Category Archives: Economics

Miscellaneous economy stuff

Extortion

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Fox News is reporting that the

White House confirmed Thursday that President Obama is prepared to veto legislation that would skirt the so-called “fiscal cliff”—a battery of tax hikes and spending cuts—unless Republicans consent to raise taxes on top earners.

Democratic Presidential Candidate Barack Obama plainly willing to see our economy collapse into another recession every bit as deep as the one from which we’ve not yet recovered solely for the sake of the ego of his getting his way on tax increases.  Obama demands to raise taxes on the 2% of the wealthiest of Americans while leaving taxes alone for the remaining 98% of us.  That’s his number, 2%.  Even though his tax increases will impact far more Americans than that (like anyone with income over $250k—small businesses, for instance, which pass through their incomes to the mom and pop owners/partners for tax payment), let’s take his number for argument’s sake.  What Obama is saying is that he’ll cheerfully blow up our economic future because he can only get 98% of what he claims to want: unchanged taxes for the 98% of the rest of us.

This makes crystalline what Obama really wants: those taxes on that group of Americans which he despises so much.  Obama doesn’t care a whit about the middle class or the poor, whom he could help by calling off his self-imposed gridlock.  He’s only concerned about the rush he’ll get from getting his way and getting over on that unacceptable group of citizens.

But this failure goes far beyond petty ego or the damage done to our economic future; it hits at our ability to protect ourselves from our enemies.  By vetoing any bill that doesn’t have his precious tax increases, even though it would walk us back from the fiscal cliff (just a bit over two months off), he’ll also be vetoing any bill that would end the sequester of an additional nearly half-trillion dollars from our military capacity beyond the already built-in nearly half-trillion dollar cut in spending for defense.  This is having, today, a negative effect on defense-related jobs.  Worse, the veto will put our military’s welfare, training, equipage, and capacity in serious jeopardy.

Here is extortion the Chicago way.  Nice economy you got there….

Lies of the Democrats, Part 2

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This is Part 2 of my series on the lies told by Democrats during the present administration’s term in office.  As I said earlier, I’m not concerned with his broken campaign promises so much as I am with the dishonesty while in office.

In this post, I’ll mention a few more economic lies.

The Democrats insist that their “Stimulus” spending and their diversion of part of the TARP funding “saved the American automobile manufacturing industry,” the latter itself of questionable legality, given the legislated purpose of the TARP funding.

This is nonsense.  In fact, only two car companies were at risk out of the seven major car companies that comprised, and still comprise, the American automobile manufacturing industry.  Those seven?  In no particular order, they are Ford, Honda, Hyundai, Toyota, Nissan, GM, and Chrysler.  But wait, you say, Ford, GM, and Chrysler are the only American car manufacturers; the other four are foreign—and two of those three were threatened with bankruptcy.  How is saving those two not saving the American automobile manufacturing industry?

The fact is, none of those seven car manufacturers manufacture anything in the US, including the American three.  All seven of those companies do have major plant complexes in the US whose function is to produce cars for sale in the US.  That production, though, is limited to final assembly.  Every plant, for every car manufacturer, imports all of their cars’ parts—chassis, body panels, engines, batteries, even tires and wheels—from other countries: Mexico, Taiwan, the People’s Republic of China, India, wherever the costs of parts production is lowest.  Thus, every automobile manufacturer in that American industry is on an even footing with every other auto manufacturer: they all do final assembly (and only final assembly), of imported parts, in the US, for sale to American customers.  Those seven, not only the American three, are the American automobile manufacturing industry.

Now, of those two car companies that were saved, what was the nature of the rescue?  Normal bankruptcy procedures were bypassed, and the Obama administration forced senior creditors to the back of the line—the funds went first to the auto manufacturing unions (vis., the United Auto Workers and the Canadian Auto Workers Unions), while those senior creditors wound up getting nothing.  This stood bankruptcy law and order of precedence for creditors on their collective head.

And the bailout of the two American car companies went so well that one of them—Chrysler—is now an Italian car company.

Lies of the Democrats, Part 1

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Last week I concluded a series of posts on Lies of my President, the first post of which is here.  Starting this week, I’m running a series of posts identifying a number of lies from the Democratic Party and its supporters.  As with the first series, I’m not concerned with broken campaign promises.  Instead, I’m going to write about the outright lies that the Democrats and their supporters have made since Democratic Party Presidential Candidate Barack Obama took office, taking them in no particular order, but with some rough grouping by general topic.  With that, this is the first in a series of posts about the lies of the Democrats.

Last March, Democrats attacked Republican Party Vice Presidential Candidate Paul Ryan and his budget (proposed by Ryan in his capacity as Chairman of the House Committee on the Budget, passed by the House, and ignored by the Democrat-controlled Senate) as reneging on a bipartisan budget deal capping Federal expenditures.

Ryan’s budget set spending at $1.028 trillion, less than the agreed-with-Democrats (as part of the debt ceiling negotiations) cap of $1.047 trillion.  Senator Patty Murray (D, WA) accused “Republicans” of

reneging on a deal their own Speaker shook on less than eight months ago

to spend $1.047 trillion.  Never mind that the $1.047 trillion was, that prior August, an agreed cap on spending, not a floor or guaranteed amount.

She added to this, insisting that Republicans

are threatening families across America yet again with the prospect of a government shutdown.

This, too is a lie: the only ones talking about a government shutdown at the time were the Democrats.

Last April the Democrats demonstrated their dishonesty again, this time shamefully joined by some RINOs.  The Senate voted for cloture, 62-37, to take up a bill that would violate that August budget control act by increasing deficit spending to the tune of $34 billion for the Post Office.

Oh, wait—that’s roughly the difference between the agreed spending cap and the Ryan budget.

Monetary Policy

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This week’s print version of Der Spiegel has a cover depicting a slowly melting €1 coin captioned Vorsicht, Inflation! Die schleichende Enteignung der Deutschen, or roughly, “Caution, inflation! The creeping expropriation of Germans.”  Inflation erodes the value of (German) wealth.  An English translation of an article summarizing this cover theme can be found here.

Andrew Bosworth, chief portfolio manager for PIMCO in Germany (PIMCO is a global investment management firm of serious proportion), describes the underlying problem:

The industrialized world is stuck in a severe debt and growth crisis.  The central banks are fighting the disease with monetary infusions of previously unknown proportions[.]

Then he notes the problem this “cure” is generating:

[T]he side effect is a slow but dangerous devaluation of money.

And

Gradual inflation has a numbing effect.  It impoverishes the lower and middle class, but they don’t notice[.]

Indeed, paraphrases Spiegel Online,

For the past five years, governments from Berlin to London and from Brussels to Washington have been in crisis mode.  They rescued the banks in 2007 and 2008, then they stimulated the economy and, since 2010, have threatened to drown in their own debts.  The burdens are being pushed up the line, from private investors to central banks and government bailout funds.  But this doesn’t make the debts any smaller.

Despite this, though,

[T]he central banks of the United States, the euro zone, Great Britain and Japan jointly announced their intention to pump even more cheap money into the financial markets…. [The banks and the populations, both] recognize that governments seem to be willing to accept higher inflation if it facilitates debt reduction.

Especially since inflation, devaluing the relevant currencies, devalues the debts measured in those currencies.

What has a German portfolio manager to do with our situation in the US?  The inflation threat from throwing money at the problems of an economic dislocation is a basic principle of economics; it’s not unique to Germany.  Banks aren’t lending, or borrowers aren’t borrowing: throw money at the banks.  Folks aren’t spending because…pick a reason: throw money at the banks.  There’s too little economic activity, generally, because…pick a reason: throw (“stimulus”) money at the economy.  Whatever the mechanism, the response (I do not say “answer”) has been to increase the money supply.

But the outcome, whatever the path, is an enormous increase in the amount of money chasing a supply of goods and services that is not increasing at all in a stagnant economy, or one that’s growing more slowly than the population.  Or, at present, isn’t chasing at all because the recipients of all that money are sitting on it in some way: banks are chary of lending because, for instance, they’ll get hammered by our government for making bad loans, even as they’re currently yelled at by our government for not lending.  Citizens aren’t spending, preferring instead to pay down current debt or to save, husbanding their small wealth against a too uncertain future.  This is the textbook condition for enormous inflation when the dam breaks.

What are the Fed and the Obama administration doing in the US?  Throwing money at the banks (the Fed’s artificially suppressed—to essentially zero—interest rates and QE1, QE2, QE3,…,QE∞(?)) and the administration’s throwing money at our economy (stimulus “investing” nearly annually since winter 2009, sweetheart loans, and loan guarantees).

We have an increasingly vast supply of money chasing a supply of goods and services that is not expanding.

As I mentioned at the top, when inflation does strike, it will hit the poor and middle-income folks much harder than the wealthy: the former already spend the vast majority of their wealth on the necessities of life: food, fuel, clothing, and shelter.  Yes, more personal financial discipline would help—and folks should be exercising this discipline as a matter of course.  They are, too: the trend in savings rates, especially relative to income rates, has been to increase savings since the Panic of 2008 struck.  But the coming inflation explosion can easily overwhelm those efforts.

Heads up.

Solar and Wind Energy Subsidies

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There was sort of a debate presented in The Wall Street Journal a few days ago concerning the efficacy of Federal subsidies for solar and wind energy companies.  I say “sort of” because the Mark Muro’s arguments in favor of the subsidies demonstrate an utter cluelessness of the basics of economics as well as of how well the subsidies have already performed.

For instance, the WSJ‘s lede cites generic proponents as saying in all seriousness,

There is widespread agreement that pulling the plug on the subsidy at this point could hobble the wind-power industry.  Meanwhile, the biggest federal subsidy for solar power, a tax credit for 30% of the cost of installed equipment, is set to drop to 10% at the end of 2016.  A cash grant for up to 30% of solar equipment costs expired at the end of last year.

Proponents say wind and solar subsidies are needed for a few more years to allow these clean, renewable sources of energy to develop to the point where they can compete on price with electricity produced from coal and natural gas.

Yet, if the technology can’t compete in a free market on its own, if it needs the subsidy to survive, the technology is not ready for commercial use or sale.  Spending taxpayer money—private citizen money—on such a thing is a textbook example of Fraud, Waste, and Abuse.  As the proponents admit without realizing it in that second paragraph: “…wind and solar subsidies are needed for a few more years to allow these clean, renewable sources of energy to develop….”

Muro then says in his argument,

Let’s remember the point of these temporary subsidies: to help emerging clean-energy technologies gain toeholds in challenging markets and advance toward unsubsidized price-competitiveness.

And

The ultimate reward is cheaper, cleaner energy and greater energy diversity, which will help guard against price shocks, keep energy costs down through competition and lessen the damage our energy consumption does to the environment….

Except that it isn’t cheaper if it needs subsidies coupled with coal, oil, gas (hydrocarbon) prices that are artificially elevated by government mandates to include “green” additives as the Feds do, or to buy electric power from solar and wind generators, as California does, in order to compete.  Moreover, diversity is reduced, not expanded by limiting us to solar and wind—or even by demanding that we buy a certain amount of solar and wind, regardless of market forces—and actively blocking access to hydrocarbon energy.  And finally, if these really are viable technologies that will deliver cheap energy easily, private investors will flock to invest, and no taxpayer subsidy will be even in the picture.

On top of that, there’s no case for environmental “damage,” given the great amount of cleanup already done, and the falsified “damage” attributed, for instance, to fracking by the EPA.

Muro goes on:

Wind and solar need the help because the barriers for new technologies in the energy industry are tougher than those in any other industry in this country.  Fossil fuels, with the help of their own government subsidies over the years, are thoroughly entrenched, with trillions of dollars’ worth of infrastructure in place.

Never mind that that entrenched infrastructure sits on top of centuries’ worth of economical, unsubsidized hydrocarbon deposits in the ground right here in the US and Canada, and the infrastructure easily can be extended to reach into the deposits in our respective territorial and economic zone waters, as the People’s Republic of China already is doing, filling the vacuum left by the present administration’s slow-walking of drilling permits for American companies.

Additionally, the beef that “the barriers for new technologies in the energy industry” are tough is just a cynical red herring.  Those technical barriers existed for the hydrocarbon industries, also, as they were developing.  Why should solar and wind get special treatment?  Muro has no answer; he merely asserts the “need.”

Muro concludes with this long-standing “promise:”

In sum, onshore wind is likely just a few years away from true subsidy independence, while several forms of solar aren’t far beyond.

Like commercial fusion, we’ve been “just a few years away” for decades.  It’s an empty promise.

As Dr David Kreutzer points out in his argument against these subsidies, though,

Surely some alternatives to fossil fuels will be developed, but they will only work if they are affordable.  Wind and solar aren’t, and that isn’t changed by shifting the costs from consumers and producers to the taxpayers.

Bureaucrats and politicians shouldn’t be the ones deciding which technologies are the most promising or what timeline is too long or what losses are too deep.  The market will do a much better job of answering the question: are wind and solar power really viable?

Let’s get rid of the subsidies and find out.