Tag Archives: political economy

The Financial Stability Oversight Council

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Ryan Tracy, writing in The Wall Street Journal, thought Republicans should love this Council and be at pains to keep it, even as they look to “quickly scal[e] back Obama-era policies.”

I demur.

Tracy suggested

Consider the powers [FSOC] grants the Treasury secretary: As chair of FSOC—whose members include the chairs of the Federal Reserve and Securities and Exchange Commission—[Treasury Secretary nominee Steven] Mr Mnuchin  can convene a meeting of the top financial regulators at any time, and set the agenda.

SecTreas already can do this.  While he can’t compel attendance, the regulators would have hard time declining to attend or explaining to the rest of us their decision to stay away.

FSOC can make public statements or recommendations that have a name-and-shame effect.

SecTreas already can do this, too, as can any Cabinet Secretary and Agency head, did any of these have the courage to speak without hiding behind the comfortable numbers of a council.

FSOC’s greatest power is to designate “systemically important” financial firms outside the banking system for stricter federal oversight.

Mere existence of this authority is abusive overreach by Government. The Feds have no business in this business at all.

If Mr Mnuchin sympathizes with FSOC detractors, he could call fewer meetings with lighter agendas.

SecTreas doesn’t need the existence of a Council to decline to call meetings of regulators.

It’s past time for this abusive Council, and Dodd-Frank, to be done away with.

Full stop.

“How Barack Obama rescued the US economy”

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That’s the headline on a recent Financial Times piece (sorry, the FT has a paywall) by Martin Wolf.  It’s a silly headline, for a silly article.

How should we assess the economic success or failure of Barack Obama’s presidency?

This is a difficult question to answer.

No, the question is easy to answer.  Obama’s economic policies have been abject failures.  It’s also straightforward to lay the bulk of responsibility on Obama and his administration.  While it’s true that the Panic of 2008 began in the prior administration, it was Obama’s “stimulus” package that both blew up the nation’s debt and failed in its purpose of stimulating our economy with shovel ready jobs in a massive so-called Keynesian stimulus and its bailout of failing large banks.  It was his Federal Reserve’s policies (yes, yes, the central bank is supposed to be independent, but it was Obama’s Ben Bernanke, extended at Obama’s decision, and his Janet Yellen appointment) that degraded money discipline with their decisions to ease the money supply and hold interest rates artificially low.  It was his excessive—explosively so—regulation that limited business’ ability to function in the market, that limited small business’ ability to get started, that limited job growth and employment recovery.

It was the Obama administration’s Dodd-Frank, with its too big to fail policy that distorted those big business’ risk-taking decisions, decisions that used to be made in a free market but that under Dodd-Frank are made with the perception—courtesy of that “stimulus” bailout—that if the business messed up, Government would bail them out.

[S]hockingly, most congressional Republicans opposed all significant monetary, financial and fiscal actions taken to deal with the crisis.

This isn’t shocking at all; what’s shocking is the blind, knee-jerk rejection of free market principles by a Democratic Party (soon to become a Progressive-Democratic Party) suddenly in complete control of our government and cut loose from any restrictions on their power.  Absent the “stimulus,” the Panic might have been steeper, but it also would have been much shorter.  One only has to compare the Depression of 1920-21 with the Great Depression to see the efficacy of government non-response compared with Government intervention, and the Panic of 1907 with both to see another example of the efficacy of private response compared with Government intervention.  Of course, the Democrats knew—and know—this history, yet they acted as they did, anyway.

He tried to move the US closer to the universal health insurance taken for granted in other high-income countries. The Affordable Care Act (“Obamacare”) has added an estimated 20m adults and 3m children to the insurance rolls.

He didn’t try, he did it by Party fiat and then by Executive diktats—lots and lots of diktats.  Further, while Obamacare has provided health welfare to those adults and children, it also has thrown millions more out of their health insurance plans and denied them access to their doctors in direct—and knowing—contravention of Obama’s explicit promises that these denials would not happen.  The claim of cost growth reduction is a cynical one, also, being limited as it is to the cost of selected groups of Americans.  In fact, the cost has exploded, with premiums rising in double-digit per centages, deductibles going to 10s of thousands of dollars—an annual expense—the departure of heretofore health insurance companies from the health welfare plan “market,” and the cost to taxpayers similarly growing rapidly to pay for the subsidies of those given essentially free access to this health welfare.

Wolf’s discussion of our “jobs” recovery is misleading, also. Labor force participation rate is at historic lows, held back by those policies’ suppression of job creation.  Even the male labor force participation rate, which has been in a declining trend since its early ’50s peak, is farther below that long-term trend than it ever has been in that time frame.

Finally, this graph summarizes the efficacy of the Obama administration “recovery” as compared to post-WWII economic dislocation recoveries.

Even at the end of 2016 rate of 4.7% unemployment of 4.7%, the Obama administration’s economic policies have held back the recovery by years.

Polemics vs Reasoned Argument

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As the Congress considers import taxes as part of its general tax reform agenda, toy sellers are expressing their concern: they import most of what they sell; their products are manufactured overseas.  Import taxes are surely a thing worth discussing and debating thoroughly, whether they’re essentially cost of goods sold neutral, as Doug Holtz-Eakin argues (the dollar will rise from the tax change and economic growth, and so the dollar cost of imports will fall; the cost of goods sold will simply emphasize taxes more and import costs less), or they’re dangerously like protectionist tariffs, as others argue.

Arguments that are carefully emotion-laden while devoid of facts, though, are inappropriate.  Here’s an example from Steve Pasierb, President of the Toy Industry Association:

We are fully prepared to work productively or be a royal, boisterous, media-friendly pain in the backsides of people who would take away children’s happy birthdays, steal Christmas, and destroy quality US-based jobs.  And no one wants to have to explain to their children why Santa was put out of work.

Such Leftist “feel my pain” three-hankie argument has little credibility and less validity in the sort of reasoned discourse necessary in an economic debate.

Growing Irrelevance of the World Economic Forum

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The rising income gap and growing rifts in Western societies that led to the election of Donald Trump and the Brexit vote are the main global risks, according to a report by the World Economic Forum ahead of its annual forum in Davos next week.

Climate change and technological disruption were also listed as important risks in a survey of 750 law makers, business leaders and academics carried out by the WEF….

No, the rising income gap isn’t why President-Elect Donald Trump was elected, nor was it why Great Britain voted to go out from the European Union.  Quite the contrary: it was because those on the bottom and in the middle were being held down by the policies of the Know Betters and by the latter’s desperation for votes—votes bought and paid for by handouts that trap folks in the Know Betters’ welfare cages.  That that contributed to a rising income gap is only a side effect.  The bottom and middle class folks simply wanted their opportunity to get rich, too.

Climate change isn’t a risk at all; it’s a certainty.  The Earth is illuminated and warmed by the sun, the sun has been heating up for its entire four billion year existence, and it’ll continue to heat up for the next several billion years.  Global warming—which is what climatistas mean when they changed the name to and talk about “climate change”—is a pseudo-science whose sole industrial function is to transfer government funds to the “industry.”

Technological disruption is a good; it’s how progress and prosperity happen in a free market—and without a free market there is neither progress and prosperity nor any technological change at all.  It’s a risk, too, but it’s one that’s well understood by everyone who’s had a high school economics class.

And there’s this nonsense from Cecilia Reyes, Chief Risk Officer at Zurich Insurance Group, speaking at the gathering:

The momentous political changes in 2016 raised worries about the health of liberal democracy that has underpinned global prosperity[.]

No, the health of liberal democracy took a dramatic turn for the better, exemplified by the repudiation of the policies of eight years of the Obama administration and the Progressive-Democratic Party’s control over the Congress as a whole and then of the Senate.  That repudiation was broader than just a rejection of those policies, though: the real turn for the better was the repudiation of the increasingly authoritarian behavior of the Progressive-Democratic Party and of the Left in general.

No, the WEF is just getting a bit too far out of touch with the world.

Oil-and-Gas Industry and Tax Breaks

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Here’s another post comes from a Wall Street Journal debate/point-counterpoint piece.  This time, though, I think the question itself is too narrow, limited as it is to oil and gas subsidies.  The imbalance in the WSJ question is illustrated by this claim from President-On-The-Way-Out Barack Obama (D):

Not only has President Barack Obama repeatedly called for a repeal of much of the oil-and-gas industry’s favorable tax treatment, his budget proposal for fiscal 2017 included a new $10-a-barrel fee on oil to help fund low-carbon infrastructure projects.

Mark Perry, of the American Enterprise Institute and a Professor of Economics in the University of Michigan-Flint School of Management, made the case for continuing these tax breaks, centering his argument on using taxes to create incentives to do Government-favored things in an otherwise free market.

Tax incentives are essential for unconventional oil-and-gas production, and there would have been no shale revolution without them.

Then Perry had this remark in disparagement of those who oppose the oil-and-gas industry generally:

For climate crusaders who view oil and gas as a problem instead of the lifeblood of our economy, rejiggering the tax code is seen as a catalyst for restructuring the energy economy.

Compare that with Perry’s claim quoted just above it.  Perry wants to use exactly the same tool—the tax code—merely to do precisely the opposite.  His own contradiction is just an argument for getting the tax code out of the market place.

Ryan Alexander, President of Taxpayers for Common Sense, is on the right side of this question, but too narrowly so.

The tax breaks that Congress provides on income derived from or devoted to certain activities are designed to encourage that specific activity. But what they end up doing is distorting economic decision making and rewarding activity that would occur even without the special treatment.

But it’s not just oil and gas energy.  Low-carbon infrastructure projects and other “green”-related energy enterprises do not need subsidies, just as oil and gas enterprises do not.  If these sorts of enterprises—even industries—can’t compete on their own in a free market, they’re not ready for production or sale.  Market forces alone—including market forces that pushed $100 oil into a fracking boom—are sufficient to determine whither oil, gas, and “green” energy, and any other aspect of a free market.

No, taxes have no business being used for social engineering, or market manipulation, or managing private business decisions, or anything at all other than funding government so it can do its three constitutionally mandated tasks.