Tag Archives: economics

More Government Intervention

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Shades of FDR, and a betrayal from the putative right of center.  Senator Marco Rubio (R, FL) wants Government to dictate to private enterprises what they must do with company profit.

The plan backed by Rubio encourages domestic investment by making full and immediate expensing permanent “as a way to discourage companies from pursuing share repurchases.”

Right move, wrong reason.  Immediate expensing ought to be a permanent item in tax code reform on its own right.  Delaying expensing or stringing it out is just another aspect of using our tax code for social engineering, which bastardizes our tax collections and distorts our market away from the most efficient use of our money—whether business money or personal.  And that most efficient use might well include stock buybacks; that’s a business decision with which Government has no business interfering.

“Discourage” companies?  That’s a fiction.  What Government starts as “discouraging,” it very quickly converts to barring.  Senate Minority Leader Chuck Schumer (D, NY) and Senator Bernie Sanders (I, VT) are pushing for precisely this sort barring of legislation,

to curtail the ability of companies to purchase stock buybacks[,]

and Rubio is just as enthusiastically joining with them on this.  A report released by Rubio’s Small Business and Entrepreneurship Committee had this in it:

Cash spent on share repurchases is not cash spent on capital investment, though the degree to which a relationship exists may vary by sector and firm type[.]

That’s not strictly true.  Money spent on buybacks is money not spent on that business‘ capital investment.  But do Rubio, Schumer, and Sanders really think that money goes under the mattresses of those now ex-shareholders?

Of course that money does not. It goes into one of three places, each beneficial to our economy. One is investments in other companies, facilitating those companies’ capital investments.

Another is spending on consumer and business goods, which enhances market demand, which increases cash flow into those producers’ coffers—which facilitates their capital investments.

The third is savings.  As anyone who didn’t sleep through their high school econ course knows, savings are banks’ and other lenders’ source of funds which they loan out—to businesses so they can carry out their capital investments.

Hence the need to let businesses make their own decisions without Government diktat.  It’s disappointing that a nominally Republican Senator doesn’t understand any of this.

Definitions, Progressive-Democrats, and Economics

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Progressive-Democratic Party candidate for President, and mayor of South Bend, IN, Pete Buttigieg is an illustration of the Progressive-Democrat candidates’ lack of understanding of two of those three.

Proximately, he’s upset that President Donald Trump demurs from the socialist movement of Party and its cronies of the Left and Far Left; Buttigieg actually is insisting that

the word [socialism] doesn’t have the same negative connotations it did for past generations.

This is just an Alinsky-esque attempt to change the subject by falsely defining it.  Unfortunately, though, it’s clear (just consult any current English language dictionary*; apparently his grammar school lesson on how to use a dictionary was not a safe space for Buttigieg) that socialism remains government control of the means of production—of our economy.  And that’s exactly what he and his fellow candidates from Party are proposing: high taxes on those who produce; high taxes on the mere existence of wealth and success; nationalization, not just of the industry of health coverage plans but of the very provision of health; government control over our energy production; government control over our transportation means; and on and on.

Buttigieg also said

We are a market-based economy. You can’t kill off a discussion by calling it socialism.

On the other hand, you can kill off a market-based economy with socialism.

 

*Here’s the current American Heritage Dictionary‘s definition:

1. Any of various theories or systems of social organization in which the means of producing and distributing goods is owned collectively or by a centralized government that often plans and controls the economy.

Here’s Merriam-Webster‘s definition:

1  : any of various economic and political theories advocating collective or governmental ownership and administration of the means of production and distribution of goods
2   a : a system of society or group living in which there is no private property
b : a system or condition of society in which the means of production are owned and controlled by the state

As Judge James Ho of the Fifth Circuit wrote in a different context,

For our system to work, however, we must share a common language. When the American people come to a consensus, there must be a way to reduce the agreement to words that we can all understand and accept—both today and in the years to come. We must have confidence that our words will be faithfully construed in the future, consistent with our common understanding.

Surely, Buttigieg and his fellows know this.

Demographics and Retirement in the PRC

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The People’s Republic of China is facing an increasingly serious demographic problem.

New data show the reversal [in the one-child policy] isn’t having the anticipated impact. The number of newborns in China dropped to 15.23 million in 2018, according to the National Bureau of Statistics. That’s two million less than 2017 and 30% below the median official forecast of more than 21 million.

This has serious implications for, among other things, the PRC’s old-age pension and medical care capacity (eliding the impact on the PRC’s ability to man an armed forces establishment of the size it currently has).

By 2050, there will be 1.3 workers for each retiree, according to official estimates, compared with 2.8 now.

Most of these retirement programs are funded by local jurisdictions, rather than from the center, and most of those jurisdictions’ facilities are badly underfunded and getting more so (sound familiar?).  As a result, the PRC is trying to increase national control of those retirement facilities and to increase the bite on businesses to pony up more for the programs.  That last, especially, has its own problems.

Huang Weibin, the general manager of a property-management firm in Guangdong province, said higher pension costs mean his business will suffer a loss this year, likely forcing him to lay off some of his 80 employees.
“If the government doesn’t help us out with subsidies or tax breaks, we will go broke for sure,” he said.

He and the PRC government need only consult with that famous American economist and blogger, David Roberts:

If the question is what the [PRC] can afford…, the way to think about it is not in terms of how much money the country has. It literally has as much money as it wants. It prints its own money!

Problem solved.  Or maybe not.

If Amazon Pulls Out

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Progressive-Democrat strategist and pollster Doug Schoen is worried about new rumors that Amazon might pull out of its agreement to relocate a part of its HQ2 in New York City.  He’s hanging his hat on the commitment from Amazon to produce 25,000 jobs at an average salary of $150,000 per year.

It would be a “disaster for the city,” he wrote in the Fox News op-ed, for Amazon to pull out.

Burdened by a shrinking tax base, crumbling infrastructure, and a lack of good-paying middle-class jobs for the future, New York City needs innovators like Amazon.

Or, perhaps, New York City wants Amazon’s money.

Regardless, Schoen seems to be missing some important costs to New Yorkers in the deal currently in place between New York City and Amazon.  Immediate costs include

  • tax credits equal to $48,000 per new job—assuming new jobs by amazon could be measured
  • $1.5 billion in direct subsidies for Amazon

Potential additional costs include

  • $897 million through New York City’s Relocation and Employment Assistance Program
  • $386 million through a partial property tax abatement program
  • depending on the extent to which Amazon relies on renewables, additional credits through the New York State Energy Research and Development Authority

In return, Amazon committed to providing over the first 10 years 25,000 new jobs at an average annual salary of $150,000—high-paying jobs.

There are unaccounted-for costs in this arrangement, though.

  • that sharp influx of high-paying jobs will create demand for limited-supply items like homes and groceries that will inflation-price others—not just locals—out of those things. Aside from the small businesses and mom-and-pop businesses and their limited expansion opportunities, there’s little physical room left to build more, to increase supply of houses, business buildings, and so on.
  • the influx of those 25,000, along with the office buildings and the commuting and shipping traffic associated a business expansion of this size will sharply increase demand on utilities, public and private transportation, and other infrastructure—which, as Schoen has already noted, is crumbling and unable to handle today’s demands
  • locals—businesses and residents, and what’s left of Schoen’s dwindling middle class alike—don’t get those property tax abatements. Guess who will pay, at least partially, for those abatements

And, in the end, tax incentives rarely get paid back in contracted for outcomes; there usually is a net loss to the incentive-granting jurisdiction.

This isn’t a good deal for New York City, unless it’s looking to replace those folks with below-middle-class jobs with a better sort of families.

Welfare Cages

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Now Progressive-Democrats want to give cash payments, ostensibly without strings attached, directly to low income folks in addition to the many welfare payments they already receive.

The latest effort is more far-reaching and aims to move supplemental cash directly into the hands of low-income Americans.

Which they’ll lose were they to move up the economic ladder, thereby cynically trapping those Americans in the Progressive-Democrats’ welfare cage.