Tag Archives: political economy

“The best path to peace”

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The august editors at The Wall Street Journal ended their piece decrying Russian President Vladimir Putin’s decision to not show up for peace discussions with Ukraine President Volodymyr Zelenskyy (while trying to claim President Donald Trump (R) should be embarrassed by Putin’s absence) with this bit:

The best path to peace is to increase the pressure on Moscow. Mr Trump can start with secondary sanctions on countries that buy Russian energy. Former US Treasury chief economist Eric Van Nostrand wrote on these pages this week that removing a quarter of Russia’s oil exports from the market would cut the Kremlin’s oil revenue by 20%. Global oil production is high enough that it wouldn’t raise gas prices in the US by much.
Mr Trump could also announce his support for more military aid for Ukraine.

Sanctions hurt Russia, and increasing sanctions would hurt more. But the empirically demonstrated fact is that the pain is greater in western—and news opinionators—eyes than it is actually experienced by Putin. That’s because both Putin’s pain threshold is so much higher than that in the West and Putin’s give-a-hoot regarding pain suffered by his Russian subjects is so much lower than in the West.

Increase pressure on Putin? The only pressure he’s ever felt since he sent his barbarian hordes into Ukraine is the initial defeat at the gates of Kyiv and the mechanics of getting supplies of weapons and bodies to heave into the ensuing maelstrom. Those mechanics have long since been improved.

No, the best path to peace remains what it has always been: drive the barbarian hordes back out of Ukraine entirely.

That, however, requires more than empty words of “more military aid for Ukraine;” it requires actually providing more military aid, and rather than continuing the dribs and drabs and slow-walking of deliveries, that aid must be delivered in the types of weapons systems, ammunition, and logistic support needed by Ukraine; in the numbers needed by Ukraine; and at the rate needed by Ukraine—all as defined by Ukraine.

Full stop.

Another Reason Why

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The People’s Republic of China is demonstrating yet another reason why the United States—and Western Civilization nations generally—must revamp our supply chains to remove them entirely from the PRC. The PRC has resumed shipments of certain rare earth-based components critical to national defense and to the weapons systems implementing our defense capabilities. That resumption, though, comes with the PRC government’s strict control over the licensing requirements for export of those components.

Neha Mukherjee, a rare-earths analyst at Benchmark Mineral Intelligence:

It’s basically like a tap. They can decide when to export and when to not, and the control is in their hands, completely[.]

The control is in their hands, completely, not just through that absolute control of the required licenses, but more importantly because the PRC

mines around two-thirds of global rare-earth minerals and processes about 90% of the world’s supply.

That’s what needs to change. We need to develop our own sources of rare earth ores (we have lots, as do most western nations), develop our own processing capabilities, and develop our own alternatives to rare earth centric magnets for our systems along with alternative forms of magnets, even alternatives to magnets altogether.

The news writers of the WSJ article at the link profess a lack of understanding of the PRC’s shift.

The reason for the recent granting of export licenses couldn’t be determined.

The reason is self-evident. It’s nothing more than the PRC telling us and the rest of the West, in no uncertain terms, that they can cut us off entirely, or they can export these things freely—depending on how “friendly” we are to it, how much we comport our activities to its wishes.

The rearrangement of our supply chains will cost us several pretty pennies, but even at that, it will be far cheaper than being controlled by an enemy nation because we cannot defend ourselves.

A Misleading Statistic

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In a Wall Street Journal article touting our nation’s ability to produce WWI bombers at a high rate, the subheadline read

At its peak, a Ford factory produced one B-24 bomber an hour during World War II.

The article went on to brag about that production rate in the context of a 2018 Boeing contract to produce two new Air Force Ones by 2024, with Boeing’s schedule now claiming delivery by 2029.

The B-24 production rate, though, is badly misleading. That’s how often a B-24 rolled off the production line. The real question, the serious question in this context of producing a single airplane, or just two of them, is this one: how long did any particular aircraft spend on that B-24 production line from first part being assembled to final article coming off the line?

It’s true enough that a modern Air Force One is a more complex machine than a mid-20th century bomber, but the modern airplane shouldn’t be taking 11 years, or more, to construct, especially one being built on a basic airframe that’s already been long in production.

Boeing has wasted far too much time pretending to work on a new Air Force One, and that contract needs to be canceled and a new contract let with an aircraft manufacturer that will take the task seriously. However, using misleading statistics like the one above reduces the credibility of any discussion of Boeing’s failure to perform.

Tariffs and Economic Disaster

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There has been, so far, no economic disaster. In fact, Gerald Baker, in his Monday Wall Street Journal op-ed, put his finger on the longer term outcome of tariffs insofar as they lead to a decrease in the globalization of trade. Here’s his penultimate paragraph:

What difference does it make? An important one: If we see deglobalization not as a catastrophic act of self-harm but as a choice—even a rational one—we can position ourselves better to deal with its consequences. We know the costs of throwing sand in the gears of frictionless trade, but there are opportunities too: more-secure supply chains, a chance to nurture high-end domestic manufacturing and reduce our financial dependency on the rest of the world, and new attention to reducing the vast economic inequalities in the U.S. that globalization, with its incalculable rewards for the most advantaged, has exacerbated.

That’s on the right track. Also needed, though, is [ahem] some necessary parallel actions:

requirement that the “protected” industry companies use the large majority (60%-75%, say, just to have a starting point for discussion) of the increased revenues accruing from the increased sales at their immediately pre-tariff prices to achieve the following:

 

    • increase market share via their largely unchanged price
    • increase spending on innovation
    • increase spending on capital plant maintenance, improvement, and expansion
    • increase spending on line worker wages
    • increase spending on line worker hiring

And one more fillip: a hard expiration date of the protectionist tariff, in the range of 5-10 years, that cannot be extended except by Congressionally enacted statute.

Tariffs and Reindustrialization

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This seems to be my day for letter-writers. Another writer in The Wall Street Journal‘s Sunday Letters section wrote about the current lack of effectivity of (protectionist) tariffs in stimulating moves toward reindustrialization in our economy.

Through initiatives such as Operation Warp Speed and strategic invocation of the Defense Production Act, the government took risk out of domestic production through substantial direct investment, guaranteed purchase agreements, prioritized allocation of critical materials and equipment, and streamlined regulatory processes.

He then proposed a similar program to spur reindustrialization.

He’s right as far as he went, but it’s too one-sided, lacking as it does any requirement for the targeted industries to do their part. Aside from the addictive nature of protectionist tariffs, it’s far too often the case that the “protected” industry companies merely take advantage of the increased prices of tariffed imports to raise their own prices accordingly, collect the increased revenue, and do nothing to improve their own competitiveness.

What’s also needed, as a part of these tariffs, is a requirement that the “protected” industry companies use the large majority (60%-75%, say, just to have a starting point for discussion) of the increased revenues accruing from the increased sales at their immediately pre-tariff prices to achieve the following:

• increase market share via their largely unchanged price
• increase spending on innovation
• increase spending on capital plant maintenance, improvement, and expansion
• increase spending on line worker wages
• increase spending on line worker hiring

And one more fillip: a hard expiration date of the protectionist tariff, in the range of 5-10 years, that cannot be extended except by Congressionally enacted statute.

That’s the route to actually reindustrializing: doing concrete things to achieve concrete goals.