Tag Archives: political economy

Audit Failure and a Target for Reduction in Force

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The Pentagon has failed, again, the audit of its finances. This makes seven in a row, and it calls into question how hard the relevant officers and civilians are trying, along with their level of competence.

A total of 1,700 auditors worked on the 2024 audit, which cost about $178 million.
A breakdown of the audit found that 15 of the 28 standalone financial audits received a failing grade….

Pentagon Comptroller Michael McCord:

…the Department has turned a corner in its understanding of the depth and breadth of its challenges[.]

After seven years.

As Elon Musk and Vivek Ramaswamy look around the Federal government for places to cut, and as SecDef nominee Pete Hegseth (assuming he’s confirmed, even as the Left and their Progressive-Democrats ramp up their smear campaigns) looks into the Pentagon establishment he’d be overseeing, here is a lucrative, target-rich environment to enter.

A RIF is a Reduction in Force, a move whereby the military branches occasionally winnow down their ranks of officers and enlisted that each branch deems excess to its needs. The financial types—both military and civilian—in the Pentagon’s budgeting and acquisition sections, from supervisors on down, have by their successive and apparently determined failure to perform have self-selected for RIF. Start with McCord and his disingenuosity.

The RIF shouldn’t be limited to these folks, though. To the extent they’re getting bad, or merely slow, data with which to work, Pentagon training staff (and training is at the center of the Pentagon’s mission), branch Secretaries and Chiefs of Staff, and their financial staffs should be similarly targeted, over and above the Secretaries and Chiefs themselves being fireable by the incoming President for reasons suitable to the President.

Nor should it stop there. The Combatant Commands and the supporting commands—supply, transport, personnel, and so on—need to be closely scrutinized with a view to assessing the quality and timeliness of the data they’re sending to the Pentagon. Those personnel, again both military and civilian and again regardless of rank or position in the hierarchy, need to be RIFed also.

No doubt, this will lead, if carried out with sufficient breadth and depth, to a large reduction in the personnel complement of the Pentagon and of those additional establishments.

That opens up a twofer. Many of the critics of Hegseth’s nomination stew openly about his lack of experience in leading so large an organization as Defense. One approach for dealing with that is to shrink Defense. These RIFs would go a long way in that direction.

Stop Treating These in Isolation

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Richard Rubin thinks he has an approach to Republicans’ desire to cut taxes:

To pass a bill without Democrats, GOP lawmakers seek agreement on the deficit number

That’s the subheadline for his article. He then opens his piece with this:

As Republicans prepare the party-line tax bill at the core of their 2025 agenda, the key to everything is, simply, “The Number.”
The Number is the maximum budget deficit increase that Republicans are willing to tolerate as they extend tax cuts scheduled to expire after 2025 and advance the rest of President-elect Donald Trump’s plans. To unlock the gate to the legislative fast track that lets them sidestep Democratic objections, Republicans must agree, with virtually no defections, on The Number.

But that’s only part of the matter, and as long as Republicans—either party, come to that—insist on treating taxes in isolation, they’ll continue to fail. The plain fact is that Republicans don’t have to agree on any deficit Number; what they need to agree on instead is a Number that represents any value in the interval from zero to budget surplus.

That, of course, also would require them to agree on spending cuts that bring that overall spending down to within the expected (dynamically projected) revenues realized from the tax cuts.

There are two ways those revenues will grow on net from the from this sort of budget move. One is the well-known increase in overall economic activity that results simply from tax rate cuts. These leave more money in the hands of private economy players—individuals, households, and the businesses they own and operate. It’s been repeatedly demonstrated that those players allocate their spending far more efficiently than anything a government can achieve.

The other way revenues increase, though, is less frequently discussed, even as it’s closely related to tax cuts. This is that, with less government spending, there is less competition for the resources—labor, raw materials, finished and semi-finished products—that private enterprises need for their own operation. With that resource competition from Government greatly reduced, the prices for those resources come down, and private businesses can more easily and cheaply acquire what they need. Private enterprise competition then increases and overall economic activity increases, overlaying the increase from simply reducing taxes, and a positive feedback loop develops among increasing production, lowering prices, increasing private demand, increasing employment, and increasing innovation. And net increasing revenues to Government.

Those two outcomes achieve one other item of critical economic, and political, and security importance. It provides an opportunity to commit those budget surpluses to paying down our national debt.

Of course, the Progressive-Democratic Party is going to quibble over any spending cut and tax cut, all the while objecting to either altogether, so to get these done even temporarily, Republicans will have to do them through legislative reconciliation.

That, in turn—both the taxing and the spending reductions—will require the Republicans’ Chaos Caucus to leave off their ego-driven their-way-or-nothing-at-all obstructionism and agree to compromises that move things in their direction, even if not everything all at once.

And get Republicans like Senator James Lankford (R, OK) to shape up or at least stay out of the way. According to him:

We’re not going to have something that’s going to have zero deficit impact. That’s not going to happen[.]

On that score, the Chaos Caucus is right. There need to be spending cuts to achieve outright deficit elimination and actual surplus.

Gaslighting and Misapprehension

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The People’s Republic of China’s solar panel production industry is running into a glut problem that is seriously depressing prices, to the point that in the current shakeout, many of the PRC-domiciled companies may not survive.

One place where panel prices remain elevated is the United States (thank you, Federal regulations and continued dependence on overseas component supplies), and one PRC-domiciled company that’s likely to survive is LONGi Green Energy Technology Co, Ltd, headquartered in Xi’an, the provincial capital of Shaanxi. In an effort to get around US strictures on PRC companies, LONGi has become a 49% owner of the joint venture (with Invenergy, headquartered in Chicago) of Illuminate USA, and the venture has opened a factory in Pataskala, OH.

The good folks of Pataskala are concerned about LONGi’s connections with the Chinese Communist Party, and Congresswoman Carol Miller (R, WV) has proposed more general legislation that would seek to prevent PRC companies from getting clean-energy subsidies.

Naturally, Zhong Baoshen, LONGi’s Chairman, objects, and herein lies the gaslighting. He insists that LONGi is a private company, and he then tries to distract by pointing out that Illuminate USA is a private company.

That fact is, there is no such thing as a private company in the PRC. Under that nation’s 2017 National Intelligence law, all PRC-domiciled companies are at the beck of the government’s intelligence community to use all of a company’s resources to conduct espionage whenever and targeting whatever the intelligence community decides it wants.

That leads to the misapprehension: too many entities—private companies in the US, politicians at all of the several US governmental hierarchies—actually believe that blandishment that private PRC companies really are private and have no connection whatsoever with any arm of the PRC government.

A Union Win and a Business Loss

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The International Association of Machinists and Aerospace Workers union ratified the contract its managers lately extracted from Boeing.

The union got

• 38% wage increase over the next four years for its members
• $12,000 ratification payment for each of its members
• guaranteed annual bonuses for each member ranging from a minimum of 4% to as high as 6% (the guaranteed nature defeats the purpose of bonuses, and converts the payments to an annual Christmas present)
• 401(k) Boeing match of 100% of each member’s first 8% of pay plus an automatic 4% Boeing contribution
• requirement for Boeing to build its next airplane in the union shops of the Seattle area

What did Boeing get in return? The company gets to restart its commercial aircraft production in the Seattle area, and so to survive.

That’s one outcome of the legalized extortion that is union strikes.

Economies, Culture, Regulation

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Greg Ip had a piece in Thursday’s Wall Street Journal touting the strength of our economy, especially in comparison with the European Union’s continental economy. Among other points, he had this regarding the difference between our economy and the EU’s, and this is what I want to focus on in this post.

More important is the role of technology. No EU company worth more than 100 billion euros, equivalent to $108 billion, “has been set up from scratch in the last 50 years,” while all six US companies worth more than $1.08 trillion were created in this period, Draghi said. America’s companies are also faster to adopt technology such as artificial intelligence, which explains much higher productivity in professional services, finance, insurance, and information technology services.

Ip missed, though, that that difference is from a combination of things that are not economic, but things that make an economy more or less capable, that make rapid technological advances possible. Those things are culture and the regulatory environment that puts bounds on what economic players are allowed or required to do.

Our economy has, until relatively recently, players much more willing to run risks and accept mistakes and failures on the way to grand success. That risk-taking runs the gamut from guys like Elon Musk (an outlier, to be sure, but he’s not that far extreme, except in the venues in which he’s chosen to operate) to heads of families striking out, many even before they have families to head, to start their own businesses, risking everything they have just to get started.

The EU has no one willing to run the risks an Elon Musk does. Even the Fiat acquisition of Chrysler was achieved less by a risk-taking entrepreneur leading Fiat than it was an acquisition supported, indirectly, by the US government and EU regulations, since the combined company would be governed by EU rules. Neither do EU individual families start new businesses at anything close to the rate American families do: they’re much more used to government presence in their lives and to reliance on government for their business success.

The EU’s regulatory environment is much more restrictive than ours, as well, for all the recent explosion of regulations governing our business behavior.  EU’s more socialist-in-effect governance that tends to cap performance so the laggards—for whatever reason they lag, good or ill—can keep up. EU regulations are especially restrictive regarding areas that our nation would consider competition and the outcomes of competition.

Gains from a willingness, or government limits on willingness, to run risks aren’t as available to EU economic actors the way they are here.