Essential Economics for Politicians

Trade barriers “dumb down” our economy by undoing the good work of our best engineers, scientists, and entrepreneurs. The most creative and best-trained minds in America developed the jet engines, the containerization technology, and the Internet and global telecommunications that have done so much to promote the growth of global trade and output.

In contrast, trade barriers are a kind of anti-technology. The mind-numbing columns of arbitrary tariff rates in the Harmonized Tariff Schedule and the tangled regulations that limit trade and investment stand in opposition to decades of technological advancement. We find a way to move goods, services, and capital around the world faster, more efficiently, and at lower cost, only to watch the politicians in Washington throw sand into the gears by erecting artificial barriers to commerce.

Excerpted from Dan Griswold’s 2009 volume, Mad About Trade.
 
One Does not simply eliminate global supply chains

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https://fee.org/articles/one-does-n...obal-supply-chains/?utm_medium=related_widget
 
Critics have argued that U.S. multinationals are “abandoning” the home country and moving technology and jobs offshore through foreign operations and participation in global supply chains. Actually, the reverse is true: through increased firm-level competiveness enhanced by the key U.S. role in global supply chains, U.S productivity and living standards are higher today than they would have been otherwise.
 
Here’s a letter to the Washington Post:

Charles Lane deserves applause. Not only does he expose the radical-left-wing origins of the Trump administration’s proposal to change the way that goods transshipped through the U.S. are accounted for in trade statistics, Mr. Lane also reveals the utter meaninglessness of bilateral trade ‘imbalances’ – such as America’s trade ‘deficit’ with Mexico (“Trump’s attempt to massage economic data isn’t new. But there’s a better way.” February 24th).

But I fear that a third valid point made by Mr. Lane will go unnoticed – namely, that the Trump administration is mistaken to insist that no value is added in the U.S. to goods transshipped through the U.S. to other countries. We can see the administration’s error clearly if we ask ‘Why do foreign producers first ship their goods to the U.S. rather than directly to these goods’ ultimate destinations?’ The answer must be that there is value to foreign producers in transshipping their goods through the U.S. Therefore, supplying transshipping services is a valuable American contribution to the global economy.

Such transshipments require the specialized services of American ports and warehouses – specialized services for which foreign merchants pay. To conclude that, because transshipment services don’t alter the physical shape or contents of goods, these services aren’t a valuable economic contribution makes no more sense than to conclude that, because the services of truck drivers don’t alter the physical shape or content of goods, the services of truck drivers aren’t a valuable economic contribution.

Just as farmers do not deliver their produce directly to the homes of final consumers but, instead, to warehouses and shippers who add value (and who profit) from supplying storage and shipping services, many foreign manufacturers do not deliver their products directly to the countries of final destination but, instead, to American warehouses and shippers who add value (and who profit) from supplying storage and shipping services. It would be deeply misleading for the trade accounts to fail to register the value of these services.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
 
The Source of Systemic Risk

It is government intervention into markets, borrowing and printing money to sustain currency values and debt prices, that allows bubbles to inflate systemically, causing a financial crisis when they burst. That’s the conclusion of Reinhart and Rogoff, This Time is Different: Eight Centuries of Financial Folly (2011).

As the head of the FDIC, Sheila Bair argued that the sub-prime lending debacle would not have occurred had the regulators simply maintained traditional capital requirements and lending standards. Regulators, particularly the Fed and Treasury, were deeply implicated in creating the crisis and hence intent on a massive bailout. Lacking sufficient budget resources and facing angry taxpayers, they resorted to the most opaque solution, to re-inflate the asset bubble this time in both houses (to avoid trillions more in financial institution losses and global failure) and stocks (to keep consumer spending up and the economy afloat). The multi-trillion dollar cost was shifted to savers whose interest earnings evaporated.

Every insider account portrays a dysfunctional, unaccountable regulatory structure that any private insurer would label “irrational”. But politicians didn’t hold regulators accountable. Instead, the subsequent reform effort, a 1,500 page bill named for the Two Congressmen most implicated in the crisis, Dodd and Frank, spawned 22,000 pages of regulation, rewarding regulators by covering up and doubling down.
 
Without Discipline Democracy is Threatened

The U.S. financial regulatory system may look like the product of a maniacal mob, but it was made fragile by political design. Politicians aren’t necessarily irrational, but they face incentives to favor constituents (and patrons), and they avoid taxpayer accountability by raising money through opaque means, like issuing debt and/or providing implicit or explicit debt guarantees. Banks, and more recently the Fed, buy this debt or it is sold to foreign governments in return for exports. Undisciplined, government intervention erodes market discipline and feeds on itself
 
Actually, Repealing Obamacare Wouldn't Kill Anyone

https://fee.org/articles/actually-repealing-obamacare-wouldnt-kill-anyone/

The best statistical estimate for the number of lives saved each year by the Affordable Care Act (ACA) is zero. Certainly, there are individuals who have benefited from various of its provisions. But attempts to claim broader effects on public health or thousands of lives saved rely upon extrapola- tion from past studies that focus on the value of private health insurance. The ACA, however, has expanded coverage through Medicaid, a public program that, according to several studies, has failed to improve health outcomes for recipients. In fact, public health trends since the implementa- tion of the ACA have worsened, with 80,000 more deaths in 2015 than had mortality continued declining during 2014–15 at the rate achieved during 2000–2013.

 
  • The Affordable Care Act has led to substantial increases in Medicaid enrollment but shows no effect in the aggregate on private insurance coverage; a lower share of non-elderly Americans had private insurance in 2015 than at the start of the recession in 2007–08.
    • Economic recovery, not the ACA, has driven changes in private insurance coverage: during 2007–10, total employment fell 5.5% and private insurance coverage fell 7.0%; during 2010–15, total employment rose 8.8% and private insurance coverage rose 9.5%.

    • The share of non-elderly Americans with private health insurance fell from 66.8% in 2007 to 65.6% in 2015.

    • By contrast, the share of non-elderly Americans enrolled in public insurance, primarily Medicaid, has increased from

      18.1% in 2007 to 25.3% in 2015, accounting for the entire reduction in the uninsured share of the population.

      https://www.manhattan-institute.org/sites/default/files/IB-OC-0217.pdf
 
We Don't Need Fannie and Freddie; We Need Freedom

https://fee.org/articles/we-dont-need-fannie-and-freddie-we-need-freedom/

Take away Fannie and Freddie’s capital arbitrage and set their equity capital requirements in line with other financial institutions of similar size. Equity of at least 5 percent of total assets should be their required leverage capital ratio. …Given their undiversified business, something more might be prudent. In any case, the hyper-leverage which allowed Fannie and Freddie to put the whole financial system at risk needs to be permanently ended. …Designate them as the Systemically Important Financial Institutions (SIFIs) they indubitably are. Fannie and Freddie…have conclusively demonstrated their ability to generate huge systemic risk.
 
Interest rates are prices. They impart information. They tell a business person whether or not to undertake a certain capital investment. They measure financial risk. They translate the value of future cash flows into present-day dollars. Manipulate those prices — as central banks the world over compulsively do — and you distort information, therefore perception and judgment.
--http://www.nationalreview.com/article/441128/james-grant-monetary-manipulation-must-end
 
Interest rates ought to be discovered in the market, not administered from on high. They can’t do their essential work if someone, say a central bank, is muscling them around. Let’s get the central banks out of the business of using interest rates — and stock prices and exchange rates, too – as instruments of national policy. Today, investors live in a hall of mirrors: They don’t know which values are real and which are distorted by monetary manipulation. Market-determined rates will help restore clarity.--http://www.nationalreview.com/article/441128/james-grant-monetary-manipulation-must-end
 
Trillions in Debt and We're Just Scratching the Surface

How Many Zeros Are in a Trillion?

The $20 trillion debt is already twice the annual revenues collected by all the world’s governments combined. Counting unfunded liabilities, which include promised Social Security, Medicare, and government pension payments that Washington will not have the money to pay, the federal government actually owes somewhere between $100 trillion and $200 trillion. The numbers are so ridiculously large that even the uncertainty in the figures exceeds the annual economic output of the entire planet.

Since 2000, the federal debt has grown at an average annual rate of 8.2%, doubling from $10 trillion to $20 trillion in the past eight years alone. Who loaned the government this money? Four groups: foreigners, Americans, the Federal Reserve, and government trust funds. But over the past decade, three of these groups have cut back significantly on their lending.

Foreign investors have slowed the growth in their lending from over 20% per year in the early 2000s to less than 3% per year today. Excluding the Great Recession years, American investors have been cutting back on how much they lend the federal government by an average of 2% each year.

http://www.usdebtclock.org
 
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