Category Archives: markets

Doesn’t College Cost Enough Already?

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In an effort to combat the high cost if college, the Obama administration thinks it’s appropriate to make borrowing easier.

Under a plan likely to take effect next year, the Education Department would check the past two years of a borrower’s credit, instead of the current standard of five, for blemishes such as delinquencies or debts in collection. Also, any delinquent debts below $2,085 would be overlooked; currently, delinquencies of any amount are grounds for rejected applications.

I’ll leave aside the increased pile of loans for those who least can afford to borrow, and the increased risk of default from that; these questions are addressed in that Josh Mitchell article in The Wall Street Journal that’s on the other side of the link above.

There’s another problem that’s not addressed, either in the article or by the Obama administration.

That problem is a well-known one, except apparently in Liberal circles: subsidizing a thing increases demand for it. And if supply can’t keep up with that increased demand, the price of the thing goes up. A lot.

Making borrowing for college easier will stimulate demand for college. Since the availability of college can’t rise as quickly as that demand, the only outcome is…a large increase in the price of college. This is an increase, too, that’s actively abetted by college administrators, as Professor Peter Wood noted ‘way back in 2005:

Tuition is set high enough to capture those funds and whatever else we think can be extracted from parents. Perhaps there are college administrators who don’t see federal student aid in quite this way, but I haven’t met them.

Wood was talking, at the time, about Federal student subsidies, but his remarks apply just as surely to Federal efforts to make more money available to colleges via easier to get loans like these.

Scottish Independence

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The view of a poor, dumb colonial.

Suppose the Scottish referendum next week goes in favor of independence. What would be next for Scotland?

Among the complexities of separation is the matter of pensions provided by employers. Most such pensions are not fully funded; although, most such pension providers have apparently viable plans for curing the shortfall, over some number of years. However, the EU (and we’ll assume Scotland succeeds in joining the EU for this bit) requires all pension funds with members in two or more countries to be fully paid up. Moreover, funds that are not have only two years to get fully paid up. There are quite a number of large-ish UK companies, employing thousands each, whose pension funds have members in both countries, and whose pension funds are on one of those “some number of years to fund” plans.

There’s some chatter in the UK about splitting the pensions in two, one for the UK and one for Scotland, as a means of ducking this problem. I see a possibility of splitting the companies themselves in two, each with its own pension scheme. Either course, though, is fraught with complexity.

A larger complication is the UK national debt, some £1 trillion ($1.62 trillion): how would this be divided, and based on what criteria? I’ll elide whether the new Scottish economy could handle its new debt.

That sort of thing is trivial, though, compared with a couple of larger questions. Scotland has some serious economic problems, including that debt, a risk of sharp inflation, lack of clarity on what it would use as a currency, what sort of trade arrangements a settled-on currency would imply, and so on.

The economic problems will have their impact on independent Scotland’s near- and mid-term stability.

Too, accession to the EU requires a unanimous vote of the existing members, and that’s not a done deal. Which means Scotland would not be able to count, soon, on any EU…assistance.

Frankly, I think Scotland would be better off outside the EU than in it (recall the EU’s treatment of Ireland and Iceland), but this is a move Scotland has to make, and properly so, without my sage advice.

Regardless of EU membership and those “larger problems” just mentioned, though, independent Scotland will need to broaden its economy. 80% of its national income is from North Sea Oil which, aside from questions of how to divide that with the UK, is a declining asset value [sic], and the bulk of the remaining 20% is from tourism. A self-sustaining independent Scotland will need a more broadly based economy in order to function without the UK subsidies it currently gets.

Finally, I don’t know that Scotland would be better off independent from the UK. Certainly, there are advantages for a nation that’s free to chart its own course without having to say, “Mother, may I” to a higher-up. I think, though, given Scotland’s socialism and those subsidies, the UK would be better off with an independent Scotland.

The aftermath also will be fun to watch. Northern Ireland? Catalonia? Basque Country? Sicily?

Obamacare and Health Coverage Cost Growth

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President Barack Obama promised us, all those years ago, that if only Obamacare were enacted, a family’s health plan premium would drop by $2,500 per year, and no one would lose their employer-provided health plan. Period.

These two graphs from The Wall Street Journal draw a different…picture.ObamacareCost

These graphs cover the period since 1999. As the upper graph shows, the premiums for employer-provided health insurance and, since Obamacare’s passage in 2010, for employer-provided health plans, have risen at a steady pace—unchanged by Obamacare, and specifically, no drop in premium cost. It’s the same with the employee’s share of those premiums; that share’s pace of increase also has been unaffected—that is, no drop in cost—from Obamacare.

Now look at the lower graph. After spiking in Obamacare’s year of enactment in 2010, the per centage of businesses offering health plans to their employees has fallen to the lowest level in the 15 years depicted.

At best, Obamacare isn’t lowering employer-covered workers’ health coverage costs. There has been, though, a sharp decrease in the number of folks even offered employer-provided plans.

(That wages have risen much more slowly than health plan premiums is a different subject.)

The Problem with a Law

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In 2012, the Labor Department threatened to seize the blueberry crops of a couple of Oregon farmers until they settled a Labor complaint and signed away their right to appeal the settlement. With crops at risk of rotting away, the farmers settled, agreeing to pay Labor more than $240,000. The alleged “crimes” were Labor’s claims the farmers had violated minimum wage requirements under the 1938 Fair Labor Standards Act. Labor used the threat of seizure of these perishable crops to extort the settlement.

After signing and getting their crops back, the two farmers sued.

The courts were unimpressed with Labor’s behavior.

By using the threat of rotting crops as coercion, the feds trampled due process. In January, Magistrate Judge Thomas Coffin ruled Labor had prevented defendants from having “their day in court.”

In February, Labor asked US District Judge Michael McShane to review Judge Coffin’s decision. Judge McShane agreed with the original ruling, noting the growers had challenged “unique circumstances” involving “a highly perishable product at peak harvest.”

Yew betcha. Hence the extortionate nature of Labor’s behavior. “Nice crop you got there….”

Congressman Kurt Schrader (D, OR) has been equally unimpressed with Labor’s behavior. He’s now writing a bill that would “exempt certain perishable agricultural commodities” from this sort of action.

Schrader doesn’t go far enough, though. The law should be rescinded altogether. The Federal government has demonstrated conclusively that it can’t be trusted with it.

Economic Gains

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President [Barack] Obama used Labor Day to tout the country’s economic gains under his leadership….

Let’s look at those gains.

  • he’s increased the national debt in his six years by 70%—it stood at $10 trillion at the end of 2008; it’s now over $17 trillion
  • median income has fallen—it stands now at $53,900 compared with $56,700 in December 2007 at the start of the current economic dislocation
  • job creation is only just back to pre-Panic levels, 6 years into his administration, compared with normal economic recovery needing only 2-3 years to get to this point
  • unemployment rate now stands at 6.2%, dropping 1.1 points over the past year—still 20% above full employment, and again years behind schedule
  • labor force participation rate is at an historic low
  • GDP growth remains anemic at 1.5%-2.5% year on year (with this year’s growth rate projected to be in the 2.5% range) compared to a normal economic recovery growth rate in the 4.5%-6.5% range.

And this graph sums it all up:RecoveryComparison_Cox

Obama, in the same appearance, also claimed that “higher wages and other progress for workers can only be achieved through a Democrat-controlled Congress.”

Really? Can our country afford more of this Progressive progress?