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Monday, May 23, 2005

WSJ Schizophrenia: Scaring and Reassuring

The free market conservative WSJ editorial page advises us that tax revenues to the federal government increased 13.6% over last year, dropping the estimated deficit for this year from $412 billion to $350 billion. How does this happen with significant tax cuts on individual income, dividends and capital gains? A growth economy where smaller tax rate percentages hit higher incomes. Sounds like supply-side economics at work. WSJ grants Robert Rubin a pass for his incorrect prediction of economic disaster.

Now, the politicians in Congress have spent higher amounts that are largley due to the costs of the War on Terror and the War on Medicine, oops Medicare. And, students, that produces a deficit. However, even that is back to normal levels of 17% of GDP.

Many congressmen refuse to make the tax cuts permanent. They seem to want to bypass economic growth, higher federal revenues for the sake of, of, of, what?

Meanwhile, the liberal WSJ front page has quit the class war rhetoric for a while to advise us that the housing bubble ia about to burst. Today's real estate market shows absolute recklessness akin to the 1920s speculation by investors that led to the stock market crash and the Depression. Not to be hysterical, but the article turns to Dean Baker of the CEPR who predicted a housing market, hell, an economic crash 2 years ago in his article "Bursting Bubbles- Why the economy will go from bad to worse". CEPR is the "non-partisan" DC Think Tank that regularly republishes Krugman. A scan of the CEPR website shows they are against CAFTA, social security privatization, and other free market initiatives.

This article spoke to no economist who felt the housing market was on a sure footing. The other people interviewed were people who lost money speculating on property, who leveraged their equity on additional investment purchases, and who are doing very "risky" things. Homeowner equity as a percentage of the market value of all homes declined to 56% at the end of 2004 from 57% at the end of 1999.

That 1% plunge is scary! In other words, owning 57% of a $500,000 home is better than owning 56% of an $800,000 home? Try again. By my math, the decrease in equity is, wait a second, it is not a decrease. It is an increase of $163,000 in equity.

Dean Baker concludes his paper, linked above, with the following:

The triple bubble economy of the late ’90s presents the most difficult set of economic problems since the Great Depression. The solutions are neither simple nor painless, but—just as was the case with the New Deal—big problems can open the door to big solutions.

"Big solutions"? Where do you think he is heading? I bet he has the solution and we'd better follow it.


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