LESSONS IN ECONOMIC LITERACY

Power Line | 1/11/2018 | Staff
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Anyone remember the early 1990s when the Clinton Administration discovered to its horror that it couldn’t spend like the horny drunken sailors we know them to have been because the bond market would instantly punish the economy? James Carville famously said that if he was reincarnated, he wanted to come back to earth as the bond market. Hold that thought in mind as we survey the current economic scene a little more closely.

Liberals told us that the corporate tax cut bill was a sop to the rich, etc. Yet lots of solid economic studies found that our high corporate income tax rate had a depressing effect on workers’ wages, and that a cut in the corporate tax rate would be a boost to wages. In the immediate aftermath of the tax bill’s passage the number of big companies passing out bonuses to workers (usually $1,000) and/or raising wages is up over 30. Yesterday, citing the tax cut, Waste Management announced it will give out $2,000 bonuses to nearly 34,000 employees. And WalMart announced that it will raise its starting wage to $11 an hour, increase fringe benefits, and will give out bonuses of up to $1,000 to most employees depending on length of service. And Pepco and Washington Gas, the public utilities for the Washington DC area, say the tax cut will allow them to reduce rates for their customers. That’s more money in everyone’s pockets.

Reason - Factors - Finance - Cost - Capital—whether

This is happening for a simple reason: one of the largest factors for corporate finance is the cost of capital—whether that capital is raised through borrowing, issuing equity, or from the internal rate of return on the business’s own cash flow (and anyone who has ever taken a finance class will know how tricky doing the IRR calculation can be). And the cost of capital...
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