Category Archives: Economics

Miscellaneous economy stuff

Not the Right Answer

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Nvdia’s honcho, Jensen Huang, thinks the administration’s export controls on chips is a failure. He claims all the controls have done is to galvanize[] Beijing to push ahead faster with its own artificial-intelligence technologies.

The local companies are very talented and very determined, and the export controls give them the spirit, energy and the government support to accelerate their development[.]

No doubt. That’s not the whole story, though. Forcing the PRC to spend its own resources on those developments rather than importing the latest and greatest, and then reverse engineering them, copying them, skipping development steps—freeloading off our expenditures—is good for us.

Aside from that, ever since the beginning of the Industrial Age, Western political, economic, and intellectual freedoms have powered Western innovation far ahead of anything dictatorships have been able to achieve, from Russia, the USSR, mainland China, pre-WWII Japan. That’s why they were at such pains to copy Western developments rather than developing their own. The copying was, for a long time, a major component of post-WWII Japan, too.

Rather than giving up on chip export control, we need to tighten them further to the point of cutting off chip exports to the PRC altogether, and we need to get Europe to do the same. There’s no reason to doubt the fundamental innovative superiority of the West so long as we preserve those political, economic, and intellectual freedoms and expand them by getting our governments out of the regulatory way. Free markets always will do better at enhancing our innovative prowess than centrally planned markets in the long run, and in the intermediate run, as well.

Why Not Both?

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Emma Waters and Dr Marguerite Duane, in  their WSJ Letters letter, propose invest[ing] in restorative reproductive medicine as an alternative to in vitro fertilization mandates.

First, a correction to their distortion of Leonard Lopoo’s op-ed regarding IVF as a means of addressing our nation’s baby deficit. Waters and Duane accuse Lopoo of pushing for IVF funding mandates. This is textbook gaslighting. Lopoo was very much in favor of subsidies, not mandates. He did mention one mandate—one State’s requirement that insurance cover IVF—in passing at the end of his piece, but merely as one example of how financial support for IVF can lead to increases in live baby birth rates.

Given that—financial support to allay the high cost of IVF—why do Waters and Duane insist that there must be a choice between the two? Even given IVF mandates, why must there be a choice between the two?

The short answer is that there need not. Support for IVF and research into the causes and mitigations of reproduction-related medical problems actually go hand-in-hand. One treats precursor conditions, and the other treats realized after-the-fact conditions, with considerable overlap in that second set of conditions.

Beyond all that, why not these two together with a host of other means that also encourage having babies, along with other, non-medical means of achieving population growth—legal immigration, for instance, color/ethnicity-blind free markets, lower income tax rates?

Tariffs and Economic Disaster

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There has been, so far, no economic disaster. In fact, Gerald Baker, in his Monday Wall Street Journal op-ed, put his finger on the longer term outcome of tariffs insofar as they lead to a decrease in the globalization of trade. Here’s his penultimate paragraph:

What difference does it make? An important one: If we see deglobalization not as a catastrophic act of self-harm but as a choice—even a rational one—we can position ourselves better to deal with its consequences. We know the costs of throwing sand in the gears of frictionless trade, but there are opportunities too: more-secure supply chains, a chance to nurture high-end domestic manufacturing and reduce our financial dependency on the rest of the world, and new attention to reducing the vast economic inequalities in the U.S. that globalization, with its incalculable rewards for the most advantaged, has exacerbated.

That’s on the right track. Also needed, though, is [ahem] some necessary parallel actions:

requirement that the “protected” industry companies use the large majority (60%-75%, say, just to have a starting point for discussion) of the increased revenues accruing from the increased sales at their immediately pre-tariff prices to achieve the following:

 

    • increase market share via their largely unchanged price
    • increase spending on innovation
    • increase spending on capital plant maintenance, improvement, and expansion
    • increase spending on line worker wages
    • increase spending on line worker hiring

And one more fillip: a hard expiration date of the protectionist tariff, in the range of 5-10 years, that cannot be extended except by Congressionally enacted statute.

Tariffs and Reindustrialization

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This seems to be my day for letter-writers. Another writer in The Wall Street Journal‘s Sunday Letters section wrote about the current lack of effectivity of (protectionist) tariffs in stimulating moves toward reindustrialization in our economy.

Through initiatives such as Operation Warp Speed and strategic invocation of the Defense Production Act, the government took risk out of domestic production through substantial direct investment, guaranteed purchase agreements, prioritized allocation of critical materials and equipment, and streamlined regulatory processes.

He then proposed a similar program to spur reindustrialization.

He’s right as far as he went, but it’s too one-sided, lacking as it does any requirement for the targeted industries to do their part. Aside from the addictive nature of protectionist tariffs, it’s far too often the case that the “protected” industry companies merely take advantage of the increased prices of tariffed imports to raise their own prices accordingly, collect the increased revenue, and do nothing to improve their own competitiveness.

What’s also needed, as a part of these tariffs, is a requirement that the “protected” industry companies use the large majority (60%-75%, say, just to have a starting point for discussion) of the increased revenues accruing from the increased sales at their immediately pre-tariff prices to achieve the following:

• increase market share via their largely unchanged price
• increase spending on innovation
• increase spending on capital plant maintenance, improvement, and expansion
• increase spending on line worker wages
• increase spending on line worker hiring

And one more fillip: a hard expiration date of the protectionist tariff, in the range of 5-10 years, that cannot be extended except by Congressionally enacted statute.

That’s the route to actually reindustrializing: doing concrete things to achieve concrete goals.

Tariffs and Economic Growth

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The good editors at The Wall Street Journal spent a lot of ink and pixels decrying President Donald Trump’s (R) tariff moves. They saved the money bit for the end, though maybe not in the way they intended.

The best response to the warning from the first-quarter GDP decline would be for Mr Trump to call the whole tariff thing off. Short of that, settle for 10% across the board and call it a day. If that’s too much of a come-down, Republicans will need to pass a pro-growth tax cut and accelerate their deregulatory push as their best chance to liberate the economy from its tariff kidnapping.

Those first two sentences are irrelevant, whatever one might think of Trump’s tariff moves. Republicans need to pass a pro-growth tax cut and accelerate their deregulatory push—and pass serious spending cuts—independently of any tariff moves.