Category Archives: markets

Progressives Need to Quit Complaining and Start Cooperating with the Republicans

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Sally Kohn, a Fox News contributor, offered a response to President Barack Obama’s Tuesday State of the Union address.  Herewith, I offer my response to her and to Obama.

Tonight, the president of the United States of America and the leader of the party that won the Presidential election in 2012 while losing the Congressional and State House elections set forward a plan not only for the next four years but the next four decades of American decline.

It is a plan that purports to build our economy from the middle class out and not just from the top-down, while ignoring the poor and their fading opportunities for upward mobility.

It is a plan that purports to believe American workers can get the skills they need for the 21st century and American companies can compete in the global marketplace.

It is a plan that creates a false choice between helping our students and seniors and creating jobs for everyone else in between on the one hand and cuts to spending on the other.

It is a plan that ignores the lessons of American history and the traditions of our founding values of limited government and personal opportunity and choice and personal responsibility.  And it is a plan that has already failed multiple times in this President’s administration and in those of prior Presidents’—and a plan that the American do not support!

Nine in 10 Americans—and eight in 10 Republicans and independents—agree that we need to create a road to citizenship for the hardworking, aspiring Americans who are so vital to our economy and our communities.  Over 85% of voters believe we need to strengthen the manufacturing industry in America.  A majority of voters support improving our roads and schools and creating jobs primarily through private enterprise and that where taxes are necessary for public infrastructure improvement, these should be minimal and temporary.  A wide majority of gun owners—and NRA members!—support common sense violence prevention measures like keeping weapons out of the hands of felons and those convicted of domestic violence actions.  A growing majority of scientists note that human activity as a driving cause of climate change is not supported by the evidence.  More and more Americans are recognizing that singling out particular companies—even whole industries—as “winners” outside the results of free market competition is wasteful of taxpayers’ money.   And most Americans recognize that inequality in America is a major problem and that our government’s distortion of  our economy unfairly favors that government’s chosen.

Americans understand the tight linkages between our enormous deficits and exploding debt on the one hand and jobs and our economy’s health on the other.  They also recognize that the latter cannot be repaired until the former is fixed.

A strong majority of Americans recognize the straw man Obama put forward that equates reforming Medicaid, Medicare, and Social Security so that they are made stronger and preserved for our children and grandchildren with cuts to these programs.  And they recognize the false choice that Obama made between reforming and strengthening our social safety net or cutting defense.

In other words, every single idea and initiative that President Obama outlined in his State of the Union Address is not only additional spending that our nation cannot afford and additional taxes that our citizens cannot afford—especially after the $600 billion tax increase passed with the fiscal cliff deal just concluded—but also directly contradicts the values and priorities of the majority of American voters: it’s the government as the solution rather than the strength and collective wisdom of Americans acting on their own priorities.  Those trying to argue otherwise are obviously intoxicated by the recycled air of their own ideological bubble.

 

In crafting his Republican response, Senator Marco Rubio (R, FL) noted that he and his fellow conservatives are the defenders of working people and immigrants.  And while Rubio repeatedly suggested Republicans agree with President Obama’s assessment of the problems we face as a nation, he repeatedly made clear Progressives remain opposed to any reasonable solutions.

The Democratic Party should be less worried about demagoguery and more worried about their substance.  No party that offers “jobs” bills built on failed—repeatedly!—Keynesian spend, borrow and tax…stimulus…, sends up legislation that purports to address violence direct against women but that only increases spending without addressing causes of violence, and offers an immigration act that is nothing more than amnesty for illegal behavior can claim to represent mainstream America, let alone a governing majority.

For crying out loud, Progressives in the chamber—including Obama and his Attorney General Eric Holder—couldn’t even manage to support protecting voting right protection with simple things like voter ID requirements or and helping kids go to pre-school in effective programs.  Instead of continuing to oppose everything conservatives stand for, Progressives should explain to the American people why the only thing Democrats seem to consistently stand for—higher taxes, more spending, increased borrowing, and coddled favored entities—didn’t ward off our financial crisis or create jobs with  those increases and coddlings in place.

Of course the irony in all this is had Republicans eked out a presidential victory with even a fraction of the margin President Obama enjoyed, they would be reforming and strengthening our social safety net along with repealing and replacing Obamacare and enjoying a broad and mainstream mandate to do so with strong public opinion favoring that action.  Instead, the Progressives’ present course consists of doing nothing, allowing these programs to fail, and allowing Obamacare to increase the cost of health insurance—for those who still can afford any coverage at all.

So the fact that President Obama continues to advance the plan for the nation that he does is evidence of either a deep and unyielding disdain for free markets and the power of the collective action of individual Americans without government involvement or a fundamental failure to grasp reality.  Or maybe both.

In every sense imaginable, America is stagnating, if not in decline.  Our economy is not recovering and we are in retreat from world.  Our demographics are evolving; our politics must keep up.

President Obama articulated a plan that is rich in spending and taxes, which any sensible Republican true to his principles and to the mandates of his constituency over the last two elections must be highly inclined to prevent.  The American people chose their path and elected—and reelected—a Republican House, with losses in the Senate smaller than is normal for a Presidential reelection.  Democrats would be wise to stop with the blanket criticisms and start finding a way to work with Republicans on real economic plans and social safety net reform.

Odd, isn’t it, how completely the Progressive plaint applies to openly, proudly “my way, or else” Progressives?

Farm Subsidies

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The US spent $277 billion last year on farm subsidies of all stripes; the amount includes $37 billion for conservation payments, most of which goes to large agribusiness.

The EU is learning about the costs of farm subsidies; it’s time we did, too.  The article at the link has a lot of environmental items in it; I’ll generally deal with the fiscal items.

The European Union plans to spend about €60 billion, or about 40% of the entire EU budget, on agriculture this year alone.  It’s a lot of money for an economic sector that generates less than 2% of the bloc’s gross domestic product and employs less than 6% of its workforce.

Individual (small) farmers can get €10,000 ($13,500), or more, from the EU’s spending.  However,

[t]he main beneficiaries of this policy, according to the authors of the journal Der Kritischer Agrarbericht (Critical Agricultural Report), are “large-scale, streamlined farming operations, which receive annual payments of up to €120,000 ($162,000) per employee.”

(That’s a helluva salary, were the money actually going to the employees.)

And

In Germany, 1.9% of businesses collect about 30% of payments, and they are not always farms.  Ice hockey clubs, aristocratic families and companies like candy maker Haribo and sugar producers Südzucker and Nordzucker also benefit from EU agricultural subsidies.  In 2009, defense contractor Rheinmetall also received a hefty sum of cash—for planting trees in a former tank training area.

Sound familiar?

While the EU is trying to tie continuance of these subsidies to environmental questions (a forced set-aside of 7% of farmland, for instance, since the claim is that plowing that land releases massive amounts of CO2), this won’t solve the underlying problems.

Farm subsidies of such magnitude (indeed, of any size, as is the case with all subsidies) drive up the cost of food for the consumer.  Taxpayers pay those subsidies, those wealth transfers, and so taxpayers are paying twice for those artificially inflated prices—once with the subsidy, and again when they buy the food being subsidized.  Further, those inflated prices drive the demand for food stamps.

Artificially Low Interest Rates

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When the financial markets aren’t allowed to influence interest rates in accordance with market forces, there are wide-ranging consequences.  Here‘s one.

Ford Motor Co expects to spend $5 billion this year shoring up its pension funds, almost as much as the auto maker spent last year building plants, buying equipment and developing new cars.

The nation’s second-largest auto maker is one of a who’s who of US companies pouring cash into pension plans now being battered by record low interest rates.  Verizon Communications Inc contributed $1.7 billion to its pension plan in the fourth quarter and—highlighting companies’ sensitivity to this issue—Boeing Co now reports “core earnings” to separate out pension expenses.

Leaving aside the wisdom of defined benefit plans like pensions vs defined contribution plans like 401(k)s, and even assuming that interest rate assumptions underlying pension contributions in normal times are reasonable, this is money that would be better spent on capital plant, product development (both existing and new), hiring more workers, and so on.

Sort of like Ford did last year, but cannot use for this year’s priorities.

The Cost of Price Supports

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They’re disastrous for our food costs, which harms our poor especially, and they drive the “need” for food stamps.  Here are some numbers, from a recent op-ed by Burleigh CW Leonard in The Wall Street Journal.  The parity prices for some farm products are these:

  • corn: $12/bushel vs actual market price of $7.01
  • wheat: $18.30 vs $8.33
  • rice: $42.20 per hundred weight vs $14.80
  • milk: $52 vs $21.10.

We care about parity prices because the Agriculture Adjustment Act of 1938 and the Agricultural Act of 1949 require, unless other temporary support prices  are specified by subsequent Congresses, that farm support prices be set to parity according to a formula based on farm prices extant in 1910-1914 [sic].

Notice that: farmers (read: agribusiness, who are the vast majority of our modern farm industry, not the mom and pops over whom our politicians shed so many crocodile tears) can get three times the market price of rice from those supports so they produce to their heart’s content and sell the excess to the government.

This doesn’t actually happen to a great extent, though, because of an epicycle in the government’s Ptolemeic orrery of controls: the government imposes on each farmer (agribusiness) limits on how much (rice) he can produce.  I won’t get into the inconsistent manner in which such limits get applied across farm products.  Nor will I get into the interference such controls represent in each man’s right to choose for himself what he will produce with his labor (and what price he will charge for that produce, or that labor).  (Nor will I get into the mandatory diversion of food into fuel products, which is what the ethanol mandates are.  That’s for another discussion entirely.)

It’s sufficient, here, to see that the price distortion remains.  And the “need” for food stamps remains.

Leonard is on the right track with the solution he offers:

…craft a new long-term farm bill.  Its first step should be to repeal permanent law that governs commodity price support programs.  Then the default setting for US agriculture would be a free market….

He goes too far, though.  There’s no need for a new “long-term bill.”  His proposed bill’s first step is nearly sufficient by itself: repeal the Agriculture Adjustment Act of 1938, the Agricultural Act of 1949, and associated laws.  Then take the only additional step necessary: stop instituting other price support legislation.

Watch the need for food stamps fall precipitously.

There is nothing to fear from free market competition but fear itself.

An Out of Control CFPB?

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But we knew that would be the case with a budget funded by on-demand calls to the Treasury and a deliberate lack of Congressional oversight.  Here are three examples, from Skadden Arps, the “second best global law firm,” according to Spirit of Enterprise.  In each case, the Consumer Financial Protection Bureau imposed enforcement orders that charged both restitution payments and civil penalties for the miscreancies that wanted restitution.  Those miscreancies generally centered on “deceptive marketing and sales practices” and “deceptive debt collection practices.”

Capital One: Required to pay $140 million in restitution and a $25 million civil penalty.  The penalty was nearly 18% of the restitution.

Discover Bank: Required to pay $200 million in restitution and a $14 million civil penalty.  The penalty was 7% of the restitution.

American Express: Required to pay $85 million in restitution and a $27.5 million civil penalty.  The penalty was 32% of the restitution.

Assuming the restitution amounts are reasonable assessments of the severity of the banks’ misbehaviors, those civil penalties seem to bear no relation at all to the…crimes.  They seem, in fact, to be capricious and out of control—just a grabbing of what an unaccountable bureaucrat felt like taking.

Skadden’s complete report (it’s long and wide-ranging) can be seen here.