“In an op-ed for The New York Times published Friday, Hawley uses the temporary supply chain problems as an excuse to push for a permanent expansion of federal power over the affairs of private businesses. We must “fundamentally restructure our country’s trade policy,” Hawley demands, and that means injecting both the Pentagon and Commerce Department bureaucrats into companies’ purchasing decisions. Under the terms of a bill that Hawley is proposing, any product determined to be “critical for our national security and essential for the protection of our industrial base” would have to have at least 50 percent of its value made in the United States.
Why is it necessary for the government to get significantly more involved in the system of global trade that’s allowed Americans to enjoy unparalleled prosperity in recent years? Because “the global pandemic has exposed this system for what it is—a failure,” Hawley writes.
One must assume that if the lights in his home went out due to a storm, Hawley would respond by declaring electricity to be a mistake and demanding that the government require homes to be lit with candles and gas lamps. After all, what is the electrical grid but a complicated supply chain that leaves Americans woefully dependent on production and distribution systems (power plants, substations, and lines) that they do not fully control? Better to produce your own lighting, right? If that means you have to live without television or the internet, well, those are just the trade-offs required to achieve self-sufficiency.
A storm—or a pandemic—can create temporary problems in the highly complex systems that run so much of the modern world. That’s hardly a reason to abandon them. If Hawley is imagining a world in which the United States is wholly self-sufficient, then he’s asking you to accept a scenario in which the United States is significantly poorer than it is today.”
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“Hawley says the supply chain crisis is the result of “a crisis of production.” Wrong again. American manufacturing is stronger than it has ever been, in part because outsourcing low-level production has allowed companies here to focus on higher-value goods (which means higher wages for the people who make and sell them). The true cause of the current mess is a disconnect between supply and demand—supplies have been constrained by a number of pandemic-related issues like temporarily closed factories and worker shortages, while demand has shifted in unexpected ways.”
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“If his thesis is correct, then items that are already mostly produced domestically should be exempt from the problems with foreign supply chains, right? Except, no, that’s not true. As Scott Lincicome, a senior fellow with the Cato Institute, points out, the vast majority of food consumed in the United States is grown, raised, and otherwise produced here. And yet Americans are seeing higher prices and supply issues at the grocery store too.
“That a mostly‐domestic U.S. food supply chain hasn’t protected American consumers from recent shortages and price increases is unsurprising,” Lincicome writes. “For starters, many of the same things that stress global supply chains—COVID-19 outbreaks; supply‐demand imbalances; labor shortages in the trucking and warehousing industries; misguided trade, transportation, and immigration policies; etc.—stress domestic ones too.””
“Most countries, including the United States since the passage of 2017’s Tax Cuts and Jobs Act, use some version of a “territorial” system. Territoriality is a basic principle of good tax policy and means that governments don’t tax their taxpayers’ foreign-earned incomes. That money is instead taxed by the foreign jurisdictions where it is earned. Firms can choose where to do business based on what country has the best tax regime. This approach puts pressure on governments with punishing tax regimes to become less draconian.
High-tax nations don’t like this competition, which is why they’ve been itching for the past decade to undermine it with a global minimum tax. And while the U.S. government is set to benefit immensely from the new regime, U.S. companies with foreign subsidiaries and income will not.”
“Note, however, the bill stipulates that it only covers firms that are over the $600 billion line “as of the date of enactment.” In other words, if a company has a market cap under $600 billion on the day the bill becomes law, then that company is permanently exempt—even if it later crosses the threshold.
Two companies that are currently under the $600 billion line and thus exempt from the bill are mega-retailers Target and Walmart. These companies are both worth hundreds of billions of dollars, and their e-commerce platforms are growing at a faster rate than Amazon’s. But under the Klobuchar/Cotton law, it wouldn’t matter if Target and Walmart overtake Amazon—they would be immune from this new antitrust action, as long as they are small enough on the day the bill is signed.
Readers may be interested to note that Target is headquartered in Minneapolis, Minnesota. Walmart is headquartered in Bentonville, Arkansas. Isn’t that interesting? It’s probably just a coincidence that the $600-billion-at-date-of-enactment provision would shield the two most important companies in Klobuchar and Cotton’s home states.”
“Texas Gov. Greg Abbott’s border-control crusade is overwhelming court systems, leaving detainees stuck in jails for weeks or even months without due process, and generally isn’t resulting in many convictions.
Abbott launched “Operation Lone Star” in March. Border enforcement is ordinarily the federal government’s job, but Abbott decided to deploy the state’s Department of Public Safety and the Texas National Guard to “deny Mexican Cartels and other smugglers the ability to move drugs and people into Texas.”
Instead, according to media reports from multiple outlets, suspected illegal immigrants caught at the border are being arrested for misdemeanor trespassing and then being held in jail. And then…nothing, frequently. The Wall Street Journal reports that only 3 percent of the 1,500 people who have been arrested under Operation Lone Star have been convicted, all with guilty pleas of misdemeanor trespassing.
Texas does not have the authority to deport any of these people, so the rest are either still detained in jail or being released back into the community—the very outcome Abbott insists he was trying to stop.”
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“Lacking any ability to deport these immigrants and apparently not being able to charge most of them with crimes other than trespassing and some property crimes (because they likely are not the drug cartel smugglers and human traffickers Abbott claims they are), many of them are just sitting in pretrial detention for weeks or months. Normally a person arrested in Texas for a nonviolent misdemeanor would be released or out on bail quickly, in a matter of days at most. That’s not happening here.”
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“Meanwhile the courts on these border counties are being overwhelmed. Texas Monthly reports that Kinney County (population: 3,659), the ground zero for a lot of these arrests, hasn’t had a jury trial in seven years. Kinney officials have filed charges against those they’ve detained, more than 1,000 migrants, but it’s not entirely clear how they’ll be able to arrange trials.
Abbott’s crusade comes with costs, and they’re considerable. Abbott shifted $250 million dollars from elsewhere in the budget (including the prison system itself) to fund this program. And the state legislature directed another $3 billion his way for border enforcement. Officials in Kinney County calculate that actually prosecuting all these immigrants will cost them $5 million, but Operation Lone Star’s funding is sending only $3.19 million their way, according to Texas Monthly.”
“52 percent of voters approved Question 1, an ordinance that puts a hard annual 3 percent cap on rent increases. It makes no allowances for inflation or exemptions for vacant apartments and new construction that are typical in other rent control policies.
The new ordinance doesn’t go into effect until May 2022. Nevertheless, several real estate companies with large projects in the works have already announced that they’re pulling their permit applications.”
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“In response to the developer freakout, freshly reelected Mayor Melvin Carter’s administration sent an email to the St. Paul City Council on Monday saying that while he supported “rent stabilization” as one necessary tool to make housing affordable, the new ordinance passed by voters could use some work.
“Allowing a reasonable return on investment is why virtually every other rent control ordinance in effect today exempts new construction,” reads the email. “The Mayor requests you consider an amendment to exempt new housing construction, which he will sign once it reaches his desk.”
That would make St. Paul’s new rent control policy more similar to those that exist in other states around the country.
Both California and Oregon, which passed statewide rent control ordinances in 2019, exempt buildings that are less than 15 years old from their price caps. New York’s long-standing rent stabilization law mostly applies to apartments built before 1974 or to newer units that received certain tax benefits.”
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“Some economists have argued that even with exemptions for new construction, rent control policies still suppress the value of new buildings and thus deter some amount of new construction.”
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“The 3 percent cap on annual rent increases is itself pretty strict. California and Oregon permit annual rent increases of 5 and 7 percent respectively. Allowable increases at rent-stabilized apartments in New York are typically much lower, and are often in the 1 to 2 percent range.
Both California and Oregon also allow landlords to factor inflation into rent increases. St. Paul’s ordinance makes no allowance for inflation, meaning that if prices rise more than 3 percent, landlords will effectively be required to lower the real rents that they charge. St. Paul’s ordinance also does not allow landlords to raise rents beyond that 3 percent cap for vacant units.
All of this could well encourage landlords to just get out of the rental market altogether and sell their properties to owner-occupiers. Rising home values in St. Paul, where prices have increased 12 percent in the last year, only make this option more attractive for landlords.
This is what happened in San Francisco where an expansion of preexisting rent controls led to a 15 percent reduction in the supply of rental housing, according to one 2018 study. That study found that incumbent tenants benefited handsomely from the limits on rent increases but that their windfall came “at the great expense of welfare losses from future inhabitants.”
Even if the city’s new ordinance is amended to exempt new construction, St. Paul renters, current and future, can expect a similar result.”
“inflation is real. The all-item consumer price index (CPI) was up more than 5 percent on a year-over-year basis for July, August, and September, and now shows a 6.2 percent increase for October—the largest jump since 1990. The Fed considers 2 percent inflation to be its bright-line monetary policy goal. Obviously, there is a large gap between that and what we are seeing on the ground.”
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“Individuals whose salaries, wages, Social Security payments, and even mortgage interest or rental rates are automatically adjusted for inflation have much less to worry about than their neighbors on fixed salaries, who must cope with ballooning grocery bills or pay twice as much at the pump. On these grounds, inflation may be devastating for some and almost meaningless for others. These gaps widen as inflation gets worse.”
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“The rate of inflation gets captured in interest rates that borrowers must pay, especially for longer-term debt. Lenders hope to be paid back with at least as much purchasing power. If they believe inflation will tick away at 4 percent, interest rates tend to rise with this baked-in expectation.
In any case, higher interest rates mean higher interest costs on all forms of public and private debt. As a result, mortgage rates will rise, all forms of construction will suffer, and businesses will postpone making large investments in plants and equipment.
Now consider the public debt—especially the federal debt that ballooned from large deficits in recent years. (In 2020, federal revenues were $3.4 trillion and spending was $6.6 trillion.) The interest cost of the national debt in 2008 was $253 billion and remained at about that level through 2015. Even though the debt doubled in those years, sharply falling interest rates and low inflation worked to contain costs.
But that was yesterday. With today’s higher inflation and rising interest rates (perhaps with more to come), the Congressional Budget Office (CBO) estimates the interest cost of public debt to be $413 billion in 2021. Obviously, any dollar spent on interest cannot be spent on government benefits and services to taxpayers.”
“If Congress fails to enshrine key climate policies as federal laws, Biden’s Plan B includes executive orders and major regulations from the Environmental Protection Agency, the New York Times reported.
The problem is that executive actions aren’t an ideal substitute for federal laws, and may last only as long as Biden’s presidency. EPA regulation also “tends to lag [behind] the technological realities,” meaning it may only modestly nudge the economy in a new direction, Jesse Jenkins, an environmental engineering professor at Princeton University, told Vox. It’s also vulnerable to intervention by the Supreme Court.”
“More than 580,000 Americans are homeless. The median sale price for a home has just surpassed $400,000. Homeownership is on the decline.
This, by all accounts, is a national emergency — and one House Democrats had proposed $330 billion to tackle as part of their Build Back Better plan. This package was both a once-in-a-generation investment and also barely enough to scratch the surface. Now, even those proposed investments are being cut down as part of negotiations over the final package.”
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“some in Congress were willing to make substantial investments, very few were willing to tackle the fundamental problem that was making homes so expensive in the first place: lack of supply.
Yes, it’s easier to try to help people afford something expensive than to try and make it less expensive to begin with. But many of the policies that try to subsidize housing can actually make it more expensive. “What you really need if you want to lower those new home prices, is you need to build more homes — and there’s not that much of that in this bill,” says Paul Williams, a fellow at the Jain Family Institute.”
“Outside experts have estimated that as much as $75 billion should be spent over 10 years on public health infrastructure, preparedness, and prevention.
The revised Build Back Better legislation totals roughly $10 billion in public health infrastructure and pandemic preparedness funding over the next few years — a down payment on better readiness, in Democrats’ view, but one without assurance of future installations.
“All too often, when there’s a crisis, the reaction is to put money into public health. Once the crisis subsides, the funding tends to dry up,” Ron Bialek, president of the Public Health Foundation, told me. “This is not a recipe for success.””
“Rising costs of entitlement programs and the interest on the debt itself are the primary reasons why the debt will keep growing. In other words, even cutting a lot of discretionary spending would have little effect on the debt at this point.
The guilty parties are, well, both parties. It was fitting that the debt hit the symbolic $1 trillion figure during Reagan’s presidency, as the Gipper ignored his own warning. Republicans have spent much of the past 40 years venerating Reagan as an icon of conservative values, including supposedly limited government. And while his successors ran up far larger amounts on the nation’s credit card, Reagan saw the government surpass not only the $1 trillion debt threshold but also the $2 trillion threshold.”
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“The guiding principle for today’s Democratic Party is the idea that debt doesn’t really matter if interest rates remain low. So long as the cost of servicing the federal debt stays below 2 percent, policymakers should not be restrained by the “traditional idea of a cyclically balanced budget,” Larry Summers, Clinton’s treasury secretary, and former Obama economic adviser Jason Furman argued in an influential paper published last year.
But the past 40 years would suggest that lawmakers have almost never been restrained by the idea of balanced budgets—a few brief interludes of fiscal sanity notwithstanding.
It took nearly two centuries for America to accumulate $1 trillion in public debt. It took 40 years to increase that amount 28 times over. If we refuse to address the breakneck speed at which America spends money it doesn’t have, how long until Clinton’s warning is realized, and that debt deals with us?