Category Archives: Economics

Miscellaneous economy stuff

Housing Affordability

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A letter-writer in The Wall Street Journal‘s Wednesday Letters section offered a number of ways to break the housing cost problem for folks on the lower end of our economic ladder, folks that include established families and newly graduated young adults. The most cogent way IMNSHO is this one:

The market badly needs deregulation to unlock capital. Tax regulations have frozen large swaths of our existing housing stock. And state and local land use regulations lock millions of acres of land out of higher and better uses by making it illegal to build starter homes on smaller lots.

Especially those starter homes on those smaller lots. Tax regulations, mostly on existing homes up for inheriting, can be handled directly and immediately by the Federal government. The land use regulations consist primarily of State and land use laws and local zoning ordinances, and those are the primary responsibility of the State and local governments. Still, the Federal government has considerable influence that it can bring to bear, from jawboning to financial carrots and sticks.

These starter homes and smaller lots are reminiscent of the Levittowns that were built right after WWII to open up housing for returning white GIs, and their rapid take-up both fired up the housing market and contributed heavily to the nation’s economic reconversion from war to peace and the associated private economic revival. The first Levittown house sold for $7,900, about $80,000-$85,000 in today’s money.

Today’s analog would be shorn of the racial bars and should be shorn, also, of ethnic and religious bars. But that larger target market would only enhance the salability and thereby contribute heavily to breaking the existing cost barrier.

Call them TrumpTowns.

Looks Like an Opportunity

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The People’s Republic of China looks like it’s facing a serious economic problem.

[The PRC’s] relentless pursuit of growth through manufacturing has also created a lopsided economy, with much of it stuck in a deflationary spiral. China’s GDP deflator, a broad price gauge, has been negative since 2023, a sign of inadequate demand at home.

And

The risk is that China could get stuck in a prolonged period of stagnation similar to what Japan experienced during the 1990s and early 2000s—a mindset that becomes ingrained over time and even harder to shift.

The subheadline summarized the problem well:

Exports drive growth while race-to-the-bottom competition from overproduction hits prices, profits, wages, and sales

That economic problem looks like an opportunity for us. The Soviet Union, faced with a stagnating economy and a burgeoning technology deficit relative to us that was epitomized by our ballistic defense system under development and then deployment, folded and disappeared.

The PRC has many technology and military advantages over us, but it’s faced with a similarly stagnating economy, even one threatened with sustained deflation, and with an obvious and worsening demographic condition. The PRC’s critical deficit isn’t technological or military; it’s its economic dependency on exports.

If the US and the West generally were to stop importing from the PRC, that would turn the PRC’s economic war against us to our advantage. We should be able to gain quite a number of concessions in return for resuming buying their output, even including the PLA’s withdrawal from the South China Sea, an end to the PRC’s constant, if low key, threats against Japan in the East China Sea, and a cessation of the PRC’s threats against the Republic of China.

Of course, to achieve that—and it would be best done were it done sharply rather than in dribs and drabs, the Trump administration would need to stop trying to work deals with the PRC and to stop coddling American businesses who bleat about the centrality of the PRC to their profits. The administration and American businesses would need to step up the pace of moving supply chains out of the PRC, even in some cases to begin that reorientation.

It would also be necessary to stop our tariff moves against Europe and to stop trying to obtain control of Greenland so we can persuade Europe to join us in no longer importing from the PRC and to move faster at reorienting its supply chains away from the PRC.

Governments around the world are complaining about an influx of cheap Chinese goods that could hurt local industries.

They just need a push and the removal of economic barriers within the West.

The potential gains, though, are enormous, not just economically, but for the order and the safety of all of us, for all the difficulty of taking either of those two steps.

Wrong Answer

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House and auto insurers’ profits and the rate increases they charge policy holders are coming under political scrutiny, but politicians’ proposed solutions are badly counterproductive.

New York Governor Kathy Hochul (D) this month became the latest state lawmaker to advocate profits caps on insurers, to tackle escalating home- and “crushingly expensive” auto-insurance rates.
Her plan would require home insurers with “outsized profit margins” to lower or justify their rates, and review the profits threshold at which auto-insurers are required to refund customers.
Also this month, lawmakers in states including Oklahoma proposed profit caps targeting insurance.

No.

Government definitions of “outsized profit margins” have nothing to do with business imperatives or what happens in a free market. Those definitions serve only the personal political ambitions of the politicians doing the defining, and they’ll vary across politicians and their political parties.

Beyond that, all price caps do is limit the availability of the product being capped—whether oil and natural gas and gasoline, rental housing availability and quality…or insurance policies. The limit on supply, too, hurts those on the lower economic rungs of our economy first and hardest.

Requiring insurers to justify their rates and the profit levels at which policy holder refunds are paid is a good idea, but government is the wrong crowd that must be satisfied.

Better simply to require insurers to disclose their profit margins and the basis on which they arrive at their definitions of profit. Their policy rates already are publicly available; making both sides of that process public would let the public more effectively shop for policies that suit their individual needs.

Doing that within an increasingly deregulated (not unregulated) insurance market environment would move the industry closer to a truly competitive market within which insurers would reap fair profits and insurees would pay fair premium amounts for the policies they want. And the Critical Item: “fair” would be defined within that competitive market by those market participants, not by any government.

Too Typical

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The Wall Street Journal‘s editors had it down pat in their editorial of last Wednesday. The opening sentence of their lede laid it out:

As federal pandemic largesse ebbs, Democratic-run states are eyeing higher taxes rather than reform spending programs.

The rest of their piece expanded on that theme.

Nor does it get any clearer than this bit. In a nation overrun with Federal debt and with Progressive-Democrat-run States joining in on climbing the forest of trees in their world on which money grows, Progressive-Democratic Party politicians still cannot even conceive of cutting spending. Nor do they feel the need to; it’s not like they’re spending their own money. It’s all OPM.

Now it’s Rhode Island that’s fixing to get up into one of those trees. Rhode Island is another of those Progressive-Democrat-run States, this one with a Progressive-Democrat governor, a 38-seat Senate containing 33 Progressive-Democrats, and a 75-seat House filled with 65 Progressive-Democrats.

This is what we can expect nationwide if Party wins control of the House and Senate this fall, and it’ll get far worse if Pary wins the White House in the 2028 election cycle.

AI and Entry-Level Jobs

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Richard Smith, Johns Hopkins University’s Human Capital Development Lab Professor of Practice, and Arafat Kabir, writer about AI, in their The Wall Street Journal op-ed think that AI is spelling the death knell of entry-level jobs.

When AI automates routine tasks, organizations often find they need experienced employees who can combine AI capabilities with years of business knowledge. What those organizations don’t need is entry-level employees learning the basics. Data shows rising unemployment since 2022 among 22- to 25-year-olds in AI-affected sectors—even while employment for older workers remains stable.

Not so much. The transition from hand-spinning thread from cotton balls—an entry-level job for making cloth—changed with spinning jennies, powered looms, and the like. Entry-level work didn’t disappear, it transitioned to requiring different, and better, skills and the knowledge required to understand the more complex work. Hand spinners and weavers had to upgrade their skill sets and knowledge or go unemployed. New basic employees learned those new skills and gained that new knowledge. Employers who invested in the requisite training prospered, those that didn’t, didn’t.

Similarly, the transition from hand-fabricating and assembling automobiles to the assembly line changed the nature of entry-level work. Henry Ford blew away his competitors when he invested in training his new employees, which along with a small pay raise increased worker retention with its associated reduced labor costs from worker turnover and needing constantly to get new ones trained. OJT of hand crafters no longer could cut it, but the entry-level work, while changed in nature, remained in fact.

So it is with AI when it’s properly put to use. The scut work and grunt work of interns as gophers along with the routine most basic work that will be done by AI applications also does not replace entry-level work; it merely changes the nature of that basic work and, as before, requires a bit more knowledge of how to do it. The existing work force—those older workers—will retire sometime between sooner and later. Their loss will require companies to train their replacements in this new entry-level work, and those that do will move ahead, while those that do not will fall behind.

Smith and Kabir acknowledge as much without, apparently, recognizing so.

[R]ecogniz[e] that AI represents a fundamental shift rather than merely another tool. One example could be focusing on “AI native” tracks in which, instead of starting new employees with routine tasks that AI can handle, they begin with AI oversight and optimization roles. They learn to train, monitor, and improve AI systems while simultaneously building domain expertise—combining technical fluency with business acumen.

Yet, that’s precisely what a tool does. The steam-power was a fundamental shift for industry and industry-related work. It powered mining drills, heavy transportation, forges, and on and on. That fundamental shift, though, was just a means of getting new tools for more efficient work with an associated change in what constituted entry-level work. That basic work ranged from running those new tools to maintaining them to manufacturing them.

As technology evolves, so too does the nature of “entry-level.”