Tag Archives: political economy

Confusion

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The latest whiner pundit to weigh in on President Donald’s tax reform principles, laid out in a concise one-pager.  And yet these pundits pretend to confusion over it.

President Donald Trump’s plan is silent so far on crucial details Americans need to calculate their tax bills, including the personal exemption and the size of the tax brackets.

And

The president’s latest plan for middle-income households…has left tax experts puzzled. That is because his one-page tax outline released in April is silent on essential details, including how the tax code will treat the personal exemption that reduces taxable income depending on family size. It sets tax brackets of 10%, 25%, and 35% without establishing the income levels that divide them.

And

[T]he plan says nothing about how personal exemptions or head-of-household filing status would be treated….

Geez.  It’s an outline; it’s not intended to be finely detailed. The President has proposed the principles and broad parameters of the taxation portion of his budget, and that’s both entirely appropriate and sufficient.  How personal exemptions, head-of-household filing status, etc, might be treated easily follows from those principles.

The fleshing out—the actual legislation, including bracket income boundaries and those other matters—is Congress’ responsibility, even though it would in an ideal world work with the President in the development of that legislation.  Oh, wait:

The White House is now working with the House and Senate on a unified GOP tax plan, including on the core issue of how much of a household’s income should go untaxed.

It seems more likely that these guys are just bellyaching because nobody is consulting their august selves.

The Durbin Amendment and Price Fixing

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Senator Dick Durbin (D, IL) added to Dodd-Frank an amendment that mandated the maximum price large banks could charge merchants who process debit-card payments.  The House’s Financial Services Committee, in marking up Chairman Jeb Hensarling’s Financial Choice Act, included repeal of the Durbin Amendment.

Naturally, Durbin has demurred, and he did so, among other place, in a Letter to the Editor of The Wall Street Journal.

It’s no secret that Wall Street hates the swipe-fee law that I authored in 2010. This law finally reined in the debit swipe-fee price-fixing that Visa and MasterCard were doing on behalf of banks. The old rigged system permitted Visa and MasterCard to fix the same fees for all card-issuing banks, and without competition the fees always went up. It was a market failure and merchants and their customers ended up paying for it.

And

The 2010 reform law said that if the nation’s top 1% of biggest banks are going to let Visa and MasterCard price-fix their swipe fees, then the fees must be reasonable and proportional to the cost of conducting the transaction.

Wow.  Price fixing is OK as long as it’s Big Government doing to fixing, says the Progressive-Democrat from Illinois.  No.  There exist, already, laws against such collusion; all that’s necessary, were the banks actually colluding as Durbin claims, is to enforce existing law.  There is neither need nor excuse to expand Government by writing a new law to fix a failure from enforcing existing law.

Market failure?  Again, no.  Not every burble, bubble, or dislocation represents a market failure; indeed, they’re the normal volatility of a thriving free market.  Or they would be with less government interference so we actually had a free market.  Far from a market failure, this failure is another failure of Big Government’s central planning for our market.  It’s time—long past time—to dump the Durbin amendment.

It’s time—long past time—for competition to reenter the credit and debit card free market niche and to let the free market “fix” the prices.  It’s time—long past time—for Big Government to leave the market.

Puerto Rico’s Bankruptcy

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Andrew Scurria and Heather Gillers have a piece in The Wall Street Journal that discusses various considerations now that the story of Puerto Rico’s bankruptcy is “just beginning for investors.”  One remark in particular caught my eye.

Complicating matters, Puerto Rico hasn’t yet decided which creditors have priority in a restructuring.

This lack of forethought, even of understanding, is illustrative of how Puerto Rico got into this mess in the first place.

The question shouldn’t center on creditors; the order of priority of debt type should be the primary criterion, with creditors within each type treated equally.  This prioritization should have been defined long ago, too.

Ideally, these failures will be redressed coming out of the present proceedings.

Long Maturity Debt Instruments

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Treasury Secretary Steven Mnuchin is kicking around the idea of instituting long-maturity debt instruments, specifically, 50-year and 100-year US bonds.

Treasury’s Borrowing Advisory Committee, though, demurs.  This committee, made of movers and shakers of financial institutions that are themselves movers and shakers in the bond market,

does not see evidence of strong or sustainable demand for maturities beyond 30 years.

They ask a not unreasonable question, too:

what types of investors would buy ultralong bonds….

On that, the US has tried long(er) maturity bonds before—50-year instruments to finance the Panama Canal and 40-year instruments in the Eisenhower and Kennedy administrations to, in Eisenhower’s words, stretch out the national debt, for instance.

Over the years, however, the Treasury concluded it could most efficiently finance large amounts of debt through regular auctions of 30-year bonds.

That’s not the only possible market for Treasury ultra-long bonds, though.  Just one venue might include investors, especially institutional investors, looking for ways to hedge really long-term risk.  Government ultra-longs might be one way.  The question, from Government’s perspective, thus is irrelevant.

Any lack of demand for such long maturities—in any venue—simply means that such debt instruments wouldn’t be bought.  That should be a market decision, made by American individual investors, not a centrally controlled market decision made by Government.

It’s also a cheap experiment to run: it would cost Government nothing to offer to borrow at such lengths when no one would lend at such lengths.

The Apocalypse is Upon Us

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Or so Lauren Collins would have us believe in her fearful piece in the New Yorker, titled The Future of Europe Hinges on a Face-Off in France about this weekend’s money round of the Presidential election in France.

After all, this election is a referendum between a globalist economy and a globalist identity (Macron) and a nationalist economy and a nationalist identity (LePen).  That does sound apocalyptic, but really, it’s more apocryphal.

As a practical matter, and as is the case with most democratic-oriented governments, French government power is divided between an executive, the President, and the legislative, which elections are next month.  French government power is divided further: the legislative branch’s majority party appoints the Prime Minister, who has serious executive authorities of his own.

A President Le Pen will face two obstacles to her agenda: a Prime Minister from another party (Front National is unlikely to win more than a few legislative seats) and a hostile legislative.  A President Macron may well have to work with a Prime Minister from another party (his En Marche! is all of a year old and unlikely to win many more seats than Front National), and while he would face a not particularly hostile legislative, its agenda most assuredly will not be his.

Either President will find Executive ambitions greatly dampened.  That’s a purely domestic matter, but it spills across French borders.

As a (n international) political matter, Europe’s political future is not much influenced by either President.  Aside from the domestic dampening, which must also dampen these potential Presidents’ influence externally, both Europe and the European Union are made of sterner stuff.

I’ve written of the lack of long-term viability of the EU, but that weakness stems from weaknesses internal to the EU as an institution, not from pressures from within this or that member State, for all that France is an important member State.  No, the EU is good for several more years, the British departure won’t hurt it or Europe, German continued prosperity definitely won’t hurt Europe or the EU, not even the continued brink-of-bankruptcy state of Greece won’t hurt it.

And neither will a staunch EU-supporting President Macron significantly enhance the viability of the EU, nor will a staunch anti-EU President Le Pen significantly diminish the EU.  Indeed, Le Pen has promised a referendum on French membership in the entity, and the French citizenry are strongly more in favor of Remain than of Exit.

What is a threat to Europe is the aggressively acquisitiveness of Russia and most of Europe’s timidity in responding to that.  Nor Macron’s election nor Le Pen’s will have much impact on Europe’s attitude or what France might do about either that timidity or Putin’s acquisitiveness.  Even with Le Pen’s affinity for all things Putin.