Tag: economics

Sitting on the Volcano

“Wait, it gets worse.”

Over halfway through Eric Boehm’s Reason discussion of our government debt situation, he gets to a crucial point: “The federal government’s debt is particularly susceptible to rising interest rates . . . because so little of it is locked into long-term interest rates. If you have a 30-year fixed-rate mortgage on your house, rising interest rates won’t bother you much. But the federal government overwhelmingly relies on short-term debt, with an average maturity time of just 69 months.”

So the standard approach to inflation, with the Federal Reserve raising interest rates, would hit the federal budget like an exploding volcano.

When talking trillions, it’s hard to keep a sense of proportion. Boehm puts it this way: “A one percentage point increase in interest rates translates into a $30 trillion increase in interest costs.”

Debt service is one of the reasons why the sages at the founding of America were, if not united in opposition to federal debt, overwhelmingly leery of it. But that leeriness did not stop federal borrowing. Only for one brief moment did the United States’ government not hold debt.

Borrowing was one thing when gold or silver fettered our finances to some limits. But paper and digital money have divorced us from a sense of reality.

We pretend that debt’s reality can be perpetually postponed, but we always “pay” — in lost prosperity; in inequality; in economic dislocation; in political unrest. But when the volcano erupts, then we really pay.

As we awake to our indebtedness, let’s recognize that our political culture has allowed it to get so far out of hand. Fundamental political reform is imperative.

This is Common Sense. I’m Paul Jacob.

PDF for printing

—

See all recent commentary
(simplified and organized)

See recent popular posts

Tags debt, economics, national debt, spending, taxes

Accountability folly national politics & policies political economy

Whip Producers Now

The Biden administration is siccing agencies like the Federal Trade Commission, Department of Agriculture, and the Federal Maritime Commission onto the producers of stuff who have recently dared to raise prices.

Stuff like gas. Higher prices at the pump must be an oil-company conspiracy.

It has nothing to do with (and don’t even think it!) governmental actions that impede production, including shutting down the Keystone oil pipeline on Biden’s first day in office or calling a halt to new oil leases on public lands. Etcetera.

Nothing to do with mammoth expansion of the supply of money and credit to facilitate trillion-dollar government spending sprees.

In case you hadn’t noticed, meat costs more, too. So obviously that must be the fault of malicious meatpackers. Rest assured that beef price inflation is utterly unrelated to pandemic-policy-induced labor shortages and delays.

Or to any recent increase in efficiency-impairing trucking regulations.

Same with sundry supply-chain problems, like the ships and crates piling up at ports. Greater consumer demand, new pandemic-induced screening protocols, union rules that prevent ports from operating 24/7 or improving automation — all irrelevant.

Must be. That’s the script from 1600 Pennsylvania Avenue, anyway.

But if companies can hike prices at will, ignoring whether regulations ease or obstruct production, why doesn’t the meat industry, for example, charge a thousand dollars per pound of flesh?

Well, we know why.

Demand for a pound of ground beef would slide to zero, or close to it.

If only the government people knew!

Or would stop pretending they don’t know.

A consistent recognition of the laws of economics would sure make a great gift — in any season. Instead of bullying and making things worse, government could get out of the way.

This is Common Sense. I’m Paul Jacob.

PDF for printing

—

See all recent commentary
(simplified and organized)

See recent popular posts

Tags economics, inflation

media and media people responsibility

Science Isn’t Morality

“Scientist” — what an abused term! When a journalist needs an authority to write about some nutty, wildly improbable affront to common sense, a “scientist” will do.

Case in point, turn to Newsweek:

“Tanning salons are more likely to be located in U.S. neighborhoods with higher numbers of same-sex male couples,” writes Kashmira Gander, “according to scientists who fear the industry could be targeting the demographic.”

Well, since gay men — for a variety of reasons surely no one will dispute, and which we need not trouble ourselves with — are more likely to use such services than straight men, one might expect marketers to “target” a likely clientele.

But why the “fear”?

Well, don’t panic, but “[t]anning beds are dangerous. They double your risk of skin cancer. Over time, they also cause wrinkles, skin aging, uneven skin texture and dark spots, so even from a cosmetic standpoint, no one should be using them.”

Well, that latter is not a scientific finding. It is up to consumers to decide what acceptable levels of risk they will take to make themselves appealing for the opposite sex, or — in this case — the same sex.

If scientists made fewer moral and political pronouncements, sticking to statements that they can defend with facts and findings, not only would Newsweek and other magazines be easier to bear (I cannot guarantee more subscribers and newsstand sales, alas), but science itself might gain a bit more credibility.

As it is, it is teetering.

Or so some “studies have shown.”

As for me, I’m not gay, but I am married . . . and a former redhead. Tanning salons don’t profitably pitch their services to me.

Not because of science, but . . .

Common Sense. Which this is. I’m Paul Jacob.

Original image by Alexis O’Toole

—

See all recent commentary
(simplified and organized)

See recent popular posts

Tags economics, risk, science

free trade & free markets

Negative Logic

savings bond, family, interest rates, economics, savings,

“The idea that negative interest rates will produce loans and generate growth,” concludes Richard Rahn in a Washington Times op-ed, “is not supported by the evidence to date.”

Citing current markets for Danish and Swiss bonds, Rahn states that “approximately 30 percent of the global government bond issues are now trading in negative territory.”

Bonds used to seem the best investment. Government is the biggest, most reliable consumer, as J.B. Say and Destutt de Tracy (the latter being Thomas Jefferson’s favorite economist) argued, making the bond market the surest form of consumer credit. Governments last, weathering storms. So people loan them money not merely to earn interest, but to not risk their principal investment.

Government bonds during America’s Great Depression were about the only form of investing going on: everything else was shaky.

Which seems to be happening again.

“In theory, as the interest rate falls, businesses and individuals should borrow and invest more,” Rahn explains. “In fact, as can be easily seen in Japan, as the interest rate falls, many save more — increasing the supply of savings and putting downward pressure on interest rates — in order to ensure they will have adequate funds for retirement. So, a low or negative interest rate policy becomes self-defeating.”

Could the logic of modern economic policy be . . . illogical?

Keynesian fiscal policy has always struck me as based on . . . evasions, the most obvious being that actual, real-world Keynesian politicians somehow never insist that deficits be turned into surpluses in good times, as John Maynard Keynes’ original program stated.

Modern monetary policy also seems . . . well, if not evasive, at least . . . desperate.

Which I would be, too, were I riding on a growing debt as big as the federal government’s.

This is Common Sense. I’m Paul Jacob.

PDF for printing

—

See all recent commentary
(simplified and organized)

See recent popular posts

Tags economics, family, interest rates, savings, savings bond

Common Sense

Money for Robots and Representatives!

Post author By Redactor
Post date July 25, 2019
2 Comments on Money for Robots and Representatives!

Rashida Tlaib, minimum wage, The Squad, economics,

Yesterday I addressed Senator Bernie Sanders’ minimum wage problem. Today it is member of Congress and “The Squad” Rashida Tlaib’s turn. She is unsatisfied with the just-passed national $15/hour minimum wage.

She wants to make it $20.

Now a bidding war begins?

But not where laborers bid for jobs. Instead, a war in which restaurateurs bid for robots.

The point being that when you force up the costs of employing one factor in a production process, those who are trying to make a living as producers do not just fold and give their wealth away to rent/purchase the newly exorbitant factor. They economize.

They make substitutions.

If I am not mistaken, basic economics has a term for the core concept . . . marginal something of something substitution.

Why folks enamored of government regulation and prohibition (for the minimum wage law prohibits hiring help below a certain rate of pay) seem to think this elementary aspect of human behavior can safely be ignored is hard to figure.

At Reason, Billy Binion explains just how devastating Tlaib’s “one size fits all approach” would be for restaurants, “particularly those of the mom and pop variety.” What Tlaib demands, for these wage contracts, “amounts to an increase of almost 940 percent.”

Binion cites one study predicting “that a median-rated restaurant on Yelp (3.5 stars) was 14 percent more likely to close with each additional dollar added to the tipped wage.”

If restaurants go out of business, new businesses would emerge, admittedly. Say, a return of the Automat!

While young folks look up that term, we oldsters wonder if these automation-minded entrepreneurs will fund Tlaib’s re-election campaign.

This is Common Sense. I’m Paul Jacob.

PDF for printing

—

See all recent commentary
(simplified and organized)

See recent popular posts

Tags economics, minimum wage, Rashida Tlaib, the squad

national politics & policies Popular

Bernie and Economic Law

One of the things Vermont Senator Bernie Sanders is known for is his push for a $15 per hour “living wage.” But this is politics — a policy position is never complete until its advocates demonstrate just how idiotic the policy actually is.

As Bernie just did.

His presidential campaign has been embroiled in labor union negotiations and a mini-scandal.

Some staffers have been paid a flat salary, not according to a per-hour contract, making Bernie’s “living wage” commitment a bit murky. You see, these salaried employees worked longer hours than a typical 40-hour work week (as is common in political campaigns), dipping their wage breakdown below the $15/hour “minimum.”

Now, no one is more deserving of this bit of policy blowback than resplendent millionaire Bernie Sanders.

Yet, it’s his campaign’s response that is especially droll: reduced hours!

So, while in one sense staffers got a pay raise, they did not get more money. Which is, as Matthew Yglesias acknowledged at Vox, “exactly the point that opponents of minimum wage increases are always making — if you force employers to pay more, they’re going to respond by cutting back elsewhere.”

Ryan McMaken, at mises.org, dug deeper, noting that there are a number of ways that the new union deal could amount to cuts in real wages. By “cutting worker hours, the Sanders campaign elected to provide fewer ‘services’ in the form of campaign activities. In practice, this will likely mean fewer rallies, less travel, or fewer television ads.” Less chance for growth. And decreased likelihood for increased employment of other workers.

Not exactly shocking. But a lesson. A terrible way to run a business.

Or a campaign.

Perhaps we should say, “Thanks, Bernie!”

This is Common Sense. I’m Paul Jacob.