Tag Archives: political economy

We Want our Maypo®

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HHS has terminated or canceled, as the case may be, some $12 billion in grants to the States for health-related programs, and a number of State Attorneys General, led by Arizona’s Kris Mayes (D) are suing to keep the dollars flowing.

Never mind that the grants were Wuhan Virus Situation-related, and that that pandemic is long since ended. HHS made that clear in the cancelation notice:

[T]he grants and cooperative agreements were issued for a limited purpose: to ameliorate the effects of the pandemic. Now that the pandemic is over, the grants and cooperative agreements are no longer necessary as their limited purpose has run out.

This is clear enough. Yet, the AGs perform their artificial hysteria. Here’s Mayes in particular:

By slashing these grants, the Trump administration has launched an all-out attack on Arizona’s public health system—harming the entire state, but hitting rural communities the hardest. These cuts target the very places that rely most on this critical funding

This is risible on its face. There is no attack, all-out or limited, on Arizona. The State’s governing personnel know full well that the pandemic has been expired for some years, and from that, they knew just as well that the Federal funding for that purpose would come to an end. Arizona, et al., have had plenty of time to (re)allocate State funds to those ends, to the extent each State thought those ends still necessary.

The States chose otherwise, and now they’re demanding their never-ending stream of Federal dollars to continue.

We want our Maypo®, indeed.

Republican Silliness

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This time it includes more than just a few members of the Republican Chaos Caucus. The Senate passed its version of a reconciliation bill that includes a suitable start on tax rate reductions, and the House Republican caucus agrees with that—those reductions are consistent with the earlier House-passed reconciliation bill. However, the Senate’s bill doesn’t include enough spending cuts to suit the House Republicans, and the House Republicans are right on that.

This is where the silliness comes in. A few Republicans, including some from outside the Chaos Caucus, have announced enough “No” votes before the Senate bill comes to the House floor to kill the bill outright. That’s silly.

Instead of just killing the bill, or refusing to take it up at all, the House Republicans and those one or two Progressive-Democrat Representatives capable of reasoned argument should debate the Senate’s reconciliation bill—they’d be the big boys in the room, since the Senate Republicans ducked away from the House’s bill altogether—and then pass the Senate bill amended to include spending cuts acceptable to the House. That would create a House-Senate disagreement in the same bill, which would send the modified bill to the normal House-Senate Conference, wherein the tax rate cuts would be preserved, and badly needed much larger spending cuts could—should—be inserted into a Conference-approved bill for up-or-down majority votes in each house. Likely the much larger spending cuts still would be less than the House so correctly wants, but they’d likely be much larger than the Senate’s going-in proposal.

And, as is the case with budget framework reconciliation bills, it would set the terms of debate for those spending cuts in each appropriation bill. The difference this time, though, would be those much larger spending cuts in the framework would set a much higher floor than heretofore for spending cuts in those dozen appropriation bills.

Bargaining Chips

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The People’s Republic of China is avidly intent on keeping its bargaining chips, of which two truly important ones are its TikTok app and its port businesses at each end of the Panama Canal.

What gets lost, even ignored, in this, though, is that bargaining chips have only the value the bargainee assigns to them, not what the holder of the chips claims to be their value. Not a red sou more than that.

TikTok, for instance, can be viewed as utterly without value as a chip to be played: current US law requires it to be shut down entirely and banned from the US unless and until it is sold in toto to an entity not under the control of the PRC. The only thing standing in the way of that way is the law’s provision that the deadline for sale can be moved back if our Federal government deems negotiations for the sale to be making sufficient progress. That’s where things stand under President Donald Trump, and that confers exactly zero value to the app as a PRC chip.

So it is, nearly, with those PRC businesses that are Panama Canal bookends. A BlackRock-led group has concluded a deal to purchase those two port businesses along with a number of others around the world from CK Hutchison Holdings, a PRC-domiciled (Hong Kong) company. The PRC is actively interfering to delay and potentially prevent that deal from coming to fruition. The appropriate response here is for the US to restrict, even block as far as may be, the ability of those two ports to get any business from the US or any other nations. That would deny those ports any value as PRC chips.

A Thought on Trade Deficits

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Set off by a post on Shrewd’m, which contains a plethora of useful discussion boards, including mechanical investing conversations.

Americans benefit from importing cheaper and/or better goods, which enhance our quality of life in myriad ways. Moreover, trade is part of a circular movement not only of goods but also of money. The US trade deficit of $918.4 billion last year was the mirror image of a $918.4 billion capital surplus, or infusion from overseas.
Sooner or later, all of the net $918.4 billion that Americans spent on foreign goods was invested in American capital assets such as stocks, real estate, bonds, or short-term assets such as Treasury bills.

That’s one of the problems with running a trade deficit, or “investment surplus,” which the poster suggested as an alternative term. It’s certainly true that in Ricardian fashion, truly free trade makes everyone financially more prosperous by letting those nations that do a few things better than others get the production trade and sell their goods to other nations in return for money or products that those other nations do better than anyone else. Financial prosperity is very good for all of us.

However, that sword has another edge, too. [A]ll of the net $918.4 billion that Americans spent…was invested in American capital assets such as stocks, real estate, bonds, or short-term assets such as Treasury bills. Not on manufacturing or on producing and processing the raw materials necessary for manufacturing in general. Especially not on manufacturing or on producing and processing the raw materials each category of which is a Critical Item for our defense establishment, our national security—our ability to secure ourselves from being dictated to by militarily superior enemies.

There were massive job losses in those manufacturing and raw materials production and processing industries, too, and those people are worse off for it, regardless of the injunction from some that these folks should learn to code.

Worse, those hard goods/raw materials producing companies have been closed long enough that we’ve lost the factories, mining, and personnel expertise central to those Items. Now, we’re dependent on other nations—including enemy nations—for raw materials like the rare earths that are specific Critical Items for our computers, communications, and weapons systems we need to maintain our freedom of action. We’re dependent on other nations—including enemy nations—for processing those rare earths and other materials (like graphite, another Critical Item) that we already produce some of for ourselves.

Our dependency on enemy nations is demonstrated by the People’s Republic of China’s restricting shipping to us rare earths and processed rare earths, both of which the PRC produces in ample quantities in response to the tariffs President Donald Trump (R) has applied to the PRC. Had we been producing and processing our own—and which we have ample quantities domestically but have chosen to leave them unmined and so have no processing capability, also—the PRC’s move would have been toothless. I’ve written about a similar situation a while ago.

Now a regionally militarily superior PRC is pressing its threats against the Republic of China and is in a position to cut the sea lines of commerce on which the Republic of Korea and Japan are utterly dependent and through which trillions of dollars of trade pass enroute to our own west coast. And we’ll soon—that cutoff of militarily critical rare earths—be helpless to stop them.

Fiscal prosperity is a Critical Item for our nation, and Ricardo was right on how to achieve that. Trade deficits, per se, are nothing about which to worry. But more so is military capability, without which we have no freedom of action and so no prosperity or even freedom. We need to redevelop our own manufacturing and raw material production and processing capability, even if we continue to source much of those outputs from overseas, and even if it’s more expensive to do so than getting them all from overseas.

The higher cost for such a domestic core production capability is part of the cost of our national freedom, and it’s far less than the cost of having our activities dictated to us by militarily superior enemies.

This would be a Mistake

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President Donald Trump (R) laid significant tariffs and tariff rates on the People’s Republic of China. The PRC’s President Xi Jinping responded with matching tariff rates, but with escalatory moves added:

…restricted exports of certain rare-earth minerals, added US companies to trade blacklists, and aimed an antitrust probe at the China operations of US chemicals and materials company DuPont.

Then the WSJ‘s news writer posited this:

What lies ahead is likely to be a cycle of tit-for-tat retaliation, making it hard to even start negotiations in the near term.

If the Trump’s purpose with the tariffs is to (re)balance trade with the PRC’s tariffs, that would be one thing—his reciprocal tariff regime. However, if his purpose is to persuade the PRC to change its overall international trade behavior, particular vis-à-vis the US, then tit-for-tat would be a foolish mistake.

Tit-for-tat only gives the other side time to adapt and maintain. What’s necessary, if Trump’s move is persuasion rather than rebalancing, is to escalate tariffs (and other economic moves) higher and faster than the PRC can respond, and that’s what Xi will attempt as demonstrated by his opening response. Simply matching Xi—as tit-for-tat does generally—is surrender to Xi the initiative in this extension of the PRC’s long-running trade war, with its cyber aspects as well, against us.