Tag Archives: political economy

Business Decision, or…?

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Legislation lately getting the backing of the Trump administration would

give merchants the option to choose a different card network to process transactions when their customers use a credit card.

Banks object.

[They] say that the fees are what power credit-card rewards, like cash back and travel points, and that passing the bill would force them to change those programs consumers love.

The banks may be correct in that, but their beef also is irrelevant to the situation.

Offering those rewards (and finding the funds to pay for them) is a business decision subject to free market imperatives, not any sort of inherent right that wants government protection.

A Frivolous Suit

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The Supreme Court heard oral arguments on a case, Anderson v Intel, centered on what investment vehicles are suitable for inclusion in 401(k) accounts, defined contribution retirement accounts that are entirely directed by the account holder.

The plaintiff, a former Intel employee, accused the company of violating its fiduciary duty by including private equity and hedge funds in its defined-contribution retirement plan, and alleged these investments performed worse than standard equity funds would have.
Tuesday’s Supreme Court debate hinged on whether a plaintiff needs to show underperformance versus an appropriate benchmark for a suit to survive a motion to dismiss.

The debate wholly missed the point. The question is not—or should not have been—whether this or that investment vehicle was underperforming by some threshold amount or in comparison with this or that benchmark and so should not be on offer in a 401(k). The central question is whether 401(k) account holders, grown adult human beings fully capable of independent and clear thought, are actually too stupid to make their own investment decisions. There is, after all, no requirement that an account holder must invest in a vehicle just because it’s available in the account.

Anderson and his fellow plaintiffs plainly think that every account holder must be as stupid as they apparently think themselves to be, and so they’ve engaged their foolish suit. Alternatively, they don’t want to be the only ones not capable and so they’re busily deprecating as many others’ intelligence as they can.

This case should have been squashed utterly at the district level. It has no business having gotten this far, and the Supreme Court, as it takes this frivolously cynical case seriously, needs to put it into the garbage landfill where it belongs.

The case is insulting as the plaintiffs insist that account holders are, in fact, too grindingly stupid to decide for themselves what investment vehicles included in a 401(k) account are suitable for a person to invest in.

Absolutely

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New York City’s Socialist Progressive-Democratic Mayor Zohran Mamdani defines Socialism this way:

Socialism to me means you’ll have whatever you need to live a dignified life and that it is the government’s job to deliver on that[.]

He’s correct as far as that simple statement goes, but Mamdani cynically uses it to disguise his call for outright socialism. The core tenets of socialism, though, are that Government knows best what’s good for us, Government caps opportunity in an effort to enable the least of us to keep up with the most capable, and Government achieves these by taking the wealth of the successful and redistributing it among the least successful. Socialism achieves equality of poverty in every instance.

Free market capitalism, on the other hand, enables all of us to live dignified lives and to do so with only minimal government intervention. In a capitalist society, government’s (note: small-g government) primary roles are two, and they are critical: one is to minimize crime, and the other is to promulgate rules that protect free markets: sanctity of contracts and honesty in the negotiations that produce those contracts.

Capitalism further allows each of us to prosper as well as we might, beginning from equality of opportunity, given our individual endowments of ability, work ethic, and luck. None of us have our abilities or the outcomes of our abilities truncated artificially by Government.

“Dignified,” too, is more than just being personally comfortable. It’s possible to live a dignified life only if it’s a moral and virtuous life, as Ben Franklin and John Adams had it those ~250 years ago. That means we take care of each other as well as ourselves.

Notice two things about that: we take care of each other; we do not depend on—create ourselves dependent on—Government to do for us. Our individual prosperity flows from, and increases via, free market capitalism, an economic system under which each man [is] guaranteed the opportunity to show the best that there is in him. The other thing, then, is that the personal prosperity that comes from this system vastly potentiates our ability to take care of ourselves and, especially, of each other.

Free market capitalism, in fine, combines the opportunity for individual prosperity with individual dignity as the only truly moral economic system: it’s the only system that leaves each participant in a free and voluntarily done economic exchange better off than he was before the exchange.

Socialism has no capability to achieve any of that.

One Additional Aspect

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The Supreme Court is taking up the case of Suncor Energy v Boulder County, which as the WSJ editors put it, asks whether state and local governments may use state tort laws to impose liability on American companies for the effects of global climate change.

The editors pointed out a number of reasons why the Boulder County effort to punish fossil fuel companies nationwide for global outcomes from a global range of putative sources should fail, including this one:

From the beginning, the Constitution was designed to ensure that the US would speak with one voice in its dealings abroad. States may not conduct their own foreign relations or establish competing national policies toward other countries. The Supreme Court has repeatedly enforced that principle, recognizing that federal authority in matters affecting foreign relations must be free from local interference.

There’s an additional aspect to this argument. One of the reasons for the Constitutional Convention was to correct the several ills and weaknesses in our Articles of Confederation, weaknesses that were verging on being fatal to our nascent nation. Under the Articles, the nominally central government could not speak for the nation on matters of international import; each of the 13 States of the Confederation could speak for itself on the global stage. Those 14 voices, usually in as much conflict with each other as with foreign nations, were tearing the Confederation apart if not exposing it to outright conquering by a still hostile Great Britain, a newly (overtly) hostile France, and an antipathetic Dutch Republic.

Our Constitution fixed that failure by seating foreign policy firmly in the hands of the Federal government, to be executed by the government’s chief executive, the President. States no longer had any say on foreign policy, other than via Representatives and Senators in Congress.

An Excellent Opportunity in the Offing

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The Bank of England is keeping its benchmark interest rates unchanged for the time being, and it says it’s changing the way it would change the way it reduces its holdings of government bonds at a time when gilt yields have risen to multidecade highs, including pausing auctions of those bonds until next year.

The BOE is doing this in part because gilt yields are at multidecade highs. Those highs also mean that the market prices for the gilts are at multidecade lows. Which creates the opportunity.

Instead of pausing its auctions, or perhaps in conjunction with them, the BOE might take advantage of those near historic low prices and buy back a passel (to use the technical term) of the gilts, particularly those with the longest time yet remaining to maturity, and retire them.

Of course, that would have its maximum effect only if the British government were to get its fiscal house in order and cut out its addiction to spending like there’s no tomorrow, which there won’t be if the government doesn’t. That, though, is another story.