Tuesday items: Norquist on trickle down taxes; Stoll on the politics of tax increases; Romney on the Buffett Rule.

From The WSJ, Grover Norquist argues tax increases on the rich trickle down to the middle class.

In The NY Sun, Ira Stoll suggests President Obama’s tax increase policy leaves him politically vulnerable.

At The WSJ, Stephen Moore reports the Buffett Rule’s defeat in the Senate but notes Democratic pledges to keep pushing it.

In The American, Steve Conover explains the Buffett Tax would hit older people disproportionately.

On The Kudlow Report, Mitt Romney discusses tax policy, the Fed, and oil:



At RCM, John Tamny criticizes Romney’s tax and monetary positions.

In IBD, Art Laffer highlights the failure of California’s soak-the-rich approach.

At The Washington Times, Richard Rahn explains the wealthy have great capacity to determine how much tax to pay.

From Alhambra Partners, Joe Calhoun sees the market moderating in response to modest economic growth.

The San Francisco Chronicle features an Investopedia article that notes that as tax rates rise the rich may not work less but do find ways to offset their taxable income.

From The Victory Corp, John Tamny discusses Herman Cain’s tax plan and Rick Santorum.

At Reason, Shikha Dalmia suggests John Maynard Keynes may have been a closet supply-sider.

In The NYT, Bruce Bartlett notes that businesses startups do create most new jobs but suggests tax cuts won’t do much to help.

Tuesday summary.

At TSGN, Kelly Hanlon quotes Lew Lehrman making a crucial point:

Jacques Rueff spoke of American “deficits without tears,” because the American budget deficit and balance-of-payments deficits were -- they still are -- almost automatically financed by the Federal Reserve and the reserve-currency system -- through the voluntary (or coerced) buildup of dollar balances in the official reserves of foreign governments. These official dollar reserves were, and still are, immediately invested by foreign authorities, directly or indirectly, in the dollar market for United States securities, thus giving back to the United States, at subsidized rates, the dollars previously sent abroad as a result of the persistent United States balance-of-payments deficit and budget deficits. To describe this awesome absurdity, Jacques Rueff invoked the metaphor of an overworked tailor to the King, yoked permanently to fictitious credit payments by His Majesty’s unrequited promissory notes.

The WSJ reports Fed Chairman Bernanke is concerned about the oil price but not enough to change his policy direction.

On The Kudlow Report, Steve Forbes discusses the falling dollar:



On Forbes, Charles Kadlec argues that enterprise – not greed – is good.

From Asia Times, David Goldman reiterates that currency-related food price spikes are behind the Middle East revolts.

Also on Kudlow, John Tamny suggests legalization of insider trading:



At The Washington Times, Richard Rahn examines the non-monetary ways in which the Obama Administration is raising energy prices.

Cato’s Dan Mitchell promotes a new video on tax competition.

From the archives, John D. Mueller recounts the achievements of supply-side economics founder Robert Mundell.

It isn't possible to appreciate Mundell's work without knowing that he began as a junior member in a colloquy that had been going on for decades when he arrived; but he soon established himself as an equal, or more. Mundell recognized in the early 1960s that the Keynesian revolution in economics, dominant among American and British economists after the Second World War, contained some serious shortcomings. 'The Keynesian model is a short run model of a closed economy, dominated by pessimistic expectations and rigid wages. This model is not relevant to modern economies," he wrote in Monetary Theory (1971).

In seeking an alternative to Keynesian theory, Mundell had to return to much older sources, such as the eighteenth-century ideas of David Hume and the 19th-century general-equilibrium theory of Leon Walras. 'The object," Mundell explained, "is to combine the essential features of the specific models of Hume, [Irving] Fisher and Keynes in a more general theory of interest, inflation, and growth of the world economy. I do not claim to have resolved all the problems associated with a new approach, but only to have helped build, with able predecessors and contemporaries, a better foundation for monetary theory."

In doing so, Mundell could draw on a Continental European tradition including economists like Robert Triffin and Jacques Rueff, which had always maintained the classical teachings; but many of their writings were (and remain) unfamiliar to English-speaking economists, and were not expressed in the mathematical form that became standard at about the same time as Keynesian macroeconomic theory. (It's interesting that the return of American and British economists to the fold of classical economics was mediated largely by Canadian-born economists like Mundell and Harry Johnson.) As Mundell noted at a 1967 international monetary conference, "I do not know why it has taken so long for Anglo-Saxon economists to admit the truth of the elementary proposition [Rueff] is making: that there is an adjustment mechanism that is automatically operative under fixed exchange rates if it is allowed to operate." It's fitting that in 1983 Mundell was awarded the Jacques Rueff Prize in Paris by the Jacques Rueff Foundation and the Lehrman Institute.

From Reason, Shikha Dalmia suggests Americans have nothing to fear from India and China’s growth.

At The Financial Times, conservative Keynesian Peter Peterson – funder of the Institute for International Economics – advocates a fiscal rebalancing through deep spending cuts and tax increases.

From NPR, liberal economist Dean Baker argues for growth (through spending) and against balanced budget obsession.

Friday round up.

On Asia Times, David Goldman critiques Sec. Geithner’s call to target national trade balances.

Robert Mundell showed in his Nobel-Prize winning work that trade deficits arise from anexcess or deficiency of savings in a national economy; if the Chinese want to save 50% of GDP, they can only do so by exporting goods, because there aren’t sufficient outlets for savings inside China. The trade deficit is the symptom, not the cause, of a complex of economic problems. To target a trade deficit is lunatic. Some countries with very young populations and huge investment opportunities should have enormous trade deficits; some countries with aging populations and high savings rate should have enormous trade surpluses.

At Forbes, Shikha Dalmia scolds Republican for joining Democratic China bashing:

But the idea that selling abroad creates jobs at home and buying abroad destroys jobs at home is an old mercantilist fallacy that Adam Smith handily refuted more than 200 years ago. Back then it at least had intuitive plausibility, but today it is obviously false given that the manufacturing chain spans the whole globe. Indeed, under the intricate global division of labor that currently exists, the whole idea of “Made in China” is largely a bureaucratic fiction.

On The Kudlow Report, Larry debates Sec. Geithner’s recent strong dollar sentiments:



At his blog, Scott Grannis argues it is China, not the U.S., that gets the short end of the trade stick.

They sell us mountains of cheap goods, then turn around and invest most of the proceeds (equivalent to our trade deficit with China) in U.S. Treasury securities. We get the goods, and we get to keep the money. Then we devalue the dollar, and they lose on their investment. Why we would want them to stop doing this is beyond me, though if I were a Chinese citizen, I would be furious with my government for directing such massive quantities of my country's export earnings to Treasuries. The central bank of China has no need to further increase its already-massive reserves; instead, the government should be relaxing capital constraints, allowing Chinese citizens more freedom to save and invest abroad in the types of vehicles with which they feel most comfortable. China's workforce is aging daily, and like Japan a few decades ago, China's economy cannot accommodate all the savings of the Chinese people—they are essentially forced to save overseas.

Contrary to what you read in the press—which mistakenly believes that our large trade deficit with China is something we need to worry about—China is the one that needs to worry, not us.

At Green Faucet, Brad Zigler summarizes the decline of world currencies versus gold.

On The Freeman, Christopher Lingle debunks the notion of an export multiplier.

At Carpe Diem, Mark J. Perry explains the factors behind income inequality.



In an editorial, The LA Times suggests austerity is the only alternative to Keynesian stimulus.

On the Peter Peterson-funded Fiscal Times, Bruce Bartlett defends Indiana Gov. Mitch Daniels support for a VAT tax.