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My old band, The Shreep, was recently featured in a book about band names. Click on the scanned picture below to read more:
Once again, my apologies to those waiting for my ramblings with baited breath. Until something gets really under my craw, you can get all sorts of witticisms, deep thoughts & insights from yours truly by following my Twitter feed here:
In 1990, I was a bond broker. The Dow was rocketing toward 3000 points and we were furiously telling our clients that what goes up, must come down - that the banks were broke and 3000 was not sustainable - "Buy bonds, now, Bob!" At long last, the past twenty years of bull markets notwithstanding, it looks like we are finally vindicated. Sure, our clients who bought bonds made money too but most investors made money in the '90s.
Set aside for a moment that the Dow Jones Industrial Average should never have become the barometer of our economy the way it has (hat tip to cable news), take a close look at this chart of the Dow's history and remember, what goes up, must come down:
My friend asked me to help him convince a friend of ours that keeping the capital gains tax low (it's currently at 15%) is not necessarily such a good thing. So I'll give it a shot.
It seems as though the theory that low capital gains tax spurring investment has become one of those vestiges from the past thirty-five years of "white is black and black is white" economics that continues to have legs beyond the devastation of the past eight years. (Here, I should again plug Jonathan's Chait's The Big Con - it's a good overview of the absurdity of supply-side economics and how it's been sold to the American public).
To recap, capital gains are profits from stocks, bonds, real estate investments and other capital assets. Capital gains accrue when an asset is sold. All you really need to know is that the Joint Committee on Taxation and Treasury both count raising capital gains taxes as raising revenues. And there are no unbiased studies to prove capital gains tax cuts stimulate the economy.
Yet, in the April 2008 debate between Hillary Clinton and Barack Obama, ABC's Charlie Gibson said of capital gains tax cuts that "in each instance, when the rate dropped, revenues from the tax increased. The government took in more money. And in the 1980s, when the tax was increased to 28 percent, the revenues went down." Gibson went on to assert that "history shows that when you drop the capital gains tax, the revenues go up." Neither candidate really challenged Gibson on this assertion, unfortunately, but he misinformed the public in a fairly insidious way.
It just makes sense that there would be a short-term spike in revenue
before a hike in the capital gains tax because investors might be more inclined to sell off their assets at the lower rate - and vice-versa. But the long-term effects are an entirely different story. Charlie Gibson & Co. seem to think that capital gains tax revenue fell when the rate was raised as part of the 1986 Tax Reform Act that was signed by President Reagan. The reality is that capital gains realizations surged in anticipation of the rate increase (which took effect in 1987). In other words, an increase in the rate actually increased revenues, albeit temporarily. After that, with fewer gains to realize, realizations predictably declined, and eventually returned to their normal level -- until the Clinton adminstration, when the stock market went up so much that realizations boomed. Capital gains tax revenues as a percentage of GDP under the Bush II Administration never reached the levels
of the Clinton years when the rate was higher.
But what about the argument that capital gains tax cuts spur investment? Proponents of a capital gains tax cut have no historical evidence to point to when trying to prove the benefits of these cuts. They try the populist tack, saying that it's a tax on "ordinary Americans" when the reality is that in 2002, only 21 million (less than 20%) owned
individual stocks outside an employee-sponsored plan. When politicians
talk about eliminating the capital gains tax, it is only these 21
million households who will pay lower taxes, because retirement
investments are tax deferred while you hold them, and then taxed at
regular income tax rates when you take the money out. So the supposed economic benefits are so minor as to be insignificant.
In 1980, one of the nation's top economists, Lawrence Summers (then a conservative) conducted a study that found that eliminating the capital gains tax completely would raise U.S. output by only 1 percent over the next 10 years. Taxes on capital gains were significantly lower in the 80s than in the 70s, but savings and investment did not rise, as conservatives had advertised.
Still, you can find any number of conservative think tanks spouting all kinds of "evidence" that the capital gains cut will restore America to a Golden Age of Prosperity. Surely these economists are motivated more by politics than by economic fundamentals.
The economist John Kenneth Galbraith noted that supply side economics was not a new theory. He wrote, "Mr. David Stockman has said that supply-side economics was merely a cover for the trickle-down approach to economic policy—what an older and less elegant generation called the horse-and-sparrow theory: If you feed the horse enough oats, some will pass through to the road for the sparrows." Galbraith claimed that the horse and sparrow theory was partly to blame for the Panic of 1896. And yet, this same old horse and sparrow garbage keeps getting trotted and flown out every year because it's politically expedient.
Republicans are now upset because the Obama Administration has hinted at a 20% capital gains tax rate. This is equal to the lowest rate that existed in the 1990s (and the rate that President George W. Bush proposed in 2001). And it is almost a third lower than the rate that President Reagan signed into law in 1986.
So how does this myth get perpetuated? Tax talk is not sexy and an incurious media has decided to focus on being "fair and balanced" on these type of economic issues rather than right or wrong. It's important to remember that our economy has never lacked for capital, just common sense.
If you'd like to learn more about this issue, Michael Kinsley has a good, quick summary in Slate Magazine from 1997 titled Eight Reasons Not To Cut The Capital Gains Tax.
First, a bit of housekeeping: once again, my apologies to my faithful, albeit dwindling readership for my infrequent posting as of late. With George W. Bush yesterday's news, though, I'm finding it hard to get too worked up over politics these days. This is, of course, due more to my own political burnout from the past year and a half of excitement rather than the state of the world being all fine and dandy because my candidate of choice is now president.
As some of you know, I used to use this space to pass on recommended articles but I now find Google Reader to be a much better way to share articles. So if you're interested in reading what I'm reading, either bookmark this page:http://is.gd/iRGG OR add this RSS feed to your feed reader: http://is.gd/jLSk.
Now on to what's been stuck in my craw lately: the U.S. needs to focus much more of its alternative energy plan on renters for a number of reasons. While 68% of the homes in the U.S. are owner occupied units, out of the approximately 120 million homes in the U.S., that leaves around 34 million non-seasonal rental units. More progressive states like Oregon and California have already taken some steps in the right direction but much more needs to be done. The problem is how to incentivize landlords to invest in the units but right now, the rebate plans in most states and cities are nearly identical for homeowner's or renters.
Here in San Francisco, we have a good deal of local tax credits, coupled with state and federal credits for landlords but it still only covers about half of a capital improvement for a landlord. An average-sized house would usually need about a 1.5 to 2.0 kilowatt solar installation which costs about $20k. Sure, a $10k out-of-pocket expense sounds like a good deal with all the rebates but the only incentive a landlord has is a long-term one because it can improve the value of the home for sale or to increase rent. Even at half price, a landlord would have to be either a) quite environmentally conscious, b) willing to forego short-term payback on his/her investment or c) really like his/her tenants in order to reduce their utility bills.
Alas, the answer to this policy problem is not a simple one. On one hand, we may need to "over-incent" landlords in order to get the type of necessary overhauls to rental properties on a mass scale. But on the other hand, it may not seem fair to homeowners that taxpayers should shoulder such a large portion of what is also a landlord's capital improvement to his/her rental property.
I usually prefer to have some answers in these posts but this issue leaves me scratching my head. Additional thoughts and information would be most welcome.
Columnists always try to mail in a few "list" pieces every once in a while so I thought an infrequent (and unpaid) blogger like myself was certainly entitled to the same privilege. So here are a few random lists while stuck at home sick on a sunny January day:
Since my favorite baseball player, Jim Ed Rice, was finally voted into the Hall of Fame last week, here are 5 of my favorite Red Sox not in the Hall:
1. George "Boomer" Scott
2. Luis Tiant
3. Big Papi
4. Bernie Carbo
5. Rich Gedman
Honorable mention: Bob Ojeda, Denny Doyle, Bob Stanley, Rick Burleson, Bruce Hurst, Jon Lester, Cecil Cooper, Pokey Reese, Hideki Okajima, Rico Petrocelli, Soup Campbell and of course, Rick Wise
Can't leave the other Boston sports teams out.
Top 5 N.E. Patriots:
1. Sam "Bam" Cunningham
2. Julius Adams
3. Leon Gray
4. Ben Coates
5. Troy Brown
Honorable mention: Steve Nelson, Ray Clayborn, Russ Francis, Lawyer Milloy, John Smith, John Hannah, "Sugar Bear" Hamilton
Top 5 Celtics:
1. Jo-Jo White
2. Nate "Tiny" Archibald
3. Cedric "Cornbread" Maxwell
4. "Pistol" Pete Maravich
5. Robert Parish
Honorable mention: Paul Silas, Charlie Scott, Rajon Rondo, Len Bias, Reggie Lewis, Bill Sharman, Bill Walton, Paul Pierce and Johnny Most
Two sets that The Dead should play at the Mid-Atlantic Inaugural Ball on Tuesday - Set I for Bush, Set II dedicated to Obama:
Bush set:
It Hurts Me Too
You Lied, Cheated
Loser
Money, Money
Pain in my Heart
GDTRFB
Ship of Fools
Stealin'
Victim or the Crime
I Need A Miracle
It's All Over Now
Obama set:
Let the Good Times Roll
Help on the Way
Dancin' in the Streets
Sitting On Top of the World
Let Me Sing Your Blues Away
Wang Dang Doodle
Here Comes Sunshine
Believe It or Not
Second That Emotion
U.S. Blues
Top 5 Bruins (n.b. I stopped watching hockey 15 years ago):
1. Peter McNab
2. Rick Middleton
3. Brad Park
4. Gerry Cheevers
5. Jean Ratelle
Honorable mention: Stan Jonathan, Terry O'Reilly, Bobby Carpenter, Pete Peeters, Craig Janney
Top 5 UNC Tar Heels (the college basketball team I've always rooted for since i was born there)
1. Phil Ford
2. Charlie Scott
3. Sam Perkins
4. Al Wood
5. Julius Peppers
Honorable Mention: Jimmy Black, Brad Daugherty, James Worthy (until he was drafted by the Lakers!), Kenny Smith
Favorite 5 Places I've Been:
1. My semi-secret camping spot in Yosemite
2. Glen Canyon SF, CA
3. Kitayama waterfall, Kyoto
4. Laem Set Inn (Koh Samui, Thailand)
5. Capo Caccio, Sardinia
Honorable mention: Pinnacles nat'l monument, Hunter Valley (NSW, Australia), summit of Squaw for the '91 Squaw Valley Music Festival, Gloria Ferrer winery (Sonoma - must be accompanied by glass of bubbly and smoked turkey sandwich from Angelo's Meats)
That's all I got for now!
ObamaTravel was mentioned in Time Magazine's "Person of the Year" issue featuring President-Elect Obama. Thanks to Sander for his hard work and to my friend and favorite artist, Daniel Kelly, for helping Sander get to Montana. Nice of Time to post Sander's photo on page 44 in the issue commemmorating the journey of our 44th President (coincidence, you say? I think not!).
Now for the long-awaited 4th part of my ongoing thoughts about oil. If you want to catch-up on the last three, here are parts One, Two and Three.
Despite the recent drop in oil prices due to slackening worldwide demand, the argument that worldwide oil supplies have peaked remains strong. Last night, 60 Minutes did a 24-minute infomercial on Saudi Aramco, the world's largest oil company. Aramco officials led Leslie Stahl around on a tour of their mind-numbingly advanced facility, but the most salient question was never asked: why do they need all of this? The short answer is that the Age of Cheap Oil is long gone.
Four years ago, Saudi Aramco was injecting a staggering 7 million barrels of sea water per day back into Ghawar, the world's largest oilfield, in order to prop up pressure. Ghawar accounts for 30% of Saudi oil reserves and up to 70% of daily output. All Saudi production comes from very old fields, with no major exploration success since the 1960s, and almost every field has high and rising water cut. (Energy Bulletin)
On 60 Minutes, Ali Al-Naimi, the Saudi oil minister and de facto head of the OPEC oil cartel stared into the camera and told American audiences that there's plenty of Saudi oil left to keep us fat and happy for another 20-30 years. While that may well be true, how much would oil have to cost consumers for this scenario to be cost-effective and feasible for the Saudis?
Here's why OPEC has been so coy about releasing its proven reserves over the last 25 years and how its reserve levels have magically increased:
In 1985, OPEC countries decided to link their production quotas to their reserves. This, in turn, provoked huge increases in estimated reserves in order to increase their production rights (see charts below). This also allowed OPEC nations to obtain bigger loans at lower interest rates. In a 2006 Bloomberg interview, Dr. Ali Samsam Bakhtiari, a senior oil expert employed by the National Iranian Oil Co., said that OPEC's reserves are grossly overstated, that world oil production is now at its peak and he predicted that it will fall 32% by 2020.
Just take a look at the charts below and consider the rapid decline of the U.S. oil industry in the early 70's. It doesn't take much to conclude that we're being hoodwinked by OPEC. But as long as someone keeps our Hummers humming along, we'd rather just turn a blind eye and moronically chant "Drill, baby, drill!"
If you would like to read a detailed analysis of Saudi oil, I recommend reading Twilight In The Desert by Matthew Simmons.
Declared reserves with suspicious increases (in billion of barrels):
| Declared reserves with suspicious increases (in billion of barrels) Colin Campbell, SunWorld, 80-95 | |||||||
| Year | Abu Dhabi | Dubai | Iran | Iraq | Kuwait | Saudi Arabia | Venezuela |
| 1980 | 28.00 | 1.40 | 58.00 | 31.00 | 65.40 | 163.35 | 17.87 |
| 1981 | 29.00 | 1.40 | 57.50 | 30.00 | 65.90 | 165.00 | 17.95 |
| 1982 | 30.60 | 1.27 | 57.00 | 29.70 | 64.48 | 164.60 | 20.30 |
| 1983 | 30.51 | 1.44 | 55.31 | 41.00 | 64.23 | 162.40 | 21.50 |
| 1984 | 30.40 | 1.44 | 51.00 | 43.00 | 63.90 | 166.00 | 24.85 |
| 1985 | 30.50 | 1.44 | 48.50 | 44.50 | 90.00 | 169.00 | 25.85 |
| 1986 | 31.00 | 1.40 | 47.88 | 44.11 | 89.77 | 168.80 | 25.59 |
| 1987 | 31.00 | 1.35 | 48.80 | 47.10 | 91.92 | 166.57 | 25.00 |
| 1988 | 92.21 | 4.00 | 92.85 | 100.00 | 91.92 | 166.98 | 56.30 |
| 1989 | 92.20 | 4.00 | 92.85 | 100.00 | 91.92 | 169.97 | 58.08 |
| 1990 | 92.20 | 4.00 | 93.00 | 100.00 | 95.00 | 258.00 | 59.00 |
| 1991 | 92.20 | 4.00 | 93.00 | 100.00 | 94.00 | 258.00 | 59.00 |
| 1992 | 92.20 | 4.00 | 93.00 | 100.00 | 94.00 | 258.00 | 62.70 |
| 2004 | 92.20 | 4.00 | 132.00 | 115.00 | 99.00 | 259.00 | 78.00 |
| 2007 | ? | ? | 136.30 | 115.00 | 101.50 | 262.30 | 80.00 |
Two must-read articles on the financial mess we now find ourselves in. One is a pretty quick read, the other is much more in depth:
James Galbraith NYT interview (short)
Niall Ferguson in Vanity Fair (long)
James Galbraith: "And most of them (economists) teach a theoretical framework that has been shown to be fundamentally useless."
Maybe fundamentally useless on a macro level, but those theoretical frameworks were often designed to game the system and maximize short-term profits.
Here's the money quote from Ferguson's article:
"There was, ... Read Morehowever, another reason why Long-Term failed. The quants’ Value at Risk models had implied that the loss the firm suffered in August 1998 was so unlikely that it ought never to have happened in the entire life of the universe. But that was because the models were working with just five years of data. If they had gone back even 11 years, they would have captured the 1987 stock-market crash. If they had gone back 80 years they would have captured the last great Russian default, after the 1917 revolution... To put it bluntly, the Nobel Prize winners knew plenty of mathematics but not enough history."
I'm still a little speechless after the emotion of last night's landslide victory. All the volunteering, second-guessing and obsessing is finally over. It felt pretty cathartic to delete some of those election-oriented blogs and podcasts that were filling my brain with redundancy. Hopefully, Al Franken's recount will not drag on too long (but will end in a positive result, of course) and Jim Martin will unseat Saxby Chambliss in the GA run-off.
What I'll remember from last night besides Obama's acceptance speech: hugging our neighbors on the street, seeing tears streaming down Jesse Jackson's cheeks and holding my baby a little extra close - assured that the world she'll grow up in now has a better chance to be a better place.
Since the first slave ship arrived on these shores in 1619, think of how many people have doubted that this day could ever come. I like the spirit of this text message that was sent to get out the African American vote: “Rosa sat so Martin could walk so Barack could run so our children can fly.”
It is about time, though - ain't it?
