Category Archives: Economics

Miscellaneous economy stuff

Be Like Europe?

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Emulate Germany?  That’s the constant refrain of the Left and of their Progressive-Democratic Party.  After all, Germany is running large budget surpluses, taking the second largest bite out of German wages of all the OECD nations, at nearly 50%, overcoming government spending running 45% of GDP.  Here is an indication of the contempt with which German politicians—both “conservative” and Leftist—view German citizens:

[T]he perception of tax cuts in the country’s political mainstream ranges from slightly shameful to outright evil. Many conservatives see them as overindulgent toward voters, while the center-left views them as morally indefensible gifts to the rich. All parties, with the exception of the pro-business Free Democrats, favor a high degree of redistribution.

“You need high taxes in order to be civilized,” said Sven Giegold, who represents Germany’s Green Party in the European Parliament. “We are very far away from the government having too much money.”

It seems Germans, like Herb Croly’s Americans, are morally and intellectually inadequate to serious and consistent conception of [their] responsibilities as…democrat[s].

And we should be like them.  Sure.

A Proposed Budget Cut

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President Donald Trump’s budget proposal contains a funding cut for the Manufacturing Extension Partnership, with effect in 2019, of $125 million.  The Partnership supposedly “created or protected more than 100,000 jobs” just in the last fiscal year.

I’m not convinced that’s a bad idea.  The function is good, but should the Federal government be the one paying for it? After all, it’s our tax money, not the Feds’.  Besides, the Partnership, as originally conceived, wasn’t intended to get Federal dollars; the existing subsidies are relatively new.

State universities already have outreach programs for agriculture, albeit heavily subsidized by the Federal government—Agriculture Extension Services.  It would be beneficial for the several States to set up, again in their State universities, Business Extension Services.  Care should be taken to ensure that these extension programs complement, rather than duplicate, the Small Business Administration, which also works closely with the States’ universities.

It’s the local, small businesses that benefit the most from such services; Big Business doesn’t need the support.  It should be the States who pay for this, using the tax money of the States’ own citizens, not the funds transferred from the citizens of other States.

This illustrates, too, the folly of inter-State transfers of moneys, especially while laundering them through the Federal government along the way (with the Feds taking their taste as the money passes through).

Investment Acumen

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Investment managers at Harvard and the State of Hawaii—and a potful of others—have made big bets [sic] on the low volatility of the stock and bond markets and on the apparent permanence of that low volatility.

After interest rates collapsed on the heels of the financial crisis, they [pension funds, endowments, and family offices] ran into challenges paying pensioners and filling university budgets, and added riskier bets on hedge funds and venture capital in the hopes of winning better returns.

More recently, some of these investors also made big, unpublicized wagers seeking to benefit from what had been an unusually long period of low volatility, according to pension-fund consultants and others who deal with these institutions. The strategies, often involving the writing of complicated options contracts….

These high-rolling gamblers include such luminaries as Harvard University’s endowment managers, Hawaii’s managers of the State’s Employees’ Retirement System, and the managers of the Illinois State Universities Retirement System.

Talk about betting the farm.  And then, as some of you may have noticed, volatility returned to the markets a couple weeks ago.  The markets returned to normal.

The rise of low-volatility bets is among the reasons this downturn is different, investors say, and difficult to predict.

Right.  This time it’s different is the most common claim of those who’ve bet the biggest and are losing big league.

At least these geniuses aren’t betting their endowments and pensions on bitcoin futures.  Yet.

Don’t Pay It

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The Federal National Mortgage Association, Fannie Mae, the government-run (never mind that it’s supposedly only government-sponsored, it began life as a government agency, it was set out on its own and failed, and now it’s under Federal Housing Finance Agency management regulation) mortgage securitizor, is failing again.  And now this agency wants a taxpayer bailout.

Fannie said Wednesday its regulator, the Federal Housing Finance Agency, would seek a fresh taxpayer infusion of $3.7 billion from the Treasury Department as a result of the loss [of $6.5 billion in the last quarter alone]….

It also would be, if this taxpayer bailout goes through, the second one for this agency just since the Panic of 2008.

The thing has, in fact, been paying dividends to the Treasury, but it’s time to stop feeding it.  It isn’t necessary; if the free market wants securitized mortgages to facilitate mortgage lending, private enterprise securitizers will appear—just look at all the securitizers of other kinds of loans and other methods of securitization that have already appeared.  Treasury will more than make up for the lack of Fannie Mae dividends from the tax revenue accruing from a more dynamic free market.

Fannie Mae and its brother, Federal Home Loan Mortgage Corporation (Freddie Mac), just distort the lending market.

The agency needs the infusion?  No, it doesn’t.  It needs to go away.  Along with Freddie Mac.

A New Insurance Plan

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Idaho has one.  Blue Cross of Idaho says it’s going to take advantage of newly issued State regulations to start marketing a plan that won’t meet Obamacare requirements, and they’re going to sell the plan alongside its existing Obamacare-compliant plans.

The Idaho Department of Insurance last month became the first state regulator to say it would let insurers begin offering “state-based plans” for consumers that involved practices generally banned for individual insurance under the ACA, including tying premium rates to enrollees’ pre-existing health conditions.

In particular,

The new Blue Cross state plans’ premiums would vary based on an enrollee’s health status—for instance, for one of its new plans, the insurer suggested that the best rate for a healthy 45-year-old could be around $194.67 a month, while a person of the same age with worse health could pay as much as $525.69. For one of its “bronze”-level ACA plans, the premium for a 45-year-old, regardless of health history, would typically be around $343.09, the insurer said.

Risk-based premiums.  What a concept.  And lower risk brings a premium roughly half the Obamacare risk-be-damned charge.