Tag Archives: political economy

Federal Green Expenditures

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Watts Up With That has some ideas for budget cutting in the next administration.  Or, actually, these ideas come from Salon (!) via WUWT (never mind that cutting isn’t what Salon meant).

  • Energy Department

2017 climate-related budget: $8.5 billion

  • Interior Department

2017 climate-related budget: $1.1 billion

  • State Department

2017 climate-related budget: $984 million

  • NASA

2017 climate-related budget: $1.9 billion

  • Environmental Protection Agency

2017 climate-related budget: $1.1 billion

  • National Oceanic and Atmospheric Administration

2017 climate-related research and development: $190 million

That works out to $13.8 billion of “useless waste.”  Yes, indeedy.

While we’re about it, let’s cut the “green” subsidies, too.  Every single one of them.  The fossil fuel (coal, oil, and gas) enterprises don’t need the $3-$5 billion (depending on who gets asked) in subsidies they get, either.  That’s yet more budget cutting.19+, although fossil fuels get much less than the “green” money being tossed down rat holes.

Times to Invest in the Market

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My personal stock market investing mantra has always gone like this: “The best time to invest was yesterday; the second best time is today; the worst time is tomorrow.”  I decided to take check that and see how accurate it might be, so I built a simple Microsoft Excel® spreadsheet to take a back of the envelope look.

I looked at a few scenarios over a 30-year investment period, each of which consisted of a single $10,000 investment done in Year 1 that then grew at 3%/yr for 29 (or 30) of those years.  In one of those scenarios, the investment simply grew at those 3%/yr.  In the other scenarios, the investment would spike upward by 20% in the first year, in the last year, or in the middle of the sequence; or the investment would spike downward by 20% in those three selected years.  It’s important to note, too, that since I’m comparing these three scenarios with each other to look at the underlying principle, it doesn’t matter whether those 3% are nominal, real, or compared to this or that stock market index.

The bottom line is this: the 20% spike up or down makes a significant difference in the final value of the investment.  That final value becomes $24,300 if the investment grows without the spike, rises to $28,300 with a spike up, and falls to $18,900 with the spike down.

That seems to make my mantra useless, until we look at the effect of when the spike occurs.  That difference is zero.  It doesn’t matter whether the spike occurs at the start of the investing period, at the end, or in the middle; the end values are all the same: $28,300 with a spike up and $18,900 with the spike down.

My bottom line: unless I can time the market with considerable specificity, I stick with my mantra and simply enjoy the spike or ride it out.

My spreadsheet, which unrolls this year by year, is here.

Note: use this at your own risk.  I’m not a licensed investment (or any other type of) advice giver, nor do I play one on the radio.

Systemic Importance and Institutions

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Minneapolis Federal Reserve President Neel Kashkari is on the right track, but he’s not there yet.  He’s one of a very small number of financial regulators (of any sort of regulator, come to that) who has the self-assurance and intellectual honesty to say, and to mean, things like

I start with the assumption that regulators are going to miss the next crisis.  We’re going to miss it.

He’s got a solution to that, too, but it’s only a partial solution, and that incompleteness stems from a fundamental lack of understanding.

The lesson he drew [from the Panic of 2008] is that if you want to reduce the risk that taxpayers will have to finance another rescue, financial giants need to be much better fortified before the next panic hits.

This is a start (we can argue with specific levels of fortification, of capital reserves, that are suitable, but the principle is sound), but he needs also to recognize the other side of this cash coin: businesses, including banks and systemically important institutions, need to be allowed to fail without taxpayer monies.  We have a perfectly fine bankruptcy system that works admirably well.

But the lack of understanding that regulators have of their capabilities, even with Kashkari’s degree of understanding as a start, makes much of that two-part solution less than fully relevant.  The lack of understanding is this: if the regulators can’t predict the next financial (or any other) crisis, if they can’t characterize what it will look like, on what basis do they presume to be able to predict the institutions that are/will be important to those crisis systems?

Free Trade

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Specific trade deals might be good or bad, but that’s specific to the deal; such efficacies don’t say much of anything about free trade or free trade deals in general.  There are, in fact, two primary reasons for encouraging free trade, zones of free trade, and the deals that enhance free trade and generate free trade zones.  One reason is the economic benefits for the partners of the free trade deals, including lower costs—and so downward pressure on price inflation—for the citizens of the nations involved, and net (if small) job creation, which stems from those lower costs and domestic companies benefiting from the increased demand that flows from those lower costs.  It’s true that particular jobs disappear as production moves to lower cost areas (and that’s true for entirely domestic regions, too), but other jobs get created as other businesses crop up to take advantage of production shifts.

The other reason, though, and the reason that’s the emphasis of this piece, is free trade and free trade zones as instruments of foreign policy.  There are lots of ways free trade operates here, ranging from enhancing relationships among the members of the free trade arrangement to demonstrating the economic benefits of free markets to potentiating the freedoms associated with free markets to countering the influence of our enemies.

The Trans-Pacific Partnership pending deal and the People’s Republic of China’s responses present an example of that last.  The TPP initially involved a dozen nations rimming the Pacific including the US, Canada, Chile, and Peru on the eastern side and, importantly, including Japan and many of the nations surrounding the South China Sea.  Recall that the PRC has seized and is actively occupying the South China Sea and is attempting to seize the East China Sea; these aggressions are at the direct expense of those South China Sea nations and of Japan.  Aside from the naked grab aspect, the PRC’s behavior is aimed at harming American interests in the Pacific through those harms to our friends, allies, and potential allies, the aggressions are aimed directly at those nations: to subordinate them economically, and then politically, to the PRC.  Keep in mind that 30% of the world’s seaborne trade goes through that South China Sea, including more than $1 trillion of trade bound for us, with the bulk of the rest not going to the PRC being critical to the economies of those rimming nations and Japan.

The TPP by design did not include the PRC.  The failure of the TPP is being filled by a PRC-led trade pact in the offing in conjunction with its in-progress Regional Comprehensive Economic Partnership.  But neither this new trade pact nor the RCEP are agreements among trade equals.  The members of these deals will be required to toe the PRC line regarding censorship, intellectual property rights, cyber security, so on.

And

In the next five years, China will import $8 trillion of goods and invest $750 billion abroad, [PRC President Xi Xinping] said.

Those are $8 trillion of goods—and services—that could be going to members of the TPP and to us rather than to the PRC.  Further, that trade imbalance—to the extent that President-elect is correct about trade imbalances—constitutes a lever that could be used to…encourage…the PRC to withdraw from its occupation and attempted occupation of those two Seas.  Frankly, I don’t think Trump is right on trade imbalances, per se, but the economic isolation of the PRC possible from those numbers, to the extent Xi believes it, still represents a long lever.

Japan has gone ahead and ratified the TPP, and other members of the pending pact should do so, as well.  This would not only work to the mutual prosperity of the ratifiying nations, it could serve as a strong economic check to an aggressively expansionist PRC.  The economic integration potentiated by the TPP would enhance the region’s own leverage against the acquisitiveness of the PRC by making them, as a group even without us, much closer to the PRC’s equal in economic power and leverage.  Details of the deal may well want improvement, but that should be for Round Two of the negotiations while the deal’s effectivity and weaknesses are observed empirically.

The containment of the PRC makes the deal as it stands worth it.  Especially with a Round Two.

A Minimum Wage Mandate Demonstration

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McDonald’s, which already has ordering stations—kiosks at its restaurant tables from which diners can order their meals and have them delivered to them—at some 500 of its restaurants in Florida, New York, and California.  The Daily Caller, citing CNN Money, says more of these kiosks are scheduled to be added, next year, in McDonald’s restaurants in Chicago, Boston, San Francisco, Seattle, and DC.

Governor Andrew Cuomo (D) signed into law a new $15 minimum wage for New York State in 2016, and the University of California has proposed to pay its low-wage employees $15. Florida’s minimum wage will rise I January 2017. Seattle raised its minimum wage to $15 in 2014, followed by San Francisco and Los Angeles.

Notice that.  The additional kiosks are going into areas that have raised (Chicago and Boston in addition to San Fran and Seattle) or will raise soon their required minimum wage, instead of letting that be an item of negotiation between free workers and free employers.  It doesn’t cost $15 to operate one of these kiosks for an hour.  Even given the up-front costs of acquiring and installing the kiosks, their life cycle costs are much less than those of a $15/hr unskilled order-taking worker doing unskilled work, given the worker’s training (even if minimal) and high turnover rate costs.

Which is what the Left has known all along, because serious economists have been telling these Know Betters about these outcomes right along.  The Left’s policies are actively destructive of the prospects for those the Left claims it’s aiming to help, but those of the Left would rather virtue signal and feel good about themselves than do actual good for others.

Aparna Mathur, Resident Scholar for Economic Policy at the American Enterprise Institute [emphasis added]:

We know that we don’t really need someone to take an order…and we will eventually have machines do it. It is risky to fight for something that could put you out of work[.]

There’s an understatement.

 

H/t AEIdeas