Category Archives: Economics

Miscellaneous economy stuff

US EVs and Critical Supply Chain Inputs

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Stephen Wilmot’s lede in his Wall Street Journal piece lays out a major outcome of the tariffs proposed by Progressive-Democratic President Joe Biden on a variety of EV inputs sourced from the People’s Republic of China.

Making cheap electric vehicles in America is getting even tougher.

And

Based on a crude calculation, the tariff increase could theoretically add roughly $1,000 to costs per standard-range Model 3—not unaffordable, but inconvenient when Tesla is desperate to remove costs wherever possible.

There are moves afoot that seek to alter that sourcing.

A response more in the spirit of US government policy would be to bring LFP [Lithium-Iron-Phosphate] battery production onshore.

And

One of the strings attached to the $7,500 tax credit available for EV purchases as part of the Inflation Reduction Act is now that no battery materials can come from a “foreign entity of concern,” a designation that includes China.

The problem with those kinds of moves, though, is that they’re woefully incomplete. The original input to those products is lithium, and the vast majority of that is mined in the PRC, and the vast majority of the lithium that is mined is refined in the PRC—including being shipped from non-PRC mines to the PRC for refining. It’s functionally the same for nickel, another major component of EV batteries (LFP batteries aren’t yet ready for prime time), the only difference is that most of the nickel is mined in PRC-owned mines in Africa.

Leave aside the idea of whether battery cars are anything other than another form of personal transportation, like the various external combustion engine-powered cars we’ve tried out over the years, or the original battery cars of a bit over 100 years ago.

The situation extends far beyond some battery inputs. Leaving ourselves dependent on an enemy nation for any of the Critical Item inputs to our economy is far more than an inconvenience, and far more expensive than just dollars spent on alternative sources. Our national security, our national freedom, depend on eliminating that dependence.

Trading with the Enemy

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A letter writer in The Wall Street Journal‘s Sunday Letters section put it succinctly regarding free global trade:

I support free global trade except with countries that cheat and steal and use slave labor.

He wrote that in the context of his decrial of the People’s Republic of China as attempting to rule all of Asia and the global economy.

The PRC’s goal is broader than that; PRC President Xi Jinping has said in so many words that his goal for the PRC is to supplant the US as the world’s sole superpower, which would give the PRC the political, economic, and military power to control our own national actions.

From that, I would add to the letter-writer’s criteria for free global trade: no trade, free or otherwise (beyond, perhaps, non-critical commodity goods), with enemy nations. That would include Russia, Iran, and northern Korea, as well as the PRC.

An aside (but not too far over): it’s common to decry northern Korea’s use of slave labor, but I submit that that is something of a misnomer. Using slave labor implies that other laborers aren’t slaves, holding their jobs—or not—voluntarily. In northern Korea, though, all of the unfortunates resident there—every single one of them—are slaves of the thugs that rule over that gang territory.

Coddling Scofflaws

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Alysia Finley has another of her cogent opinion pieces, this one centered on the failure of Progressives in the several government levels and at our colleges and universities to punish miscreants and how widespread those Leftist protections of misbehaviors are. One set of consequences of the coddling jumped out at me.

If they forget to pay other bills, the government has their backs. The Consumer Financial Protection Bureau has effectively capped all credit-card late fees at $8. The CFPB also plans to cap bank overdraft fees at a nominal amount, meaning spendthrifts needn’t worry about getting penalized for overdrawing their checking accounts. And if they don’t want to pay rent, cities including New York and Los Angeles have imposed regulations that make it prohibitively difficult to evict tenants.

Finley was writing specifically about…misbehaving…students at Columbia, but the failures generalize, as do the consequences of excusing the failures.

“Forgetting” to pay bills will have consequences with the local merchants, including the major chains, all of whose establishments are locally run.

Being “late” paying off credit card debt will lead to difficulty getting a credit card renewed and in getting another credit card: getting access to credit will be harder and more expensive. The availability for scofflaws of cards other than prepaid, and at higher rates, will become emphasized. Credit difficulty goes beyond the card, too; it’ll expand to access to mortgages and access to rent (landlords run their own credit checks), among other credit needs.

Overdrawing checking accounts as a matter of routine will lead to closed checking accounts, difficulty opening any other checking accounts, and more trouble with local merchants who will start refusing to accept checks from folks who routinely bounce them. And this: banks and merchants heretofore would treat a bounced check as a mistake rather than the kiting felony that it is, charge the fee, and everyone moved on. No more. Those who frequently bounce checks will find themselves more likely to be charged with the felony.

Making tenant eviction over nonpayment of rent will make it more difficult for renters to rent in the first place, greatly increase the initial deposits required, and reduce the amount of houses and apartments available to rent at all.

All of that, too, will increase the cost of credit and of housing for the rest of us.

Bernstein Seems Confused

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Progressive-Democrat President Joe Biden’s economic advisor Jared Bernstein seemed confused when asked by a documentarist about Modern Monetary Theory.

A lot of times, at least to my ear with MMT, the language and the concepts can be kind of unnecessarily confusing but there is no question that the government prints money and then it uses that money to um, uh … I guess I’m just, I can’t really, I don’t get it, I don’t know what they’re talking about. … It’s like, the government clearly prints money, it does it all the time, and it clearly borrows, otherwise you wouldn’t be having this debt and deficit conversation. So I don’t think there’s anything confusing there.

Maybe I can help him.

The government prints money. So far, so good. Money floating around in the economy is demand for goods and services. It doesn’t matter, so far, whether the money is private money generated by our nation’s private economy—comprised of us citizens and our businesses producing goods and services, and others of us citizens and businesses buying them—or by the government creating money by printing dollars on the government’s presses; that money is demand.

Producers create the supply of goods and services. When the exchange of those goods and services for that money substantially leaves no goods and services unsold and no money left unspent, the economy is stable. If there is more money left than goods and services to be sold, that remaining money still is demand for those goods and services.

That remaining money creates inflation: sellers of goods and services raise prices to occupy the money available, and buyers offer more of their money in order to be the ones who actually buy what’s available. This is true all the way back in the production chain to raw materials in the ground, original training for services, and the supply of workers to do the actual work at every stage in the production sequence.

When government turns on its printing presses, executing on MMT, the amount of demand rapidly and increasingly rapidly outstrips the goods and services available for exchange, and so prices charged rapidly and increasingly rapidly rise to satisfy that demand.

That’s inflation.

Bernstein again:

Again, some of this stuff gets—some of the language and concepts are just confusing. The government definitely prints money, and it definitely lends that money by selling bonds. Is that what they do? They sell bonds, yeah, they sell bonds. Right? Since they sell bonds, and people buy the bonds, and lend them the money….

Except the government isn’t lending money when it sells its bonds, it’s borrowing money, from those bond buyers. Why does the government need to borrow? Because the prices of the goods and services the government needs to operate are rapidly getting more expensive, too. If government merely printed more money, rather than borrowing, inflation would rise even faster.

The cost of borrowing—interest rates—reduces demand by increasing the cost of money itself. Rising interest rates thus tend to reduce economic activity on both the goods and services side and the demand side by making ever more expensive the process of getting the money to do the buying at those ever-rising prices. That reduced economic activity reduces the rate of price increases, reduces inflation.

Left to a free market’s own devices, the demand and supply pressures generally lead to excursions in inflation both above and below a steady state where prices and production are in rough equilibrium and so are substantially stable. Those excursions, within broad limits, are self-correcting back to equilibrium.

This is what MMT, along with those who push it, get wrong. Printing money ad lib in deliberate disregard of inflation and deficits—and borrowing needs—takes the economy’s excursions outside those broad limits, and it does so to increasing extents. The self-correcting mechanisms are short-circuited by not allowing the balance between production and supply to be maintained: supply simply cannot keep up with the presses: it takes time to increase production at every stage in production from dirt in the ground/education and training in schools through to the final good and service.

MMT, then, in the economics technical term, is a crock.

Teachers Union Audacity

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The Chicago Teachers Union wants a new contract. Among other things, CTU President Stacy Davis Gates wants salary increases of 9% per year over the next five years, through 2028. That would bring these teachers’ salaries to $144,620 per year.

Ordinary residents’ current income is $65,250 at the 50th percentile and $143,550 at the 90th percentile.

These top 10%-er wannabes aren’t producing commensurate with their current incomes, though.

…only 21% of the city’s eighth graders being proficient readers, according to the last Nation’s Report Card….

Gates again [elision in the original]:

It will cost $50 billion and three cents…. Yes it will, and so what, that’s audacity.

No, that’s teachers union greed. But since it’s negotiating with itself—formally they’ll be negotiating with Chicago’s government—it’ll get all of what it’s demanding.