April 30, 2011

Econ Quotes of the Day (043011, Morning)

Filed under: Economy,Quotes, Etc. of the Day,Taxes & Government — Tom @ 9:40 am

“Companies that are very profitable (are) still behaving
as if bankruptcy is around the corner.”

– From “General Comments from Members of the Survey Panel”
in the latest Chicago Purchasing Managers report (HT Zero Hedge)

The report came in with a still-strong expansionary seasonally adjusted number of 67.6, down from 70.6 the previous month (anything above 50 indicates expansion).

The quote shows you the kind of behavior pervasive, government-driven business uncertainty induces. It certainly doesn’t bode well for the kind of employment expansion which would signal a legitimate job-market recovery.


“Maybe to someone in the upper incomes it doesn’t matter what the price of a pound of bacon is, or what the price of a ham, or the price of a pound of pork chops is,” he says. “But for many of the customers we sell to, it really does matter.” Workers can share cars when the price of oil rises, he quips, but “you can’t share your food.”

C. Larry Pope, CEO of Smithfield, the world’s largest pork producer, quoted
in Saturday’s Wall Street Journal

Other items in Mary Kissel’s report:

  • Kissel writes, while quoting Pope, that “Over the last several years, ‘the cost of corn has gone from a base of $2.40 a bushel to today at $7.40 a bushel, nearly triple what it was just a few years ago.’ Which means every product that uses corn has risen, too—including everything from ‘cereal to soft drinks” and more.”
  • Kissel writes that “Now food price inflation is popping up across the country. A pound of sliced bacon costs $4.54 today versus $3.59 two years ago and $3.16 a decade ago, according to the Bureau of Labor Statistics. Ground beef is $2.72, up from $2.27 in 2009 and $1.74 in 2001. And it’s not just Smithfield’s products …”
  • Pope asserts, “The hog farmer . . . is in jeopardy of simply going out of business ’cause he doesn’t have the cash liquidity to even pay for the corn to pay for the input to raise the hog. It’s a dynamic that we can’t sustain.”

Much of the problem can be traced directly back to ethanol, which George W. Bush sadly championed and Barack Obama apparently still favors despite the havoc it has wreaked on food prices.


“I’m the Anti-Christie.”

– Connecticut Governor Dannel Malloy, quoted
by NBC Connecticut

Unlike New Jersey Governor Chris Christie, Malloy certainly is anti-taxpayer, as a Wall Street Journal editorial shows today (bolds are mine):

The Yankee Institute, a free market think tank, counts some two dozen new taxes in Mr. Malloy’s budget. He would raise taxes on cigarettes, gasoline, Internet sales, drugs, booze and wealthy estates. Property tax bills would climb by $500 for the average homeowner.

… For anyone who thinks income tax hikes are the financial salvation of states, Connecticut’s history is instructive. Governor Lowell Weicker sold an income tax in 1991 as a one-time reform that would keep sales and property taxes low. Instead, a state that paid its bills for 200 years without an income tax and had become one of the richest states in per capita income is now raising income taxes for the fourth time in 20 years.

This is what always happens when a state introduces an income tax: A gusher of new revenue leads to higher spending, which leads the politicians to demand higher rates; rinse the taxpayers and repeat.

Two points:

  1. Connecticut’s calamity has been a bipartisan fiasco. As noted here in 2007, Republican Governor Jodi Rell pushed for tax increases rather than face up to the state’s structural problems.
  2. What the Journal described is exactly what happened in Ohio for over 30 years until 2005, when Bob Taft (of all people) put in income-tax cuts. Fortunately, current Buckeye State governor John Kasich insists on solving the $8 billion deficit Ted Strickland dumped on him without tax increases. Despite what “the anti-Christie” claims, it can be done.


  1. I would argue that the initial rise in food prices was *entirely* due to the ethanol mandate. Of course, since then we’ve had a bunch of other crap occur to make it worse, but initially it was all because of that idiotic mandate.

    Not saying you’re wrong, but I really don’t remember Bush speaking on ethanol that much. He might have given it minor lip service here and there, but I don’t really recall him championing it. Yes, the bill that mandated it’s use was passed under him, but that was when the Dems controlled Congress and there was nothing Bush could have really done about it, a veto would have been overruled. But if I am wrong, please correct me.

    On the last item, I could have seen that coming. There isn’t anything governments enjoy more than spending our money, if you give them more than they will want more. An income tax is like giving a raw steak in front of a bulldog, you’re just sharpening their appetite rather then sating it.

    Comment by zf — April 30, 2011 @ 11:42 am

  2. #1, I was trying to keep from excerpting excessively. Here’s what Pope says in the article:

    What triggered the upswing? In part: ethanol. President George W. Bush “came forward with—what do you call?—the edict that we were going to mandate 36 billion gallons of alternative fuels” by 2022, of which corn-based ethanol is “a substantial part.” Companies that blend ethanol into fuel get a $5 billion annual tax credit, and there’s a tariff to keep foreign producers out of the U.S. market. Now 40% of the corn crop is “directed to ethanol, which equals the amount that’s going into livestock food,” Mr. Pope calculates.

    Since it’s from a “Pope,” we should believe it. (haha)

    Comment by TBlumer — April 30, 2011 @ 12:27 pm

  3. #2, my recollection is a Democrat controlled Congress passed the higher ethanol mandates.


    “Companies that are very profitable (are) still behaving as if bankruptcy is around the corner.”

    Which is why they are still in business and those who become complacent go out of business.

    Comment by dscott — April 30, 2011 @ 12:55 pm

  4. Maybe some people haven’t noticed lately with all these distractions, but the DOW is up to 12,800+, we are only 1,200 some points away from the high before the debacle began. Lest this be spun as the economy is doing better, with gold at over 1,550 troy ounce, oil over $113/barrel and the Dollar plummeting in value during the same period, it’s inflation NOT increased economic activity.

    While I’m happy my 401k has recovered in DOLLARS, it has not recovered in value.

    Comment by dscott — April 30, 2011 @ 7:39 pm

  5. #2, since you mentioned the oil company ethanol tax credit: Is this what Obama means when he rails against the Oil companies getting tax credits, because if so, I for one would heartly agree with him and demand Congress immediately revoke it. Obama should have no problem getting rid of tax credits for oil companies, right? I mean he’s campaigning on it? An excellent opportunity to end the ethanol scam that is costing the tax payer billions a year with zero benefits and polluting the air to boot.

    Comment by dscott — April 30, 2011 @ 7:58 pm

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