Category Archives: Economics

Miscellaneous economy stuff

On Rocket Science

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Here’s an excerpt (the second video at the top of the article) from an interview Fox News‘ Megyn Kelly had at the Republican National Convention Tuesday with Mia Love, Mayor of Saratoga Springs, UT, and Republican Candidate for the House of Representatives from Utah’s 4th District:

Megyn Kelly: How do you use that [her father’s advice about not being a burden on society, about giving back instead] in your life?

Mia Love: Well, if you think about it, as Mayor of Saratoga Springs, I have to ask myself several questions before I make any new commitments: is it affordable, is it sustainable, is it my job?  I’m doing everything I can…to make sure we have a fiscally sound city.  It’s not rocket science; the most I’ve done is really step out of the way and allow the economy to thrive, allow businesses to come in and add resources….

That’s clear enough.  Works at the national level too: get government out of our way.

Some Immigration Musings

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Former Governor, Ambassador, and Republican Presidential Candidate Jon Huntsman had some thoughts on immigration in a recent Wall Street Journal op-ed.  His heart is in the right place, but his thoughts are incomplete and naïve.

Huntsman rightly points out the importance of immigrants to our nation’s economy and to our freshness of thought.  He also rightly reviews past mistakes we’ve made vis-à-vis immigration—the 1882 Chinese Exclusion Act, the 1907 Gentleman’s Agreement, the 1924 Immigration Act, among others.

But he offers nothing concrete in the way of a solution beyond the usual “need to improve our visa system” and “need to recruit immigrants.”  But he does add this:

Such initiatives won’t only bring talent here—they will allow us to deny it to our competitors.

Sure.  Immigrants are pieces of meat, or tools to be used to our advantage and against other nations in a zero sum game.

Cue Bill the Cat.  This drivel is of a piece with the Progressive claptrap that says all blacks must be Democrats or they’re traitors to their race, that gays must be Liberals, or they’re self-hating…whatever.

No.  We should be welcoming immigrants because they’re human beings who want to make something better of their lives and their families’ lives and they have something to offer our nation—not because they have something to offer.

Note, though, that the visa games Huntsman rightly decries do need to stop; this is an important component to real immigration reform.  But there’s far more to this than just putting paid to some visa quota nonsense.  We need to make it much easier for folks who want to come here to do so easily.  The delays in getting visas need to be eliminated.  The visa system needs to be simplified: there really only needs to be three kinds of visas: residency, visitor, and business.  And I’m not convinced three categories really are necessary.  All categories should offer a path to citizenship, but that decision should be take-able by the immigrant (or resident alien, if he just wants to live here) at any time, or never, without impacting his visa.

It needs to be far easier physically to cross our borders, too.  Entry stations should be far more closely spaced, and not at all limited to urban areas.  This, just incidentally, will severely hamper human trafficking as the mules (and worse) will find their services needed far less.

But legal entry into our country is only one leg of the stool of immigration reform.  Sitting opposite that easy entry is a need to tightly secure our borders.  There really are folks who want to enter under the radar because their hearts are not pure and their goals are nefarious: drug traffickers and terrorists come to mind.  Accordingly, it ought to be hard to enter without a visa and at any place other than a check point.  This will require improvements and expansion in border patrols, surveillance equipment, and so on—and not just at the borders, but in depth.

And the third leg.  What do we do about the illegal aliens that are present?  Justice—to Americans, to aliens who have entered legally (maybe especially to them, since they’ve grunted through our Byzantine entry mazes and still got in legally), to existing immigrants—demands that the illegal aliens not be given a pass.  Congressman Luis Gutierrez (D, IL) and Senator Marco Rubio (R, FL) both have partial solutions that are worth building on in this area.

Most importantly, and making reform harder to do, all three legs of this reform must be done together.  No one of these is sufficient, and if less than all are done, the imbalance will just blow up the effort.

Government Market Intervention European Style

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From The Wall Street Journal we learn that that the European Central Bank wants to “manage” the interest rates on member nations’ sovereign debt instruments, and it wants to do so by entering the market for government bonds—announcing its buys and sells in a manner intended to “influence” the market’s interest rates imposed on those governments’ borrowings.  The WSJ quotes the ubiquitous “person familiar with the matter” as saying

ECB would guide investors toward a target, or range, for government bond yields of Spain and others by publicly communicating specifics about the amount of the bond purchases it conducts, as well as the details on the types of bonds it buys. For instance, if the central bank says it bought €1 billion ($1.26 billion) worth of shorter-dated Spanish bonds, it could move investors toward the yields it deems appropriate by raising or lowering purchases in subsequent weeks.

But the real thinking was revealed by the ECB’s President, Mario Draghi.  “Exceptionally high” risks are embedded in many government bonds markets, the WSJ cites him as saying, and to the extent to which these “risk premia” include a euro breakup scenario, they are “unacceptable.”  Thus, the market should sit down, shut up, and do what its betters tell them to do.  Investors’ pricings on exploding debt will not be tolerated.  Their duty is to simply keep lending at rates their Betters dictate.

Never mind that, as the Bundesbank’s Jens Weidmann puts it,

In democracies, Parliaments, not central banks, should decide about such comprehensive sharing of risks[.]

He’s not one of the Know Betters, so he’s just whispering in the wind.

***

Then we have this from Spain, in particular.  The government says it expects the Spanish economy to contract 1.7% this year, despite growing exports (from the declining euro more than any real productivity-related effects), and it will contract next year by an additional 0.5%.  Yet that same Spanish government fully intends to impose “billions of euros” in tax increases over these next two years (along with allegedly large spending cuts).  You read that right.  In a contracting economy, the government fully intends to take a ton of money out of the private sector: it intends to defund the very part of the economy that is the engine of economic prosperity—and here, of economic recovery.

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And then there’s this.  The Obamacare Independent Payment Advisory Board, consisting of “15 philosopher kings,” is starting to be set up, although we don’t get to know who these kadi are until after the election this fall.  This Board will have the power to dictate prices to all participants in the health care industry: hospitals, doctors, insurers, patients alike.  No market forces at all here.  And yes, there will be plenty of patients: customer participation is mandatory.  Of course there’ll be fewer and fewer providers as these are driven out of business by the Board’s price controls; this will turn the Board into a Death Panel.  A third example of government market intervention European style.

Extremes

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Democratic Presidential Candidate Barack Obama gave an interview to the AP in which he described Republican Presidential Candidate Mitt Romney’s positions as “extreme.”  Yet both Obama’s descriptions and his countervailing positions demonstrate pretty conclusively which of the two is extreme.

Obama had this non sequitur in his remarks about what he has “learned about [Romney] this campaign:

What we’ve also seen is Gov. Romney has not been willing to, I think, own up to some of the responsibilities that are required if you’re president of the United States. So there’s been obviously a lot of discussion about his unwillingness to release his tax returns.

Apparently honoring the law (here, concerning the required releasability of personal tax returns) is “not willing to own up to some of the responsibilities that are required if you’re president of the United States.”  But ignoring the law (vis., DOMA) is such a responsibility.  Ignoring the will of the Congress and implementing carbon cap-and-trade by Executive fiat is such a responsibility.  Ignoring the will of the Congress (the failed DREAM ACT) and implementing immigration parameters by Executive fiat is such a responsibility.  Refusing to enforce our borders while attacking states that do attempt to enforce them, using laws that ape Federal law, is such a responsibility.

Obama made this argument about Romney being short on facts in his campaign.

[T]he most prominent argument that he’s been making for why voters should vote for him is this notion that Obama took the work requirement out of welfare, and he’ll put it back.

Never mind that the explicit requirement for actual work has been withdrawn, and the states’ “flexibility” includes the option to not require work or work training.

And without a trace of irony, Obama had this to say:

Well, I think that if you don’t have a good argument for how you’re going to make things better, then you stay focused on how you can discredit the incumbent.

After accusing Romney of being responsible for the cancer death of a woman (he did say in a separate interview that he didn’t really believe that, but in that same interview, he refused to repudiate the ad that made the accusation, or to call out the SuperPAC (run by his ex-Deputy Press Secretary) for having run it).  And after accusing Romney of being a felon over Romney’s position at Bain while rescuing the Olympics—stemming from Obama’s own “misunderstanding” of SEC filings.

On those extreme positions themselves, Obama had this:

[Romney] has signed up for positions, extreme positions that are very consistent with positions that a number of House Republicans have taken.

Obama then listed the Republicans’ $5 trillion tax cut proposal, the elimination of tax credits for wind energy, and an amorphous objection to the Republicans’ Medicare proposals as those “extreme” positions.

If I understand Obama aright, then, it’s extreme to cut taxes, especially in a recession: it’s extreme to leave more of private citizens’ money in the hands of the original private citizens instead of those of whom Obama favors.

It’s extreme, in a time of enormous government spending and debt buildup, to cut spending—especially to fringe energy sources like wind power.  Obama proudly pointed out that he’s doubled the output of wind-generated electricity with his tax credits.  Let’s see: total electricity generated in the US in 2008 was nearly 3.5 Terawatts.  Wind-generated electricity in 2011 was nearly 47 Megawatts.  Obama has pushed wind energy from nearly nothing to twice nearly nothing.  And that doubling came, as he so proudly said, only with the aid of government subsidy.  Wind-generated electricity is fringe not because it’s an idiotic idea, but because it cannot compete in the free market on its own; it needs a constant propping up.

Finally, it’s extreme to take steps to reform Medicare so as to preserve it for tomorrow’s seniors, while leaving it alone for today’s seniors and near-seniors (who have no chance of adjusting to any changes).

But what are Obama’s plans?  He’s carefully nebulous about those, but we can look to his record and see his plans.

Obama intends to ratchet up the taxes on Americans of whom he disapproves.  He intends to ratchet up his spendinginvesting in his favored companies and in his favored unions.  He already has taken the (not at all extreme, he says) measure of removing $700 billion from the present form of Medicare in putting it into his Obamacare to pay for that.

Who’s extreme?

Government Spending

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Much of this originated as a comment to a Gay Patriot post.  I strongly recommend the post and then the accumulating commentary.

It’s important to note at the outset that government has no money of its own.  It only can act as intermediary in the (forced) process of transferring money from one group of private citizens to another.

Now a few remarks on government spending.  First, much of the money taken from private individuals and/or their businesses (which are just agencies of private individuals) to pay for government spending is lost to friction, including outright waste (I won’t get into losses to graft.  Could the graft be identified, it’d be rooted out.  Right?).  The waste includes money spent on government middlemen, money spent on government contractors hired to oversee the transfers and transferees, time and money spent schmoozing with lobbyists (both the good ones who are only identifying constituent needs—Congressmen generally fit this bill, for instance—and the bad ones, who are sure to take a taste of their own as the money flows, or to provide some vig in return for future consideration), and so on.

Second, money taken from private individuals to pay for government spending—whether through current taxes, current borrowing (future taxes), or printing money (future inflation)—is money that is not spent in the private sector, or husbanded against future spending in the private sector.  Thus, the multiplier effect of government spending, such as it is, is cancelled, if not exceeded, by the known, and fairly large, multiplier effect of private spending that is lost.  In many sequences of private spending, for instance, that multiplier effect runs out to 1.7x.  The best Keynesian estimate for the government spending multiplier is 1.5x.

Third, those husbanded funds generally are deposited in financial institutions as savings, and these deposits then are loaned to borrowers: these deposits are the primary source of loanable funds.  Taxes, then, reduce the amount of private money available for saving and so reduce the amount of lending that can occur.  This effect isn’t enough to cause a credit crunch like the one coming out of the Panic of 2008, but it hasn’t helped.  Further, that future inflation from printing to support excessive public borrowing devalues the funds that are saved.

There’s more.  As government debt grows, more private funds become husbanded, not against future spending goals in the private sector, but against those future taxes.  And even more borrowing is encouraged by that inflation (in the period before the recession that is the inevitable result of that high inflation)—in both the private and government sectors—since the repayment will be with inflation-devalued dollars.  Then that inevitable recession hits, and payback becomes, as they say, a bitch.

In sum, government spending isn’t zero-sum, it’s negative sum.

Update: clarified the second point.