Category Archives: political economy

Right, But for a Different Reason

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The Wall Street Journal‘s editors’ headline and subheadline is on a reasonable track:

Punishing Banks for Regulatory Failure
Regulators want to saddle midsize banks with new capital rules.

The editors the proceed to disparage the regulators’ move, and they’re correct about that. They’re mistaken in their lede, though, and that leads them to the erroneous aspect of their disparagement:

Silicon Valley Bank failed owing to rising interest rates and lapses by regulators, not a shortage of capital.

It’s true that a shortage of capital did not cause SVB’s failure, except as the proximate outcome of the real cause of the failure, an outcome that made the failure inevitable.

SVB did run short of capital value, and that meant it couldn’t survive the rapid outflow of cash through depositor withdrawals. But rising interest rates were only the means of that capital shortfall and bank failure, not the cause. Nor were lapses by regulators—and there were some serious ones, including their lack of oversight diligence, which should have led to better enforcement of existing rules—involved in the bank’s failure.

The bank’s managers failed in their own fiscal duties, overbalancing as they did the nature of their capital holdings in the face of those rising interest rates: those managers chose not to balance the interest rate risk related to their deposits and the rates they were paying against the interest rate risk related to their capital holdings and the way rising rates were devaluing their holdings.

Those managers could see as well as any of us, and as well as their depositors, what rising rates were doing to their bank’s capital, and those managers could see as well as any of us, and as well as their depositors, the increasing risk to the bank of the decreasing interest rate spread between what the bank paid depositors and what it earned on its loans, loans the bank was increasingly unable to make in the face of those rising interest rates. And that exacerbated the impact of the bank’s decreasing capital holdings, which those managers could see as well as any of us, and as well as their depositors.

Nor did lack of overt regulator intervention have much of anything to do with SVB’s failure. Bank managers, any enterprise managers, are paid to act on their own initiative, not to wait until they’re told what to do and then, subsequently, told to go ahead and do it.

SVB’s managers were no exception to that.

This was an SVB management failure, and Regulators have no place for writing new capital rules. It’s sufficient for the market place to apply the appropriate sanctions, even if that deprives government bureaucrats of an opportunity to feel good about themselves by Doing Something.

Who Restricts What in K-12 Education?

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Cogently put by Keri Ingraham, Discovery Institute’s American Center for Transforming Education Director in her Tuesday Wall Street Journal op-ed:

[M]ost “public” schools aren’t public at all.
In most communities, children are restricted to a single assigned school based on their home address and arbitrary boundary lines. Private schools often have academic, behavioral or other admissions standards, but they don’t keep children out simply based on where they live.

There’s this bit, too:

The cost of tuition is the primary barrier to parents who want to enroll their children. Nine states—Arizona, Arkansas, Florida, Indiana, Iowa, Ohio, Oklahoma, Utah, and West Virginia—have enacted universal or near-universal school choice into law, thus the financial barrier for families to enroll their children in private schooling—whether traditional, online, hybrid or micro schools—is crumbling.

But the Left and their teacher unions coterie object to lowering those cost barriers, which would free children from the chain link fencing around cheap, but badly ineffective, public schools. It’s those schools with their heretofore captive populations, after all, where the unions hold sway and collect their vig.

The Left and those unions bleat about how a child’s education ought not be based on the child’s family’s ZIP code.

Yet here they are.

A Thought on Russia-PRC Relations

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The subheadline on a Wall Street Journal article that was centered on falling exports from the People’s Republic of China says it all regarding the growing relationship of the PRC with Russia.

Slide in outbound shipments reflects fraying trade ties with the Western world, even as exports to Russia boom

But at what cost to Russia are those exports? Russia hasn’t much with which to pay for them. The nation is short of hard currency, and its own goods are famous for their shoddiness. Russia, though, does have things of particular importance to the PRC: vast Siberian resources of oil, natural gas, coal, timber, and a variety of rare earths and ores whose extracted metals are critical for making batteries. To that end, Russia and the PRC concluded, a few short years ago, a trade treaty that has the PRC developing those fields and mines, extracting that output for PRC use alongside Russian use and in some cases for primary PRC use, and with PRC workers and their families moving into Siberia to do the work of development and extraction.

That last reveals one more item that Russia has to exchange for the PRC’s exports to it, an item of critical importance to the PRC: all that Siberian land.

And this, which subtext emphasizes the PRC’s dependency on Russia’s imports:

For China, weakening exports signal more trouble for its domestic economy….
…
July’s 14.5% drop in Chinese outbound goods shipments was sharper than the 12.4% year-over-year decline in June and outpaced the 12% decline expected by economists polled by The Wall Street Journal.
Chinese goods shipments to the US fell 23% in July compared with a year earlier. Shipments to the European Union and to the Association of Southeast Asian Nations, a group of 10 countries that includes Singapore and Indonesia, each dropped by about 21%.
Chinese shipments to Russia, a country under Western sanctions over its invasion of Ukraine, rose 52% in July from a year earlier, helped by sales of high-value goods including automobiles. For the first seven months of this year, Chinese exports to Russia soared 73% from a year earlier, even as China’s total exports have fallen 5%, data from Chinese customs show.

Thus, the dependency goes both ways, even as the PRC increasingly dominates the codependent relationship. As the West pulls back from buying goods and services from the PRC, the PRC becomes ever more dependent on Russian goods and services, especially those basic commodity goods of oil, natural gas, coal, timber, and Russian rare earths and battery-centric ores.

That growing PRC dependency makes the PRC’s land acquisitiveness even more dangerous for Russia.

A Step toward Downsizing the Federal Government

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Rightsizing is what the cool kids call it in their desperation to avoid notice, but what the House’s Republican Party’s Freedom Caucus is proposing represents a small, but needed, initial step toward downsizing our bloated Federal bureaucracy. Some of the State Department cuts being proposed include

  • State’s US Agency for Global Media would be reduced from $798 million to $734 million
  • State’s Democracy Fund and the United States Agency for International Development would be reduced from $355.7 million to $227.2 million
  • State’s US Global Health Programs would be reduced from $6.3 billion to $5.7 billion
  • State’s Global Environment Facility would be eliminated altogether, cutting $139.5 million

And so on.

In absolute terms, these are, individually, chump change cuts, for all that they represent significant reductions in each agency’s budget. They do, however, add up to $1.2 billion, including other State cuts not listed here, and so are an initial cut of 2% of the $58.5 billion 2022 State budget.

Over at the Energy Department, the Freedom Caucus is proposing elimination of the Aquatic Decarbonization and the Algae-Related Bioenergy Technologies, cutting $80 million from Energy’s 2023 $149 billion budget.

Freedom Caucus is proposing similar reductions for Agriculture.

I don’t often agree with the Freedom Caucus’ “my way or nothing” approach, but on matters regarding our nation’s morbidly obese Federal spending (and a deficit of $1.62 trillion just in the first 10 months of this fiscal year) and our resulting even more dangerously fat national debt, the Republican Party as a whole needs to stand tall on actual cuts.

Even if it means shutting down (some of) the Federal government next fall and winter. And spring. And summer. That, in itself, would result in badly needed spending cuts.

Vivek Ramaswamy’s Brief Thought on Taxation

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And my brief response. Ramaswamy has said in the past that he favors an estate tax as high as 59% on his theory that passing wealth from parents to children breeds inequality and “hereditary aristocracy.” Stipulate that’s reasonably accurate: he needs to show that he’s considered other means of preventing that aristocratic development and how those alternatives are inadequate to the task.

More importantly, though, is this underlying theory of his:

I do believe in a vision of bringing income taxes as low as possible, if one could collect it back on the back end[.]

Collect what back, exactly? The money in question belongs solely to the one who has, or had, the income. Money being retained by its owner rather tautologically leaves nothing for government to “collect back” at some later time; government has lost nothing and so has nothing to regain.