Tag: Paul Krugman

Liberal Lies About Trump’s Stock Market Surge

Anyone that has checked their retirement accounts since Donald Trump’s presidential victory already knows that the market is on a historic tear. What few know however is that this bull market we’re currently in is now officially the longest running bull market in American history. Note that when I’m speaking about the U.S. stock market, I’m referring to the S&P 500 index, not the Dow Jones or NASDAQ.

According to Quartz:

At the close of trading in New York Wednesday (August 22nd), the stock market will make an impressive milestone. It will set the record for the longest bull market in history. A bull market generally begins when the market rises 20% from the low set at the end of a bear market, which itself is measured by a 20% fall from a previous peak. The last low set by the benchmark S&P 500 index was on March 9, 2009. It’s been 3,453 days of fairly steady growth since then, with the S&P 500 climbing by more than 320% over that period. The previous record bull run was set between Oct. 1990 and March 2000.”

The two are charted below. While the 1990-2000 boom outperformed this current steak, the 90-2000 boom was fueled mainly by the tech bubble (which ended up bursting in a spectacular fashion). This bull run is not comparable to the internet bubble, which we know from the ratio of a company’s value to their earnings. The S&P 500 traded at 45 times earnings in 2002, compared to only roughly 23 today.

Now, onto some myths.

Was it due to Trump?

The most common claim is that this current bull run has nothing to do with Donald Trump, and is rather an extension of a run that began under Obama. In other words, we’re supposed to believe that Trump was passed the baton and just ran the final 100 meters. The only element of truth in this claim is that it is true that the bull run didn’t begin under Trump.

As evidence to support their critisism, some critics (such as Paul Krugman) point to how European stock performance in 2017 mostly paralleled that of U.S. stocks.

“Sure the markets surged in 2017” the argument goes, “but it was just part of a global economics recovery.”

Below is a clearer chart, comparing the S&P 500 to a fund that tracks the EAFE (an index of developed market stocks, mostly European). The date range is January 1st 2017 to December 31st 2017, and more-or-less paints an identical picture to Krugman’s chart. It shows the EAFE rising 21%, to the S&P’s 19.3%.

A Nobel Laureate like Krugman really ought to know better when making such a claim, as he’s not accounting for how the value of the US dollar impacts foreign stock prices for domestic investors. Here’s why; for an American investor, the underlying assets in the index Krugman is citing are quoted in whatever domestic currency those companies reside in (so a British company’s stock price would be quoted in Pounds, for instance). The value of foreign stocks to an American investor therefore increase when the relative value of a dollar decreases, as their foreign stocks (quoted in that foreign currency) will be worth more in terms of US dollars.

This is relevant because the US dollar declined 10% in 2017 (12.4% against the Euro in particular) meaning that the foreign funds returns that Krugman is drawing attention to are significantly higher than they should be.

We can prove this because the same financial institution which created the EAFE fund charted above also offers a “currency hedged” version of the fund (meaning it’s not impacted by the dollar’s fluctuations at all), and that one has lagged the S&P 500 massively, rising only 12.5% over the same period.

Furthermore, U.S. stocks and international stocks have completely diverged in 2018. As a recent article in the Wall Street Journal noted, “U.S. foreign policy has driven sharp swings in European and Asian markets this summer, drawing investors into the safety of the U.S.” They prove that with an accompanying chart comparing U.S. markets to the rest of the entire world, minus the U.S.:

Hilariously Bad Predictions

You have to remember just how bad the predictions of Trump’s market critics have been. On the night of the election, stock futures declined as it became evident that Trump would win the presidency, briefly confirming the fears of the Chicken Littles among us. Krugman famously wrote that night, “it really does now look like President Donald J. Trump, and markets are plunging. When might we expect them to recover?…  If the question is when markets will recover, a first-pass answer is never.”

Nailed it.

Within days of Trump’s victory the market began to roar, which should’ve silenced critics, but not the brain trust over at CNN. “The big surge on November 7 snapped a nine-day losing streak for stocks that many attributed to Donald Trump’s newfound momentum” columnist Paul R. La Monica wrote on November 14th. But, he warned, “several market strategists expressed concerns that the market is underestimating the possibility of Trump rattling the markets during his time in office.” Another supposed threat to the markets? Trump’s stance on immigration. “Trump’s anti-immigration stance could also be a big problem for U.S. tech companies, which have attracted a lot of talented foreign workers due to the H1-B visa program. Will Trump seek to end that?”

He concluded “Now this isn’t to say that the market definitely is due for a crash during the Trump administration. But experts think investors may now need to take a step back and remember that there still isn’t a lot that the market knows about possible Trump policies.”

The market knows a lot now – and it certainly likes what it sees.

Did We Really Use To Tax the Rich at 90%+?

Authored by: Matt Palumbo

There’s one regard in which some fiscal liberals want us to return to the “good ol’ days” – insanely high tax rates, especially on the wealthy.

While the top tax rate is 37% today (previously 39.6%), debating raising or lowering the rate a few percentage points is pale in comparison to the rates of 70-90% we had in the past, we’re told.

  • “When radical, socialist Dwight D. Eisenhower was president, I think the highest marginal tax rate was something like 90 percent” Bernie Sanders informed us, speaking tongue in cheek in regards to that “socialist” quip.
  • “That 90% top rate in the 60s wasn’t as crazy as modern context might make it seem. And remember, the economy thrived” tweeted New York Times columnist Paul Krugman, who somehow has a Nobel Prize in economics.
  • “The income tax rate, through the early 60s… is I think 91% on incomes over $200,000.” said author Malcolm Gladwell.  “The thing is, if you bring this up now, people don’t even believe you that was in place 50 years ago.”

Gladwell is famous for stating that it takes 10,000 hours of practice to master a skill, but it doesn’t take more than 10 minutes of research into historical tax rates to prove the above arguments wrong.

As everyone that has filed taxes knows, the marginal tax bracket they fall into isn’t the effective tax rate you pay, because of deductions, and other factors. In the past, the tax code was ridden with loopholes.

When the Revenue Act of 1935 was passed, raising the top income tax bracket to 75%, literally only one person paid it; John D. Rockefeller.

It is true that we did use to have massively high marginal tax rates, but it was never the case that we had high effective marginal tax rates. Nor are the top rates comparable of the past comparable in the levels of income they affect. The new top income tax rate for households of 32 percent kicks in at $315,001 of income. The 91% rate in 1955 kicked in at an inflation adjusted $3.5 million in todays income.

As you can see in this chart from the Congressional Research Service, the top effective income tax rate in America has never exceeded 30 percent.

If we isolate just the much-maligned top 1% of income earners, their tax rate is less than 6 percentage points lower today than what it averaged in the 1950s. A decline for sure, but hardly the 60-or-so percentage point decline claimed.

Nor has the government been starved of revenue in light of the decline of marginal tax rates – because it’s the effective rate that matters.

Krugman and company are right in that tax rates on the rich used to be much higher.

But the tax rates that the rich actually paid? Not so much.

October 27, 2017: Ep. 578 The Democrats Can’t Wiggle Out of This One

In this episode –
The Democrats are struggling to explain away their collusion with the Russians.

Who is really paying the largest share of the income tax in the United States?

Here’s a great explanation of liberal’s disdain for patriotism.

Here’s some great news about the economy.

The head of the Democrat National Committee doesn’t know basic components of the Constitution.

Finally, the IRS admits it targeted conservative groups.

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October 17, 2017: Ep. 570 The Liberal Echo Chamber is Collapsing

In this episode –
The NFL “take a knee” fiasco is a devastating blow to the media’s echo chamber. Here’s why.

Is CBS losing money because of the anti-American NFL protests?

These pictures of empty NFL stadiums are additional proof that the boycotts are working.

Yes, corporate tax cuts do benefit American workers. Here’s how.

How Obamacare price controls are spiking your premiums.