Italy’s Fiat will own all of Chrysler

Last updated on: January 6, 2014 at 10:09 pm By Gene Veith

So if you want to buy an American car–out of a sense of economic patriotism, protectionism, or because you were moved by that Chrysler commercial about being “imported from Detroit”–does this mean buying a Chrysler product doesn’t count? Does “buying American” allow for buying a Chevrolet made in Mexico? How about a Toyota made in Kentucky? From CNN:

U.S. automaker Chrysler will become fully owned by Italy’s Fiat under terms of an agreement announced Wednesday that also involves the United Auto Workers union. (more…)

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Why Price Controls Cannot Work

Last updated on: August 16, 2024 at 3:08 pm By Gene Veith

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Democratic presidential nominee Kamala Harris has released some details of the economic policy she hopes to implement if elected. A key feature will be measures against “price-gouging,” restricting the ability of companies to raise prices. She is especially targeting prices for food, rent, and medicine.

The problem is that regardless of ideology or good intentions, attempts by governments to control prices by decree have never worked and can never work. They always damage the economy and hurt ordinary people.

The economic value of something–that is, its price–is determined by the demand that people have for it and the supply. If there is not much of something, it will bring a higher price. If there is an abundance of something, its price will be lower. On the demand side, if many people want a product in short supply, they will bid up the price. If few people want a product, its value goes down until it can find buyers. This is how an economy allocates resources.

If the price of a product goes up, that has two effects: (1) demand goes down, since many people cannot or will not pay the higher price; and (2) supply goes up, since companies will make more of the product to increase their profits. Whereupon the decrease in demand and the rise of the supply makes the price go down.

This cycle is part of the dynamism of a free economy, resulting overall for consumers in abundant goods at a relatively low price.

Another factor in pricing, however, is inflation, which makes the price of everything go up, regardless of supply and demand. This is mainly because of an inflated money supply. Again, the abundance of something makes its value go down. An increased supply of money in the economy–due to the government spending money it doesn’t have by going in debt or just printing more money by fiat–means that the value of that money goes down. That is, it buys less, so that prices go up.

Are any of you old enough like I am to remember Nixon’s wage and price controls? Yes, this was a policy imposed by Richard Nixon, back before Ronald Reagan brought free market economics into the Republican party, which is now abandoning it again. Do you remember the empty shelves? Going to a supermarket and being unable to buy a pound of hamburger, not because it was too expensive, but because there was no hamburger to buy was traumatic for Americans used to abundance. Farmers, meat packers, and grocery stores were not allowed to sell the meat for a price high enough to make a profit on it, so they simply stopped producing and selling it.

Nixon’s price controls created shortages on a wide range of products, resulting in his soon abandoning the price freeze. But another shortage happened when Arab oil producers slapped an embargo on oil exports going to supporters of Israel. Because the United States had become so dependent on importing oil, this resulted in a sharp drop in the oil supply. The laws of economics being what they are, this also meant a spike in prices, which Nixon battled by imposing price controls.

The result, as some of you can remember, was a gasoline shortage. Service stations would run out of gas to sell. When a station had some, cars would line up for blocks, their drivers waiting to get some fuel, hoping that the pumps wouldn’t run out until they could fill up their tanks.

The embargo ended before too long, but the price controls on oil remained in place through the Carter administration, an era of “stagflation,” featuring both inflation and a stagnant economy. It was Ronald Reagan who ended price controls on oil. When that happened, American companies had the incentive to ramp up domestic production. This brought the price down, created an abundance of cheap energy, and turned the United States into an oil exporter.

The laws of economics function regardless of ideology. I have actually lived, for a few weeks, under Communism. I was part of a faculty exchange with the Estonian Institute of Humanities, back when Estonia was still part of the Soviet Union, and lived with a host family. The Communist Party controlled the economy and governed it by decree, all in opposition to free market capitalism. Because the proletariat needed bread and no one was allowed to exploit the masses by profiting off of them, the price of bread was kept low so that everyone could afford it. What that meant, though, in practice, was that there was no bread in the shops. When the cost of producing bread–not just in “capitalist” terms of money, but in terms of the resources required and the productivity of the workers–was greater than what was paid in exchange, the supply dwindled. This was true not just of bread but of nearly everything.

Sometimes shipments of one product or another–mandated by the party’s quotas for factory production–would come in, whereupon long lines of citizens would queue up at the shops and department stores to buy whatever it was. During my whole stay, whenever my host family took me on a tour of the region, our travel was paused when we saw a line in front of a shop. A family member would go over, talk to someone in line, and come back. “They’ve got light bulbs!” Whereupon someone in our group would get in line for the chance to buy light bulbs.

Fortunately, the socialist economy was complemented by a vigorous but illegal black market, run on free market principles. My host family wanted to throw a birthday party for a neighbor, so the father went to a friend of his who worked in a restaurant and came back with a package of sugar for the cake. In the restaurants, by the way, though they had menus, they were largely irrelevant. You would have to ask what they had that day. “Chicken,” the waiter might say. “Then we’ll have the chicken!” There were, however, in that era of Soviet thaw and the Estonian independence movement, some private restaurants not operated by the state where you could wine and dine to your heart’s content, for a shockingly low price if you had hard currency (that is to say, American dollars).

The interplay between supply, demand, and pricing is an economic law. It isn’t a matter of capitalism vs. socialism or Republicans vs. Democrats. The laws of the marketplace are closer to scientific laws. You won’t have one party advocating following the law of gravity and another party advocating rejecting that law so that everyone can fly. Reality doesn’t work that way.

Photo: “Gas Station Attendants Peer Over Their ‘Out of Gas’ Sign in Portland,” via Picryl, Public domain.

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The Dangers of the Digital Dollar

Last updated on: April 2, 2022 at 12:09 am By Gene Veith

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The Biden administration is laying the groundwork for the creation of a “digital dollar.”

This is not to be confused with “cryptocurrencies” such as Bitcoin. In fact, a digital dollar would be more like the opposite of cryptocurrency. That medium of exchange is highly decentralized. private, and unconnected to the government. A digital dollar, on the other hand, would be completely controlled and monitored by the federal government.

The effect would be to give the central government unprecedented control over the economy. So says Justin Haskins, writing in The Hill, who argues that a digital dollar “would be one of the most dramatic expansions of federal power ever made, one that could put individuals and businesses in grave danger of losing their social and economic freedoms.” He explains:

A digital dollar would not merely be a digital version of the existing U.S. dollar, but rather an entirely new currency that would, at least at first, exist alongside today’s currency. Similar to cash, the CBDC [central bank digital currency] would be used to pay for goods and services and would likely be managed by the Federal Reserve, the central bank of the United States.

Unlike the current dollar, though, a central bank digital currency would not exist in physical form, meaning you wouldn’t be able to go to a bank or ATM and withdraw it. . . .

Digital dollars. . .would be traceable and programmable. The Federal Reserve (or some other designated entity) would have the ability to create more digital dollars whenever it sees fit, and, depending on how the legislation is written setting up the currency, the dollars could be formulated to have various rules and restrictions built into their design.

For example, a digital dollar could be crafted to restrict fossil-fuel use, to give bonuses to people for spending at particular businesses, to enact de facto price controls by disallowing users from spending too much on particular products, or even to redistribute wealth.

Haskins is worried about how the government might use this power to advance its policies. He cites President Biden’s executive order last month that triggered the digital dollar’s development specified that the new central bank currency must mitigate “climate change and pollution” and promote “financial inclusion and equity.” He also mentions a Federal Reserve official’s refusal to give a straight answer when a reporter asked whether he could “assure us [the public] that these digital currencies won’t ever be used to tell us when, how or where our money can be spent?”

The immediate and most notable effect would be to cut out private banks, particularly for international transactions, as in global trade. Individuals too would be able to pay their bills immediately without the mediation of a commercial bank, which defenders of the digital dollar say would help low-income Americans. Opposing banks, of course, is a staple of anti-capitalism, so leftists like the idea, while Haskins, the director of the Socialism Research Center at The Heartland Institute, worries that it would be a precursor to socialism.

An article at Bloomberg is not so alarmed and gives the arguments for the new currency. But it too raises concerns that point to larger issues:

A digital dollar also raises questions about financial privacy. The ledger underpinning the currency would likely be operated by the government, which would potentially give it the ability to monitor transactions, halt them or confiscate balances.

“If the government controls the ledger, then there is a risk that it will monitor those transactions without going through the proper legal channels because it’s not taking information from someone else,” said Luther at the Bitcoin Policy Institute. “It’s just looking at its own information.”

I have problems with money in general–whether digital or crypto or tangible–that is created by fiat and accepted by convention, apart from any connection to something that has intrinsic economic value. Maybe someone could explain why I am wrong.

In any event, the digital dollar, even if it is not taken as far as Haskins fears, would seem to fulfill the longterm dream of liberal politicians, making it technologically possible for the government to control the economy.

Illustration by Revisorweb – Own work, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=4529960

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The Government Will Even Bail Out Churches

Last updated on: April 7, 2020 at 10:58 am By Gene Veith

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Yesterday we blogged about the CARES Act, the government plan to bailout virtually everyone hurt economically by the coronavirus epidemic. That includes churches.

How the CARES Act Works for Churches

Churches, along with other non-profit entities, have explicitly been declared eligible for the Paycheck Protection Program. This is designed to enable small businesses–and, yes, congregations are classified that way for the purpose of the program–to keep giving their employees a paycheck, even though they cannot come to work and even though the company is not bringing in its usual revenue due to the coronavirus epidemic. They can also get money to pay for facility costs and utilities.

This comes in the form of a loan, but the loan used for these purposes will be “forgiven.” That is, it does not have to be repaid. The money comes from a lender, which makes it quicker to receive, but the government will fully reimburse that lender. It is possible to get larger loans for other purposes at a low rate of .5%, but loans for payroll and facilities are actually a grant.

Congregations that cannot hold corporate worship services cannot pass the offering plate. So many are finding themselves in dire financial straits. There is not enough money to pay the pastor or the church secretary, and the mortgage payment for the building is due. If that happens to your congregation, the government is willing to bail you out.

Cheryl Magness has written an excellent article for the Lutheran Reporter, explaining exactly how the program applies to churches and how congregations can apply for this money. Basically, you fill out a form, which you can get here. Then go to a regular lender approved for Small Business Administration loans. Not all of them are, but your local bank may well qualify.

But Should Churches Take the Money?

So that’s how the government bailout for churches works. The bigger question, though, is, should a congregation take this money from the government?

First of all, it shouldn’t need to, if members would keep up their giving as they did before the coronavirus hit. Friends, just because you can’t attend corporate worship, just because worship has moved online, you still need to keep giving your tithes and offerings! Don’t forget that!

But what if that doesn’t happen? My own view is that congregations should take the money. They should do that rather than cutting their pastor’s salary or laying off other staff or missing a payment on the mortgage. Not paying someone what they are owed is more problematic morally than taking money from the state.

A congregation is a spiritual entity, but insofar as it exists physically, handles money, owns property, and is a legally-incorporated body under the laws of the state, it is also a temporal institution, part of God’s Kingdom of the Left.

As such, a local congregation should be entitled to the same benefits as any other corporate entity–such as secular non-profit organizations and small businesses–in the state.

If strings are attached to those benefits, it’s another story. But the Paycheck Protection Program attaches no strings, to the point of including a clear Religious Liberty statement exempting religious institutions from federal anti-discrimination statutes that are often used against Christian teachings regarding sexual morality.

There is certainly plenty of precedent for the state to support churches, as is the practice in Europe. For centuries, this was the norm for Lutheran churches, including in Luther’s day. The United States, though, has laws separating church and state, though sometimes, arguably, they are taken further than they need to be. One could reasonably ask why tax money should go to a church. But that assumes the bailout is funded by taxes, whereas, given the deficit spending, it is actually money created by government fiat.

Consider this: Taking government money is against our principles. Not paying our pastor violates a clear command from God (1 Tim 5: 17-18). There are times when we may have to sacrifice our principles, valid though they be, to avoid an outright sin.

So I say, if your congregation has to, take the money. I may be wrong, though. In fact, I feel uncomfortable with my own advice. So feel free to correct me if you think I’m wrong.

I do agree that churches should be supported by their members. If the government prevents that from happening, it’s right for the government to make up the difference. And yet, churches are not businesses selling goods or services to their customers. Members of a church are not customers. Rather, they constitute that church. So members, no matter what the coronavirus does, keep giving to your church. Doing so would make this issue a moot point.

Image by Jeff Jacobs from Pixabay

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Bailing Out Everybody

Last updated on: April 4, 2020 at 3:20 pm By Gene Veith

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In an effort to stop the coronavirus epidemic, the government pushed “pause” on much of the American economy, then put up $2.2 trillion to sustain American workers and businesses until it can hit “play” again. But what will this mean?

Two weeks ago, President Trump signed the Coronavirus Aid, Relief, and Economic Security Acts (CARES) Act, which was approved unanimously in the Republican-controlled Senate and by voice vote with only one recorded dissenter in the Democratic-controlled House of Representatives. Now that it’s April, the measures are going into effect.

The law is breathtaking in its scope and largesse. We will all, pretty much, be getting $1,200 cash, with $500 for each child. There is money for everyone–big businesses, small businesses, workers, the unemployed–in an effort to bail out everybody. Here is a good survey, with information about how to access each program.

The government, for example, is promising to cover the payroll for businesses hurt by the epidemic so that they do not have to lay off workers, even though they can no longer work. Small businesses can get a loan from a bank to cover 2.5 times the total payroll and the loan does not have to be payed back. (We’ll discuss this program, for which churches are also eligible, tomorrow.)

The federal government will also subsidize what the states pay for unemployment benefits, typically half the person’s salary, plus add on $600 per week. Some lawmakers thought that must have been a drafting error, since it would mean that many people would be making more on unemployment than they would working. But that’s not a bug but a feature: This would give the unemployed an incentive to stay at home, out of the workforce, which is what we need in a quarantine.

I am not disputing whether or not this bailout is necessary, though feel free to debate that issue in the comments. If the government forbids businesses from operating and prevents employees from going to work, it seems just for the government to make up for the financial loss that it imposed.

What I’m trying to get my mind around are the implications of a government intervention into the economy on this scale.

The entire federal budget, as proposed by President Trump for the 2021 fiscal year–not including any of these expenses, of course, is $4.829 trillion, with the expectation of $3.863 trillion in revenue. That means a deficit for that year of about $1 trillion. The national debt is some $25.3 trillion. The entire Gross Domestic Product for the United States in 2019 was $21.73 trillion.

So perhaps $2 trillion, even though it adds half again as much to the federal budget and increases the yearly deficit threefold, is chicken feed, less than a 10% addition to the national debt. Still, it makes sense to ask, how are we going to pay for all of this?

And what are the political and ideological implications of this bailout? Every single Republican, conservative, libertarian, fiscal hawk in the Senate voted “aye” for this bill. Have they abandoned their small-government, fiscally-prudent principles?

The Left is exhilarated by this kind of spending. I saw multiple headlines on the theme “The Era of Small Government Is Over.” And crowing over the prospect that fiscal conservatism is dead. Never mind that we have not had “small government” for a long time, and that purposefully inducing a coma in the economy and trying to keep it on life support until it can be revived (I came across that metaphor somewhere) is not the same as ongoing government control. But the bailout mindset, which exists in both parties, may shape what people think is possible and have political consequences.

The Democratic Socialist Democrat Rep. Alexandria Ocasio-Cortez, D-N.Y. commented that Republicans have always put the kibosh on proposals such as Medicare for All and the Green New Deal by asking, “how are you going to pay for it?” But now, after the CARE Act passed, she said, that question is off the table. “It’s a fascinating progressive moment because what it’s shown is that all of these issues have never been about ‘how are you going to pay for it?,” but “about a lack of political will and who you deemed worthy to be in an emergency or not.”

Bernie Sanders says that his Medicare for All plan would cost between $3 and $4 trillion per year. The Green New Deal is estimated to cost between $5.2 and $9.3 trillion per year. These would dwarf the piddling $2 trillion for the bailout, which is designed to just last for a few months.

This all seems to be an exercise in Modern Monetary Theory, the notion that governments can create money by fiat. Thus, deficits don’t matter. If that theory is true, why shouldn’t the government implement whatever policies it wants, regardless of the cost? Then again, we might wonder, if that theory is true, why does the government need to tax us? But if everything works out nicely with the bailout, we might be facing a new era of not only big government but mega-government, confident that it can control the whole economy and operate without constraints.

If that theory proves not to be true, but free market economic theory is valid after all, we can expect big problems. Even in the short term, if lots of money is put into the pockets of Americans during the coronavirus, what good will that do, if production is dropping due to all of the closures? What will there be for Americans to buy with all of their money? And if the supply goes down, but demand is strong, won’t that drive up prices, causing inflation? And if price gouging laws that go into effect during states of emergency prevent higher prices, won’t the low supply and strong demand mean shortages of goods?

We’ll have to see what happens.

Am I too worried? I would gladly be wrong. Are there other possible scenarios that I am missing?

Maybe the bailout will function as advertised and after the epidemic fades away the private-sector economy will return to its previous growth and dynamism, whose higher revenues will generate more tax-revenue to cover the deficits.

Let’s hope the viral epidemic will not be followed by a government epidemic.

TOMORROW: What the CARES Act means for the Church.

Image by geralt, public domain, via Needpix.com

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The Courts Are Increasingly in Conservative Hands

Last updated on: November 18, 2018 at 8:28 pm By Gene Veith

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Donald Trump is controversial, even among many conservatives. But he already has accomplished a legacy achievement, something that will shape this country in what conservatives believe will be a positive direction for decades. He has practically re-made the federal court system, packing it on every level with conservative judges.

The Supreme Court is the most obvious example, with his appointment of the two conservatives, Justices Gorsuch and Kavanaugh, who will give the high court a 5-4 conservative majority. But President Trump has also done something similar with the circuit appeals courts and with federal trial judges.

Adam Cancryn, who laments the passing of the liberal judiciary, sums up the situation in Politico:

Aside from the Supreme Court, where Trump named Justices Neil Gorsuch and Brett Kavanaugh, the rightward shift may be most momentous in the 12 regional circuit courts that hear appeals, set binding precedents and often have the final say in the many cases the high court never takes up.

Trump has already placed 1-in-6 judges on the circuit courts, some of which are closely divided between Republican and Democratic appointees. Those 29 appointments are the most by any modern president in his first two years.

Counting both federal trial and appellate courts, Trump’s 84 judicial appointments to date far exceed the pace set by President Barack Obama in his first two years.

Furthermore, Cancryn points out, President Trump has been appointing not only conservative judges but young conservative judges, whose lifetime appointments will keep them on the bench for a long, long time, no matter which party comes to power.

Liberals have long imposed their ideas on the rest of the country–legalized abortion, outlawing school prayer, gay marriage, etc.–not through legislation but through the federal court system. They may not be able to do that so much anymore.

Now liberals are invoking such once-conservative judicial principles as the need to uphold precent and that judges should not legislate from the bench.

Conservatives should not get giddy, though, at the prospect of conservative courts. Liberal judges are the ones who predictably rule in accord with their political convictions. This is because they hold to a “living Constitution” and to interpretive principles that allow them to reach progressive conclusions, despite the original intent of the law. But conservative judges actually believe in following the law, as written and as intended by the lawmakers. This means that they will not always side with the conservative political position, even though they might personally favor it, if it violates statutory law or the Constitution.

But still, the rule of law is better than the rule of political fiat every time.

Illustration by succo via Pixabay, CC0, Creative Commons

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