Category Archives: politics

A Thought on Trade Deficits

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Set off by a post on Shrewd’m, which contains a plethora of useful discussion boards, including mechanical investing conversations.

Americans benefit from importing cheaper and/or better goods, which enhance our quality of life in myriad ways. Moreover, trade is part of a circular movement not only of goods but also of money. The US trade deficit of $918.4 billion last year was the mirror image of a $918.4 billion capital surplus, or infusion from overseas.
Sooner or later, all of the net $918.4 billion that Americans spent on foreign goods was invested in American capital assets such as stocks, real estate, bonds, or short-term assets such as Treasury bills.

That’s one of the problems with running a trade deficit, or “investment surplus,” which the poster suggested as an alternative term. It’s certainly true that in Ricardian fashion, truly free trade makes everyone financially more prosperous by letting those nations that do a few things better than others get the production trade and sell their goods to other nations in return for money or products that those other nations do better than anyone else. Financial prosperity is very good for all of us.

However, that sword has another edge, too. [A]ll of the net $918.4 billion that Americans spent…was invested in American capital assets such as stocks, real estate, bonds, or short-term assets such as Treasury bills. Not on manufacturing or on producing and processing the raw materials necessary for manufacturing in general. Especially not on manufacturing or on producing and processing the raw materials each category of which is a Critical Item for our defense establishment, our national security—our ability to secure ourselves from being dictated to by militarily superior enemies.

There were massive job losses in those manufacturing and raw materials production and processing industries, too, and those people are worse off for it, regardless of the injunction from some that these folks should learn to code.

Worse, those hard goods/raw materials producing companies have been closed long enough that we’ve lost the factories, mining, and personnel expertise central to those Items. Now, we’re dependent on other nations—including enemy nations—for raw materials like the rare earths that are specific Critical Items for our computers, communications, and weapons systems we need to maintain our freedom of action. We’re dependent on other nations—including enemy nations—for processing those rare earths and other materials (like graphite, another Critical Item) that we already produce some of for ourselves.

Our dependency on enemy nations is demonstrated by the People’s Republic of China’s restricting shipping to us rare earths and processed rare earths, both of which the PRC produces in ample quantities in response to the tariffs President Donald Trump (R) has applied to the PRC. Had we been producing and processing our own—and which we have ample quantities domestically but have chosen to leave them unmined and so have no processing capability, also—the PRC’s move would have been toothless. I’ve written about a similar situation a while ago.

Now a regionally militarily superior PRC is pressing its threats against the Republic of China and is in a position to cut the sea lines of commerce on which the Republic of Korea and Japan are utterly dependent and through which trillions of dollars of trade pass enroute to our own west coast. And we’ll soon—that cutoff of militarily critical rare earths—be helpless to stop them.

Fiscal prosperity is a Critical Item for our nation, and Ricardo was right on how to achieve that. Trade deficits, per se, are nothing about which to worry. But more so is military capability, without which we have no freedom of action and so no prosperity or even freedom. We need to redevelop our own manufacturing and raw material production and processing capability, even if we continue to source much of those outputs from overseas, and even if it’s more expensive to do so than getting them all from overseas.

The higher cost for such a domestic core production capability is part of the cost of our national freedom, and it’s far less than the cost of having our activities dictated to us by militarily superior enemies.

This would be a Mistake

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President Donald Trump (R) laid significant tariffs and tariff rates on the People’s Republic of China. The PRC’s President Xi Jinping responded with matching tariff rates, but with escalatory moves added:

…restricted exports of certain rare-earth minerals, added US companies to trade blacklists, and aimed an antitrust probe at the China operations of US chemicals and materials company DuPont.

Then the WSJ‘s news writer posited this:

What lies ahead is likely to be a cycle of tit-for-tat retaliation, making it hard to even start negotiations in the near term.

If the Trump’s purpose with the tariffs is to (re)balance trade with the PRC’s tariffs, that would be one thing—his reciprocal tariff regime. However, if his purpose is to persuade the PRC to change its overall international trade behavior, particular vis-à-vis the US, then tit-for-tat would be a foolish mistake.

Tit-for-tat only gives the other side time to adapt and maintain. What’s necessary, if Trump’s move is persuasion rather than rebalancing, is to escalate tariffs (and other economic moves) higher and faster than the PRC can respond, and that’s what Xi will attempt as demonstrated by his opening response. Simply matching Xi—as tit-for-tat does generally—is surrender to Xi the initiative in this extension of the PRC’s long-running trade war, with its cyber aspects as well, against us.

I Have a Question

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NPR has said that if Federal funding is cut off, it may well see 180 local NPR stations forced to close due lack of funding.

NPR compiled a lengthy document in 2011 that outlined what would happen if the government cut funding to the Corporation for Public Broadcasting, the government-backed company that supports both NPR and PBS….

Neither NPR nor PBS appear to have updated that claim, or the underlying data, in the 14 years since.

Which raises my question: why have NPR and/or PBS not done anything in those 14 years to shore up their finances so as to keep those stations operational?

Bonus question: given that laziness or sloppiness or deliberate dependence on Uncle Sugar, on what basis would any rational American think Federal funding continue?

Federal and State Funding for Abortion

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There is a move afoot in Congress to remove from Medicare reimbursements for abortion, and there is a case before the Supreme Court that will impact States’ ability to remove funding for abortion from Medicaid reimbursements. The removal from Medicare, should it come to fruition, would be entirely consistent with the Court’s Dobbs v Jackson Women’s Health Organization ruling, which rescinded Roe v Wade and put the abortion question entirely in the States’ hands. Now many States are attempting to act on their newly restored authority—hence the case before the Supreme Court.

It’s true enough that it’s a fraught decision for the mother to bring an unwanted pregnancy to term, but my concern here is for the life of the baby. From this, I see two boundary cases that are especially difficult.

One is where the health of the mother is at risk if the pregnancy continues. In this case, the mother’s health must be weighed extremely carefully against the life of the baby. This weighing may need to occur—must occur?—in open court, with competent, well-trained lawyers speaking for the baby.

The other is a mother’s pregnancy as a result of incest or rape. Carrying the baby to term here is an especially terrible choice for the mother—the pregnant child incest or rape victim may be too physically young to carry her baby to term, in which case, see above. Even where the victim mother can safely do so, it remains an especially terrible choice to carry inside her body a constant reminder of the monster who did this to her. Carrying the baby to term isn’t a matter of the mother’s inconvenience for nine months as some extremists on the right claim—the emotional damage to the mother from that is real, extreme, and often irrepairable.

Conventional wisdom is to permit abortion in the these narrowly defined, and not so often occurring compared to “ordinary” unwanted pregnancies, cases of incest or rape. Conventional wisdom here is not a completely bad bit of wisdom, but I remain concerned: why should the baby have to pay with its life for the crime of another? The baby needs competent, well-trained lawyers speaking for him or her in these cases, also.

It’s also true enough that, while Republicans are attempting to do more to provide fiscal support for those mothers during their pregnancies, in the period surrounding birth, and in the early years after birth (here including adoption options), they need to do better at specifically identifying those needs and then providing for them—and to do so publicly. That shortfall, though, shouldn’t be allowed to impact whether the baby is allowed to live at all.

Reviewing Harvard’s Federal Funding

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The Trump administration has begun reviewing Harvard University’s $9 billion in Federal funding. The question I have is how badly does Harvard need any Federal funding?

Harvard’s endowment is some $53.2 billion as of last year, and the school got a 9.6% return on its endowment’s investments last year. That allowed its endowment to grow by nearly 5% year-on-year despite disbursements from the endowment.

Harvard claims $6.4 million in annual operating expenses as of last year, and it spent $749 million in scholarships and its own grants for its students.

With all of that, I ask again, how badly does Harvard need Federal funding? The school’s endowment doesn’t seem to be doing much more than collecting dust, investment returns, and net growth, while the school collects billions of average citizens’ tax money for its programs. Given that, why should citizens of Iowa, or Montana, or Utah—or New York, or Illinois, or California—pay for Massachusetts-domiciled Harvard’s spending decisions?

My answer: Harvard has little to no need for taxpayer monies.