Tag Archives: markets

Trump, Boudreaux, and Trade

Posted on by
Reply

Don Boudreaux, at Cafe Hayek, recently took issue with President-Elect Donald Trump on the question of trade.  While there’s much about which to argue with Trump about his potential trade policies, here I must take issue with Boudreaux.  Boudreaux argued that a Trump remark in a PBS interview about the EU beating [his emphasis] the US in trade demonstrates Trump’s ignorance of trade matters.

I suggest that Boudreaux has demonstrated his lack of understanding of what Trump believes it means to be beaten in trade.  Boudreaux based his argument on a free market environment in which I have bags of peanuts, you have pears, the two of us agree on an exchange, and thus

If I accept, then we trade.  You gain; I gain.  We both gain.  No one “beat” the other.

Of course.  There’s no reason to believe Trump doesn’t understand that; he’s too successful a businessman.

Boudreaux then threw in a complication: Jones, who’s now nearby with his own supply of bags of peanuts.  You are then able to do a better (in some sense) deal with me to get more of my peanuts for the same number of your pears or to get the same number of my peanuts for fewer of your pears.

[B]oth you and I gain.  No one gets “beat.”  Each of us, to use Trumpian language, is “a winner.”

Again, of course.  We’re both still better off than had we not done the deal; competition just changed the degree of “better off.”  Again, there’s no reason to believe Trump doesn’t understand that; he’s too successful a businessman.

But this isn’t the sort of thing Trump is talking about when he decries existing trade deals (not trade, and not multi-party trade).

Here’s another scenario that Boudreaux omitted from his vignettes.  You and I have our supplies of peanuts and pears for trade, and Jones has his peanut supply to trade, just as before.  This time, though, Jones offers his peanuts below his cost of getting them.  Further, he does this, not because he’s offering a temporary loss leader to introduce himself to a new customer or to a new market, but because he has a Sugar Momma who’ll make good his losses for as long as it suits her and for her own reasons.  Now you do your deal with Jones, or you divide your custom between Jones and me, for many fewer pears or for many more peanuts than would be the case without this nonmarket intervention.  Instead, the terms are driven by Jones’ artificially low, subsidized price.

You and I both are beaten in this arrangement.  I lose immediately because I don’t get the price for my peanuts I might have gotten in a fair negotiation; the price I am able to get—if I can trade at all—is governed by Jones’ subsidized price.  You lose later because after you’ve become accustomed to those low prices, something changes in Jones’ environment (perhaps his Sugar Momma no longer can afford her subsidizing Jones), his price suddenly rises, and you must deal with that price shock to your trading.

Given Trump’s repeated (if under-reported) emphasis on fair trade deals, good trade deals, this would seem to be what Trump means by being beaten by the EU, by China, etc.

It’s puzzling that Boudreaux doesn’t understand that. He’s too good an economist.

Government-Mandated Fuel Standards

Posted on by
Reply

This post comes from one of The Wall Street Journal‘s earlier debate/point-counterpoint pieces.

Carol Lee Rawn, who runs the Transportation Program at Ceres, made her argument in favor of this Government intervention into the free market (many of you can guess my position on fuel standards set by Government rather than by market).

First, the standards benefit consumers and the economy. The standards set different mileage goals for different sizes of cars and trucks.

Umm, no.  The cars and trucks start out with differences in their intrinsic mileages; the standards don’t affect those differences in any qualitative way.  What they do, though, is run up the costs of all cars and trucks, reducing the ability of consumers to buy them in the first place.

Second, to remain competitive, the Big Three auto makers of Detroit must offer more fuel-efficient vehicles. During the last global spike in oil prices (when fuel-efficiency standards had essentially stagnated for years), the Detroit Three found themselves overinvested in gas-guzzling vehicles they couldn’t sell.

Couple things on this.  First, to remain competitive, the Big Three—and the others in our auto industry—have to make cars and trucks that folks want to buy and drive, not what Government will permit them to choose from.

The second thing points up the interlocking nature of a modern economy; individual factors cannot be taken in isolation from each other.  Were Government to get out of the way of the energy production industry, its departure would couple with the vasty seas of oil and natural gas right here in North America and the production thereof, and this would vastly reduce the likelihood of another spike, global or otherwise, in oil prices.  Which would render this factor a straw man.

Third, maintaining strong fuel-efficiency standards locks in growth for innovative suppliers to the auto industry.

This is just more of Government determining who will be allowed to succeed and who will be required to fail in our economy.  Furthermore, these suppliers have no more inherent right to exist than did buggy whip suppliers who’d innovated to provide bigger, better, more flexible whips.  Like those whip suppliers, who moved on to provide horns and gas pedals and etc to the automobile manufacturers that overwhelmed the buggy manufacturing industry, these suppliers can, in a free market, prosper just fine by moving on to supply other items to a reviving auto industry.

The bottom line: making great vehicles that go farther on every gallon of fuel is good for the auto industry and good for America.

No, the bottom line is letting Americans decide for themselves what’s good for them.  Vehicles that go farther on every gallon of fuel are part of that.  So are vehicles that last longer.  So are vehicles with better entertainment systems for the passengers.  Most importantly, so are vehicles made to American buyers’ wants and needs, not to Government specs.  Government has no legitimate role in dictating to us what our choices must be.

A Market Prediction

Posted on by
Reply

Because hubris—I has it.

In an article on the future relationship of Central Banks with economies and markets, The Wall Street Journal had this datum tossed in:

…shares in the S&P 500 are currently trading at 17 times the earnings they are expected to generate during the next year, compared with a 10-year average of 14.4[.]

That’s not a very large premium; all this P/E ratio means is that, in the coming year, stock market growth will be slower than in the last couple of years (recall that I’ve written, too, about the disconnect between the stock market and the underlying economy in the last few years).  Prices will slow their rise as earnings catch up; prices won’t fall back toward earnings.

It takes a P/E above 20 for the markets to begin to approach drops in prices longer than day to day or week to week micro-corrections—otherwise recognized as noise.

Disclaimer for the legalists among you: I am not a registered or licensed advisor of any sort, nor do I play one on the radio.

Obamacare Subsidies

Posted on by
Reply

In a case involving Federal government payments to Obamacare insurers to “reimburse” them for health coverage plan discounts the government requires those insurers to provide low-income plan buyers, a Federal district court judge in the United States District Court for the District of Columbia (which gives the judge’s ruling nationwide jurisdiction) ruled those payments to be unconstitutional—the payments had been being made even though no funds had been appropriated for the purpose by Congress.

Following President-Elect Donald Trump’s election, an appeal of the ruling to the DC Circuit has been HIAed at the request of the House of Representatives, one of the litigants in the original case at trial.  The pause was requested—and granted—to give the incoming Trump administration time to set up its own actions regarding Obamacare and so render the present case moot.

Now two DC lawyers have filed an “emergency” motion on behalf of two California citizens (can you say, “Yay! Fees!” boys and girls?) to get the appellate court to actively settle the matter, in so far as an intermediate appellate court can settle anything.  The California citizens’ argument, through these lawyers goes something like this:

suspending the litigation until during the power transition would essentially allow the lower-court injunction against the Obamacare subsidies to stand. They say they expect that a Trump-led Justice Department would either dismiss the Obama administration’s appeal or strike a settlement with Republicans allowing the injunction to take effect at some later date.

Litigants are allowed to do that, and it’s irrelevant to the matter at hand.  This case, of the question of constitutionality of the reimbursements, has nothing intrinsic in it concerning the right of litigants to it to ask for a pause pending nearby government action that would render the case irrelevant, nor is there anything present that would prevent a court from granting that pause based on that same nearby pending action.  Indeed, the court would be wasting its time arriving at a ruling when that ruling would soon become irrelevant.

The citizens’ argument continues:

Either way…the effect would be “devastating consequences for the individuals who receive these reductions, as well as for the Nation’s health insurance and health care systems generally.”
…without those payments to help offset deductibles and out-of-pocket costs, more insurers likely would drop their participation on the marketplaces. The exchanges, a centerpiece of the health law, would further wither.

That’s certainly a worthy discussion to have, and the nation has been discussing it for the last six years.  However, it’s a purely political discussion, and it has no place at all in a court.  This argument has no bearing on the case before the DC district or appellate court, and it has no bearing on the Circuit’s decision to hold the appeal in abeyance pending Trump administration action (or inaction).

The citizens also raised this item:

The enrollees essentially argue that if they were allowed to intervene and were to succeed in overturning the injunction against the subsidies, Republicans could no longer say their hands are tied by a court order.

That there is a true fact.  And it’s just as irrelevant as the citizens’ foregoing arguments.  The discussion and the question of whether the subsidies ought to be made are political ones, not legal ones, and so the discussion and associated debates are the exclusive province of the political branches of government: the Congress, ultimately in conjunction with the President.  Whose hands are tied and by what is not a question for a court of law.  Full stop.

A Redistribution

Posted on by
Reply

Erik Cafarella had a Letter to the Editor in Friday’s The Wall Street Journal in which he took notice of the added costs of ethanol mandates for our gasoline fuels.  The headline of his letter suggested that ethanol should be required to compete in a free market rather than be given a free ride via government mandate.

I offer a redistribution alternative that Progressives and their Democrat cronies should love.

Tax ethanol-laced gasoline, in that competitive market, at a higher rate than unadulterated gasoline.  Then send the extra tax money to the poor, whose food costs are elevated by the Federal mandate to produce ethanol.

How could a Progressive or Democrat deny our poor this boon?