Tag Archives: political economy

More Overregulation

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More fallout from Dodd-Frank: these regulators now are about to promulgate a rule set that requires companies to sequester bonuses paid to their executives for some period of years before those execs can collect their bonuses.

Aside from interfering with decisions that are wholly internal to a business and so none of the government’s business, there are other problems with this set.  This rule set will

govern pay to risk-taking executives who are in a position to do material damage to their companies.

In addition to extending the deferral window, regulators want to broaden the pool of bank employees subject to the new rules by expanding the definition of risk taker to include factors like the amount of money an employee handles.

Never mind that risk is part of business, and there already are Federal, and State, laws extant that deal with both fraud negligence in this area.  Never mind that shareholder suits, or the threat of them, also already exist as a market mechanism for adequately managing risk-taking.

There’s also this:

…how to balance risk with reward in compensation arrangements that will apply to a cross section of banks, investment advisers, broker dealers, credit unions and executives at mortgage-finance companies Fannie Mae and Freddie Mac.  …

“Trying to come up with a rule that can be uniformly applied to a set of highly diverse players in the financial-services industry was always just going to be very difficult,” said Kyoko Lin, a partner at law firm Davis Polk & Wardwell LLP.

Well, NSS.  This is yet another reason government has no business meddling in the market place.

Centrally Planned Micromanagement

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Now the People’s Republic of China government is concerning itself with the names the Chinese citizenry give to their streets, businesses, and the very places where they live.  The government has

announced a new move to “stem irregularities in naming the country’s roads, bridges, buildings, and residential compounds,” according to China’s official Xinhua News Agency.

Li Liguo, China’s Minister of Civil Affairs, said that the move will target “exaggerated, foreign, bizarre and repetitive” names, as well as those that cause inconvenience to citizens….

After all, the citizens—the ones applying these names—can’t be allowed to inconvenience themselves.

Worse, such names

damage sovereignty and national dignity, are against socialist core values, deviate from public order and good morals, and raise strong concerns from the public[.]

Or at least the Government’s criteria for these things.

Because the government hasn’t intruded far enough.  Or else a surprising number of PRC bureaucrats are overpaid and underemployed.

Slippage

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[A]s the central banks become more desperate to boost inflation and growth, they are starting to break one of the modern tenets of the profession by funneling that cash directly to what they regard as “good” uses.
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The Bank of Japan’s conditions for companies to qualify for exchange-traded funds it would like to buy sound like they come from a well-meaning government minister….  Companies could qualify by offering an “improving working environment, providing child-care support, or expanding employee-training programs.”

And

Consider the ECB.  It plans to pay banks to borrow from it for up to four years so long as they use the money to help the “real” economy

rather than use the money for explicitly, specifically sound business reasons.  With the “help” and the “real economy” bits defined by the Central Planner Bank.

However, as James Mackintosh put it in his Wall Street Journal article at the link,

All these are eminently reasonable things to demand of companies, especially Japanese firms. All would probably be good for the economy, too.

However, they have nothing to do with monetary policy.  The basic aim of central banks is to adjust the overall economy while leaving the market and government to decide the best use of capital, decisions that are inherently political.

To paraphrase a man from a different venue, the way to combat inflation is to combat inflation.  Set the benchmark interest rates at levels historically consistent with the Fed’s target inflation rate, and then leave them alone.  Let the free market fluctuate around them as it will: the market—the invisible hand—knows best what the appropriate allocation of resources is; neither any central bank nor any other central planner can ever know that.

Spendthrifting Forever

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Or is it just narcissism?

President Obama sought to increase the amount of money available for the federal government to spend on former presidents in advance of his White House exit.

In his budget requests for fiscal years 2016 and 2017, Obama proposed hikes in the appropriations for expenditures of former presidents….

To the tune of a $600,000 increase—18%—in this spending.  No doubt the job of President is stressful; one has only to look at how much the last two—Bush the Younger and Obama, both relatively young men on their first election—aged over their mere eight years in office.  But none of this increase, nor any of the baseline of roughly $3.2 million, is intended to cover health related costs.  No, the money is intended for life style, protection details, libraries, and the like.

Notice, too that no existing ex-President has asked for an increase in such monies, not Jimmie Carter with his health problems, not Bush the Elder and his age-related health problems, not Bill Clinton, not Bush the Younger.  Only Obama wants more money, and he’s not even ex yet, just preparing to be.

Hmm….

Low Interest Rates

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I’ve written before about the costs of the Fed’s artificially suppressed interest rates.

Here’s another cost.

Life-insurance companies are scouring their policies to identify ways to raise rates and fees and lower the amount of interest they have to pay on savings products as low interest rates cut into their profits.

The bottom line for policyholders is they have to pay up or relinquish benefits.

The main culprit: the Federal Reserve’s seven-year-old campaign to boost the economy. Life insurers earn much of their profit by investing customers’ premiums in bonds until claims come due. They have typically favored high-quality, long-term corporate bonds to meet regulatory requirements to back their obligations with safe investments. As the Fed began driving down rates in 2008 to rescue the economy from a global meltdown, the yield on corporate bonds has tumbled.

It isn’t just widows and orphans, and anyone else forced by circumstance into fixed-income devices for their money who are harmed by the Fed’s interest rate suppression; it’s everyone.

A concrete example is a retired school teacher who’s a long-term care policy holder.  Because of the Fed’s shenanigans, her insurer had to offer her, consistent with the above cite, a lower payout in return for keeping her annual premium fixed at $4,000.  Those $4k might seem like a lot or a little, but here’s how an interest rate regime might impact that premium.

In the first place, a market interest rate regime, instead of the Fed’s suppressed rates, likely would have let the insurer leave the terms of this policy holder’s contract intact.

In the second place, a market rate of return for the policy holder’s savings/investment money—let’s say she could get 5% in a free market—would require a savings size of just $80,000 to throw off enough income to cover her premium.  At today’s deliberately low rate of around 2%, she needs savings of $250,000 to get the income to cover her premium.

It’s time for the Fed to get out of the way of the market and to return to its knitting: maintaining price stability—a steady inflation rate—and full employment (which it doesn’t need to do directly, as that falls out of a steady inflation rate).  And that steady inflation rate itself demands the Fed at least rraise its benchmark rates to levels consistent with its own target of 2% inflation.