Category Archives: Economics

Miscellaneous economy stuff

Tax Cuts and Deficits

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The Wall Street Journal had a piece earlier in the week that focused on Republicans’ dismay over President-Elect Donald Trump’s tax cut plans, his infrastructure spending plans, and the deficits that would seem to result from the two.

However.

Once again, the pundit takes tax cuts (and individual spending items) in isolation. Of course, he knows better: broad spending cuts must accompany tax cuts—and isolated spending items—even dynamically, in order to achieve budget surpluses and so reductions in our debt.

The last two times Republicans reclaimed the White House from Democrats—in 1981 and 2001—they also successfully pushed for large tax cuts. Deficits nonetheless rose during their administrations.

This happened because both times Republicans accepted Democrat promises to support spending cuts “later,” and both times Democrats welched on their promises. Since Democrats cannot be trusted, the Republicans this time around will have to cut taxes and spending while arranging spending increases on particular items without Democrat “help.”  And they have the numbers to do that, including without Democrat involvement at all, since all those worthies are interested in is their knee-jerk obstruction of all things not Democrat.

The Courts Get Another One Right

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This case involves how much Federal control over land deeded by the Feds to a State the Feds retain when they make the deed.  In the particular case, the Feds, ‘way back in 1949, deeded land to Ohio (in particular, the Muskingum Watershed Conservancy District) subject to the criteria that the land had to be used for flood control, conservation, and recreation.  Lately, Ohio began allowing fracking under the land.

“Environmentalists” objected and sued to try to force the land back into Federal hands.  The relevant Federal district court dismissed the suit, and it wound up in the Sixth Circuit.  The Sixth waived the BS Flag at the suit.  Although much of the Court’s ruling was based on a technicality (the suit was brought as a violation of the False Claims Act perpetrated by Ohio for allowing the fracking; the Court demurred), there is another reason to applaud the outcome.

In ruling that there was no violation of the FCA, the Court also said in part,

neither the relators’ [the “environmentalists”] complaint nor their proposed amended complaint includes facts that show how MWCD would have known that the fracking leases violated the deed restrictions or how MWCD “act[ed] in deliberate ignorance” or in “reckless disregard” of that fact.

Indeed, fracking occurs well underground and so well away from any activities related to flood control, conservation, and recreation, which are surface or near-surface activities.  Thus, since fracking does not interfere with or otherwise impact such activities, it cannot violate deed restrictions that involve strictly those activities.

This was just a naked attempt by these relators to prevent us from getting cheap energy out of the deep earth cheaply.

The Sixth Circuit’s ruling can be seen here.

 

h/t Institute for Justice

Foreign Investment Risk

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The People’s Republic of China seems about to illustrate one form of this risk.

The State Council, China’s cabinet, will soon announce new measures that subject many overseas deals to reviews of “strict control,” according to people with direct knowledge of the matter and documents reviewed by The Wall Street Journal.

Targeted for particular scrutiny by the pending measure are “extra-large” foreign acquisitions valued at $10 billion or more per deal, property investments by state-owned firms above $1 billion, and investments of $1 billion or more by any Chinese company in an overseas entity unrelated to the investor’s core business.

This is nothing but an overt attempt to restrict capital flows across the PRC’s borders.  Restricting such flows from one nation to another, no matter the rationale, elevates the risk of foreign investment.  The investor, whichever the nation of his domicile, cannot count on a reliable income flow from his investment or even being able to get his money back from that investment at the expiration of the arrangement.

Separately, it demonstrates an attitude toward law and government that’s been extant in the PRC and its antecedents for thousands of years: “I don’t like what you’re doing—this investment plan of yours—here’s a nice ex post facto law that makes your activity illegal.”

Federal Green Expenditures

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Watts Up With That has some ideas for budget cutting in the next administration.  Or, actually, these ideas come from Salon (!) via WUWT (never mind that cutting isn’t what Salon meant).

  • Energy Department

2017 climate-related budget: $8.5 billion

  • Interior Department

2017 climate-related budget: $1.1 billion

  • State Department

2017 climate-related budget: $984 million

  • NASA

2017 climate-related budget: $1.9 billion

  • Environmental Protection Agency

2017 climate-related budget: $1.1 billion

  • National Oceanic and Atmospheric Administration

2017 climate-related research and development: $190 million

That works out to $13.8 billion of “useless waste.”  Yes, indeedy.

While we’re about it, let’s cut the “green” subsidies, too.  Every single one of them.  The fossil fuel (coal, oil, and gas) enterprises don’t need the $3-$5 billion (depending on who gets asked) in subsidies they get, either.  That’s yet more budget cutting.19+, although fossil fuels get much less than the “green” money being tossed down rat holes.

Times to Invest in the Market

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My personal stock market investing mantra has always gone like this: “The best time to invest was yesterday; the second best time is today; the worst time is tomorrow.”  I decided to take check that and see how accurate it might be, so I built a simple Microsoft Excel® spreadsheet to take a back of the envelope look.

I looked at a few scenarios over a 30-year investment period, each of which consisted of a single $10,000 investment done in Year 1 that then grew at 3%/yr for 29 (or 30) of those years.  In one of those scenarios, the investment simply grew at those 3%/yr.  In the other scenarios, the investment would spike upward by 20% in the first year, in the last year, or in the middle of the sequence; or the investment would spike downward by 20% in those three selected years.  It’s important to note, too, that since I’m comparing these three scenarios with each other to look at the underlying principle, it doesn’t matter whether those 3% are nominal, real, or compared to this or that stock market index.

The bottom line is this: the 20% spike up or down makes a significant difference in the final value of the investment.  That final value becomes $24,300 if the investment grows without the spike, rises to $28,300 with a spike up, and falls to $18,900 with the spike down.

That seems to make my mantra useless, until we look at the effect of when the spike occurs.  That difference is zero.  It doesn’t matter whether the spike occurs at the start of the investing period, at the end, or in the middle; the end values are all the same: $28,300 with a spike up and $18,900 with the spike down.

My bottom line: unless I can time the market with considerable specificity, I stick with my mantra and simply enjoy the spike or ride it out.

My spreadsheet, which unrolls this year by year, is here.

Note: use this at your own risk.  I’m not a licensed investment (or any other type of) advice giver, nor do I play one on the radio.