Category Archives: political economy

Interesting Graph

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A recent Wall Street Journal article concerned the duration and potential durability of our current stock market bull run.  The bull has lasted

3,453 days since the S&P 500 hit its low of 666 on March 9, 2009. Since then, the broadest US blue-chip index has more than quadrupled in price terms….

What’s interesting to me, though, is this graph that was presented early in the piece.

Notice the gray line, which represents the Shanghai Composite Index.  The People’s Republic of China’s index representing the PRC’s stock market, such as it is, bottomed out some months earlier than did our market and those of Europe (Stoxx) and Japan (Nikkei)—and since then it has never really recovered, rising only slightly since that bottom.

It would seem (preaching to the choir, perhaps) that government manipulation of an economy doesn’t work very well—not even when it’s done by the smartest folks in the PRC room.

Free Stuff

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In some places, that apparently includes free labor.  At least that’s Venezuela’s President Nicolás Maduro’s view.  He’s going to

raise wages by nearly 6,000% and…devalue the already-embattled currency by 96%….

Let me get this straight.  The bolívar fuerte (ironic name, that; it translates to “strong bolívar”) already is next door to worthless, Maduro is going to replace it with the sovereign bolivar that’s as much closer to worthless as he can get it (taking five(!) zeros off the face value of each piece of paper, which the sovereign bolivar does—the mechanism of the devaluation), and then he’s going to give workers even more of this useless “wage.”

I’m here to tell you, multiplying a nearly zero value by some number gives an answer that’s still right beside zero.  Maduro is expecting Venezuelans to work for nearly free, and he intends to make their pay even more worthless, so that they work even more nearly for free.

Such a drastic devaluation only fuels inflation: the supply of anything that can be bought is relatively fixed compared to demand, especially so in Venezuela, and making the currency used for purchase even less valuable only requires even higher prices to make the buys.  Throwing lots more money (of any value) at the supply only drastically potentiates the inflation.  The 1,000,000% [sic] inflation that Venezuela has for this year will look stable next year.

On the other hand, Maduro is reaching one of Communism’s two goals: eliminating money altogether and getting from each according to his ability.  Maduro does need to work a little harder on the needs goal, though.

Corporate Free Rides

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Alex Sanchez, Florida Bankers Association President and CEO, is worried about corporate welfare.

The problem with modern American credit unions boils down to a simple question: why should a family of four pay more income taxes than a $90 billion financial institution? That’s the total amount of assets held by Navy Federal Credit Union. Yet it is exempt from federal and state corporate income taxes, as well as sales taxes (and, in my home state of Florida, intangible taxes). This is corporate welfare.

He’s right that this isn’t a balanced approach to taxation, but he’s wrong about it being corporate welfare.  The answer isn’t to start levying income taxes on credit unions.  Since customers, American citizens, are the ones who end up paying the vast majority of a business’ taxes, the right answer is to reduce the income taxes on all businesses to the credit unions’ rate.

I agree, too, that even in a zero corporate income tax regime, personal income taxes are too high.  The present temporary personal income tax cuts should be made permanent—as most of our politicians now recognize; it’s only the Progressive-Democrats who not only oppose permantizing the current rates but want to raise them to Kennedy-era rates. Following closely on making those rates permanent, we then should debate lowering them further.

A family of four should pay a higher income tax rate than a multi-billion dollar business, or even a mom-and-pop business, pays, especially since that family already is paying those business’ taxes.

That family just should not be paying as much more.

Income Equality

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William Galston doesn’t think we have enough, and it’s the successful one’s fault.

[T]his [trade leaving nations generally better off] is small comfort to those who lose out, especially because the winners rarely compensate them commensurately.

Galston is operating from a blatantly false premise here.

He does have a couple of solutions to offer.

First, they [government] could significantly expand the earned-income tax credit to bolster the incomes of workers somewhat higher up the income ladder. Second, they could implement a broader program of wage subsidies that would raise the wages of lower- and middle-income earners toward a specified hourly target.

Never mind that, with a Progressive-Democratic Uncle Sugar government paying these wage fractions, employers will have no incentive to pay as high wages.

Why not just skip these middle steps, and provide a Universal Basic Income?

Oh, wait….

Surprised

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Writing on the topic of our applying economic pressure on Turkey as a means of getting an American hostage (among others) freed, Greg Ip expressed surprise and worry about the weaponization of trade in his Wednesday Wall Street Journal article.

Trade wars may be morphing into something more dangerous: financial wars.

This, though, merely exposes his misunderstanding of international trade.  Such trade is far more about national policy applied internationally than it is about economics, and international finance is just a tool of that trade venue.  Trade has always been “weaponized;” it has always been about achieving national political goals, of which economics is merely one.

Ip’s discourse also misuses the term “war;” although, he is not alone in this error.  Trade “wars,” even with finance tools being used extensively, are not shooting conflicts, and even with the global financial dislocations of events like the Great Depression or the Panic of 2008, nations’ existences were never at risk.  While trade, freely wielded as a tool of policy, can be effective at pushing the targeted nation to alter its behavior, it never threatens that nation’s independence.  It’s never war.