Tag Archives: economics

Prior Restraint

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The EU has it.  And it doesn’t hesitate to reach overseas to try to inflict it outside EU jurisdiction.

The European Union’s antitrust authority on Thursday opened a full-blown investigation into plans by Dow Chemical Co and DuPont Co to merge, on concerns the deal would reduce competition [in] the global agricultural sector.

The European Commission said it would investigate whether the deal may reduce competition in areas such as crop protection, seeds, and certain petrochemicals. Announced in December, the proposed merger aims to create an American industry giant with a combined market cap of about $122 billion.

Never mind that the EU, like the US, has plenty of laws with which to deal with actual anti-competitive or monopoly abuse behaviors.  Never mind that prior restraint is destructive of innovation and of competition.

Never mind that this is an American merger between American companies, or that global markets reach far beyond the EU while the EU’s legal reach is limited to the EU.

Here’s a thought, one that takes advantage of the wide world beyond parochial Europe.  Dow and DuPont should simply ignore the EU and merge if they think that makes sense.  And then contribute to that global competition reduction by walking away from Europe (save post-leave Great Britain) and focus their competitive and innovative efforts on that wide world.

Money and the EU

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Joseph Stiglitz, writing in The Guardian, had some thoughts on this.  Noting the economic situation in the eurozone since the Panic of 2008 (my term, not his):

[T]he unemployment rate in the eurozone reached 10% in 2009 as well, and has been stuck in double digits ever since. On average, more than one out of five young people in the labour force are unemployed, but in the worst-hit crisis countries, almost one out of two looking for work can’t find jobs. Dry statistics about youth unemployment carry in them the dashed dreams and aspirations of millions of young Europeans, many of whom have worked and studied hard. They tell us about families split apart, as those who can leave emigrate from their country in search of work. They presage a European future with lower growth and living standards, perhaps for decades to come.

These economic facts have, in turn, deep political ramifications.

Thus

…there is one underlying mistake: the creation of the single currency, the euro. Or, more precisely, the creation of a single currency without establishing a set of institutions that enabled a region of Europe’s diversity to function effectively.

The hope was this:

Advocates of the euro rightly argue that it was not just an economic project…. More importantly, it was a political project; it was supposed to enhance the political integration of Europe, bringing the people and countries closer together….

Unfortunately, Stiglitz understates the magnitude of the error.

[F]or a single currency to work over a region with enormous economic and political diversity is not easy. A single currency entails a fixed exchange rate among the countries, and a single interest rate. Even if these are set to reflect the circumstances in the majority of member countries, given the economic diversity, there needs to be an array of institutions that can help those nations for which the policies are not well suited. Europe failed to create these institutions.

And so on.

However.  There cannot be a single set of institutions that enabled a region of Europe’s diversity to function effectively; Europe is too diverse in political, social, even purpose of money philosophies for that to be possible.  What’s necessary is a few smaller, differing currency zones connected by a free trade zone.

Central Banks’ Negative Interest Rates are Stimulative?

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Maybe not.  Not if this small businesswoman in Germany proves typical.  Heike Hofmann sells fruits and vegetables in a small city in northwestern Germany.

When Ms Hofmann heard the ECB was knocking rates below zero in June 2014, she considered it “madness” and promptly cut her spending, set aside more money and bought gold. “I now need to save more than before to have enough to retire,” says Ms. Hofmann, 54 years old.

Of course.  When she’s retired, she’ll be in no position to participate very much in risky investments; most of her income beyond the German retirement payment system will need to come from fixed income investments.  That fixed income will come in the form of dividend-paying instruments and…interest-paying debt instruments.

And there’s this low-wage worker in Sweden:

Lasse Bohman, a 63-year old newsstand worker from Stockholm, said the concept of negative interest rates is “weird” and makes him want to save more for retirement rather than spend. “I am just going to keep on putting money in the bank,” he says, or “put it under the mattress at home.”

Never mind that to get to retirement, current workers need to save more at the lower rates of return that result from Central Bank-driven negative interest rates (or even artificially low, but positive, rates).

Hmm….

Well, Yeah

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Here’s Gene Sperling, Bill Clinton’s and Barack Obama’s economic advisor, on Republican Party Presidential candidate Donald Trump’s tax proposal.

If you look at how [Trump’s] tax code has been judged, almost 90% went to the top 1%. What he has doubled down on is this ‘15% solution’. That means that not only will the biggest companies pay 15%, but everybody who has any type of pass-through income. More than half of the 400 richest people in the U.S. have pass-through income[.]

And

Anybody who has any kind of business income, whether you’re a consultant, a lobbyist, a hedge fund manager, investment banker, or corporate lawyer, you would now pay 15%, lower than most middle-income families. The largest multi-national companies that people think have paid too little would pay 15%.

Never mind that Warren Buffet already, proudly, pays only a bit more than those 15% (and while he demands that everyone like him should pay more, he refuses to make a donation to the Treasury—insisting that his views be imposed on those who disagree).  Never mind, either, that with our current gerrymandered tax code, folks like those 400 are driven to the breaks and deductions that lower the investment income portion of their tax bill.

Leaving aside Sperling’s politically motivated exaggeration about those 90%, here are some actual facts.

The top 1% of Americans in income pay nearly 47% of US income taxes—even after adjusting for capital gains and other investment-related income.

The top 20% pay roughly 84%% of US income taxes.

The bottom 50% pay roughly 4% of US income taxes.

It’s obvious to anyone with a 3rd grade lesson in arithmetic that any across-the-board cut in taxes—or even any cut that merely lowers tax rates without materially affecting the tax brackets—is going to yield a bigger dollar cut for the better off.  Sperling surely has at least that level of training in arithmetic.

The Left always demands that the rich should pay their fair share, but the Left always refuses to say what that fair share is.  Except per Sperling the Left insists, tacitly, that 47% or even 84% isn’t it.

Employment

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Employers added 255,000 jobs last month while wages for private-sector workers matched their strongest annual pace of growth in seven years. More Americans joined the labor force, keeping the jobless rate steady at 4.9%.

That’s part of the best two months of hiring all year.  This is all good news, right?

Not so much.

The increase in the labor force participation rate was only a tenth of a point to 62.8%, still the lowest rate in 40-ish years—two generations.

Over the course of the year, GDP rose by all of 1%–another historically low rate, one that’s typical of our economic performance these last eight years of Democrat economic policies by abnormally low for GDP growth rates coming out of recessions over the last 70-ish years.

Businesses continue to cut their own investment, now for the third straight quarter.  That’s future growth, future employment, and future productivity growth—and future competitiveness—that won’t occur.

Don’t be fooled, either, by the week’s and the recent months’ rise in the stock market.  The stock market and our underlying economy are tied together, but the ties are very loose: either the market will fall back to the tepid level of our economy, or the economy will perk up, finally.  But neither can be expected to occur any time soon or with any accuracy in timing prediction.