My Personal Trade Deficit Is Killing Me—or So Trump Would Have You Believe

A few days ago, my lunch was as follows. Besides some Chilean grapes I had acquired via Lucio and a host of other, unknown middlemen (gracias al Mano Invisible), I had some homemade Oaxaca-style cheese and some homemade tortillas I purchased from local people who peddle their products along the beach road. (Oh, yes, I seasoned my quesadillas with some very tasty locally made salsa picante de habanero y pina.) Well, so what?

You see, it got me to thinking. I am running a terrible trade deficit with the local Mexicans. I keep giving them pesos, and all they give me in return are delicious foods and very helpful labor services from time to time. As President Trump would tell you, this is an awful situation for anyone to be in.

Seriously Delinquent Student Loan Debt

U.S. government-sponsored student loan debt has become an escalating problem for the finances of many American households. The latest household debt report from the New York branch of the Federal Reserve indicates that Americans collectively owed $1.46 trillion in student loans at the end of 2018, more than any other category of non-housing related debt.

Federal Reserve Bank of New York: Non-Housing Debt Balance of American Households, 2004:Q1 through 2018:Q4

Worse, the percentage of student loan debt that is in “serious delinquency”, where no debt payments have been made for at least 90 days or longer, has remained stuck within a range between 10.7% and 11.8% of the total borrowed since 2012, the highest of all forms of household debt.

Tariffs Cause Americans to Accept Inferior Deals

Suppose I decided to go back into the business of being a professor of economics specializing in economic history in the USA. Suppose further that 100 jobs are available, and 101 applicants for these jobs have been ranked by the hiring institutions. Everyone agrees that I am the worst of the lot. Each of the applicants is willing to work at the going rate.

However, before any hires can be made, the government lays a 500% tariff on the services of imported economic historians, and it turns out each of the applicants except me is a foreigner. Given the tremendous increase in the salary that would have to be paid to (superior) foreign sellers of the service, I get a hundred job offers even though I am by general agreement the worst of the bunch.

This is how tariffs work. They make superior offers less desirable for buyers by making them more costly. The result is that buyers end up with goods and services that, absent the tariff, they would not want to buy. Everyone is worse off—except me, of course. I am the sort of shoddy substitute that ends up being chosen despite my manifest inferiority for doing the job.

If directly or indirectly the government uses its power to get you to Buy American, the slogan might as well be, Buy Crap. You don’t need to put a gun to someone’s head to get him to exercise the option that in his judgment is best for him.

Tariffs Remove Options and Necessarily Reduce Economic Well-Being

There is a principle in economics that says, other things being equal, one cannot improve people’s economic well-being by adding constraints to their choices.

For example, tariffs add constraints by directly or indirectly increasing the prices that buyers must pay to acquire the goods that, absent the tariffs, they prefer to buy from foreign suppliers. They will adjust in various ways when tariffs are imposed or increased, of course, but even after the adjustments, their economic well-being will be less than it would have been if new or increased tariffs had not been placed on imported goods.

You simply can’t make people better off by removing options from them. The protectionist’s claim to the contrary flies in the face of irrefutable economic logic.

A protectionist might claim, however, that this consideration must be “balanced” by considering how domestic sellers gain when tariffs reduce the competition they face from foreign suppliers. This “balancing,” however, is nothing more than an observation that thieves who break into a home and tie up the homeowners, thereby constraining them by removing their options to protect their property, can then make off with stolen property. This sort of “gain” is not what economics is about; this is what crime is about.

Ding-Dong! California’s Bullet Train Is Almost Dead!

After racking up bills of over $77 billion, former Governor Jerry Brown’s fanciful dream of connecting the cities of San Francisco and Los Angeles with a high-speed bullet train that could travel at speeds up to 220 miles per hour has crashed to Earth, just 37 days after leaving office. California’s new governor, Gavin Newsom, surprised many when he announced that the project will be dramatically scaled back to serve only a route between the Central Valley cities of Merced and Bakersfield.

“Let’s be real. The current project, as planned, would cost too much and respectfully take too long. There’s been too little oversight and not enough transparency,” Newsom said in his first State of the State Address to lawmakers on Tuesday.

“Right now, there simply isn’t a path to get from Sacramento to San Diego, let alone from San Francisco to L.A. (Los Angeles). I wish there were,” he said.

That portion of Governor Newsom’s assessment of the project is pretty spot on.

Dodge a Bullet, Dig a Tunnel, Dole Out Dollars

In his first State of the State address, California Governor Gavin Newsom announced that he is ending the state’s high-speed rail project, also known as the “bullet train,” because it “would cost too much and take too long” to build. Recent estimates peg the cost at $77 billion but the true figure would surely be much higher. Recall the new span of the Bay Bridge, ten years late, $5 billion over budget, and still riddled with safety issues. Even if built, the bullet train would be more expensive and slower than air travel, so it was all about spending and building up government. Taxpayers might note how High-Speed Rail boss Brian Kelly responded to the governor’s announcement: “The Governor has called for setting a priority on getting high-speed rail operating in the only region in which we have commenced construction—the Central Valley. We are eager to meet this challenge and expand the project’s economic impact in the Central Valley.”

A VAT Is a Crock

As Fox News reports, New York Democrat Andrew Yang, eyeing a White House run in 2020, is touting a plan for “universal basic income.” In this deal, the government would give $12,000 a year to each American adult. Where will this money come from? Yang wants a “value-added tax, known as a VAT,” of 10 percent that he claims would raise $700-$800 billion. This scheme deserves a hard look.

Though touted as “value added,” the VAT fails to add any value to anything. All it does is jack up the price consumers pay at point of purchase. Under Yang’s plan, a California consumer buying a new Toyota would be looking at the state sales tax in the neighborhood of 8 percent, plus an additional 10 percent. So the VAT is higher than the sales tax, now highest in the nation. California’s sales tax was once much lower, so consumers could expect a rise in the VAT, perhaps to 15 percent, as it is in several Canadian provinces.

Nothing Changes at the TSA

The Transportation Security Administration has been around for only 17 years, but it is something of a prodigy when it comes to bad behavior among bureaucrats. Government Exec magazine first described the problem of TSA managers becoming the “biggest bullies in government” over two and a half years ago:

A toxic culture and poor management are causing a mass exodus of Transportation Security Administration employees, lawmakers and agency whistleblowers said during a congressional hearing Wednesday.

Senior leadership at the agency has made a practice of hiring managers with no experience and few skills, three TSA employees told members of the House Oversight and Government Reform Committee. The employees cited repeated examples in which they were retaliated against for highlighting wrongdoing at the agency, which they said were emblematic of a widespread problem that has cultivated a fearful workforce.

The 70 Percent Solution

Last month, freshman New York Rep. Alexandria Ocasio-Cortez, 29, pitched a proposal for a 70 percent marginal tax rate on incomes of $10 million and beyond. In similar style, Vermont socialist Bernie Sanders seeks to escalate the estate tax and Sen. Elizabeth Warren, a candidate for president, wants an “ultra-millionaire” surtax on wealthy families. Soaking the rich is not a new tactic but some of the nuances may have escaped notice.

Jacking up the marginal tax rate to 70 percent comes packaged as a “progressive” move but in reality, it’s punitive. Those who earn at high levels find themselves punished with higher taxes. Those who earn in the millions tend to draw their income from investments, businesses and such. Promoters claim that punitive marginal tax rates will exempt the working class but workers have problems of their own.

Did Racism and Sexism Cause Oroville Dam Spillway Failure?

Two years ago, readers may recall, the concrete spillway of the Oroville Dam failed, launching fears of complete dam failure and forcing the evacuation of 188,000 people. Governor Jerry Brown told reporters he was unaware of warnings about the emergency spillway and added, “I’m glad we found out about it.” As Brown explained, “We live in a world of risk. Stuff happens and we respond.” One of the government’s first moves was to dam up the flow of information on safety issues.

Governor Brown and state water bureaucrats blocked access to the dam’s design specifications, federal inspection reports, technical documents, and other crucial information. Much of that emerged in Independent Forensic Team Report: Oroville Dam Spillway Incident, a 584-page report that chalks up the disaster to “a complex interaction of relatively common physical, human, organizational, and industry factors, starting with the design of the project and continuing until the incident.” In addition, the designer of the spillway “was hired directly from a university post-graduate program, with prior engineering employment experience limited to one or two summers.” And the designer had “no prior professional experience designing spillways” and “no instruction on spillway design” in college coursework. So little wonder that the spillway failed.

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