Let’s Think Long and Hard about Extending Those Bush Tax Cuts

There was a time one could plausibly argue that importing lots of goods and services, and borrowing a lot from abroad (financing the budget deficits that we’ve incurred since 2001) was a great idea. But at the time, about two and a half years ago, I made the following warning in a Council of Foreign Relations report [pdf]:

The United States faces a wide variety of possible outcomes, with the most dire having a significant likelihood. One real possibility entails the satiation of global investors’ appetite for U.S. Treasury securities, combined with an endless vista of government budget deficits. After several years of large losses on dollar assets due to depreciation, they then demand a substantial premium for holding dollar-denominated assets; either the dollar must weaken so as to make Treasury securities cheap, or yields must rise relative to those on other assets.

Here’s what the dollar has done over the past ten years.
dollar_27apr08.gif

Figure 1: Log Real Value of the US Dollar, normalized to 0 at peak in 2002M02. NBER-defined recessions shaded gray. Source: Federal Reserve Board, NBER, and author’s calculations.

Now, after contemplating that time series, consider this item from Bloomberg:

Dollar Slide Drives U.S. Budget as Japanese Desert Treasuries
By Wes Goodman
April 28 (Bloomberg) — Add another ailment to the U.S. misery index of soaring gasoline and wheat costs and falling home values: a federal deficit that is burgeoning as foreign investors led by the Japanese recoil from the slumping dollar.
The Japanese, who own $586.6 billion, or 12 percent of U.S. government debt, had their worst quarter in Treasuries this decade, losing 7 percent in the first three months of the year as the dollar fell to the lowest since 1995 versus the yen, Merrill Lynch & Co. indexes show. Dai-ichi Mutual Life Insurance Co., Meiji Yasuda Life Insurance Co. and Sumitomo Life Insurance Co., three of the nation’s four-biggest insurers, would rather accept the world’s lowest bond yields in Japan than buy U.S. debt.
“It’s too early to say the dollar will stop falling,” said Masataka Horii, head of the investment team in Tokyo for the $53.1 billion Kokusai Global Sovereign Open, Asia’s biggest bond fund. “The U.S. economy will be slow for a while.”
Japan owns more Treasuries than any other nation. After raising their holdings by $9.2 billion to $620.6 billion between March and July 2007, Japanese investors trimmed that stake by $34 billion through February, the Treasury said April 15.
America relies on foreign investors, who own more than half the U.S. government debt outstanding, to finance a deficit that New York-based Goldman Sachs Group Inc. predicts will expand to a record $500 billion for the year ending Sept. 30, after a $163 billion gap last year. Without their support, long-term interest rates would be 0.9 percentage point higher, a 2006 Federal Reserve study found.
Diminishing Returns
The yield on the benchmark 3 1/2 percent Treasury due February 2018 rose 16 basis points last week to 3.87 percent, according to bond broker BGCantor Market Data. The yield is up from 3.28 percent on March 17, the lowest since June 2003. The note’s price declined 1 9/32, or $12.81 per $1,000 face amount, to $97.
Ten-year Treasury yields fell to within 2.03 percentage points of similar-maturity Japanese government bonds on March 17, the narrowest margin in more than a decade. Japan’s 1.65 percent 10-year yield is the lowest of 31 bond markets tracked by Bloomberg and compares with 4.18 percent for German bunds.
A survey of Japanese funds investing overseas found 58 percent favor euro-denominated bonds, up from 20 percent a year ago, Barclays Capital Japan Ltd., a unit of the world’s fifth- biggest currency trader, said in an April 24 report. Kokusai cut its U.S. fixed income holdings to a record-low 20 percent in March, from 32 percent two years ago.
“European debt is more attractive than Treasuries,” said Nobuto Yamazaki, executive fund manager at Diam Asset Management in Tokyo, which runs an $8.55 billion bond fund that is Japan’s third-biggest. The euro, which gained 14.5 percent in the past year against the dollar, “will continue to be strong,” he said.

Of course, this is not the only hazard to the dollar’s value. Interest rate differentials, accelerating inflation in the US vis a vis other countries, the possibility of dollar depegging are also important [1], [2], [3]. Which one will prove the most important is hard to say, which is why Justin Fox quotes me as “confused” about the likely path of the dollar. Downward, sure; but how far, and how long, are the questions that remain. But my guess is dumping a lot more US Government debt on the market over the next few years by making the Bush structural budget deficit permanent is not the way to stem the dollar’s slide.

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50 thoughts on “Let’s Think Long and Hard about Extending Those Bush Tax Cuts

  1. j

    …the dollar must weaken so as to make Treasury securities cheap… That is what is happening and the answer why foreigners are not selling but buying American Treasury securities (after having lost so much on them) is that NOW they are cheap.

  2. TDS

    What are these log-real-dollars? Are we base 2, 10, or e? Is there some sort of exponential decay process that a log scale is supposed to highlight? Saying log-real-dollars have declined 38% means what in terms of actual dollars?

  3. JDH

    Sorry folks, a bunch of comments were accidentally deleted. We’ll try to restore them by hand but may introduce some errors and omissions in the process.

  4. Roger Klein

    Everything you say is right, but the Japanese (and Chinese etc.) know this already, so the question is why haven’t they dumped dollar-denominated assets already? As Buffett says, the real question is always: what’s the next best alternative? Where else can Japan etc. park a few trillion dollars?

  5. TDM

    Taxes are a big hazard to the dollar’s value. Forcing investors to purchase more infinite term, zero interest, untradable bonds (taxes) does not make treasuries and dollars any more appealing. How is dumping a bigger tax burden on the market going to halt the dollar’s slide?

  6. David Leitch

    Measuring a graph from peak to trough puts things at their strongest. Few transactions would have taken place at the peak.

  7. Babinich

    Not a single mention of cutting spending. Is the answer to accept the fiscal malfeasance of our legislators because they’ll never change?
    Menzie, it seems as if you cannot understand that people are tired of funding pork, supplementals, and other discretionary programs through taxation.

  8. VennData

    The GOP had complete control for six years, Congress, the White House so many governorships and State Houses. The “cut spending” guys… the “fiscally responsible” guys… the “daddy” party… and what did daddy do? They increased spending more than any Democratic government in history. Ever.
    So all you GOP genuflectors are the problem. You buy into their ‘fiscally responsible” talk, mock Democrats, sleep walk through the election, send them money and punch the ticket. It’s you who are the problem for not holding their feet to the fire – “The Base” – you’re the problem.

  9. Buzzcut

    A few thoughts…
    How can the Japanese manipulate their currency if they don’t buy T-bills? They need to reinvest their trade dollars somehow, or else the yen will strengthen against the dollar.
    The Japanese and Chinese need our T-bills a lot more than we need their investment. If they stop buying T-bills, the dollar will fall and their mercantalist economies will come to a halt.
    Please recall that as recently as last summer T-bills were over 5%. Don’t read too much into a rise from 3.5% to 3.85%. It pales in comparison to the fall that 10 year rates have taken in the last year.

  10. Bruce Hall

    It appears the solution is to raise the capital gains tax and, perhaps, throw in a $3.00 per gallon gasoline tax and all will be well.

  11. JRip

    Will we come to call this time the Big Squeeze?
    or as Bruce Bartlett titled his book: IMPOSTOR: How George W. Bush Bankrupted America and…
    Overly exuberant citizen borrowing, credit death by Slice-N-Dice derivatives on Wall Street, a Federal deficit gone wild, the trade deficit and a war in Iraq… While in the rest of the world:
    Rice exporting nations are teaching us a lesson about Resource Nationalism as it exists within the concept of global trade. The big-3 exporters suddenly tax, limit or ban rice exports.
    The Lesson: Home-folk come first. Big importers get to scramble. We can now watch the Philippines figure out what to eat.
    Various food and industrial commodities are in short supply compared to demand and prices soar.
    Petroleum production growth has slowed while demand soars.
    The USA is the biggest oil importer. We are 60+% dependent. The amount of oil in world trade (export/import pool) is set to decline this year. Other big oil importers like China and Japan have huge stacks of US $ (more than $2 Trillion taken together) and, like a player in Monopoly, will be bidding for oil against the USA. Then China will be selling diesel and gasoline internally at below-market prices while trying to use rationing to deal with shortages. argh!
    I used to think the planet could sustain a population of 5 or 6 billion. But if they all want to live the life of the OECD nations that number is looking to be too high.
    Ending with the quote of the day from a friend in Portland, OR:
    Give a man a fish and you’ll feed him for a day.
    Teach him to fish and he’ll deplete his food supply.

  12. algernon

    Badinich’s point is a good one. So much gov’t spending is beyond wasteful & actually pernicious…the war in Iraq, the war on drugs, the Dept of Education. The Fed is consciously devaluing the US$, screwing US savers & consumers. This is gov’t at work. Why in looking at the deficit does Menzie only look at one side?
    As VennData suggests, the GOP lied to us in claiming to be the party of smaller gov’t. So can the Dems now do the reasonable thing, distinct from any inclination they’ve ever shown?

  13. algernon

    The Yen’s rebound to 104/$ from 95/$ suggest some reversal of course. Maybe the BoJ. But it seems inevitable that Yen carry trade unwind & therefore strengthen against the weakening US$. Reducing our budget deficit is desireable but not necessarily the most important factor.

  14. Charles

    TDH says, “Taxes are a big hazard to the dollar’s value.”
    This logically explains why the Euro is currently extremely strong.
    TDH, throwing out this kind of proposition will not do. The regular readers recognize that there are many factors involved in the strength of a currency. Taxes may or may not be a factor, depending on whether one is comparing two countries that are balancing their budgets or two countries, one of which has balanced its budget and the other of which is in drunken sailor mode.
    Please don’t confuse ideology with economics.
    Rich Berger says, “I say let’s not increase tax rates”
    So, Rich, how would you balance the budget? You have to find about $400B to achieve nominal balance this year, and a lot more to achieve fiscal stability.
    Hint: You can’t say, “Cut taxes,” because we got in this predicament from a balanced budget by cutting taxes. As we know, doing the same thing expecting different results is the definition of insanity.

  15. Tood

    So if Bush’s tax cuts were bad, would not Clinton’s 1997 tax cuts also be problematic? Cap gains were cut, and housing gains were given a huge tax exemption.
    Can some explain why Bush’s are bad and Clinton’s were not? Or were just some of Bush’s cuts bad, while others were good?

  16. Tood

    “So, Rich, how would you balance the budget? You have to find about $400B to achieve nominal balance this year, and a lot more to achieve fiscal stability. ”
    er…. by cutting spending?
    Anyway, a balanced budget is not the most desirable thing, nor is it the normal state of affairs. The deficit has been 2.3% of GDP, on average, for the last 30 years. To stay at that average, $400B only has to get down to $320B.
    Why does anyone think that Obama will balance the budget?

  17. Charles

    Tood says, “Can some explain why Bush’s are bad and Clinton’s were not?”
    Clinton achieved a balanced budget. Bush has run trillions in deficits.
    Simple enough?
    You claim that spending can be cut. Republicans have been claiming this for years, yet when given the chance to actually cut spending, they never do. So, don’t just claim that it can be done: specify.

  18. Menzie Chinn

    Tood: Well, I’m not sure I have a position on the 1997 tax cut; I wasn’t blogging back then. On the other hand, it’s one thing to implement a tax cut when the standardized/cyclically adjusted budget deficit is 0.4% of GDP (see this CBO figure) in FY1998, as opposed to implementing it when the standardized/cyclically adjusted budget deficit is 2.5% of GDP (forecast for FY2008). Even with some bounceback due to the short term nature of the stimulus package, this means something like 1.5% of GDP in FY2009, assuming the AMT is “fixed” again. By the way, you might find this CBO report‘s assessment of the two pieces of legislation passed in 1997.

    While a balanced budget is not typical, a zero cyclically adjusted budget balance is, in my humble opinion, desirable.

  19. Babinich

    Menzie states: “Well, I’m not sure I have a position on the 1997 tax cut; I wasn’t blogging back then.”

    I am sorry but I do not understand this statement. There is nothing to prevent you from looking back in retrospect and then offering an opinion.

    Tood asks: “Why does anyone think that Obama will balance the budget?”

    No one should think that he will balance the budget. He’s put forth no specifics that would indicate that a balanced budget is an objective of his campaign.

  20. Rich Berger

    I agree with Tood that a balanced budget is not the be all and end all. The deficit has been trending down for a number of years as receipts have grown and spending has been restrained. This year’s increase will be due to stagnant receipts and increases in spending (including the stupid stimulus handout), but should still come in less than $300 BN. When was the last time a top to bottom review of spending was undertaken to see what can be cut? It makes no sense to feed Congress more tax money when they have no spending discipline.

  21. Buzzcut

    Yeah, Menzie, that was a bogus answer.
    What factors were responsible for balanced budgets in the very late 1990′s?
    1) The Clinton marginal income tax increases of 1993? (Could you also include the Bush I marginal tax increase of 1990?).
    2) That capital gains tax cut in ’97?
    3) The Gingrich revolution and the restraint in spending it caused?
    4) The “peace dividend” and the dramatic decrease in our military budget in that timeframe?
    5) The rise (and subsequent fall) of HMOs restraining health care spending economywide?
    6) The baby boomers hitting their peak earning years?
    I could go on and on and on, but I would THINK that Menzie the Economics PhD would at least have an OPINION on these factors, if not an econometric analysis.

  22. Charles

    Rich Berger says, “The deficit has been trending down for a number of years as receipts have grown and spending has been restrained.”
    Rich, you’re very selectively using data and coming to an unsustainable conclusion.
    The deficit was zero– negative, actually– when Bush took office. Therefore, any deficit is an increase.
    Bush immediately created large deficits with tax cuts. Those deficits declined as the business cycle rose to its peak. Now, with the business cycle heading south, the deficits are rising.
    Buzzcut says that the Bush I tax increases were also responsible for the balanced budget. This is true. It is also true that Bush had to be marched forward at swordpoint to do it, since he had made a reckless promise of “No new taxes” in order to trick conservatives into giving him their votes.
    There are just a few caveats in the history you present, Buzzcut.

  23. Charles

    Babinich, as for Menzie not having a position as opposed to having an opinion, I understood him loud and clear.
    He was saying that coming to a reasoned opinion takes time and effort. Naturally, anyone can open their mouths and utter an unreasoned opinion. There are all too many examples of that.
    When one has formed a reasoned opinion and defended it in a fair and open-minded way– and it has survived that critical review– then one can be said to have a position.
    People who have to get papers published when their reviewers may be on the opposite side of the issue understand these subtleties.

  24. Buzzcut

    Buzzcut says that the Bush I tax increases were also responsible for the balanced budget.
    I don’t think that it’s true, but it is a possibility. All 6 items I listed are possibilities. I would think a quant like Menzie would have some econometrics to parse out which ones did what.
    Instead, he complains that he wasn’t blogging back then and thus doesn’t have an opinion. Bogus!
    The Bush I tax increase didn’t help the ’90 recession any, that’s for sure. Much like jacking up taxes now wouldn’t help the economy.
    As I have said before, the Bush II economy was based on low taxes and cheap money. We no longer have cheap money (really, with the credit crunch, there is often NO money for many types of borrowers).
    Now you’re going to throw massive tax increases on top of that?
    Are you crazy?
    Obama says that the capital gains tax will be “no worse than under Reagan”. And that’s a good thing?
    Throw in his proposal to uncap Socialist Insecurity taxes, and you’re looking at European levels of taxation.
    No, it’s worse than that, because the Euros don’t tax corporations anywhere near the rates that we do.

  25. Tood

    Again, I don’t see any rational opinion of why Clinton’s 1997 tax cuts (which I supported then and now) are somehow not causing any problems while GWB’s 2001 and 2003 cuts (which I also support) are somehow disastrous.
    Clinton’s 1997 tax cuts were before there was a balanced budget (1999-00), BTW.
    Even Charlie Gibson grilled Obama on how tax cuts on Cap Gains always produce an increase in revenue.
    I want a strictly non-partisan answer on why the 1997 tax cuts were so good while the 2001/2003 cuts were so bad.
    I am very disappointed with Menzie’s answer, which appears to be a partisan copout. Of course Menzie was not blogging in 1997. NO ONE WAS. That is not a reason to give an ECONOMIST’s explanation of the differences between the two tax cuts. A professor must educate without bias, first and foremost.
    Also, talking about FY08 budget deficits has nothing to do with why decisions were made in 2001 or 2003.

  26. Tood

    Buzzcut,
    It appears that holding anti-Bush, pro-Democrat opinions requires a concerted effort towards believing that world history only began in Florida in late 2000.
    The history of Islamic terror only began on 9/11/01, and will conclude in Jan 2009.
    The history of Iraq only began in late 2002.
    The only time taxes were ever cut was in 2001/2003.
    Anti-Americanism only existed after March 2003, and will miraculously vanish in Jan. 2009.
    More and more, it appears that a large percentage of the population truly has blocked out any recollection of the pre-2001 world.

  27. Rich Berger

    Consulting the historical budget tables, the deficit as a percentage of GDP increased after Bush I tax increases. Even though Clinton inherited an expanding economy (his lie about the worst economy in 50 years went largely unchallenged) it took him until FY97 to get below the percentage deficit registered in FYE2007, his tax increase in 1993 notwithstanding.
    The reasons for the emphemeral Clinton surplus were increasing tax receipts and a reduction in defense expenditures after the Cold War was won. The vaunted multi-trillion surplus was projected, not actual. Although the Bush tax cuts accounted for about 40% of the reduction in the projected surplus, increased spending and lower than expected revenues (prior to the tax cuts) accounted for the lion’s share.
    The best way to reduce deficits is to cut taxes and restrain spending.

  28. Charles

    Buzzcut asks, “As I have said before, the Bush II economy was based on low taxes and cheap money. We no longer have cheap money (really, with the credit crunch, there is often NO money for many types of borrowers). Now you’re going to throw massive tax increases on top of that?”
    Would you rather have, say, double digit inflation? Perhaps with a side of rising unemployment?
    Buzzcut, this stuff is a lot simpler than people make it out to be. We can spend money today, as with deficit spending. If we do, we have to pay it back tomorrow, which means higher taxes. If we spend the money on things that improve productivity, it may turn out to be a good deal. If we spend it on flipping real estate… well, probably not.
    I would love taxes to be zero. Unfortunately, that’s not consistent with having an industrialized nation. It is consistent with anarchy. To a lesser extent, that’s what one gets when one runs chronic deficits. And so I accept taxes as a necessary evil.
    We are facing a number of very bad choices in the near future. One of them– the least bad choice– is raising taxes enough to start lowering the debt.
    Europe, by the way, is a very comfortable place to live.

  29. Charles

    Rich, any time you want to seriously debate the issue, please let me know. It is not serious debate to change the subject after you’ve been shown to be wrong. Your post isn’t even internally consistent, as you argue on the one hand that tax cuts reduce the surplus and on the other that they increase revenues.

  30. Charles

    Tood says, “Again, I don’t see any rational opinion of why Clinton’s 1997 tax cuts (which I supported then and now) are somehow not causing any problems while GWB’s 2001 and 2003 cuts (which I also support) are somehow disastrous.”
    It’s often helpful to open one’s eyes as one reads.
    The Clinton tax cuts were very small, ca. $100B (www.ctj.org/html/budg97.html). They did not significantly affect budgetary balance.
    The Bush tax cuts were huge, with a 10-year estimated cost of ca. $2.6T (www.ctj.org/pdf/gwbdata.pdf). They are largely responsible for the deficits we are running.
    You have been answered. You apparently just don’t like the answer.

  31. Buzzcut

    Charles, I think that your post is conventional economic wisdom (debts need to be paid in the future, they lead to rising inflation and unemployment, etc.)
    I just don’t think that they’re true. When has federal debt ever been paid off in this country? There is probably revolutionary war debt out there being rolled over!
    Okay, maybe that’s an exageration. But WWII debt? Certainly there is Vietnam War era debt out there.
    Inflation? Unemployment? If those were caused by debt, the 1980′s would have been much worse than the 1970′s.
    Federal debt NEVER need be paid off. As long as the economy is growing faster than the debt, what’s the problem?
    Are there limits? Sure. It looks like we may have hit them last August.
    But does that mean that we need to roll back the ’01/ ’03 cuts? End the yearly AMT exemption? Phase out the Socialist Insecurity cap?

  32. Menzie Chinn

    TDS: Log scale allows for easier calculations of percent changes.

    Roger Klein: Valuations can change without actual holdings changing. Just think of stock prices changing as expected fundamentals, i.e., dividends, change.

    Buzzcut: The Japanese government has not been intervening in forex markets since 2004. Some chunk of this number is private investor holdings.

    Buzzcut and Tood: Regarding the 1997 tax cut, I just haven’t had a chance to read the literature, and work through the types of tax cuts implemented. So, I freely admit to being somewhat less than fully informed, and hope to remedy that deficiency in a manner that befits the topic. I will note that the CBO’s assessment of the deficit implications of the tax cut and budget bill (hyperlinked in my previous post) was substantially more benign that the corresponding assessments of the 2001 tax cuts.

  33. Hitchhiker

    Charles writes, “We can spend money today, as with deficit spending. If we do, we have to pay it back tomorrow, which means higher taxes.”
    Only if our income has stayed the same. Your static model does not account for economic growth or individual behavior changes to minimize higher tax rates.
    “I would love taxes to be zero. Unfortunately, that’s not consistent with having an industrialized nation. It is consistent with anarchy”
    Really? Some might call it paradise. Anarchy is what people call lack of control when they want control. Freedom is what people call lack of control who desire no control over their fellows. Btw, I acknowledge a minimum level of taxation is necessary but, my ideal would be about 5%-10% of GDP for the Feds to carry out their constitutional duty. Anything above that should be state or local taxes as the people desire.
    “Europe, by the way, is a very comfortable place to live.”
    I will be curious to see if you change your mind about that in another 10 or 20 years. Is it a good place to grow up, find a job sufficient to support a family, or just a nice place to hang out? I wouldn’t mind spending my last years in a Denmark nursing home where, the staff is allowed to, ahem, procure services for the physical needs of their patients.

  34. Tood

    “Europe, by the way, is a very comfortable place to live.”
    Yeah, right. I see many Europeans moving to live in the US, while almost no Americans leaving to live in Europe.
    The traffic is one-way, in favor of America.

  35. don

    Menzie -
    I think the yen is undervalued against the dollar, and unbelievably against the euro. I don’t think looking at prospects for the yen -dollar exchange rate will give one a good idea about the future of the overall dollar exchange rate, and especially not the the euro – dollar exchange rate.

  36. RN

    The wealth/income gap in this country is staggering and out of control. Warren Buffett should not be taxed at 17% while his secretary is at 30%
    This growth in the gaping wealth gap needs to be reversed and the rich need to pick up their share of the burden and taxed far more heavily.
    I’m rich by the way.

  37. Charles

    Buzzcut asks, “When has federal debt ever been paid off in this country?”
    Until Reagan, the debt has been paid down, by Republican and Democrat alike, which is what matters in terms of reducing interest payments.
    That is the whole point: if you want the cost of government to go down, then you want the debt to go down. Instead, the national debt has risen radically over the last 28 years. This is what is so offensive to the sensibility of any real conservative about the economics practiced by people calling themselves conservatives: they have caused the cost of government to rise.
    Buzzcut adds, “But does that [debt:GDP hitting unprecedented post-war highs] mean that we need to roll back the ’01/ ’03 cuts? End the yearly AMT exemption? Phase out the Socialist Insecurity cap?”
    The AMT exemption, probably not. Charlie Rangel is actually offering to eliminate the AMT. The Social Security cap… maybe. A better solution, IMO, would be to borrow Social Security payments from the general fund after 2041 or whenever the surplus is exhausted, just as the general fund has borrowed from the Social Security surplus for 30 years. But the Bush tax cuts have put the future of this nation at risk and must be repealed.
    Hitchhiker says, “Your static model does not account for economic growth or individual behavior changes to minimize higher tax rates.”
    Dynamic scoring has been tried by CBO. It adds a lot of complexity without adding much accuracy. (see, for example, http://www.cbpp.org/7-12-06bud2.htm).
    Hitchhiker says, “Really? Some might call it [running chronic government deficits] paradise. Anarchy is what people call lack of control when they want control.”
    As long as you’re clear that spending without paying for it is anarchic, I have no problem. What bothers me is people calling themselves libertarians who are not genuinely interested in the liberty of others, merely the liberty of themselves.
    Tood says, “Yeah, right. I see many Europeans moving to live in the US, while almost no Americans leaving to live in Europe. The traffic is one-way, in favor of America.”
    Not that you’ll bother to pay any attention after having ignored numerous previous attempts to reach whatever reason resides in you, but Jason Schachter of the UN estimates that there are now net outflows of Americans to countries like Canada, the UK, Italy, and France. They’re small, but noticeable. Recently, Business Week (Loyalka, 1/6/08) reported that Chinese who came to the United States were returning to China. The United States is no longer such a desirable destination, perhaps because Americans have grown so arrogant they no longer need to bother themselves with the facts.

  38. Buzzcut

    Menzie, who said anything about intervention in Forex markets?
    Correct me if I’m wrong, but the Japanese recycle their trade earned dollars by making investments in the US. They do this mostly by buying T-bills.
    So what will happen if they stop buying T-bills?
    And does it really matter if it is Japanese investors buying the T-bills, or individual Japanese citizens? All that matters is that those dollars are being recycled, right?
    Seeing as how I’ve seen estimates that Toyota loses over a billion dollars for every one yen drop, do you think that mercantalist Japan could survive if the dollar falls to, say, 50 yen? 75 yen?
    Somehow the Japanese learned to survive at 90 yen in the 1990s, but they sure weren’t happy about it!

  39. Tood

    Charles,
    Your jealousy of America is deep, yet typical.
    The US still attracts a huge net inflow of immigrants each year. More than 50,000 a year from China, 80,000 a year from India, etc.
    Here is a world chart. It shows you are dead wrong about there being net outflows to Canada, etc. There is still a net migration to America. Of course, I provide a source, and you predictably do not.
    Millions come to the US even if they have to illegally. Including Chinese who seal themselves in boxes for 3 weeks during a harrowing sea voyage.
    Your extremely weak anecdote of ‘some people return to China’ has always been true. Perhaps you need to be educated on the difference between ‘net’ and ‘gross’. To simplify it, more come to the US from China, and stay here, than return to China. Even simpler, if 51,000 go from China to the US, but 1000 go from the US to China, there were 50,000 net migrants from China to the US. I hope this is simple enough for even you to grasp.
    When the loudest/most jealous critics of America also are the most thinly educated, that reinforces the truth I have stated even more.

  40. Charles

    Tood, you’re evidently unable to properly interpret the chart that you are presenting in defense of the position you have adopted. It is not the net immigration rate as you claim, but the gross immigration rate, not correcting for emigration.
    I have to assume that you’re a high school student to make this level of blunder. I certainly hope colleges are not passing people who can’t read a simple chart.
    None of this, by the way, matters to me. This thread is not about immigration. It is about tax policy. When you were shown that your beliefs about tax policy were wrong, you changed the subject. That is not acceptable behavior.

  41. Tood

    Charles,
    Wrong, it is NET immigration rate.
    Furthermore, you have still not provided any source to support the absurd claim that there is a net flow of Americans to the UK, Canada, etc.
    None of this, by the way, matters to me. This thread is not about immigration. It is about tax policy.
    Super-weak whine. You brought up this unrelated topic, and the mask of your anti-US jealousy slipped. Now that you have been humiliated with hard facts, you are retreating.
    That is not acceptable behavior.
    Look what’s talking. Projection from the vanquished.
    On taxes, I still don’t have a non-partisan answer on why Clinton’s tax cuts (smaller but still substantial) are wonderful but Bush’s are terrible. Menzie conceded that he had not studied it in detail. You, on the other hand, tried to fudge an annualized number for Clinton with a 10-year number for Bush, while dodging the question. That is pathetic, yet unsurprising from someone so thinly educated.

  42. Charles

    Repeating something false is lying, Tood.
    Now, I have provided you the reference you should have looked up. You would have looked it up if you were honest. This is not some anonymous entry in Wikipedia that you claim says something it doesn’t say. It’s a report by a well-known demographic statistician, Jason Schachter. What Schachter says is this:
    The U.S. Census Bureau does not collect data on the number of people, either citizens or non-citizens, who emigrate from the United States, thus has no reliable source for these numbers.
    This is why I am certain that you have no idea what you are talking about.
    But Schachter is even more specific. He explains the complications in doing such estimates, including whether military personnel are included or not, and he gives the basis for the estimates of emigration that he arrives at. He states:
    This means there was an annual
    outmigration (emigration) of 5,700 U.S. born from the United States to France. Again, these figures
    probably under represent the true size of the migration flows between the United States and France….This means there was an annual
    outmigration (emigration) of 9,500 U.S. born from the United States to Italy. Again, these figures likely underestimate the true size of gross migration between the United States and Italy.This means there was an annual outmigration (emigration) of 21,400 U.S. born from the United States to Great Britain, though the actual size of these in- and out-flows was likely higher.
    For Canada (and to a lesser extent for Italy), it’s a bit more complicated, but at a first order of analysis This gives an average annual net migration of 2,899 more U.S. born people who moved from the United States to Canada, than who moved from Canada to the United States; in other words, a net outmigration of 2,899 people per year from the United States to Canada.
    In other words, there is good reason to think that net migration from developed countries is out of the United States.
    You may think that rudeness and dishonesty wins arguments. In reality, your battle is not with me, but with the truth. The truth always wins…and the facts are not on your side.
    Unless you wish to apologize, you have earned my complete contempt.

  43. Tood

    Charles,
    Let me use small words to increase the probability of even you understanding the simple numbers.
    Here is the DHS link for legal permanent residency granted, by country of birth, by year.
    France to US : 4000/yr
    Canada to US : 20,000/yr
    Italy to US : 3000/yr
    UK to US : 18,000/yr.
    These are PERMANENT residence, indicating an intention to set up permanent domicile in the US. Your source, from the disreputable UN no less, does not distinguish permanent residency, and thus most of your numbers would comprise of students studying abroad, some military personnel, etc. It is absolutely NOT indicative of permanent emigration out of the US, of which the net flow is still in the direction of the US. Permanent residence/citizenship change is the only true metric.
    I too lived abroad (India) for some years. I did not settle there permanently.
    Furthermore, skilled immigrants from India, China, etc. consider the US first, Canada, Britain, or Australia as second choice destinations, and hardly ever consider Italy or France.
    Lastly, the list successful immigrants to America include such luminaries as Arnold Schwarzenegger, Sergei Brin, Andy Grove, Vinod Khosla, Pierre Omidyar, and dozens of others. No other country has such a list. There are certainly no prominent American-born business people who became self-made outside of the US, akin to those I listed above. A few Hollywood airheads with second homes in Europe don’t qualify as ‘self-made outside of the US’ (in fact, far more UK/Aus/Can movie stars succeeded after coming to the US – Mel Gibson, Pam Anderson, Nicole Kidman, Jim Carrey, etc.). This utterly obliterates any claim of a superior economic climate in these countries above the US.
    This final point utterly crushes you.
    you have earned my complete contempt.
    I WANT the contempt of someone as fanatical and detached from facts as you. You are probably someone who actually opposes democracy in Iraq, and condones habitual atrocities by UN ‘peacekeepers’ and Islamic radicals. Contempt from your ilk is a metric of success for me.
    Educate yourself on how the US will still be the only superpower in 2030.

  44. Charles

    Todd, you don’t get it.
    Those are people coming to the United States.
    You have no idea how many people are leaving the United States. If you check the DHS site, they STATE this explicitly.
    You see, I don’t contemptuously dismiss sources supplied by my opponents simply for ideological reasons. That’s how I know that:
    … partly because of inherent methodological difficulties, data on emigration from the United States are not being collected. (since emigration is not measured, demographic statisticians have to estimate it).
    This is your own source, The Department of Homeland Security, telling you what you refuse to listen to because your entire goal– which you state very clearly on Megan McArdle’s board– is to insult, harass, and defame people who are a lot more intelligent that you are.
    You remind me of th4e apparatchiks of the old Soviet Union. If an idea contradicted what the Party hierarchy told them to believe, then it was impossible. And the moment The Party told them that what they had preached to the world was false, they turned around and marched in the opposite direction.
    Truly, ideology blinds and makes stupid.

  45. Tood

    Charles,
    Failure to respond to my specific points shows that you know you are wrong.
    Your data says nothing about permanent residency, and thus is a number inflated by students taking a semester abroad, military personnel, etc.
    Show me that the number of US-born people converting to UK/Canada/France/Italy citizenship, and you would have something. Until then, you are just a jealous anti-American.
    I see you steered clear of my ‘successful, prominent immigrants’ point. That is because you know that it wasw the coup de grace (that is French, BTW).
    …people who are a lot more intelligent that you are.
    Read Ace of Spades on how your type desperately wants to think of yourself as intelligent, but quickly demonstrates the opposite.
    Truly, ideology blinds and makes stupid.
    At least your are admitting your own flaws. That is a good first step.
    Forget about jumping the shark, you have even jumped the sea-cucumber. (The sea-cucumber is an aquatic invertibrate).

  46. Charles

    Tood, just find a place in the DHS papers you’re citing where it says “net immigration” by country or where it measures emigration by country.
    You can’t. It’s not there… or, rather, it’s there in your imagination, an imagination that cannot admit that France might be a place people want to live.
    You have served your purpose in demonstrating the sickness plaguing the right, a sickness born of a well-deserved sense of inferiority. Hatred is the drug used by your cohort to numb themselves. But that simply adds obnoxiousness to ignorance.
    Go back to your hate blogs. This is an economic blog. People actually know stuff.

  47. GK

    cucumber jumper (the artist formerly known as Charles),
    Who is talking about right vs. left? I am the one asking for non-partisan explanations of tax cuts.
    Your paranoia is being exposed, after capitulating in shambolic humiliation in this debate.
    You can’t provide any evidence of actual citizenship conversions/naturalization from US Citizenship to UK/Can/France citizenship/naturalization. Hence, your claim/wish is proved to be false.
    that cannot admit that France might be a place people want to live.
    France is a nice place, and a developed country. It just has a net outflow of migrants to the US, as my data proves, and you cannot disprove.
    Your cowardly avoidance of my ‘successful immigrants’ point is also a palpable admission of defeat. Who are the Schwarzeneggers/Brins/Groves/Khoslas of France?
    (crickets chirping in the silence Charles’ ashamed humiliation)*****
    This is an economic blog. People actually know stuff.
    Clearly, you are not one of them.
    It is a well-known fact that pro-US people are more economically producting than anti-US people.
    What a humiliating defeat you have suffered, in a purely non-partisan, fact-based debate (a situation you clearly have no experience in).

  48. Tood

    I see that Charles, despite reading the final rebuttal multiple times, is stumped against a brick wall logic and facts.
    This is known as jumping the sea-cucumber (which is the final act of someone who long ago jumped the shark. Jimmy Carter and Michael Jackson are examples of people who have jumped the sea-cucumber.)

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