Category Archives: Economics

Miscellaneous economy stuff

Social Guarantees

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Ilan Brat and Giada Zampano wrote, in a recent Wall Street Journal piece, about job protections and their effects on the prospects of today’s children and young adults in Europe. The whole article is well worth the read for its specifics, but from my perspective, the following is the money quote, from one of those young adults, Ms Serena Violano, a 31-year-old still sharing a room with her older sister in their parents’ home:

For our parents, everything was much easier. They had the opportunity to start their own life. Instead, we don’t have any guarantees for our own future.

Therein lies the core of the failure of “social democracy.” There are no guarantees. There never were any guarantees, for Ms Violano’s parents or for anyone of that generation. Those of Ms Violano’s parents’ generation made their own futures, with no expectation that anyone, least of all government, would guarantee them anything but the freedom of their own choices and efforts. They had no other expectations because they knew that government could make no other guarantees.

The well-intentioned guarantees of social democracy, including the labor “guarantees” of which Brat and Zampano wrote, in the end can only destroy what they purport to guarantee.

The White House as Tax-Writing Authority

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Secretary of the Treasury Jack Lew originally (originally: three weeks ago, in mid-July) acknowledged he had no authority to alter the tax implications of US businesses reincorporating overseas in order to reduce their US tax burden.

Now he’s looking at (not for) ways to “meaningfully reduce the tax benefits after inversions take place” because reducing a company’s cost structure, the legally and fiscally required behavior of any company’s managers, by making use of this “unpatriotic tax loophole” is unpatriotic. I’ll ignore the fact that what’s unpatriotic here is the usurious tax rates charged American companies and the zeal with which this administration attacks American companies for worrying about their bottom line more than they worry about government imperatives in order to get to a different point. As The Wall Street Journal put it,

So now we have a President in an election year looking for a way to raise taxes on corporations after he couldn’t get Congress to agree. Has anyone asked Treasury’s career lawyers or the Office of Legal Counsel? Someone should. And when the next President arrives in 2017, one of his first acts should be to release publicly all of the OLC memos making the legal case for Mr Obama’s many illegal acts, assuming there are any.

And if there are not, the next President should release far and wide the empty file folder that would be this administration’s lack of consultation with the law or with any government lawyers.

A Trade War

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Russia has announced that it won’t buy certain goods from certain of the nations that are sanctioning Russia over its invasion of Ukraine and its fomenting of rebellion in eastern Ukraine. This is a trade war that Russia shouldn’t be expected to win.

For one thing, Russia’s economy is the size of Italy’s and more moribund, so any trade war can only hurt Russia relatively more than it can hurt the far larger economies of the US, the EU, Australia, Canada, even Norway, who are the targets of the Russian boycott.

For another thing, here are some facts related to this boycott.

[Russia has] banned imports of meat, fish, milk and milk products, and fruit and vegetables….  The ban has been introduced for one year

[Russia] may also introduce restrictions regarding imports of planes, navy vessels, and cars…

And

Russia depends heavily on imported foodstuffs—most of it from the West—particularly in the largest and most prosperous cities such as Moscow, where imported food fills an estimated 60-70% of the market. Food and agricultural imports from the US amounted to $1.3 billion last year, according to the US Department of Agriculture, and in 2013 the EU’s agricultural exports to Russia totaled €11.8 billion ($15.8 billion). [This is against GDPs of $17.3 trillion and €13.1 trillion for the US and the EU and ₱75.8 trillion ($2.1 trillion) for Russia.]

A year, though, is plenty of time for the banned sellers to find new markets, which reduces the long-term need to sell to Russia at all. This, in turn, produces a capacity functionally to embargo Russia with respect to those goods—not by explicitly and legally refusing to sell to Russia, but by voluntarily and economically selling elsewhere instead.

A year also is plenty of time for Russia to find other sellers: Latin America, Turkey, other ex-Soviet nations, and so on. Russians won’t starve. However, the reason these other sources aren’t current suppliers is because the boycotted nations can sell into Russia at lower prices than those alternatives. These alternative sellers will, almost necessarily then, cause higher prices in Russian stores.

Entitlements and Taxes

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Dr Ben Carson had a couple thoughts a while ago; they’re still valid.

On taxes:

What we need to do is come up with something simple. And when I pick up my Bible, you know what I see? I see the fairest individual in the universe, God, and he’s given us a system. It’s called a tithe.

We don’t necessarily have to do 10% but it’s the principle. He didn’t say if your crops fail, don’t give me any tithe, or if you have a bumper crop, give me triple tithe. So there must be something inherently fair about proportionality. You make $10 billion, you put in a billion. You make $10 you put in one. Of course you’ve got to get rid of the loopholes.

On health care:

Here’s my solution: when a person is born, give him a birth certificate, an electronic medical record, and a health savings account to which money can be contributed—pretax—from the time you’re born ’til the time you die. If you die, you can pass it on to your family members, and there’s nobody talking about death panels. We can make contributions for people who are indigent. Instead of sending all this money to some bureaucracy, let’s put it in their HSAs. Now they have some control over their own health care. And very quickly they’re going to learn how to be responsible.

The only place I disagree with him is on the degree of heritability of the HSA. Given the slowness of growth of the relevant supply (of health-related services) compared with the rapidity of growth of its demand, accumulating wealth in an HSA would over just a couple of generations create too much money earmarked for health services; this money would rapidly increase health services prices. And that would price those just starting out—newborns, new immigrants, and so on—out of the health services market, just as the present system and its immediate precursor have done. Instead, let the dearly departed’s remaining HSA be passed into his estate as an ordinary asset of the estate, and let each new entrant—those newborns, new immigrants, and so on—start their own HSAs anew.

Nonetheless, The Wall Street Journal titled their article about these thoughts “Ben Carson for President.” We could do worse.

Another Government Overreach

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In a recent op-ed piece, The Wall Street Journal correctly decried the Financial Industry Regulatory Authority’s CARDS program. This program, cynically named “Comprehensive Automated Risk Data System,” is a program that wants to require all of our brokerage houses to report to FINRA massive amounts of data concerning our investment accounts, including what we’re doing in (with?) those accounts.

The op-ed correctly objected to CARDS’ massive collection of data, saying

FINRA says the ocean of data will help it spot a problem almost in real time, far earlier than if it showed up during a regular examination. …

But the financial crisis showed that more data doesn’t guarantee that regulators will know what to do with the information, and it’s as likely the data flood will overwhelm FINRA.

 

But the WSJ missed a far larger problem with CARDS (and with FINRA generally). The piece cited FINRA’s Chairman and CEO Richard Ketchum’s statement about CARDS’ purpose:

CARDS will allow us to collect and manage data from firms in such a way that we can quickly identify trends and product concentrations that are harmful to investors and take swift, responsive action.

Whose definition of “product concentrations that are harmful?” Why, Big Government’s, of course. This is the real danger of this sort of program: government usurping the free market’s role—and so, deprecating the market—in determining what is harmful. This simply makes the definition of “harmful” a political one, rather than a legitimate one.