Tag Archives: political economy

Juicing 401(k)s

Posted on by
Reply

President Donald Trump (R) is loosening the restrictions on what 401(k)s are allowed to contain in their investment options. His EO has directed the Labor Department, which oversees the rules governing business’ 401(k) offerings, to consider additional, non-traditional investment vehicles, things like private equity, real estate, and digital assets such as bitcoin.

Hal Scott and John Gulliver, Committee on Capital Markets Regulation President and Executive Director, respectively, argue in favor of this move on the grounds that

investment opportunities in public markets are shrinking. In 1996 there were roughly 8,000 public companies, but that number has since declined by half. Why? Because public companies are subject to increasingly burdensome disclosure obligations, compliance costs, and litigation risk, while private companies aren’t.

They’re right in the sense that overregulation by an ever more intrusive government keeps tying increasing numbers of hobbles onto our investment opportunities, and they need to be rolled back. They’re right, also, in that Trump’s EO moves to sidestep some of those regulations; although workarounds always are suboptimal. Better to eliminate the hobbles.

I say they’re right, though, on an additional ground: more opportunities for and flexibilities in investment are intrinsically good and should occupy a central place in a free market economy.

However.

These added opportunities bring with them added, and harder to measure or even to estimate, risks inherent in those opportunities, especially for retail investors. These things also are not as liquid as the more traditional 401(k) investment vehicles, and that carries its own added risk. Then, too, some of those vehicles carry added tax complexities. See Master Limited Partnerships and Real Estate Investment Trusts, for instance.

None of that is an argument for not getting into these investment vehicles, nor is any of it an argument for a nanny state to “look out for us little guys” by telling us we can’t use them. It is an argument for added caution and more careful vetting—especially by us unwashed retailers—of those opportunities before jumping onto them with both feet and our elbows, too.

I’m Down with That

Posted on by
Reply

George Will wants a clear and present example of the wonders of socialism, so he’s pushing for the Progressive-Democratic Party’s most prominent socialist (yes, even more so than Bernie Sanders (D, VT) to become mayor of New York City.

I want him to win. I think every 20 years or so, we need a conspicuous, confined experiment with socialism so we can crack it up again.

That works out to about once a generation, which I think overstates the need. Every three generations—every 60-ish years—I think would be about right; the grandfathers would still be around to help the grandchildren with the empirical outcomes of their own dabbling in socialism.

I agree with Will’s basic premise, though: let New Yorkers get the socialism they want. Let the outcome of that serve as an object lesson of the destructive and life-shortening nature of that ideology. New York City is large enough and nearby enough that the results will not be able to be ignored.

Nevertheless, to paraphrase HL Mencken, give New Yorkers what they want, good and hard.

Universal Basic Income

Posted on by
Reply

The Leftist dream of socialism won’t die, and neither will the Leftist dream of free money, which they masquerade as universal basic income, the steady handout of taxpayer money to everyone because—well, just because. The Left doesn’t care that handing out free money—one of the more extreme aspects of socialism—doesn’t work.

The Left simply doesn’t care about making lives better for Americans, only making their own lives better. Free money, this universal basic income, is just modern day bread and circuses offered in payment for votes so the Left can keep their Progressive-Democrat politicians in power, favoring them. They hope.

The editorial at the second link lays out a number of the ways that UBS fails us all.

Here’s another path to that failure. A UBS increases overall demand for goods and services beyond what producers can supply. This is textbook inflation. Eventually, production succeeds in getting supply increased to match that increased demand, and inflation abates. However, the higher price levels resulting from that bout of inflation remain in place, which means the handed-out money doesn’t have the buying power that it was represented as having: recipients can’t buy significantly more goods and services than they could before the handouts started due to that eroded dollar.

It gets worse. One of the areas of failure that the editorial pointed out was that recipients of free money took advantage of that largesse to work less. Since there is less work being done—this is a universal basic income handout, recall; all of us get it—it would take producers commensurately longer for production to catch up to demand. This would let that inflation run longer, elevating overall price levels even higher. That, in turn, would reduce the buying power of the handed-out money even further, leaving us recipients even less well off than before the handouts began, likely worse off in absolute terms.

Leftists and their politicians, of course, know this full well. They’re hoping us average Americans are too grindingly stupid to figure out that these folks are merely buying, and playing, us for their own power gains.

There’s an Answer to This

Posted on by
Reply

It’s simple, straightforward, and deucedly politically difficult given the timidity and/or self-serving political power seeking of too many politicians to carry out. The lede and second paragraph laid out the problem:

As the Department of Government Efficiency and the One Big Beautiful Bill Act make painfully clear, any entity relying on federal funds for fiscal stability had best reconsider its future.
Recently released US Census Bureau data on federal funds flowing to states reveal that in 2023 the average state relied on federal sources for 37% of its revenue—nearly double the 1990 average. Some states were far more dependent, like Arizona (49%), Alaska (45%), Wyoming (46%), and Louisiana, which counted on federal support for more than half its budget. States have…made themselves vulnerable to the ideological proclivities of presidential administrations.

And this:

More pernicious are the ways federal agency ideologues hold those funds hostage to their agendas. …
A massive amount of federal spending isn’t even going to projects most people care about. It funds the priorities of federal agency bureaucrats.

The solution is to identify the total amount of Federal fund transfers to each State in 2026 (or 2027, but no later). Call that baseline year Year Zero. In Year 1, make a single, no strings attached block grant to each State in the amount of 90% of Year Zero. In each subsequent year, reduce the size of the block grant by an additional 10% of the Year Zero amount. In 10 years, there will be no more Federal funds transferred to a State, and all the States will be free of Federal strings on their own spending and taxing imperatives.

This would have the additional benefit for the citizens of each State in that State government spending and taxing would be subjected to greater citizen visibility and discipline.

The only time States need Federal funds transferred is during a State- or region-wide emergency, and those funds should be readily available—as they are currently, and potentially the more so with the cessation of unnecessary transfers done currently on a just because and it’s always done basis.

An Additional Angle

Posted on by
Reply

There’s another approach to this problem that also would be highly useful, and in a much more general way. The problem is the apparent debanking of Conservative enterprises and others like Crypto by too many banks. President Donald Trump appears to be setting up an Executive Order that would direct[] bank regulators to investigate whether any financial institutions might have violated the Equal Credit Opportunity Act, antitrust laws or consumer financial protection laws for political reasons.

I would approach this from another direction, a more generic one, in addition to this apparent EO. I would require, via EO (with legislation to adjust and then codify the EO after a year to see how well the EO works) to the relevant regulators, all financial institutions that close an existing account or that reject an application for one—not only debt accounts—to provide the account holder detailed, concrete, measurable reasons for closing the account, those reasons to accompany the closure, and to provide the account applicant with the same kind of detailed, concrete, measurable reasons for denying the application, with that response required to be provided within one calendar week of the application.

In addition to this, I would require the financial institution, since it has already developed its position and underlying…data…to answer all requests for clarity of any of the reasons within 24 hours of the request being transmitted if done electronically or within one calendar week if the request was transmitted in writing: USPS, UPS, Fedex, and the like. In this context, email and fax would count as electronic transmittal.

In Trump’s putative EO, [v]iolators could be subject to monetary penalties, consent decrees or other disciplinary measures. So it would be here, with these clarifications: monetary penalties would apply both to the financial institution and to the relevant managers in the C-Suite and the business’ Directors, since those persons are the ones animating the financial institution. Additionally, disciplinary measures would include termination for cause of those managers and Directors found culpable enough to be fined.

This move is not tailored to political closures or rejections, but would apply to all such, and it would apply to individuals as well as to businesses with accounts or applications for accounts.

One more thing: my move would not require financial institutions to suggest avenues for correcting the reasons for closure or rejection. A properly detailed notice will provide the account holder/applicant with plenty of ways to correct via the explicit reasons contained in the notice.

There’s also this from the banks’ side:

A Bank of America spokesman said the bank welcomed the administration’s efforts to provide regulatory clarity. “We’ve provided detailed proposals and will continue to work with the administration and Congress to improve the regulatory framework,” he said.

If the bank has these detailed proposals already developed, there is no reason why it cannot implement one of them without waiting on Government to tell it what to do. That would be what used to be good old American initiative.