Tag Archives: political economy

Employment and Interest Rates

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The US economy added 151,000 net new jobs in August, below consensus expectations for 180,000. Meanwhile, the labor force participation rate remained stable at 62.8%, as did the jobless rate at 4.9%, though it was expected to tick slightly lower to 4.8% for the month. The closely-watched U6 rate, or “underemployment” rate, which measures unemployed workers and those working part time for economic reasons, remained stuck at 9.7%.

The unemployment rate and the jobs numbers are misleading when taken out of context.  The context of importance here is the historically low labor force participation rate, from folks having given up looking for work, even though they’re perfectly viable potential employees rather than boomers who’ve retired (a number of whom actually have retired earlier than they wanted to and still would work, were there jobs).

Then there’s this, from Dan North, of Euler Hermes North America:

The most important part [of the report] is the weakness in hours and wages. That slammed the door on September [rate-hike chances].

I’ve said it before, and here I am saying it again: if the Fed wants 2% inflation, then it needs to stop chasing the market; it needs to stop focusing on jobs numbers, per se; and it needs to stop holding out for 2% inflation before it moves.  It needs to set its benchmark interest rates at levels historically consistent with 2% inflation and then sit down and watch.  Watch the economy recover, watch folks who’ve given up come back into the labor force, watch wage growth reappear, watch the labor participation rate, from that, recover to more normal levels; and watch the unemployment rate, still low, actually mean something.

And watch prosperity and productivity resume growing.

The EU and Tax Invasion

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Notice that: invasion.

EU antitrust regulators ordered Apple on Tuesday to pay up to 13 billion euros ($14.5 billion) in taxes plus interest to the Irish government after ruling that a special scheme to route profits through Ireland was illegal state aid.

The problem, in the EU’s eyes, is that Apple headquartered its European operations in Ireland, which has one of the lowest corporate tax rates in the EU (and which EU Know Betters keep hammering on the Irish to “correct” because its tax rates are, somehow, unfairly low), and then Apple funneled most of its European revenue through that Irish branch so as to pay—legally in their and Irish eyes—low taxes.

“Ireland granted illegal tax benefits to Apple, which enabled it to pay substantially less tax than other businesses over many years,” said Competition Commission Margrethe Vestager….

Ireland agrees with Apple and will appeal the EU’s demand.  As Finance Minister Michael Noonan said,

This is necessary to defend the integrity of our tax system; to provide tax certainty to business; and to challenge the encroachment of EU state aid rules into the sovereign member state competence of taxation.

Ireland is quite clear on the invasion matter.

The EU may well be on the right side of its law, but it’s on the wrong side of morality and the wrong side of economic principle.  It’s not the EU’s money.  It’s not even Ireland’s government’s money.  It’s Apple’s money, and it’s the money of the 6,000, or so, Apple employees in Ireland, which they allocate to the Irish government (not the EU governance) as taxes.  If Ireland is charging Apple a lower tax rate than continental members of the EU, the latter should compete, not run from competition by presuming to dictate to a fellow member what that member must do.

It’s also the case that the lower tax rate leaves more money in the hands of those who earned it—those Irish employees and the Apple corporation—which means those employees have more money with which to take care of their families and to spend generally and Apple has more money with which to hire employees and to engage in product development—all of which are good for the Irish economy.

How Ireland takes care of its domestic economy is of no legitimate concern to the rest of the EU, and that Apple paid all the taxes required by Ireland is just a bit of too bad for the EU Know Betters.

Pay to Play Variant

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Democratic Party Presidential candidate Hillary Clinton and her husband aren’t the only Democrats engaged in this.  Here’s a variant being employed by Democrat Attorneys General, as described in The Wall Street Journal, by Andy Koenig, a senior policy adviser at Freedom Partners Chamber of Commerce.

The administration’s multiyear campaign against the banking industry has quietly steered money to organizations and politicians who are working to ensure liberal policy and political victories at every level of government. The conduit for this funding is the Residential Mortgage-Backed Securities Working Group, a coalition of federal and state regulators and prosecutors created in 2012 to “identify, investigate, and prosecute instances of wrongdoing” in the residential mortgage-backed securities market. In conjunction with the Justice Department, the RMBS Working Group has reached multibillion-dollar settlements with essentially every major bank in America.

Three guesses where those billions of dollars are going.  The first two guesses don’t count.

Yup.

[A] substantial portion is allocated to private, nonprofit organizations drawn from a federally approved list.

These government-favored organizations include Catholic Charities, La Raza, the National Urban League, the National Community Reinvestment Coalition, and so on.  Catholic Charities is completely apolitical and entirely decent, but they’re on the list solely to give cover to the presence of the others, which are blatantly political—and have entirely pro-Liberal agendas.

[T]hese groups engage in voter registration, community organizing, and lobbying on liberal policy priorities at every level of government. They also provide grants to other liberal groups not eligible for payouts under the settlements. Thanks to the Obama administration, and the fungibility of money, the settlements’ beneficiaries can now devote hundreds of thousands or even millions of dollars to these activities.

RTWT, there’s much more.  To emphasize: those settlements are little more than vig extracted for Obama administration causes as a price of being allowed to do business.

Construction Union Vig

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In California last week, legislators and interest groups declared dead a measure…to allow certain apartments with some low-income units to sidestep the state’s environmental review process. That followed a failed effort by state lawmakers in New York earlier this year to renew a widely used tax break for rental housing in New York City….

For both measures, construction unions were key to the defeat, as they won over key allies with their argument that the government shouldn’t be aiding apartment development without also guaranteeing union-level wages.

Let’s see, low income housing, union wages.  Union wages, low income housing.

Union wages add some 20% to the cost of residential construction in California and New York.  Low income folks—who have the lowest ability to pay up; even union leadership understands that tautology—are being gouged by these unions.

That 20% is the vig low income folks must pay to have housing.  Alternatively, that 20% is the vig others must pay to subsidize low income housing.

Nice construction project you got there, really cool that it’s for the less fortunate.  Be too bad if something were to happen to it.

A Question of Cash

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Kenneth Rogoff, Thomas D. Cabot Professor of Public Policy at Harvard University and ex-Chief Economist of the IMF, thinks we should get rid of most of the cash—paper currency—we have in circulation.  Rogoff claims to not want to do away with cash altogether, but regardless of his goal, it’s clear that eliminating a particular cash instrument can only be a first step and not a last one.

[P]aper currency lies at the heart of some of today’s most intractable public-finance and monetary problems. Getting rid of most of it—that is, moving to a society where cash is used less frequently and mainly for small transactions—could be a big help.

Really?  Hmm….

There is little debate among law-enforcement agencies that paper currency, especially large notes such as the US $100 bill, facilitates crime: racketeering, extortion, money laundering, drug and human trafficking, the corruption of public officials, not to mention terrorism.

This would matter if we had a fundamentally criminal society operating in a fundamentally criminal economy.  We have, though, a nearly $18 trillion economy, and crime—crime where cash matters, which is largely limited to the categories identified above, don’t play that big a role.  This is not to say that these crime types aren’t worth worrying about, but it’s better to deal with the crimes themselves rather than manipulate our cash forms or availability.

But Rogoff gives the game away with this:

According to the Internal Revenue Service, a lot of the action is concentrated in small cash-intensive businesses, where it is difficult to verify sales and the self-reporting of income. By contrast, businesses that take payments mostly by check, bank card or electronic transfer know that it is much easier for tax authorities to catch them dissembling.

That’s the rub.  Reducing the availability of instruments for cash transactions—pushing ordinary American citizens into transaction mechanisms which Government can track—facilitates exactly that: Government tracking of the activities of American citizens, a tracking in which Government most assuredly engages, sometimes for legitimate reasons, but far too often for no better reason than that a bureaucrat has a prurient interest.  And worse, because Government dislikes particular groups of Americans and so engages in any fishing expedition it thinks it can get away with.

The upshot of restricting cash instruments, then, is that everyone gets punished for the misbehavior of the few, and worse, the power of Government to track our private doings, for any purpose at all to which a bureaucrat might take a notion, is enhanced.

How very Progressive of Rogoff.