Tag Archives: political economy

A Good Thing about Price Wars

Posted on by
Reply

…on the geopolitical stage.  Dan Strumpf and Jenny Hsu talked about a broader question in their piece in The Wall Street Journal; I want to focus on one aspect of it.

Stiffening competition from countries such as Russia and Iran is threatening Saudi Arabia’s longtime hold over markets including China, Japan, and India.

It’s certainly true that stiffening competition is threatening Saudi Arabia’s longtime hold over market pricing; however a hold over markets is quite another oil well.  Saudi Arabia has held throughout this supply explosion’s depressing effect on oil prices that it’s not going to reduce production rates and sacrifice its market share—its hold on markets—on the altar of pricing.  Furthermore, the kingdom’s replacement of its aging market share hawk with a younger market share hawk would seem to indicate a continuation of the Saudis’ position that they will do what they need to do to preserver that share (and that hold).

So, what does competition do, particularly with regard to oil-hungry customers like the PRC, Japan, and India?

It generates a price war.  Don’t look for oil prices to rise significantly above current levels (OK, maybe they’ll go as high as $60-ish).

Russia and Iran can’t afford those prices; their budgets can’t hack them.  Saudi Arabia can, for quite some time, yet.  That alone makes this particular price war attractive.

Ballistic Missile Defense—Who Needs It?

Posted on by
Reply

No one, according to George Friedman in Geopolitical Futures.  The US has installed and brought on line a ballistic missile defense system site in Romania, but Friedman evidently misunderstands the purpose and the need.

The system is designed to block one or a few (the precise number is likely unknown) missiles targeted toward a large area.  This would be ineffective against Russia, should it wish to launch a nuclear strike against Europe, because the system would be easily saturated by a relatively small number of missiles….

Maybe yes, maybe no.  Russia has already threatened Poland with nuclear attack, and it has already attacked the Baltics with cyber weapons—a useful prelude to a nuclear strike.  It wouldn’t take many missiles to destroy those nations, and even fewer to crush them into surrender.  A BMD system enormously complicates such an attack.

The problem with this is that it is unclear why a country with relatively few missiles would launch a strike at all, and totally unclear why their target would be Europe.

This is his biggest misunderstanding.  He can’t posit a rational reason for a country launching a nuclear strike against a nuclear power, therefor there cannot be a rational reason.  But he’s mistakenly applying his logic system—a typically Western logic system—to an enemy nuclear capable nation that doesn’t subscribe to our rules of logic.

It is always posited that the current enemy doesn’t value human life as we do.  Thus, Iran and North Korea might launch attacks.  Kim Jong Un is clearly enjoying playing God too much to spoil that.  In Iran, the sheer corruption is comforting.  People who love accumulating money are rarely suicidal. The madman theory doesn’t work.

Actually, Iran’s leadership does value human life—they just value the end game differently than we do: the path to Heaven is through martyrdom in this life, and what greater martyrdom than to die for Allah?  Iran’s sheer corruption is at a level below the mullahs.  The mullahs are the ones who will make the decision to strike, not any of those alleged corrupt persons.

Baby Kim does like playing God.  What better way to do that than to visit god-like death and destruction on his enemies?  It may be that he hasn’t yet because he hasn’t yet reliable enough delivery means.

A nuclear attack would be terrible, and however unlikely, it is a threat that must be negated.  …  [However] Ballistic missile defense addresses an apocalypse for which even great novelists could not imagine a convincing origin.  …  The money spent on BMD should have been spent on far more probable threats.

Because gun-free zones are so useful in defending against those with guns.  And there’s that need, again, for a specifically Western rationale for a nuclear attack.

His madman theory is a straw man, offered out of lack of understanding of the new reality.  Friedman may be willing to bet millions of lives on his version of rationality.  I’m glad of the BMD installation; we need to spend the bucks to install more such sites around the world.

Wealth Redistribution

Posted on by
Reply

Now it’s threatening to spread to our education institutions.

Lawmakers have a new solution for the high cost of college: make the wealthiest universities pay for it.

Of course.  Because competition among colleges to bring down costs, or reducing Federal funding for them under [pick an excuse] programs to reduce the non-student population money available to drive up costs just can’t be done.  Too many special interests would be perturbed by such a thing.

Elite US schools have grown richer since the 2008 financial crisis by investing their endowment money in everything from California vineyards to Chinese startups.  State and federal policy makers now want to tax those profits….

Gotta punish that success.  How dare these institutions accrue moneys without a government’s faretheewell?

…or force the wealthiest schools to spend down their endowments—to defray soaring student bills and refill depleted higher-education budgets.

Which governments could do easily by not sending so much taxpayer dollars to these schools.  But…special interests.

Interestingly, Republicans are in on this move.

Congressman Tom Reed (R, NY)…floated a plan late last year that would require endowments bigger than $1 billion to pay out a quarter of their earnings in grants to working-class families or face steep penalties or even the loss of their tax-exempt status.

It isn’t Government’s place to tell these schools—or any other institution—how to spend its money.  It is Government’s place to not send taxpayer dollars to these schools—or to any other institution.

No wonder Conservatives are so angrified.

An Arms Race

Posted on by
Reply

And we should welcome it.

Russia is creating three new divisions to counter the North Atlantic Treaty Organization’s planned expansion along its eastern flank, Defense Minister Sergei Shoigu said Wednesday, in a move that comes amid rising tensions in the region.

Moscow has threatened it will respond to NATO plans to boost its troops’ presence along its border with Russia.  Western officials said last week the alliance will send four battalions—about 4,000 troops—to Poland and the ex-Soviet Baltic countries.

These three divisions are being created, in part, by adding men and equipment, and they’re being created, in part, by reassigning men and equipment from existing units.  It’s the latter that’s instructive.

With the Russian economy in shambles—among other shortfalls, it needs oil priced above $100, remember, the ruble still is in the tank, and inflation remains high and growing—it can ill-afford the expansion on which it’s embarking.  In addition to these “new” divisions, Russia is spending its money on modernizing its military, developing and deploying nuclear weapons near the Baltics and Poland (since before it began creating these three divisions), supporting its occupation forces in Georgia and Ukraine, and on and on.  Although Russia certainly can sustain its buildup for a time, it can’t go on indefinitely.

We should welcome this arms race.  We should accelerate our technological developments and production.  We should answer those three divisions with further deployments into eastern Europe, with an expansion of our Baltic fleet (which we should move deeper into the eastern reaches of the Baltic Sea), and with arms transfers and sales to Ukraine and Georgia.  Every buildup by Russia should be answered with a bigger, more technologically capable one by us.

The Soviet Union couldn’t sustain its arms race; neither can Russia.  It will take an administration different from the current one or its potential Progressive-Democratic successor to engage, though.

Federal Bailout “Prevention”

Posted on by
Reply

Asset managers such as Pacific Investment Management Co look set to lose hard-fought protections against the cost of a bank failure, when the Federal Reserve on Tuesday proposes yet another rule aimed at preventing taxpayer bailouts for financial firms.

How disingenuous does this sort of administration get?  No rules are needed to prevent taxpayer bailouts for financial firms, or any other enterprise, government (Fannie Mae or Freddie Mac, for instance) or private.  There’s no need for preventing what ought not exist in the first place; there’s only need for firing politicians and bureaucrats who keep trying for taxpayer bailouts.