Americans overcharged no longer

When George W. Bush made his plea to Congress for his grandiose tax cuts back in 2001, he stated that "The people of America have been overcharged and, on their behalf, I'm here asking for a refund." (see here for the quotation). Bush was right, in a way -- the country was earning surpluses in the federal budget, and had been for a few years. With the economy in good shape but wobbling a bit, tax cuts seemed like a decent strategy to keep the good times going.

Of course things quite turn out as planned. Over the next while, the tech bubble burst, the attacks of September 11 occurred, and two money-sucking wars were started. And all this happened while regular pork-barrel spending in Congress continued unabated. Rather than surpluses, the country was racking up record deficits (at the time -- they're even worse now, of course).

In view of the original argument about being "overcharged", then, why oh why is it considered even among Democrats a mortal sin to let these tax cuts expire on schedule? Moreover, why do most media outlets treat the issue in the same way? The Economist, as expected, weighs in on the side of keeping the cuts in this article:

Some form of extension of the cuts for most households does seem prudent. America’s economy can ill afford a big fiscal blow. A return to recession is still unlikely, but the odds of one have recently increased.

Yet earlier the same article stated the following:

The tax cuts, which were supposed to last for only ten years, had their genesis in the 2000 presidential campaign, when both Mr Bush and Al Gore, the Democratic candidate, proposed to return a portion of the then budget surplus to voters. As the economy tipped into recession in 2001, stimulus became the rationale for the cuts, and for the 2003 law that phased them in more rapidly than originally planned.

Does The Economist not see that their argument for keeping the cuts going is simply another in this long line of excuses?

I seem to recall that things were pretty good in the post-recession 1990s, even if a good chunk of that wealth was later proven to be ill-invested in bad tech. Employment increased, wealth increased, stocks increased -- everything increased, all while income taxes were set at this supposed draconian level.  The 2000s?  Not so great, even with the cuts.

Perhaps a gradual reintroduction of the old tax rates might provide less of a shock to an unsteady economy. But why isn't there anybody coming even close to advocating this sort of plan? Income taxes can't keep coming down forever if there are no other revenue streams to make up the loss. The Economist talks about a VAT like it could ever happen in the U.S. It won't. So this is the one of the few other options.

Economist apparently considers foolish gambles and massive fraud as "fun"

Only the Economist, with its article "Bigger, safer but duller", could consider the changes taking place within the hedge fund industry as a bad thing.

Formerly, hedge fund took investors' money and took it for a wild ride, leveraging it to absurd degrees and sinking it into obscure financial instruments. For those who had smart and/or lucky managers, the bets paid off big. But losers far outnumbered winners, as the numbers indicate -- hedge fund returns plummeted 19% in 2008, and are only slowly starting to recover.

The solutions, to summarize the article, are as follows. Hedge funds are much more transparent about their activities. They have also made it easier for customers to pull their money out if they deem the risk in the fund to be too high. Finally, hedge funds are offering additional, safer products for investors to sink their money into.

Yet these changes seem to disappoint the Economist, which states the following:

The increased cost of meeting the demands of institutional investors and regulators is tilting the industry towards ever-bigger firms. Investors already favour the larger, older funds, which they perceive to be safer bets. Most of the new money allocated to hedge funds in the second quarter went to those with assets over $5 billion.

The smallest hedge funds will struggle under these conditions. Some may seek to share back-office costs with larger funds in return for a cut of their profits. Others will liquidate or put themselves up for sale. The industry is already consolidating. On August 3rd, TPG-Axon, a New York fund, announced a merger with Montrica, a London outfit.

Whether this bulking-up will be good for the industry as a whole is unclear. The most glittering returns have often come from smaller, younger outfits, which are now being sidelined. Giant funds often struggle to find ways to produce outsize returns, because they are too big to move nimbly in and out of markets. Mr Druckenmiller said one reason he decided to close Duquesne was its burdensome size.

The Economist seems to idealize the old days in the same way the we have mythologized the Old West. Yet the Old West was a mean, desolate, dangerous place, and the old world of hedge funds was only better in the sense that millions of dollars were lost instead of thousands of innocent lives.

Sorry, Economist, but those free-wheeling days of yore weren't as exciting as you might like to think. Or, rather, they were exciting until all the big, risky bets caught up with everyone.