Tag Archives: political economy

Maybe That’s The Point

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Banks are urging some of their largest customers in the US to take their cash elsewhere or be slapped with fees, citing new regulations that make it onerous for them to hold certain deposits.

The banks, including JP Morgan Chase & Co, Citigroup Inc, HSBC Holdings PLC, Deutsche Bank AG, and Bank of America Corp, have spoken privately with clients in recent months to tell them that the new regulations are making some deposits less profitable

And

The change upends one of the cornerstones of banking, in which deposits have been seen as one of the industry’s most attractive forms of funding….

“Loanable funds.” That’s what those deposits are called in economist circles. The funding in question is a major source of the monies that banks lend on to other customers for the latters’ investment goals—investment in things like capital plant improvement (new factories, new equipment to put in existing or new factories, computers for a company’s IT infrastructure or for employee productivity improvements), R&D, even short term to make payroll until payments for booked sales arrive.

The regulations in question here are intended to make our banking system “safer,” but this is a holdover from the government’s (read: regulators and remaining politicians) stinking…panic…over the Panic of 2008.

And as is usually the case with (especially big) government intrusions into our marketplace, there are unintended consequences.

Or maybe these aren’t so unintended. Recall that, for all the cover “panic” provides for suboptimal behavior, these are extremely intelligent men and women. It’s hard to believe they couldn’t predict these consequences: it’s Econ 101 that if you raise the price of something, you’ll get fewer buyers for it.

Also, keep in mind that the private sector competes with government in the marketplace.

Finally, keep in mind that fundamental tenet of the Democratic Party, the dominant party in American politics during the era when this sort of regulation was proselytized and expanded: Americans are stupid, and it’s OK to lie to us. For our greater good at the hands of our Betters. A step in this is to bring our financial system, beginning with our banks, to heel.

More Thoughts on European Taxation

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This time British Prime Minister David Cameron (he of the possible immigration awakening) and British Chancellor George Osborne have them. They’re touting a

diverted-profits tax, would hit multinational companies with a 25% tax rate on any profits earned from activity in Britain that the company attributes to a subsidiary based in a lower-tax jurisdiction. Since the rate is higher than Britain’s normal 21% corporate tax rate, Mr Osborne clearly is hoping companies will stop so-called revenue shifting and pay regular taxes instead.

As The Wall Street Journal put it in their op-ed at the link above,

[i]t’s a strange move because not so long ago the Tories understood the stimulative power of tax cuts. Messrs Cameron and Osborne have cut the top corporate tax rate to 21% from 28%, and have reduced personal income-tax rates and adjusted the tax brackets so that fewer earners pay the higher rates. By keeping more cash in the productive private economy and improving incentives for saving, investment and work, these moves have contributed to a growth rate now expected to hit 3% for this year.

The WSJ claims mystification over the “Google tax,” the nom de guerre of diverted profits tax, but they misapprehend the…thinking…of Messrs Cameron and Osborne. If fact, those fine gentlemen are operating from the false premise that corporate profits actually are the government’s money in the first place, and/or from that premise’s close associate, that the government needs that money.

Thoughts on European Inflation and Tax Policy

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Michael Heise, Chief Economist at Allianz SE, had some in his op-ed in The Wall Street Journal, but I want to focus on just a couple, for the mindset implied as he—and Europe’s politicians—address inflation and tax policy.

They [tax and ultralow-interest rate policies] encourage risk taking among investors searching for yield, potentially leading to malinvestment. They affect the distribution of income and wealth between the less affluent, who are most affected by low returns on bank deposits, and the wealthier, who tend to benefit most from rising share prices. Finally, perhaps most important, ultralow interest rates discourage savings for retirement and slow down the growth of existing pension assets.

“Ultralow rates encourage risk taking.” Yeah? And? That’s a business decision; no government need be—no government should be—involved in that. A free market will do a far better, far more efficient, with far prompter sanction application job of regulating risk taking businesses.

“Affect the distribution of income and wealth.” Yeah? And? To the extent such distributions can ever be bad, a free market is the best way to raise the prosperity of the least, and if the wealthy get wealthier, so what? The poor still are less poor. No government mandates or regulations can hope to match the prosperity creation that is freedom in the market.

“Ultralow interest rates discourage savings for….” This is true, and the ECB’s decision to artificially depress interest rates is negligently harmful to the poor, the retired, and those trying to save for retirement. Further, ECB and sovereign nation interferences in the market for debt instruments is purely political, and so it’s wholly unpredictable (who can tell when a politician will decide it’s in his interest to do something different?). That unpredictability seriously damages the ability of anyone to save for their future.

Tax policy shouldn’t be used for social engineering; optimally, it should be used only to fund basic government. The free market is a better place—more efficient, and faster acting—than government from which to regulate interest rates and risk. Even in social democrat Europe.

All Right Now

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…or nothing at all, ever. That’s the attitude of the Democratic Party in today’s Congress and of the farther right of the Republican Party in today’s Congress. It’s enough to paralyze Congress and keep it from doing much of anything—and to hand Congress back to the Democrats, which may explain some of their attitude.

I’ve argued before that gridlock isn’t, of necessity, a bad thing, but there are a few things Congress does need to accomplish.

A short, partial list includes

  • funding the legitimate tasks of government, those enumerated in Art I, Sect 8 of our Constitution
  • reforming taxes, which would have the side effect of paring back—significantly—an IRS that thinks it’s outside (not merely above) the law
  • reforming immigration
  • privatizing Social Security and Medicare, and getting rid of the Federal contributions to Medicaid

But none of this can be—nor should it be (Obamacare, anyone? Dodd-Frank?)—done all at once. Easy steps, compromises, that bring us incrementally into that reduced government place we should occupy—and will ultimately get us there.

But to get there, we need to take steps, one after another, not hold out for single leaps that cannot occur.

Questions Republicans Should Be Asking

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Homeland Security Secretary Jeh Johnson testified before the House Homeland Security Committee earlier in the week on, among other things, the subject of immigration. Johnson, by the way, also is a fully licensed and accredited lawyer as well as a politically appointed politician.

A reader wrote to Power Line with some questions for Johnson and others. [emphasis added]

So Jeh says with a smug knowing wink-and-nod “just go to any restaurant here is DC” to see illegal aliens working “under the table.” So is he saying that the employers in DC fill jobs now with illegal aliens? That he knows and the employers know that they are openly, brazenly breaking our immigration and labor laws? So why isn’t he for enforcing our democratically enacted laws? Isn’t he sworn to do so? Isn’t he an attorney? Why isn’t he advocating against the state of affairs that he implies obtains? Why is he advocating open non-feasance of his duty to enforce the laws?

It’s especially rich when he talks about their “coming out of the shadows and STARTING to pay taxes”. Got that? He knows that there are thousands of illegal immigrants and their employers—let’s not forget these scofflaws—who are not paying taxes! OK…so why isn’t he going after them?….for criminal tax evasion?….instead they’re explicitly offering something way beyond amnesty of tax evasion—and a deal that American citizens normally would never get.

Usually a tax amnesty is the government’s waiving the assessed fines, penalties and interest accrued from failure to pay taxes in full and on time—but you still have to pay the actual taxes owed. So the illegal immigrants who have not paid taxes—payroll taxes, most likely since their incomes are low—not only get a tax “amnesty”, i.e., forbearance of fines, interest and penalties—they get outright forgiveness of the actual taxes owed! It is a better deal than any citizen would get if guilty of evading income or payroll taxes. Furthermore it is outright forgiveness for the EMPLOYER’s share of arrears payroll taxes as well…even IF they knowingly hired illegals and failed to pay taxes, it’s outright forgiven.

Republicans should be asking President Barack Obama, Johnson, Democrats generally, and quite a few of their own these questions loudly: in House—and Senate, starting in January—hearings; in townhalls and neighborhoods, especially the rural and poorer ones where unemployment is high and endemic; in newspaper, radio, and television interviews; in letters to the editor.

There are lots of ways to encourage immigration into our country, and we should; we benefit greatly from that immigration. The present way isn’t one of them; on the contrary, it’s highly destructive of our nation.

 

h/t Power Line