Category Archives: Economics

Miscellaneous economy stuff

Modern Monetary Theory, Taxes, and Inflation

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Japan is examining MMT in its debate over its upcoming sales tax increase [emphasis added].

Some members of Parliament, led by ruling conservative-party lawmakers, argue Japan doesn’t need higher taxes because the country’s inflation is less than 1%. The theory suggests tax increases are needed only when inflation is out of control.

Notice that: MMT says increasing taxes is a means of controlling inflation.  The idea is that taking money away from the citizens reduces demand and so inflationary pressure.  There are a couple of problems with this concept.  One is that government revenue gets spent so Keynes’ aggregate demand goes unchanged, except for a bit of Government-as-middle-man friction.

The other is that, as our own Progressive-Democratic Party annually demonstrates, lowering raised taxes (or simply lowering taxes) is deucedly hard to do.

I offer an alternative solution to combatting out of control inflation, or even inflation that is simply higher than we want it to be.

To the extent Government (I’m omitting the Federal Reserve System on the naïve theory that it is independent of Government machinations—it is intended to be) intervention is useful at all in combating inflation (that utility is not established), here’s an intervention technique that any modern Keynesian should love: instead of raising taxes, cut Government spending.  After all, goes the Keynesian song and dance, Government spending is stimulative, so the increased demand is inflationary.  Cutting the stimulus ought to reduce inflation.

A Textualist Justice Makes Folks Uncomfortable

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Apple v Pepper is an antitrust case in which the plaintiffs argue that Apple’s requirement that all iPhone apps must be sold through Apple’s app store is a monopoly that Apple abuses by charging excessive commissions on app sales.

The Wall Street Journal has its editorial knickers in a twist because Justice Brett Kavanaugh, writing for the majority, rejected Apple’s plaint that the case be dismissed. The result is that the case continues in trial court.  Yet the editors are upset that Kavanaugh’s ruling “gutted four decades of precedent,” as though precedent cannot be erroneous and so must be unchanging for the ages.

Justice Kavanaugh [opined] based on the text of the Clayton Act, but the Court has long interpreted antitrust statutes alongside common law principles of proximate causation.

How shocking that a textualist ruled on the basis of the text and disagreed with judges imposing personal views of “common law principles” on what a law actually says.

Contrary to the editors’ thrust, all that has happened at this point is that the suit is allowed to proceed in a lower court. This actually represents a golden opportunity to apply the text of antitrust law to the likes of Alphabet, Facebook, Twitter, Apple, et al., which have capabilities of which Clayton could not conceive. In what ways might tech giants exercise monopoly power (legal) or abuse it (illegal)?

At bottom, as the case itself makes it way to the Supremes, it would be a golden opportunity for that Court to tell the Congress to do its political job. Bleatings about “common law” and judges’ perceived principles inhering in “common law” notwithstanding, everything that Clayton means is contained in the text of that law.  Everything that that century-old Congress intended when it enacted that law is contained in the text of that law and nowhere else.  If the law needs updating to address today’s digitally-oriented monopolies, that’s the political task of today’s Congress, not the judicial task of any era’s Justices.

A Shift May Be Beginning

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As the tariff volleys in the People’s Republic of China’s years-old economic war (of which trade is just one component) against us begin to grow, some potential changes in international trade and production for trade are becoming visible.  If these apparent changes represent the beginning of a solid trend, the changes and the trend will not be to the PRC’s benefit.

It’s true that consumer prices might start to rise in both our nation and in the PRC, but as a population—and as a people—we’re better able to absorb those increases than is the population of the PRC.  Our per capita GDP is $62,500, more than three times the PRC’s $19,520.

It might get worse from there.

  • Sweden-based telecom gear-maker Ericsson AB is preparing to shift some manufacturing from the PRC to the US, Estonia, Brazil, and Mexico
  • Republic of China-based AsusTek Computer Inc has been moving some production bases domestic facilities and Vietnam from the PRC
  • Foxconn, which assembles a huge share of iPhones, has been considering producing the devices in India and Vietnam
  • The 25% tariff on PRC-made lithium batteries means PRC producers will have difficulties competing with Korea’s LG Chem and Japan’s Panasonic Inc, both of which already have lithium battery production facilities in the US

If that sort of thing spreads and grows, and if US exporters find other markets (as US farmers are doing for next year’s crops, while others change the crops they grow for export), it won’t be good for the PRC’s economy—or for PRC President Xi Jinping’s political standing in his Party.

Much Ado about Nothing

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Oxford Economics is worried about the costs of President Donald Trump’s tariffs as he fights back against the People’s Republic of China’s long economic war (trade, intellectual property theft, technology transfer extortions and thefts, etc) against us.

The move to 25% tariffs on imports from the PRC, coupled with the PRC’s answer of tariffs on its imports from us would cost our economy $29 billion and the global economy some $105 billion by 2020, Oxford Economics claims.  The CBO estimates our GDP to be $22.77 trillion; the projected tariff costs work out to 0.1% of our economy.  Taking the global economy as the OECD’s, the 2017 global GDP was some $49.6 trillion; the projected costs work out to roughly 0.2% of the world’s economy.

Oxford Economics sees all of that amounting to a 0.3% reduction in our projected 2020 GDP and a 0.8% reduction in the PRC’s projected 2020 GDP.  The tariff costs are chump change in our economy and the world’s.  Not so much, though, for the PRC: while our economy is burgeoning, the PRC’s already is stagnating.  The tariff costs are only adding to that slowdown.

Consternation Among Investors

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The English Channel island of Guernsey has long been a haven for low tax rates and lower regulation.  Now the island is serving as a bypass of EU regulations mandating transparency in bond transactions.

On Guernsey, those rules don’t apply. A key flashpoint for investors is the use of password-protected websites to restrict access to company financial information. Unlike in the rest of the EU, where companies with publicly listed shares or bonds must make financial reporting readily available to the public, bond issuers in Guernsey can keep such information under virtual lock and key and can restrict who has access.

Some companies dealing through Guernsey’s facility even require nondisclosure agreements be signed before they’ll agree to sell bonds to prospective buyers.

This has authorities in an uproar—naturally, since they object to being challenged by their subjects market participants.  It also has investors’ knickers in a collective twist, though, and there’s the rub.  Martin Reeves, of London-based Legal & General Investment Managers:

It is in everybody’s interest to have equal and transparent disclosure by bond issuers. It is an open question how password-protected websites are justified.

Regarding Reeves’ first claim, of course it is. Information is power, and spread-about information dilutes the power.  Regarding his second claim, though, there’s no question about it: the free market is happy to have such things—else they wouldn’t exist.

The bottom line is this, and it pertains especially in a free market milieu.  There’s no reason for consternation among investors over the bonds issuing from non-transparent Guernsey.  No one—not any government, not any individual—is holding a gun, figuratively or literally, in any investor’s ear, forcing him to buy bonds in Guernsey.

If investors don’t like the lack of transparency, they shouldn’t trade there.  If Guernsey is the only place such secretive bonds are traded, then Guernsey also is the only place where such unassessed and unassessable risk occurs.  If investors don’t like that risk spilling over onto companies publicly traded in markets or exchanges that are more regulated, they should not trade those companies’ securities anywhere.

In fact, they’re putting in peril their fiduciary duty or their personal or families’ wealth when they trade “Guernsey bonds” or securities of companies that peddle bonds there.