Category Archives: Economics

Miscellaneous economy stuff

A Thought on Interest Rates

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William Silber had one on the Wall Street Journal‘s Sunday opinion pages. Naturally, I have one on his.

The core of Silber’s thought is this:

The so-called neutral rate of interest is observed in hindsight—by whether the economy is expanding fast enough to keep unemployment low but not too fast to provoke higher inflation. By that measure, the current target interest rate of 4.25% to 4.50% seems about right. I say “about right” because the unemployment rate is low but the rate of inflation is somewhat elevated. That suggests, if anything, the target interest rate should be higher to push down inflation.

Silber is right on the first part. He’s wrong on the second. The current target interest rate “seems about right” because it historically correlates with the Fed’s inflation target of 2%. Now it’s time for the Fed to sit down and be quiet—and to say in so many words that that’s what it’s going to do. Excursions above and below the inflation target are just the noise of a free market. The time is not yet—if ever in the current market conditions—to make any sort of move on target interest rates.

This, too, Has a Fix

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The lede intimates the problem:

Dual-earning married couples are estimated to face a loss of $18,100 in annual benefits in seven years without the passage of some sort of entitlement reform, according to a new study.

And this:

“At the same time, those retirees might experience reduced access to health care due to an 11% cut in Medicare Hospital Insurance payments. The cuts would grow over time as scheduled benefits continue to outpace dedicated revenues,” the analysis [by the Committee for a Responsible Federal Budget] also read.

Florida Republican Senator Rick Scott has proposed legislation to address this:

…create a “Budget Point of Order” and require a two-thirds vote against any legislation that the Congressional Budget Office (CBO) “determines would create a “Budget Point of Order” and require a two-thirds vote against any legislation that the Congressional Budget Office (CBO) “determines would reduce or cut existing Medicare and Social Security benefits.”

But that would only increase costs to all of us in the form of steadily rising taxes. After all, any tax bill that didn’t raise taxes sufficiently to suit CBO would be claimed by it to reduce or cut those benefits and so would require that supermajority vote.

No, the better solution is to entirely privatize Social Security and to return responsibility for Medicare entirely to the States under their respective Medicaid programs.

Social Security could be privatized entirely for those currently younger than 50 years—or under 40 years if the longer transition period would be more politically palatable. Continue to require folks to pay those Social Security taxes, but the money would go into retirement accounts strictly for the benefit of the taxpayer and his future retirement, instead of being sent right back out for the current benefit of existing retirees. This would give the taxpayer/future retiree skin in his own game, and I guarantee you that this individual would do a lot better job of managing his retirement money than the government has been doing—especially with the government confronted as it is with both a dwindling supply of employed persons paying the taxes to produce current payouts and an increasing post-retirement life span. The transition would be deucedly expensive for the government (all of us taxpayers), but that expense is only going to explode if nothing else is done.

On the other hand, Medicare conversion doesn’t need so long a transition, and it would produce immediate savings for the Federal budget—its real budget, not the fictional one that pretends Social Security and Medicare aren’t part of government expenditures. For this conversion, it’s a simple matter of converting the Medicare transfer to each State to a Year Zero block grant solely to the State’s Medicaid program. Then each year over the next 10, reduce the size of the block grant by 10% of the Year Zero amount and reduce each worker’s Medicare part of his payroll tax and his employer’s contribution to that payroll tax by 10% of that Year Zero tax collection. At the end of those 10 years, the Federal government would be out of the States’ health coverage business, the States would have their responsibility for and control over their own programs wholly restored, and each worker and employer would be out from under that portion of the payroll tax.

Distortions by Progressive-Democrats

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The latest are illustrated by two graphs from The Wall Street Journal. The graphs illustrate the impact on us taxpayers—rich and poor—of the recently passed tax cuts in the One Big Beautiful Bill Act.

The first shows in dollar terms the impact of the tax cuts.

Progressive-Democratic Party politicians favor this graph because it emphasizes dollars while ignoring both their importance to the taxpayer relative to his income and it ignores the percentage of income received by each taxpayer and the percentage of the tax burden paid by each taxpayer—which for the rich is a larger percentage than their percentage share of income earned.

The second illustrates the changes in percentage terms, which demonstrate the importance of those dollars to taxpayers’ incomes.

Overall, the tax cuts become more important as income level drops from the wealthiest to the poorest. Those with increasingly lower incomes receive increasingly higher tax reductions relative to their incomes, with the poorest getting the greatest relative reductions. The Evil Rich—the top 20% of income earners—get far smaller relative tax drops, with the Evilest Rich—those heinous top 1% of income earners—getting the smallest relative drop.

And that’s entirely appropriate since they start out with the largest tax burden, one that’s much larger even than their relative share of income. This is a detail that Progressive-Democrats actively ignore in their distortionate descriptions of the bill.

Uncertainty?

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A Wall Street Journal article centered on one American company’s claimed uncertainty regarding adjusting its supply chain to no longer be in the People’s Republic of China cited this:

American Outdoor Brands spent months coming up with a plan to minimize the pain of tariffs. Now it is stuck waiting to see where to go.
Most of American Outdoor Brands’ products, which range from fishing tools to hunting gear and pizza ovens, come from China. Executives were prepared to reposition the company’s supply chain ahead of July 9, when the so-called reciprocal tariffs were set to take effect, betting that it could move quickly to reduce any pain points once the new levies kicked in.
But President Trump’s decision last week to extend the deadline for trade deal negotiations to August 1 has prolonged the uncertainty for many companies. That means American Outdoor Brands’ supply-chain reshuffling plan remains on ice.

Why? Where’s the uncertainty? These companies—not just American Outdoor Brands—still know they need to move their supply chains out of the PRC. At worst, they just have more time in which to do so.

American Outdoor Brands’ CFO Andy Fulmer:

We’re very comfortable that we’ve done all the upfront work on where we’d go by product category. We’re just kind of waiting for those firm rates to come out.

Stop dithering, then, and execute. The likely range of tariffs already is well-known, and they’re unlikely to be raised in the face of intransigence; they’ll just go into effect on the deadline, or be delayed again.

In the meantime, there are a myriad other places from which to source intermediate components and—in American Outdoor Brands’ and others similarly situated—final products. Bangladesh, comes to mind, as does Jordan. And manufacturing-experienced Vietnam, Republic of Korea, Japan, Philippines. It would be easy enough in those latter cases to contractually require components not come from the PRC directly or indirectly.

Even move the supply chains to…the United States.

No, It Won’t

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This time, it’s an op-ed writer in The Wall Street Journal who is making misleading claims. In his piece regarding the likelihood of wealth flight from a Zohran Mamdani-run New York City, their subheadline reads

The state will lose wealthy taxpayers, and the federal government will have to cough up more aid.

The opinion-writer ties the weal of our nation to the weal of New York, and the article fails utterly on the false premise of a necessary Federal bailout.

No, the Federal government will not have to cough up more aid. New York’s political machinations, including its drumbeat attacks on successful Americans and on businesses domiciled there, would be coming to a head under a socialist Mamdani city administration, and that outcome is solely that New York State’s responsibility.

The good citizens of States running from Maine through New Jersey, Illinois, Texas, Wyoming, Nevada, on to California, Alaska, and Hawaii have absolutely no obligation to bail out a fiscally and regulatorily irresponsible New York City or State. The Federal government has no business forcing the rest of the nation’s citizens to do so.

The other side of the matter: only if New York—city and State—are left to stew in their own fetid spending, taxing, and regulation messes will either have any chance of mending its ways. In that way, the weal of the nation is impacted by the weal of New York State: a healthy State, not dependent of Federal funding, would be an unalloyed good for our nation.