Tag Archives: political economy

No, It Won’t

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This time, it’s an op-ed writer in The Wall Street Journal who is making misleading claims. In his piece regarding the likelihood of wealth flight from a Zohran Mamdani-run New York City, their subheadline reads

The state will lose wealthy taxpayers, and the federal government will have to cough up more aid.

The opinion-writer ties the weal of our nation to the weal of New York, and the article fails utterly on the false premise of a necessary Federal bailout.

No, the Federal government will not have to cough up more aid. New York’s political machinations, including its drumbeat attacks on successful Americans and on businesses domiciled there, would be coming to a head under a socialist Mamdani city administration, and that outcome is solely that New York State’s responsibility.

The good citizens of States running from Maine through New Jersey, Illinois, Texas, Wyoming, Nevada, on to California, Alaska, and Hawaii have absolutely no obligation to bail out a fiscally and regulatorily irresponsible New York City or State. The Federal government has no business forcing the rest of the nation’s citizens to do so.

The other side of the matter: only if New York—city and State—are left to stew in their own fetid spending, taxing, and regulation messes will either have any chance of mending its ways. In that way, the weal of the nation is impacted by the weal of New York State: a healthy State, not dependent of Federal funding, would be an unalloyed good for our nation.

Where Have We Heard This Before?

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The Wall Street Journal editors opined regarding the Progressive-Democratic Party’s “abundance” campaign in contrast with Party’s New York City mayoral candidate Zohran Mamdani’s campaign of paucity:

…higher taxes on the rich, greater income redistribution, and expanding government control over private business—or, as he put it in 2021, “seizing the means of production.”

Then they wrote this:

Despite the tension between the two camps, both believe government should re-engineer the economy and society to their desired liberal ends.

They seem surprised by this. But. But, but, but. Progressive-Democratic Party leaders have sung this song before, and we’ve heard Party’s singing.

Then-Progressive-Democratic Party Presidential candidate Barack Obama, on the eve of his election bragged that he was just days away from fundamentally transforming America. In his first address to Congress, the then-Progressive-Democrat President Joe Biden announced his intention to fundamentally transform our national economy.

Mamdani should come as no surprise at all, and New Yorkers would be well to heed this and elect accordingly.

Another Reason

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The Straits Times, a Singapore-based e-newspaper, has an interesting piece regarding Europe and exit taxes. The lede bullets include these two items:

  • European countries like Germany, Norway, and Belgium are increasing exit taxes to retain wealthy residents and collect revenue on unrealised capital gains
  • These taxes, levied on individuals leaving with significant assets (e.g., over €500,000 in Germany)…

The e-newspaper is of unknown provenance and reliability, at least to me, so take this with a grain of salt. The claims are entirely plausible, though, given the European nations’ broad range of taxes and high tax rates, and the states’ basic assumption that the money citizens earn is for the state to tax and not actually for the citizens to earn and remit a portion.

If the description is true, though, this is just one more reason for successful folks (not just the wealthy: Germany’s Purchasing Power Parity per capita GDP is €61,800. Those €500,000 in assets is upper middle class) to push the pace on leaving Europe before doing so gets even more financially difficult. The Soviet Union erected an Iron Curtain—literally in some places—in order to keep folks from leaving, so as to keep them working for the state. It looks like Europe is erecting a Euro Wall to keep the folks who earn money from leaving, so as to keep them earning money for the state. How long before they erect a 100% tax Euro Wall?

An Outline was Passed

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The House-Senate reconciliation bill has been passed. The bill contains a number of beneficial things and a number of suboptimal things, along with a couple of items that are no good at all (vis., a cut in real dollars on defense spending and an increase in deficit spending and so in national debt of highly dubious estimates, both in size and sign).

So now what?

President Donald Trump (R) offered to use his executive authority to limit spending beyond what’s in the Senate version of the bill, which is what the House passed last Thursday.

In the meetings, Russ Vought, Trump’s White House budget chief, also reassured lawmakers that the administration would use its authority to limit spending, according to people familiar with the conversations. Trump and his advisers have argued that Trump has the authority to refuse to spend money appropriated by Congress, a contention likely to be tested in court.

That’s nice, even if the courts uphold the specific actions (or most of them) Trump might take. At best though, these would be temporary measures, easily undone by a subsequent President.

Now what, then, are the 12 appropriations bills that the current crop of House Republicans have been promising to pass individually and on time for a couple of Congresses. The outline reconciliation bill represents ceilings on spending and tax rates, not floors, even though the Progressive-Democrats will howl that the levels are floors and so spending and tax rates still should go up.

The 12 appropriations bills are

  • Military Construction, Veterans Affairs, and Related Agencies appropriations bill
  • Defense appropriations bill
  • Homeland Security appropriations bill
  • State Department and Foreign Operations appropriations bill
  • Interior and Environment appropriations bill
  • Legislative Branch appropriations bill
  • Agriculture, Rural Development, Food and Drug Administration, and Related Agencies appropriations bill
  • Commerce, Justice, Science, and Related Agencies appropriations bill
  • Energy and Water Development appropriations bill
  • Labor, Health and Human Services, Education, and Related Agencies appropriations bill
  • Transportation, Housing and Urban Development, and Related Agencies appropriations bill
  • Financial Services and General Government appropriations bill

These are where real spending and tax rate reductions (not formally part of appropriations, but easily enough included by amendment) can—and must this time—occur. Military construction needs to be focused on facilities for housing our soldiers and on bases—new or modified—for housing more of our weapons systems and for our new weapons systems as they come on line. The VA needs no spending increases, it even could stand spending cuts. I’ve argued for its elimination altogether, and this would be a good time to do that.

State, with its more focused foreign aid spending and more tightly controlled embassies and consulates, can absorb reduced spending. After that, all of the appropriations bills, save Defense and Homeland Security, should get 10% cuts in spending across the board. Defense needs, badly, a 10% increase in real terms, and Homeland Security, given the success of the Trump administration—so far—in resecuring our borders, needs a 5% (vice Defense’s 10%) increase.

With all of that, Congress—the House especially—would have some choices to make, any of which would be to the benefit of our nation: statutorily require the vast bulk of the resulting budget surplus go specifically to Treasury to pay down our national debt, further reduce individual and corporate income tax rates and make permanent the existing temporary tax reductions, or some combination of the two.

Congressmen in both houses need now to focus the energy they spent arguing over spending and tax rate maneuvers in the runup to passing the reconciliation bill on achieving real cuts in spending and tax rates via the appropriations bills. And they need to quit dithering about it this time. Pass the bills individually and on time—no more omnibus bills, no more continuing resolutions. Achievement of this would make arguing over the debt ceiling irrelevant by making the debt ceiling itself irrelevant.

Trump could exercise his executive authority in real, proven terms: announce that he’ll veto any omnibus bills and any continuing resolution, even if it means Congress shuts down the Federal government with its failure to perform. And then do so if Congress actually does fail and cause a shutdown.

Yeah, And?

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The Federal Reserve and Treasury Department are moving to reduce the supplementary leverage ratio that big banks, and only those big banks, must maintain. The ratio is the amount of money those specifically-selected-by-government banks must maintain over and above their regular capital requirements against times of “market turmoil.” The reduction would make available much more money for those banks to lend into our economy.

Fed governor Michael Barr, once the Fed’s top bank regulator is opposed to the move. He’s cited by The Wall Street Journal as saying that the proposal would “significantly increase” the risk of a big bank failure.

To which I say, so what?

The failure of a “big” bank would be disruptive in the short term and potentially damaging to the particular bank’s creditors—depositors and others lending money to the bank—but in the intermediate- and long-term, such a failure would be net beneficial to our economy.

A big bank failure—without government bailout—would go a long way toward mitigating, even eliminating, the market distortions of an enterprise in our private economy—which is the economy outside of the government—being held as too big to fail and so guaranteed our taxpayers’ dollars being used to keep it alive, despite that lousy management having, over an extended period, brought the enterprise to that strait.

Reducing the supplementary leverage ratio also is a way of injecting more money into our economy without it being government tax money being injected. Our economy’s money supply would be increased, or not, based on sound business decision-making rather than on flawed political decision-making.

Fewer market distortions, less tolerance of bad performance in our market place, and reduced special treatments of particular businesses, would only make our market economy freer and more efficient and more prosperous for us all.