Tag Archives: political economy

Rebuilding Ramadi

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When Iraq’s prime minister holds a meeting on Monday to discuss the monumental task of rebuilding the recently liberated city of Ramadi, officials will encounter a grim pattern: each time Islamic State is uprooted, the battles and the group’s tactics leave behind a legacy of destruction that will linger for years.

They would do well to learn from Germany and Japan about how to rebuild, not only shattered cities, but shattered nations and economies. Both of those were prospering nations just a few short years after World War II.

Of course, being willing to learn and being equally willing to act on those lessons will require a serious corporate, if not national, shift in culture. And it will require an actual national foundation on which to rebuild.

Unions and Non-Member “Fees”

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This session, the Supreme Court will hear, among other cases, Friedrichs v California Teachers Association.

On Jan 11 the court will hear arguments on whether public employees can be required to join a union or pay it a fee for collective-bargaining services.

The lawsuit contends such agreements violate First Amendment protections.

The argument is that, with public service unions, such fees also are political speech, since the unions also push for this or that domestic policy with their bargaining counterpart, the government, and there’s no way to separate out the union monies spent for bargaining outcome from those spent for political lobbying.

Such “agreements” (because paying the “fees” isn’t at all a voluntarily entered into arrangement, but a condition of having the job at all) go beyond that, though. They’re also a taking under principle of the 5th Amendment. Even though that Amendment binds the government and not private entities regarding takings, it’s not too far a stretch to apply it to the quasi-government entities of public service unions. Withal, the principle is valid, even if the Amendment itself is not strictly applicable.

Arguments in favor of the “fee” proceed from a false premise, too. “Fee” proponents argue that the payments are fair compensation for the union’s work in achieving an agreement for the nonmembers as well as the members. Of course, this is false on its face. The nonmembers are not represented by the union—that’s pretty obvious. As such, then, any arrangements between nonmembers and employers are strictly that: between the employer and the nonmember. If those arrangements look like what the union bargained for its members, oh well. They’re not required to be, and sometimes they are not.

Unions in Friedrichs also make the following argument:

If the suit prevails, public-employee unions say they could be crippled in about half the states that allow such agency shop clauses.

Couple things about that argument. One is that it may well be inconvenient to the unions (even extremely so), but that isn’t relevant. Either the “fees” are owed for the claimed services rendered, or they are not. The case should be decided on its merits, not on the basis of any supposed knock-on effects.

The other thing is this: so what?

Government as Guarantor of Last Resort

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Fannie Mae and Freddie Mac are now preparing to sell bonds that supposedly indemnify us taxpayers from the results of another mortgage market melt-down.

Called Connecticut Avenue Securities by Fannie Mae and Structured Agency Credit Risk by Freddie Mac, the securities are essentially bonds whose performance is tied to that of a pool of mortgages. If the mortgages default, investors in the bonds could lose some or all of their principal.

That’s the claim. There are a number of fallacies to this. One is that Fannie and Freddie still are government controlled. Another is that the government, through the Fannie-Freddie regulator, the Federal Housing Finance Agency, has already demonstrated that it will manipulate regulations and pass along actual money to “protect” these agencies from failure.

The largest fallacy, though, is exposed by Lewis Ranieri, who co-invented mortgage-backed securities in his own assessment of this nascent Federal scam:

There’s still a question of whether [the securities sales] can be expanded to really provide the goal of making the government the guarantor of last resort.

Government as guarantor of last resort means us taxpayers aren’t protected from anything that Fannie or Freddie might take a notion to try our luck at.

In the end, though, why should government—which is to say, you and I—be the guarantor of anything in a free market other than that it is, in fact, free, with all transactions freely entered into and with each of the participants in any exchange—and no one else—owning every bit of their part of that exchange?

The Fed and Uncertainty

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In a Fox Business piece concerning the impact of future Federal Reserve Bank interest rate hikes on the stock market, this remark stands out for me.

[C]onventional wisdom holds that the more skillful Fed officials are at telegraphing their upcoming rate hikes, the less volatile markets will be once those hikes are announced.

That’s true enough as far as it goes, but the interesting bit is that the more skillful Fed officials are at telegraphing phrase.

Ordinarily, there’s no skill at all involved in making a simple, straightforward statement. One such could be we’ll raise interest rates by these increments, according to this schedule. Those milestones will be adjusted in this way by these factors that we will observe in real time.

That sort of clear, direct statement only takes skill when the speaker is a member of an organization which has institutionalized obfuscation.