Monthly Archives: May 2012

A Lack of Understanding

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Earlier this week, the Congressional Budget Office projected that if Congress fails to act [on tax policy], the U.S. economy will enter a recession next year, with a 1.3% annual rate of contraction in the first half of 2013.  It also said that if Congress extended current policy without “comparable restraint in future years,” federal debt levels would balloon, leading to negative consequences [that] include higher interest payments and less ability to use tax and spending policies to respond to economic challenges. [The CBO’s report is here.]

This is a fundamental lack of understanding—by the CBO, yet—of the role of government.

The Federal government has no business using “tax and spending policies to respond to economic challenges.”  This is nothing less than the government’s attempt to centrally manage the economy.  The Federal Reserve Bank has the goal—the responsibility—to seek price stability in our economy.  The Federal government has a responsibility to maintain a stable environment within which a free market can operate without Federal interference.  The optimal way—the only real way—for the government to achieve this is through low, and stable, tax rates that have no loopholes for special interests, and through low, and stable, spending rates that have no exceptions for special interests.  Indeed, that is the only economic challenge to which the Federal government must respond.  Moreover, answering this challenge enables the free market economy to achieve the full employment that is another claimed goal of the Fed.

And that, thereby, answers the question of what the government must do about the looming Obama tax increase.

Memorial Day Celebrations

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Enjoy this holiday.  Take the time to kick back, relax from the hard work you’ve been doing, and just goof off for a bit.

While you’re doing that, though, do something else, also.  Invite that veteran in your neighborhood, who came back from his service wounded or maimed, and his or her family, to your celebration.  Invite the family in your neighborhood whose veteran was killed in his or her service to your celebration.  They need the break and the relaxation and the support, also.  And they’ve earned your thanks.

Mt Soledad Memorial

Mojave Memorial Cross

Déjà Vu All Over Again

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This post is taken from “Economic Strategy for the Reagan Administration,” a memo summarizing studies commissioned by candidate Ronald Reagan and delivered to President-elect Reagan on mid-November 1980, as summarized in The Wall Street Journal.  The memo began

Sharp change in present economic policy is an absolute necessity.  The problems of inflation and slow growth, of falling standards of living and declining productivity, of high government spending but an inadequate flow of funds for defense, of an almost endless litany of economic ills, large and small, are severe, they are not intractable.  Having been produced by government policy, they can be redressed by a change in policy.

Aside from the high inflation of 1980, that could have been written today.  Besides, the actual inflation then is a threatened inflation today, with the Fed’s policy of deliberately depressed interest rates and rapid printing of money coupled with the administration’s prolific spending.

You have identified in the campaign the key issues and lines of policy necessary to restore hope and confidence in a better economic future:

  • Reestablish stability in the purchasing power of the dollar.
  • Achieve a widely-shared prosperity through real growth in jobs, investment, and productivity.
  • Devote the resources needed for a strong defense, and accomplish the goal of releasing the creative forces of entrepreneurship, management, and labor by:
  • Restraining government spending.
  • Reducing the burden of taxation and regulation.
  • Conducting monetary policy in a steady manner, directed toward eliminating inflation.

This amounts to emphasis on fundamentals for the full four years, as the key to a flourishing economy.

Sound like what’s needed today?

The need for a long-term point of view is essential to allow for the time, the coherence, and the predictability so necessary for success. This long-term view is as important for day-to-day problem solving as for the making of large policy decisions.

This was true then, 50 years after the start of the New Deal, a 50-year period of spendthrift policies and high taxes, and it’s even truer today, 30 years farther down that road, with this administration’s effort to raise taxes on top of its already explosive spending and debt accumulation.  It’ll take a long time, and a long-term strategy is critical, to repair the damage.

The memo went on with sound advice concerning budgeting, tax policy, regulation, energy, and monetary policy—it could have been written for delivery to President-elect Mitt Romney in mid-November 2012.  And we can certainly hope both for President-elect Mitt Romney, and that he takes this advice to heart.  The incumbent certainly has already eschewed it.

I’ll more on the Reagan memo in the coming days.

China Trade Wars and the US

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The US recently imposed a 31% antidumping tariff on Chinese solar-panel makers (“green” energy devotees object to the tariff’s impact on American “green” energy prices, but those objections are irrelevant here), and of course the Chinese demur.

But we have to keep in mind the context within which the People’s Republic of China is engaging in the behaviors that required the tariff imposition, a context in which the PRC is moving aggressively and deliberately against American interests and security concerns.

The PRC already is actively prosecuting a cyberwar against us, routinely attempting to penetrate (and succeeding at an alarming rate) American companies’ information networks to gain access to and to steal those companies’ proprietary engineering data and, especially within our financial industry, to steal our companies’ fiscal data.  Even more threateningly, the PRC routinely attacks, and too often penetrates, our Defense and State information networks, obtaining critical defense and political information.  In conjunction with these cyber-attacks, the PRC, the primary global producer of rare-earth minerals, has implemented export quotas on those minerals—minerals that are at the heart of the computing and memory chips that our companies and our government use in their information networks, and on which our weapon systems depend.

Additionally, the PRC is actively looking to block efforts to inhibit Iran’s access to nuclear weapons—weapons which the Iranians will use against Israel and us, and which they will pass on to terrorist groups for use against Europe and us.  Where impediments are implemented, anyway, the PRC actively sabotages them.  This is what is behind their continued purchase of Iranian oil, rather than satisfying their needs elsewhere in the global market, and their purchase of Iranian minerals and organic chemicals.  This is what is behind the PRC’s steady shipment of nuclear reactor parts to Iran.  This also is what is behind their decision to inhibit efforts to curb northern Korea’s expansion of its own nuclear weapon establishment.

Moreover, the PRC is actively moving against American security and economic interests in the South China Sea, claiming that body for its own right up to the border waters of the Socialist Republic of Vietnam, the Republic of the Philippines, and the other nations that border on the Sea.  This is where the PRC militarily engages the Philippine Navy as the latter moves to protect its own interests, and where the PRC militarily threatens Vietnam for objecting to Chinese grasping.  Yet these moves are not aimed at those nations, but at the US, whose interest in open seas in that body (which contains a significant fraction of the world’s commercial shipping lanes) is made manifest by our global trade imperatives (and by those of all of our allies), and so must respond or see our influence shrink further.

Against this backdrop, the PRC is threatening a trade war if we don’t withdraw our newly implemented tariff.

We fear that if these tariffs are levied in full, Chinese companies may have no choice but to exit the US market[.]

We are “urged” to

…review the facts and make the right decision without being influenced by U.S. elections….

And:

This action by the US has hurt cooperation between China and the US in the renewable energy sector, and hurt the US itself.  We hope the US will appropriately resolve this issue.

The tariff must be an opening move, and the US must respond more aggressively and with greater initiative to the Chinese conflict.

Another Musing on Immigration

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Juliana Gruenwald, in a National Journal piece, reports that Senators Mark Warner (D, VA), Chris Coons (D, DE), Jerry Moran (R, KS) and Marco Rubio (R, FL) are proposing an immigration bill—Start-up Act 2.0—that would create two new visas.

One visa would make it easier for foreign students who’ve gained American schools’ post-graduate STEM degrees to remain in the US after graduation.  These folks also would be eligible for permanent residency if they then remained employed in a STEM field for the next five years (and presumably eligible for citizenship, but this visa is separate from that).

The other visa would be for the roughly 75,000 skilled legal immigrants per year who start a business in the US, employ Americans, and invest or raise capital in the US.  This entrepreneur visa would provide another pathway to permanent residence and eventually to citizenship.

This is a step in the right direction; however, it isn’t enough by itself, and it’s muddled by inclusions that, while important in their own right, have nothing to do with immigration.

It isn’t enough because it only addresses one narrow aspect of one part of a three-part immigration problem.  I wrote earlier about those three parts; some of that is quoted here for convenience:

Most modern Conservatives agree that our borders need to be secured, including against illegal immigration.  This need is based on…the right of any nation—the right of any society in their social compact—to determine for themselves who they will allow into their nation: no foreign entity has an inherent right to enter another nation without that nation’s permission….

There are two additional aspects to immigration, and if these are not also solved, the immigration matter will continue to be a serious risk to our national security.  These two aspects are what to do about the population of illegal aliens currently present in the United States, and what to do about legal entry for immigrants into our country.

[W]e need to remove the impediments to legal immigration, we need to eliminate the quotas that put an upper bound on the number of talented who want to work here, on the number of foreign-born who are educated in our Universities and want to stay past their college days. … It simply shouldn’t be that hard to enter the United States legally.  There should be border crossing stations every mile along our border….

These visas are, as I said, a step in the right direction, but the idea falls short on two fronts: it adds to the breadth and complexity of the visa bureaucracy without addressing the overall problem of legal entry for all immigrants, and it doesn’t address at all the other two aspects of our immigration problem.

The muddle consists of tax and regulation clauses that the Senators consider politically necessary to get the bill passed—or at least publicly debated in Senator Harry Reid’s (D, NV) Senate.  Among these extraneous items are:

  • a tax credit intended to encourage start-ups to engage in R&D,
  • a tax exemption that would eliminate capital gains taxes on investments in start-ups held for at least five years, and
  • a requirement that any new regulation with an impact of $100 million or more be subject to a cost-benefit analysis prior to approval.

These are important in their own right, and the need to include these things, which are irrelevant to an immigration bill, in an immigration bill is a testament to the partisan, obstructionist nature of the Democrats’ hold on the Senate.

The tax questions are better handled in a tax reform bill that moves to a flat tax and maintains that flatness by eliminating subsidies of all types.  The isolated regulation item is better handled in a separate regulatory reform bill that eliminates most of the existing regulations (much of which are mutually conflicting, much more of which are obsolete) and that returns regulation generation to the Congress as the most direct means of forcing that body actively to satisfy in its regulatory oversight responsibility.

The Senators’ immigration bill is well worth supporting, but only if it’s made clear that this is only an opening salvo in the struggle seriously to reform our immigration process.