How the Government Mandates Inflation

or, “How the Government legislates Environmentally stupid laws and makes you poorer at the same time”:

The EnergyStar fridge costs $1329 and uses $41 of electricity per year while the conventional one costs $1029 and uses $48 per year. It would take about 43 years of energy savings to make up for the difference in cost between these two refrigerators. Many consumers might not think that’s such a good deal.”

This green lobby is out of control.  Why micro-manage production?  If, in Congress’ omnipotent view, all Americans should pay more for power, why don’t they just increase the price of energy?  The market will find the right payback for that, and Congress will have more money to fritter away, I mean, to explore more energy alternatives.

These laws are senseless, regressive and administratively horrendous for life and living.

Free Trade is Good. Protectionism is bad.

The Club for Growth sponsored 1,028 economists from all 50 states to pressure congress not to enact protectionist policies against China.  Democrats have been rattling their sabers for months now with any number of suicidal thoughts on trade.  Not only is the trade helpful to both countries, but China buys billions of dollars of low interest treasuries with their American dollars, keeping rates low.  Who in their right mind would want to stop either of those things?   Here’s the 2007 petition (PDF) as it ran in the Wall Street Journal this morning.  It is deliberately reminiscent of the 1930 petition (PDF) also signed by 1,028 economists as it ran in the New York Times, in hopes of dissuading the government from signing the Smoot-Hawley Tariff Act.  The 1930’s petition was not successful and the resulting tariffs drove the nation into depression. 

PETITION

 Concerning Protectionist Policies Against China

We, the undersigned, have serious concerns about the recent protectionist sentiments coming from Congress, especially with regards to China. By the end of this year, China will most likely be the United States’ second largest trading partner. Over the past six years, total trade between the two countries has soared, growing from $116 billion in 2000 to almost $343 billion in 2006. That’s an average growth rate of almost 20% a year. This marvelous growth has led to more affordable goods, higher productivity, strong job growth, and a higher standard of living for both countries. These economic benefits were made possible in large part because both China and the United States embraced freer trade. As economists, we understand the vital and beneficial role that free trade plays in the world economy. Conversely, we believe that barriers to free trade destroy wealth and benefit no one in the long run. Because of these fundamental economic principles, we sign this letter to advise Congress against imposing retaliatory trade measures against China. There is no foundation in economics that supports punitive tariffs. China currently supplies American consumers with inexpensive goods and low-interest rate loans. Retaliatory tariffs on China are tantamount to taxing ourselves as a punishment. Worse, such a move will likely encourage China to impose its own tariffs, increasing the possibility of a futile and harmful trade war. American consumers and businesses would pay the price for this senseless war through higher prices, worse jobs, and reduced economic growth. We urge Congress to discard any plans for increased protectionism, and instead urge lawmakers to work towards fostering stronger global economic ties through free trade.

I love it.  Congress would be beyond silly to go ahead now.  And I wonder what the reaction will be in The New York Times, after this incredibly silly article of a few days ago.  This story will be fun to watch.  Reason backed up by statistics and logic vs. alternate reality claptrap always provides great theater.  It’s like watching Hitchens debate Michael Moore.

Stay tuned.

Tags: Free trade, Economics, China, Politics, Sanctions

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Repricing Risk and our Economy

From Morgan Stanley’s Richard Berner:

In our view, housing activity is clearly at risk, and we see no real recovery until 2009.  We believe that the economic costs of subprime loan defaults largely will be borne by lenders rather than borrowers because such borrowers have scant equity in their home.  Thus, the spillover risk to the economy depends on whether lenders tighten lending standards significantly further.  We do expect that the tightening in lending standards will crimp demand; indeed, the downdraft in June home sales to new lows suggests that the tightening in mortgage credit is already starting to bite.  The ongoing buildup in inventories of unsold new and existing homes points to a mismatch between supply and demand that will require at least a 20% decline in 1-family housing starts to correct; that drop is already built in to our forecasts.  In addition, we estimate that foreclosures over the coming year could add 7% to the inventory of homes available for sale and put further downward pressure on home prices and thus, potentially, on consumer spending.  Likewise, the increase in the cost of capital and tighter standards for business borrowers means that the sluggish capex expansion is also at risk. 

But there are also several reasons to be suspicious that such forces will materially weaken the economy.  First, magnitude and duration both matter for assessing the extent to which any such credit tightening will affect growth; this episode has been modest and recent — so far.  Second, other dimensions of financial conditions are moving in the opposite direction.  Third, and contrary to the pessimists’ claims that the US economy’s sole source of fuel is a high-octane credit market, we continue to think that strong overseas growth and hearty domestic income gains will support overall US growth in general, and consumer spending in particular.  Indeed, while market participants are ignoring past economic data on the theory that they don’t reflect the recent changes in financial conditions, initial economic conditions do matter.  In particular, net exports have added 0.4% to overall US growth over the past year for the first time in a decade, and prospects for global growth remain strong.  And US real disposable income rose by 3.2% over the past year — faster than the pace of spending. 

Exactly.  The economy needs one year’s grace for housing and consumer spending to get back in line.  That is what it needs, and happily, that is what it will have.  And the dollar will help.

In the long run though, government spending, especially in huge apportionment programs like social security, must be resolved to some semblance of sanity.  And there’s one other spending spree that’s really being hidden in the numbers; the politicization of the military.  What proportion of the military budget is really just politics finding a way to get a local income stream?  Put another way, if you were king for a year, how much could you shrink military spending and actually increase the effectiveness of the best men and women in the country while providing in capital and research and wages for their future?  Is it as high as 50%?  There’s some smart military folks around who could make a pretty good guess.

Tags: Economics, Globalization, Taxes

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