Category Archives: political economy

Dealing with the PRC

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The People’s Republic of China has decided that the American company Nvidia has violated PRC anti-trust laws and is holding the company hostage in trade negotiations with the US.

China’s antitrust regulator said Monday that a preliminary investigation found Nvidia violated the country’s antimonopoly law in connection with an acquisition of an Israeli company that was completed in 2020. The regulator said the investigation was continuing, and it didn’t elaborate on the alleged violations or say whether it would punish Nvidia.

The PRC is centering its case on Nvidia’s commitment to not cut the PRC off from its chips as a condition of PRC approval of the acquisition. That might make a basis for a legitimate anti-trust beef; however:

Since 2022, the US. government has blocked Nvidia and other American chip vendors from selling many of their top-flight artificial-intelligence chips to China.

Here is the PRC threatening an American company for its compliance with American law.

There are now two strong reasons for American companies to walk away from the PRC and discontinue all business with PRC-domiciled companies or within the PRC under any guise. One is the overt interference with the domestic affairs of our nation. If the PRC doesn’t like our government’s block of Nvidia, et al., selling their best chips into the PRC, its beef is with our government, not with the American businesses it tries to take hostage in its “negotiations” with our government.

The other reason is the PRC’s presumption that it should have veto authority over whether an American company acquires, or otherwise takes a stake in, any non-PRC-domiciled company. If American companies stop doing business in/with the PRC, then the PRC has no approval/disapproval authority over acquisitions—it becomes irrelevant. And that’s as it should be with an enemy nation.

Obamacare Subsidies and Appropriations Bills

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The Progressive-Democratic Party’s Congressmen and Senators are attempting to extort Republicans into surrendering on extending/restoring Progressive-Democrat-passed (in 2021) Obamacare expanded subsidies.

Unfortunately, they’ll likely succeed, as too many Republicans in each house are too timid to stand their ground.

Never mind that if those Republicans would crawl out from under their desks, they easily could make the case that any government shutdown would be (and after the realization, was) the sole doing of those Progressive-Democrats. It’s those Party members, after all, who threatened to close our government if they weren’t meekly obeyed and who in the realization did close our government.

These Republicans think they face regarding the Progressive-Democrats’ announcement is a chimera, too. The Federal government never really shuts down. With current tax law, funds come flowing in to Federal coffers are plenty for the Federal government to keep paying, on schedule, almost all of existing Federal outlays. The losses from any supposed shutdown would be primarily via Federal contracts with businesses that provide services to the Feds, but most of these businesses would be made whole under the terms of those same contracts.

The larger, underlying problem this extortion exposes, though, is the Republicans’ failure, in their aggregate, to pass all of the dozen separate appropriations bills they’re nominally required to pass every year. These appropriations bills are the actual spending bills that commit actual dollars that the Federal government has committed through its various allocation bills, which is where the government says what it wants to fund. Appropriations are those funds.

Had the Republicans in Congress actually passed those dozen bills on schedule, or at least by the end of the current fiscal year (which has another week left, so theoretically they still could), as they promised at the start of the year and of which they’ve only passed three or four, there would be no risk of a shutdown, and the Progressive-Democrats would have no extortion bricks to throw threw government windows.

Will the Republicans learn this lesson for the second year of this Congressional session? They never have in the past. I’m not holding my breath for the future.

The Short and Sweet of It

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Government debt is ballooning globally, but this short post centers on US government debt.

Over the past two decades, governments went on a debt binge, fueled by low interest rates. Now that rates have risen, investors worry that Western governments aren’t willing to make politically difficult decisions to curb public spending….

Of particular interest to me is that this has gone on in extreme parallel (to coin a phrase) in the US. In the years (too many of them) following the Panic of 2008, the US Fed kept interest rates, via its benchmark rate setting artificially suppressed, holding them down almost all the way to zero. That fueled the borrowing, since payments on the debt were so cheap. (The heavily negative impact on fixed-income Americans holding, as their primary income source, corporate and government debt instruments was of no mind to the Fed or to the administrations then in power.)

Federal spending needs to come down, certainly, but that’s made harder to do (the primary impediment is political timidity) at the higher interest rates currently extant.

Therein lies the rub. The Fed’s benchmark rates currently are at, or a skosh below, the rates historically consistent with the Fed’s 2% target inflation rate. The current push to lower them even further, globally as well as here at home, is mistaken. That won’t reduce borrowing; it’ll only increase it, partly to roll existent debt and partly to “take advantage of” the lower rates to increase net borrowing.

No. It’s time for the Fed to be quiet and sit down, leaving its benchmark rates at their current level. The only thing for the Fed to say publicly about rates is to announce in clear, no uncertain terms—no Fed speak—that it’s going to sit down and be quiet, and leave its benchmark rates at their current levels. It’ll be costly and slow for existing debt to be paid down, but our economy will recover to even greater prosperity on the other side. The cost of not sitting tight at current levels will be even greater in the long run of burgeoning debt that ends up so great it cannot be repaid, except with inflation destroyed dollars.

John Maynard Keynes once said that in the long run, we’ll all be dead (so who cares, went his subtext). But our children and grandchildren will be living in today’s long run. We should care today.

Tipped Wages or Not?

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McDonald’s is insisting that every restaurant—especially fast food restaurants—should be required to do away with tip-based wages and pay servers at least the Federal-level minimum wage. There are a couple of major disingenuosities in the surrounding argument.

McDonald’s Chief Executive Chris Kempczinski:

Right now, there’s an uneven playing field,

because casual-dining restaurants, bars, and other establishments to pay below the typical minimum wage to tip-earning workers. If he thinks so, he should push for getting his restaurant able to similarly pay his workers rather than demanding that others kowtow to his business model.

Kempczinski went on:

If you are a restaurant that allows tips or has tips as part of your equation, you’re essentially getting the customer to pay for your labor[.]

This is an especially blatant bit of disingenuousness. The customer already is paying for the restaurant’s labor. The customer also is paying for the restaurant’s cooking, food and food preparation inputs, rent, management salaries, every cost the restaurant incurs. Those costs are included in the prices the restaurant puts on its menu. Tipping is just a customer-facing line item on the bill.

This is nothing but a regulated business manager venally and self-servingly trying to capture the regulators and impose added costs on his smaller and weaker competitors.

Regulation vs Regulation

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In an article centered on a so-called balancing act by Big Oil in an environment in which the Trump Administration is rolling back a broad swath of climate regulations, the news writers had this:

The industry’s biggest trade groups have said they support effective and reasonable regulations. Nixing the programs, the lobbyists said, would create an impossible choice for the industry—ask the administration to reinstate some rules, or walk back its previous support for some regulations.

This is timidity writ large. If the trade groups and the managers of the groups’ constituent companies really think this, that, or those rules are good ideas, then they should self-regulate along those lines. There’s nothing to stop them; there’s nothing forcing them to render themselves dependent on government diktats.

Lobbyists have signaled to the EPA that creating a regulatory vacuum could invite new lawsuits.

The proper response to those lawsuits is to stop being so desperate to settle and to stop hiding behind Government apron strings. With the climate regulation roll back, there are fewer grounds on which to base a lawsuit, and the proper response to those remaining that are brought is to refuse to settle, push the pace on the trials, and burn the suers to the ground in open court. That’ll be expensive in the early stages, especially as they’re forced by activist district judges to go through the appeals process, but it will reduce long-term legal costs far more by obviating a large number of lawsuits in the aftermath of those early ones.

It’s past time for business managers, especially including those running energy producing businesses, to recall the nature of their management roles.

The central imperative of a management position in the United States is to manage a company in a way that satisfies the company’s owners. There is nothing in that imperative that requires a manager to manage his company in a way that satisfies the demands of Government beyond simply following law. Those managers who are that timid that they need to be told what to do by Government need to be replaced; they’re unfit for their management positions.

This is America. Business managers are free to act on their own initiative; they are not required to wait on Government.