Category Archives: Economics

Miscellaneous economy stuff

The Fed and Inflation

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There was a Letter to the Editor in a recent Wall Street Journal that talked about a “half-truth” that inflation is “always” a result of rapid economic growth and low unemployment.

The Fed’s obsession with its arbitrary 2% inflation target compels them to argue that higher inflation is desirable because it is always linked to stronger economic growth. The governors simply ignore evidence to the contrary, such as in 2017 when, after the first quarter, growth accelerated and unemployment fell, yet inflation rates declined.

Couple things about this claim. One is that that isn’t the only argument the Fed makes on the matter or on the Fed’s role. The Fed’s role is to maintain price stability (and low unemployment, but price stability facilitates that), and any target rate of inflation, within a broad range, does that.  The Fed targets 2% in order to have…engineering slop…as a cushion against the natural fluctuations of inflation taking the economy into a deflationary period, which if sustained can have more deleterious effects than high inflation.  Much higher target rates make maintaining stability more difficult.  Two per cent is a suitable middle ground target.

The other thing relates to those natural fluctuations in inflation rates, and their inputs. Stauffer is assuming, falsely, that a single occurrence, a single quarter’s behavior—an anecdote—is the trend.  Not at all.  It’s just noise.

An Example

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This is part of what’s wrong with today’s American higher education.  The numbers appear in a Wall Street Journal article about the possibility of ex-Secretary of State Rex Tillerson becoming chancellor of the University of Texas system.

The system has an enrollment of more than 230,000 students, an $18 billion annual budget, and more than 100,000 employees.

That’s ridiculous.  There’s no reason for having an employee for every two students.  How much better would the students’ education be were some of those $18 billion redirected toward books and lab equipment and classroom facilities and away from excess payroll?  How much more opportunity would there be were some of those $18 billion redirected toward lower tuition and housing fees and away from excess payroll?

Idiocy in the Nanny State

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Starting in May, the Food and Drug Administration will require chains like Applebee’s and TGI Fridays to list calories next to all their menu items. That includes alcohol.

Because we need to know that stuff.  Or so says Government.  And of course, we’ll pay for that knowledge in higher prices for our drinks, because generating and posting that information—and defending against lawsuits over trivial errors in the postings—doesn’t come free.

Never mind that most of us don’t care.  Nana Government knows better.

Never mind, either, that Government already provides those data for free, for all who actually do care.  Here’re some data for beer.  Nana clearly thinks we’re just too stupid or lazy to make use of those data.  Or not smart enough to know we should care.

Credit Reports and Tax Liens

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The thee major credit reporting firms, Experian, Equifax, and TransUnion, are moving to eliminate records of tax liens from their credit data and credit reports.

The three companies, which provide vital, behind-the-scenes services in consumer credit, have been grappling with class-action lawsuits over their handling of consumers’ tax liens and judgment information.

This is a mistake.  The right answer is to defend, actively, those suits that are wrong, rather than to surrender to the extortion of lawfare, and to correct the mishandlings of the tax liens in their data and reports.

Running away from the matter altogether can only further deprecate the usefulness of these credit reporting agencies. All debt needs to be reflected in the reports so that accurate pictures of an individual’s credit risk can be developed.

Beyond that, a tax lien cuts two ways: it’s the result of a serious failure, whether of the one with the lien or of events beyond the person’s control. With the other slice, like any credit card, a record of prompt payments, keeping the lien current until it’s paid off, would reflect favorably in the minds of lenders reading the reports.

Absent the data, though, a loan’s interest charge would need to be increased to reflect the greater uncertainty, or the loan denied altogether, and either of these outcomes will harm far more consumers far more deeply than the numbers and injuries claimed by the suits.

The Anti-Competitive EU

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Now the European Commission wants to tax “behemoth” digitally-oriented multinational companies for doing business within the EU.  The only companies that fit the EC’s definition of behemoth—large firms with annual worldwide revenue above €750 million ($922 million) and annual taxable EU revenues above €50 million ($61.5 million)—are American companies like Alphabet through its Google subsidiary, Apple, and Amazon.com.

That taxable EU revenue is key here.

The EU says these firms have exploited loopholes in tax laws and managed to lower their tax bills by shifting profits to low-tax jurisdictions within the EU such as Ireland and Luxembourg.

The effective corporate tax rate paid by digital firms amounts to just 9.5%, but traditional businesses pay about 23.3%, according to EU data.

But the measure is likely to pit low-tax European member states against countries like France and Germany, which have often complained about digital companies’ aggressive cross-border tax planning….

Heaven forfend the EU should lower, or allow its member nations to lower, those traditional business’ effective tax rates to the 9-10% range.  On the contrary, the EU is adamantly opposed to tax rate competition and to lowering member nations’ tax rates.  All members much charge substantially the same high tax rates.

And this anti-competitive, so say nothing about anti-liberty, position:

the European authorities’ push for more control over how the digital world operates.

This is the tax portion of the EU’s mercantilist push for protectionism, even as it decries what it sees as American protectionism.  The EU, though, is aiming its moves at its own members as well as the outside world.