Category Archives: Economics

Miscellaneous economy stuff

Systemic Importance and Institutions

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Minneapolis Federal Reserve President Neel Kashkari is on the right track, but he’s not there yet.  He’s one of a very small number of financial regulators (of any sort of regulator, come to that) who has the self-assurance and intellectual honesty to say, and to mean, things like

I start with the assumption that regulators are going to miss the next crisis.  We’re going to miss it.

He’s got a solution to that, too, but it’s only a partial solution, and that incompleteness stems from a fundamental lack of understanding.

The lesson he drew [from the Panic of 2008] is that if you want to reduce the risk that taxpayers will have to finance another rescue, financial giants need to be much better fortified before the next panic hits.

This is a start (we can argue with specific levels of fortification, of capital reserves, that are suitable, but the principle is sound), but he needs also to recognize the other side of this cash coin: businesses, including banks and systemically important institutions, need to be allowed to fail without taxpayer monies.  We have a perfectly fine bankruptcy system that works admirably well.

But the lack of understanding that regulators have of their capabilities, even with Kashkari’s degree of understanding as a start, makes much of that two-part solution less than fully relevant.  The lack of understanding is this: if the regulators can’t predict the next financial (or any other) crisis, if they can’t characterize what it will look like, on what basis do they presume to be able to predict the institutions that are/will be important to those crisis systems?

Free Trade

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Specific trade deals might be good or bad, but that’s specific to the deal; such efficacies don’t say much of anything about free trade or free trade deals in general.  There are, in fact, two primary reasons for encouraging free trade, zones of free trade, and the deals that enhance free trade and generate free trade zones.  One reason is the economic benefits for the partners of the free trade deals, including lower costs—and so downward pressure on price inflation—for the citizens of the nations involved, and net (if small) job creation, which stems from those lower costs and domestic companies benefiting from the increased demand that flows from those lower costs.  It’s true that particular jobs disappear as production moves to lower cost areas (and that’s true for entirely domestic regions, too), but other jobs get created as other businesses crop up to take advantage of production shifts.

The other reason, though, and the reason that’s the emphasis of this piece, is free trade and free trade zones as instruments of foreign policy.  There are lots of ways free trade operates here, ranging from enhancing relationships among the members of the free trade arrangement to demonstrating the economic benefits of free markets to potentiating the freedoms associated with free markets to countering the influence of our enemies.

The Trans-Pacific Partnership pending deal and the People’s Republic of China’s responses present an example of that last.  The TPP initially involved a dozen nations rimming the Pacific including the US, Canada, Chile, and Peru on the eastern side and, importantly, including Japan and many of the nations surrounding the South China Sea.  Recall that the PRC has seized and is actively occupying the South China Sea and is attempting to seize the East China Sea; these aggressions are at the direct expense of those South China Sea nations and of Japan.  Aside from the naked grab aspect, the PRC’s behavior is aimed at harming American interests in the Pacific through those harms to our friends, allies, and potential allies, the aggressions are aimed directly at those nations: to subordinate them economically, and then politically, to the PRC.  Keep in mind that 30% of the world’s seaborne trade goes through that South China Sea, including more than $1 trillion of trade bound for us, with the bulk of the rest not going to the PRC being critical to the economies of those rimming nations and Japan.

The TPP by design did not include the PRC.  The failure of the TPP is being filled by a PRC-led trade pact in the offing in conjunction with its in-progress Regional Comprehensive Economic Partnership.  But neither this new trade pact nor the RCEP are agreements among trade equals.  The members of these deals will be required to toe the PRC line regarding censorship, intellectual property rights, cyber security, so on.

And

In the next five years, China will import $8 trillion of goods and invest $750 billion abroad, [PRC President Xi Xinping] said.

Those are $8 trillion of goods—and services—that could be going to members of the TPP and to us rather than to the PRC.  Further, that trade imbalance—to the extent that President-elect is correct about trade imbalances—constitutes a lever that could be used to…encourage…the PRC to withdraw from its occupation and attempted occupation of those two Seas.  Frankly, I don’t think Trump is right on trade imbalances, per se, but the economic isolation of the PRC possible from those numbers, to the extent Xi believes it, still represents a long lever.

Japan has gone ahead and ratified the TPP, and other members of the pending pact should do so, as well.  This would not only work to the mutual prosperity of the ratifiying nations, it could serve as a strong economic check to an aggressively expansionist PRC.  The economic integration potentiated by the TPP would enhance the region’s own leverage against the acquisitiveness of the PRC by making them, as a group even without us, much closer to the PRC’s equal in economic power and leverage.  Details of the deal may well want improvement, but that should be for Round Two of the negotiations while the deal’s effectivity and weaknesses are observed empirically.

The containment of the PRC makes the deal as it stands worth it.  Especially with a Round Two.

A Minimum Wage Mandate Demonstration

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McDonald’s, which already has ordering stations—kiosks at its restaurant tables from which diners can order their meals and have them delivered to them—at some 500 of its restaurants in Florida, New York, and California.  The Daily Caller, citing CNN Money, says more of these kiosks are scheduled to be added, next year, in McDonald’s restaurants in Chicago, Boston, San Francisco, Seattle, and DC.

Governor Andrew Cuomo (D) signed into law a new $15 minimum wage for New York State in 2016, and the University of California has proposed to pay its low-wage employees $15. Florida’s minimum wage will rise I January 2017. Seattle raised its minimum wage to $15 in 2014, followed by San Francisco and Los Angeles.

Notice that.  The additional kiosks are going into areas that have raised (Chicago and Boston in addition to San Fran and Seattle) or will raise soon their required minimum wage, instead of letting that be an item of negotiation between free workers and free employers.  It doesn’t cost $15 to operate one of these kiosks for an hour.  Even given the up-front costs of acquiring and installing the kiosks, their life cycle costs are much less than those of a $15/hr unskilled order-taking worker doing unskilled work, given the worker’s training (even if minimal) and high turnover rate costs.

Which is what the Left has known all along, because serious economists have been telling these Know Betters about these outcomes right along.  The Left’s policies are actively destructive of the prospects for those the Left claims it’s aiming to help, but those of the Left would rather virtue signal and feel good about themselves than do actual good for others.

Aparna Mathur, Resident Scholar for Economic Policy at the American Enterprise Institute [emphasis added]:

We know that we don’t really need someone to take an order…and we will eventually have machines do it. It is risky to fight for something that could put you out of work[.]

There’s an understatement.

 

H/t AEIdeas

Be Careful Out There

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…as you use your Android smartphones.  Some of them, courtesy of a People’s Republic of China company called Shanghai Adups Technology Co, are infected with malware at the point of manufacture.  Phone manufacturers include BLU Products, ZTE, and Huawei; although not all of BLU’s models are infected.  ZTE and Huawei both are State-owned, and both of these refused to answer Consumer Reports‘ requests for information.

The problem is that Shanghai Adups, a supplier of Firmware Over-The-Air (FOTA) update services for smartphones, has inserted code that it wrote for the purpose into these phones’ firmware that

transmit[] their owners’ personal data to a computer server in China. It’s not clear how the data was being used, though security experts say it could have been accessible by the Chinese government.

Heads up.

How Democrats View Civility

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A group of maverick history teachers at elite Beacon HS in Manhattan let their kids skip class Tuesday to join a Trump Tower protest, despite objections from colleagues, The Post has learned.

Roughly 200 kids from the Hell’s Kitchen public school were granted hooky passes at 11 a.m. and joined students from across the city to disparage The Donald, sources said.

This is reminiscent of the teachers unions in Wisconsin and of the Wisconsin and Indiana Democratic Parties during their wars on the States’ governments over worker rights not to pay money to unions to which they didn’t belong.  In those cases, the Wisconsin unions encouraged their teachers to lie about where they were as they missed work (with too many doctors complicit in the lies) to “protest” the State government’s legislation to rein in public unions and the Democrats in both States giving themselves permission to abscond from the States, shirking their duties, and halting those two governments because these minority parties didn’t get their way.

So now precious teachers are teaching precious little ones to emulate precious Democrats and these teachers’ unions.

The schools employing these teachers are receiving tons of State dollars under a broad range of programs and grants.  It’s time to review those programs and grants.