Economic Insight

We don’t know Kevin Williamson’s full resume but he often refers to his English major math.  Yet he has an impressive ability to express economic concepts clearly.  Recently, Kevin was at his best on NRO (and, of course, you should read it all):

A trade deficit is nothing like a budget deficit. Each year’s federal budget deficit adds to the total debt owed by the federal government. Trade deficits don’t do that, which is one reason why “trade deficit” is not a very useful term. A trade deficit is just a bookkeeping entry, not a debt that has to be paid. Countries don’t trade — people do. Americans are no more harmed by the trade deficit with Germany than you are by your trade deficit with Kroger [that is a retailer in case you are not in the 34 states they operate in].

To be clear, you are not harmed because you can get better or cheaper stuff from Kroger (and Wal-Mart, Amazon, etc) than you can produce yourself.  Kevin gives great details about actual tariffs and goes on to identify the real problems that are produced in a trade war:

[The Donald] now proposes to spend $12 billion to bail out U.S. farmers hurt by his batty trade war. That figure will grow if the trade war continues.

The Donald is way wrong in his trade war because it harms everyone.  Elsewhere he has done much to improve economic freedom but he is absolutely wrong here.

Advertisements

WI Senate Disappointment

The recent debate between the candidates for the GOP nomination to oppose Tammy Baldwin to become the junior senator from Wisconsin was notable for its lack of fireworks.  Bad manners are unrelated to political courage as Ron Johnson has shown us.  We were disappointed that neither Kevin Nicholson or Leah Vukmir disagreed with The Donald on trade or anything else.  Nobody needs to be unpleasant to disagree.  Strong support for free trade would be our number one criteria for picking a WI GOP senate candidate.

Sidebar: Does this mean we would vote for Tammy if she came out as a free trader?  Well, it seems extraordinarily unlikely as her website leads with “Building a made in WI economy.”  So Tammy is the problem and not the answer for us.  End Sidebar.

We understand the political problem that the media (and the moderator was a legacy  reader) is looking for divisions on the right and ignores them on the left.  For example when some Democrats attack The Donald on tariffs it signals a major conflict over there.  We also understand that The Donald is thin skinned.  Still, we think the way to victory is for Kevin or Leah to find a way of being on The Donald’s side without expressing their unquestioning support for anything is has or will do.  We suppose expecting for two versions of Ron Johnson from one state is too much to hope for.  Political courage is in short supply but there are folks like Ron.  He makes the current and potential junior senators look junior indeed.

Venezuela And Zeros

Brian Ellsworth of Reuters has reported today that Venezuela has an interesting solution to the expected inflation of one million percent this year.  It will knock five zeros off its currency, the bolivar.  That is, 200,000 bolivars has become 2 bolivars soberano.  But inflation is just a paper problem as the currency switch suggests.

Sidebar: Inflation is similar to stock dividends and stock splits.  In all three cases, pieces of paper has less value.  Why would the former be more of a problem?  It is because the impact of stock dividends and splits have an impact on only one value while inflation has an impact on all values.  Thus, folks spend too much of their time trying to keep up with inflation rather than doing something productive.  Thus, inflation is a bigger problem then it seems.  End Sidebar.

How are the people doing?  Brian says the minimum wage is a dollar a month and that has left citizens unable to eat properly.

What has caused these problems?  It is the same as always, socialism.  Brian is kind when he says:

The OPEC nation’s economy has been steadily collapsing since the 2014 crash of oil prices left it unable to maintain its socialist economic system that for years provided lavish subsidies while enforcing strict price controls.

Here is a slightly different take a few years ago on the same data:

During the prolonged oil bonanza, Venezuela’s economic mismanagement was masked by its soaring oil revenues, which were used to finance populist social programs. This improved the country’s social indicators and led to macroeconomic balances. However, the oil-dependent economy, without a competitive non-oil sector, has now been facing a huge challenge as the per-barrel prices hit a five-year low, with the situation expected to worsen by the first half of 2015.

At the time of the second article Venezuela had not even hit 100% annual inflation although that was predicted.  The second article reminds us that Venezuela squandered the fortune it received when oil prices shot up.  See this chart for the enormous windfall to Venezuela from 2003 through 2014.  The two articles tell us that the leaders of Venezuela doubled down on socialism after the first bad results and it failed the citizens.  It is easy to avoid or undo the Great Enrichment and Venezuela, despite its oil reserves, shows us just how to do that.  We hope the citizens will make different choices in the future.

 

Never Forget

The term Never Forget is often associated with the Nazi’s treatment of the Jews but there should be a number of things on that list.  Madeleine Kearns at NRO reminds us of the evils of Communism on its 100th anniversary as well as our tendency to forget about such evil.  She gives an example of a young person that lists herself as literally a Communist.  After the Wall fell we were once confronted with an Eastern European wearing a Che t-shirt.  Now Cory Booker has equated opposing Brett Cavanaugh opposing as evil.  Madeleine says this about the young person but it would apply to so many more:

One generous interpretation is that, as Douglas Murray suggests in The Spectator, this is ignorance: “ignorance on such a scale and of such a catastrophic obscenity that any person becoming aware of it would hide away from shame.”

Yet they don’t know.  We have a suggestion to help folks.  Any version of socialism is evil: Communism, socialism, National Socialism (Nazi), fascism, Hugo Chavez in Venezuela and so on.

Sidebar:  It is a couple of years old but this article comparing the economies of Venezuela and Chile is instructive.  Nothing has gotten better in Venezuela in the past two years.  End Sidebar.

Socialism isn’t the only evil in the world but it simplifies the problem of identifying evil by helping you avoid foolish mistakes.  It could help Cory and lots of other folks.

Markets Work; Alternatives Don’t

When we allow markets to work we get the Great Enrichment or as Jonah Goldberg calls it, The Miracle.  When we don’t we get the Soviet Union, Zimbabwe, and Venezuela.  The problem is that when we interfere with markets we screw things up and then we need to interfere again and then things get even worse.

We hate to accuse The Donald of having principles but, generally, it has been close to a principle of his to move in the direction of capitalism, for example, Donaldcare and tax reform.  Unfortunately, he has a tariff blind spot that led to this as discussed by Jack Crowe at NRO:

Under the plan, which could be announced as soon as Tuesday, farmers whose livelihoods have been harmed by the retaliatory tariffs resulting from President Trump’s trade war with China, NAFTA and the E.U. will be provided access to three distinct forms of aid: direct assistance, a food-purchase program and a trade-promotion program.

It is the nature screwing up by intervening in the market that one screw up leads to another.  Humans, experts or not, are not an effective replacement for the market. Tho Bishop at the Mises Institute puts it perfectly:

After all, Trump’s tariffs are not only a new tax for Americans, but a policy of directly picking winners and losers in the economy. The interests of steel workers, for example, are being placed above the interest of consumers and farmers. This leads to the government using tax dollars to prop up farmers. Of course this spending means that tax-paying consumers are hit yet again, with their tax dollars being used for this new welfare program.

You should real all of Tho’s article to remind yourself of the joys of capitalism.  If that is not enough to convince you then you need to read Jonah’s appendix in Suicide Of The West.  Capitalism works and alternatives fail.

(Re)Defining Liberalism

We saw a leftist on Facebook approving this 1960 quote by JFK:

“If by a “Liberal” they mean someone who looks ahead and not behind, someone who welcomes new ideas without rigid reactions, someone who cares about the welfare of the people-their health, their housing, their schools, their jobs, their civil rights and their civil liberties-someone who believes we can break through the stalemate and suspicions that grip us in our policies abroad, if that is what they mean by a “Liberal”, then I’m proud to say I’m a “Liberal.”

JFK was running for president at the time.  Of course, his main policies, virulent anti-Communism and cutting marginal tax rates would be most unwelcome by somebody claiming JFK’s position now and even then.  It is reasonable to say that he was firing up the base.  He was a Democrat that wished to run as an unmodified liberal.  To do that he had to define liberal and since the Democrats nominated him and elected him it seems reasonable that they accepted his analysis.  The text, however, shows how much the left has changed in just under 60 years.  Here is his list that he says marks his liberalism:

  1. Looks ahead and not behind
  2. Welcomes new ideas without rigid reactions
  3. Cares about health
  4. Cares about housing
  5. Cares about schools
  6. Cares about jobs
  7. Cares about civil rights and civil liberties
  8. Believes we can break through abroad.

Remember this is about being a liberal versus conservative rather than Republican versus Democrat.  In addition you should note that included in numbers three through seven is the issue of the welfare of the people.  Thus when liberal say they care about something but proceed to enact policies like the healthcare act of the last president they have not reached JFK’s standard.

Our analysis is that JFK’s would-be heirs have thoroughly rejected two, five, six, and seven.  Number seven has become a hallmark of conservatism as Jonathan S. Tobin explains at NRO.  For number two see the left’s reaction to The Donald’s judicial appointments.  Five and six have become conservative only as the left is, at least, partially owned by the teacher unions.

 

Say It Ain’t So, Joe

Joe Lieberman, a Democrat from Connecticut, is a former US Senator and Vice Presidential nominee.  He tells an interesting story in the WSJ:

Alexandria Ocasio-Cortez’s surprise primary victory over Rep. Joe Crowley seems likely to hurt Congress, America and the Democratic Party. It doesn’t have to.

Because the policies Ms. Ocasio-Cortez advocates are so far from the mainstream, her election in November would make it harder for Congress to stop fighting and start fixing problems. [Emphasis added].

Joe’s statement in bold is an amazing thing in this day and age.  It is extraordinary for a party leader to say such a thing about a member of his own party.  We would like to see more of it.

Of course, Joe did a similar thing that he suggests the other Joe do now.  Joe L. ran as an independent in 2006 to continue as senator.  Joe C. has the nod of one of the minor parties and could be on the ballot in November.  We are not sure if Joe will take Joe’s advice.

More important is what the other Democratic leadership does.  Al Gore and Joe Lieberman are pretty old news.  We would like for folks like Hillary, the 44th president, Nancy Pelosi to stand up for Joe C. and with Joe L.

We agree that both parties lack leadership.  The Democrats have a great opportunity to take action now.  If we develop a scale with Winston Churchill as a thousand then the Democrats would score five (with Joe L giving them the lead), the GOP four, and the legacy press one.

Sidebar: Yes it is a silly scale and we can’t defend the precision it suggests.  It is possible we should put the GOP in the lead because the impact the leadership had on The Donald about his recent behavior in Europe.  It also is important to remember that strong leaders, even Churchill, are not always right.  LBJ is an example of a strong leader that made big changes that left, at best, a mixed impact on our country.  End Sidebar.

Of course, the major parties and the press have very different problems.  The Democrats have skidded far to the left.  The GOP has confused pugnacity with principle, and the press has become Democratic operatives.  Leadership support for both Joes would make us more optimistic about the future.