Tag Archives: political economy

A Problem of their own Making

Posted on by
Reply

In a Wall Street Journal article centered on the People’s Republic of China’s setting up trade-centric “retaliatory tools,” there’s this bit in the middle of the piece:

The rules could put US and other Western companies in a bind: they need to comply with US restrictions on trade with China and often want to reduce their reliance on Chinese production, yet such actions expose them to punishment by Beijing and even possible expulsion from the world’s most important manufacturing hub.

Of course, if those companies weren’t in the PRC in the first place, the PRC couldn’t “punish” them. They’ve had plenty of time to move their supply chains and businesses out of that nation and plenty of warning regarding the necessity of doing so.

Still, there remains no time like the present to take serious heed and get moving on those adjustments.

A Conundrum

Posted on by
Reply

A town in Massachusetts has laid it out. South Hadley had a referendum put in front of them that proposed a 50% property tax hike. Voting it down, said its pushers, would be the end of the town as residents knew it.

Override backers argued that the measures were vital to preserve schools and town services. Without a revenue infusion, officials had warned, major cuts loomed: no school sports or extracurriculars, slashed Advanced Placement classes, reduced police and public-works staffing, and more.

That “more” included slashed Advanced Placement offerings, along with hits to police and public-works staffing.

The town’s residents, though, made it clear they’ve had enough of tax increases with little to show for them but empty promises by the taxers. The referendum was voted down in no uncertain terms, 65% to 34%. The message of this defeat was clearly articulated by Rudy Ternbach, semiretired and leader of the anti-override group Alliance for Fair Taxes:

I think the results of the election show voters do not want to try and fix the government by increasing taxes on those least able to pay. They want more efficiencies in government and less taxes.

Sadly, but entirely predictably, the message was not received by Leftist tax-and-spenders. Lisa Wong, South Hadley’s Progressive-Democrat Town Manager:

“We will regroup and continue to communicate with the public on the changes ahead,” she said by text, adding that the town would also push for policy changes and greater support at the state and federal levels.

Politicians of the Progressive-Democratic Party cannot conceive of cutting spending or leaving taxes alone, much less reducing them. Efficiencies in government? Pfft. Progressive-Democrats only want to increase people’s dependency on government, if not at their own level, then further up the government’s food chain.

This is a message to the rest of us and a lesson to be heeded come November.

That’s One Spin

Posted on by
Reply

The DC Circuit Court has denied Anthropic’s appeal of a DoD decision to cut the company out of Defense contracts as a security risk to Defense supply chains. Meanwhile a Northern District of California Federal court judge has upheld Anthropic’s appeal on free speech grounds. This, of course, creates a split of sorts that, ultimately, the Supreme Court will need to resolve, unless the 9th Circuit overrules the District judge wih a ruling that substantially aligns with the DC Circuit.

What’s interesting, though, is Computer & Communications Industry Association CEO Matt Schruers’ characterization of the split.

The DC Circuit’s denial will prolong ambiguities regarding whether political considerations can drive federal procurement[.]

This is Schruers’ conclusory characterization centered on his preferred outcome. It couldn’t possibly be the California district judge’s ruling that is prolonging ambiguities.

Not Sure This Is Correct

Posted on by
Reply

James MacIntosh, writing for The Wall Street Journal, is worried about the Fed worrying too much about its last mistake regarding inflation, when it was too slow to respond to rising prices. For instance,

But there’s a fundamental difference between the new oil shock and the postpandemic boom. Inflation today, already visible in rising prices at the pumps, is driven by restricted supply as Iran cuts off oil and other shipping through the Strait of Hormuz. The 2021-22 inflation was driven by soaring demand as stimulus-rich consumers emerged from enforced hibernation during Covid lockdowns.
Central banks know how to deal with too much demand. They should have raised rates much earlier than their eventual 2022 rises to hold back borrowing and spending. Today, they can’t do anything about the hit to supply, because, as the saying goes, you can’t print oil.

The problem with this, though, is in the relationship between inflation—rising prices—and rising—”too much”—demand. Rising prices occurs because demand is rising faster than supply can rise to satisfy it; it does not occur simply from rising demand. If we want more stuff—here oil—and the production of oil exists to satisfy that rising demand, prices don’t rise; there is no inflation.

Inflation is always and only in the relationship between demand and supply; it is never in demand alone or in supply alone. The only way there can be too much demand if there’s too little supply (the other side of this is true, too: the only way there can be too little demand is if there’s too much supply, which results in falling prices—deflation). More demand than supply can satisfy and less supply than can satisfy demand are the same thing.

So, what can/should the Fed do about today’s too little supply of oil relative to the demand for it and the consequent rise in prices? Its mandate, aside from full employment, is price stability: no change in price level, or via its goal, keeping price increases to 2% inflation. The Fed’s tool for this interest rates, which is to say here, reducing demand by raising the cost of the money that is that demand. Thus: raise interest rates when that inflation gets out of hand/rises too far above that 2% in a sustained upward trend. This is wholly independent of both supply and demand individually and responsive only to the relationship between the two.

The problem here is that “out of hand,” “too far above,” and “sustained” are each individually only hazily defined criteria. My own opinion is that with employment, which is a consequence of stable prices as well as its own economic condition, close to full and stable and currently rising prices not yet out of hand or too far above 2% or on a sustained upward trend, the Fed should do nothing more than keep a watchful eye. Trying to time the market with enough precision to preempt inflation without cutting off growth is as much a fool’s errand as an individual investor’s timing with a view to precise top or bottom picking.

This also is consistent with my view that current interest rates are consistent with (if a bit lower than) interest rates that historically are associated with 2%± inflation, so there’s nothing generally that the Fed needs to do.

On Trump’s Budget Proposal

Posted on by
Reply

President Donald Trump (R) has submitted his budget proposal for the next year to Congress, and on its surface, it does little to address the current large budget deficit and its attendant borrowing on top of the current national debt. It does, though, seriously plus up defense spending, with its request for $1.5 trillion for the Departments of Defense and Homeland Security.

There are a couple of ways to think about that. One is to deal with the threat to our economy, and so to our national security, of that burgeoning debt resulting from the continuing large deficit by raising taxes (as Progressive-Democratic Party politicians demand to do, especially on those Americans of whom they so vociferously disapprove) or by cutting spending (as budget hawks in the Republican Party demand to do).

Raising taxes, though, hurts all of us, not just those Evil Rich. Taking money away from the folks who make it and put it to gainful use reduces private economy investment and innovation—things us citizens do far better than even the most well-meaning government ever can—and that drop negatively impacts business competitiveness, expansion, and jobs, each of which hurts all Americans who are not part of the Evil Rich cohort.

Cutting government spending, on the other hand, always is a very good way to help our economy since it takes government competition for resources and more direct inputs to production out of the competition among businesses for those same factors, which puts downward pressure on prices that both businesses and consumers face. The cuts do, though, reallocate lots of jobs away from politicians’ districts and toward more efficient locations for the work, with efficiency defined by the businesses themselves rather than government politicians.

The other way to think about the budget with its deficit and attendant borrowing is articulated quite clearly by Trump:

We have to take care of one thing: military protection. We have to guard the country.

Indeed. We can’t protect our economy and its health, much less reduce deficits and borrowings, if we can’t defend our nation and instead have our futures dictated to us by our enemies—as the People’s Republic of China President Xi Jinping has committed himself to doing.

The answer writes itself, as anyone to the right of the Progressive-Democratic Party can see: plus up our defense spending, cut Federal spending everywhere else, and either cut taxes further or at least leave them alone.