Tag Archives: economics

Oil Strikes and our Economy

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“Economists” cited by The Wall Street Journal say that the Iranian/Houthi strikes against a couple of major Saudi Arabian oil production facilities are unlikely to do much to our economy. Despite their anonymity, those…sources’…assessment is accurate.

Among other things, we’ve made ourselves essentially self-sufficient in oil and natural gas production, have become the world’s leading producer, and we’re a net exporter of oil and natural gas.  That last, especially, means we’ll easily be able fill any shortfall from the Saudis’ damage.  (Production cuts from that damage are likely to be short-lived in any event.)

In addition,

Today, energy accounts for about 2.5% of household consumption, down from around 8% in the 1970s

The Federal Reserve still has its misconception regarding the proper execution of its role, though:

The Saudi oil-field attack adds a new factor to consider for Federal Reserve officials, who have been weighing how a variety of geopolitical risks will influence the economic outlook, including the US-China trade war, unrest in Hong Kong, and Britain’s impending departure from the European Union.

Those things are irrelevant to the Fed’s task, which is to maintain stable pricing and full employment. The optimal way to achieve this is simply to set its benchmark interest rates at levels consistent with its inflation rate goal, and then—rather than chasing market responses to this or that “geopolitical risk,” or trying to anticipate and preempt them—sit down and be quiet.  The resulting sound economy will produce full employment.

The Fed’s inconstancy is a bigger problem for our economy than hits, even major ones, on another nation’s energy production capability.

On the other hand, the People’s Republic of China burns through three times the oil that it produces; it badly needs oil imports, much of which it got from Saudi Arabia.

Japan imports nearly all of the oil and natural gas that it consumes.  That’s a shortfall we easily can, and should, fill.

Interest Rate Foolishness

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Mario Draghi, in his last act as European Central Bank MFWIC, has lowered ECB benchmark interest rates and set the central bank on a long-term campaign of bond-buying.  His…idea…is to stimulate inflation and push the inflation rate to more normal levels.

Couple things about this.  The Wall Street Journal thinks this commits Draghi’s successor to this foolishness for the long term.  Of course, it does not.  His successor can undo this business when he takes office.  The difficulty will be solely within that successor’s political courage.

The larger problem though, is this. Interest rates are inherently inflationary.  While lowering the cost of money—especially to the point of negative interest rates—encourages borrowing and spending the borrowed money, it does little to nothing to inflation.  This is the case especially for a polity as dependent on international trade—whether within the EU or with nations outside the EU—as is the EU and its member nations.

Lower interest rates devalue the euro relative to non-EU nations, which drives up the cost of importing goods and services necessary to domestic production and sales.  Domestic prices won’t rise as much, even with the increased demand represented by the spending increases encouraged the lower (domestic) cost of money.

The ECB’s pre-emptive move was aimed at insulating the eurozone’s wobbling economy from a global slowdown and trade tensions.

The move won’t work any better today than similar moves have the last several years. Just as would be optimal in the US, if the ECB wants a stable, healthy, growing economy in the EU, it needs to set its benchmark interest rates at levels historically consistent with the inflation rate that has been optimal for the EU economy, and then sit down and be quiet.

Unfortunately, European bureaucrats and politicians are even more addicted to doing something than are our own.

Especially when the best something to do is nothing.

Regulatory Capture

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America’s automotive companies want ever stricter emissions standards.  Or so says Fred Krupp, President of the Environmental Defense Fund.

This, of course, is nonsense.

If car companies truly want stricter emission standards, they can do so without the cover of a government mandate.  Nothing is stopping them from setting and meeting their own stricter standards.  This is, after all, a (largely) free market economy, and it’s at the heart of a (largely) free nation.  Car companies can make their own decisions without Big Brother’s instruction.

Unless, of course, they have a different agenda.  Like, for instance, writing the regulations in a way to protect them from competition from upstart (as in impudent) companies that might have better products or better consumer appeal, or both. That’s classic regulatory capture.

Or, maybe it’s a path to writing the regulations in a way that beats the EDF climatista drum but that has little or nothing to do with producing quality, efficient, cost-effective cars that consumers actually want.

Unions for Socialism

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That’s the situation in Oregon, the new front-runner for socialism in the US, surpassing even California.

[T]he Oregon AFL-CIO wants voters to limit self-checkout kiosks in grocery stores.

The State’s Attorney General still has to sign off on the union’s ballot measure, ironically titled the Grocery Store Service and Community Protection Act, but that’s a formality in a State that favors Antifa violence over law and order and actual protection of communities.

The union claims—and it’s serious—that

self-service checkouts add “to social isolation and related negative health consequences” for shoppers.

And

…contribute to retail workers feeling devalued….

Because, the union insists, Oregon’s citizens are such snowflakes, so easily triggered.  Such infantilization of grown, adult human beings ought to be insulting to the people of Oregon, consumers and workers alike.  We’ll find out whether they’re insulted, though, from how they vote in 2020 when the measure is on the ballot.

If the good citizens of Oregon do show their tenderness by voting up the measure, we can look forward to the unions demanding sackers in stores be featherbedded.  Make-work is, after all, how the socialists keep their populations (more or less) employed.  And how the Precious find comfort.

A Different Sort of National Security Threat

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This one demographic; it’s the potential for population collapse in the People’s Republic of China.  Most of the nations of the world outside Africa face population declines, but none seem as severe as the PRC’s is looking to be.

In 2016, after the one-child policy was abandoned, there were 17.86 million births. This dropped to 17.2 million in 2017 and 15.2 million in 2018—the third-lowest rate since the foundation of the People’s Republic of China in 1949.

That might be an accelerating drop, although three data points don’t make for a strongly measured trend.

There’s this datum, too, from Yi Fuxian, Senior Scientist in the University of Wisconsin-Madison’s Medical School Department of Obstetrics & Gynecology:

In China in 2017, the ratio was six workers in the 20-64 age bracket supporting one senior citizen at least 65 years old. This will decline to 2.0 workers in 2039 and 1.6 in 2050.
“No social security net, no family security, and a pension crisis—this will evolve into a humanitarian catastrophe. As women live six to seven years longer than men on average [and are usually a few years younger than their husbands], they will be the main victims of population control,” said Yi.

And this from George Magnus, an Oxford University China Centre Research Associate:

Measured by the proportion of 65+ and the old age dependency ratio, China will age as much in the next 22 years as most Western economies have done in the last 60-70 years—and at far lower levels of income per head, and with a much less developed social security system[.]

It’s unlikely to get better in time to do anything meaningful: the PRC’s fertility rate, the number of children born per woman, as of 2018 is 1.6—far below the 2.1 rate required just to maintain the population at its current level.

But it’s more than just aging women or aging generally.  This is the size of its labor force in absolute terms, too, with its production capacity. The number of Chinese in the labor force is the economic underpinning of the nation and its ability to keep itself armed—to the degree the Communist Party of China and its People’s Liberation Army deem sufficient—and able to face the enemies perceived by the CPC and the PLA.

That economic underpinning also is critical to the nation’s ability to keep its people, including those actively working, fed and housed.

What will a desperate Xi Jinping or Xi-successor do in the face of this crisis?  We need to be prepared diplomatically, economically, and humanitarianly.  And militarily, since neither Xi nor his successor are likely to accept this crisis without resorting to force and invasions to “capture” workers and baby-makers.