Tag Archives: economics

Paying for Health Care

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John Cochrane correctly decried the costs of health care in today’s economy, but he has the wrong solution.

Why is paying for health care such a mess in America? Why is it so hard to fix? Cross-subsidies are the original sin.

No, cross-subsidies, “sinful” as they are, are not the original sin.  The original sin is government involvement at all in the form of any sort of subsidy.  Far from the subheadline’s claim that “honest subsidies” (eliding the oxymoronic nature of that label) would encourage competition and innovation, they’d do the opposite, as all subsidies do: they’d suppress competition and innovation by giving the government-favored recipients a government-mandated advantage over their government disfavored competitors, freeing the one from competition’s pressures to innovate and reducing the other’s access to resources needed to innovate—and stifling competition’s engine, the need to innovate to stay ahead of rivals.

Are Tariffs Protectionist?

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Certainly, they can be.  And tariffs, for a long time, were intended to protect domestic industry from foreign competition as well as being a major source of income for a nation.  Our own nation was a skilled practitioner of the tariff arts for our first 125+ years and again during the Great Depression and the aftermath.

And that’s the line the Koch brothers are taking with regard to President Donald Trump’s tariff impositions.

The urge to protect ourselves from change has doomed many countries throughout history.  This protectionist mind-set has destroyed countless businesses.

That’s also the line Trump says out loud, often, when he talks about tariffs.  As the old saw goes, though, actions speak louder than words, and it’s useful also to consult the actions Trump has taken vis-à-vis tariffs.  Those actions include the following:

  • offering markedly lower tariffs on all goods and services to Mexico as part of NAFTA renegotiations
  • offering a zero-tariff regime to the G-7
  • offering a zero-tariff, zero-subsidy, zero-non-trade barrier regime to the G-20
  • agreeing in principle to a zero-auto tariff arrangement with the German auto companies, the latter which are pushing their government to push the matter with the EU
  • despite the G-7’s and G-20’s craven refusal even to discuss the matter, getting agreement with European Commission President Jean-Claude Juncker to work toward a zero-tariff, zero-subsidy, zero-non-trade barrier agreement between the EU and the US

Tariffs also are a tool of national policy and have little necessarily to do with protectionism.

Stop Tiptoeing

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Most Federal Reserve officials agree on the path for interest rates over roughly the next year: proceed with gradual increases until borrowing costs reach a level that neither slows nor spurs growth.

You bet.

The big question, however, is what to do after getting to that so-called neutral setting. The answer will largely depend on how inflation behaves as unemployment falls, and they are poring over recent research for clues.

The Fed should stop agonizing and being namby-pamby.  If it wants a 2% basic inflation rate, the rate it says is consistent with growth neutrality, as its existing goal stands, the Fed should set its benchmark rates at levels historically consistent with that rate of inflation, accept that inflation will fluctuate around that level, and then sit down and be quiet.

Those historically consistent rates are the Goldilocks level—or more accurately, the Goldilocks band.

Serious or Not?

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European Commission President Jean-Claude Juncker came to DC Wednesday, allegedly to talk about trade.  Juncker came with no offers, or even ideas, to propose concerning the European Union’s trade status with the US , and he was proud of that lack.  Apparently, he just came for some idle chit-chat and to see the sights.  EU Trade Commissioner Cecilia Malmstrom, though, had some concrete things to say before Juncker left to come over.

If the tariff dispute were to include cars that would be a “disaster,”

Deutsche Welle cited her as saying.  And this, as paraphrased by DW:

trade is between companies and people, not between states. The citizens, she says, would end up paying the price for the quarrel.

President Donald Trump has already proposed, both to the G-7 and to the G-20, a completely tariff-free trade regime.  There is already an offer on the table, agreed in principle between the US and German auto companies, to have completely tariff-free auto and auto parts trade between the US and the EU.

The EU, the other six members of the G-7, and the other nineteen members of the G-20 refuse even to acknowledge, much less discuss, those no-tariff offers.

If Malmstrom is serious, why will she not discuss these things in Brussels, especially the removal of tariffs from the auto and auto parts trade?  If Malmstrom is serious, why is she not working to get the EU’s governance out of the way so companies and people can conduct their trade without EU interference?

In the event, Trump and Juncker did reach an agreement to discuss a deal–and to work toward realization of Trump’s offer of a no-tariff trade regime, and to include in that discussion talks with a view to working toward a no-subsidy and no-trade non-tariff barrier regime.

We’ll see what comes to fruition–any EU agreement requires unanimity across all 28 wildly philosophically disparate nations, any one of which can veto an agreement.

Foreign Business Inside the PRC

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The Qualcomm’s acquisition of NXP Semiconductors is supposedly in jeopardy as the People’s Republic of China threatens approval of the acquisition in its prosecution of its long-term trade fight with the US.

But wait—Qualcomm is an American company, and NXP is a Dutch company.  Why does the PRC even have a say in this?

[The PRC] is the last of nine markets where Qualcomm and NXP need approval from competition authorities….

There’s a perfectly straightforward way around this.  The two could stop doing business in the PRC, which is not a business-friendly nation, anyway, what with the nation’s demands that foreign companies give up their technology to domestic “partners” and that they install backdoors into their core softwares so the PRC government can go in and poke around at whim.

Certainly, there would be large initial costs from walking away from such a large market, and there would be market share reduction in the middle term from ceding that market to competitors.  But what would be the costs, really?  Less anticompetitive restrictions on the combined company’s operations, less government sanctioned—even demanded—theft of proprietary and intellectual property, saddling the PRC albatross to those competitors anxious to fill the “gap.”

And real gains from quitting the PRC market: more efficiencies from better focus on the other eight markets, and a better ability to keep and expand the combined company’s technological edge over its competitors by not having to give up that edge to the PRC.