Tag Archives: economics

A Constitutional Amendment Proposal

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As  Nicholas Ballasy, of Just the News, wrote Saturday, the Federal government is once again nearing the end of a fiscal year with no serious plan for funding the next year. His lede:

Congress is on its way to missing a “basic” budget deadline for the 29th year in a row, according to the Committee for a Responsible Federal Budget.

And just to emphasize the point:

Meanwhile, the deficit so far into the current fiscal year is larger than the same period last year.

Hence my Constitutional Amendment in its outline if not in its final wording:

If, at the end of any fiscal year, the following year is not fully funded—that is all 12 of the necessary appropriations bills are not enacted into law—then the only Continuing Resolution that is allowed is this one, which is automatically implemented beginning on the first day of that following fiscal year:
All spending by the Federal government is reduced by 10% of the prior year’s level, with the exception of spending on our national debt and our national defense. These two will have their spending held unchanged from the just concluded fiscal year. The spending reduction includes all Federal government spending, including so-called entitlement spending and all “off the books” spending.

This Continuing Resolution will continue in effect until the Federal government is fully funded for a fiscal year by enacting each of the dozen appropriations bills for that year. The Continuing Resolution, including the year-on-year spending reductions, will continue in effect for all subsequent consecutive fiscal years across which the funding failure continues. This means that if Year0 concludes at a spending level with Year1 not fully funded, then Year1’s spending level will be reduced to 90% of Year0. If the funding failure continues into Year2, then Year2’s spending level will have an additional 10% reduction, for a total reduction to 81% of Year0’s, and so on into Year3, Year4, etc.

Amending our Constitution is, by design, a difficult process, and that’s correct: our Constitution is our blueprint for governing ourselves rather than for us being governed; it cannot function as a limit on government if it’s reduced to a reflection of what we think ought be done in the moment and from moment to moment. Nor is a Convention necessary; We the People can convene ourselves to create and then push through an Amendment. It is time, though, to get started; it does take time to propose, write, and then ratify the thing.

“socialize the agricultural system”

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That’s what the Democratic Socialists of America Party, Progressive-Democratic Party Mayoral candidate for New York City Zohran Mamdani’s first and still most important party membership, wants to do, among other classical socialist things.

The destructiveness of government ownership of production everywhere else is widely demonstrated around the world, a destructiveness of national prosperity and of the weal of the ordinary population, all the while concentrating the remaining wealth in the hands of the Know Betters who run the socialist government.

The rest of us, though, should study the collectivization of the kulaks—the dekulakization—which was Joseph Stalin’s seizure in the name of small-c communism of all of the agriculture production facilities right down to the land itself. That socialist paradisical seizure led directly the deaths by starvation of five to seven million (estimates vary) Russians, Ukrainians, and Belarussian children, women, and men.

It’s obvious that members of DSA, most especially Mamdani, either have not studied the outcomes, or they have, but care not a whit about the toll.

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.

What is their Value, Really?

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What is their Value, Really?

In a Sunday Wall Street Journal article on universities’ penchant for investing their endowments in private equity (as opposed to instruments bought and sold on public exchanges, these are bought and sold in private deals between the university and one or another private (i.e., not traded on an exchange) entity, or rarely a private deal to which a publicly traded entity might also agree.

A few exceptionally talented, or lucky, endowment managers seemingly did very well in this environment. Yale’s late David Swensen got an annualized return of 13% over the course of his management.

But how valuable are those investments, really? The WSJ‘s subheadline reads

Universities and other institutions have built up large private-equity holdings, but they are now lagging behind the S&P 500 and aren’t easy to shed

And this:

And much of what those funds earned for their investors in that time was on paper; endowments and other institutions were getting less and less cash that they could put to work in the booming stock market.

And this [emphasis added]:

…making it hard for managers to get the prices they want for the companies in their portfolios. Meanwhile, institutions have struggled to find investments that hedge against stocks and private equity without further eroding returns—and the problem has gotten worse with the stock market’s latest rally.

The value of any investment is what someone is willing to pay to get it. The initial value of those private equity investments in these endowments is what the endowment managers paid to get the private entity or a piece of it. Now they’re moving to sell some/most/all of these privately held pieces, but there are few to no buyers at those initial prices or anywhere near those prices.

This is Yale’s continued position:

Yale said in a statement that it remains committed to its private-markets strategy. “We trust that sophisticated investors, especially our partners who know us best, understand this,” the school said.

That sounds like the typical arrogance of Know Betters.

What is, in the end, the true value of those privately held pieces? It’s still whatever a buyer is willing to pay for them. And that calls into question two things: an accurate valuation of those entities and the wisdom of relying so heavily on non-publicly traded entities for endowment investments.

Former Yale endowment private-equity manager Tim Sullivan:

One of the reasons we hire these guys is because they know when’s the right time to sell an asset[.]

The problem here is that a potential buyer won’t necessarily agree that it’s the right time to buy that asset.

It’s tough to grow, or even just to maintain the value of, an endowment based on phantom valuations of its holdings.