Tag Archives: economics

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.

Give Us Money

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Trust us to figure out something useful to do with it. In a MarketWatch article centered on auditing the rich, this bit, early in the article, jumped out at me.

The Internal Revenue Service is getting specific about how many more audits it wants to spring on rich taxpayers and businesses, as the tax collector absorbs billions of dollars in funding in order to toughen tax compliance at the top.

This is backwards, for all that it’s too typical of the way Congress works. What should have happened, and what We the People can make happen if we finally get our own backs up and elect people who’ll represent us and not lobbyists, is that Congress should have responded to the IRS’ budget item request—here, expanded audit rates—with a requirement to show Congress IRS’ plan for carrying out those audits. That plan should have been required to lay out all the gory details and not filled with glittering generalities and vague goals.

There should have been no funds appropriated, much less allocated, until that detailed plan was provided and was satisfactory to Congress. Of course, the flip side of that, is Congress should appropriate and allocate the relevant funds, if the plan was sufficient: Congress should not micromanage the thing.

But Congress didn’t, and it won’t any time soon.

Joe Biden’s Tariffs

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Progressive-Democrat President Joe Biden has raised the tariff on steel imports from The People’s Republic of China, a tariff former President Donald Trump initiated (although Trump badly diluted the effect and importance of the tariff by applying it against our allies, also). The Wall Street Journal‘s editors are in a bodice-ripping panic attack over Biden’s move.

Didn’t President Biden promise a better trade policy than his predecessor? Well, he now appears to be in a race with Donald Trump to be Protectionist in Chief. Witness his pitch for new tariffs at a campaign stop on Wednesday in Pittsburgh.

The editors’ angst also is broadly irrational (which is the nature of angst, but it’s irrational in another way, too).

Steel making is energy-intensive, and Mr Biden’s green energy agenda threatens to make US companies less competitive.

That’s also true, but it’s wholly irrelevant to the question of tariffs, which is the subject of the editors’ hysteria. The editors also seem unable to discriminate between two primary types of tariffs.

There are tariffs for protectionism, and these are dismal failures.

There are tariffs for foreign policy, and these can be dismal failures or outstanding successes, depending on the underlying policy and the moral and political courage of politicians to set serious tariffs and then strictly enforce them.

Tariffs against People’s Republic of China steel imports could, and should, fall into the latter category; the broad underlying foreign policy is one of making it supremely expensive to do any sort of business with the enemy nation.

For my money, Biden’s PRC steel tariff is just virtue-signaling as he continues to kowtow to the PRC otherwise all across the board. He needs to deepen his steel tariff and extend it across a broad and deep range of PRC exports. In parallel, he needs—and Congress needs to support him—to make it supremely expensive for American businesses to export technology-related goods and services, and to transfer intellectual property and knowledge, to the PRC.

An example of Biden’s kowtowing is his expected move to cancel

The Ambler Access Road project…that would connect a mining district in west-central Alaska to the Dalton Highway that runs through the middle of the state. The operations in the mining district could provide a steady domestic supply of copper, zinc, lead, gold, silver, and cobalt, which are strategic elements needed for manufacturing wind turbines, solar panels, transmission lines, and electric vehicle batteries.

Such a move would continue our dependence on the PRC for our own “green” energy and transportation economy.

Foreign policy tariffs will, indeed, carry domestic costs, including protectionist tariffs’ higher prices for domestically produced goods and services.

But in what fantasy world does anyone think any war—and we are in one with the PRC, no matter the lack, so far, of a kinetic aspect—is entirely bloodless for either side? And, as with any war, what are the costs—fiscal or independence of action—of our losing the present war?