Reaganomics @ 25

From WSJ:

Reaganomics at 25
August 12, 2006; Page A8

Twenty-five years ago this weekend, Ronald Reagan signed the Economic Recovery Tax Act. The bill cut personal income tax rates by 25% across the board, indexed tax brackets for inflation and reduced the corporate income tax rate. The anniversary is worth commemorating as a seminal moment that continues to influence policy for the better in the U.S., and around the globe.

The achievement of Reaganomics can only be fully understood by recalling the miserable state of affairs a quarter-century ago. Newsweek summarized the national mood when it wrote in 1981 that Reagan "inherits the most dangerous economic crisis since Franklin Roosevelt took office 48 years ago."

That was no exaggeration. The economy was enduring a cycle of rising inflation with growing levels of unemployment. Remember 20% mortgage interest rates? Terms like "stagflation" and "misery index" entered the popular vocabulary, and declinists of various kinds were in the saddle. The perception of American economic weakness encouraged the Soviet empire to ever bolder adventures, as reflected by Soviet tanks in Kabul and Communists on the march in Nicaragua and Africa.

The reigning Keynesian policy consensus had no answer for this predicament, and so a new group of economic ideas came to the fore. Actually, they were old, classical economic ideas that were rediscovered via the likes of Milton Friedman and the Chicago School, Arthur Laffer, Robert Mundell, and such policy activists in Washington as Norman Ture and Jack Kemp, among others. These humble columns under our late editor, Robert Bartley, led the parade.

For every policy goal, you need a policy lever, Mr. Mundell likes to say. Monetary restraint was needed to break inflation, while cuts in marginal tax rates would restore the incentives to save and invest. With Paul Volcker at the Federal Reserve and Reagan at the White House, those two levers became the essence of the "supply-side" policy mix.

The results have been better than even some of its supporters hoped. The Dow Jones Industrial Average first broke 1,000 in 1972, but a decade later it was barely above 800 -- one of the worst and most enduring bear markets in history. In the 25 years since Reaganomics, however, the Dow has climbed to about 11,000, accounting for an increase in national wealth on the order of $25 trillion. To match that increase in percentage terms, the Dow would have to rise to some 150,000 in the next quarter century. American living standards have risen steadily, and U.S. businesses have created entire industries that didn't exist a generation ago.

Obviously, the economic policy path from 1981 to the present day has not been a straight line. The biggest detour occurred from 1990 through 1994, when George H. W. Bush and Bill Clinton forgot the Gipper's lesson and raised marginal income-tax rates; they suffered for it in the elections of 1992 and 1994. The arrival of the Gingrich Republicans in Congress stopped this slow-motion repeal of Reaganomics, however, and even helped to extend it at the margin with a cut in the capital-gains tax rate to 20% in 1997.

Adherents of Rubinomics -- after Clinton Treasury Secretary Robert Rubin -- are still not converts, arguing that tax increases are virtuous if they reduce the deficit. We've addressed that argument many times and will again. But even the Rubinites haven't dared to repeal indexing for inflation (which pushed taxpayers via "bracket creep" into ever-higher tax rates), and even the most ardent liberals don't propose to return to the top pre-Reagan income tax rate of 70%. They also now understand that, at some point along the Laffer Curve, high rates begin to yield less tax revenue. The bipartisan consensus in favor of sound money has also held.

Thus today, the top marginal personal and corporate tax rates are 35%, compared with 70% and 48% in 1981. In the late 1970s the tax on dividends was 70% and the capital gains rate was 50%; now they're both 15%. These reductions have increased the rate of return on capital, and hence some $3 trillion more was invested by foreigners in the U.S. between 1981 and 2005 than was invested by Americans abroad. One result: 40 million new jobs, more than the rest of the industrialized world combined.

The rest of the world, meanwhile, has followed the Gipper down the tax-cut curve. Daniel Mitchell of the Heritage Foundation finds that the average personal income tax rate in the industrialized world is now 43%, versus 67% in 1980. The average top corporate tax rate has fallen to 29% from 48%. This decline in global tax rates has been the economic counterpart to the fall of the Berlin Wall. Most of Eastern Europe has adopted flat tax rates of 25% or lower, and the Russians now have a flat income tax of 13%. In Old Europe, Ireland's corporate and personal income tax rate cuts have helped generate the swiftest economic growth in the EU.

Not bad for a President dismissed as a dreamy former actor. In his 1989 farewell address, Reagan said that "People say that I was a great communicator. It would be more accurate to say that I communicated great ideas." He was right, and a remarkable global prosperity has followed in his wake. The challenge for current and future political leaders is not to forget it.

Good Tequila Drink: Cantarito

CANTARITO

1½ oz tequila
½ oz fresh lemon juice
½ oz fresh lime juice
½ oz fresh orange juice
4 to 6 oz grapefruit soda (such as Squirt) lemon, lime and orange wedges

Stir all together with plenty of ice in a tall glass rimmed with salt.

Recipe: BBQ Brisket (in oven)

Tasty Catering, based in Elk Grove Village, Ill., served this 18-hour beef brisket at this summer's picnic for employees in Google's Chicago office.


Yield: 20 servings

8 cups Sweet Baby Ray's BBQ Sauce or another molasses-based smoky barbecue sauce
? cup garlic powder
? cup coarsely ground black pepper
? cup Cajun seasoning
6 to 8 pounds beef brisket, trimmed
• Preheat oven to 240 degrees.

• Combine the first four ingredients to make the sauce. Reserve 1 cup of sauce. Immerse the brisket completely in the sauce, and rub vigorously.

• Transfer brisket to a sheet pan lined with parchment. Place brisket in oven and cook for 18 hours, or until the meat registers 175 degrees on a meat thermometer. Remove from oven and let cool.

• Slice brisket 1/8-inch-thick and transfer to a 12 x 10-inch disposable foil pan. Top meat with reserved sauce and cover with aluminum foil.

• Freeze for two or three days. (Freezing and thawing tenderizes the meat.)

• Remove from the freezer and thaw in the refrigerator for two days.

• Preheat oven to 375 degrees. Uncover brisket and warm for 40 minutes.

Recipe: Ranch Beans

Ranch Beans

At its recent beach picnic in a public park, the San Diego County wholesaler/distributor for Anheuser-Busch served more than 400 of its staffers and their families barbecue, drinks -- including their own beer, natch -- as well as a local specialty: Keith's Addictive Ranch Beans, a twist on traditional baked beans prepared by Picnic People, a San Diego special-event and catering company.
[picnic]

Yield: 4 to 6 servings

1½ pounds canned pinto beans
½ yellow onion, chopped
6 ounces barbecued meat, chopped
½ tablespoon onion powder
½ tablespoon garlic powder
½ tablespoon Lawry's Seasoning
1 teaspoon coarsely ground black pepper
1 teaspoon chili powder
• Sauté onions on high heat for 2 to 3 minutes or until translucent.

• Reduce heat to low-medium. Add the meat and beans and cook until well heated, about 8 to 10 minutes. While the beans and meat cook, blend the spices together.

• Add spice blend to the beans and meat mixture, and stir in well. Serve.

Recipe: Marinated Flank Steak

Marinated Flank Steak

Yield: 4 servings
Active preparation time: 15 minutes
Cooking time: 20 minutes
Marinating time: 24 to 36 hours

For the steak:
1 large flank steak, 1½ to 2 pounds
Coarse salt and freshly ground black pepper

For the marinade:
½ cup extra-virgin olive oil
¼ cup sherry vinegar
2 tablespoons balsamic vinegar
1 tablespoon ketchup
½ teaspoon Worcestershire sauce
1 teaspoon honey
1 teaspoon sugar
½ cup very finely diced red onion
1 pinch cayenne pepper
1 teaspoon chopped fresh rosemary
½ teaspoon chopped fresh thyme leaves
½ teaspoon freshly ground black pepper

• Marinate the steak: In a large bowl, combine all the marinade ingredients with ¼ cup water and whisk well. Pour into a large Ziploc bag and add the steak. Seal the bag and refrigerate for 24 to 36 hours.

• Thirty minutes before grilling, preheat the grill to high and remove the steak from the fridge. Transfer the meat to a platter and reserve the marinade for basting.

• Season the steak on both sides generously with salt and pepper.

• Place the steak on the hot grill and cook for 2 minutes. Rotate the steak a quarter-turn to mark the steak, which promotes even cooking and makes an attractive grill pattern on the meat. Cook for 2 minutes more, then turn and sear the other side. Dab the marinade onto the meat with a pastry brush.

• Cook for 2 minutes, then mark by rotating a quarter-turn. Cook for another 2 minutes and baste again.

• Reduce the heat to low and transfer the steak to the warming shelf placed in the highest position. If you don't have a warming shelf, move the meat to a cooler section of the grill.

• Close the lid and continue cooking for 8 to 12 minutes more for medium-rare, depending on the thickness of the meat. Lift the lid to turn the steak over and baste with the marinade every 2 minutes or so.

• Allow the meat to rest for 5 minutes off the grill before thinly slicing it across the grain on a slight bias, ¼- to 1/8-inch thick. Serve warm.

$100,000 in Salary by Market

Great piece on CNNMoney (Link)

Where the Best Six-Figure Jobs Are?
If keeping more of your paycheck is important to you, some places are much better than others.
By Jeanne Sahadi, CNNMoney.com senior writer
July 14 2006: 10:06 AM EDT

NEW YORK (CNNMoney.com) -- Making $100,000 or more is nothing to sneeze at.

Only 5 percent of earners in 2004 reported making that much, according to Census data. While entering six-figure territory can be a marker of a certain level of success, it's not always a marker of a lot of buying power.

In some cities, a $100,000 salary sounds a lot better than it is because the cost of living is high, taxes are high and, as Murphy's Law would have it, even the rate of inflation runs higher than in other parts of the country.

New York is the clearest example. Its cost of living is double the national average, according to data from ACCRA. Put another way, in New York, $200,000 is the new $100,000 paycheck.

But that $200,000 doesn't really mean you can afford the same lifestyle that $100,000 could buy in lower-cost cities like Cleveland or Denver.

Consider inflation. Over the past 12 months through May, overall inflation in New York metropolitan area was 4.8 percent. In Cleveland, the rate was 3 percent. Drilling down, you also see big differences. The cost of having a roof over your head went up 5.6 percent in New York, while in Cleveland it rose just 0.8 percent.

Next, consider taxes. State and local taxes make a big difference in how much you net, but so, too, does the federal income tax. Earning a nominally higher salary ($200,000 versus $100,000) puts you in a higher tax bracket. J. Scott Moody, chief economist at the Maine Heritage Policy Center working on behalf of the Tax Foundation, notes that a single person making $205,000 in New York would have an effective tax rate of 25.4 percent, paying just over $52,000 in federal income tax, leaving him with $153,000.

If you adjust for cost of living differences, that $205,000 salary would be worth $102,000 in Cleveland or Denver. The effective federal tax rate on that amount would be just 20.4 percent, so you would pay $20,868, with $81,480 left over.

"Even though the two incomes are equivalent in terms of purchasing power, the New Yorker has an effective rate that is 5 percentage points (or 25 percent) higher than the person living in Denver. As a result, the New Yorker suffers a lower level of after-tax purchasing power," Moody said.

Of course, the greatest number of six-figure jobs tend to be in the most pricey and populous cities, but there are also plenty of opportunities in more affordable ones.

We asked job listing sites 6FigureJobs.com and The Ladders.com to provide us with a snapshot of where they have had the greatest number of listings for six-figure jobs in the past two months.

Predictably, New York, San Francisco, Los Angeles and Washington, D.C. were in the top 10. But there were also a relatively high number of such jobs in Chicago, Atlanta, Seattle, Cleveland, Denver, Philadelphia, Milwaukee, Houston, Dallas, Minneapolis and Charlotte, NC.

Besides being less costly, there is another big advantage these cities offer if you're in the running to make six figures. To attract talent, companies often will offer the same big salaries that you could earn in New York or San Francisco.

"Whenever top talent is scarce (which is always), salaries offered to those super-producers ignore any geographic pattern that would suggest a lower number," said Jim Brennan, a senior associate at the Economic Research Institute, which specializes in competitive salary surveys. "So if you want to get a key executive, you have to pay world-class dollars."

TABLE

WHAT $100K REALLY LOOKS LIKE
16 cities where 6FigureJobs.com and TheLadders.com have had the greatest number of six-figure job listings, and the gross salary required to replicate $100,000 after adjusting for cost-of-living.

CITY SALARY
New York $205,426
San Francisco $179,034
Los Angeles $156,106
San Diego $149,384
Washington, D.C. $141,894
Boston $137,649
Chicago $126,929
Seattle $117,037
Atlanta $102,805
Denver $102,348
Cleveland $101,986
Milwaukee $101,478
Phoenix $97,976
Dallas $93,665
Charlotte $92,991
Houston $88,977


Source: Economist Scott Moody on behalf of the Tax Foundation, using 2005 data from ACCRA. Not included are the effects of taxes and inflation, which can further alter the true value of a 6-figure salary. Not included are the effects of taxes and inflation, which can further alter the true value of a 6-figure salary.

Near & Dear Financiers: The Upside of Private Loans

From Business Week's SmallBiz Insert in Summer of 2006. Link

When it comes to financing a startup, family and friends may be not only a relatively approachable source of money but also the cheapest.

CircleLending, a company in Cambridge, Mass., that formalizes and manages private loan agreements between entrepreneurs and their friends and family, compiles its CircleLending Business Loan Index to track the going rate on personal loans to entrepreneurs. (For a review of the company's guide to raising friends-and-family money, see page 86.) In April, the average interest rate friends and family charged entrepreneurs was 7.62%. That's less than the 8.01% the Federal Reserve Board says is the average for commercial and industrial bank loans of less than $100,000. And it's a lot less than double-digit credit-card rates, another popular source of early stage financing for budding entrepreneurs.

It helps, of course, that friends-and-family investors aren't out solely to make a profit. "There's a motivation to help and be a part of a success," says CircleLending President Asheesh Advani. After all, you always knew you could count on Mom and Dad.

Absinthe: Fact vs Fiction

Absinthe: Fact or Fiction

From Wall Street Journal

Absinthe, that Belle Epoque-making drink, was indulged by rich and poor alike in France. But the artsy avant-garde most noisily embraced it. Bohemian poets like Verlaine and Rimbaud, Impressionist painters such as Van Gogh and Gauguin: All celebrated the drink as an aid to creativity. Absinthe was "the green fairy," a muse in a bottle. It also helped that it was cheap, so starving artists didn't have to be thirsty artists, too.

The false promise of absinthe inspiration has long fueled the underground appeal of the drink -- not unlike the lure of heroin to a generation of jazz musicians who assumed smack would help them play like Charlie Parker. But others are attracted by the self-destructiveness of it all -- Van Gogh hacked his ear off while deep in his absinthe cups. And probably the biggest factor in the enduring mystique has been absinthe's quasi-illicit status.

Though it is illegal to sell or import absinthe into the U.S., the drink is not a controlled substance. I asked a Drug Enforcement Agency spokeswoman about absinthe and she said, with a laugh, "We don't have a dog in that fight." At issue is a chemical found in wormwood -- thujone -- long thought to be the reason for absinthe's reputation as a ticket to the asylum. The chemical is banned under Food and Drug Administration regulations, but FDA spokesman Mike Herndon says that his agency has no say in the regulation of alcoholic beverages. Yet ask the Bureau of Alcohol, Tobacco and Firearms why it won't allow absinthe into the U.S., and it says it is simply enforcing the FDA's ban on thujone.

Is thujone dangerous? Recent research suggests that the chemical cuts the brain's brake lines, leading to runaway synapses. But the amount of thujone in absinthe isn't nearly enough to account for the lurid descriptions of "absinthism" common a century ago. "A large drink of absinthe will produce insensibility, convulsions, ...trembling hands, arms and legs, intense thirst, tingling in the ears, illusions of sight and hearing," an Agriculture Department official told the New York Herald in 1907.

If U.S. rules against absinthe are obscure, the laws on the Continent have not been. France banned the national drink in 1915 in an effort to sober up its absinthe-besotted army. In 1910, Switzerland wrote an explicit absinthe ban into its constitution after a farmer, violently drunk on absinthe and other spirits, murdered his wife and children (including an infant). For decades absinthe was fodder for constitutional law classes in Switzerland -- the leading example of how their constitution had become bogged down with specifics better suited to statutes. When Switzerland finally undid its ban (the change went into effect in 2004) it was because of an overhaul of the constitution, not any political groundswell from absintheurs.

Quote: You Don't Cure a Stabbing by Removing the Knife

"But even if you could prove (that the war) was a mistake in every way, to say that it never should have happened is not a good argument for abandoning the project. If a man is stabbed in the chest, you don’t cure him by simply yanking the knife out."

- Jonah Goldberg
August 26, 2005
The National Review