Taxes

Paying for Biden’s Dreams

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President Biden says, in connection with his ‘infrastructure’ plan, that “We’re going to pay for everything we spend.”

Actually, it’s you that would pay for this proposed spending.   Exactly how much you would pay, and what forms your cash outflows would take, are dependent on your individual situation, but make no mistake: you would pay.

You would likely pay through higher direct taxes–yes, it is claimed that there would be no tax increases for those earning less than $400K/year (family income), but there are spending increases built into or implied in the ‘infrastructure’ bill that imply much higher spending…and taxing..over time.   You would pay, in higher prices, lower wages, and reduced investment returns for those corporate tax hikes, which Biden seems to view as a source of free money. You would likely pay in terms of reduced job opportunities…possibly even outright job loss…as a consequence of a damaged US business climate.

Above and beyond the specific details, the ‘infrastructure’ plan and its supporting tax represent an attempt to redirect a greatly-increased part of the national income generated by Americans into the hands of government and of those whose relationship with that government is key to their finances.   Such increases in government scope are of direct financial value to a lot of people, including high-income as well as lower-income people…see my post here for discussion of this point.   Increasing the scope of government also represents a tremendous ego and status benefit for many people, most definitely including Biden himself…who actually met with history professors to get ideas on how he could build up his ‘legacy’ and who, I think, is more interested in a legacy of doing Big Things than in what the benefits of those Big Things might be.

Nancy Pelosi, in reference to the ‘infrastructure’ bill, stated that: “The dollar amount, as the president has said, is zero.”   This is nonsense. The fact that money for a program will come from somewhere doesn’t mean that the cost of that program is zero.   If a division of a company embarks on an expensive project and gets the money from their parent corporation, that doesn’t mean that the cost of that program is zero.   Same if the division get the money by raising prices and/or selling more to their existing customers–the program still costs what it costs.

The Biden/Pelosi view seems to be that the United States exists to support the Federal government and that category of people who are most closely linked to that government.   Increasingly, government and the ‘extended government’ are acting like medieval robber barons, plundering the surrounding countryside to keep themselves and their retainers wealthy and powerful.

See also this post at Ricochet: Economic Illiteracy on Parade and my post The Logic of Insatiable Centralization.

Labor Day Thoughts

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My discussion question for today: In a world with global and highly-efficient transportation and communications…and billions of people who are accustomed to low wages…is it possible for a country such as the United States to maintain its accustomed high standards of living for the large majority of its people?…and, if so, what are the key policy elements required to do this?

Henry Ford did not establish the five-dollar day out of the sheer goodness of his heart.   He did it because worker turnover had become unacceptably high: people didn’t like assembly-line work, and they had alternatives.   Suppose Ford had then had the option of building the Model T in a low-wage country, say Mexico.   Maybe he wouldn’t have needed to bother with the American $5/day wage and the productivity improvements needed to support it. (Although Ford being Ford, he still might have implemented the manufacturing innovations and process improvements even without strong economic necessity to do so.)

America’s premium wage structure has, I think, been historically enabled by several factors:

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The Logic of Insatiable Centralization

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People and businesses have been leaving New York City, and the state of California, at a considerable rate. Some of these people/businesses are *resources* from the standpoint of government and its leaders: they are tax money on the hoof.   Cuomo, de Blasio, and Newsome would surely like to have a way of keeping them there.  Would these leaders, if they were allowed, favor a legal prohibition on exits, or at least a prohibitive tax penalty for such exit? This is the logic of the Berlin Wall, or of the Reich Flight Tax, the Reichsfluchtsteuer.    Such things may seem impossible in America, but the Dems have pushed for a lot of things that would have previously been considered impossible in America.

Comes now Janet Yellen of the Biden administration, with a proposal for a global minimum tax on businesses, thereby nailing the feet of companies to the floor and keeping them from going elsewhere to avoid excessive exactions.  Just as Blue-city mayors would rather not have to worry about offering a tax system that is fair and economically-rational, the same is true of the Blue Biden administration.

As a writer at Ricochet has pointed out:

(Yellen’s proposal) is a terrible idea, for a very simple reason: “harmonizing” between governments eliminates competition between them. And it locks in the kind of bloated incompetence that is a feature of even the best governments out there.

We want companies to be able to shop for their preferred home, just as we want Americans to be able to move to low-tax states. Similarly, if a poor country is trying to attract tenants (companies), why should they not be able to offer advantageous tax rates or less bureaucratic overburden?

It would not just be a matter of keeping companies from moving–the proposal would also tend to reduce or eliminate pressure to keep taxes low and minimize government waste.

Basically, this global minimum tax would represent the collusion of the political and bureaucratic classes against everybody else.

And against diversityany diversity of political and economic philosophies.

“Progressives” don’t like fine-tuning incentives; they like issuing prohibitions and giving orders.

SARS-CoV2/COVID-19 Update, Easter 2020 edition

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There are lots of hopeful reports — despite the USA COVID-19 infections being over 1/2 million and the total deaths of over 20,000 people — that the pandemic will soon be “Over.”

This is fantasy thinking at best.   SARS-CoV2/COVID-19  won’t be over, until it is over, for YEARS.

“Over” being defined as world wide mass vaccinations to the tune of 70% of humanity or human herd immunity.   Assuming such a thing is possible, which it may not be, given this recent report from the UK Daily Mail on post SARS-CoV2/COVID-19 infection immunity —

Blow to Britain’s hopes for coronavirus antibody testing as study finds a THIRD of recovered patients have barely-detectable evidence they have had the virus already

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– Nearly third of patients have very low levels of antibodies, Chinese study found
– Antibodies not detected at all in 10 people, raising fears they could be reinfected
– Explains why UK Government repeatedly delayed rolling them out to the public

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https://www.dailymail.co.uk/news/article-8203725/Antibodies-prove-difficult-detect-Chinese-coronavirus-survivors.html

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Related studies:
Wu F et al. Neutralizing antibody responses to SARS-CoV-2 in a COVID-19 recovered patient cohort and their implications. medRxiv 2020.03.30.20047365; doi: https://doi.org/10.1101/2020.03.30.20047365

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and

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Zhao J et al. Antibody responses to SARS-CoV-2 in patients of novel coronavirus disease 2019, Clinical Infectious Diseases, , ciaa344, https://doi.org/10.1093/cid/ciaa344
total by July 1st 51,197

Or this  South Korean story on coronavirus “reactivation” —

South Korea reports recovered coronavirus patients testing positive again
APRIL 10, 2020
Josh Smith, Sangmi Cha

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https://www.reuters.com/article/us-health-coronavirus-southkorea-idUSKCN21S15X?utm_campaign=trueAnthem%3A+Trending+Content&utm_medium=trueAnthem&utm_source=facebook

The issue with most COVID-19 tests, like the ones mentioned in South Korea, is they detect SARS-CoV2 RNA. They do not detect whether the viral particles are active or not. The issue here is whether these people are shedding active viral particles that can re-infect people.    We don’t know if that is the case here from the story text.   Given how infectious it is.   This coronavirus will tell us in due course.

There are some viral diseases like Herpes that hide inside your body and reactivate to make you infectious. We do not know enough about the SARs-CoV2 virus to say whether that is the case here.

If the SARS-CoV2 virus is like Herpes in that once contracted, it never goes away and flares infectious several times a year.

And there is no herd immunity for some people no matter how often they are infected.

Then we will need multiple, cheap,   out-patient style “cure-treatments” as well as multiple vaccines, based on co-morbidities, and possibly to account for racial differences like sickle cell blood mutations, as SARS-CoV2 may well be more a blood disease than a respiratory infection in terms of it’s killing mechanism.

See:

COVID-19: Attacks the 1-Beta Chain of Hemoglobin and Captures the Porphyrin to Inhibit Human Heme Metabolism

https://chemrxiv.org/articles/COVID-19_Disease_ORF8_and_Surface_Glycoprotein_Inhibit_Heme_Metabolism_by_Binding_to_Porphyrin/11938173

There is not enough reliable data, d*mn it!

Until we get to “Over,” our old economic world of Just-In-Time, Sole Source anywhere, but especially in China, is dead without replacement.

The world is in the same position as Germany was from August 1944 – April 1945 or   Japan from August 1944 until August 1945 versus the Allied strategic bombing campaign.   We have entered the world of   “End Run Production“ as world wide supply chains grind to a halt from various fiddly bits of intermediate parts running out without replacement.   The on-and-off hotspots world wide of COVID-19 at different times and places in the world economy is no different than WW2 strategic bombing in terms of causing random damage to the economic life support.

See also   “End Run Production” here from this one volume WW2 history book The Great Crusade:

https://books.google.com/books?id=5L-bwPZK7PQC&pg=PA420&lpg=PA420&dq=%22End+Run+Production%22&source=bl&ots=kc30FQflCj&sig=ACfU3U2kmF-kTPo0Tgr2A9_ESPKpEQAEOg&hl=en&sa=X&ved=2ahUKEwjfpurOnOPoAhUKA6wKHemwBMcQ6AEwAHoECC4QKQ#v=onepage&q=%22End%20Run%20Production%22&f=false

Be it automobiles, self propelled construction equipment, jets, power plants or the latest electronic gadget, anything that has thousands of parts sourced world wide with lots of Chinese cheap/disposable sub-component content anywhere in the supply chain simply won’t be produced for the next 18 months to three years.

This “random damage to the economic life support” effect is amplified by the unwillingness of Western private industry to invest in building the capitol equipment to produced those intermediate parts.   Because of the threat of China coming back with predatory pricing — using bought politicians to cover for them — means those parts won’t be built without massive cost plus contract government buy out of the investment risk like happened in the USA in the 1942 WW2 mobilization.

The story of   one American n95 mask manufacturer’s experience with the Obama Administration in 2009 with the Swine flu is a case in point.   The n95 mask is a 50 cent item where China pays 2 cents a mask for labor versus 10 cents a mask for American labor.   When the American manufacturer geared up to replace Chinese mask production.   China came back on-line and the Obama Administration refused to keep buying the American mask producer’s 8 cents more expensive mask when the Chinese masks were available.

Unlike almost 80 years ago, current Western and particularly American politicians are too corrupt to go too massive cost plus contract government buy out this private investment risk.   Mainly because these political elites   can’t be bothered to figure out their 10% cut.   Instead we are getting more “fiscal stimulus” AKA boondoggles that the elites will saddle the rest of us with high interest payments on huge public debts.

It will take local small to mid-sized business to get the American economy going during the COVID-19 pandemic via making products and services that don’t use the intermediate products China threatens with when the pandemic ends.

My read on what comes next economically is local/distributed production with limited capitol investment that is multi-product capable.   The name for that is additive manufacturing, AKA 3D Printing. Here are a couple of examples:

  1. The idea of 3D  Printed Sand Casting Molds For Automobile Production

voxeljet enters alliance to industrialize core tooling production using 3D printing

2. And the replacement of physical inventory with 3D printers, print media and electronic drawings:
Such “Make or buy” decisions have always been the key decision of any business.   The issue here is that middle men wholesalers and in-house warehousing holding cheap Chinese-sourced   intermediate parts are both set to go the way of the Doe-Doe Bird in a 3D/AM manufacturing dominated world.
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Distributed production in multiple localities with 3D/AM vendors for limited runs of existing intermediate products to keep production lines going.   Or the re-engineering intermediate products so one 3D/AM print replaces multiple intermediate products for the same reason, will be the stuff of future Masters of Business Administration (MBA) papers describing this imminent change over.

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But, like developing SARS-CoV2/COVID-19 vaccines, this new locally distributed manufacturing economy will take time.   The possible opening of the American economy in May 2020 will not bring the old economy of December 2019 back.

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That economy is dead.   It cannot, will not, come back.

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We will have to dance with both the sickness from SARS-CoV2/COVID-19 and the widening “End Run Production“ product shortages that the death of the globalist   just-in-time, sole source in China economic model causes for years.

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And this is a hard reality, not a fantasy, we must all face.

Our ‘Xanatos Gambit’ President’s Energy Export Strategy Tree

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In my last post — President Trump’s ‘Xanatos Gambit’ Trade Policy — I spoke to how President Trump has set up his political strategy on trade policy to make any outcome on the USMCA Trade agreement that he negotiated to replace the NAFTA agreement would be to his advantage over House Democrats and the “purchased by the multi-national corporation China Lobby” GOP Senators.   In this post I am going to lay out President Trump’s “Global   Energy Dominance” export policy’s “Xanatos Gambit” strategy tree vis-à-vis the 2020 presidential elections.

To start with, I’m going to refer you back to this passage from my last post on how the Trump Administration is “gaming” economic growth measurements:

This is where Pres. Trump’s ‘Xanatos Gambit’ strategy tree kicks in via a macroeconomic and trade policy manipulation of the very simple economic equation of gross domestic product:

GDP = US ECONOMIC ACTIVITY + EXPORTS + FOREIGN INVESTMENT   IMPORTS EXTERNAL INVESTMENT

The American economy just grew 3.2% in the 1st quarter of 2019.   It would have grown another 0.3% but for the 30-odd day federal government shut down.    The “markets” were expecting 2.5% GDP growth.   The huge half-percent GDP “miss” boiled down to:

1. The USA exported more.

2. The USA imported less and

3. There was more external foreign investment than expected.

All three were the result of a combination of Trump administration policies on oil/LNG fracking, tax & regulatory cuts and trade/tariffs.

The Trump Administration upon coming into office in January 2017 had a huge windfall of energy projects that the Obama Administration had held up approval of in the Federal Energy Regulatory Commission.    This windfall neither began nor ended with the  Keystone XL oil pipeline.   There was a whole cornucopia of oil and natural gas energy infrastructure projects that Democratic Party interests, only some of them environmental, that the Obama Administration was using the FERC to sit on for a whole lot of reasons that I refer to as “The Economic Cold Civil War.”

While the media was spending a great deal of time talking about things like the Congressional votes to open the Arctic Wildlife Refuge in the early days of the Trump Administration’s energy policy implementation.   President Trump spent a great deal of his early political capital on getting his earliest political appointments through the Senate to the FERC to get those projects turned loose as a part of President Trump’s “Global   Energy Dominance” export policy.    The first fruit of this export infrastructure energy policy focus started paying off with the  Louisiana Offshore Oil Port (LOOP) coming on-line in 2018.    See this Apr 16, 2019 article by Julianne Geiger at Oilprice.com:

U.S. Doubles Oil Exports In 2018

The United States nearly doubled its oil exports in 2018, the Energy Information Administration reporting on Monday, from 1.2 million barrels per day in 2017.

The 2.0 million barrels of oil per day exported in 2018 was in line with increased oil production, which averaged 10.9 million barrels per day last year, and was made possible by changes to the Louisiana Offshore Oil Port (LOOP) which allowed it to load VLCCs (Trent Note: Very Large Crude Carriers) .

The changes to LOOP and to the sheer volume of exports were not the only changes for the US crude oil industry. The destination of this oil shifted in 2018 as well, and even shifted within the year as the trade row between China and the United States took hold.

Overall, Canada remained the largest buyer of US oil in 2018, at 19% of all oil exports, according to EIA data. During the first half of 2018, the largest buyer of US crude oil was China, averaging 376,000 barrels per day. Due to the trade row, however, US oil exports to China fell to an average of just 83,000 barrels per day in the second half, after seeing zero exports to China in the months of August, September, and October.**

[**Please note above the nice thing about energy exports is how futile a energy user embargo is against it.   China’s economic embargo of US crude products only hurt itself.]

The impact of the Trump Administration’s energy export policies from those early days of his administration in terms of liquefied natural gas (LNG) export facilities are now impacting the American economy. A large part of the extra 0.7% GDP growth achieved over the 2.5% Wall Street forecasts in the first quarter of 2019 came from the Corpus Christ 1 and Sabine 5 LNG export facilities coming on-line in late 2018 and making their first full export capacity quarter in Jan – Mar 2019.   The Cameroon 1 and Elba Island 1-6 LNG export facilities were also scheduled to come on-line in Late Feb-Early March 2019, and were very likely large contributors to LNG export surge.

This is how CNBC described 2019’s 1st quarter:

Robust demand for Texas oil and gas in the first two months of 2019 pushed the state’s export activity into high gear, strongly outpacing the national rate and contrasting with a slight decline by California.

Texas represented nearly 20% of all U.S. exports in the January-February period while California accounted for roughly an 11% share.

California has seen its share of total U.S. exports fall in recent years while Texas has been growing its share due mainly to the new oil boom.

CNBC table of US Exports in the 1st Quarter of 2019 Source: https://www.cnbc.com/2019/04/25/texas-exports-boosted-by-oil-rise-3-times-faster-than-us-increase.html
CNBC table of US Exports in the 1st Quarter of 2019   Source: https://www.cnbc.com/2019/04/25/texas-exports-boosted-by-oil-rise-3-times-faster-than-us-increase.html

And this is only the beginning for the US economy in 2019. See the following text and LNG export facility graphic from a Dec 10, 2018 report by the US Federal government’s Energy Information Administration:

U.S. liquefied natural gas export capacity to more than double by the end of 2019

U.S. LNG exports continue to increase with the growing export capacity. EIA’s latest Short-Term Energy Outlook forecasts U.S. LNG exports to average 2.9 Bcf/d in 2018 and 5.2 Bcf/d in 2019 as the new liquefaction trains are gradually commissioned and ramp up LNG production to operate at full capacity. The latest information on the status of U.S. liquefaction facilities, including expected online dates and capacities, is available in EIA’s database of U.S. LNG export facilities.

EIA projection of Liquefied Natural Gas Export Capacity from 2016 - 2021. Date of projection Dec 2018
EIA projection of U.S. Liquefied Natural Gas Export Capacity from 2016 – 2021. Date of projection, Dec 2018.

Given the above information, barring a war or serious election year intervention to kill the economy by the Federal Reserve, the cascade of LNG export infrastructure coming on-line in the 2nd and 4th quarters of 2019   will mean something on the order of a full percentage increase in GDP growth (in a range of 4.0% to 4.5%) in Jan – Mar 2020 over Jan – Mar 2019.   That is what going from 3.6 billion cubic feet per day (Bcf/d) of natural gas export capacity to to 8.9   Bcf/d in Dec 2019 does for you.

This extra 1% GDP will be happening just in time for the Iowa caucuses and New Hampshire primary.

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