I don’t suppose one is required to feel sorry for Silicon Valley’s millionaire working class economically exactly, but there is definitely something pitiable about seeing the Porsche and Mercedes stuffed into the minimum of parking associated with a 2000 sq. ft. 1950s tract house on a postage stamp lot.

California is in some respects a lot like Hell. Those condemned to reside in the Valley literally have its temperatures. And the great majority of the more favored, those cooled by balmy Pacific breezes, live like Sisyphus, in possession of real wealth, yet surrounded by conspicuously displayed examples of far greater wealth. Able to own a nice automobile, but still unable to afford a decent home.

“You’re nobody here at $10 million,” Mr. Kremen said earnestly over a glass of pinot noir at an upscale wine bar here. …

“People around here, if they have 2 or 3 million dollars, they don’t feel secure,” said David W. Hettig, an estate planner based in Menlo Park who has advised Silicon Valley’s wealthy for two decades. …

Celeste Baranski, a 49-year-old engineer with a net worth of around $5 million who lives with her husband in Menlo Park, no longer frets about tucking enough money away for college for their two children… Yet like other working-class millionaires of Silicon Valley, she harbors anxieties about her financial future.

“I don’t know how people live here on just a normal salary,” said Ms. Baranski. …

David Koblas, a computer programmer with a net worth of $5 million to $10 million, imagines what his life would be like if he left Silicon Valley. He could move to a small town like Elko, Nev., he says, and be a ski bum. Or he could move his family to the middle of the country and live like a prince in a spacious McMansion in the nicest neighborhood in town.

But Mr. Koblas, 39, lives with his wife, Michelle, and their two children in Los Altos, south of Palo Alto, where the schools are highly regarded and the housing prices are inflated accordingly. So instead of a luxury home, the family lives in a relatively modest 2,000-square-foot house — not much bigger than the average American home — and he puts in long hours at Wink, a search engine start-up founded in 2005.

“I’d be rich in Kansas City,” he said. “People would seek me out for boards. But here I’m a dime a dozen.”

Read the whole thing

5:10 video

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The sleeper awakes to find Communism gone, replaced by prosperity and plenitude.

Reuters:

A Polish man has woken up from a 19-year coma to find the Communist party no longer in power and food no longer rationed, Polish TV reports.

Railway worker Jan Grzebski, 65, fell into a coma after he was hit by a train in 1988.

“Now I see people on the streets with mobile phones and there are so many goods in the shops it makes my head spin,” he told Polish television. …

When Mr Grzebski had his accident Poland was still ruled by its last communist leader, Wojciech Jaruzelski.

“When I went into a coma there was only tea and vinegar in the shops, meat was rationed and huge petrol queues were everywhere,” Mr Grzebski said.

The following year’s elections ushered in eastern Europe’s first post-communist government.

Poland joined the Nato alliance in 1999 and the European Union in 2004.

“What amazes me today is all these people who walk around with their mobile phones and never stop moaning,” said Mr Grzebski.

“I’ve got nothing to complain about.”

Hat tip to Robert Breedlove and Toni Marcus.

Lawrence J. McQuillan and Hovannes Abramyan have done a study of the economic impact of American Tort litigation. Their conclusions are more than a little appalling.

Economists have long understood that America’s tort system acts as a serious drag on our nation’s economy. Although many excellent studies have been conducted, no single work has fully captured the true total costs, both static and dynamic, of excessive litigation.

The good news: We now have some reliable figures. The bad news: The costs are far higher than anyone imagined.

Based on our estimates, and applying the best available scholarly research, we believe America’s tort system imposes a total cost on the U.S. economy of $865 billion per year. This constitutes an annual “tort tax” of $9,827 on a family of four. It is equivalent to the total annual output of all six New England states, or the yearly sales of the entire U.S. restaurant industry.

Anything useful you could do with an extra $9827 a year?

Read the whole thing.

Joram Bauman, the world’s only standup economist, translates Greg Mankiw‘s well-known Ten Principles of Economics.

5:20 video

General Motors and Look Magazine long ago published a cartoon version of Friedrich Hayek’s Road to Serfdom, doubtless intended to counteract the efforts of the organized international Communist conspiracy to corrupt the thinking of the American workman.

Hat tip to David C. Larkin.

Milton Friedman died today at the age of 94. There is an excellent obituary by Samuel Brittan in the Financial Times.

Milton Friedman played an exceptionally prominent role in the intellectual revolution which occurred in the later years of the last century, when the 19th century “Progressive” ideals of centralized economic planning, socialism, and collectivism were finally discredited.

It is almost impossible to imagine today the uniformity of leftwing opinion on politics and economics that prevailed in Europe and the United States right up until around 1980. Paul Samuelson’s orthodox Keynesian “neoclassicism” was the bible of Economics study at US universities. But, suddenly and unexpectedly, the consensus of professional economists was perceived virtually overnight to be both impotent and wrong.

No one played a more prominent role in articulating the case for the economic advantage of Freedom over Coercion, of spontaneous order over central planning, than Milton Friedman. In both the most rigorous learned academic publications and in popular books, Milton Friedman made an irrefutable case in favor of Freedom.

I remember when his 10-part television serious Free to Choose ran on PBS. It was in a time of national malaise, when recession and high unemployment was combined with double-digit inflation. Inflation had persisted for mre than a decade. From the conventional liberal point of view, the problem was intractable. In one of the episodes of Free to Choose, Milton Friedman walked through a government monetary printing plant. As he approached the gigantic press turning out US currency, Friedman reached out and hit the red emergency STOP button. The press’s operation instantly came to a halt. Milton Friedman twinkled at the camera, and announced: “I have just stopped Inflation.” And the viewing audience understood that he was perfectly right.

He died at age 94 covered with honors for a lifetime devoted to fighting for human liberty. There should be commissioned a painting after Girodet of the Spirit of Ayn Rand Welcoming Milton Friedman Into Valhalla.

Friedman Foundation announcement.

New York Times

Wikipedia entry

Ralph Kinney Bennett played tennis with Friedman.

The Von Mises Institute doesn’t think so. Mark Brandly observes

a hamburger that cost 60¢ in 1959 would have cost $4 in 2005. If the money supply had been fixed, however, that hamburger would only cost 12¢ today. Similarly, a $20,000 car in 2005 would have cost slightly less than $3,000 in 1959. Again, without the monetary effect on prices, that car would only cost $600 today. The price of a $45,000 house in 1959 would have increased to $300,000 in 2005. With a fixed money supply, that house would cost $9,000 today.

UPI 10/20:

A University of Washington economic geologist says there is lots of crude oil left for human use.

Eric Cheney (Y ’56, Y Ph.D. ’64) said Friday in a news release that changing economics, technological advances and efforts such as recycling and substitution make the world’s mineral resources virtually infinite.

For instance, oil deposits unreachable 40 years ago can be tapped using improved technology, and oil once too costly to extract from tar sands, organic matter or coal is now worth manufacturing. Though some resources might be costlier now, they still are needed.

“The most common question I get is, ‘When are we going to run out of oil?’ The correct response is, ‘Never,'” said Cheney. “It might be a heck of a lot more expensive than it is now, but there will always be some oil available at a price, perhaps $10 to $100 a gallon.”

Cheney also said that gasoline prices today, adjusted for inflation, are about what they were in the early part of the last century. Current prices seem inordinately high, he said, because crude oil was at an extremely low price, $10 a barrel, eight years ago and now fetches around $58 a barrel.

Thomas Sowell writes:

Although socialism has long claimed to be for the poor, it has probably done more damage, on net balance, to the poor than to the rich. After all, the rich have enough money to leave the country if they think the socialists are going to do them any serious harm.

Some of our own rich have already had their money leave the country, to be sheltered from the higher taxes that limousine liberals say we should all pay. Meanwhile, the liberal media give them kudos for their selfless advocacy of higher taxes on higher income people, forgetting that these are not taxes on wealth.

Most of the people in the upper income brackets are not rich and do not have wealth sheltered offshore. They are typically working people who have finally reached their peak earning years after many years of far more modest incomes — and now see much of what they have worked for siphoned off by politicians, to the accompaniment of lofty rhetoric.

The rich have learned to adapt socialist policies to their own benefit.

Sowell also identifies the factor behind much of the astonishing rise in real estate prices in many regions of the country in recent years: artificial shortages produced by zoning and building regulations designed to preclude development.

A very different form of socialism for the rich protects their communities from even the dangers of a free market. A whole array of laws and policies prevents outsiders from buying up property near them, even when these outsiders are ready to pay prices determined by supply and demand, rather than by eminent domain.

For example, the “open space” laws that have spread across the country to protect upscale communities represent one of the biggest collectivizations of land since the days of Josef Stalin.

Upscale residents say that they have a right to protect “our community.” But not even the rich own the whole community.

They own what they paid for — their own individual property. But they get the government to collectivize the often vastly larger surrounding property, in order to keep the unwashed masses from settling near them and spoiling their views.

Moreover, they wrap themselves in the mantle of idealism while doing this and denounce the “selfishness” of those who would stoop to building homes or apartments to house others, just to make money.

Hat tip to José Guardia.

The Wall Street Journal celebrates the twenty fifth anniversary of Ronald Reagan signing the Economic Recovery Tax Act by noting the significance of the impact of Reagonomics on the US and World economies and the breadth of his philosophy’s current acceptance. Russia today has a 13% flat tax.

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…

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.

Lawrence Kudlow points out that Bush’s tax cuts have worked as promised.

Did you know that just over the past 11 quarters, dating back to the June 2003 Bush tax cuts, America has increased the size of its entire economy by 20 percent? In less than three years, the U.S. economic pie has expanded by $2.2 trillion, an output add-on that is roughly the same size as the total Chinese economy, and much larger than the total economic size of nations like India, Mexico, Ireland, and Belgium.

This is an extraordinary fact, although you may be reading it here first. Most in the mainstream media would rather tout the faults of American capitalism than sing its praises. And of course, the media will almost always discuss supply-side tax cuts in negative terms, such as big budget deficits and static revenue losses. But here’s another suppressed fact: Since the 2003 tax cuts, tax-revenue collections from the expanding economy have been surging at double-digit rates while the deficit is constantly being revised downward.

For those who bother to look, the economic power of lower-tax-rate incentives is once again working its magic. While most reporters obsess about a mild slowdown in housing, the big-bang story is a high-sizzle pick-up in private business investment, which is directly traceable to Bush’s tax reform.