Category Archives: Economics

Miscellaneous economy stuff

Italy and the EU

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Recall Italy’s proposed budget, which defied Brussels by having a larger deficit relative to its GDP than EU budget rules allow.  I decried that budget then, and I stand by that disdain.

Now, however,

Italian Economy Minister Giovanni Tria has told the European Commission that Italy will raise its deficit to 2.4% of gross domestic product (GDP), defying eurozone budget rules. In a letter sent to Brussels in response to a formal warning from the EU.

Brussels continues to not like the budget.

[T]he EU’s European Economic Affairs Commissioner, Pierre Moscovici, reminded Italy that its structural deficit was “way too high.” He told the France Inter radio station that he did not want a “crisis with Italy” over its planned deficit-raising budget and still hoped for “constructive dialogue.”

The Italian people, though, favor the budget by a nearly 3:2 margin; this is quite a strong consensus as such things go in Italy.  From that, I say that the Italian government should stay the course, my concerns about the budget itself notwithstanding.  This is a question of national sovereignty vs the requirements of an international body.

The budget violates EU rules?  Yep.  Maybe Italy should start giving consideration to leaving the European Union.

Union Selfishness

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In The Wall Street Journal‘s Allysia Finley piece about Progressive-Democrats’ targeting California Republicans, this bit jumped out at me:

The Los Angeles Unified School District is making emergency budget cuts and layoffs to avoid bankruptcy, yet the teachers union is threatening to strike if its members don’t receive a 6% raise.

Hmm….

 

h/t Ralph

Building It

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Chao Deng’s piece in Saturday’s Wall Street Journal chronicled the failure of People’s Republic of China rampant infrastructure spending to stimulate economic activity.

China bolstered economic growth for decades by pouring trillions of dollars into roads, factories, railroads and more, and doubled down to protect the economy from the global financial crisis of the last decade.

Deng went to lengths to point out that, for all those trillions, businesses did not appear, factories remain unused, roads and railroads are only lightly traveled, and even the high rise apartment buildings remain largely empty.

He—and the PRC government—missed the root cause of the fruitlessness of that spending.

Build it and they will come only works in a free market economy where no one needs government permission to engage in economic (or any other) activity.

Pharma and Drug Prices

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The Trump administration has proposed a rule that would require companies advertising drugs to provide the list prices of those drugs in their advertising—including their television advertising.  Big Pharma is opposed, and wants instead to be left to voluntarily provide pricing information by having links in their advertising that would guide folks to a separate Web site.

I sympathize with Big Pharma on this. Government regulation already is out of hand; the Trump administration is reducing that, and this is an unnecessary addition.

There is an alternative.

The FDA could compile a list of drug list prices; region-by-region retail prices at places like Walgreens, CVS, Walmart, amazon (note that this is not an exhaustive list of retailers); and the tier within which each drug sits.  This list then could be made available on the FDA’s Web site home page above the fold.

This more central source, in addition to encouraging competition among drug companies, would encourage more competition among retailers.

Income Taxes and Retirement Savings

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Professor Benjamin Harris (Kellogg School of Management) made a case for redoing our 401(k) retirement savings system.  He had several good points, too: the tax break today compared to the taxes due on withdrawal during retirement’s usually lower tax rate is irrelevant to those whose current income is low enough to go untaxed or not taxed much.  Contributions are tax deductions vs tax credits equal to a portion of contributions.  The whole system is complex from a tax-figuring perspective (what are the tax brackets in play for a particular saver, what taxes will be in play when the saver retires, how will investments perform in the interim).

Overlooked, though, is a larger alternative, even if it is a more difficult alternative to achieve.  It’s far from impossible to achieve; this year’s tax reform and cuts represent a major step in this direction.

The whole complexity of the tax question, along with most of the tax question itself, would disappear with a low, flat income tax rate.