Republicans Versus Conservatives

We came down hard on The Donald for his tariff increases and rightly so.  We also said that we are happy he won in 2016 and we are even happier that his predecessor is gone.  Jonah Goldberg in his G-file tries to make it a problem with populism:

The funny thing is that this move toward protection is celebrated or condemned as a fulfillment of Trump’s “populist” agenda. I get that we label protectionism “populist” these days — though I’m old enough to remember when protectionism was a technocratic cause. But populism is supposed to mean putting the interests of “the people” first. (The problem with populism is that populists never mean all the people; they only mean their people.) And this move isn’t in the interests of most people.

It isn’t.  It is a problem with elections and Republicans in particular.  Reagan and W are the two most conservative presidents since Coolidge and he was not a free trader either.  Almost everyone remembers that W did some backsliding on tariffs:

The temporary tariffs of 8–30% were originally scheduled to remain in effect until 2005. They were imposed to give U.S. steel makers protection from what a U.S. probe determined was a detrimental surge in steel imports. More than 30 steel makers had declared bankruptcy in recent years. Steel producers had originally sought up to a 40% tariff. Canada and Mexico were exempt from the tariffs because of penalties the United States would face under the North American Free Trade Agreement (NAFTA). Additionally, some developing countries such as ArgentinaThailand, and Turkey were also exempt. The typical steel tariff at the time was usually between zero and one percent, making the 8–30% rates seem exceptionally high. These rates, though, are comparable to the standard permanent U.S. tariff rates on many kinds of clothes and shoes.

Holman W. Jenkins, jr. in the WSJ reminds us that Reagan made much more extensive choices than W:

Reagan slapped import quotas on cars, motorcycles, forklifts, memory chips, color TVs, machine tools, textiles, steel, Canadian lumber and mushrooms.

Holman argues that it didn’t matter because they were negotiated.  Perhaps.  What does matter is that Republicans backslide on tariffs because there are intense big winners and widely dispersed small losers.  Sadly, protectionism is a good political game and our most conservative presidents including Reagan have played it.  The Donald does too.  We are rightly worried about The Donald continuing to play it because he is not a conservative.  We will continue to encourage him towards free trade while reminding everyone that free trade was not supported by either presidential candidate in the 2016 general election.  Yes, it would be better if this was Mitt’s second term but that was not a choice in 2016.



Decisions Without Theory

We knew when we supported The Donald in the general election that we would have to take the good with the bad.  It was better than taking the bad with the worse.  The problem is that The Donald does not have any theoretical background.  He has created a majority by picking and choosing positions.  We still like our vote in the 2016 general election but we don’t like his position or recent actions on tariffs.  Since the two candidates in the general election shared little except for the same positions on tariffs we still like our vote in 2016 because of The Donald’s actions prior to increasing tariffs. Unfortunately, The Donald’s lack of theoretical background means that we get tax reform (yea!) and the opposite, protectionism (boo!).

Sidebar: Herself ran as a protectionist although her husband was willing to sign on to reductions in tariffs.  Given her dishonesty folks might have hoped that her articulated positions would not be implemented.  We see no solution to hoping that she was dishonest about tariffs.  End Sidebar.

The WSJ editorial board has a good summary:

Donald Trump made the biggest policy blunder of his Presidency Thursday by announcing that next week he’ll impose tariffs of 25% on imported steel and 10% on aluminum. This tax increase will punish American workers, invite retaliation that will harm U.S. exports, divide his political coalition at home, anger allies abroad, and undermine his tax and regulatory reforms. The Dow Jones Industrial Average fell 1.7% on the news, as investors absorbed the self-inflicted folly.

We have a few quibbles.  We don’t know that it will divide his coalition and it will help a few workers but hurt the majority so we are in agreement with the WSJ.  The Donald became a hero, and rightly so, when he reduced taxes on corporations and, to a lesser extent, on individuals.  We wish he made another choice but we are not surprised given his rhetoric.  The oddest quote came in this WSJ article:

“This is going to be effectively a tax increase,” said Brian Nick, chief investment strategist at Nuveen.  [Emphasis added]

There is no need for modifiers.  This is a tax increase.  It will help a few substantially while hurting many a little.  The problem is that The Donald has no theoretical grounding so he cuts some taxes while increasing others.  On tariffs, providing lots of protection for a few while hurting many a little might make political sense but it makes no logical sense.  Cutting corporate taxes benefitted many without hurting any particular group.

This is how it will be for the next seven years.  The Donald will do some great things and some stupid things.  It is better than the last president and better than the 2016 alternative.  We would prefer it wasn’t so but it is.  We would prefer that we had an optimal choice in 2016 but there wasn’t.  We hope he will change his mind on tariffs but we are not holding our breath that he will undo this colossal mistake.

Non-Local Politics

The headline in the local paper was: “This Is Not Hypothetical.”  Then they go on to talk about how Mayor Tim Kabat of our modest hamlet had decided that he needs to help the The Donald with climate change.  We hate to go all Webster on folks but says hypothetical means:

1. assumed by hypothesis; supposed:

a hypothetical case.
2. of, pertaining to, involving, or characterized by hypothesis:

hypothetical reasoning.
3. given to making hypotheses.
4. Logic.
  1. (of a proposition) highly conjectural; not wellsupported by available evidence.
  2. (of a proposition or syllogism) conditional.

We left the fourth definition in to give some hope to the headline writers.  They were trying to discuss a logic problem.

Climate change, nee global warming, is part of science and science is about hypotheses.  Climate change is a hypothesis or a bunch of hypotheses.  It is exactly a hypothetical.  In science a hypothesis is accepted until evidence leads to its rejection.

Sidebar: An enormous problem with climate change is the lack of precision.  For example, the efficient market hypothesis (EMH) has weak, semi-strong, and strong versions.  We suggest, partly in jest, that climate change adopt historical, reasonable, and hysterical.  End Sidebar.

There is also a second level of science: economics.  Once we decide about climate change then there is the issue of economics.  The cost to have a substantial impact on hypothesized climate change is large.  Is it worth the cost?  For example, we would support a modest carbon tax because the cost is small and the incentives are right.

The local paper has tied Mayor Tim to the local head of the Sierra Club:

Van Gaard warned that without immediate and drastic efforts to reduce greenhouse gas emissions, millions of people will be left without clean water and food and millions more will be refugees as a result of extreme weather events.  “This is not a hypothetical. This is already happening. This is our future if we don’t take this seriously right now. Fuel efficiency standards are a necessary step to move us away from that future,” Van Gaard said.

We are unconvinced that the fuel efficiency standards are a necessary step. We need to analyze the alternatives.  Immediate and drastic actions will have enormous costs.  The millions and millions have turned out to be wrong several times.  The Sierra Club is welcome to try to influence policy.  It doesn’t look like a good trade-off but let’s look at the full cost of the alternatives.  It is hypothetical and we need to consider the alternatives and the risk involved. Meanwhile, we need our mayor to be worried about serious city stuff.


Judging Intentions

Judging intentions is extraordinarily difficult but pundits seem to do it regularly without care and often without evidence. Our latest perp is from Jonathan Coppage’s article, Our Infrastructure Inefficiency, in NRODT.  Jonathan’s article is otherwise excellent and worth reading in detail.

Sidebar: Not only are we behind on our reading but we are behind on technology because we can’t reference it. Mea Culpa * 2.  End Sidebar.

After Jonathan says that current federal law has buy American standards including a 100 per cent rule for manufactured items he seems to excuse it by saying:

While well intentioned in their concern for American manufacturing, such policies can inflate the cost of [American] infrastructure.

We have a suggestion for a rewrite:

It is wildly difficult to determine the intent of Congress and it is even more unlikely that every member of Congress has the same intent.  It is easy to determine the impact of tariffs and other restrictions on trade like buy American.  The impact is to provide concentrated benefits, in this case for certain manufacturers, and to widely disperse the costs, in this case over all federal taxpayers by increasing the cost of American infrastructure.

Yes, it is too long compared to what it replaced but we had much to explain.  We think our last sentence is obvious but not everyone will.  Jonathan should be as enthusiastic about eliminating buy American as he is with the other elements of infrastructure reform.

Hating The Donald

We were wandering around the Internet.  First we went to Tyler Cowen’s Marginal Revolution site. Tyler is a serious economist.  Wikipedia tell us that:

He was ranked #72 among the “Top 100 Global Thinkers” in 2011 by Foreign Policy Magazine “for finding markets in everything.”[4] In a 2011 poll of experts by The Economist, Cowen was included in the top 36 nominations of “which economists were most influential over the past decade.”

He said that Christopher Lebron at the Boston Review had the best review of Black Panther.  We are interested in the movie and want another review.  Armond White has never been very helpful for us.  Armond is too worried about philosophy and has too many reference to movies we haven’t seen.  We want to know if the movie is entertaining.  We thought the Greatest Showman was a really entertaining movie.  We were shocked at how good it was after so many poor movies recently.  Interestingly, the preview from the star and director suggests that they wanted to make an entertaining movie.  Perhaps it is not hard to make an entertaining movie if that is your goal.

Tyler does say the review is via Hollis Robbins but we think he should read it to link to it.  Here is part of the first paragraph of Christopher’s review:

This is a tall order, especially in the time of [The Donald], who insists that blacks live in hell and wishes that (black) sons of bitches would get fired for protesting police violence.

We wonder what somebody would need to say about a political figure to have it be a bad review?  We don’t know much about the Boston Review.  They might think it crucial that they signal their hate of The Donald to their audience.   We are, however, disappointed in Tyler.  He should understand the importance of  rhetoric.

Expected News

When folks as us about The Donald as president we have taken to saying that we hope the next seven years go as well as 2017.  If asked we are quick to say that it is unlikely that The Donald will have a year as good as 2017 between now and 2024.

This week brought more of what we expected from The Donald.  The NYT tells us he has continued to be an avid deregulator:

The Trump administration has adopted new limits on the use of “guidance documents” that federal agencies have issued on almost every conceivable subject, an action that could have sweeping implications for the government’s ability to sue companies accused of violations.

Powerline might be a little enthusiasic when it describes it as fantastic news but The Donald continues to be a great improvement over his immediate predecessor (HIP) or the alternative in 2016.

We knew when we elected him that he was not interested in reforming entitlements or reducing the deficit.  The Donald shared that with HIP and the alternative so voters didn’t have a choice in that area.  The did have a choice on regulation and taxation.  Kevin Williamson at NRO takes many politicians to task:

Like so much else in Washington, [debt] is speeding out of control with no working brakes and no one apparently at the wheel. As Herb Stein famously put it, “If something cannot go on forever, it will stop.”

James Freeman at the WSJ is worried about the Trump Spending Binge too and focuses on the government’s interest payments:

The Trump spending blowout is particularly dangerous because, as stock investors have noticed lately, interest rates are headed north. Washington will spend about $300 billion this year in net interest payments on the federal debt. Last summer the Congressional Budget Office estimated that this annual burden will grow to more than $800 billion by 2027, when it is expected to be more expensive than the entire Medicaid program by some $163 billion per year. This depressing scenario assumes the average annual interest rate paid by Washington rises to just 3.5% by then, still relatively modest by historical standards.

We agree with Kevin and James that we should be working on the deficit.  We support entitlement reform and a tax on carbon to reduce the deficit.  We wish it was now Mitt’s second term but it is not.  It terms of the deficit, HIP was an awful choice and The Donald was better than either the 2016 alternative or HIP because he prioritized economic growth but none of them were good for the deficit.

It is going to be harder to fix the entitlements and the deficit later but there is so little interest in it.  The politicians are not interested and only a few of the voters are.  Lots of writers are but we must not be writing well enough. We would like to get more than we expected from The Donald but we can’t be displeased at actually getting what we expect.


Healthcare And Incentives

Clark Harvighurst, professor emeritus at Duke, writing at the WSJ Editorial Page has an interesting article related to health-care and taxes.  He mostly addresses it to three CEOs, Bezos, Buffett, and Dimon who he summarizes with BB&D.  We love the ampersand too Clark.  We are 100% in agreement with his point that excluding health-care benefits provided by employers from employee income is major problem with the US health-care system.  We are not convinced, however, that folks react exactly how he describes.

To be clear, when an employee receives health-care benefits paid by the employer it is valuable to the employee but it is not part of gross income as determined by the Internal Revenue Code.  Specifically:

Under IRC sections 105 and 106, employer-provided health benefits, including reimbursement and insurance, are generally excluded from the income of employees.

It is one of those weird parts of the tax law that excluded almost $22,000 in income from MWG tax return a few years ago.  We agree that BB&D would provide a major service if they pushed to treat health-care income as taxable like other income.  We are not convinced that the beneficiaries are acting as Clark says.  Here is his quote:

Because employees don’t pay taxes on employer-paid insurance premiums, most workers assume that—and behave as if—their health-care costs are borne by employers. True, most employees now pay some share of premiums directly, along with copayments and deductibles. But they still unknowingly pay far more in lower take-home pay. When working Americans say they like their health plans, it’s clear they aren’t seeing the whole cost picture.

We don’t see it that way.  It seems to us workers act as if health-care costs are not taxable while wage income is.  Thus, getting a whole dollar of health-care insurance rather than a dollar of wages that are reduced by FICA and income taxes seems rational.  We think they are knowingly taking less take-home pay.  Folks buy way too much insurance (they cover everything they can) because it is cheaper with before-tax-dollars.

Sidebar: Another problem with the current system is that a few folks are worse off under this deal.  An example is the Lady de Gloves who did not take the health-care play offered by her employer because MWG was already covered.  She got nothing while most folks got thousands of dollars worth of insurance.  End Sidebar.

It is also rational for the employer since they pay a dollar in health care instead of a dollar plus FICA.  So we see the current system as a rational reaction to the current irrational tax system.  We do agree with Clark that the current system makes many of us uninterested in that actual costs of medical care.  We entirely agree with Clark that we hope BB&D can change the tax treatment of fringe benefits.  If we can fix corporate taxes then why not this?