Tag Archives: political economy

Close the Strait of Hormuz?

Posted on by
Reply

Iran’s government now is threatening to close the Strait of Hormuz if the US joins its war on Israel on Israel’s side, among other things by bombing Fordow and Natanz with MOPs.

Iran certainly could, but for how long? My prediction is for a few hours to a few days, at the end of which Iran would have left no navy worthy of the name and no Arabian Gulf or Arabian Sea ports of any use to the remnants of its navy or to its commercial shipping—including is ghost tanker fleet with which it ships embargoed oil.

The reasons center on Iran’s own incapacity. It has no air assets with which to close or to keep closed the strait; it has only a supply of cruise missiles which it would have to divert from its attacks on Israel to close and keep closed the Strait, and its small navy with which to sail the strait.

That navy and the ports from which it would sally are nothing more than targets for the US Navy, which has been expanding in the region, and it would be a campaign of a matter of hours or a few days to sink the Iranian navy and destroy those ports. A few destroyers would serve to protect commercial shipping in the strait, and in the Gulf, come to that, against those cruise missiles, just as those destroyers and cruisers have done in the Gulf of Aden.

There would be sequelae to an Iranian attempt to close the strait. At the end of the campaign to reopen the strait, Iran would have limited capability to get its oil onto tankers (it would be useful for the reopening campaign also to sink such ghost tankers as happen to be in the Gulf or the nearby Arabian Sea, which would further restrict Iran’s ability to ship its embargoed oil). That would hurt the People’s Republic of China’s economy, which has been importing lots of price-discounted Iranian oil (discounts the PRC can demand since it takes 90% of Iran’s oil exports and so can demand the discounts).

Another consequence would be further reductions in Iranian (re)supplies to the Houthis.

There would be a spike in oil prices from a closure of the Strait of Hormuz, but that would be temporary, and the closure would lead, nearly inevitably, to those follow-on sequelae, which would be to the net good of the larger world.

A Useful Move

Posted on by
Reply

The Senate—at least the Republicans in the Senate; the Progressive-Democratic Party’s Senators remain ensconced in their knee-jerk Nothing Republican mode—is working toward easing Corporate Average Fuel Economy requirements by eliminating the penalties associated with failing to comply with ever-increasing and increasingly impossible fuel efficiency standards. Of course there are objections, but most of them are empty.

From the news writers’ own bias:

nullifying rules that for generations have pushed automakers to churn out ever cleaner and more fuel-efficient vehicles. That technology has saved two trillion gallons of gasoline over the past 50 years, according to the journal Energy Policy.

Ignored here, as the writers cite the journal, is the fact that cost of operation—fuel costs, for instance—remain a competitive selling point, and market forces will drive fuel efficiency. That drive will occur on us average Americans‘ schedule, though, instead of by government fiat. Car companies will continue to seek competitive advantages through such techs as turbocharged engines that deliver more power, transmissions with more gears and powertrains that automatically shut off at stoplights to conserve gasoline along with a host of other pathways, including some not yet thought of, but which competitive R&D will bring out.

Other objectors include Chris Harto, a Consumer Reports policy analyst:

Automakers have proven time and time again that without strong and enforceable fuel-economy standards, many of them will leave proven, popular, and cost-effective technologies like hybrids sitting and gathering dust on the shelf[.]

Aside from the fact that simple competitive pressures in a truly free market, shorn of excessive government regulation, will push “automakers” to continue to work toward, among other things, fuel efficiency. What Harto is ignoring, though, is that his favored vehicles are sitting on the shelf because consumers don’t want them and aren’t buying them.

And this:

Consumer advocacy groups warn that the move could result in…further dependence on foreign oil sources.

This is just disingenuous. The US is the world’s largest producer of oil and a net exporter of it. What would be beneficial here would be a parallel move to deregulate oil production and refining (and exporting).

Also absent is any rationale for why we should care about gasoline savings of that magnitude. My back of the envelope estimation of how much that actually works out to is based on there being 105 million cars on the road in 1975 (those 50 years ago) and 299 million cars and now light trucks and SUVs (which burn gasoline and are much more ubiquitous than 50 years ago) on the road today. A naïve average of that is 201.5 million gasoline-burning vehicles on the road each year. 40 billion gallons of gasoline “saved” each year (those 2 trillion spread across the years) works out to 200 gallons “saved” per car per year.

To achieve that tiny savings, a ton of money has been spent on CAFE compliance rules, on building compliant and so very expensive vehicles, and on wasted money pushing those far more expensive CAFE-meeting vehicles out the factory door in order to meet the mandated manufacturer’s fleet average fuel efficiency numbers. This wastage includes, over the last several years, pushing battery cars and hybrids out the door only to sit unsold on dealer lots as us average Americans refuse to pay the enormous cost of those battery-dependent vehicles.

This is a good beginning, if the Republicans can pull it off, and the Republican caucus in the House goes along. Better would be elimination of CAFE altogether, that should be for a later day.

Disingenuous

Posted on by
1

The press is at it again, this time on the subject of death estate taxes. In a WSJ article centered on the House-passed reconciliation bill and the parallel (on the subject of estate taxes) Senate Finance Committee-passed proposal, the news writer wrote

The estate tax cuts are a boon for the richest….

as she blithely parroted the talking-point criticism of the Leftist Samantha Jacoby, Center on Budget and Policy Priorities‘ Deputy Director of Federal Tax Policy:

They went out of their way to expand tax cuts for the wealthy on a permanent basis, but some new tax cuts for modest income people are temporary[.]

Both, beyond the bit about temporary tax cuts, are nakedly disingenuous.

A person’s estate is much more than just cash and stocks and bonds. Those estates include mom-and-pop businesses that have grown to modest levels of valuation, exceeding the current and expiring threshold of $14 million, the proposed threshold of $15 million, and especially the $7.14 million threshold that would resume were nothing done.

Those businesses’ values do not exist as money or as stocks and bonds that can easily be sold to raise the money with which to pay the tax bite. Those businesses, which are almost the entirety of a decedent’s estate, exist as operations with inventories, employees, sales prospects. And they would have to be sold by the decedent’s heirs in order to raise the cash necessary to pay the Federal government, utterly destroying that estate. That there are far more such mom-and-pops at risk than there are Evil Rich Folks who would benefit as a side effect of the proposed threshold increase is of no interest to the Left and its Progressive-Democratic Party politicians.

These Big Government persons have defined what is Government’s due (rather than the people’s due), and they are demanding it. Never mind how many average American heirs would be hurt or ruined by the demand.

For Whom Does He Work

Posted on by
Reply

For whom do they work, come to that? “He” is Dr Marty Makary, the FDA Commissioner. “They” are the bureaucrats of the FDA.

[C]hanges are coming so swiftly, and often without input from career scientists, that Makary faces declining staff morale threatening to stymie his efforts. He must also contend with the administration’s staff cuts at the FDA….

Career scientists—that’s the press’ euphemism for entrenched bureaucrats who happen to have medical or science degrees.

Lowering employee morale, as opposed to bureaucrats’ morale, is an important problem. It is, however, most optimally solved by either or both of two items:

  1. the bureaucrats figure out that they’re not the ones in charge, they must work within an operational hierarchy and either follow the instructions of those placed above them or resign their positions
  2. the remaining bureaucrats and those newly hired, the latter whom lack the habits of entrenchment, get actually productive and do their jobs more efficiently, which can be facilitated by astute use of AI
  3. That last, of course, requires that Makary implements AI as a tool and not as a decision maker itself

Regarding the opening question, “he,” Makary, works for the HHS Secretary, who in turn works for the President, who works for us American citizens. Makary, thus, works through his chain of command for us average Americans and for our benefit, not that of those bureaucrats. Neither the FDA nor government at large are jobs welfare programs; the incumbents are there for our weal, not their own benefit.

I’m not too worried about the morale of entrenched bureaucrats. I’m concerned about their actual performance of their duties.

Tariffs and the Fed

Posted on by
Reply

The Federal Reserve Bank is facing a conundrum:

First, they [tariffs] raise prices, which weakens the case for cutting interest rates. Second, they sap confidence and demand, which strengthens the case.

There’s this, too:

In May, the Treasury Department collected roughly $15 billion more in customs duties than in February. That is equal to about 3% of total consumer spending on goods. Some goods prices have risen, but not by that much. And in May, prices fell on some obvious tariff targets such as apparel and new cars.
This is a head scratcher. If consumers aren’t paying the tariffs, who is? Not foreign producers, at least through April, when import prices excluding fuel rose. Not, apparently, retailers and wholesalers, whose margins took a hit in April but bounced back in May, according to the producer price report released Thursday [12 June].

For me, though, the head scratcher is straightforward: it’s been so long since we had significant tariffs, and economies have evolved so much in that interim, that we don’t yet understand the lags that are involved between the onset of tariffs and allegedly associated price increases. This is further contaminated by the confusion by folks who should know better of highly variable tariff rhetoric with actual tariffs in place.

And a second contaminant: how much do tariffs raise prices, really, in a global economy that has supply chains that are much more mobile (or at least much less fixed in place) than in those prior economic environments?

And a third: a measure of flexibility in cost transfer techniques: keeping prices stable while doing away with free shipping or raising existing shipping charges, for instance.

Oh, and energy costs are down; lowering prices here counterbalances, in the larger scheme, price increases there.