An economics, investment, trading and policy blog with a focus on Modern Monetary Theory (MMT). We seek the truth, avoid the mainstream and are virulently anti-neoliberalism.
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Friday, May 18, 2012
Michael Pettis — Europe’s depressing prospects
Michael Pettis looks at the EZ by dissecting Spain, concluding that the periphery is toast. It's a long post but worthwhile.
I'd like to see Warren Mosler comment on this post, because it seems to me that Pettis's analysis runs afoul of MMT on several points - balance of payments, savings glut, need for lower wages
Forget Europe, see California's depressing condition. A textbook example of how high taxes destroy an economy. http://www.newgeography.com/content/002855-facebooks-ipo-testifies-silicon-valleys-power-does-little-other-californians
"Forget Europe, see California's depressing condition. A textbook example of how high taxes destroy an economy."
That's one way to look at it. There are others.
I was just listening to a program on NPR dissecting this and one of the reasons given that business either move to CA (Facebook) or stay there (Apple) is precisely because it is California. California has what no other location in the US does, and it has it in spades. So people are willing to pay more, even much more, to live and work there. High taxes are part of the cost of living in the only Mediterranean climate in the US and the cutting edge state culturally.
Certainly are. As the article points out, CA is 50th in job creation! Now why would that be? Taxes and regulations perhaps? And this is despite the gorgeous climate and beauty of the state. 50th!!
High taxes in CA are a myth??!! Every time I look up tax rates in individual states in almost every category either NY or CA have the highest rates. It never fails.
Perhaps their real estate taxes are low for people who have owned homes for a long time. Yea, that does wonders for job creation.
"California has been ranked as the third worst state for taxes by the Tax Foundation, a non-partisan tax research group in Washington, D.C. California has the highest state level sales tax rate in the nation at 8.25% and has some of the highest income tax rates in the country." Nah, just a myth.
"CA is 50th in job creation! Now why would that be?"
Because it has unemployment in some areas as high as 25%.
Because companies like Facebook that account for enormous growth and income have almost no employees?
Because their economy was one of the hardest hit of all 50 states (epicenter of the GFC, decimation of the housing industry)?
Who is going to hire new workers when they can't even keep the ones they have busy?
"High taxes in CA are a myth??!! Every time I look up tax rates in individual states in almost every category either NY or CA have the highest rates. It never fails."
The national average for state tax burden was 9.8% in 2009. (http://www.taxfoundation.org) California's was 10.6%. Is that enough difference to make California undesirable or uncompetitive? New York is 12.1%, one of the highest in the nation and virtually no one is leaving. Who are these crazy people willing to put up with such high taxes?
Maybe they appreciate access to some of the wealthiest customers in the world, like California.
And really who cares if Wyoming has the lowest taxes in the country? Obviously no one wants to live there.
California is likely to be the state to lead us thru the 21st Century.
Florida has a relatively low tax burden (9.2%). Why is it's economy so crappy, even with all of the Federal money pumping through it?
"It's also the mass of regulations that CA imposes on business."
There are several reasons for this.
States us licensure and regulations to protect their native businesses and professionals. All states do it to some extent, but states that are highly desirable do it specifically to limit entrance of competition by raising the entry cost. CA residential taxation would also reflect this if it had not be thwarted by referendum. In addition, other states with warmer climates often have licensure requirements to prevent professionals from retiring there while continuing to practice, thereby diluting the market.
CA also has environmental and ecological issues that many other states do not have. So zoning restrictions can be fierce.
But there's also a lot of regulation written by special interests to give them a leg up. That's true most anywhere.
The economic geography of the US is very interesting, and CA plays a key role in it.
"Now how is that for a tautology! Is that your explanation? Really?"
Clever how you cherry-picked my response.
What are you trying to accomplish?
First you start with taxes, then move the goalposts to regulation when it appears that you're losing the taxes argument.
Are you aware that in California voters are allowed do vote themselves all manner of services by referendum, but by Constitution it takes a 2/3 majority in the legislature to raise taxes?
Democrats almost have that majority now but not quite, short by a couple of seats so the rump of whats left of the Republican Party there is able to gum up the works and make California's budget process dysfunctional.
California has a Republican problem not a tax or regulatory problem.
Besides, the vast number of regulations that affect small business and create headaches occur at the local level.
Plus what Tom said.
Are you trying to have a discussion or are you just a troll?
I post statistics showing that CA does have one of the worst tax regimes for both individuals and business. You post none, zero, nada and conclude that you have won the debate and I'm the troll?
Anonymous, as I said, CA doesn't want to be too attractive. It's already crowded, not only with Americans but also wealthy foreigners who want a piece of the greatest real estate in the US.
In my opinion, have traveled widely, I have to say that I think that CA is underpriced.
As others have pointed out, the problem is political gridlock and a screwy system of law-making through referendum that has screwed up the tax structure. Nothing that couldn't be fixed pretty simply. The Governator thought he could get some bipartisan support going but he was wrong.
The other aspect of CA that is often overlooked is that it is a multicultural state with most children belonging to minorities that will soon be the majority. This is a huge demographic change that is going to have an impact that cannot be foreseen. But it will transform the entire US as a result. It's also going to have a huge political impact on CA, changing the dysfunctional politics for the better.
"I post statistics showing that CA does have one of the worst tax regimes for both individuals and business. You post none, zero, nada and conclude that you have won the debate and I'm the troll? "
I also posted statistics - from the same source you did, which you have ignored.
It showed that the differences between California's tax burden and the rest of the country is not that great in relative terms.
You're taking relatively small differences and claiming causation.
California has ALWAYS had high taxes relative to the rest of the country.
California has ALWAYS been at or near the top in GDP, median wage, quality of life and nearly any other metric you choose.
Now that California is struggling mainly because of its dysfunctional government and politics, you blame the problem on taxes and regulation, both of which are probably lower now in relative terms historically.
Why didn't these things cause problems in the past? Why has California remained one of the strongest economies in the world in spite of these heavy burdens?
I'd like to see Warren Mosler comment on this post, because it seems to me that Pettis's analysis runs afoul of MMT on several points - balance of payments, savings glut, need for lower wages
ReplyDeleteForget Europe, see California's depressing condition. A textbook example of how high taxes destroy an economy. http://www.newgeography.com/content/002855-facebooks-ipo-testifies-silicon-valleys-power-does-little-other-californians
ReplyDeleteAnon,
ReplyDeleteMaybe they should consider ending the practice of hiring the irrationally zealous for USD balance hoarding Chinese to build their infrastructure....
resp,
"Forget Europe, see California's depressing condition. A textbook example of how high taxes destroy an economy."
ReplyDeleteThat's one way to look at it. There are others.
I was just listening to a program on NPR dissecting this and one of the reasons given that business either move to CA (Facebook) or stay there (Apple) is precisely because it is California. California has what no other location in the US does, and it has it in spades. So people are willing to pay more, even much more, to live and work there. High taxes are part of the cost of living in the only Mediterranean climate in the US and the cutting edge state culturally.
Overall taxes in California are near the national average.
ReplyDeleteThe high taxes is a myth, and like Tom points out, people get more than their money's worth.
Plus California effectively carries the national economy with the 7th largest GDP in the world.
We better hope that California continues to be the center of innovation and production in America.
Unlike Florida which produces pretty much nothing and is funded from the federal tit mainly (lots and lots of old people). And has low taxes to boot.
Such irony.
"That's one way to look at it. There are others."
ReplyDeleteCertainly are. As the article points out, CA is 50th in job creation! Now why would that be? Taxes and regulations perhaps? And this is despite the gorgeous climate and beauty of the state. 50th!!
High taxes in CA are a myth??!! Every time I look up tax rates in individual states in almost every category either NY or CA have the highest rates. It never fails.
Perhaps their real estate taxes are low for people who have owned homes for a long time. Yea, that does wonders for job creation.
"California has been ranked as the third worst state for taxes by the Tax Foundation, a non-partisan tax research group in Washington, D.C. California has the highest state level sales tax rate in the nation at 8.25% and has some of the highest income tax rates in the country." Nah, just a myth.
ReplyDeleteCA ranked 48th in State Business Tax Climate: http://taxfoundation.org/taxdata/show/25267.html Nah, just a myth
ReplyDeleteThis comment has been removed by the author.
ReplyDelete"CA is 50th in job creation! Now why would that be?"
ReplyDeleteBecause it has unemployment in some areas as high as 25%.
Because companies like Facebook that account for enormous growth and income have almost no employees?
Because their economy was one of the hardest hit of all 50 states (epicenter of the GFC, decimation of the housing industry)?
Who is going to hire new workers when they can't even keep the ones they have busy?
"High taxes in CA are a myth??!! Every time I look up tax rates in individual states in almost every category either NY or CA have the highest rates. It never fails."
The national average for state tax burden was 9.8% in 2009. (http://www.taxfoundation.org) California's was 10.6%. Is that enough difference to make California undesirable or uncompetitive?
New York is 12.1%, one of the highest in the nation and virtually no one is leaving. Who are these crazy people willing to put up with such high taxes?
Maybe they appreciate access to some of the wealthiest customers in the world, like California.
And really who cares if Wyoming has the lowest taxes in the country? Obviously no one wants to live there.
California is likely to be the state to lead us thru the 21st Century.
Florida has a relatively low tax burden (9.2%). Why is it's economy so crappy, even with all of the Federal money pumping through it?
@Dan Kervick,
ReplyDeleteWhy appeal to annointed individuals to comment on whether some text conforms to the canon?
I think MMTers should stick to a scientific approach instead of imitating medieval catholics with their credo of papal infallibility.
"CA is 50th in job creation! Now why would that be?"
ReplyDelete"Because it has unemployment in some areas as high as 25%."
Now how is that for a tautology! Is that your explanation? Really?
It's not only taxes, you're correct on that. It's also the mass of regulations that CA imposes on business.
"It's also the mass of regulations that CA imposes on business."
ReplyDeleteThere are several reasons for this.
States us licensure and regulations to protect their native businesses and professionals. All states do it to some extent, but states that are highly desirable do it specifically to limit entrance of competition by raising the entry cost. CA residential taxation would also reflect this if it had not be thwarted by referendum. In addition, other states with warmer climates often have licensure requirements to prevent professionals from retiring there while continuing to practice, thereby diluting the market.
CA also has environmental and ecological issues that many other states do not have. So zoning restrictions can be fierce.
But there's also a lot of regulation written by special interests to give them a leg up. That's true most anywhere.
The economic geography of the US is very interesting, and CA plays a key role in it.
@Anon
ReplyDelete"Now how is that for a tautology! Is that your explanation? Really?"
Clever how you cherry-picked my response.
What are you trying to accomplish?
First you start with taxes, then move the goalposts to regulation when it appears that you're losing the taxes argument.
Are you aware that in California voters are allowed do vote themselves all manner of services by referendum, but by Constitution it takes a 2/3 majority in the legislature to raise taxes?
Democrats almost have that majority now but not quite, short by a couple of seats so the rump of whats left of the Republican Party there is able to gum up the works and make California's budget process dysfunctional.
California has a Republican problem not a tax or regulatory problem.
Besides, the vast number of regulations that affect small business and create headaches occur at the local level.
Plus what Tom said.
Are you trying to have a discussion or are you just a troll?
I post statistics showing that CA does have one of the worst tax regimes for both individuals and business. You post none, zero, nada and conclude that you have won the debate and I'm the troll?
ReplyDeleteAnonymous, as I said, CA doesn't want to be too attractive. It's already crowded, not only with Americans but also wealthy foreigners who want a piece of the greatest real estate in the US.
ReplyDeleteIn my opinion, have traveled widely, I have to say that I think that CA is underpriced.
As others have pointed out, the problem is political gridlock and a screwy system of law-making through referendum that has screwed up the tax structure. Nothing that couldn't be fixed pretty simply. The Governator thought he could get some bipartisan support going but he was wrong.
The other aspect of CA that is often overlooked is that it is a multicultural state with most children belonging to minorities that will soon be the majority. This is a huge demographic change that is going to have an impact that cannot be foreseen. But it will transform the entire US as a result. It's also going to have a huge political impact on CA, changing the dysfunctional politics for the better.
Anon
ReplyDelete"I post statistics showing that CA does have one of the worst tax regimes for both individuals and business. You post none, zero, nada and conclude that you have won the debate and I'm the troll? "
I also posted statistics - from the same source you did, which you have ignored.
It showed that the differences between California's tax burden and the rest of the country is not that great in relative terms.
You're taking relatively small differences and claiming causation.
California has ALWAYS had high taxes relative to the rest of the country.
California has ALWAYS been at or near the top in GDP, median wage, quality of life and nearly any other metric you choose.
Now that California is struggling mainly because of its dysfunctional government and politics, you blame the problem on taxes and regulation, both of which are probably lower now in relative terms historically.
Why didn't these things cause problems in the past? Why has California remained one of the strongest economies in the world in spite of these heavy burdens?
Talk about "got nothing".