Fausta's Blog

American and Latin American Politics, Society, and Culture

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Argentina, USA

Richard Rahn asks, Could the U.S. become Argentina?
Obama policies have put the nation on a similar downhill slide

In the 1930s, the Argentine government increased its interventions in the private economy. Juan Peron took over in 1946 and ended up nationalizing the railroads, the merchant marine, public utilities, public transport and other parts of the private economy. For much of the past half-century, Argentina has engaged in a series of erratic monetary policies, often resulting in periods of very high inflation and economic stagnation. Because of their political power, the unions have been coddled, resulting in unsustainable wage-and-benefit programs. Excessive government spending has caused recurrent fiscal meltdowns, where both foreign and domestic debt-holders have lost many of their investments.
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The U.S. has a per capita income of about $47,000 per year, while Argentina’s is just $14,000 on a purchasing-power parity (PPP) basis. A hundred years ago, Argentina’s per capita income was about 80 percent of that in the U.S. If Argentina had done as well relatively as the United States, it would have a per capita income of about $38,000 today. Countries can become wealthy in a few decades, as have South Korea, Taiwan, Hong Kong, Singapore and Finland, by following the correct economic policies. They also can become relatively poor, as have Argentina, Cuba and Venezuela, by doing the wrong things.

Argentina has extensive import bans and controls. The Obama administration has been advocating protectionist trade policies and has opposed the ratification of previously negotiated trade agreements.

Argentina has income tax rates roughly equivalent to those in the United States but also has a value-added tax (VAT) and a wealth tax. Officials of the Obama administration and some members of the U.S. Congress are flirting with a VAT.

Argentina has continued to run inflationary monetary policies while at the same time attempting to treat the symptoms through price controls. The U.S. Federal Reserve has greatly increased the money supply, which is likely to produce future inflation. Officials of the Obama administration, at times, have advocated price controls of insurance companies, medical suppliers, financial institutions and even fees for carry-on luggage on airplanes.

Argentina’s largest bank is state-owned, as are a number of its other banks. The Obama administration forced a number of large American banks to become partially government-owned. The two largest mortgage institutions in the United States – Fannie Mae and Freddie Mac – are now largely government-owned-and-controlled.

Argentine courts are slow and corrupt. Property rights are not secure, and the government has willfully understated inflation statistics, causing foreign and domestic bondholders to lose much of their investments. The Obama administration unilaterally took away bondholders’ rights in the GM and Chrysler cases and, in essence, took their assets and turned them over to the unions that had supported Mr. Obama.

Argentina has extensive labor regulations to favor unions, which greatly increase the cost of hiring. The Obama administration has supported costly labor regulations that the unions favor, which eventually will drive up the cost of hiring workers and result in higher unemployment.

Argentina has a long history of deficit spending, which, in turn, has made government debt burdens so high that the government refuses to pay the debt to the private domestic and international debt holders. Over the next 30 years, economists associated with the Bank for International Settlements in Basel, Switzerland, estimate (as have many U.S. economists) that the U.S. public debt will rise to between 200 percent and 500 percent of GDP. (It is now about 60 percent.) Debt levels of 200 percent to 500 percent cannot be supported; hence, the debt holders will face erosion of their capital through either inflation or nonpayment.

The Obama administration is leading the US down a path that Argentina has taken time and time again.

Yes, it can happen here.

By the way, Rahn’s not the only one asking that question. Rich Baehr and I were asking the same thing during Rick Moran’s podcast last Tuesday.

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VAT and tax and tax and tax…

Europe’s VAT Lessons
Rates start low and increase, while income tax rates stay high.

A VAT is essentially a national sales tax that is assessed at each stage of production, with the bill passed along to consumers at the cash register. In Europe the average rate is a little under 20%. (See the nearby chart.) In the U.S., a federal VAT would presumably be levied on top of state and local sales taxes that range as high as 10%. Some nations also exempt food, medicine and certain other goods from the tax.

VATs were sold in Europe as a way to tax consumption, which in principle does less economic harm than taxing income, savings or investment. This sounds good, but in practice the VAT has rarely replaced the income tax, or even resulted in a lower income-tax rate. The top individual income tax rate remains very high in Europe despite the VAT, with an average on the continent of about 46%.

Add your local, state, gas, Medicare, and Social Security and national healthcare taxes. Kiss your money good-bye.

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How many trees died for the eggs? and a roundup

Michelle Obama’s Mirror’s Blog reports,

By all accounts this was the best Eggroll ever. Unprecedented, actually. For one reason, this is the first year we sent the kiddies home with wooden eggs in place of candy filled plastic eggs from China.

The White House couldn’t give the kids candy, so trees had to die. Mexican trees, that is.

Foreign Ownership of U.S. Debt Continues to Grow. Take a look at the graph (click for larger):

Women go topless in protest, then get angry when men ogle

For old-school GOP, a hard lesson on fiscal issues

The message for the GOP establishment is clear — be careful what you wish for. For too long, it turned up its nose at the grassroots activism of social conservatives and said they should focus on fiscal issues that unite the party. Now, the grassroots activism of fiscal conservatives is driving the debate in races across the country. This popular movement for limited government and fiscal responsibility might well sweep the Democrats out of power in November — but it might also sweep some establishment Republicans out with them.

Time for the full truth about TARP

Geography of a recession:

And if you weren’t depressed enough already, How America might get a VAT of its own. Why – in addition to having yet more taxes to separate you from your hard-earned money – is this depressing? Because, as a friend and I were discussing yesterday,

wait until the folks at the IRS get their hands on the regulations for the application of the new tax

Irwin Seltzer explains the world of Small Bras and the Value-Added Tax
Taxing consumption sounds easy. Wait until government starts to carve out the political exceptions.

WORLD:
Jordanian King (Son of Black September) Abdullah Piles on Israel, while Phyllis checks out what Biden had to say.

Colombians Detained For Spying On Venezuela’s Electricity Grid, via Vlad

Meet Inzulaya and his friend Inchavastro

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Whack economics: Pelosi and the upcoming healthcare VAT

The VAT, that bane of European manufacturing that makes their consumer goods more expensive than elsewhere in the world, is headed our way to pay for Obamacare. But Nancy Pelosi believes that “any reworking of the tax code would not result in an increase in taxes on middle-class Americans.”

Really.

Via James Pethokoukis, Pelosi says new tax is ‘on the table’

A new value-added tax (VAT) is “on the table” to help the U.S. address its fiscal liabilities, House Speaker Nancy Pelosi (D-Calif.) said Monday night.

Pelosi, appearing on PBS’s “The Charlie Rose Show” asserted that “it’s fair to look at” the VAT as part of an overhaul of the nation’s tax code.

“I would say, Put everything on the table and subject it to the scrutiny that it deserves,” Pelosi told Rose when asked if the VAT has any appeal to her.

The VAT is a tax on manufacturers at each stage of production on the amount of value an additional producer adds to a product.

Now comes the abject ignorance part:

Pelosi argued that the VAT would level the playing field between U.S. and foreign manufacturers, the latter of which do not have pension and healthcare costs included in the price of their goods because their governments provide those services, financed by similar taxes.

“They get a tax off of that and they use that money to pay the healthcare for their own workers,” Pelosi said, using the example of auto manufacturers. “So their cars coming into our country don’t have a healthcare component cost.

It’s all coming from what, then?

“Somewhere along the way, a value-added tax plays into this. Of course, we want to take down the healthcare cost, that’s one part of it,” the Speaker added. “But in the scheme of things, I think it’s fair look at a value- added tax as well.”

Pelosi said that any new taxes would come after the Congress finishes the healthcare debate consuming most lawmakers’ time, and that it may come as part of a larger overhaul to the tax code.

The Speaker also emphasized that any reworking of the tax code would not result in an increase in taxes on middle-class Americans.

A couple of points worth noting:
1. The Speaker doesn’t realize/pretends not to realize that any cost is passed on to the consumer, regardless of the consumer’s income level.

2. You don’t “get a tax off of that”; you get a tax on that.

3. As for the “leveling the playing field,” Ace has the logical outcome for her reasoning: Nancy Pelosi Assumes That ObamaCare Will Destroy Private Insurance and Put Everyone on Government Insurance. Ace explains:

Got that? American products currently include in their cost the cost of providing health insurance for the workers making the products.

This puts them at a competitive disadvantage with foreign products, she asserts, where health insurance is provided by the government and thus not included in the price of a product.

So: If we merely impose a Value Added Tax on everything, we can use that money to pay for health insurance for everyone, and companies will not have to pay for health insurance. It will be provided by the government, paid for through the VAT.

Assumption not-well-hidden in that: All US companies will stop paying for employee insurance and instead let the government provide it.

That assumption is needed for her claim. For, if any company continues providing health insurance, their prices will go up — as they are paying double for health insurance, once directly for their own employees, twice indirectly to cover everyone else through the VAT — and thus would be a competitive disadvantage against all other US companies (and foreign companies) relying on government-provided insurance, and not paying for insurance out of their own pockets.

Pelosi assumes, then, that all US companies will drop private employee coverage like a bad habit and let everyone go on the government system, rather than bankrupting themselves to pay double health care costs.

And she’s right in that assumption.

4. One more thing to point out is Pelosi’s own statement that any new taxes would come after the Congress finishes the healthcare debate, and that it may come as part of a larger overhaul to the tax code. They’re saving this for after the government takes over 17% of the American economy.

Foretold, forewarned.

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Watch the Senate Doctors show, who don’t need to wear white coats.

By the way, when was the last time you saw an M.D. wearing a white coat, unless you were hospitalized?

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