The rich don’t like taxes.

Via Carpe Diem

“Here’s the problem for states that want to pry more money out of the wallets of rich people. It never works because people, investment capital and businesses are mobile: They can leave tax-unfriendly states and move to tax-friendly states.

Updating some research from Richard Vedder of Ohio University, we found that from 1998 to 2007, more than 1,100 people every day including Sundays and holidays moved from the nine highest income-tax states such as California, New Jersey, New York and Ohio and relocated mostly to the nine tax-haven states with no income tax, including Florida, Nevada, New Hampshire and Texas. We also found that over these same years the no-income tax states created 89% more jobs and had 32% faster personal income growth than their high-tax counterparts.

We believe there are three unintended consequences from states raising tax rates on the rich. First, some rich residents sell their homes and leave the state; second, those who stay in the state report less taxable income on their tax returns; and third, some rich people choose not to locate in a high-tax state. Since many rich people also tend to be successful business owners, jobs leave with them or they never arrive in the first place. This is why high income-tax states have such a tough time creating net new jobs for low-income residents and college graduates.

~Art Laffer and Stephen Moore in today’s WSJ “

BusinessMinded: I wonder why taxes rate aren’t more similar across the U.S. if you get so many rich moving from unfriendly taxe states to friendly ones.  You think these high tax states would like to keep the rich.

Why the rich move is simply explained by economics.  You make things more costly and people move away to less costly substitutes. Therefore, if living in one state becomes more costly due to more taxes than people will move to a somewhat similar state that is cheaper (less taxes).  This is what economists call the substitution effect.

Norway - 1. U.S.A - 0.

Norway is doing something right.  With the largest recession since the Great Depression, Norway’s economy expanded by almost 3% last year and its government currently has a surplus of 11% of GDP and is debt free.  Wow!  The U.S. on the other hand aren’t so impressive.  The U.S. government will be racking up a deficit of 12.9% of GDP this year and it will grow its debts to $11 trillion (that’s a lot of zeros), which is roughly 65% of its entire economy.  On top of all this, unemployment in Norway is 3% vs. 8.9% in the U.S.

One thing that contributes to Norway’s strong economic performance is the large amount of oil it continually exports and will continue to export into the foreseeable future.  Also, the Government has intelligently and ethically invested Norway’s pension fund, which has put it to a worth of USD$ 300 billion or USD$ 62 000 per capita making it the largest capital reserve per capita in the world.

Norway thinks as a whole unlike the U.S. where it is survival of the fittest which has lead to people bettering themselves at the expense of others.  That way of thinking brought the U.S. economy to where it is now.  Rock bottom.  Norway knows how to think.  The future relies on people making actions that better themselves, but not at the expense of others and Norway, among many other European countries, has known this for some time.  Norway is a free market economy, but at the same time it is somewhat of a socialist state.  This allows for the proper allocation of resources while allowing for betterment of all people.  Not just the rich and famous.

Case in point.  Go Norway.  Boo the U.S.  We can learn from cases like Norway.  And if we don’t I think we are doomed.

Check out how beautiful Norway is:

Who wants to move?

Diamonds are Forever

With the global economic slump, demand for diamonds is down which should mean falling prices but not if you cut supply too.  If you can believe it, Russia has surpassed De Beers as the largest diamond producer and with that has gained an ability to control prices through its significant control of the world supply of diamonds.  With demand down, the Russian diamond company Alorsa has cut its supply significantly - it hasn’t sold a single rough diamond on the market since December 2008.

With such control, one can expect diamond rings, necklaces, and everything else diamond to remain pricey.  It is economics 101.  If you control a significant amount of production, then you can be a price setter.  So for those of you who were/are waiting for diamond prices to fall due to the belief that the recession is demand driven you can stop waiting.  Prices will remain high and may even go higher.  Sorry to break the news.

Competition to the Toronto Maple Leafs?

Could there be another NHL team coming to Southern Ontario?

Jim Balsillie, CEO of Research in Motion (maker of Black Berry), sure hopes so.  Balsillie has made his third attempt to get an NHL team into Southern Ontario.

In the past he had made offers to both the Pittsburgh Penguins and the Nashville Predators, but both were rejected.  Now Basillie has made the “third time is a charm” $212.5 million US offer to the Phoenix Coyotes with the condition that the now bankrupt Coyotes move to Southern Ontario (Hamilton or Kitchner-Waterloo).

According to the CBC, “Moyes, [former owner of the Phoneix Coyotes], told the newspaper that the court process will attach a new owner and location to the Coyotes by June 30, but the sale of the franchise will still need league approval.”

Balsillie has made an excellent offer, but it all lands on Gary Bettman, NHL commissoner, to decide what will happen with the Coyotes.  Bettman is somewhat notorious for wanting to further develop the NHL in the U.S. and not Canada so it should be interesting to see what happens.

To support Belsillie’s attempt to bring a seventh NHL team to Canada, check out his website makeitseven.ca.

Obama’s Law

Interesting post by Greg Mankiw:

“Via the WSJ, here is the view from a “secured (sic) creditor” of Chrysler:

“Like many others I made the mistake of buying what I believed was ‘value,’” Mr. Gwin says, adding that investors who bought at the time believed the loans were worth more than their market price. “We did not contemplate having our first liens invalidated by a sitting president,” he adds.

Fuel Efficiency doesn’t equal decreasing demand for oil. Uh-oh.

Very interesting Article I stumbled upon:

The Fuel Efficiency Paradox by Jeff Jacoby:

It seems intuitive: Increasing the fuel efficiency of automobiles - or anything else that runs on gas - should lower the demand for oil.

It was with precisely that expectation that Congress enacted the Corporate Average Fuel Economy (CAFE) standards in 1975, following the Arab oil embargo. At the time, US oil imports amounted to a little more than one-third of consumption. Today we import two-thirds. After more than three decades of CAFE standards, heightened environmental awareness, and steady improvements in fuel efficiency and engine technology, America’s demand for oil is greater than ever. In 1975, highway fuel consumption amounted to 109 billion gallons, according to the Federal Highway Administration. By 2006 it had climbed to 175 billion.

“It seems obvious that rising efficiency in cars, furnaces, and lawn mowers should, in the aggregate, significantly curb demand for energy,” write Peter Huber and Mark Mills in “The Bottomless Well,” their perceptive 2005 book on the supply, demand, and pricing of energy. “Sad to say, however … efficiency doesn’t lower demand, it raises it.”

Why? Because improvements in fuel economy effectively make fuel less expensive, and when costs fall, demand tends to rise. As driving has grown cheaper in recent decades, people have done more of it - choosing to drive to work instead of taking the bus, for example, or buying a second car, or moving to a house with a longer commute, or sending the kids to college with cars of their own. Between 1983 and 2001, data from the Energy Information Administration show, the number of annual vehicle-miles driven by the average American household rose from 16,800 vehicle-miles to more than 23,000.

“Efficiency may curtail demand in the short term, for the specific task at hand,” Huber and Mills acknowledge. “But its long-term impact is just the opposite. When steam-powered plants, jet turbines, car engines, light bulbs, electric motors, air conditioners, and computers were much less efficient than today, they also consumed much less energy. The more efficient they grew, the more of them we built, and the more we used them - and the more energy they consumed overall.”

Unemployment Worsening in Canada, but EI not keeping pace.

(Photo Credit: etftrends.com)

Unfortunately just when most people thought it couldn’t get any worse it is going to get worse.  The number of people applying for employment insurance (EI) is up 19% from January, but the number of people receiving EI only increased by 7.8%.  This means there a fair number of people needing EI who are not receiving it.  With the number of unemployed predicted to continue rising over the next year, the Government of Canada needs to start making sure the unemployed receive the funds they need to live on.  It is a sad state when people who are forced into unemployment cannot receive the funds they need to feed their families. 

As reported by the Star, more than 1.4 million Canadians were counted as unemployed in February, but only 610,000, or 43 per cent, were collecting regular EI benefits, [Erin] Weir, [an economist with the United Steelworkers union], said.

The unemployment rate according to Stats Canada, has increased to a staggering 8% with the loss of 357,000 jobs since October 2008.  According to the Star,  TD Securities economics strategist Millan Mulraine believes ”this deterioration has important implications for the Canadian economy, as the weak labour market conditions will continue to breed further economic anxiety among Canadian households, thereby depressing consumer spending further.”

It is a self fulling prophecy.  People see job losses and cut back spending and start saving more.  This creates more job losses, more saving, even less spending and causes a continual depression of the economy.  This is why it is a tough job being an economist.  There are tools to help rebound economies, such as the interest rate, but you must convince people that it is ok to spend.  And as you can see this is not easy.

The unemployment rate is most likely an understatement of the current turmoil in the labour market.  Many people are currently underemployed (i.e. forced into part-time positions or self employed positions) and therefore still counted as employed.  If underemployed people were counted in the unemployment rate, the Canadian Labour market would look much worse than it already does. 

Even when the economy begins to rebound, it will be sometime after until the labour market starts showing improvements.  Employers confidence in the future must be restored before they begin hiring again and that may come months or even a year after the economy starts rebounding.  Hopefully, Mr. Harper will start getting more EI to the Canadians who truly deserve it.

I didn’t want to talk about this.

But it seems I must.  Swine Flu.  If I have to hear about this anymore I am going to go crazy.  Honestly the regular flu kills people all the time.  If you are healthy chances are even IF you get it, you will fight it off.  

There is no need to live in fear because of the swine flu.  The media ALWAYS blows things out of proportion.  Swine flu is not very prevalent in Canada or the U.S.A.  The chances of catching it are microscopic.

I may not be a doctor, but I am a practitioner of common sense so if you don’t want swine flu follow these simple steps:

1) WASH YOUR HANDS.  

2) Don’t touch your face with your dirty hands.

3) Don’t go into crowded areas.

4) If you know someone who went to Mexico consider not seeing them for the time being.

5) If you are overly concerned about swine flu then get a mask.  I have linked to some mask designs for the fashion forward individual who may be concerned about the usual unfashionable mask designs.

(Photo Credit: samiraboon.com)

If you want to feel less at risk I advise against watching T.V., especially CNN.  You will be fine if you take the precautionary steps listed above.

GM down to four core brands.

Via Eco Auto Ninja

“This morning, GM announced they were cutting 21,000 jobs and getting rid of Pontiac. Plans are in place to close more factories as the automaker fights to avoid bankruptcy.

GM has been surviving on on $15.4 billion in government loans and revealed that it envisions receiving an additional $11.6 billion. But if GM’s restructuring plan can’t satisfy the government by June 1, the struggling company could go into bankruptcy protection. The company also made an offer to bondholders to exchange of $27.2 billion of bonds for common stock.

The death of Pontiac, as well as GM’s decision to cease production on Saturn and Hummer brand vehicles after the 2009 model year, leaves GM with four core brands: Chevrolet, Buick, GMC and Cadillac.”

This is all part of GM reducing its number of brands to satisfy the requirements of the loan granted by the U.S. government.  I think from here on in it is pretty obvious that GM will be going through Bankruptcy protection.  So the bondholders who traded debt for equity will most likely see that equity go to zero.  

I am still upset that GM dropped Saab.  I was looking forward to driving one of those when I was older.  I guess I will have to settle with this car: