Tag Archives: economics

An Iron Curtain

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The USSR set up an Iron Curtain around its nation and its “sphere of influence” in Europe that was designed to keep its citizens from leaving for greener pastures. The Curtain became a real, physical barrier in the form of the Berlin Wall. To a large extent, it worked: even though citizens did manage to escape, the outflow was reduced markedly, and far too many citizens died on the Berlin Wall (or under it) attempting to escape.

Now the proud Progressive and Democratic Party Presidential candidate wants to erect an Iron Curtain around the United States designed to keep American businesses from leaving.

Hillary Clinton’s plan to deter companies from leaving the US will include an “exit tax,” her campaign said Monday, making it even more restrictive than President Barack Obama’s proposals.

Never mind that American business owners and managers have a fiduciary duty—embedded in our laws as well as our morality—to maximize profits for the company and its owners—partners, shareholders, Mom and Pop. Never mind that this mandate to maximize profits necessarily includes minimizing costs. Never mind that the US taxes its businesses at the highest rate in the world, and that these tax bills are significant costs.

Never mind that minimizing the tax bill is a necessary part of that fiduciary duty, and it must, then, include consideration of foreign tax environments—and tax inversions, the process of buying, or being bought by, companies in jurisdictions that have lower tax rates and then moving the company into that lower tax jurisdiction.

Mrs Clinton would…require[e] companies to pay US taxes on deferred foreign earnings if they attempt to “game” her new threshold….

The current “threshold” is current law that allows inversions so long as the American company’s shareholders will own less than 80% of the new, merged company. Clinton’s lower threshold is, carefully, not yet specified.

This is the sort of barrier to our economic freedom, the sort of increase in Big Government taxation, the sort of destruction of our individual liberties to which we can look forward if we get this Progressive Democrat for President.

This is only a precursor to additional barriers to free movement we can expect from this Progressive Democrat.

“Should You Fear the ETF?”

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That’s the headline question of Ari Weinberg’s piece in the Sunday Wall Street Journal.

It may be time to re-examine the entire ETF ecosystem,

said SEC Commissioner Luis Aguilar. Fellow Commissioner Kara Stein echoed the scheme:

Now is the time to be asking the hard questions about ETFs[.]

The article is well worth reading in its entirety; there are a number of good points regarding what an investor should look for in considering an ETF investment.

However, these cautions are not unique to ETFs; all investment vehicles need such careful consideration and similar questions answered. Government need not get involved here, beyond enforcing transparency so that investors—us Americans—can make informed decisions. Or foolish ones: that’s our prerogative, and no government can legitimately interfere to protect us from ourselves. Government can do that much only by taking our freedoms from us, and it can do that much only by imposing its definitions of appropriate decisions on us. Which is to say, only the men in government can do that much and only by taking our freedoms from us and by imposing their own, personally beneficial definitions of appropriateness on us.

No.

We’ll make our own decisions, thank you. And, through the aggregation of us, Mr Free Market will deal with the risks and gains of ETFs.

Government Interference

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General Electric Co has pulled the plug on the agreed $3.3 billion sale of its appliance business to Sweden’s Electrolux AB, bowing to pressure from the US Justice Department which wanted to block the transaction on antitrust grounds.

DoJ’s sham beef was that the deal would likely—notice that: not definitely would—lead to

less competition, higher prices and fewer options for millions of Americans who buy major cooking appliances each year.

Let’s leave aside the fact that GE’s appliance business, like appliance businesses generally, is a low margin, slow growing enterprise and that these characteristics don’t lend themselves overmuch to monopolies or to declining competition. Indeed, competition must heat up even more for such enterprises to survive.

No, the important thing is that monopoly power, in and of itself, is not against the law, it does not violate antitrust law. Only the abuse of that power is illegal.

Might the sale have led to abuse? Sure. But that’s speculative. Under American law, speculation isn’t grounds for interference, only the actual commission of a law-breaking act can be sanctioned.

DoJ’s interference in this deal, this private enterprises’ voluntarily entered into exchange, to the point that it successfully blew up the pending agreement, is Big Government overreach. It’s prior restraint, and it stinks.

“Retail Investor”

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The Left’s new obfuscatory synonym for “dumb Americans.”

US securities regulators, under pressure to demonstrate they have a handle on potential risks in the asset-management industry, are about to crack down on the use of derivatives in certain funds sold to the public, worried that some products are too precarious for retail investors.

Because us dumb Americans are just too ignorant to make our own investment decisions. We need the Progressive Know Betters to tell us how we should make some investments, and to deny us access to other investments.

[U]nder pressure to demonstrate they have a handle on potential risks in the asset-management industry: this is actually the problem. The securities regulators, themselves, have no idea of the risks of derivatives. They showed this risk all through the Panic of 2008, and they’ve done nothing substantive to correct their failure.

If these regulators were serious about the precariousness of (some) derivatives, they’d require the chaining of them and the arithmetic underlying them to be made public so that all investors—institutional and dumb Americans retail alike—could make our own assessments. Without Big Government Know Better interference.

More Government Overreach

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This time, by the Federal Reserve Bank. As most of you already know, the Fed runs “stress tests” to determine whether financial institutions can survive an economic dislocation of the magnitude of the Panic of 2008. Among other things, if the institution fails the stress, the Fed dictates to the institution the dividends it will be allowed to pay until the conditions leading to the alleged failure are corrected.

That’s a serious overreach; it is a government entity presuming to intrude itself into a private enterprise decision, a decision that the free market is fully capable of sanctioning or accepting without Big Government involvement.

It’s worse than that, though. Fed Board of Governors member Daniel Tarullo has exposed the more massive overreach.

Even though we do not publicly release the models, we have put systems in place to ensure oversight and accountability[.]

The Fed uses non-peer reviewed, secret models to make its assessments. Because of that secretiveness, we have no way of assessing the adequacy of the Fed’s “oversight and accountability” of those models. We also have no way of assessing the accuracy—even the legitimacy—of those models.

Tarullo’s excuse?

…disclosing the models could give banks an opportunity to game them….

Because the financial institutions don’t already game the system. Like nobody ever games any system. No, of course we do. It’s what competition does. Gaming—free market competition—is innovation, prosperity production. And, yes, the instability of creative destruction, which leads to breakout innovation and prosperity production.

It’s a disingenuous excuse for a disingenuous practice. The deliberate lack of transparency of this arm of the Big Government is of a piece with the general secretiveness of this Big Government.

It’s necessary secretiveness, however. If the public knew more about these models, knew something of how they work (or fail to work), we might do more than force corrections to them. We might do away with the Fed’s interference in private business decisions altogether, and that would reduce the power of the men in Big Government.