Relevant and even prescient commentary on news, politics and the economy.

A Tariff Laffer Curve?

A Tariff Laffer Curve?

Douglas Irwin is a very good economist. Let’s highlight his Historical Perspectives on U.S. Trade Policy:

The Civil War marked the beginning of a long period of high U.S. tariffs. These tariffs served the dual purpose of raising revenue for the federal government and keeping out foreign goods, ostensibly for the protection of U.S. labor and business. After the war, tariffs (which generated roughly half of government revenue) remained high to service the enormous debt burden that resulted from the war. Yet by the mid-1880s a curious problem had arisen: though much of the debt had been paid off, federal revenues were outstripping expenditures by as much as 50 percent. Republican and Democratic politicians agreed that the fiscal surplus should be reduced, but they proposed exactly the opposite policies for achieving this objective. Democrats advocated cutting tariff rates in an effort to reduce revenue. Arguing that this would simply encourage imports and raise even more revenue, Republicans proposed higher tariff rates to reduce fiscal revenue. This debate over the tariff “Laffer curve” essentially hinged on whether existing tariffs were above or below the revenue-maximizing rate, which in turn depended on the height of the tariff and the price elasticity of import demand.

Irwin examined this issue in his Higher Tariffs, Lower Revenues? Analyzing the Fiscal Aspects of the “Great Tariff Debate of 1888”:

This paper examines this debate and attempts to determine the revenue effects of the proposed tariff changes. The results indicate that the tariff and the price elasticity of U.S. import demand during the 1880s below the maximum revenue rate, and therefore a tariff reduction would have reduce customs revenue.

Irwin also contrasts the other policy agendas of the two parties.

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Kenneth Thomas in WSJ

Kenneth Thomas (an AB contributor) was quoted April 7  in the Journal a second time on the general question of how to solve the problem of subsidy bidding wars.  Unfortunately it is behind a paywall…but worth pointing to…

 WSJ.COM
Opinion | Pass a Law to Combat Rent-Seeking

Congress could invoke the Commerce Clause to limit destructive competition over corporate subsidies.

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North Korean Near-Famine Leads To Dead Nuclear Negotiators

North Korean Near-Famine Leads To Dead Nuclear Negotiators

It has not been officially reported by the North Korean govt, but long running rumors are now being reported by various  serious media that Trump’s big pal Kim Jong Un has recently killed the top 5 officials of his govt who set up his  failed summit with US President Trump.

According to sources I watch there has been a massive crop failure this year in the Democratic Peoples’ Republic (DPRK). The big issue there is if the local, semi-allowed private markets in ag will save the population from outright starvation. At this time this is not  known.

So this difficult situation may be partly responsible for Kim Jong Un killing the top five negotiators with the US on nuclear weapons for the summit in Hanoi.  In addition, reportedly five more senior officials have been sent to rural labor, or something like that.

The lead official word from the DPRK side is that the person Kim Jong Il killed was Kim Hok Choi, I apologize if I have misspelled his name. But I have it close, and I send my best regards to his family and the families of those others whom were also reportedly killed.  As well as this unfortunate team,  four more beyond Kim Hok Choi were executed, and five more were sent to rural labor camps, including one alleged to be a “right hand man” of Kim Jong Un.

The unclear question is how much will the unofficial private markets in DPRK will save people from outright starvation/famine. The deepest  sources ai have followed say that it is unclear.  DPKR is not a “normal” country, and we have no way to know what is actually going on there now.

Given that his nation is facing food shortages, it is not surprising that he may be facing an internal challenge, and now we see that manifested by him overcoming any inside opposition by killing these five individuals.  Reportedly five more individuals suffered being expelled to the countryside, including Kim Jong Un’ s “right hand man.”

A serious and unresolved issue at this point is how the unofficial private markets may save people there from starving to death.

Barkley Rosser

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Art Laffer is Not an Economist

Art Laffer is Not an Economist

 Can The Hill be more wrong?

President Trump will award the Presidential Medal of Freedom, the nation’s highest civilian honor, to economist Arthur Laffer, the White House announced Friday. The president will honor Laffer on June 19 for his contributions to economic policy. The White House described Laffer as “one of the most influential economists in American history” in announcing the award.

OK the Idiot-in-Chief did say that but repeat after me – Art Laffer is not an economist. Why did Trump debase the Presidential Medal of Freedom and the entire economics profession?

Laffer co-wrote a book published last year titled “Trumponomics: Inside the America First Plan to Revive Our Economy.” His co-author was Stephen Moore, who earlier this year was nominated to serve on the Federal Reserve Board of Governors but withdrew amid bipartisan opposition from senators.

Well at least The Hill got this right. But this?

Laffer championed supply-side economics and gained prominence serving as a top adviser to then-President Reagan. He established what is known as the “Laffer Curve,” which showed that increases in tax rates will eventually cause government revenue to decrease at a certain point. The model has been cited to argue for the benefits of tax cuts. Critics of supply-side economics argue that it has contributed to inequality and disproportionately benefits the wealthy.

The inequality critique is not the only issue with tax cuts that reduce national savings. Couldn’t The Hill note that the 1981 tax cut lowered investment via higher real interest rates as well as appreciated the dollar leading to large trade deficits? Enough with this weak account as Slate got this right!

Trump Gives World’s Worst Economist the Presidential Medal of Freedom

A better read and if you are going to dub Laffer as an economist please note he is a very poor economist. But at least he lavished Trump with praise.

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Weekly Indicators for May 27 – 31 at Seeking Alpha

by New Deal democrat

Weekly Indicators for May 27 – 31 at Seeking Alpha

My Weekly Indicators post is up at Seeking Alpha.

There was a touch of weakening across several timeframes. The economy is just weak enough that continuing trade and tariff tantrums could take a slowdown and do enough damage to make it a downturn.

As usual, clicking over and reading should be informative for you, and helps me just a little bit for the effort I put into the work.

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Q1 corporate profits and real gross domestic income

Q1 corporate profits and real gross domestic income

Yesterday the second estimate of Q1 GDP came out, which means that corporate profits for Q1 were finally reported.

In my post earlier this week at Seeking Alpha, I wrote that corporate profits are of higher forecasting importance because of the contradiction in the signals being sent by the bond market vs. the housing market. So what light do they shed on the forecast for the next 12 months?

I wrote a follow-up post, and it is up on Seeking Alpha.  As usual, clicking over and reading should be informative for you, and helps to the tune of a couple of pennies for me.

P.S.: As a bonus, another important Q1 metric, gross domestic income, was also reported in yesterday’s revision. There is some evidence that, when they diverge, GDI leads GDP. Here’s what that relationship looks like for the past 30 years:

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Trump’s Latest Mexican Tariff Tirade Irks Senator Grassley

Trump’s Latest Mexican Tariff Tirade Irks Senator Grassley

Senator Grassley rebukes the latest idiocy from the White House:

President Trump dropped a trade war bomb on Thursday when he announced his intent to put in place new and harsh tariffs on goods from Mexico until the “illegal Immigration problem is remedied.” And among the many worried, negative reactions was one from Senate Finance Committee Chair Chuck Grassley, in a strongly worded statement. “Trade policy and border security are separate issues. This is a misuse of presidential tariff authority and counter to congressional intent,” the statement begins. “Following through on this threat would seriously jeopardize passage USMCA, a central campaign pledge of President Trump’s and what could be a big victory for the country.” Putting this in the context of harming Trump’s own signature USMCA (the replacement for NAFTA) is a smart frame, an effort to show that the tariffs are in conflict with the administration’s own trade goals.

First Tramp thinks NAFTA is the worst trade deal ever but NAFTA 1.1 is beautiful. But now Trump wants to start a new trade war with Mexico because he did not get his racist wall? OK! Of course Trump is not the only one with a twitter account and Paul Krugman has joined Senator Grassley with lines like:

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Michigan, Do Not Be Fooled – You Just Lost More Than You Got in Return

No Fault Auto Insurance

On May 30th, the Democratic Governor of Michigan Gretchen Whitmer, signed what was called a bipartisan effort by the Republican controlled legislature and a few of the Democratic members to solve the problems of expensive automotive insurance in Michigan. Due to redlining, other nefarious schemes, and a lack of transparency to how fees were calculated, No Fault Insurance in Detroit was substantially higher than in other areas. It is true the state’s no fault insurance has been a cost burden on many people; but, every attempt made to understand the whys of the costs were stopped by Republicans. The lack of transparency in how the fees for the Personal Injury Protection portion of No Fault insurance were calculated, how fees to doctors and hospitals are set, and how much is in the PIP fund resulted in a constant battle.

With the revision, Republicans have left Michigan constituents with an over priced commercial healthcare insurance plan which does not mirror the care provided by No Fault’s Personal Injury Plan (PIP). Republicans have promised there will be a decrease in premiums. Yes, there probably will be such but it will not be equivalent to want has been lost in benefits and the payout may be reduced by increases in other areas.

Over the last couple of weeks Republican Senate Leader Mike Shirkey and the Republican House Leader Lee Chatfield have led the Republican controlled Senate and House along with a few Dems to pass a bill gutting the present No Fault Insurance in Michigan and stranding constituents. The new bill relies on Commercial Healthcare, Medicare, and Medicaid plans to replace life time Personal Injury Protection and guts the protections of No Fault. It does lessen the cost of Automobile Insurance but it also calls out for a 200 to 240% payment to hospitals and clinics for care. The CBO already studied Commercial Healthcare Insurance cost as compared to Medicare and found Commercial Healthcare pays 89% more than Medicare. The Republicans new plan is a large giveaway to the Healthcare Industry.

This is an abbreviated article of what was written by RN Julia Pulver of Medium Magazine who took the time to review the recent legislation passed by the Michigan Legislature before Memorial Day. RN Julia Pulver is a certified nurse case manager who worked in the field of catastrophic injury for 5 years.

In a planned nontransparent manner reminiscent of what the lame duck legislature did before the reins of the Governorship were handed over to Governor Whitmer, the Republican majority-controlled legislature passed legislation pre-Memorial day, sent it off to Governor Whitmer and asked her to sign it. This to similar to an attempt by a lame duck legislature when the governorship was changing hands earlier this year. No one has had time to review the bill and its potential issues. The Republicans are hoping Whitmer would just sign it, she did, and having felt boxed into a no-win situation.

Such a ploy by Republicans was to also avoid feedback and prevent input from those who already use this valuable portion of No-Fault Insurance covering the results of serious automotive injury. It is being done in such a manner to prevent experts such as RN Julia Pulver from having any input. It is being rushed off to Governor Whitmer’s desk to be signed (and I would urge Governor Whitmer to veto it) before Michigan constituents are aware of what they will lose.

Under the guise of equating Healthcare Insurance Medical benefits to No Fault Personal Injury Protection benefits, the Republican led bipartisan effort are applauding their efforts to take away protections resulting from automotive accidents. Furthermore (redundant alert here), there is no comparison between commercial Healthcare Insurance Medical Benefits and Personal Injury Protection Benefits as the former is only a part of the later.

Also keep in mind, the legislation will allow for medical payments 2 to 2.4 times of what Medicare allows for the same treatment. A Congressional Budget Office analysis had determined the average payout by commercial healthcare insurance is 89% higher than what Medicare pays out. This legislation allows more than twice such at 200 and 240% resulting in a big giveaway to Michigan hospitals, clinics, and doctors.

As researched by RN Julia Pulver, the following is what Michigan constituents will lose now that Governor Whitmer has signed this legislation:

• Coverage for wage loss for three years following an accident, usually 80% of your base wages, paid in real time, while you’re out of work.

• Coverage of guardianship costs for people with brain injuries.

• It pays for a home health aide who can help you with your activities in your own home.

• It pays for replacement services to offset the cost of household needs ( mow your lawn, etc.).

• It pays for modifications to your home and car if you are wheel chair bound or unable to use stairs.

• It pays for an occupational therapist to come to your home, assess what modifications need to be made, and determine the number of care giver hours you require to ensure you are safe in your home and everyone’s care needs are appropriate.

• It pays for an independent nurse case manager to be your patient advocate.

• It pays for long term rehab and community-based care allowing disabled patients to achieve and maintain as much mobility and independence as possible.

• It pays for intensive therapies for children to help physically recover and maintain their cognitive and physical abilities into adulthood.

• It pays for therapists to help injured people re-learn their jobs or find new jobs or skills to continue and lead meaningful lives following injuries.

• It provides transportation for those who can’t drive following an accident, get to their appointments, pick up prescriptions, and stay on track with their recovery. This keeps them out of the ER saving money in the end.

I would also urge you to read RN Julia Pulver’s more detailed article which can be found at the “Medium” to better understand the result of this legislation.

Do Not Be Fooled- You Just Lost More Than You Got.” RN Julia Pulver BSN, CCM; Medium, May 28, 2019

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Kiribati is Low But Not as low as Whale Shit at the Bottom of the Ocean

It is possible to cause a huge (short term possibly reversed) increase in carbon capture by algae by dumping iron sulfate in the ocean. On the other hand, uh, well, maybe it won’t work and you will just get a few tons of fish (not many tons of carbon containing detritus on the bottom of the ocean.

Now the general principal seems to be that, so long as there isn’t proof beyond reasonable doubt that a proposal will work, to stick to the tried and true and first do no harm but rather wait until the tundra melts, methane is released, and the climate is irreversibly altered.

This makes no sense. Conservatism may make sense if the choice is between the current state (which is not ideal) and gambling on something new. It makes no sense if one is careening towards a precipice, as we are.

There is an, as usual, interesting post at Vox.com.   Kelsey Piper discusses the unfortunate fact that rogues might attempt to fight climate change without scientific proof that ocean fertilization works and without international regulation of ocean fertilization. Personally, I think the near certainty of climate catastrophe if we stick to the current approach is a more serious problem.

The current approach is international negotiations to reach non binding agreements which from which Donald Trump withdraws the second largest carbon emitter.

In contrast, the dangerous rogue approach is something allowed by current non law, conducted by Native Canadians which had the side effect of a record salmon harvest.

I want to address two questions. First should we dump Iron Sulfate in the open ocean. I think the answer to this question is obviously yes. I have read no argument with any trace of possible validity against it. I might add that it works better if mixed with silicate and seeded with marine diatoms. But in any case, I have seen no argument anywhere that there is a non negligible risk of undesirable side effects.

Yet the official response, such as it is, is to condemn the efforts and seize everything that can be seized.

I attempt to understand what the hell is going on after the jump.

But before that I note:

What happens when some individual or country wants to go big in the battle against climate change without buy-in from their neighbors? Could a country unilaterally pursue climate solutions that, unlike ocean iron dumping, pose substantial risks?

Note the insanity. In a post on ocean dumping of iron sulfate, Piper says the real issue isn’t any possible bad effects of ocean dumping, but the fact that someone might do something else which is bad some time. But note also that even a tiny country which has authority over a lot of ocean could unilaterally dump iron sulfate. The country doesn’t need a lot of land area. The country doesn’t need high altitude. The country’s average elevation might be two meters above sea level.

Why doesn’t Kiribati dump all the iron sulfate they can buy in the huge expanse of ocean around their tiny soon to be drowned atolls ? What do they have to lose ? Who is going to stop them ? The side effect would be more fish around Kirbati. The policy would make sense even if oceans weren’t rising.

OK so what’s the problem ?

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