Tag Archives: political economy

This is Meeting a 2% Commitment?

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This is a pretty ugly performance by what used to be a top-drawer defense establishment.

Germany’s Defense Ministry said on Wednesday that only 39 percent of large items, such as tanks and helicopters, delivered to the Bundeswehr in 2017 did not require improvement before deployment.

That’s against an already shockingly low goal of a 70% Operational Ready status for already delivered military equipment—like those tanks and helicopters.

And this:

Only 27 of the 71 Pumas delivered last year; half of the eight A400M delivered; two among seven Tiger combat helicopters; and four among seven NH90 transport helicopters, were operationally ready last year….
Among four new Eurofighter combat jets delivered in 2017, one could be used.

Germany’s Left Party parliamentarian Matthias Höhn is right that this, as paraphrased by Deutsche Welle, is:

a scandal that [German Minister of Defense Ursula] von der Leyen “tolerates this arms industry’ slovenliness at the cost of taxpayers.”

Is Germany really serious about its NATO commitments?

Fairness

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Various nations around Europe and Asia are looking at ways to add to the tax burden on multinational technology companies doing business in those nations.

Bruno Le Maire, French Minister of the Economy and Finance, rationalized the movement this way:

It is a question of fairness.

Leave it to a European politician to not understand the concept.

No. Fairness is cutting taxes, not raising them, thereby leaving more of the citizens’ money in their hands.

Fairness is cutting spending.  This would greatly reduce Government’s crowding out pressures against citizens’ businesses through competition for “customers.” This also would greatly reduce Government’s competition for inputs to production, competition which drives up the cost of those inputs to private businesses.

Fairness is cutting spending especially to be less than tax revenue, reducing the need for Government borrowing and its twin outcomes: driving up the cost of money for private businesses and increasing the likelihood of future tax increases for both the citizens and their private businesses.

And this is the Europe our very own Progressive-Democrats want us to emulate.

Right Answer, Wrong Dissent

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The Washington State Supreme Court issued a ruling favorable to the State’s charter schools last Thursday.  The question before the court was whether those charter schools were violating the State’s constitution by receiving funding from the State’s lottery facilities.  Writing for the court, Justice Mary Yu wrote in plain words,

Charter schools are not rendered unconstitutional just because they do not operate identically to common school[.]

She expanded on that in addressing the plaintiffs’ argument that the charter schools lacked voter control, holding that, as The Seattle Times paraphrased her,

…”it makes sense” for charter schools not have local voter control because their funding source, unlike traditional schools, does not include local property tax levies.

Justice Barbara Madsen in dissent, wrote

They [charter schools] are not subject to local voter control and lack any direct accountability to the communities they purport to serve….

This is mistaken.  Charter schools are especially accountable to the communities “they purport to serve” because, unlike the case with public schools, those parents, those members of the served communities, those voters, easily can remove their children from a charter school and enroll them elsewhere.

Trade and the People’s Republic of China

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The Wall Street Journal wrote in its Thursday edition that the US was “refusing” to resume trade negotiations with the PRC until the latter made a formal offer to us.  That’s a bit of a misnomer, though, since there’s nothing about which to negotiate until the PRC makes an offer.  Absent that, any discussion about trade would be just idle musings over an afternoon tea, a whiling away of some time between more important things.

A couple of other things jumped out at me in that article, too.

For Beijing, making a formal offer presents a number of risks, according to individuals briefed by the Chinese. First, it would reveal their negotiating position. Second, Beijing fears that Mr Trump could make any offer public in a tweet or statement as a way to lock in any concessions by China.

First, honest negotiating requires positions being known to both participants.  If the PRC wants to keep its position hidden, it could only be to keep moving its demands, keep adjusting its goals as we make offers more and more in its direction.

Second, if the PRC doesn’t want to commit to this or that concession—or to any other aspect of its negotiating position—it doesn’t matter whether any of that is public.  The nation wants to be able to walk away from any of its negotiating commitments at its convenience, and that makes the PRC untrustworthy.

As the WSJ noted,

There is history behind Beijing’s concerns. During negotiations over China’s entry to the World Trade Organization in 1999, President Clinton turned down an offer by China’s premier at the time, Zhu Rongji, that included deep concessions and a reorganization of the Chinese economy. The Clinton administration made Mr Zhu’s offer public, hoping to prevent the Chinese from backsliding. Instead, Mr Zhu was pilloried at home by hard-liners, and it took months of negotiations to finally convince China to accept a deal similar to the one it initially offered.

There are two lessons from this bit of history that we still need to learn.  The first is that the PRC’s intent of walking away from its commitments even as they’re made—that hardliner pillorying—is a long-standing policy of dishonesty.  The second lesson is that, in the realization, the PRC walked away from that “similar deal;” it has no concessions from the deal extant and no serious reorganization of its economy even tried.

The Trump administration is wise to waste no time on empty negotiations over a chimera.  It’s chancy enough to negotiate a hard proposal with them, but that’s still infinitely preferable to negotiating PRC fog.

Somebody Wants a UBI

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This is a Progressive-Democrat dream, but Andy Kessler centered it on Silicon Valley in his op-ed in Sunday’s Wall Street Journal.  He’s not far wrong, but aside from limiting the idea’s core constituency, he also only described part of the reason why a Universal Basic Income is a bad idea.

He did a good job of laying out the costs of paying for a UBI—the charges to those with earned income or profit—and how those costs cap what the earners and producers can do, but there’s the outcome of the demand side, too, that must be factored in.

What determines the price of any good or service? Of course, one component is the cost of its production. If the price doesn’t cover the cost, it won’t get produced. But that’s only a floor; the driver of cost is the demand for the good or service. That demand, though, isn’t measured by the number of folks wanting the thing, it’s the amount of money available to pay for the thing. More money means more demand, and more demand means rising price if the demand rises faster than production.

Now give everyone a UBI. Demand just inflated by the amount of the UBI, and the price of goods and services just went up to absorb that demand—every single dollar of it.

But wait—rising demand means rising production. Yep. And rising production means rising demand for labor—and rising labor costs. Rising production means rising demand for production input materials—and rising prices for those inputs.  And so rising threshold prices for the output good or service to cover those rising costs.  The minimum price for producing the good or service is above the income available, even after the UBI; the range of goods and services available is at least as limited from the perspective of the impoverished as it ever was.

The buying power of the UBI was just driven to zero, and the value of a person’s total income in real terms is just the same as it was before the UBI was instituted.

But it’s not just a zero-sum outcome; it’s a negative-sum matter.  Recall Kessler’s thesis that the cost to the earners/profit-makers of providing the UBI limited their output.  There’s a net reduction for everybody of goods and services to be had.

That’s a net reduction in the real value of income for everyone.