Tag Archives: economics

An Example

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This is part of what’s wrong with today’s American higher education.  The numbers appear in a Wall Street Journal article about the possibility of ex-Secretary of State Rex Tillerson becoming chancellor of the University of Texas system.

The system has an enrollment of more than 230,000 students, an $18 billion annual budget, and more than 100,000 employees.

That’s ridiculous.  There’s no reason for having an employee for every two students.  How much better would the students’ education be were some of those $18 billion redirected toward books and lab equipment and classroom facilities and away from excess payroll?  How much more opportunity would there be were some of those $18 billion redirected toward lower tuition and housing fees and away from excess payroll?

Idiocy in the Nanny State

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Starting in May, the Food and Drug Administration will require chains like Applebee’s and TGI Fridays to list calories next to all their menu items. That includes alcohol.

Because we need to know that stuff.  Or so says Government.  And of course, we’ll pay for that knowledge in higher prices for our drinks, because generating and posting that information—and defending against lawsuits over trivial errors in the postings—doesn’t come free.

Never mind that most of us don’t care.  Nana Government knows better.

Never mind, either, that Government already provides those data for free, for all who actually do care.  Here’re some data for beer.  Nana clearly thinks we’re just too stupid or lazy to make use of those data.  Or not smart enough to know we should care.

Credit Reports and Tax Liens

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The thee major credit reporting firms, Experian, Equifax, and TransUnion, are moving to eliminate records of tax liens from their credit data and credit reports.

The three companies, which provide vital, behind-the-scenes services in consumer credit, have been grappling with class-action lawsuits over their handling of consumers’ tax liens and judgment information.

This is a mistake.  The right answer is to defend, actively, those suits that are wrong, rather than to surrender to the extortion of lawfare, and to correct the mishandlings of the tax liens in their data and reports.

Running away from the matter altogether can only further deprecate the usefulness of these credit reporting agencies. All debt needs to be reflected in the reports so that accurate pictures of an individual’s credit risk can be developed.

Beyond that, a tax lien cuts two ways: it’s the result of a serious failure, whether of the one with the lien or of events beyond the person’s control. With the other slice, like any credit card, a record of prompt payments, keeping the lien current until it’s paid off, would reflect favorably in the minds of lenders reading the reports.

Absent the data, though, a loan’s interest charge would need to be increased to reflect the greater uncertainty, or the loan denied altogether, and either of these outcomes will harm far more consumers far more deeply than the numbers and injuries claimed by the suits.

The Anti-Competitive EU

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Now the European Commission wants to tax “behemoth” digitally-oriented multinational companies for doing business within the EU.  The only companies that fit the EC’s definition of behemoth—large firms with annual worldwide revenue above €750 million ($922 million) and annual taxable EU revenues above €50 million ($61.5 million)—are American companies like Alphabet through its Google subsidiary, Apple, and Amazon.com.

That taxable EU revenue is key here.

The EU says these firms have exploited loopholes in tax laws and managed to lower their tax bills by shifting profits to low-tax jurisdictions within the EU such as Ireland and Luxembourg.

The effective corporate tax rate paid by digital firms amounts to just 9.5%, but traditional businesses pay about 23.3%, according to EU data.

But the measure is likely to pit low-tax European member states against countries like France and Germany, which have often complained about digital companies’ aggressive cross-border tax planning….

Heaven forfend the EU should lower, or allow its member nations to lower, those traditional business’ effective tax rates to the 9-10% range.  On the contrary, the EU is adamantly opposed to tax rate competition and to lowering member nations’ tax rates.  All members much charge substantially the same high tax rates.

And this anti-competitive, so say nothing about anti-liberty, position:

the European authorities’ push for more control over how the digital world operates.

This is the tax portion of the EU’s mercantilist push for protectionism, even as it decries what it sees as American protectionism.  The EU, though, is aiming its moves at its own members as well as the outside world.

Teachers Pensions and Misapprehensions

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State-funded teachers pensions are in peril around the nation from a combination of State governments over-promising, union demands and refusals to recognize economic realities, and those economic realities.  Kentucky provides an example of that, without going into the relative impacts of those three factors to the overall outcome, and of a critical misapprehension.

Kentucky has more than 175,000 active and inactive or retired teachers in the State’s teacher retirement program, and it has a $14.5 billion funding deficit—more than $85,000 per teacher.  The State was able to cover 88% of its agreed contribution to its program in 2007 and now can only cover 56%.  In response, Governor Matt Bevin (R) has proposed

switch[ing] many longtime teachers into a riskier defined-contribution plan and put an additional 3% of current teachers’ salaries toward retiree health care.

That’s the misapprehension.  Defined contribution plans are not riskier than State-run defined benefit plans, whether or not a State government mandates a per centage of a paycheck go into the defined contribution plan.

The vast degree of risk from a defined benefit plan is demonstrated by the failure of them in the private economy: the failure of corporations to adequately fund their defined benefit plans is well publicized and underlies their move to defined contribution, 401(k)-like plans.  That State-run defined benefit plans are even riskier than private enterprises’ is empirically demonstrated by the failure of States like Kentucky, which is otherwise a fiscally responsible one (see Illinois for an even riskier example).

Defined contribution plans put the responsibility for the plan’s performance where it belongs: on the individual owning the plan.  That person, with his own skin in that game, will take—or can be expected to take—much greater care with his own money and his own future than can a nameless bureaucrat managing a large collection of nameless (to him) people’s money.  Even a dedicated, honest financial manager bureaucrat (stipulate the vast majority of them are) has his hands tied by fiduciary duty rules: because he’s handling OPM, he’s forced to be more conservative with his investment moves, excessively so, than the individual who is responsible only for his own money.

Finally, the economic risks are the same for both State-run defined benefit and individually run defined contribution plans.  The Panic of 2008 hammered both types of plans.  The critical difference here, though, is the economic blow hit all 175,000+ members of Kentucky’s defined benefit plan the same.  Had those 175,000 been in their individual defined contribution plans instead, each of them would have managed their plan individually and differently from the others.  Each of them would have been hit by the Panic in different ways and to differing degrees.  The only individual hurt by the Panic’s impact on the defined contribution plan would have been that plan’s owner, not all 175,000 of his fellows.