Tag Archives: political economy

Another Reason

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The Straits Times, a Singapore-based e-newspaper, has an interesting piece regarding Europe and exit taxes. The lede bullets include these two items:

  • European countries like Germany, Norway, and Belgium are increasing exit taxes to retain wealthy residents and collect revenue on unrealised capital gains
  • These taxes, levied on individuals leaving with significant assets (e.g., over €500,000 in Germany)…

The e-newspaper is of unknown provenance and reliability, at least to me, so take this with a grain of salt. The claims are entirely plausible, though, given the European nations’ broad range of taxes and high tax rates, and the states’ basic assumption that the money citizens earn is for the state to tax and not actually for the citizens to earn and remit a portion.

If the description is true, though, this is just one more reason for successful folks (not just the wealthy: Germany’s Purchasing Power Parity per capita GDP is €61,800. Those €500,000 in assets is upper middle class) to push the pace on leaving Europe before doing so gets even more financially difficult. The Soviet Union erected an Iron Curtain—literally in some places—in order to keep folks from leaving, so as to keep them working for the state. It looks like Europe is erecting a Euro Wall to keep the folks who earn money from leaving, so as to keep them earning money for the state. How long before they erect a 100% tax Euro Wall?

An Outline was Passed

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The House-Senate reconciliation bill has been passed. The bill contains a number of beneficial things and a number of suboptimal things, along with a couple of items that are no good at all (vis., a cut in real dollars on defense spending and an increase in deficit spending and so in national debt of highly dubious estimates, both in size and sign).

So now what?

President Donald Trump (R) offered to use his executive authority to limit spending beyond what’s in the Senate version of the bill, which is what the House passed last Thursday.

In the meetings, Russ Vought, Trump’s White House budget chief, also reassured lawmakers that the administration would use its authority to limit spending, according to people familiar with the conversations. Trump and his advisers have argued that Trump has the authority to refuse to spend money appropriated by Congress, a contention likely to be tested in court.

That’s nice, even if the courts uphold the specific actions (or most of them) Trump might take. At best though, these would be temporary measures, easily undone by a subsequent President.

Now what, then, are the 12 appropriations bills that the current crop of House Republicans have been promising to pass individually and on time for a couple of Congresses. The outline reconciliation bill represents ceilings on spending and tax rates, not floors, even though the Progressive-Democrats will howl that the levels are floors and so spending and tax rates still should go up.

The 12 appropriations bills are

  • Military Construction, Veterans Affairs, and Related Agencies appropriations bill
  • Defense appropriations bill
  • Homeland Security appropriations bill
  • State Department and Foreign Operations appropriations bill
  • Interior and Environment appropriations bill
  • Legislative Branch appropriations bill
  • Agriculture, Rural Development, Food and Drug Administration, and Related Agencies appropriations bill
  • Commerce, Justice, Science, and Related Agencies appropriations bill
  • Energy and Water Development appropriations bill
  • Labor, Health and Human Services, Education, and Related Agencies appropriations bill
  • Transportation, Housing and Urban Development, and Related Agencies appropriations bill
  • Financial Services and General Government appropriations bill

These are where real spending and tax rate reductions (not formally part of appropriations, but easily enough included by amendment) can—and must this time—occur. Military construction needs to be focused on facilities for housing our soldiers and on bases—new or modified—for housing more of our weapons systems and for our new weapons systems as they come on line. The VA needs no spending increases, it even could stand spending cuts. I’ve argued for its elimination altogether, and this would be a good time to do that.

State, with its more focused foreign aid spending and more tightly controlled embassies and consulates, can absorb reduced spending. After that, all of the appropriations bills, save Defense and Homeland Security, should get 10% cuts in spending across the board. Defense needs, badly, a 10% increase in real terms, and Homeland Security, given the success of the Trump administration—so far—in resecuring our borders, needs a 5% (vice Defense’s 10%) increase.

With all of that, Congress—the House especially—would have some choices to make, any of which would be to the benefit of our nation: statutorily require the vast bulk of the resulting budget surplus go specifically to Treasury to pay down our national debt, further reduce individual and corporate income tax rates and make permanent the existing temporary tax reductions, or some combination of the two.

Congressmen in both houses need now to focus the energy they spent arguing over spending and tax rate maneuvers in the runup to passing the reconciliation bill on achieving real cuts in spending and tax rates via the appropriations bills. And they need to quit dithering about it this time. Pass the bills individually and on time—no more omnibus bills, no more continuing resolutions. Achievement of this would make arguing over the debt ceiling irrelevant by making the debt ceiling itself irrelevant.

Trump could exercise his executive authority in real, proven terms: announce that he’ll veto any omnibus bills and any continuing resolution, even if it means Congress shuts down the Federal government with its failure to perform. And then do so if Congress actually does fail and cause a shutdown.

Yeah, And?

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The Federal Reserve and Treasury Department are moving to reduce the supplementary leverage ratio that big banks, and only those big banks, must maintain. The ratio is the amount of money those specifically-selected-by-government banks must maintain over and above their regular capital requirements against times of “market turmoil.” The reduction would make available much more money for those banks to lend into our economy.

Fed governor Michael Barr, once the Fed’s top bank regulator is opposed to the move. He’s cited by The Wall Street Journal as saying that the proposal would “significantly increase” the risk of a big bank failure.

To which I say, so what?

The failure of a “big” bank would be disruptive in the short term and potentially damaging to the particular bank’s creditors—depositors and others lending money to the bank—but in the intermediate- and long-term, such a failure would be net beneficial to our economy.

A big bank failure—without government bailout—would go a long way toward mitigating, even eliminating, the market distortions of an enterprise in our private economy—which is the economy outside of the government—being held as too big to fail and so guaranteed our taxpayers’ dollars being used to keep it alive, despite that lousy management having, over an extended period, brought the enterprise to that strait.

Reducing the supplementary leverage ratio also is a way of injecting more money into our economy without it being government tax money being injected. Our economy’s money supply would be increased, or not, based on sound business decision-making rather than on flawed political decision-making.

Fewer market distortions, less tolerance of bad performance in our market place, and reduced special treatments of particular businesses, would only make our market economy freer and more efficient and more prosperous for us all.

Close the Strait of Hormuz?

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Iran’s government now is threatening to close the Strait of Hormuz if the US joins its war on Israel on Israel’s side, among other things by bombing Fordow and Natanz with MOPs.

Iran certainly could, but for how long? My prediction is for a few hours to a few days, at the end of which Iran would have left no navy worthy of the name and no Arabian Gulf or Arabian Sea ports of any use to the remnants of its navy or to its commercial shipping—including is ghost tanker fleet with which it ships embargoed oil.

The reasons center on Iran’s own incapacity. It has no air assets with which to close or to keep closed the strait; it has only a supply of cruise missiles which it would have to divert from its attacks on Israel to close and keep closed the Strait, and its small navy with which to sail the strait.

That navy and the ports from which it would sally are nothing more than targets for the US Navy, which has been expanding in the region, and it would be a campaign of a matter of hours or a few days to sink the Iranian navy and destroy those ports. A few destroyers would serve to protect commercial shipping in the strait, and in the Gulf, come to that, against those cruise missiles, just as those destroyers and cruisers have done in the Gulf of Aden.

There would be sequelae to an Iranian attempt to close the strait. At the end of the campaign to reopen the strait, Iran would have limited capability to get its oil onto tankers (it would be useful for the reopening campaign also to sink such ghost tankers as happen to be in the Gulf or the nearby Arabian Sea, which would further restrict Iran’s ability to ship its embargoed oil). That would hurt the People’s Republic of China’s economy, which has been importing lots of price-discounted Iranian oil (discounts the PRC can demand since it takes 90% of Iran’s oil exports and so can demand the discounts).

Another consequence would be further reductions in Iranian (re)supplies to the Houthis.

There would be a spike in oil prices from a closure of the Strait of Hormuz, but that would be temporary, and the closure would lead, nearly inevitably, to those follow-on sequelae, which would be to the net good of the larger world.

A Useful Move

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The Senate—at least the Republicans in the Senate; the Progressive-Democratic Party’s Senators remain ensconced in their knee-jerk Nothing Republican mode—is working toward easing Corporate Average Fuel Economy requirements by eliminating the penalties associated with failing to comply with ever-increasing and increasingly impossible fuel efficiency standards. Of course there are objections, but most of them are empty.

From the news writers’ own bias:

nullifying rules that for generations have pushed automakers to churn out ever cleaner and more fuel-efficient vehicles. That technology has saved two trillion gallons of gasoline over the past 50 years, according to the journal Energy Policy.

Ignored here, as the writers cite the journal, is the fact that cost of operation—fuel costs, for instance—remain a competitive selling point, and market forces will drive fuel efficiency. That drive will occur on us average Americans‘ schedule, though, instead of by government fiat. Car companies will continue to seek competitive advantages through such techs as turbocharged engines that deliver more power, transmissions with more gears and powertrains that automatically shut off at stoplights to conserve gasoline along with a host of other pathways, including some not yet thought of, but which competitive R&D will bring out.

Other objectors include Chris Harto, a Consumer Reports policy analyst:

Automakers have proven time and time again that without strong and enforceable fuel-economy standards, many of them will leave proven, popular, and cost-effective technologies like hybrids sitting and gathering dust on the shelf[.]

Aside from the fact that simple competitive pressures in a truly free market, shorn of excessive government regulation, will push “automakers” to continue to work toward, among other things, fuel efficiency. What Harto is ignoring, though, is that his favored vehicles are sitting on the shelf because consumers don’t want them and aren’t buying them.

And this:

Consumer advocacy groups warn that the move could result in…further dependence on foreign oil sources.

This is just disingenuous. The US is the world’s largest producer of oil and a net exporter of it. What would be beneficial here would be a parallel move to deregulate oil production and refining (and exporting).

Also absent is any rationale for why we should care about gasoline savings of that magnitude. My back of the envelope estimation of how much that actually works out to is based on there being 105 million cars on the road in 1975 (those 50 years ago) and 299 million cars and now light trucks and SUVs (which burn gasoline and are much more ubiquitous than 50 years ago) on the road today. A naïve average of that is 201.5 million gasoline-burning vehicles on the road each year. 40 billion gallons of gasoline “saved” each year (those 2 trillion spread across the years) works out to 200 gallons “saved” per car per year.

To achieve that tiny savings, a ton of money has been spent on CAFE compliance rules, on building compliant and so very expensive vehicles, and on wasted money pushing those far more expensive CAFE-meeting vehicles out the factory door in order to meet the mandated manufacturer’s fleet average fuel efficiency numbers. This wastage includes, over the last several years, pushing battery cars and hybrids out the door only to sit unsold on dealer lots as us average Americans refuse to pay the enormous cost of those battery-dependent vehicles.

This is a good beginning, if the Republicans can pull it off, and the Republican caucus in the House goes along. Better would be elimination of CAFE altogether, that should be for a later day.