Category Archives: Economics

Miscellaneous economy stuff

The Wages of Competition

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Samsung Electronics Co’s  weaker-than-expected second-quarter earnings guidance and tepid results from HTC Corp show that high-end smartphone makers are starting to see growth taper as competition bites and cheaper devices flood the market.

And

High smartphone penetration rates in developed markets such as North America and Western Europe are leading to slower growth for high-end models…. Though premium models are most profitable for mobile-phone makers in general, they may have to look to cheaper models for growth, targeting emerging markets where growth potentials remain high….

And

Apple is widely expected to launch a lower-cost version of its iPhone later this year….  While Samsung and HTC have long made midrange phones, both are expected to bend their premium line down to more price-conscious customers.

In a free market, a monopoly’s barriers to entry always will be overcome by entrepreneurs, the monopoly’s pricing power will be broken, and the monopoly will lose market share to newer, better, cheaper rivals.

In a free market, a product leader’s high prices always will be driven lower through the competitive pressure of new entrants into the leader’s product niche.

You don’t get this competition in a managed economy, whether an openly socialist one, or the social democratic ones of Europe.  Or the regulation-controlled economy that the United States’ one is becoming.

Macroprudential Tools for Economic Flow Control

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Central banks, including the Fed, are trying to narrowly target their manipulation of national economies by using new tools to manipulate economic incentives in particular sectors.

The point of the new tools is to protect the entire financial system and economy, so economists refer to them as macroprudential.  That distinguishes them from microprudential, which describes traditional oversight to assure safety and soundness of individual banks.

However,

The whole idea makes some economists uneasy.
…
The techniques have ignited a debate among central bankers, bank regulators and academics over whether they can do what proponents promise.

Some see “macroprudential” as a euphemism for the largely discredited practice of governments deciding where capital should flow.

They should be uneasy; that’s exactly the effect, whether it’s intentional or not.  Too expensive to put money into this industry, investors and businesses say.  We’ll put our money in that industry, instead.

And create a bubble there instead of here.  Or we’ll put our money into that country instead of this one, they say.

And the net result is to drive inflation in that country instead of this one.  Or, more likely and more insidiously, strengthen an existing tendency toward a bubble or toward inflation, possibly pushing that tendency past a threshold.

But the US government, at least, more broadly than the Fed had already been engaged in macroprudential tools for economic flow control: the Community Reinvestment Act, which was used to pressure banks into making more home loans to poorer credit rated borrowers than the banks thought prudent; tax policy for social engineering, which among other things gives preferential treatment to loans for this purpose but not for that purpose; and so on.  This has gotten even more so since the Panic of 2008: stimulus spending, special loans for particular industries, selective law enforcement where this impacts the economy, etc.

We already know, from all that empirically derived evidence, that targeting this or that sector of the economy not only does not work positively, it exacerbates the economy’s corrections (recessions) when those do (inevitably) occur.

The Fed had at one time a mandate to control price level (inflation) while pushing toward full employment.  It needs to stick to its knitting.  Sure, those are broad-brush goals, but our economy is too complex for any force other than the invisible hand of a free market to control.

Union Favoritism

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The Wall Street Journal tells the tale.

Washington, DC has an 8.5% unemployment rate, and it has come up with an ingenious plan to keep it high: the city council voted 8-5 late last month to require a $12.50 an hour “living wage” for certain big retailers, well above the current national minimum of $7.25.

The wage floor applies to stores with 75,000 square feet of space and $1 billion in parent-company revenues….

[T]he proposed law exempts companies operating under collective-bargaining agreements.  …supermarket chains like Safeway and Giant get a pass because they have union workforces.  So paying a non-living wage is fine as long as it also finances union dues.

Meanwhile, the unions keep jobs scarce and available only to union members.  And union power intact.

Hmm….

Obamacare Fail. Again.

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President Barack Obama has admitted that another critical aspect of his Obamacare is a dismal failure.  This time he’s

delaying a requirement that verifies the income levels of those seeking taxpayer subsidies until after the 2014 midterm elections.

Instead, the new insurance marketplaces operated by states and the District of Columbia will take the consumer’s word that they qualify for the subsidies[.]

And

Timothy Jost, a law professor at Washington and Lee University in Lexington, VA, and a consumer advocate, said it’s not unprecedented for the government to use the honor system, and compared it to reporting cash tips to the Internal Revenue Service.

It’s also like the 21%-25% of Earned Income Tax Credits that go to people who aren’t eligible (according to Treasury’s Inspector General) because their eligibility is self-verified, too.

Or rather than an admission of failure, is this just another administration excuse for lax pay outs of monies that aren’t deserved, even under the law?  As the Wall Street Journal puts it,

[A]nyone can receive subsidies tied to income without judging the income they declare against the income data the Internal Revenue Service collects.

Of course, a third alternative also includes none of this as abject failure.  These cynical (say I) delays simply are for building the dependency of Americans on government largesse, trapping us into voting for the Progressive party.

Government-Mandated, Privately-Funded Welfare

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Healthy consumers could see insurance rates double or even triple when they look for individual coverage under the federal health law later this year, while the premiums paid by sicker people are set to become more affordable, according to a Wall Street Journal analysis of coverage to be sold on the law’s new exchanges.

And

The exchanges, the centerpiece of President Barack Obama’s health-care law, look likely to offer few if any of the cut-rate policies that healthy people can now buy….

At the same time, the top prices look to be within reach for many people who previously faced sky-high premiums because of chronic illnesses or who couldn’t buy insurance at all.

And

Several big provisions in the law taking effect in six months affect rates for the estimated 20% of Americans who don’t have coverage through an employer, Medicare or Medicaid.  Plans must be available to consumers regardless of their health and must cover certain items such as hospitalization, maternity care and prescription drugs.

This is naked wealth redistribution—welfare—paid for, in part, on the backs of the young and healthy, who need no insurance.  Moreover, these young, as all Americans, ought to be able to choose for themselves the risks they’re willing to run; Government has no role to play here.

The rest of this welfare is paid for by the insurers: those policies that are required to be available to all comers, in the emergency rooms, must be provided by the insurers under Obamacare, at premiums that have nothing to do with the risk being covered—including the actual now-prior existing condition diagnosed in those ERs.  Watch the losses mount as these policies are canceled as soon as the emergency is past.

The Wall Street Journal article goes on, but these are the highlights.

There are other redistribution facets to Obamacare that are nor mentioned in the article, also.  Unmentioned here is another massive welfare payment suite, paid for by insurers: all of that coverage, all of those plans “that must be available…regardless of health,” must be available in hospital emergency rooms, and they must be buyable in real-time.  Watch the insurers’ losses mount as these policies are canceled as soon as the “emergency” is past.

Another thing that’s missing is the availability to the poor and much of the middle class of Health Savings Accounts.  True enough, these folks don’t have much money to put aside, but they are functionally prevented from putting away any of what they do have for their future health problems by the requirements for having HSAs at all.  Government won’t allow these except for those with a high-deductible policy—typically in the $3,000 and up range.  Our poor and much of our middle class can’t afford that much out of pocket expense, so they’re denied the opportunity to save for their own future health.  Deeper into the middle class, individuals and families still have other imperatives that limit their willingness to spend that much to get an HSA.

Certainly, with actual insurance in a free market, high risk pools will have higher premiums, but they’ll be able to get policies—even those with preexisting conditions.  But the rest of the rates will go down, and the market as a whole will go down, even with the higher premiums for higher risks.  A broader range of policies will exist, also.

These are the wages of welfare dishonestly masqueraded as insurance.