Category Archives: political economy

Demanding Instant Results

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The Trump administration has threatened tariffs, raised and lowered them (though rarely as much as they were raised), and concluded on-again, off-again tariff agreements with the People’s Republic of China. The bulk of these moves have come within the opening months of Trump II, even though some moves were made during Trump I.

The good editors at The Wall Street Journal are taking a dim view of this. The opening of their lede:

President Trump and Chinese leader Xi Jinping struck their third trade truce in a year on Thursday, and the best we can say is that the deal averted more economic damage.

Later in the piece, they offered this…truism:

One lesson here is that trade wars aren’t easy to win, especially against a peer competitor.

To which I say, “Patience, Grasshoppers.”

Wars—and the PRC has been fighting this economic war with us for lots of years, even if we’ve been slow to recognize that—are rarely over in a day. WWI was fought over four years, and WWII took eight years out of our globe’s weal and life. Looking farther back was the 30 Years War and the 100 Years War. The barbarian’s 3-day invasion of Ukraine now is approaching its 4th year. Over in what is now the PRC, the period of the Warring States lasted 250 years, and the century of humiliation that the PRC still remembers (the opium wars were in the beginning of that period) lasted…100 years and a bit more.

The men and women of the PRC government take a long view of things, even a generational view. It would be good were the changing men and women of our government to take a similarly long view. The WSJ editorial board could contribute by doing the same.

Trump’s moves may, indeed, end up with no material net effect, or they may end in national disaster, or they may end in a renewed and refreshed century of Pax Americana. It’s years too early to tell.

A Thought

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Colleges and Universities are facing budget problems in the current and beginning to grow age of fiscal discipline after decades of profligate spending on one great idea after another and rampant hiring of school staff and management squads having little to nothing to do with academics. In their Wall Street Journal piece, Sara Randazzo and Heather Gillers distilled the problem to its essence:

As schools scramble to make cutbacks, they face broader questions about what kind of university they can be in this new era of financial constraint.

Here’s an idea. Work with me on this, it’s a-borning: how about these institutions turn their focus onto teaching and away from publishing and from pushing the latest politically correct claptrap, the latter which these days is illustrated by DEI bigotries and one-sided sexual offensivenesses “investigations?”

Get rid of all that non-academics-related staff bloat, freeze the gussying up of their labs with froo-froo that serves only to enhance academic shower appearances, take away the publish or perish foolishness that produces little more than word salads with science jargon dressings, reduce the rate of jobs-for-life awards, and stop fancying up student housing with stuff that does nothing to enhance studying and socializing.

The Problem with Too Big to Fail

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Treasury Secretary Scott Bessent and Progressive-Democrat Senator Elizabeth Warren (D, MA) want to raise the FIDC’s deposit insurance cap from its current level of $250,000 to $10,000,000. They want to do this, too, regardless of the size of the financial institution and the nature of the institution, whether it’s a small deposit and lending enterprise or a large institution that specializes in large and larger investing. This is a very large overreaction over a couple of mid-sized banks going bankrupt from those banks’ management incompetence, not least of which was their decisions to not match their interest rate assets—loans outstanding, including to the government in holding its debt instruments—to their deposit interest rates, which were the banks’ debits. Nor did they match the duration of their loan assets to the duration of those deposit debits.

The runs on the banks, which began over otherwise ordinary credit concerns in the financial markets as a whole, turned into losses the banks should have been able to handle, but for those rate and duration mismatches. Neither the setup—those mismatches—nor the runs have anything to do with deposit insurance.

When any enterprise is held to be too big to fail, as a (fortunately very few) very large enterprises are held to be by the Federal government—the  systemically important financial institutions government considers some banks to be—then those enterprises, secure in the notion that government will bail them out if they run into trouble, become prone to take increasingly large risks and go well past risks that would otherwise by prudent business decisions to take.

That’s a very large moral hazard: not only are those enterprises taking those risks with other people’s money—bank depositors, for instance—they’re putting into risk the money of people far removed from that enterprise: us nationwide taxpayer money that the government will use to prop up those institutions that have gotten themselves [sic] into trouble.

Which brings me to this foolishness of raising the deposit insurance cap on banks. That’s only going to encourage banks, especially the smaller ones, to take risks that are too large for it to handle and would not take were they not so vastly backstopped by Uncle Sugar. That puts into risk play all the smaller depositors who are the ones frequenting these smaller banks. It also puts into play the money of all of us nationwide taxpayers, which money will be used to prop up the failing bank.

This is an insurance policy that should not be raised in its payout. In essence, all this insurance cap increase does is lower the threshold for Too Big to Fail (itself of no true value) down into the middle- and smaller-sized financial institutions.

Let the institutions stand or fall on their competence in a competitive environment. That competition will weed out the lousy managers, and the people will be made whole enough with the current $250k insurance payout. The large enterprises that invest in, deposit into, borrow from the larger financial institutions will exert their own pressures on top of the market’s intrinsic competitive pressures to…encourage…management competence.

Two Mistakes at Once

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The Federal Reserve has chosen to lower its benchmark interest rates by another quarter point, to a 3.75% to 4% band. At the same time, it has decided to call a halt to their 3½-year campaign to shrink the Fed’s $6.6 trillion asset portfolio on December 1.

That’s two mistakes in the same meeting. With inflation near (albeit less near than in the last couple of months) the Fed’s goal of 2% inflation, it’s been past time to leave its benchmark alone and to let market forces handle inflation and interest rates. Past time, because the benchmark rate historically consistent with 2% inflation has been in the range of 4½% to 5%. The Fed needs to sit down and stop tweaking with the rates.

The other mistake is to stop unloading its far too bloated asset portfolio. The Fed currently holds $6.6 trillion in Treasury assets. That’s the Fed funding too much of Treasury borrowing. The market should handle that, not the government borrowing from itself via a purely on paper accounting trick.

It’s true that unloading those assets might—even likely would—put the short term credit market into a turmoil. That especially would upset the overnight and short-term repo markets that are important to businesses’ ability to make payroll or pay other bills in the gap between irregular receipts payable and the clockwork due dates of paychecks and bills. That turmoil would be short-lived, though, as the markets readjust to a market-driven debt facility. The volatility of the turmoil would be mitigated, too, were the Fed to unload its Treasury assets simply by not replacing them until they mature, and to limit itself thereafter to holding a relative few longer-term Treasury assets—10-year Notes and bonds.

That, too

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Progressive-Democrats are keeping the government shut down over their demand to extend—permanently, no negotiations—the Obamacare subsidies that the Progressive-Democrats during the Biden reign had scheduled to expire in November of this year, pretending at the time that the subsidies were just temporary, to tide people over during the Wuhan Virus situation. Their core claim on this aspect is that Obamacare premiums, as paid by the policy holder (carefully excluding, per those same Progressive-Democrats, the premium costs paid for by us taxpayers via those subsidies), will explode.

What the press, with equal care, ignores is that the purported need for those subsidies is a direct result of the cost of the government-run health care coverage program that is the Affordable Care Act. Government-run because these are coverage policies whose coverage suites are mandated by government, including the worst mandate of them all: the requirement to charge premiums (within narrow government set bands) for ailments and potential ailments without regard for the risk of the ailment being covered, and for some of those ailments at no cost to the policy holder at all.

The Wall Street Journal has pointed out an additional price to us average Americans:

If Republicans don’t extend the turbocharged subsidies, she [Minnesota Progressive-Democrat Senator Amy Klobuchar] warned, “early retirees like Bill & Shelly [who live in Meridian, ID] will see their health insurance premiums increase nearly 300%—from $442 to $1,700.”

And [emphasis added]

This is a tacit admission that ObamaCare encourages Americans to stop working. The Biden subsidies turbocharged that incentive by making subsidies larger and available even to those with incomes above 400% of the poverty line. The couple in Ms Klobuchar’s example had north of $130,000 of income in 2024….

This demand for permanentizing the ObamaCare subsidies is just one more aspect of big government taking over our lives, reducing individual liberties (the health coverage industry does not exist in a free, competitive market where individuals can make their own choices of what coverages they want, at prices that competition would make possible) and taking the flip side of individual liberties, individual responsibilities, away from the individual and, instead, spreading them across all of us together, as brokered by Government.

The editors offer some solutions that would be a good beginning toward correcting the failure that is the ObamaCare essay into socialized medicine.

  • codifying association health plans that let small businesses join up to form a larger risk pool to improve the economics of offering insurance
  • continuing to expand plans that can be paired with tax-preferred health-savings accounts
  • fix[ing] some ObamaCare regulations like the medical-loss ratio that obliges insurers to spend 80% of premiums on claims, which in practice is a profit cap

Also needed, I claim:

  • allowing health coverage plan providers to sell policies that cover preexisting conditions at premiums consistent with the risk involved. The risk here is not certainty since the preexisting conditions will not all flare up and require medical intervention simultaneously; the risks can be amortized across time, if government only got out of the way
  • allowing individuals to choose from, and insurers to offer, tailored coverages: only primary care—annual exams, for instance, and the occasional flu or broken bone
  • coverages only for catastrophic health potentialities
  • reducing the regulatory burden on doctors who want to eschew being reimbursed via health coverage providers by doing cash reimbursements, perhaps by annual subscriptions

But to do any of that, it’s necessary for the Progressive-Democrats to end their extortionate demand on subsidies as a condition or reopening, so those discussions can begin; it’s necessary for the Progressive-Democrats to release from their basements us American people, especially the poor and their children, whom they’ve taken hostage against their demand.