Tag Archives: political economy

A Simple Solution to the US-PRC Trade Dispute?

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More like a simplistic one.  Martin Feldstein, ex-Chairman of the Council of Economic Advisers under President Ronald Reagan, has one, summarized by the headline and subhead in his Wall Street Journal op-ed:

How to Make Trade Peace With China
A mutual promise to abide by the WTO’s intellectual property rules would solve much of the problem.

Feldstein is…naive. By his own acknowledgment later in his piece, the PRC routinely violates WTO rules–and international court rulings, lately seen by the PRC’s refusal to abide by a Hague ruling against them regarding the Spratly Islands. The PRC will promise to abide by the WTO’s intellectual property rules?

The PRC government’s word is worthless.

Government Surveillance by Regulation

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Loosely related to a nearby post, now it seems the government is getting worried about the size of the “private” capital market, where folks can place investments in enterprises, particularly startups, without having to go through the public—stock—markets and government regulations that are broadly extensive and deeply intrusive.

The boom is transforming how companies grow, concentrating investing in fewer hands and raising concerns about oversight

The linked-to article’s subhead lays out the whole misunderstanding. Government doesn’t need to be in the business of regulating every little thing we do.  We can manage our investments just fine without Government’s “help.”  And we can suffer our own outcomes if we choose badly or fortune moves against us despite our otherwise correct decisions.

[Some] private placements require no disclosure at all, said Anna Pinedo, a partner at law firm Mayer Brown. “It’s impossible to know who’s raising money this way or from whom.”

It’s none of government’s business to know unless it’s prepared to allege specific crimes.

Michael Piwowar, a[n SEC] commissioner, questioned “the notion that nonaccredited investors are truly protected by regulations that prevent them from investing in high-risk, high-return securities….

It’s not government’s job to protect us from ourselves. That’s our job.

The way to entice investors back to the publicly traded markets is to reduce those regulations and their intrusiveness.

Standards and Markets

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The EPA has decided to revisit, revise, and lower fuel efficiency standards for cars sold in the US for the model years 2022-2025.  The Obama administration EPA had mandated that overall fleet fuel efficiency—averaged across all models of cars built by a manufacturer—be raised to 54.5 miles per gallon by 2025 from 35.5 miles per gallon in 2016.  This would have represented a greater than 50% increase in fuel efficiency in just 10 short years.

Environmentalists are up in arms over the move.  Fred Krupp, Environmental Defense Fund President:

Designing and building cleaner, more cost-efficient cars is what helped automakers bounce back from the depths of the recession and will be key to America’s global competitiveness in the years ahead.

And Jon Foley, California Academy of Sciences Executive Director, tweeted

This move wastes energy, and makes more dependent on foreign oil.

Both misunderstand.  Krupp is right that building better cars helped automakers recover from the Panic of 2008, but he missed two Critical Items.  One is that American automakers, pre-Panic, were churning out junk and losing market share to better manufacturers.  When they stopped building junk, they got competitive again.

That brings me to the second Critical Item.  It was free market competitive forces—and the Panic to drive that home—that enabled the American automakers, building better cars, to get back into the game.  It was free market competition, in response to changing consumer demands, that pushed automakers to build more reliable, more fuel efficient cars (and trucks), with competition moving to hold prices down.

Neither of those had, or have, anything to do with government mandates.

Foley just seems to have not been paying attention over the last few years.  New technologies for locating oil and gas and for extracting those have lowered the cost of oil and gas for a whole host of uses, including car and truck fuel, and those technologies have led the US to be a larger producer of oil and gas than any other nation, save Russia—and we expect to surpass Russia in a couple of years.  There’s not much dependence on foreign oil here.

Oh, and one last thing.  The cost of buying a car won’t be so great now that manufacturers don’t have to waste capital on crash courses in engine development and can instead move at the pace of market competition.

Now, if only we could get rid of the ethanol mandate, too, so car maintenance and food costs could be reduced.

Readiness Capability

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There’s a dismaying graph in Wednesday’s Wall Street Journal that illustrates the combat readiness of several of NATO nations’ forces.

In essence,

If Europe came into conflict with Russia, only several thousand of the more than one million troops in its armies would be ready for rapid deployment, military planners fear.

Plans to correct this (using the term loosely) don’t come close to the capability regularly exercised during the Cold War, when the US planned for moving 10 divisions into Europe within 10 days.  Current planning goal is to feed dribs and drabs into the furnace.

A US proposal would have the alliance commit to having 30 battalions, 30 fighter squadrons and 30 naval ships ready to deploy. That would translate to roughly 30,000 troops and more than 360 fighter planes.

Sadly, given Europe’s long history of free-loading off US nuclear and soldier commitments, and the EU’s current reluctance even to meet the nations’ 2% of GDP on defense commitment, that’s probably all we can expect out of that continent.

Feeding the furnace: 30 days was all that was necessary in WWII to overrun Poland once the Germans crossed the frontier, and it was all that was needed to knock France out of the war and push the remnants of British forces off the continent once Hitler moved west.  Only 60 days after Barbarossa went in, the Germans were approaching Leningrad, were over halfway to Moscow, and had overrun half of today’s Ukraine.  And that was against an allied contingent that, in retrospect, was better equipped and numerically superior, at least in the West.  The lack of political will then and now is the same, and Putin has shown the willingness to aggress as did Hitler, even if Putin is quite a bit more subtle about it.

And: the 30 days is from the decision to put the forces “on alert.”  Given the amount of warning available today, with the speed of modern communications, transportation, and so on—the ability to deliver tactical surprise—what is the time relationship between going on alert and having actually to launch the forces?  Thirty hours seems more like reality than does 30 days.

The graph, too, is misleading to an extent.  Italy currently can produce 5 combat-ready battalions in 10 days, while three other European nations can produce all of 3 combat-ready battalions apiece—in 30 days.  The rest, none at all in the time frame.  But what does that mean?  What is the actual combat capability of these nations’ units?  Until the term is normalized, the comparisons in the graph have only the coarsest of meanings.

The Fed and Inflation

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There was a Letter to the Editor in a recent Wall Street Journal that talked about a “half-truth” that inflation is “always” a result of rapid economic growth and low unemployment.

The Fed’s obsession with its arbitrary 2% inflation target compels them to argue that higher inflation is desirable because it is always linked to stronger economic growth. The governors simply ignore evidence to the contrary, such as in 2017 when, after the first quarter, growth accelerated and unemployment fell, yet inflation rates declined.

Couple things about this claim. One is that that isn’t the only argument the Fed makes on the matter or on the Fed’s role. The Fed’s role is to maintain price stability (and low unemployment, but price stability facilitates that), and any target rate of inflation, within a broad range, does that.  The Fed targets 2% in order to have…engineering slop…as a cushion against the natural fluctuations of inflation taking the economy into a deflationary period, which if sustained can have more deleterious effects than high inflation.  Much higher target rates make maintaining stability more difficult.  Two per cent is a suitable middle ground target.

The other thing relates to those natural fluctuations in inflation rates, and their inputs. Stauffer is assuming, falsely, that a single occurrence, a single quarter’s behavior—an anecdote—is the trend.  Not at all.  It’s just noise.