Good morning, all. The first Friday of the month without the employment report is like, well, a day without orange juice. Here's your morning reading. Wash it down with whatever you'd like, and have a great weekend.
Happy anniversary, now go away
Yesterday was the 100-year anniversary of the U.S. federal income tax, and the economics and policy research institute e21 looks at how it has grown. Prior to 1913, the U.S. got 90 percent of its revenue from excise taxes. The first attempt to pass an income tax (a 2 percent flat tax) in 1894 was declared unconstitutional. Imagine that! Two decades and three presidents later, the 16th amendment to the U.S. Constitution gave Congress the power to "lay and collect taxes on incomes, from whatever source derived." The rest, as they say, is history. Let us honor the centennial with a moment of silence.
Wishing for a "TARP moment"?
Financial markets have been a bit too complacent about the government shutdown and debt-ceiling showdown for the Obama administration's taste. It's almost as if they're hoping for a "TARP moment" like the one in September 2008, when the Dow took a 778-point, one-day dive after the House rejected the Bush Administration's bank bailout plan. Right now, the Dow is a mere 4 percent off its all-time high. Nothing like a few gut-wrenching sessions to focus lawmakers' minds. Just be careful what you wish for.
Why no taper in September?
Atlanta Fed research director Dave Altig offers his two cents, which is worth more than yours or mine because he was there. Altig says the main reason is that economic activity is slowing. Current job growth may looks pretty similar to June, when tapering was all the rage, but the momentum is slowing and revisions to prior months have been down. Inflation is still well below the Fed's 2 percent target. Real GDP growth is still hovering around 2 percent. And while tapering was specifically tied to improvement in the labor market, "there is a fairly convincing case to be made for the proposition that, with the data in hand at the time, a wait-and-see decision was what patience dictated," Altig writes. We await the release of the Fed minutes next week for further clarification.
Thrift wasn’t always a bad word
So much of what passes for today's wisdom (Keynesian economics) is incorrect. For example, how often have you heard economists say we need to spend more to "grow the economy?" (It pains me just to write that awful phrase.) We forget that wealth comes not from what we spend but what we sow. Thrift, or deferred consumption, is the means through which to increase the economy's productive potential and provide for future generations. Just think about it for a minute. If each person spent his entire paycheck at Target, where would we be as a nation? Don't answer, but read the essay on Mises.org.
Econ and rap make great bedfellows
If you like your econ 101 delivered with a throbbing beat, you'll love John Papola's and Russ Roberts' rap video, "Fear the Boom and Bust," a.k.a. Keynes v. Hayek. It's one of many produced by Econstoriestv. Reading the Mises article (above) reminded me of this terrific tutorial on the two opposing schools of economic thought that dominated the 20th century -- and the first part of the 21st. It's a personal favorite.
(Caroline Baum is a Bloomberg View columnist. Follow her on Twitter.)