Tag Archives: political economy

Chips and the PRC

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The Committee on Foreign Investment in the US seems to be preparing to block the purchase of Lattice Semiconductor Corp, a maker of chips for civilian electronics, by Canyon Bridge Capital Partners, a company backed and funded by the government of the People’s Republic of China.  This is upsetting the deal’s backers.

Lattice management and other deal backers think we should all be “satisfied with their efforts to address national security concerns,” and they’re preparing to appeal to President Donald Trump to overrule the expected CFIUS decision.  This is nonsense.  Canyon Bridge is an arm of the PRC government; it isn’t possible to address successfully national security concerns when the government of an enemy is involved in buying one of our technology companies.

CFIUS is correct, if expectations of its ruling prove accurate, and Trump would be wise to decline to overrule.

Update: President Trump has, in fact, declined to overrule, on national security grounds.

“Credible evidence leads me to believe” the buyers of Lattice “might take action that threatens to impair the national security of the United States,” Trump said in his order.

Financial Crises and Regulation

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The increasingly politicized Federal Reserve Bank is getting politicized, and its Chairman, Janet Yellen, and her Vice Chairman, Stanley Fischer, are upset over financial deregulation.

They’re…misguided.  Here’s Yellen’s plea for retaining current, irrelevant and unuseful regulations:

Already, for some, memories of this experience may be fading—memories of just how costly the financial crisis was and of why certain steps were taken in response.

Here’s her deputy’s pretense of superiority:

[O]ne can understand the political dynamics of this thing, but one cannot understand why grown, intelligent people [would] reach the conclusion that [should] get rid of all the things you have put in place in the last 10 years.

What one cannot understand is why grown, intelligent people would reach the conclusion that the age of “all the things” is a useful measure of their continued efficacy.  However, the bureaucratic turf protecting is patently clear.

We’re no longer in a national-level financial crisis; the regulations put in place to attempt to mitigate that long-expired crisis no longer are appropriate.  What is appropriate is for the Fed and that portion of its management that—properly—is apolitical to take steps to help it identify in advance the next national-level financial crisis and to identify—in top-level, general outline form—steps that would seem to be useful to reduce that crisis’ onset and to mitigate the effects of what does arise despite that reduction.

It’s important, too, for the Fed’s apolitical management team to understand that no two financial crises will be alike, and so appropriate pro- and reactive step suites will need to be unique to those crises.  The typical Government one-size-fits-all solution will be destructive, not constructive.

We don’t need a Federal Reserve Bank management team that puts its bureaucratic imperatives ahead of the national financial weal.

Sale of a Stock Exchange

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Good idea?

The Chicago Stock Exchange wants to sell itself to Chongqing Casin Enterprise Group, a Chinese conglomerate whose parent is CHX Holdings Inc.  Never mind that this would be a camel’s nose of the People’s Republic of China into our financial system and expose it to PRC hacking, disruption, theft, etc, etc, etc.

Fortunately, a collection of Congressmen persuaded the SEC to indefinitely delay the sale and purchase.  Unfortunately, the deal hasn’t been killed altogether.

Casin…says it is independent of the Chinese government.

Of course it is. In a nation that is increasing its autocratic control over its economy and the businesses in it.  Sure.

Contra such blandishments, there aren’t any businesses in the PRC that aren’t under government control, whether those businesses are owned by the government or the CPC or operate outside formal ownership: mainland Chinese businesses have government apparatchiks, “advisors,” and CPC monitors in their management staffs.

CHX…says its policies will prevent confidential data from being shared with the new Chinese owners.

And we believe them. In a nation that rules by law instead of being a nation under rule of law, a nation that changes its laws for the convenience of those persons in power, CHX would never alter—or simply ignore—”policy;” it would never steal confidential data.

Sure.

No, not a good idea.  Not this time.  Not this buyer.  Not a good idea at all.

Corporate Taxes

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The US has one of, if not the, highest tax rate on businesses in the world, at 35%.  As a result, our internationally operating businesses book their profits in their overseas jurisdictions and leave those profits there.  This much is well known.

Republicans want to lower the corporate-tax rate and let companies bring future global profits home without paying US taxes on top of foreign taxes. They are searching for a way to do that without giving companies an incentive to move more operations and profits to countries with far lower taxes.

Or so they say.

Republicans seem to be moving toward gerrymandering our corporate tax law even further, with the claimed goal of encouraging our businesses to repatriate their overseas profits.

As part of that overhaul, Republicans want to exempt foreign corporate income from US taxes to a large extent.  …  The 35% rate would come down and the minimum rate would be set below the new U.S. corporate tax rate.

The rationale for such a “minimum tax?”

A minimum tax would act as a “safety net” against companies trying to pay little or no tax on some foreign income, said Ed Kleinbard, a tax law professor at the University of Southern California.

On the other hand,

The countries that use tax systems Republicans want to emulate allow their home companies to bring back cash with little or no tax. They use a variety of rules to prevent companies from seeking to pay less tax by moving operations or profits abroad, but generally don’t have minimum taxes on active foreign profits.

But this misses the point.

And

The original House GOP plan to address foreign profits and prevent erosion of the US corporate-tax base was border adjustment….

This misses a separate point.

The first point: lower our corporate tax rate to the lowest in the world.  The Trump administration’s proposal of a 15% rate or House Speaker Paul Ryan’s (R, WI) proposal of 20% would come close to that (only Ireland’s 12.5% rate would remain lower).  Or eliminate corporate income taxes altogether, say I; a business’ tax bill is paid, in the large main, by the business’ customers anyway in the form of higher prices—and the final customer is the American consumer, who would benefit from lower prices.

Either of these would not only disincentivise our businesses from leaving their profits overseas, they would reverse the flow: foreign businesses would flock to set up shop in the US because of the tax advantages they’d obtain—the same advantages that currently encourage our businesses to set up “over there.”

The second point: it isn’t the government’s money; there is no legitimate “corporate-tax base” to erode.  There wouldn’t even be a drop in revenue to the Federal government: the ensuing flourishing economy would generate more revenue for the government than any revenue reduction from lowering or eliminating the corporate income tax.

And: it isn’t gerrymandering to simplify and lower the corporate tax rate, nor is it gerrymandering eliminate the tax rate altogether.  There isn’t any need to play games when so simple a solution is, or should be, so easily implemented.

Brain Burp

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[Because this is a family blog.]

I had this one this morning while out on one of my walks.  It concerns a free market economy, bankruptcy, the bankrupt company’s employees, and what we ought to do about those employees.

In an ideal world’s free market, then, here is my gaseous expulsion.  It comes against the backdrop of my long-held disdain for the citizens of one State being forced to send their tax dollars to another State via the mechanism of Federal transfer payments in order to indemnify the recipient against its own foolish spending.  That backdrop also includes James Madison’s remark, on the occasion of Congress’ considering money transfers to Haitians after a devastating earthquake

that he could not undertake to lay his finger on that article in the Federal Constitution which granted a right of Congress of expending, on objects of benevolence, the money of their constituents.

However, our prosperity has grown to the point that our free market imperatives need not remain so cold, and it is in our society’s interests to help the dislocated—employees who’ve lost their jobs due to their employer’s bankruptcy, in the present case—get back on their feet and resume being productive members of their communities and the nation.

Thus: I say, regarding companies faced with bankruptcy, that if the participants in our free market economy—private citizens and their businesses—do not think a company worth saving, then the Federal government should accept that judgment and not intervene to bail out that company: the company, regardless of its size, should be allowed to fail.  I think the same tack should be taken by State governments, but that’s for the citizens of each State to decide.  In the event, Federal monies supporting bailouts should not go to those States that choose to do them.

Against that, I propose assistance to the employees of the bankrupt in the form of a Bankruptcy Jobs Retraining Program, which would operate along the following lines.

Employees below a certain level in the bankrupt company (the idea being, after all, to help the employees, not the “managers,” even if it was market events and not strictly management failure that generated the conditions leading to bankruptcy) would get a job retraining stipend.  It’s important to specify, too, that the stipend would not be an education stipend, but only a job (re)training stipend.  The stipend would have the following parameters:

  • expire after a specified number of days elapsed in training
  • be issued as a loan to the retrainee, with payments—principle and interest—due monthly. If the retrainee gets a job within a specified time after graduation and holds it for a continuous year (with “continuous” defined by the nature of the job: some, like construction, tend toward seasonality), the loan would be converted to a grant with no loan payments due.  Disposition of the loan in the event of the retrainee not working for a continuous year should include at a minimum these possibilities: the retrainee would make payments from the day of graduation, payments would simply accrue and not be due until failure to get a job or on leaving the job for any cause before the first year was up, retrainees aging out of the training program without graduation
  • could not be used more than once in any specified interval (for instance, a 10-year period). A lifetime cap seems infeasible because the (retrained) employee has no control over market events or management failures that might drive his new employer bankrupt
  • a retraining expense amount, not a living expense amount

The issuance of the stipend would be managed by two or three private enterprises that are independent of the Federal government and independent of each other.  These Stipend Issuers would be funded by no-strings grants from the government, and they would be solely responsible for dispensing the funds.

Stipend Issuers would develop market indices that identify and track the most employer-needed jobs that have the shortest labor supply—the largest job gap—independently of geography.  The Job Gap Indexes would rank the gaps, and the Stipend Issuers would pay the largest stipend to retrainees training for those jobs with the largest gap and that have the most expensive training.  Whether the expense and gap should be measured at a national level or regionally is a question to be settled in open debate.

Job Gap Indexes shouldn’t be that hard to develop.  Lots of investors and investment companies and other entities (e.g., The Wall Street Journal) already are quite skilled at developing indexes for assessing/tracking investment markets; a Job Gap index is not that different.

Retraining could be done anywhere, independently of where the retrained-to job is located.  A San Francisco resident, retraining for a job type where the largest gap is in New York, for instance, would be able to take the retraining program in San Francisco.

From that, Stipend Issuers would be authorized to commit a small per centage of their Federal Retraining Grants to relocation assistance, with the proviso that this diversion would be for assistance, not for the total cost of moving.

Since unions are, by their own definition, in the business of helping their membership, union members would see their stipends reduced by the total amount of union dues (including the portion the union claims was earmarked for political activities) paid by the union member retrainee in the twelve months prior to the employing company filing for bankruptcy.