Tag Archives: political economy

Regulatory Control and the Left

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The Treasury Secretary’s Lawyer (who else?), Antonio Weiss, has a piece on The Wall Street Journal defending the Regulatory State’s control over our financial markets.

He opened it with a strawman.

Some say regulation has killed it, and the answer is to roll back financial reform.

A carefully unnamed “some” in his strawman. He’ll have to play with his dolly without this writer. There is, too, his false assumption in that claim: rolling back financial reform assumes there’s been reform to roll back. There certainly has been a potful of added regulation to our financial markets, all spurred by the Democrats’ Dodd-Frank bill. The bill that created a wholly unaccountable—not even through Congress’ control of purse strings—panel, the CFPB, that decides how financial institutions must behave, even to the point of deciding what business counts as a financial institution that must accept the panel’s decrees.

There’s no reform there. Only the deformation of our free market economy.

And there’s this bit:

The marketplace is rapidly evolving. We must address future challenges without rekindling crises of the past.

Because, gotta have a regulation. After all,

However, market participants report difficulty in executing large orders across various asset classes. And there are concerns over whether the growing ownership of corporate bonds by mutual funds could overwhelm market capacity if there were a sudden wave of redemptions. Moreover, the “flash rally” last Oct 15 in US Treasurys, our deepest and most liquid market, saw yields drop dramatically and snap back within minutes, with no clear catalyst.

Can’t let a free market, a market uncontrolled by Know Betters, find its own solutions to the market niche of asset-class-spanning orders, a niche that couldn’t exist before technology (with the Know Betters have demonstrated they have no capability of managing—see the IRS’ computer “upgrade,” or the security of American’s personal records in the not-so-safekeeping of the OPM) made such a thing possible, much less useful. Can’t let those evil mutual funds—Big Wall Street Business, don’t you know—manage their own finances. No, our Know Betters, who have shown they can’t manage a government budget have to do that. Can’t have an error in software go unpunished by Know Better Regulation rather than leaving it to actual experts and businessmen whose interests lie in prompt correction of such glitches.

The Left, the party of Hillary Clinton, Barack Obama, Woodrow Wilson, and Herb Croly, just can’t conceive of Americans getting by without a Federal Regulation to tell us what to do. No matter how foolish the Left’s Regulation.

A Misunderstanding

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Or a non sequitur. A recent Wall Street Journal editorial was headlined thusly: Should There Be a Tax on Soda and Other Sugary Drinks? The subhead had this: Supporters say it is an effective way to cut obesity. Critics say the health benefits are far less than claimed.

The piece then proceeded to a debate between Kelly Brownell, Dean and Robert L Flowers Professor of Public Policy at Duke University’s Sanford School of Public Policy, and William Shughart II, J Fish Smith Professor in Public Choice at Utah State University’s Jon M Huntsman School of Business, among other titles.

Both entirely missed fundamental point. The answer to the headline question can only be a resounding “No.” The debate was a waste of bandwidth and of newsprint and ink because it doesn’t matter whether taxing sodas is an effective way of curbing obesity.

As James Madison once said in the Third Congress about a related subject,

Mr Madison wished to relieve the sufferers, but was afraid of establishing a dangerous precedent, which might hereafter be perverted to the countenance of purposes very different from those of charity. He acknowledged, for his own part, that he could not undertake to lay his finger on that article in the Federal Constitution which granted a right of Congress of expending, on objects of benevolence, the money of their constituents.

Charity of one sort, or charity of another sort, or simply the Federal government presuming to pressure us toward government’s definition of society, it’s all the same. And so it is with taxing as well as spending. Our tax code, in no way shape or form, should be used to conduct social engineering. Full stop.

Some Economics Numbers

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…from the Tax Foundation, via AEIdeas. First this graph (right-click on it to get a bigger, more readable version):TaxMap_100-Map

The figures are regional price parities of $100 for each of the 50 states, where the national average price is taken as 100. In other words, whereas on average across the whole country, $100 would buy $100 worth of goods, in California those $100 would buy only $89 and change, in Arkansas those $100 would buy a bit over $114 worth of the same goods. The bulk of the differences across the US was driven by relative housing costs: California’s housing, for instance, costs one-third more than the national average while Arkansas’ housing is one-third cheaper.

Mark Perry expanded on these data in his article at the AEIdeas link above, and adjusted per-capita personal income for differences in personal taxes and those price levels. California, based solely on income, ranked 12th in the nation at $48.5k per person. After adjusting for California’s tax bite and pricing, though, the value of a California’s average citizen fell to just $34.8k, dropping California to 37th in the nation the value of that nominal income.

Arkansas, on the other hand, started out 43rd in unadjusted income, with a citizen getting $36.7k. After tax and price level adjustment, though, the state rose to 31st, with that income becoming $35.5k.

There’s something to be said for cost of living and taxes in determining where actual prosperity resides.

Welcome to the World at the Top

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This Wall Street Journal article‘s subhead says it all; the article itself just fleshes out the theme.

The Continent’s most powerful country is grappling with its leadership role—and other nations are, too[.]

Welcome to our world. When you’re on top of the heap others are going to be…jealous.

Haters gonna hate.

Pick One

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The PRC’s stock market, such as it is, is continuing to fall, despite the government’s best efforts to intervene. And intervene they must because, as AEI scholar Derek Scissors put it in an interview posted on AEIdeas,

The Chinese government is reacting as if stocks crashing when it doesn’t want them to crash is a personal affront….

Well, alrighty then. And so, of course,

Early Wednesday, the Chinese authorities rushed out another raft of emergency measures to halt what is turning into a crisis of confidence in leaders’ ability to steer the economy.

They didn’t work, either. But the effort is just foolish. It’s possible to have a free market, a vibrant stock market, or a government-run market, but not both.

Let the market run and run its course. The outcome will be better educated, more cautious private investors, especially among the retail investors—guys like Xi from the farm—investors who will act with less irrational exuberance. Continued government interference will only serve to protect the citizenry from themselves, which is to say it will not protect them at all by denying them the opportunity to learn this lesson.

But, of course, the denizens of the Chinese Communist Party Know Better.

Update: Today, the Shanghai Index rose some 200 points, fueled in no small measure by government entities buying stocks and the government’s criminalizing short-selling.  In addition, trading in half the stocks in the Index remain suspended, by the decisions of the companies involved.  How much government persuasion was involved in those decisions is unknown.

We’ll see over the coming days whether these measures have durable effect or if today is an aberration in a continued slide.