Tag Archives: political economy

Austerity

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Continuing the theme that other parts of the world still exist, this thought on Brazil’s upcoming presidential election.  In a Wall Street Journal piece about the Brazilian presidential candidates’—all 13 of them—big economic plans with no money to implement them, the item’s author offered this bit:

Mr. Bolsonaro has raised the most hopes in financial markets of tackling the endemic spending problem. …his top economic adviser, economist Paulo Guedes, has promised investors fiscal austerity….

It’s sad that “journalists,” whose interns surely know better, continue to insist that reducing government spending is somehow “austerity.” How is it austerity to leave more money in the hands of the people who earned it?  How is it austerity to leave the private economy free to spend its own money on its own imperatives instead of the Know Betters who populate government spending it for them on Know Betters’ “goals”?

Reduced government spending—and reduced tax rates, the two cannot work effectively in isolation from each other—far from being austere, allows an economy to grow.

The Brazilian government needs to get out of the way of the nation’s private economy.  Its high spending and high taxing are what constitute austerity.  Brazil’s citizens live austere lives because the government confiscates their money—to the tune of 40% of GDP—and it spends that confiscated money, not on those citizens’ wants or needs, but on government salaries and pensions, and on schools and hospitals that would be well supported and staffed in a free market economy.

Taxes and Caps

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Howard Gleckman, Senior Fellow at the Tax Policy Center, wants the $10,000 cap on the federal deduction for state and local taxes repealed.  After all, he worries [emphasis added],

what will happen to state budgets if high-income residents resist tax increases that are now less subsidized by the federal revenue code[?]

Further, Gleckman is arguing,

restoring the old distortion “may indirectly benefit low- and moderate-income households” by propping up state spending.

Because it’s a Good Thing for State governments to keep taking their citizens’ money away from them and spending it for them.  It’s a Good Thing for State governments to continue spending heavily and crowding out private enterprises by consuming resources and accesses to money that would be better and more efficiently used by those States’ citizens and their private enterprises.

Remember this, next month.

Free Trade in North America

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With a Mexico-US trade agreement in nominally in hand (our two nations’ legislatures have ratify it, and our own Progressive-Democrats in the Senate are already saying #NO, #RESIST, and too many Republicans are acquiescing, though), Mexico wants Canada to join the agreement.  Mexico’s President-elect Andrés Manuel López Obrador, after speaking with Canadian Prime Minister Justin Trudeau:

There is still time to achieve a trilateral agreement[.]

And

We hope they reach that understanding so that it will be a trilateral agreement.

Certainly, Canada’s joining an agreement would be good, but first the Canadians have to get serious in their negotiations.  President Donald Trump already has offered a tariff-free régime, and Canada won’t even discuss it.  Trudeau and his Minister of Foreign Affairs, Christia Freeland, steadfastly are demanding their protectionist tariffs—dairy, for instance—remain in place.

Update: They’re in. Now it’s necessary to convince Progressive-Democrat and self-serving Republicans in the Senate to ratify the deal.

The Rising Cost of Hurricanes

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It’s not from more frequent or fiercer hurricanes—the rate and sternness of them actually is down over the last several years—but the increasing density of population and supporting building on hurricane-prone shores and the increasing costs of the buildings that’s driving the cost of hurricane damage.

Counties along the US shoreline that endured hurricane-strength winds from Florence in September experienced a surge in population from 1980 to 2017, with an increase of 95 people per square mile—more than double the density. Overall, Gulf and East Coast shoreline counties, those vulnerable to hurricane strikes, increased by 160 people per square mile, compared with 26 people per square mile in the rest of the mainland, over the same period.

And

The devastating effect of Florence, like Harvey in 2017, was primarily related to flooding.
…
For storms like Harvey, changes in land use that come with urbanization, such as replacing permeable surfaces like grass with impermeable surfaces like concrete, can cause big changes in water runoff.
Sandy had downgraded from being a hurricane to what’s known as an “extratropical” storm by the time it made landfall in 2012, but it hit major population centers causing “extensive damage across several northeastern states,” making it the 4th most expensive storm to hit the U.S. since 1980 with $72.19 billion in damages according to NOAA’s analysis.

Yet insurance—for flooding, wind damage, and so on—isn’t seeing rising premiums.  That’s especially the case for flood insurance.  That’s also where Government has crowded out private insurers with Government flood insurance sold at artificially low premiums, wholly independent of the risks actually being covered.

And that means that no one has any incentive to think about where they build, whether commercially or residentially: the damage will be repaid with OPM.

Budgets and Austerity

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The Italian coalition government (interesting in its own right, consisting as it does as a teaming up of the far left 5 Star Movement and the far right Liga) has decided to increase government spending and decrease taxes.  This has been projected to produce a 2.4% budget deficit.  For a government already badly in debt, this deficit isn’t good.

Cutting taxes has been decried by others as being the cause of such deficits and debts.  Spending cuts cannot be allowed, say the same folks, because that would be an austere measure.

They’re wrong.

Cutting taxes leaves more money in the hands of the citizenry, the folks best positioned and best suited to make decisions concerning how their money should be used.

Cutting spending—a necessary measure to stay within the taxes collected—far from being an austerity measure, would enable Italy’s economy to burgeon. Getting the government out of competition with the citizens and businesses of the Italian economy for that economy’s resources will reduce price pressure, and it will leave those resources more available to the private actors, who will use those resources more efficiently than any government can achieve.

Italy’s move to cut taxes and increase spending is a half measure.  Spending needs to be cut to fit within the revenue the taxes will produce. Make no mistake on a related matter, too: the burgeoning economy will produce a net increase in revenue to the Italian government.