Tag Archives: economics

A Misconception

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The headline and subheadline say it all.

Funding Freeze Threatens an Economic Lifeline in Chicago
Washington’s move halts plan to extend a train line into a depressed pocket of the city

Except that Washington’s move needn’t halt anything. Chicago could reallocate its spending priorities and fund the extension itself.

There’s no political will to do so, though; too many politicians in the city are addicted to Federal dollars, and apart from that, they benefit personally politically from bringing in the pork rather than spending city money.

Too, relying on Federal dollars—the taxes paid in by citizens from elsewhere in the State and especially by citizens of other States—lets city politicians avoid the drudgery of worrying about, and doing something about, the costs of such a project. And that benefits the politicians’ union employers donors.

A major factor in those costs is labor, which is driven by Federal construction dollar strings mandating union wage rates whether the builders are union shops or not. Allowing non-union wages would greatly reduce the cost of any construction project, including this train line extension.

One small example of the city officials’ shortsightedness on the revenue side is this from Wendy Jones, who runs a nonprofit that mentors young men:

The Red Line would have been a huge improvement, and it probably would have increased the property value here[.]

That increase in property value would have increased property tax revenues for the city. There would be sequelae, too, were the city managers ever to get serious about solving its crime problem: an influx of businesses, with attendant jobs, into the area fed by the train line extension, with an associated increase in income and business tax revenue to the city.

All of that would be in addition to all the construction jobs that building the extension would entail, and would still be available were the city to spend its own money on the construction.

As a bonus, the city spending its own money on the project would reduce the city’s dependency on the Federal government and reduce the latter’s leverage over the former.

That it’s a widespread and longstanding misconception that halting Federal construction funds transfers must perforce halt construction projects only demonstrates the knee-jerk response to and dependency on Federal funding that too many on both sides—politicians and citizens—have settled into.

The Federal government isn’t the only level of governing where spending discipline and reallocations are necessary.

Yet Another Reason

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People’s Republic of China President Xi Jinping’s moves to further restrict access to and shipments of rare earths, processed rare earths, and components that use rare earths, an access restriction amounting to virtual cutoff aimed specifically against us, is just one more reason for American businesses to stop doing business with PRC-domiciled companies or inside the PRC. The lede:

With rare-earths export restrictions and a string of actions targeting the US chip industry, Beijing is mounting a full-scale offensive on Washington ahead of an expected meeting between President Trump and Chinese leader Xi Jinping.

This, too:

On Thursday, China announced new restrictions on rare-earth materials, specifically noting that licenses related to certain types of chips will be granted on a case-by-case basis. Also Thursday, Beijing added roughly a dozen organizations to its “unreliable entity list,” including TechInsights, a Canada-based semiconductor technology research firm that had released reports on chip-development efforts by China’s Huawei Technologies.
China went beyond semiconductors. On Thursday, Beijing also said it would require licenses for exports of certain lithium batteries and some equipment and materials used to make them.

Included in those restrictions are limits on exporting any goods that include as few rare earths as 0.1% of the product’s value in their makeup. That amounts to an outright block on anything that even touches rare earths. It’s a direct attack on our economy and our defense industries, and so on our sovereignty.

It’s long past time for American businesses to shift their business arrangements and their supply chains completely away from the PRC. The patriotic nature of the move as well as the move’s economic optimization, along with the urgency of making it, should be obvious even to the most remote, ivory tower cloistered American business manager.

That shift must include stopping all technology transfers to the PRC, whether the transfer is in the form of goods (viz., chips, chip fabrication equipment, computer equipment, technologically oriented consumer goods, software, and so on) or in intellectual property agreements.

For example:

China’s top market regulator said Friday that it had launched an investigation into Qualcomm for suspected violation of the country’s antimonopoly law. The probe is tied to Qualcomm’s acquisition of Autotalks, an Israeli startup, the regulator said.

If Qualcomm were not operating inside the PRC, the PRC’s regulators would have nothing to say regarding the acquisition.

More broadly, if we as a nation did no business in or with the PRC, Xi would have no levers to swing against us. The changeover will be disruptive and expensive, but only in the short term, if American businesses get off the dime (including literally) and make the shifts. After all, how disruptive is it already to not be making the shifts apace? It’ll also be far more expensive for far longer, if not permanently, for American businesses to remain dependent on an enemy nation for critical items.

That dependency, too, is a direct threat to our independence of action as a sovereign nation, ceding as it does critical parts of our national economy and of our defense establishment to that enemy nation.

The Editors Miss Again

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This time, the editors of The Wall Street Journal waxed excited over President Donald Trump’s (R) responses to the People’s Republic of China President Xi Jinping’s export blocks controls on rare earths and related materials aimed at the United States.

First things first.

None of this [trade war] is good for the US and global economies.

The editors appear to be writing from a fantasy garret office. In what war do they imagine that one side suffers no harm at all? In the real world, wars damage all participants.

Then there’s this from the editors’ swampish imaginations.

Mr Trump started the fun by announcing on social media midday Friday that “some very strange things are happening in China!” He said Beijing has turned “very hostile” and is sending letters to the world announcing tighter controls on the export of “every element of production having to do with” rare-earth minerals.

There’s that fantastical editorial garret world again. This latest round was begun by the PRC’s Xi when he imposed those controls on rare-earths, processed rare earths, and any product from wherever exported that contains rare earth materials comprising 0.1% or more of the product’s value. Trump is merely responding to that attack rather than meekly lying down and forcing us to accept it.

But back up a bit, too, to a time of which the long-term memories of the editors seem broadly deficient. The PRC has been inflicting its trade war on us for years and years. It has been stealing our technologies through espionage and hacking.

It has been forcing technology transfers from private enterprises as a condition of their doing business in the PRC, a condition only slightly eased over the ensuing years.

It has been forcing private enterprises to accept as partners PRC-domiciled companies as a condition of those foreign enterprises doing business in the PRC, a condition only slightly eased over the ensuing years.

It has demanded PRC government-approved back doors into foreign companies’ operating software as a condition of those foreign enterprises doing business in the PRC, a condition only slightly eased over the ensuing years.

It has demanded PRC apparatchiks in foreign companies’ management teams operating PRC-domiciled arms, a requirement only slightly eased over the ensuing years.

The PRC has begun dumping its industrial output on the international market at below production cost pricing nominally to shore up the economic malaise of its own overproduction, but in truth to bankrupt other nations’ domestic industrial producers—including in the US—and so gain market share to the point of other nations’ dependency, especially ours, on PRC output.

Trade wars aren’t easy, as the editors noted in their headline. But trade wars are made the harder when folks who should know better don’t even understand the war actually progress.

30-Year Mortgages

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Patrick Brenner, Southwest Public Policy Institute President, thinks these have been terrible ideas. I disagree. Central to his thesis this:

The 30-year mortgage locked families into a lifetime of interest payments that cost the borrower far more than the original price.

However, he never mentions a Critical Item that also obtained throughout his period of interest, the post-WWII mobility, both geographically and economically upward, of the American working force/homeowner population.

Two personal examples illustrate, and I claim our examples are typical, not unusual.

When my wife and I were starting out, as Lieutenants in the USAF, we were able to buy our first house courtesy of one of those “dangerous” shorter term balloon payment loans. We were highly mobile as USAF officers, but that mobility, as I claim, wasn’t unusual—the civilian work force also was highly mobile, and that mobility allowed homeowners to sell their homes, pursuant to their mobility, before the balloon came due, and buy another home in their new location, now with a variable rate loan (fixed for a period of years, then floating with the market), 15-year fixed mortgage, or an evil 30-year mortgage, with interest rates favoring the variable rate and the 30-year. Again, mobility allowed most homeowners to sell their homes before the variable rate reset, along with selling their 30-year mortgaged homes long before being “locked in for life.”

It also was the case that many of these balloon mortgage homeowners refinanced into a new variable rate loan or into a 15-year or 30-year mortgage. Banks expected these sorts of refinances and smoothed the path.

Many years later, as my wife and I were long established civilians and approaching retirement, we bought our current house with a 30-year mortgage. We’ve since refinanced that mortgage a number of times as interest rates went down, and currently have a monthly payment a bit over half that original payment.

So much for ever being locked in for life with a high-rate mortgage. With that mobility, very few homeowners actually paid more in aggregated principal and interest than the value of their homes—they refinanced down, or they sold and moved on.

The only thing in the way now is a greatly reduced mobility in our homeowner population. There are a number of reasons for that reduction in mobility, but the key here is that reduced mobility. Being “stuck” in some way with a 30-year mortgage is a symptom of relative immobility, not a cause of affordability. That immobility also contributes heavily to the lack of houses on the market while demand for homeownership remains high—that’s excess elevated pricing for homes.

Whose Shutdown Is It?

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The Progressive-Democrats in the Senate—nearly all of them, led by Minority Leader Chuck Schumer (D, NY)—have closed the Federal government over their demands to get their minority party way entirely. Senator Tim Kaine (D, VA), as cited by The Wall Street Journal,

said he could vote for a spending bill with a promise to extend the ACA subsidies later, provided that he could get a commitment from the White House to impose a moratorium on firings and spending cuts.

So much for Party’s blather about demanding negotiations on the subsidies as a condition of reopening the government. Now, it’s Party demanding an outright guarantee of the extension, no negotiation at all.

So much, too, for any possibility of the Progressive-Democratic Party ever being interested in cutting spending, only constant increases.

Senator Angus King (I, ME) made even more explicit who is responsible for closing the government:

the vote’s result (Friday’s Senate vote on the House-passed clean CR) “demonstrated that a vague promise about conversations about the ACA isn’t going to be enough to induce my colleagues to end the shutdown.”

This is King’s acknowledgment that it’s Party that has shut the government, and it’s Party that insists on keeping the government shut. With their determined closure, it’s Party that’s harming ordinary Americans with their cutoff of project funding that leads to private sector jobs being HIAed, even as Party bleats that it’s Republicans who are responsible.

Party ignores the fact that the Republicans in the House, despite Party’s best efforts, passed a clean Continuing Resolution—no pork for either party, just funding for seven weeks of government operations—and sent it to the Senate. It’s Party in the Senate that is demanding a Christmas tree worth of Party pork be added to the CR or they’ll leave the government closed, those projects unfunded, and those jobs HIAed.