Category Archives: markets

Widening Gyre of Hostages

Posted on by
Reply

In response to Lithuania’s effrontery in contradicting the People’s Republic of China by letting the Republic of China open a “representative office” in the capital city of Vilnius, the PRC not only is banning import into the PRC of Lithuanian products, it’s banning import of all products that contain Lithuanian components. As The Wall Street Journal dryly put it,

The effects are rippling across Europe.

And already Germany is intimating its desire for surrender, which should come as no surprise from a nation already openly obsequious before Russia:

The German-Baltic Chamber of Commerce has warned Vilnius that German subsidiaries are at risk.

The widening gyre may well spread across the pond.

In the US, the Uyghur Forced Labor Prevention Act, which would bar goods made with forced labor in Xinjiang region from entering America, passed the House last month. If it becomes law, US companies should brace themselves.

It’s an open question whether the Progressive-Democrat running the Senate, Majority Leader Chuck Schumer (D, NY), and the President, Biden-Harris, will permit the bill to become law, or whether one of the other will join Germany as hostage and bar the law.

Elisabeth Braw concluded this in her op-ed at the link:

China’s punishment of Lithuania is a wake-up call for companies and countries alike.

Indeed.

It’s time for Europe and the US to stop doing business with the PRC altogether.

The transition will be deucedly expensive, but Europe and the US will be orders of magnitude better off not being as dependent on the PRC as the PRC’s actions are demonstrating us both to be.

That cost, and the reduction in our economic and political freedom of action, which the PRC will continue to inflict will only get far worse, the longer we delay in carrying out that transition.

In the meantime, it would do us and Lithuania, and all other nations wishing to reduce their dependency on the PRC, a world of good for us to increase our trade with Lithuania.

Blame-shifting to Middlemen

Posted on by
Reply

Now Biden-Harris is throwing a billion dollars at the food supply chain problem, even as he’s blaming food supply chain middlemen for his supply problems.

This is just more blame-shifting by Biden-Harris.

Middlemen can, indeed, price gouge. So can end-sellers. So can original producers. However, in the vast main, middlemen drive prices lower: they insulate original producers from end sellers, giving those producers more flexibility in to whom to sell, the middlemen more choices to whom to sell, and they give end sellers more choices of from whom to buy. Competition among middlemen and on both sides of the middlemen drive prices down.

And never mind the risks taken by middlemen. They don’t broker deals between original producers and final buyers; they buy from those producers, own the product, and subsequently must find buyers to whom to sell. Even if middlemen think they’ve lined up their buyers prior to purchasing from producers, many of those deals are only potential and can fall through, or the agreed future price can prove to be wildly inadequate in the realization of delivery.

Biden-Harris actually claimed with a straight face, through his unsigned “fact sheet,” that

[m]ost farmers now have little or no choice of buyer for their product and little leverage to negotiate, causing their share of every dollar spent on food to decline.

Maybe yes, maybe no. But a farmer has far more choice than if there were no middlemen to take the risk of a bumper crop driving down the price he can get on sale after harvest, or of a poor crop driving up the price he could have gotten had the crop done poorly before he committed to sell.

Biden-Harris, aside from the dishonesty of their blame-shifting, in the particular case of farm production is pretending to be ignorant of the time lags involved from crop planting to final crop delivered to the end user, and of the time lags involved from crop planting to final delivery to the livestock rancher to the end user.

If It’s a Good Idea….

Posted on by
Reply

One sub-bill in the Progressive-Democrats’ reconciliation bill would have removed a loophole that lets foreign purchasers of US real estate dodge a tax that could reach 30% on the profits generated by those holdings.

The loophole works like this:

Instead of buying a building directly, a foreign investor creates a shell company in an offshore location like the Cayman Islands.
That shell company then lends money to a US entity called a blocker corporation, which in turn buys the building. Instead of paying any profits from the building directly to the foreign investor, the blocker corporation sends interest on its loan to the offshore shell company, which then passes it on to the foreign investor. By taking this detour, the foreign investor avoids the tax on foreign real-estate owners.

It works because the blocker is a corporation domiciled in a territory that’s a US tax haven, and so those corporations avoid the tax.

There are a couple of implications from closing this loophole.

[P]roponents say it could raise billions in tax revenue.

That works for me. On the other hand,

Property owners worry it could also lead to fewer foreign purchases of US commercial real estate.

I’m having a hard time seeing any serious downside to that beyond a temporary (I say) downward pressure on real estate prices, or more likely, a slowing of increases in real estate prices, in the initial period following the closure of the loophole. After that initial period, though, the real estate market would adjust to the new regime, and real estate prices would resume their normal behavior.

If this sub-bill is a good idea—and I think it is, at least in principle—than it should be excised from that reconciliation foolishness and presented by itself in a clean, stand-alone bill. In January.

Student Loan Responsibility

Posted on by
Reply

Melissa Korn and Andrea Fuller wrote about student loan burdens in Sunday’s Wall Street Journal, using New York University as a worst-case illustration. Their subheadline made a good summary of their thesis.

By many measures, the elite Manhattan school is the worst or among the worst for leaving families and graduate students drowning in debt….

A female graduate sold her eggs to cover some of her NYU costs even as she borrowed to cover more; she’s still selling her eggs to cover expenses and try to pay on her student loan debt as she remains essentially unemployed five months after graduation. In another example, a single mother of three had a $40,000/year income when her son started school in 2018. The mother still has her own $34,000 in loans from her own bachelor’s degree and she’s borrowing another $140,000 in Parent Plus loans to help her son pursue his degree.

And this:

An NYU master’s in publishing leaves recent graduates with median debt nearly triple that of the school with the next highest loan burden for which the Education Department released data. At NYU, the graduates borrowed a median $116,000 and earned a median $42,000 two years out.

And this:

NYU’s 2015 and 2016 public-health graduates who took out federal loans borrowed a median $106,000 for the degree, the Journal’s analysis of Education Department data found; half earned roughly $61,000 or less two years after graduation.

And this deflection from NYU spokesman John Beckman:

Not everyone seeking an advanced degree is going into a lucrative field, and universities have no control over how our society values particular professions.

NYU is especially bad in this arena, but only by a matter of degree. The problem itself is both widespread and very serious.

The overall situation is one more argument for getting government all the way out of the student loan business, whether making the loans or guaranteeing them. That and the alternatives below are perfectly straightforward to implement, if exceedingly difficult to effect politically. But that just requires us sovereign citizens to put our foot down and fire the politicians who won’t go along and elect those who will.

After getting government out of the way, do these things:

  • make the schools publish the average and median 5-yr-after-graduation salaries for each of its majors
  • make the schools publish the per centages of their graduates finding employment in their major areas of study within one year of graduation
  • make the schools be the ones extending loans to their students or serve as co-borrower on any private financial institution student loans
  • let graduates discharge their loans through bankruptcy—stop disguising the risks from the lenders (and borrowers), and stop inuring the lenders from those risks.

One more Critical Item; although this is a change in mindset for all of us, not only school managers and politicians. Recognize for whom college is most appropriate. There’s a crying need for a whole lot of tradesmen, and good livings to be made there—and nothing an architect draws up or an engineer designs gets built without tradesmen. Doctors and lawyers have no place to ply their trades, other than in their homes, without tradesmen. Those homes don’t get built without tradesmen. And neither do the roads/bridges, power grids, communications grids, and on and on that connect those homes to those offices and office buildings—or mines and farms to anywhere—without those tradesmen.

Another Reason

Posted on by
Reply

…to get Government—at the Federal and at the State level—out of the way of a free market for health care and for health care coverage, which must include price transparency if there’s to be true price and quality of product/service competition. This illustration is in Boston.

An Emergency Room visit to Massachusetts General Hospital for a particular problem covered by Blue Cross Blue Shield of Massachusetts would cost the patient and his employer together nearly $950. In fairness to BCBSoM, some other providers of health coverage for the same problem at MassGen charge substantially the same total price. At Carney Hospital, just three miles away, though, the same problem with the same provider would be only a bit under $550—$400 less.

It gets more variable. An ER trip to MassGen for a patient with substantially the same problem and whose coverage was through an Aetna PPO would cost $2,170. At Carney the cost would be in the range of $550.

But never mind, Government Knows Better:

The Massachusetts Health Policy Commission…called for capping the prices of the state’s costliest hospitals.

No. Price caps provide no incentive to innovate, to improve quality, to lower prices. Secretive negotiations between health coverage providers and health providers provide no such incentives, either. Secretive pricing by health providers provides no incentives.

Competition among health coverage providers and among health providers provides those incentives because superior quality of care and lower prices are what attract customers, and open competition is what produces those outcomes. The lack is especially insidious with hospital ERs, since those “customers” are in dire straights and in no position to shop around.

Those folks (all partakers of health provision and health coverage provision, but especially prospective ER users) need to prior plan before the trip becomes necessary. That requires an ability to compare among health coverage providers and among health providers. That, in turn, requires price transparency among health coverage providers—not just for premiums charged the customer and his employer (which already are pretty visible), but the prices paid each of the hospitals in the area.

Transparency also requires hospitals to make their prices publicly available. An example of this is with Surgery Center of Oklahoma. This facility doesn’t have emergency room facilities, but their model is easily extensible to all hospital and all prompt care facilities.