Tag Archives: political economy

Tradeoffs

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We, as a nation, have three questions that we must answer in order to proceed optimally into the future, according to Matthew Slaughter, of Dartmouth‘s Tuck School of Business, and David Wessel, of Brookings‘ Hutchins Center on Fiscal & Monetary Policy. They’re largely correct, but they miss one Critical Item without which our path into a prosperous and growing future would be severely constrained, if not blocked altogether.

In their question regarding “walls or bridges,” the two argue against walls—tariffs—and for trade globalization as the path to prosperity via competition and its heavily encouraged innovation rates that such free trade creates.

[R]esearch has long shown that globally engaged companies tend to create the good jobs at good wages for which so many Americans are yearning. In 2023, the US parent companies of US-based multinational companies paid their 29.9 million workers in America an average total compensation of $97,078—about 20% above the average in the rest of the private sector.

They didn’t address, though, the downside of their largely unfettered free trade regime. That downside was amply illustrated by the recent Wuhan Virus situation, during which our dependence on the People’s Republic of China’s medicines—and not just for Virus medical supplies, but also for over the counter pain killers and anti-inflammatories, even a variety of flu medicines—was exposed, along with the world’s dependence on the PRC even for simple things like face masks.

The downside was graphically demonstrated much more recently by the PRC’s control over rare earths, from ore through processed rare earths to finished products, and its use of that control to throttle their export and thereby threaten our economy and that of Japan’s.

The Critical Item is this tradeoff. Carry out free trade globalization; it is valuable, but do it within this framework. There are a few items that are critical to our national security and to our economy (there is a lot of overlap between them): those rare earths, the raw materials for medicines. For these, we need to have our own supply paths, wholly contained within our borders, that stretch from dirt in the ground through final product deliverable to the domestic end user. These nationally-contained supply lines need not be the only sources for these materials; it’d be sufficient for them to be in place, actively used, and able to be rapidly expanded during periods when overseas sources become constrained.

That tradeoff will be expensive, but that cost is simply—and necessarily—a cost of maintaining our national security, our ability to defend ourselves, whether militarily or economically. The cost of being unable to will be far greater, and not only fiscally.

Yet Another Reason

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The European Union is moving toward passing legislation that would allow it to curb imports of heavily subsidized foreign products. The legislation doesn’t single out any particular nation; although, the Peoples’s Republic of China is infamous for such subsidies.

Those subsidies allow PRC businesses to sell their products at less than their cost of production in order to sell at lower prices than European businesses can due to their own, unsubsidized, costs of production. That allows the PRC to put those businesses out of business and to seize nearly all of the market share. In the aggregate, this cascades into steadily increasing PRC influence over European economies.

Naturally, the PRC wants to continue this domination, so it’s threatening countermeasures if Europe continues with the impudence of defending itself.

Chinese authorities could initiate anti-discrimination and supply-chain security investigations into the EU’s “overcapacity instrument,” a social media account run by China’s state broadcaster said Friday, citing unnamed sources.
If the EU advances the tool, China will take immediate action and deploy comprehensive countermeasures, it added.

Of course, that retaliation wouldn’t matter if Europe’s nations were doing no business with the PRC or with businesses domiciled there.

The PRC keeps providing reasons for discontinuing business with or within it. It’s time for the EU and for Europe’s nations individually to act on at least some of those reasons, for their own economic survival.

Throw Money at it

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The letter-writer seems to be writing from the Left. Opening with Praise for Ohio’s Republican candidate for Governor Vivek Ramaswamy’s proposal for attacking Medicaid fraud, he quickly pivoted.

States need more funds to address fraud….

How typical.

No, States do not need more funds to combat and drastically reduce, much less “address,” fraud. Were States actually to get serious about combatting and reducing Medicaid, they’d uncover 10s of millions, if not billions, of dollars of fraud, and they’d recover significant percentages of those dollars. Those dollars then could feed back into the program to help keep Medicaid fraud down to an absolute minimum.

To address the problem for long-term of vastly reduced fraud and commensurate reduced fraud recovery funds, States need only to reallocate existing spending. They most assuredly do not need more money blindly and blithely tossed over the transom at the problem.

What Error did she Acknowledge?

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In James Freeman’s Best of the Web Wednesday piece, he wrote of Seattle’s newly elected socialist mayor Katie Wilson’s supposed acknowledgment of her problem vis-à-vis her disdain for big business in a competitive market. In her series of victory laps shortly after her election, she crowed while at a barista union rally,

I am not buying Starbucks, and you should not either.

With the ensuing backlash, which includes an exodus of big businesses like Starbucks from Seattle, she then said,

Those comments were not productive in the sense that they caused more harm than good….

Freeman then quoted, without questioning, Danny Westneat, writing for the Seattle Times:

Admitting errors in public is hard…. Conventional political wisdom says it means you’re weak. In this case, I’d argue it’s a positive sign for the future of both the mayor and Seattle.
It means the mayor is at least more grounded in the real world than some of her blinkered progressive fans….
Maybe this is a chance to reset relations with businesses—at least ones other than Starbucks, where it may be too late.

But what “error” is Westneat claiming Wilson has admitted? In fact, it’s quite clear from Wilson’s own words, and Westneat has chosen to ignore it. Wilson admitted the error of her words, not the error of their intent, which is and always has been, her disdain for and assaults on free markets and the larger businesses that operate in them.

ARPA 2.0

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The Federal government has taken equity stakes in some rare earth development and production companies as supply chain control moves. Now the government is taking equity stakes in a few companies nascent and still doing basic research that’s becoming increasingly engineering-to-production in a critical industry—quantum computing.

The Trump administration is awarding $2 billion in grants to nine quantum-computing companies in deals that include US government equity stakes, the Commerce Department said.

In the middle of the last century, the Federal government started the Advanced Research Projects Agency in response to the USSR’s successful launch of a Sputnik satellite, soundly beating us into space. ARPA’s mission, ultimately, was centered on high risk, high gain R&D projects that were too expensive for private enterprise to start, but which private enterprise could develop into thriving businesses once that initial hurdle was overcome.

Quantum computing is a Critical Item industry which neither Russia nor the People’s Republic of China has beaten us at, but their progress threatens to gain critical leads in. The output of those ARPA projects, however, did not encompass the government taking equity stakes in the companies that ultimately went into production with those outputs. The government’s current moves are shades of that earlier ARPA approach, with government stakes thrown in.

And this:

[A] senior Commerce official said the agency did so many different deals to spread out its bets, acknowledging that it could take years for them to pan out.

This is a government version of a long-standing investment tactic, gorilla investing. The idea as implemented by private investors is to shotgun investments into a collection of companies in a new(er) industry, and then as they develop, or not, begin selling off the nots, while keeping those still promising or beginning to achieve success, repeating the process until the investor is left with the one or two that are actually taking off and the gains from which vastly outpace those prior losses. The technique often works.

Quantum computing, other nascent technologies, even the established areas like rare earths, though, may well benefit even more without the government ownership but with increased reduction in the regulatory environment within which those areas are being developed.