Category: political economy

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budgets & spending cuts international affairs political economy

Was Milei Bailed Out?

Javier Milei, Argentina, bailout, foreign policy

You saw it on the news, newscasters almost gloating: Argentina’s peso plunged — triggered by  low reserves and political defeats for President Javier Milei.

Then the U.S. Treasury under Secretary Scott Bessent finalized a $20 billion currency swap line with Argentina’s central bank. This was on top of direct U.S. purchases of pesos in the market and plans for another $20 billion from private sources. The deal was seen as a U.S. strategic play to counter instability in Latin America.

Some called it a bailout.

Were Milei’s radical reforms saved at the expense of the U.S. taxpayer?

Bessant was asked this, yesterday, directly on MSNBC, and had a response: “Do you know what a swap line is?”

I had to brush up on it. (I don’t engage in any cross-currency swaps, understandably, not being a major corporation, a central bank, or a sovereign state.) A currency swap is a financial agreement between two parties to exchange principal amounts and interest payments in different currencies over a set period — a temporary loan in one currency backed by collateral in another, designed to provide liquidity, hedge exchange rate risks, or access cheaper funding without the full risks of outright borrowing.

“In most bailouts you don’t make money,” Bessent said. “The U.S. government made money.”

In an exchange, both parties gain. But in any exchange involving extended spans of time, there is risk, so any initial win for Treasury could be wasted by a failure of Milei’s course.

Unlike American politicians opposing inflation, Milei’s been quite honest with Argentinians: “To cure inflation, you have to go through a recession. There is no way around it.” So why Milei didn’t just peg the Argentine peso directly to the U.S.; why a “crawling peg” rather than strict? Milei has been clear: he lacked political clout.

Milei insists that his crawling peg reform isn’t gradualism (which he despises), and that the swap isn’t a bailout; Bessant agrees, saying the swap’s “a profitable move for America.”

This is Common Sense. I’m Paul Jacob.

Note: Milei’s party gained in the most recent election.

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national politics & policies political economy regulation

Ultra-Absurd?

minimum wage, coins, Walking Liberty, freedom

Sen. Josh Hawley (R-Missouri) is oh-so-ultra.

USA Today dubs him a “conservative” in the title of a recent article on a proposed minimum wage hike, and then an “ultraconservative” (emphasis added) in the first word of the article itself. 

Why does this “ultraconservative” join a Democratic senator in raising the federal minimum wage to $15? They both seem to assume that minimum wage laws raise wages.

For hundreds of years, economists have argued they don’t. On the face of it, these laws merely prohibit jobs paid below a certain rate. They disemploy. 

When the government prohibits low-wage compensation, businesses shift productive processes to keep afloat; when a factor is suddenly made more expensive, they adjust. With more automation, for example.

At least, the USA Today article mentions, briefly, that the Congressional Budget Office forecasts that some individual workers and families would see their livelihoods diminished by the higher minimum — which is the only part of the coverage of the new, more restrictive (higher) minimum wage regulation that gets to the meat of the issue: what minimum wage laws actually do. 

A related article back home in the Springfield News Leader (a member of the “USA TODAY NETWORK”) explores the question of Missouri’s minimum wage and what activist economists call the state’s “minimum living wage” — and it is relevant at least to this extent: states have different economic climates, and wage rates differ region to region in the United States, so it’s very relevant to a senator from his state affecting his state’s economy with a regulation applying equally to all states.

Which is to say that the minimum wage issue should be a state issue.

If an issue at all.

“Ultraconservative” Hawley’s bill is ultra-misguided.

This is Common Sense. I’m Paul Jacob.

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international affairs political economy

Out of Poverty

China, farmers, agriculture, communism, government, freedom

“So, who brought who out of poverty?” asks Frank Dikötter about China’s economic rise.

The Dutch historian and author of four excellent books on Chinese history — Mao’s Great Famine; The Tragedy of Liberation; The Cultural Revolution; and China After Mao — Dikötter recently spoke at length with Peter Robinson, host of the Hoover Institution’s “Uncommon Knowledge” podcast.

Calling it “conventional wisdom,” Robinson offers that “the number that I found over and over again was eight to 900 million people lifted out of poverty since Deng Xiaoping announce[d] his reforms in ’78.”

“That’s all propaganda,” declares Dr. Dikötter. “The people in the countryside have lifted themselves out of poverty.”

Even before Mao’s death in 1976, the Cultural Revolution ended and the “army, which was deployed in every farm, every factory, every office from 1968 onwards, that army goes back to the barracks and is purged in turn,” he explains. “People in the countryside realize there’s nobody there to supervise them. There’s nobody there to tell them, go and work in the collective fields.”

Mr. Robinson chimes in: “The boot is off their neck.”

“So,” Dikötter expounds “they start operating underground factories; they open black markets; they trade among themselves.”

Deng “merely [put] the stamp of approval on something that escapes them altogether, namely the drive of ordinary villagers to claim back the freedoms they had before 1949.

“Allow ordinary people to get on with it,” he says, “they will!

“But this is not a party,” concludes Dikötter, “that will allow ordinary people to get on with it.”

This is Common Sense. I’m Paul Jacob. 

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media and media people national politics & policies political economy tax policy

The Trump-Tariff Question

Donald Trump

“To this day I cannot tell you what Trump truly believes about tariffs,” Daily Wire’s Michael Knowles recently confessed. “Does he want tariffs instrumentally, to increase trade? Does he believe in tariffs as a revenue-raising mechanism? And is he hard-core on tariffs? I couldn’t tell you; the man is inscrutable.”

In “Tariffs Are Awful, But The Income Tax May Be Worse,” economist Walter Block seems less confused. “Donald Trump supports them on the ground that the McKinley administration was prosperous, and relied upon tariffs,” Walter’s Eurasia Review op-ed posits. Our free-market economist notes that this rests on a fallacy: “since A precedes B, A must be the cause of B.”

Professor Block offers a better “historical episode to shed light on this matter, the Smoot-Hawley Tariff of 1930.” You know, the tariff hike that worsened the Great Depression.

The best part of Walter Block’s refutation, however, follows his explanation of the Law of Comparative Advantage. He discusses the gains to our economy if the expert workers Trump fires from the IRS were to find work in the private sector.

And, contemplating the idea of switching from income taxes to tariffs, our widely-published octogenarian notes that “it takes relatively little labor to run a tariff system. Hey, we already have tariffs in place. An increase in their level would hardly call for much more manpower, likely hardly any more at all.” The gains of nixing income taxes would be vast; the harms of higher tariffs would be comparatively minuscule.

An interesting argument? Sure. But I don’t see politicians giving up the income tax any time soon.

This is Common Sense. I’m Paul Jacob.

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free trade & free markets ideological culture political economy too much government

Sweden’s Electric Sense

Sweden, climate change, nuclear power, energy,regulations, wind power, solar power

Common sense in Sweden! Energy in Sweden!

Under the policy of Sweden’s current government, the Swedish people are to be allowed to illuminate and heat their homes and do all the other things they use electricity for. The Swedish parliament has formally relinquished the government’s former target of somehow reaching “net-zero” renewable energy by 2045.

Such unreliable means of generating power as erratic wind and erratic sunshine just don’t cut it, says Finance Minister Elisabeth Svantesson.

“We need more electricity production, we need clean electricity, and we need a stable energy system. In substantial industrialized economies . . . only a gas-to-nuclear pathway is viable to remain industrialized and competitive.”

The new energy policy is an about-face for Sweden, which decided in the ’80s to nuke nuclear power and pursue 100 percent “renewable” energy.

Sweden is now following the lead of Finland. After Finland’s latest nuclear power plant went on line in April, reports Peta Credlin, “wholesale power prices dropped 75%, almost overnight. The Olkiluoto 3 plant is . . . delivering 15 percent of the country’s power needs. Nuclear now provides around half of the country’s total electricity generation.”

Nuclear power has gotten a bad rap in many countries, including the United States. But if societies and governments are rightly or wrongly determined to retreat from reliance on fossil fuels while also not pulling the plug on industrial civilization, a steady supply of electricity has to be obtained somehow or other.

Nuclear power is one major way to do the job.

This is Common Sense. I’m Paul Jacob.

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The False Gospel of the Printing Press

inflation, economist, monetary theory

It’s been a while since I’ve mentioned “Modern Monetary Theory,” popularly known as MMT.

While MMT is not popular here, it is gaining adherents outside the ranks of Common Sense readers like a new Ponzi scheme taking on suckers.

Modern Monetary Theorists go on and on about the gospel of printing money, like they just discovered that the Fed-and-Treasury act of borrowing within the banking system isn’t the only way to inflate the money supply.

You can indeed “just print money”!

Granted, the MMTers do a lot of fancy footwork, or silver-tongue-work — the closest they get to hard money — to avoid the infamous consequences of monetary inflation, “price inflation” being just one of them. They are so enamored of the money press that they’re like teenagers discovering sex: didn’t you old folks know about this great thing?

It would be comical were it not . . . inflationary.

At the present moment in history, of course, MMT is in a tricky situation: huge increases in the money supply during the COVID period resulted in no small amount of . . . huge price increases.

“Whatever you call it, MMT is printing money,” Matt Taibbi just wrote in a terrific May 18 piece, “and no matter how sure you might think you are that it will work, you aren’t, and can’t be. Sure, our leaders have been doing it, printing $4 trillion through multiple rounds of QE and $5.5 trillion more in the CARES Act, and sure, that last spree only inspired about 20% inflation so far. Still, any economist who says with a straight face he or she is sure this experiment won’t end with your kids using dollars as toilet paper is lying.”

Or just engaging in old-fashioned money-crankism. 

The old get-something-for-nothing racket. MMT’s just the latest form.

This is Common Sense. I’m Paul Jacob.

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Accountability folly political economy

Inflation & the Infirm Incumbent

Joe Biden, inflation, economy

“From President Joe Biden’s point of view, Americans ought to be thrilled with the recent trends in inflation,” writes Eric Boehm at Reason, who quotes the president: “Wages keep going up and inflation keeps coming down.”

True enough, but, Mr. Boehm goes on, “pointing at the charts and regurgitating economic figures doesn’t seem to be as convincing as the president might hope.”

You’ve seen the left-of-center memes mocking Americans for thinking the economy is bad when it is, instead, g-gr-great!

But prices for food and gasoline, after the big bulge caused by all those COVID checks and subsidies, did not go back down to previous levels. And rising wages after the “Great Suppression” of the lockdowns seem at best a verypartial return to better times.

Boehm offers some context. “It makes sense that the recent run of inflation would leave a psychological scar. After all, the peak inflation rate of 9.1 percent in June 2022 was not only the highest annualized rate seen in more than four decades, it was also more than twice as high as the average inflation rate in any year since 1991. . . .” And inflation has not stopped. “In March, the annual inflation rate was 3.5 percent. Yes, that’s 60 percent lower than the peak rate in June 2022, but that’s still higher than the average annual rate in every single year between 1991 and 2021, except for 2008.”

And then there’s the higher interest rates, which, Boehm plausibly asserts, compounds our perceptions that “inflation is a major problem.”

This is a huge issue for Biden. Boehm cites the political lore: “If you’re explaining, you’re losing,” and notes that, “unfortunately for Biden, his task in the run-up to November’s presidential election is explaining to people that they shouldn’t feel like inflation is still a problem.”

Who you gonna believe: Your cash register receipts or a feeble, corrupt, multi-millionaire lifelong politician?

This is Common Sense. I’m Paul Jacob.

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free trade & free markets political economy subsidy

When the CHIPS Are Weighed Down

Taiwan, computer chips, regulations, DEI, race, racism

Has DEI “killed the CHIPS Act”?

The CHIPS and Science Act of 2022 created a giant package of subsidies that shouldn’t exist to begin with and is made even worse by all the strings attached.

The Act authorizes giving $52 billion of taxpayer money to microchip manufacturers to make chips in the U.S. The boost to domestic production will supposedly help us if China invades Taiwan and disrupts Taiwan’s globe-leading microchip industry.

But chipmakers eligible for the largesse are recoiling from all the embedded DEI mandates. “DEI” means “diversity, equity, and inclusion.” It’s a collectivist mantra and ideology designed to make employers fret about racial and gender quotas and DEI indoctrination at the expense of hiring qualified people and making high-quality microchips.

According to Matt Cole and Chris Nicholson, writing for The Hill, nineteen sections of the Act are devoted to DEI. One gives the Department of Commerce a mission that Commerce describes as “strengthening the U.S. semiconductor ecosystem” by ensuring “significant investments to create opportunities for Americans from historically underserved communities.”

The authors believe that CHIPS is “so loaded with DEI pork that it can’t move.” Worse, it’s making it hard for chipmakers to move, forced to focus away from making microchips and, instead, onto the wasteful exercise of appeasing regulators.

Now that they are finally about to get CHIPS funding, Intel and others are delaying announced factories and foundries on U.S. sites and instead going ahead with more overseas plants.

I guess they want to get stuff done.

This is Common Sense. I’m Paul Jacob.

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ideological culture national politics & policies political economy

Shrinkflation, Shrunk Nation

Joe Biden, inflation, ice cream, economics

In another pathetic pre-recorded speech, played before Sunday’s Super Bowl, President Joe Biden lambasted America’s corporations for “shrinkflation.” 

“As an ice cream lover,” he explained in the vid, “what makes me the most angry is that ice cream cartons have actually shrunk in size but not in price.”

The Guardian expands upon the president’s gripe: “Inflation dropped to 3.1% in December but some companies are thought to have responded to rising costs by marginally shrinking the size of products — shrinkflation — as well as changing recipes to reduce the amount of more expensive ingredients — sometimes known as ‘skimpflation.’”

My, oh my, so businesses must adjust to inflationary pressures as well. 

When the costs of their inputs go up, they do not automatically become charities. Knowing that consumers do not sport infinite incomes and demand schedules utterly “inelastic” — buying the same goods in the same quantities even at higher prices — they often adjust by reducing quality or quantity.

It is one of many ways that inflation hurts us.

Inflation has even been referred to as the sneakiest of all taxes, taking from the masses and giving to the insider class, those closest to government (those who receive newly-created money first).

Biden calls “shrinkflation” a “rip-off” and insists that “the American public is tired of being played as suckers.”

Well, that will prove true only if the American public rejects those politicians who push the policies that led to the inflation — politicians like those in the 116th and 117th Congresses, Donald Trump, and Joe Biden himself.

This is Common Sense. I’m Paul Jacob. 

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deficits and debt national politics & policies political economy

The Economy Is Great-ish

Joe Biden, economy, inflation, Bidenomics

“We have the highest share of working-age Americans in the workforce in 20 years,” Biden recently told reporters. “It’s no accident. It’s Bidenomics.”

Bidenomics being that old standby, tax-and-spend-omics.

So why do so many Americans think the economy is getting worse? Why do 84 percent say that their costs have gone up?

Well, says President Biden, the media mislead them. “You all are not the happiest people in the world [in] what you report,” is his view. “You get more legs when you’re reporting something that’s negative.”

The media do often mislead us; the negative news bias is real.

But I don’t think that our left-leaning, in-the-tank-for-Biden media can be blamed for the impression so many of us have that it’s harder to make ends meet.

Biden isn’t the only one professing puzzlement. Breitbart Business Digest observes that a “small army of establishment media types and economists” are intent on “unraveling what they take to be the great mysteries of our time.” As described by a recent Brookings Institution paper, this mystery is the “disconnect between consumer sentiment and the state of the macroeconomy.”

As BBD points out, the Brookings researchers simply start by assuming that everybody is wrong, then try to figure out why.

“A simpler explanation would be that the economy is falling short of the public’s expectations” because of things like high inflation, higher interest rates, and greater difficulty paying for groceries, Christmas presents, vacations. And rent, and medical bills, and tuition.

Saying it’s all in our heads won’t make tough times go away.

This is Common Sense. I’m Paul Jacob.

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