Tag Archives: economics

The Nub of the Thing

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In a Deutsche Welle piece on the likelihood of Emmanuel Macron being able to reform French labor and pension law, is this statement by Julie Hamann, a political scientist with the German Council on Foreign Relations in Berlin.

The French have high expectations of the state, for it to fulfill its protective function with regard to social welfare.  As soon as reforms are announced that may lead to cuts in social services or labor market insecurity, this very quickly gives rise to very great and very emotional fears.

It doesn’t get any clearer than that.  The French people—French society—expects government to play the major role in doing for them; individual personal responsibility for a Frenchman’s own future is secondary and operable only within a Government provided framework.

Macron and his La République en Marche! party may well fail as resoundingly as did Alain Juppe, who had the major French labor union on his side 22 years ago but couldn’t do the deed, and as resoundingly as did Dominique de Villepin, whose plan already had passed through Parliament 11 years ago when he folded and canceled reforms similar to Macron’s.

Macron is a younger man, and his party is populated by newcomers still fired by their idealism and disdain, if not disgust, for the establishment.  But he will need to go directly against the forces of the people—the popular establishment of a sort—if he’s to succeed.

Macron will change the foundation of French social thinking with his proposals.  He and a sufficiency of his party must have the courage to lead in order to enact his proposals—and to face the consequences if his policies, rammed through and held to, do not lift the French economy into prosperity-generating dynamism.

Another Example

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…of the failure of government intervention in “green” energy.  And of the lack of understanding of the problem by the participants.  This four minute video via Deutsche Welle tells the tale.

A group of Spanish farmers, in order to “improve their pensions and to do something for the environment,” banded together to build a solar farm, Spain’s biggest cooperative solar park, an operation of solar cell collectors at roughly €90,000 per module.

The central takeaway:

[T]he modern facility is currently losing money because the conservative government has drastically cut the subsidies for solar power.

The solar farm is not economic viable, it cannot compete in the market place, without those subsidies, without OPM.  The thing simply is not market ready.

The lack of understanding is in the plaints that this is someone else’s fault; it can’t possibly be a poor business decision to rely on a technology that can’t compete and that isn’t ready for prime time.

I feel swindled by my own government, by the politicians we Spaniards voted into office.

And

The big energy companies regard us small investors as enemies because we threaten their monopoly on the market.

Except that these “small investors” don’t have anything with which to challenge them without all that OPM to prop you up.  Their enemy—and the small investors’—is that government subsidy.

One bit of slanting by DW: there is a vague reference to a tax on solar cell installations on private homes in that region of Spain.  However, DW chose to provide no context for that reference: what the tax is for, how much it is, what is actually being taxed, and so on.

It’s About Time, Ollie

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In a move met by applause from at least one congressman, the Energy Department announced a pilot program for research into domestic mining of rare earth elements.

Rare earths are minerals critical to computing technologies and to various military and civilian sensor technologies.  China currently dominates the production and market for these elements, with about 85% of the world’s production from its domestic mines.

Another major source for rare earths, not yet exploited, is the South China Sea floor.  Part of the purpose of the PRC’s seizure of the South China Sea and of its island-building and militarization of those constructs is to control access to those rare earths and to reserve them for itself.

The US has about 13% of the world’s total reserves, but very little of this is in production: mining efforts aren’t extensive because it hasn’t been economically feasible (or yet politically necessary) to mine seriously.  Instead, we’ve been buying our rare earths almost exclusively from the PRC.

We’re very late to this production party, but with Secretary Rick Perry’s announcement, we need to jump in with both feet.  This is another area where we have to cease our dependence on our enemies for our own prosperity.

Saudi Oil Embargo Against the US?

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Saudi Arabia is cutting its oil exports to the US for the express purpose of directing our use of our own oil to Saudi purposes—to make us use up our existing “excess” supplies.

Saudi Arabia is slashing its US oil exports to a near three-decade low for this time of the year, intensifying its efforts to reduce a global supply glut that has been pummeling crude prices.

Not just the global gut—our supply in particular.  Saudi Arabian Oil Co is cutting its exports to the US to the lowest level since the late ’80s.  Saudi Aramco is cutting its exports to us to the lowest level since 2009, the end-game of the Panic of 2008.

[S]ome analysts say these reductions in Saudi exports to the US could be a step toward ensuring that OPEC’s cuts have the intended effect of reducing bloated inventories of oil around the world, and particularly in the US.

[Emphasis added.]

This is a prickly ally; however, the embargo (which is what this amounts to, even if not intended and even if not complete) will have little deleterious effect on us, and it’s likely to backfire on the Saudis and their OPEC compatriots.  The reduced sales, whether to us or to the world generally, only opens the world market to us: we’ll increase our market share, to the benefit of our economy.  Furthermore, we can handle lower prices than can the OPEC members and their oil allies (vis., Russia and Iran), producing profitably at those lower prices; that encourages our continued production even as the Saudis and OPEC try to manipulate price with their doomed-to-fail attempt to manipulate supply.

And the American consumer, far from the more serious embargoes of the last century, will benefit from the largely unaffected supply and the lower prices of oil (and of natural gas, which aside from being inherently cheaper also is under price pressure to the extent that oil and gas are substitutes for each other), both directly and through the ripple of those lower prices throughout our economy.

The Fed and the Markets

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The Federal Reserve’s interest-rate increases aren’t having the desired effect of cooling off Wall Street’s hot streak.

Well, NSS.  There’s a hint there.

The Fed needs to stop trying to manipulate the market and go back to doing its job, maintaining stable price levels (controlling inflation to low levels) and achieving full employment (whatever that means.  And, the latter is wholly dependent on the former and so need not be an independent goal, but that’s a different story).

Manipulating the markets as a primary means of helping the underlying economy is a fool’s errand.  While the markets are very strongly tied to the underlying economy, they are not the underlying economy, and the lags between economic performance and market behavior are both too long and too variable for Fed market shenanigans to be useful for anything other than letting the Fed pretend it’s doing something useful.

In theory, financial conditions should serve as the conduit between the Fed’s monetary policy and the real economy. When the Fed lifts short-term rates, long-term rates should rise also and financial conditions should tighten.

This is misguided; see above.  Financial conditions should be set by the free market behaviors of market participants.  The Fed’s role, to properly execute theory, needs to stay within its mandate: set the framework within which the free market operates by controlling longer-term price level.  That’s the sum and total of the purpose of the Fed’s monetary policy and its relationship with the underlying economy.

The Fed should set its benchmark interest rates to levels historically consistent with 2% inflation (the Fed’s oft-stated target inflation rate), and then it should sit down and be quiet.