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Ceteris Paribus

Posted by Larry Doyle on February 26, 2009 2:01 PM |

Economic and budgetary analysis by their very nature often employ a “ceteris paribus” approach or similarly base line assumptions. Ceteris paribus, translated as “all other things being equal,” or base line assumptions are necessary given the fact that economic analysis has so many variables. Well, let me share with you that ceteris are NEVER paribus and base line assumptions are almost always skewed to bias the results in a desired direction.

***UPDATE: I was not aware at the time of my writing but it is reported that the Obama administration is projecting  the economy will grow at a 3.2% GDP in 2010. That assumption is wildly optimistic. No respected economist would project that figure. Consensus has it in the 1.5-2% range. What does this mean? Well, lower growth means lower revenues, means higher deficits, means greater funding needs, means more borrowing, means higher government interest rates, means more “crowding out”, means slower growth for the economy going forward!!  

There was little doubt about President Obama’s social agenda and economic platform during his campaign. While markets will somewhat discount campaign rhetoric, they do not discount economic reality. The markets are sending a strong signal that Obama’s economic proposals and proposed budget are anything but pro-growth.  Obama Delivers $3.6 Trillion Budget Blueprint runs the risk of raising taxes at a time of economic distress. Raising taxes was a prime factor that increased the economic malaise in the 1930s. Obama is willing to take that risk as he sticks to his campaign plan and is pressured by the liberal wing of the Democratic Party.

We know that housing lies at the core of our economic crisis.  Decreasing a mortgage interest deduction as proposed to fund his health care proposal will only serve to put further pressure on a large part of our nation’s housing market.  I thought we were trying to stabilize housing.

Proposing a decrease in the deduction for charitable giving by the top 2% is not going to help increase — let alone hold — the level of giving when it is most badly needed. (Joe Biden needn’t worry about this given he has averaged $350 per year in charitable giving over the last ten years!! That’s right. Those stats are in his publicly filed tax returns).  I thought we were trying to promote charitable giving.

Given that many small businesses file under the individual tax system as limited liability companies or Subchapter S corporations, Obama’s proposed tax increases will not serve to help employment.  I thought we were trying to promote job growth.

Well, I can’t say that I’m surprised by Obama aggressively putting forth his agenda, but this is the redistribution of wealth that was hotly debated during the campaign.

I strongly believe the government should not focus on tax rates but rather tax revenues. What rates generate the most revenues and then spend it accordingly.

Additionally, if one thinks his tax increases are stopping at the top 2% or only those at 250k and above, let me share with you that these changes will effect those with taxable earnings of 208k. Well, 208k vs 250k. I mean it’s close.  If you think he is stopping at that, guess again. The 2% Illusion is not reality!!

Obama is President so he writes the budget, but for every action there is a reaction and the markets are not reacting well.    

Ceteris are NEVER paribus! 

LD






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