Tag Archives: political economy

Another Reason to Reduce Financial Support for the IMF

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[T]he [IMF] said there is significant slack in the [US] economy and authorities must do more to stimulate growth in the near term. At the same time, Washington must cut spending and raise revenue in the long term to avoid public debt overwhelming the country’s finances.

The best option is for the government to boost spending, notably on infrastructure, the IMF said.

This is a clear misunderstanding of the role of government in a free nation’s free market economy—by folks who should know better. Hence the need to reduce support: these folks are merely squandering what they have.

No, Washington must not “do more to stimulate growth” in the private sector, other than by reducing its enormous boot print and getting out of the way of our economy.

No, Washington must not “raise revenue in the long term” except by getting out of the way of our economy and letting its growth and increased and increasing health generate more revenues for government through increased and increasing economic activity. Here, I’m eliding the premise that Washington actually needs revenue increases.

No, Washington does not need to “boost spending.” As the IMF pretended to notice just above, Washington must cut spending. In fact, Washington must cut spending to below actual revenues and quit crowding out the private sector and private enterprise.

Full stop.

Our Economic Future

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James Pethokoukis, at AEIdeas, has some thoughts. Oddly, so do I.

Pethokoukis first. He paraphrases Binyamin Appelbaum in New York Times:

…economist accept slower growth is partly the result of long-term trends…. [Y]ou have (a) the demographically-driven decline in labor force participation and (b) an apparent productivity slowdown starting in the mid-2000s as the pace of technological innovation and diffusion has slowed.

But these two are easily corrected. The “demographically-driven decline in labor force participation” is largely, if not primarily, the retirement of us Baby Boomers without associated replacement from births into existing and new families, much less an increase in that rate. (The long-term departure from the labor force by those who’ve given up finding work in this economy is a separate matter that policy corrections will resolve.)

The US, though, always has relied on high immigration rates, as well as yesterday’s higher birth rates, for our supply of workers at all levels of a company from the janitor/mailroom clerk (no dating me here…) to the President/CEO/Bossman. We don’t have high immigration rates today, so we’re not getting the influx into our labor force that we need. The illegal entry rates don’t make up for much of that at all, and the illegality of their entry serves only to hold them back from full contribution. That dearth is only exacerbated by our lower birth rates; it’s not caused by it.

The productivity slowdown and tech innovation rate is a function of the lack of new ideas, new approaches to old problems, creative approaches to new problems, etc from an entrenched population that’s used to doing things in the business world in a certain way (and that staidness is a fact of human nature). Here, too, immigration has played a major role in our economic vibrancy. Immigrants bring those new ideas, new approaches, new etc. And immigrants start new businesses—become those CEOs/Presidents/Bossmen—all out of proportion to their numbers.

All of which suggests a solution to that “slower growth” bit.

Can’t Win for Losing

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Economists were pleased that the economy created 217,000 jobs in May. That sent US payrolls to a record high. It was the first time since the late-1990s boom that the economy created more than 200,000 jobs a month for four consecutive months.

This despite fact that, as of the last jobs report, the US economy had—finally—”rehired” all the workers fired since the start of the Panic of 2008: “US total employment passed its previous peak of 138.4 million, set in January 2008.”  Normal recoveries regain their pre-recession levels after several months to a couple of years.

And it ignores the fact that, based on population growth, we’re still seven million jobs behind where we need to be from simple population growth since just before the Panic.

“Green” Energy Loans Have Consequences

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Fisker Automotive—the US electric car company that failed to repay roughly $139 million in federal loans [out of an original loan total of $192 million] before going bankrupt—is now owned by a Chinese company eager to unleash its cut-rate acquisition on the American auto industry.

The company’s assets were acquired earlier this year by China’s biggest auto parts supplier, Wanxiang Group, for $149.2 million in a US bankruptcy auction.

And

Wanxiang acquired A123 Systems [Fisker’s battery supplier] in a 2012 bankruptcy sale, after the company failed to repay millions to the same federal loan program that helped Fisker.

And

[Wanxiang] plans to produce the vehicles in Finland

Despite that wonderful record—which includes two failures in its five loans before the program was suspended—DoE intends to restart the Advanced Technology Vehicles Manufacturing Loan Program that was responsible for those losses. But it’s all good:

The department said it revised the application processes for the Advanced Technology Vehicles Manufacturing Loan Program to speed up reviews, and is reaching out to manufacturers of auto parts and components to participate.

Yet this will allow for even more slip-shod DoE “vetting.” And now they’re actively pushing more loans? See here for how well suited the Federal government is for managing business programs.

And never mind that the Obama administration’s DoE “green” energy loan program is such a success that that American electric car company that defaulted (some might say welched) on a DoE energy loan is now a People’s Republic of China electric car company.

Sort of like the bailout of a couple of failed American car companies was so successful that one of them is now an Italian car company.

A Thought on Wages

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Wall Street is now starting to complain that wages are too low.

“Without a real acceleration in wages it is hard to get a meaningful pickup in consumer spending,” explained Michelle Meyer, senior US economist at Bank of America Merrill Lynch.

Weak consumer spending holds back profits and economic growth….

And

Weak wage gains also are making it hard for the housing market to return to normal, Mr [Jack, Executive Vice President and Chief Investment Officer at BMO Private Bank] Ablin said.

He calculates that new single-family home construction is running at less than 500,000 a month. Demographics say it should be twice that….

“People are waiting longer to get married and they are having fewer kids,” Mr. Ablin said. That is making them delay home purchases. “It is certainly making us a little more cautious on the economy.”

This, though, is an economic argument for why businesses are considering making the move—it’s a question of sound business practice that only businesses can make. It’s not at all an argument that government should intrude and mandate a specific minimum wage—or even (assuming government central planning were equal to the task) that government should try to tailor a mandate to government-perceived unique conditions.