The View from Right Field

Solving the Covid-19 Crisis with Proposals You Would Have Made Anyway

As our leaders suggest solutions for the problems caused by Covid-19, it is fascinating how many of the proposals are ideas those leaders would have suggested without Covid-19.  Texas is saying abortion clinics aren’t essential businesses, while New Jersey says that gun shops aren’t essential.  And House Speaker Nancy Pelosi has suggested retroactively repealing the SALT deductibility limit for 2018 and 2019 as a way to get more disposable income to people.¹

Overall, I think the proposals you might want to give the most thought to are ones made by people who would not have suggested those ideas before Covid-19 but who think they may be appropriate now.
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¹ I suppose it would give money to people, though almost of it to rich people.
UPDATE (3/31/20 12:24 am): I deleted footnote 2, which I decided was not in keeping with the spirit of my post of March 23, 2020.

Uncertainty: The Reason the Economy Isn’t As Good As It Could Be

Donald Trump, like the real estate developer and TV host he was, calls everything the best and the greatest – and other adjectives I can’t come up with right now.  He says this about the economy.  The problem is that it isn’t true, but it could have been.  The 2017 tax reform act was a boost to the economy,¹ as were the cutbacks in regulation by the Trump administration and the end of the constant uncertainty as to what new regulation or interpretation or guidance the Obama administration might come up with next.  Because of these actions by people in the Trump administration, the economy started growing faster than under the Obama administration.

But, in spite of President Trump’s boasts and tweets, the economy hasn’t grown as much as it could have – because President Trump brought in his own brand of uncertainty.  In 2018, President Trump tweeted that “trade wars are good, and easy to win.”  The American economy doesn’t agree.  While we needed to do something about China’s unfair trade practices, President Trump’s approach of unilateral tariffs, plus China’s retaliation, resulted in higher costs and more uncertainty.  While China might have been hurt, we have been hurt, too.  Uncertainty is a drag on an economy, no matter what else you do.

Inequality, Social Mobility, and a “Fair Go”

A new post on the New Zealand idea of a “fair go” is up on my other blog, “A Different New Zealand.”  You can find it here.

If “What’s the Matter with Kansas?”, Then What’s the Matter with Me?

In 2004, Thomas Frank wrote a book entitled What’s the Matter with Kansas?¹  The main idea of the book was that Republicans had used issues like abortion, school prayer, etc., to get working class and other Kansans to vote Republican, against their economic interests.

I thought about this book over the weekend when I did the monthly review of our 401(k)s.  I am lousy at investing, so we just own index mutual funds (some in stocks and some in bonds).  The thing I noted was how high the stock market is.  It is amazing to me, but the stock market has seemed to take off since Donald Trump was elected.  I don’t understand it, and I don’t know why it keeps going up,² but it has.³

Government Subsidies – Programs That Never End

There is a saying that the only things certain in life are death and taxes.  And the only thing permanent is a government program.  The inability of the federal government, and state and local governments, to terminate programs that don’t work is proof of the latter.  Instead of getting rid of the old programs that don’t work, governments just set up a new program – again and again.  Which results in four or five (or more) programs all trying to solve the same problem, and none of them doing it well (if at all).

Overseas, the forever programs are often subsidies: for food, fuel, etc.  In theory, the subsidies are set up for good purposes: to help the poor.  (Of course, they are also set up to help politicians – get votes.)  The problem is that, over time, the subsidies become more and more expensive, as costs go up and prices don’t.  And corruption seeps in: subsidized fuel, for example, is sold to neighboring countries where prices are subsidized.

The Purpose of a Corporation. I’ll Go with Milton Friedman.

Last Monday, the Business Roundtable, a group of chief executive officers of big U.S. corporations, announced that it had changed its statement on the purpose of a corporation and had issued a new “Statement on the Purpose of a Corporation.”¹  This was a big deal:

“The leaders of some of America’s biggest companies are chipping away at the long-held notion that corporate decision-making should revolve around what is best for shareholders. …

No longer should decisions be based solely on whether they will yield higher profits for shareholders, the group said.  Rather, corporate leaders should take into account ‘all stakeholders’ – that is, employees, customers and society writ large. …

Confidence and Predictability. Words You Never Hear in Connection With Donald Trump

I have talked before about the importance of certainty and confidence, in both foreign affairs and the economy.  In an editorial yesterday on the possible upcoming recession (the ‘Trump recession,” the Democrats will call it), The Wall Street Journal said this:

“[W]e never said tariffs would produce immediate recession.  We said they – and the climate of uncertainty they were creating for business – would chill global trade and undermine the surge in capital investment spurred by tax reform and deregulation.  The growth momentum from tax cuts and a strong labor market were able to mask the impact of helter-skelter trade policy for a time.  But that old economic disciplinarian, Adam Smith, sooner or later exacts a price for policy blunders.

The Stock Market: Real or Addicted? – A Follow Up

This is a follow up on last Friday’s post, “Is the Stock Market for Real or Just Addicted to Low Interest Rates and Easy Money?”  In writing it, I realized I have been saying the same thing for years.  In looking back at my past posts on the economy, I found I even used the “Christiane F.” analogy, about the problems the stock market would have trying to kick its addiction to low interest rates, before. 

Which gets to the first point of this post: Maybe I’m wrong about the economy.  Maybe things have changed.  Maybe low interest rates are appropriate, and maybe the stock market is for real.  You would have lost a lot of money betting against the stock market over the last ten years.

Is the Stock Market for Real or Just Addicted to Low Interest Rates and Easy Money?

Federal Reserve chairman Jerome Powell indicated in Congressional hearings on Wednesday that the Fed could be cutting its benchmark interest rate later this month – and the stock market promptly went up.  So, a “Powell Put”?  (See here.) 

In addition to a possible U.S. rate cut, interest rates in Europe remains at historic lows.  The European Central Bank’s rate for overnight deposits by banks is -0.4% (where it has been for over three years), which means you would get back less than you put in.  In June, five-year bonds issued by mortgage banks in Germany were priced at -0.2%, which means you would have to pay the bank in order to lend them money.¹  And in Denmark some banks are even offering mortgages at negative rates,¹ which means … well, you get the idea.

Making Inequality Worse By Lowering Interest Rates?

While the Federal Reserve did not lower interest rates on Wednesday, they did indicate they might do so later this year.  Which caused interest rates on bonds to go down, and stock prices to go up.  Once again, making those who are already well off (and have money in the stock market) better off.  And perhaps making inequality an even bigger problem?