Category Archives: Economics

Miscellaneous economy stuff

Somebody Wants a UBI

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This is a Progressive-Democrat dream, but Andy Kessler centered it on Silicon Valley in his op-ed in Sunday’s Wall Street Journal.  He’s not far wrong, but aside from limiting the idea’s core constituency, he also only described part of the reason why a Universal Basic Income is a bad idea.

He did a good job of laying out the costs of paying for a UBI—the charges to those with earned income or profit—and how those costs cap what the earners and producers can do, but there’s the outcome of the demand side, too, that must be factored in.

What determines the price of any good or service? Of course, one component is the cost of its production. If the price doesn’t cover the cost, it won’t get produced. But that’s only a floor; the driver of cost is the demand for the good or service. That demand, though, isn’t measured by the number of folks wanting the thing, it’s the amount of money available to pay for the thing. More money means more demand, and more demand means rising price if the demand rises faster than production.

Now give everyone a UBI. Demand just inflated by the amount of the UBI, and the price of goods and services just went up to absorb that demand—every single dollar of it.

But wait—rising demand means rising production. Yep. And rising production means rising demand for labor—and rising labor costs. Rising production means rising demand for production input materials—and rising prices for those inputs.  And so rising threshold prices for the output good or service to cover those rising costs.  The minimum price for producing the good or service is above the income available, even after the UBI; the range of goods and services available is at least as limited from the perspective of the impoverished as it ever was.

The buying power of the UBI was just driven to zero, and the value of a person’s total income in real terms is just the same as it was before the UBI was instituted.

But it’s not just a zero-sum outcome; it’s a negative-sum matter.  Recall Kessler’s thesis that the cost to the earners/profit-makers of providing the UBI limited their output.  There’s a net reduction for everybody of goods and services to be had.

That’s a net reduction in the real value of income for everyone.

Raising Stakes

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The EU-Italy kerfuffle over Italy’s effronting budget is getting serious.

The mandarins of Brussels on Tuesday issued an unprecedented demand that Italy rewrite its bad budget in line with Brussels’ bad fiscal principles.

As the WSJ predicts,

[t]he two sides will now descend into political and bureaucratic wrangling. The main risks are that Brussels imposes a fine of 0.2% of GDP or that Rome is forced to abandon the pro-growth flat tax.

There’s no need for this, though. Italy should simply refuse to debate the matter—their budget, for good or ill, is a national thing, a matter of sovereignty. Along those lines, Italy also should refuse to pay the Brussels vig.

Brussels is amply demonstrating the utility of Italy leaving the EU, even though the Italians aren’t, yet, ready to contemplate such a move.  Here’s hoping they come to the realization sooner rather than later.

A Health Care Coverage Step

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Alexander Acosta, Steven Mnuchin, and Alex Azar, respectively Secretaries of Labor, Treasury, and Health and Human Services, are in the process of offering one.  They’re putting together a rule that would expand HRAs, Health Reimbursement Arrangements.  These are plans that allow employers to reimburse employees for certain qualified health expenses.  Their expansion consists of two parts:

  • permit[ting] employers to offer HRAs to reimburse employees for health insurance purchased in the individual market—allowing employers to provide a contribution as significant as they would have made for the premiums of a traditional employer-sponsored plan.
  • allow[ing] employers that offer a traditional group plan to offer an HRA of up to $1,800 a year to reimburse an employee for certain qualified medical expenses such as stand-alone dental benefits.

Both of these parts would be done on an income tax-free basis for the employee.

Of course, this would compete against Obamacare, and that’s anathema for the Progressive-Democrats in the House and Senate.

Their ire notwithstanding, the rule would be that step toward competition, and competition is one of the ways of making health care and health care coverage less economically onerous to a family.

It’s Not Their Budget

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They’re not the ones who have to live with it.  Brussels is just sitting on the safety of the sidelines, carping.

The European Union took the unprecedented step Tuesday of rejecting Italy’s draft budget as incompatible with the bloc’s rules on fiscal discipline, escalating a battle between Europe’s establishment and populists in Rome.

Italy’s economic woes impact other members of the eurozone, of the EU at large?  They don’t have to.  The EU has no more obligation to bail out Italy—if the eventuality eventuates—than it had with Greece.  Italy has no more need to put other nations ahead of its own economic well-being than had Greece.

If Brussels actually has an interest, it should work with Italy, not block it.  That’s all on the EU, not on Italy.

Good, bad, or indifferent, it’s Italy’s budget, not Europe’s.  Italy should press ahead, as though Brussels hadn’t squawked.  National sovereignty matters.

Carbon Dioxide and Bias at the EPA

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Cass Sunstein thinks there’s bias in the Trump EPA in the way the agency handles CO2.  He’s right, but not in the way he thinks.

The only way to solve the climate-change problem, and to prevent massive harm in the US, is for all the world’s big emitters [of CO2] to agree to take account of the global damage.

There’s the heart of the political concern and a demonstration of Sunstein’s bias.

Carbon’s role in the environment is its contribution to acid rain through its role as a constituent of CO2. That problem has been solved, years ago.

CO2’s role in climate is demonstrated by ice cores that show atmospheric CO2 rises after planetary warming has begun and by longer records that show, over geologic time, a lack of correlation between atmospheric CO2 and planetary temperature. That problem does not exist.

Finally, there is some overlap between environment and climate, but they are not interchangeable terms, even though Sunstein uses them so.