone else see this as a disconnect? How can this NOT be a disconnect?
I have for many years now, been afraid that the political turn that America has taken in the last 20 years is truly troubling. Our elected leaders no longer want to work for the 'people' but rather for their own perceived advantage. This ultimately leads to a one party system, and to dictatorship. Sooner, rather than later, we will elect a leader who will grab power (perhaps in the name of security and safety) and this grand 230 (plus) year experiment of democratically elected leadership will come to an end.
Which it seems to me is exactly what the Tea Party says they are against. After all, they took their name after those patriots (or terrorists depending upon which side of the fence you were on) who dumped the tea in Boston harbor, and aided in the move towards revolution against one man, or 'one party' rule. Does anyone else see this as a disconnect? How can this NOT be a disconnect?
The Tea Party says they want 'less government', and I believe this to be a laudible goal, and generally a good thing. But it seems to me that inside this Tea Party goal, there is a huge disconnect..... Doesn't anyone else see this as a disconnect? How can this NOT be a disconnect?

The announcement yesterday (Thu Sep 9, 2010 7:57pm EDT) of new trade data showed the U.S. trade deficit with China fell almost 1 percent in July. But it was still nearly 18 percent higher for the first seven months of the year, at $145.4 billion, compared to the same period in 2009.
One of my aquaintances wrote me: "Sen. Schumer will go nuts".
My answer was quite clear to be sure... There are plenty of things to go nuts about, but Sen Schumer, and the other protectionist congressmen are going nuts for the wrong reason. Of course the Chinese have little motive to end their currency manipulation. Its to their advantage.
Think - THINK: How can you demand that someone end a practice that has been (and continues to be) so profitable? One that you encouraged in the first place? Every time some 'other' country makes a run economically, we (who invented the game) demand that the rules (that we made) be changed so that only WE can profit... Just as the US has manipulated its currency at the expense of other countries for the past 50-60 years, the Chinese have learned from our play-book, and are now emulating us more than we do..... And we don't like it.
The US can't print more and more money - which has the effect of lowering its value - then cry out that the value of other currencies is too LOW... It makes for great sound bites in an America that is frustrated, unemployed and generally lacks self confidence, but its bad politics forcing bad economic decision making.
A 10% gain in the value of the Yuan will not create a single job in the US. NOT ONE. US businesses are sitting on hordes of cash (according to news analysts) why aren't they spending this capital by investing in new plant and equipment or by hiring new employees? And why is it that what little they do spend is not within the USA. Why is that ??????
25-30 years ago, China began its 'opening up'... at that very moment, it effectively doubled the available workforce of the world. DOUBLED... Now its people have tasted the fruits of labor and wages and they want MORE... and they are not afraid to work and to save for their future, and their children's future. When I taught economics here, I used to tell my Chinese students that I felt that they(China) is in about the same position as the US was in the 1920's. Just coming into its own. Now I'm just hoping we can avoid the disasterous decade and a half that followed that...
To better understand why currency revaluations are sticky and tricky, see The Plaza Accord of 1985. A negotiated revaluation of the dollar - and consequently an upward revaluation of the Yen and the Mark, sent Japan into a 20 year cycle of deflation. Is this what Washington really wants for China? It certainly is NOT what the Chinese want for themselves. Can you blame them? Or do you really believe that people from certain countries want to be poor forever???
Also see: The Smoot–Hawley Tariff or Hawley–Smoot Tariff (P.L. 71-361, officially named, the Tariff Act of 1930)[1] was signed into law on June 17, 1930, to protect American jobs and farmers from foreign competition. Does anyone remember what that action led to???? While unemployment was bad in 1930 (6.2%), as a direct result of S-H it significantly changed to a whopping 25% by 1932. Is this what Washington really wants for America? AGAIN?....
The problem in the US is not fiscal or monetary policy per se, although the policy makers for the past 25 years have made serious and significant errors. Its structural. The structural make-up of the US has changed, and we (who don't like change, particularly when its not in our favor) don't like it.

Get schooled. It's educational....

People like Sen. Schumer make it ALL sound so simple. Let the renminbi appreciate and the world's economic problems will be solved, and unemployment in America will fall. Yet, if you would stop and think about it, this is a distinctly implausible claim. The idea that an adjustment in one relative price in the entire global economy will rid the world of imbalances and lead to a new economic nirvana doesn't really make sense. When the Japanese tried to do in the late-1980s exactly what is now being asked of China (shift away from export-led to a domestic demand-led growth) it all ended in tears.
It is wrong to insist that China’s global rebalancing imperatives should be addressed by a realignment in a bi-lateral exchange rate with the dollar. What matters most insofar as global imbalances are concerned is China’s broad multilateral exchange rate. On that basis, China can hardly be accused of manipulation vis-a-vis the rest of the world. In real terms, the trade-weighted renminbi is up 7.5% over the past six months and fully 20% over the past five years.

Without a fix to America’s saving problem (highly unlikely in an era of trillion dollar federal budget deficits) forcing the Chinese to appreciate the RMB versus the dollar, or imposing trade sanctions on them if they don’t, is like rearranging deck chairs on the Titanic. It would only shift the Chinese piece of the US trade deficit to someone else — most likely to a higher cost producer. That would be the functional equivalent of imposing a tax hike on already hard-pressed middle class workers. Washington needs to rethink a flawed strategy of attempting to fix America’s multilateral international imbalance through a bi-lateral currency adjustment. It is bad politics driving bad economics....  Stephen Roach, Chairman of Morgan Stanley Asia

China was cut off from the rest of the world for nearly 500 years. The very day that it began opening up, the world's available workforce was essentially doubled. Let me say that again "The world’s available workforce DOUBLED". It basically flooded the world with workers who are prepared to accept wages a tiny fraction of those being paid in the West. Western powers knew this when they approved China's entry into the WTO.... Big corporations not only knew this, but lobbied heavily for it. Why? Because they were drooling over the possibility of employing these low-cost workers in their factories - which is exactly (EXACTLY) what has happened.
All during most of the 20th century, Western workers enjoyed a "monopoly" on access to global capital, rewarding themselves with wages well above the market-clearing price.
That's now beginning to change. Nominal exchange rate adjustment won't prevent Chinese workers from undercutting their Western equivalents. To think otherwise, is unwise....

My advice is to leave China alone. They have navigated high and low seas with admirable dexterity. Instead, all of these pols and their elitist economist's should strain to find ways to redirect the declining fiscal firepower of the west to reactivate domestic credit. Domestic credit is the major channel for ensuring that the necessary fiscal adjustment does not end up in even more tears.

I can't understand how people can be so ignorant. And I can't understand how people in positions of authority can be so. . .

Here's an example from todays (4/4/2010) Reuters news:

Reuters News story: U.S. delays China yuan ruling ahead of Hu visit, by Glenn Somerville (Additional reporting by Patricia Zengerle; Editing by Xavier Briand)

Here are the pieces that I believe are mis-information passing as news...

The U.S. Business and Industry Council, a trade group, said "for three more months, more American factories will close or cut back production and more of their employees will lose their jobs" because unilateral U.S. tariffs are needed to combat "predatory trade practices."

Instead, the U.S. Business and Industry Council should have said, "Why did all of those American companies move their factories to China in the first place. Those companies are the ones who caused these problems.... It's called cause and effect people....

"If we want the Chinese to take us seriously, we need to be willing to say so in public," Grassley said in a statement.
Finance Committee Chairman Max Baucus said Geithner should take a hard look at whether China is a currency manipulator and work with it and other trade partners to address Beijing's currency practices. "For years, Treasury has given China's currency practices a free pass, but it's time to re-evaluate," Baucus said. "For too long, the United States has pursued diplomacy at the expense of American jobs and exports. Further delay is not the answer."

I wish Republican Senator Charles Grassley would stop acting like its 1920, and that the US can just send its gunboats into China to solve their problems. If Americans want the Chinese to take them seriously, then they (US) needs to stop acting like the emperor of the world. Stop creating financial meltdowns which ruin the entire world economy, and stop with the idea that they are the only ones with answers to problems.... America is in fact NOT a part of the solution anymore, they are the problem.....

I just wish more people would think things out to their final conclusion before engaging their mouths...l.