Tag Archives: economics

Free Markets

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President Donald Trump revived his tough talk on the North American Free Trade Agreement Tuesday, warning Canada it must stop protecting its dairy farmers from US competition.

Canada’s trade policy, after all, manages dairy production through a quota system (which is anathema in itself to a free market, but that’s mostly a Canadian domestic problem), and it seriously impedes foreign competition with tariffs designed for the task.

Circularly, Canada controls dairy prices by matching them to “average” production costs, and then controls production by setting allowed quotas.  With prices thus under government control, Canada sets tariffs to achieve prices for imports of foreign dairy products that aren’t competitive.

Of course, there’s a flip side to this: the US must stop shielding American farmers from the United States’ own free market and eliminate Big Government price supports for dairy and other farm products as well as corn price support achieved via ethanol mandates.

Good luck with either.

The False Premise of a Madboy

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Harry Kazianis, writing in The Week Monday, portrayed northern Korea’s weekend military parading not as sabre rattling but as a demonstration of the fruits of development driven by military necessity.

Kim Jong Un—the leader of a nation that has an economy smaller than Ethiopia—knows all too well he has no way to match the United States, South Korea, and Japan ship for ship, plane for plane in a symmetrical sense. The only way he can hope to deter his enemies is to build the ultimate game-changer: nuclear weapons paired with missiles that can strike all the way across the globe.

But Baby Kim, assuming Kazianis’ description is reasonably accurate, is operating from a false premise.  Northern Korea has no enemies (other than the enemies any street gang has, I mean).  Northern Korea has no enemies because northern Korea has absolutely nothing that any other nation wants: not resources, not technology, not an industrial base worth the candle, not tourist attractions, not pleasant climate for vacationing, not even a pile of cash.  Nothing.

The only thing Kim’s behavior is generating is increasing urgency and necessity to spend the bandwidth and resources necessary to bring him and his government down, since the only real purpose he can have in developing his nuclear weapon suite is to attack his neighbors with it, whether they’re near or far, and so he must be preempted.

Either that, or he’s truly a mad boy—which increases the urgency and necessity of bringing him and his government down before he can do his fever-inspired damage.

Kazianis’ own offered alternatives are…useless.

First, Washington must work with the international community—that means you, China, as well—to contain North Korea’s nuclear and missile programs as robustly as possible. Secondary sanctions would be applied to any nation, financial entity, company, or individual who dared help the regime build such weapons.

We’ve “worked with the international community”—the Six Party Talks, for instance—for nearly 25 years, including sanctions, and including the PRC in the Six.  The result of all of that is Baby Kim’s current status of having 20-40 nuclear warheads and nearing the ability to stick them onto missiles capable of reaching as far as the western US.

Second, we can’t just use sanctions to limit Pyongyang’s nuclear and missile systems—we need to go further. The Trump administration must use cyber weapons, just as the Obama administration did in the case of Iran’s nuclear program, to slow the speed at which these programs can grow.

Certainly a useful thing to do, but just as the Iranian case has demonstrated, cyber weapons (ours or someone else’s) didn’t stop Iran—and as Kazianis implies, they won’t stop northern Korea.

Finally, and most importantly, we are well past the point where it is makes sense to open talks with North Korea—as repulsive as that sounds.

Not repulsive, just stupid.  We’ve talked to the northern Koreans for years, both via those Six Party Talks and directly.  The talks have been a waste of breath, and doing so again would simply be a demonstration of our own insanity: repeating past behaviors and expecting different results this time.

No, sterner measures than idle chit-chat, petty economic sanctions (against an economy smaller than Ethiopia, yet), and idle chit-chat are going to be needed.

Update: corrected an importing error.

Spending Our Tax Dollars

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The table below is constructed from the table and data provided by Laura Saunders in her piece in Friday’s Wall Street Journal.  It shows how $100 in our tax monies paid to the Federal government were spent on a range of government purposes.

Item 2016
Social Security $23.61
Medicare $15.26
National defense $15.24
Medicaid $9.55
Interest $6.25
Other spending $4.94
Veterans $4.58
Civilian federal retirement $2.57
Transportation $2.39
Refundable credits* $2.21
Education $2.08
Food stamps $1.89
Supplemental Security Income $1.53
Justice $1.48
Housing assistance $1.27
Foreign aid and international affairs $1.14
Affordable Care Act subsidies $1.09
Natural resource protection $1.01
Unemployment insurance $0.86
Child nutrition $0.60
Other health† $0.36
National Park Service $0.08
National Endowment for the Arts and National Endowment for the Humanities $0.01
Congressional salaries $0.00
                                                            Total: $100.00

Notice some things (I’m going to ignore some things, too, but this is my post on my blog; I get to do that). The bulk of the Federal social safety net—Social Security, Medicare, and Medicaid—comprises in its aggregate nearly half of those hundred dollars.  Yet these are the most easily and directly privatisable, and as a matter of personal responsibility and individual freedom, they should be.  Each State should take care of its own poor: New Yorkers shouldn’t be paying any part of Illinois’ Medicaid costs in this arena, for instance.  Each individual should be paying toward his own future retirement and retired medical costs (and/or the retirement and medical costs of his own parents, if he—not the Feds—wishes) and not for the current retirement and medical costs of complete strangers.

There are far better uses to which the Federal government should be putting those $48+.  One such is plussing up another major component of the Federal social safety net: National defense (OK, I’m not using the standard definition of social safety net here, but I suggest that absent an effective national defense establishment, in very short order there won’t be any social to be kept safe).  National defense currently takes up only a bit over 15% of that C-note, and it certainly could use some increases in order to fund more troops, more and better equipment, and much more rapid and broad R&D.

Then there’s that Interest cut.  Those $6+ dollars are the interest on the national debt, a debt that continues to grow, courtesy of another datum Saunders provided.  It takes an additional $15.24 beyond that Benjamin to cover the Federal budget deficit that’s growing our debt.  A significant fraction of those $48+ could be sent toward the debt’s principle as well as those interest payments—which are only going to get larger as the underlying interest rates go up now that the Federal Reserve Bank (finally) is easing up on its artificially depressed interest rates.

One minor side note: congressional salaries aren’t actually zero; they’re just a good approximation of zero on this scale.  But you already knew that.

Shrinking the Federal Government

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…is more than just reducing spending; although that’s a major component of the necessary shrinkage.  Shrinking also must include reducing the physical size of the government, reducing its payroll.  To that end, the moves by President Donald Trump and OMB Director Mick Mulvaney will prove valuable if Congress will cooperate.

The hiring freeze of the last 11 weeks was an important first step, but it produced no actual shrinkage.  Its value consisted in halting the growth in payroll and in demonstrating over the last 11 weeks the lack of need of additional hiring.  In this latter regard, it’s much like the government shutdown of 2013, during which many Departments and Agencies were forced to furlough many of their employees—and still functioned.  The EPA, for instance, furloughed nearly 95% of its employees and ran just fine.  Treasury, Labor, and Interior furloughed over 80% each and those Departments did just as well as before.

Now the broad-based hiring freeze is about to be lifted, but all Departments and Agencies are being required to form plans to do targeted reductions in their work forces in expectation of seeing actually reduced budgets, with effect FY2019, which begins in October 2018.

This is all on the right track.  Now, it’s certainly true that the hiring freeze didn’t reduce the number of folks actually working these last several weeks, as I noted above.  It’s also true that the agencies during the government “shutdown” were on emergency manning and only so for roughly the same number of weeks.  But domestic matters should be handled, in the very large main, by the States.  The Federal government should be involved in domestic matters, in the very large main, only in emergencies.  Thus, the Departments and Agencies, in the very large main, don’t need employee complements much larger (but some larger) than emergency levels.

There are a couple of exceptions to these planned reductions.  Budget increases coupled with commensurate hiring increases will be proposed for Defense and Veterans Affairs.  The VA’s planned increases are from the best of intentions—the nearby backlog of veterans’ claims has exceeded 100,000, and so more bodies added to the payroll would seem to be needed in order to reduce this additional VA wait list fiasco, for instance—but the VA’s long-term, broad, and resolutely uncorrected failure to perform, too often with lethal results, mandates a different outcome.

Eliminating the VA and using its budget for veterans’ vouchers would be entirely consistent with shrinking the government’s payroll, even if spending associated with the VA would not shrink.  But in this case, at least the spending could be known to be going to the purpose for which it was passed originally—our veterans’ well-being, both now and, since the VA manages our military cemeteries, post mortem.

Veteranos Administratio delende est.

Social Security Trust Fund Investing in the Stock Market

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The Wall Street Journal held one of its aperiodic debates last Sunday, this time on whether the Social Security Trust Fund should be allowed to invest in stocks.  One debater argued that such investing would reduce the need for dependence on benefit cuts or tax increases; the other claimed that government should stay out of the market.

It’s certainly true that investing in the stock market could produce better returns than the Trust Fund’s current requirement to invest wholly in (unmarketable) Federal debt instruments.

Stocks are riskier than bonds, so shifting some Social Security assets from low-risk, low-return Treasury bonds to high-risk, high-expected-return stocks would expose the program to greater financial risk. This risk, however, has to be balanced against the likelihood of a larger trust fund and thereby less need for benefit cuts or tax increases to shore it up down the road. Economists also make a theoretical argument that the plan would especially benefit the young—who haven’t yet accumulated much financial wealth—by enabling them to invest in high-yielding financial assets without direct exposure to market risk.

The problem with this, though, is that a realized loss risk in those stock investments would negatively impact everyone so invested: every person with a present or future claim on the Trust Fund were Social Security to take such a chance, rather than only those individuals who make the choice for themselves.  I’m one of those confident in the long-term profitability of stock investing, but that’s my choice.  No one else should be dragooned into the outcomes of my choice were I to turn out wrong and wind up eating cat food inside my cardboard box under a bridge abutment.

[N]o one wants the Social Security trust fund to control the stock market. Even if the entire trust fund was plowed into stocks, it would account for only a fraction of the market.

This is disingenuous.  It’s the government doing the investing; of course, it will move to protect its investment with laws attempting to bar losses, laws attempting to dictate the kinds of risks companies in the market should be permitted to take, laws demanding taxpayers make the Trust Fund whole from market downturns, laws….  Politics cannot be divorced from the Trust Fund’s investments or the outcomes of those investments.  Especially since, as is currently the case, so much of the Trust Fund’s contents finds its way into the general treasury through “borrowing.”  All for the welfare of our seniors, of course.

Better to duck the question altogether, and make an even more radical change to our retirement safety net: privatize Social Security, as I’ve suggested before.  Let individuals invest their monies (including those, if any, by law earmarked) for their own future retirement in the stock market—if they wish—and be responsible for their own outcomes only and not, as taxpayers, for the government’s, and so everyone else’s, outcomes also.