Category Archives: Economics

Miscellaneous economy stuff

A Good Start

Posted on by
Reply

President Donald Trump (R) has signed an Executive Order that sets up a mechanism for the US to mine and harvest minerals and metals from the ocean floor under international waters. It’s for more than just international waters, but this is the part of importance to me.

Environmentalists and legalists don’t like it, the former because they don’t want the pristine sea floors disturbed at all. It seems unimportant to them that the metals and minerals are critical to our nation’s economy and our defense establishment and that without them, we’d be unable to provide any sort of environment within which environmentalists could environmental.

The latter don’t like it because there’s no international law that regulates or even permits such mining. It’s apparently lost on these that the lack of regulation or permission means that the mining and harvesting is entirely legitimate to do.

At least one mining enterprise, The Metals Co, a Canadian firm that’s still interested in doing business with the US, has said that given the EO and a 40-ish year old American law, the Deep Sea Hard Mineral Resources Act, it can start mining in a year or so.

Given that, the first mines should be set up in the Gulf of America, and done so promptly. The second mines should be set up in the South China Sea, and done so just as promptly.

What’s Missing?

Posted on by
Reply

A Wall Street Journal news writer wrote about the accumulation of additional wealth by the already wealthiest in the United States.

New data suggest $1 trillion of wealth was created for the 19 richest American households alone in 2024. …
It took four decades for the top 0.00001% of Americans share of total US household wealth to grow from 0.1% in 1982—when 11 households made up that rarefied group—to 1.2% in 2023, according to an analysis by Gabriel Zucman, an economist at the University of California, Berkeley and the Paris School of Economics.

What’s missing is any discussion of economic mobility, which always has been at the center of our nation’s economic development and overall wealth increase. Who are these households, and who were they?

Those in Zucman’s research on the top 0.00001% in the US are worth at least $45 billion per household and include Elon Musk, Jeff Bezos, Mark Zuckerberg, Bill Gates, Warren Buffett, and private-equity investor Stephen Schwarzman.

All of these, with the possible exception of Buffett, are Johnny-come-latelies to this tier—that’s upward mobility, and part of that eight household increase.

JPMorgan Chase’s private bank estimates US billionaires numbered nearly 2,000 last year, up from about 1,400 in 2021, when it began tracking billionaires. Wealth-data firm Altrata, meanwhile, estimates the figure at 1,050 billionaires in 2023, the most recent year for which it has data, up from 975 in 2021.

There’s a hint there. General wealth is increasing and individual folks and households move up the economic ladder. With mathematical certainty, others move down: even with a growing population—and ours is only barely growing—0.00001%, 0.01%, 50% of our population are finite numbers, and while more are rising than falling, some still must be moving down.

That’s economic mobility. And this: even as wealth is getting concentrated, it’s getting concentrated in an ever-increasing number of households.

It’s good to be rich. It’s even better to live in a free market economy where any of us can get there. After all, it’s not the concentration of wealth that matters so much, it’s the ability of any of us to accumulate that wealth and move up the economic ladder in the first place that’s important.

Bargaining Chips

Posted on by
Reply

The People’s Republic of China is avidly intent on keeping its bargaining chips, of which two truly important ones are its TikTok app and its port businesses at each end of the Panama Canal.

What gets lost, even ignored, in this, though, is that bargaining chips have only the value the bargainee assigns to them, not what the holder of the chips claims to be their value. Not a red sou more than that.

TikTok, for instance, can be viewed as utterly without value as a chip to be played: current US law requires it to be shut down entirely and banned from the US unless and until it is sold in toto to an entity not under the control of the PRC. The only thing standing in the way of that way is the law’s provision that the deadline for sale can be moved back if our Federal government deems negotiations for the sale to be making sufficient progress. That’s where things stand under President Donald Trump, and that confers exactly zero value to the app as a PRC chip.

So it is, nearly, with those PRC businesses that are Panama Canal bookends. A BlackRock-led group has concluded a deal to purchase those two port businesses along with a number of others around the world from CK Hutchison Holdings, a PRC-domiciled (Hong Kong) company. The PRC is actively interfering to delay and potentially prevent that deal from coming to fruition. The appropriate response here is for the US to restrict, even block as far as may be, the ability of those two ports to get any business from the US or any other nations. That would deny those ports any value as PRC chips.

A Thought on Trade Deficits

Posted on by
2

Set off by a post on Shrewd’m, which contains a plethora of useful discussion boards, including mechanical investing conversations.

Americans benefit from importing cheaper and/or better goods, which enhance our quality of life in myriad ways. Moreover, trade is part of a circular movement not only of goods but also of money. The US trade deficit of $918.4 billion last year was the mirror image of a $918.4 billion capital surplus, or infusion from overseas.
Sooner or later, all of the net $918.4 billion that Americans spent on foreign goods was invested in American capital assets such as stocks, real estate, bonds, or short-term assets such as Treasury bills.

That’s one of the problems with running a trade deficit, or “investment surplus,” which the poster suggested as an alternative term. It’s certainly true that in Ricardian fashion, truly free trade makes everyone financially more prosperous by letting those nations that do a few things better than others get the production trade and sell their goods to other nations in return for money or products that those other nations do better than anyone else. Financial prosperity is very good for all of us.

However, that sword has another edge, too. [A]ll of the net $918.4 billion that Americans spent…was invested in American capital assets such as stocks, real estate, bonds, or short-term assets such as Treasury bills. Not on manufacturing or on producing and processing the raw materials necessary for manufacturing in general. Especially not on manufacturing or on producing and processing the raw materials each category of which is a Critical Item for our defense establishment, our national security—our ability to secure ourselves from being dictated to by militarily superior enemies.

There were massive job losses in those manufacturing and raw materials production and processing industries, too, and those people are worse off for it, regardless of the injunction from some that these folks should learn to code.

Worse, those hard goods/raw materials producing companies have been closed long enough that we’ve lost the factories, mining, and personnel expertise central to those Items. Now, we’re dependent on other nations—including enemy nations—for raw materials like the rare earths that are specific Critical Items for our computers, communications, and weapons systems we need to maintain our freedom of action. We’re dependent on other nations—including enemy nations—for processing those rare earths and other materials (like graphite, another Critical Item) that we already produce some of for ourselves.

Our dependency on enemy nations is demonstrated by the People’s Republic of China’s restricting shipping to us rare earths and processed rare earths, both of which the PRC produces in ample quantities in response to the tariffs President Donald Trump (R) has applied to the PRC. Had we been producing and processing our own—and which we have ample quantities domestically but have chosen to leave them unmined and so have no processing capability, also—the PRC’s move would have been toothless. I’ve written about a similar situation a while ago.

Now a regionally militarily superior PRC is pressing its threats against the Republic of China and is in a position to cut the sea lines of commerce on which the Republic of Korea and Japan are utterly dependent and through which trillions of dollars of trade pass enroute to our own west coast. And we’ll soon—that cutoff of militarily critical rare earths—be helpless to stop them.

Fiscal prosperity is a Critical Item for our nation, and Ricardo was right on how to achieve that. Trade deficits, per se, are nothing about which to worry. But more so is military capability, without which we have no freedom of action and so no prosperity or even freedom. We need to redevelop our own manufacturing and raw material production and processing capability, even if we continue to source much of those outputs from overseas, and even if it’s more expensive to do so than getting them all from overseas.

The higher cost for such a domestic core production capability is part of the cost of our national freedom, and it’s far less than the cost of having our activities dictated to us by militarily superior enemies.

This would be a Mistake

Posted on by
Reply

President Donald Trump (R) laid significant tariffs and tariff rates on the People’s Republic of China. The PRC’s President Xi Jinping responded with matching tariff rates, but with escalatory moves added:

…restricted exports of certain rare-earth minerals, added US companies to trade blacklists, and aimed an antitrust probe at the China operations of US chemicals and materials company DuPont.

Then the WSJ‘s news writer posited this:

What lies ahead is likely to be a cycle of tit-for-tat retaliation, making it hard to even start negotiations in the near term.

If the Trump’s purpose with the tariffs is to (re)balance trade with the PRC’s tariffs, that would be one thing—his reciprocal tariff regime. However, if his purpose is to persuade the PRC to change its overall international trade behavior, particular vis-à-vis the US, then tit-for-tat would be a foolish mistake.

Tit-for-tat only gives the other side time to adapt and maintain. What’s necessary, if Trump’s move is persuasion rather than rebalancing, is to escalate tariffs (and other economic moves) higher and faster than the PRC can respond, and that’s what Xi will attempt as demonstrated by his opening response. Simply matching Xi—as tit-for-tat does generally—is surrender to Xi the initiative in this extension of the PRC’s long-running trade war, with its cyber aspects as well, against us.