I didn’t comment yesterday on the BEA’s preliminary report on U. S. gross domestic product for the first quarter of 2014 which was flat. Here are Megan McArdle’s observations:

No, despite the caveats, the fact remains that we seem to be stuck. Six years after the financial crisis, we still haven’t entered anything that could really be called a “recovery.” A recovery would mean some sort of catch-up growth that reabsorbed stranded workers and capital. Instead, we’re barely limping forward, and the most cheerful thing we can say about any of it is that at least we’re no longer falling back.

The reason I didn’t comment is that I don’t much care about GDP. As far as I’m concerned real GDP could be flat for the next decade and I wouldn’t care as long as the economic indicators that I do care about are rising.

Those indicators are real median household income which has declined substantially since 2009 and shows little sign of recovering and job growth which is phlegmatic at best, morally reprehensible, and disastrous for those who’ve been unemployed for so long.

Touting GDP growth (not to mention a rising stock market) in the face of persistent long-term unemployment and declining real household income is an objective endorsement of increasing income inequality. Decrying income inequality on the one hand while hailing slow but steady growth in the economy on the other is incoherent. Cognitive dissonance.

Here’s the punchline of James Taranto’s most recent column in the Wall Street Journal:

John Kerry would be a great diplomat if only the Israelis and Palestinians could be replaced by holograms.

I seem to be in a minority in this view but I don’t think that diplomacy is an individual performance activity. Viewing it as such reduces the Department of State to people standing around waiting to hold the president’s or Secretary of State’s coats while they work.

My dissatisfaction with John Kerry’s approach to diplomacy is that he appears to view himself as the President of Foreign Policy, not a constitutional role. And I long ago complained that Mr. Kerry has the appearance of a diplomat without the temperament of one. I think that’s a typical Baby Boomer error. As Tom and Dick Smothers put it, “If you get an outfit, you can be a cowboy, too.”

Harold Meyerson describes a proposed California law:

The bill now moving through the California Senate doesn’t compel CEOs and their corporate boards to either raise their employees’ wages or cut their own. It merely presents them with a choice. Those who overpay themselves and underpay their employees can continue to do so but thereby subject their company to higher taxes. Or they can diminish the discrepancy in compensation and thereby lower their company’s taxes.

The proposed legislation wouldn’t exactly plunge CEOs into poverty. It would reduce, on a sliding scale, California’s corporate taxes — currently set at 8.84 percent of net income — for any company paying its chief executive less than 100 times the pay of its median worker, and raise them, also on a sliding scale, for any company paying its CEO more. (Under the terms of the Dodd-Frank financial reform act, the Securities and Exchange Commission is required to publish the CEO-median worker pay ratio for every publicly listed company. The SEC is expected to begin this practice this year.)

Other than some technicalities I don’t know that I have an objection to California’s proposed law. I doubt it will do much. As is the case with current law it would only apply to income generated within California so it’s possible that some companies might stop doing business in California.

That might not even be necessary. Just to take one example, Apple (headquartered in Cupertino) wouldn’t even need to close its many California stores. It could just sell them to franchisees and sell its products to the distributors (or the franchisees themselves) in any state that doesn’t have such a tax.

Companies that couldn’t engage in such a subterfuge but that are cash-rich enough could buy back their stock and become private.

I also note that the Dodds-Frank provision doesn’t require the companies to include wholly-owned subsidiaries in their calculations. That would suggest another strategy: offshore more of your workforce which I presume would be thought of as an unintended adverse secondary effect.

I think the real issues at stake here are poor corporate governance and the slack labor market created by globalization. When executive compensation becomes unmoored from company performance (my impression is that’s a factor mostly but not exclusively in the financial sector), it means that the companies’ boards for whatever reason are not doing their jobs. And when a worker’s competition isn’t the guy who lives next door but somebody who lives in India it would be expected that would put downward pressure on wages.

The interesting thing is that it hasn’t put downward pressure on executive pay. I would think that large companies could hire a highly-experienced Indian CEO who’d be willing to work for a fraction of what his U. S. equivalent would. For some reason that never seems to happen.

I’d be interested in hearing others’ reactions to the proposed law.

Bruce Krasting has a very nice illustration of the difference between accounting and economics, using a $1.2 trillion discrepancy between the Social Security Trustees’ accounting of the fund’s net cash flow and the CBO’s estimate of it as an example.

I’ve just published a foreign policy-related post at Outside the Beltway:

From Der Spiegel

An article at Der Spiegel gets up my nose.

I’ve just published a foreign policy-related post at Outside the Beltway:

Choosing the Right Sports Metaphor

In concluding his Asia trip, President Obama summed it up with a metaphor from baseball which is engendering a certain amount of dismay from the punditry. I try out a few sports metaphors of my own.

The Watcher’s Council has announced its winners for last week.

Council Winners

• *First place with 3 1/3 votes! –The Right Planet – Journey to the Center of the Common Core – Pt. 1
• Second place with 2 2/3 votes –Joshuapundit–The Serpent’s Tongue – An Open Letter To Catherine Ashton, EU Policy Chief
• Third place with 1 2/3 votes –The Independent Sentinel – Agenda 21, A Plan to Take Your Land and Give It to Tortoises and Pagosa Skyrockets
• Fourth place with 1 1/3 votes –Simply Jews – The wondrous stutter of Andrew Sullivan
• Fifth place *t* with 1 vote –Bookworm Room – Sauce for the goose is sauce for the gander: a petition to denounce and condemn billionaire Tom Steyer
• Fifth place *t* with 1 vote –The Noisy Room – The Western States: A Return To Sovereignty
• Sixth place *t* with 1/3 vote –The Colossus of Rhodey – Most Laughable Attempt at Skewing the Facts of the Day
• Sixth place *t* with 1/3 vote –The Razor – The Spark In Nevada

Non-Council Winners

• First place with 3 2/3 votes!–Mark Steyn/The Spectator –The slow death of free speech submitted by The Noisy Room
• Second place with 1 2/3 votes –J.Christian Adams/PJ Media –A New, More Sinister IRS Scandal submitted by Nice Deb
• Third place *t* with 1 vote –Charles C.W. Cooke/NRO – The Problem with Cliven Bundy submitted by Liberty’s Spirit
• Third place *t* with 1 vote–Bob Owens/Bearing Arms – The Cancer, The Militia, And Cliven Bundy submitted by Joshuapundit
• Fourth place *t* with 2/3 vote–Jacobinism – Prepare For Integrism! Radical Jew Hatred & the Decolonial Shakedown submitted by Simply Jews
• Fourth place *t* with 2/3 vote–Doug Ross @ Journal –Rahm Emanuel At It Again: Chicago’s crime rate reportedly doctored to hide Democrat policy failures submitted by The Independent Sentinel
• Fourth place *t* with 2/3 vote– War Is Boring – Russia’s Fearsome New MiGs Could Be Lemons submitted by GrEaT sAtAn”S gIrLfRiEnD
• Fourth place *t* with 2/3 vote– Walt Mossberg/ReCode – Why Apple Is Like a Movie Studio submitted by The Glittering Eye
• Fourth place *t* with 2/3 vote–Daniel Schuchman/WSJ – Thomas Piketty Revives Marx for the 21st Century submitted by The Watcher
• Fourth place *t* with 2/3 vote–Hen Mazzig – An Israeli Soldier to American Jews: Wake up! submitted by Watcher
• Fifth place *t* with 1 vote–American Thinker/David Archibald–Say Goodbye To Egypt submitted by Bookworm Room
• Fifth place *t* with 1 vote–The Ron Paul Institute –Nevada Standoff a Symptom of Increasing Authoritarianism submitted by The Razor

The announcement post at the Watcher’s site is here.

Demonstrating that he still hasn’t lost his touch, I commend Mickey Kaus’s post, “A Marxist Analyst of Hillary” to your attention. Here’s the opening:

Now that we are all Marxists, we need to uncover the materialist basis of even seemingly non-economic phenomena. Take Hillary Clinton’s campaign/non-campaign for President. Is she running or not? Why won’t she say?

I think that this is something that should be repeated every time the name “Clinton” is mentioned. Here we have a woman who was the only Ivy grad among her contemporaries couldn’t pass the DC bar the first time around but who, fortuitously, was hired by Little Rock’s largest law firm as soon as Hubbie was elected governor of Arkansas. By a stroke of good fortune her first investment outing netted her a very tidy sum. Have I mentioned that her husband was governor of Arkansas? She appears to have received investment advice from Tyson Foods (headquartered in Springdale, Arkansas).

She was catapulted to national attention by her husband’s presidential run, made successful at least in part by a demonstration of public forgiveness of her husband’s many infidelities. For this she is a Champion of Feminism.

She is a woman of contradictions, to say the least.

Read the whole thing. If Mr. Kaus’s analysis is correct, there will be a lot of disappointed Democrats within just a few months time. And a mad scramble in 2016.

I heard about this story yesterday and found it interesting. Pharmaceuticals giant Pfizer which started in a storefront in New York and has been headquartered there ever since is thinking of moving its “domicile” to Britain:

U.S. pharmaceutical giant Pfizer Inc. wants to buy AstraZeneca, and not just for its pipeline of cancer drugs. Acquiring the British company would also give Pfizer shareholders welcome relief from a U.S. corporate tax rate that is among the world’s highest. Instead of paying punitive rates to return its money to the U.S., Pfizer figures it can get a better return paying $100 billion or so to buy a foreign company.

Pfizer Chairman and CEO Ian Read took pains on a Monday call with securities analysts to say that the “primary drivers” behind his merger attempt are the “improved growth prospects we see in the innovative businesses and the redundancies we can take out.” In other words, Pfizer aims for a combined firm to stake out leading positions in immunology, oncology, vaccines and chronic diseases. This is what companies always say, and it may turn out to be true, though so far AZ is resisting Pfizer’s entreaties.

But Pfizer’s presentation also noted the deal would be “structured to achieve an efficient tax structure.” Mr. Read noted the “negative impact” of the U.S. tax code, which would be “problematical” if applied to the money AstraZeneca now earns in the U.K.

That’s because the combined state-federal corporate income tax rate in the U.S. is nearly 40%, compared to the 21% rate in the U.K. Though Pfizer is a U.S. company, more than 70% of its cash—amounting to more than $35 billion—is sitting overseas. To bring it back home would expose shareholders to the punitive U.S. rate. Instead, Pfizer aims to use some of that cash pile to finance the merger, and Mr. Read also plans to domicile the new combined holding company in the U.K., though its headquarters would remain in New York.

As it works out Pfizer hasn’t paid federal corporate income taxes for several years. The real losers in this deal would appear to be New York State and New York City—the company paid a couple of hundred million in state and local taxes in 2012.

My sense is that characterizing Pfizer’s plans as an attempt at avoiding taxes is a bit of an over-simplification, particularly since they’re not paying federal taxes. I think the company has realized that they can escape both the cost of the tax and tax avoidance alike by picking up stakes. I don’t know how many people Pfizer has in its tax department (GE, for example, has more than 1,000) but I’m sure it has quite a few highly-compensated professionals.

Not only will New York lose the corporate tax revenue, it will lose jobs which in this climate might be a more serious problem.

All of this highlights the urgent need for major tax reform in the United States. How many big companies can we afford to drive away?