Month: September 2017

Supreme Court Agrees to Hear Case Against Compulsory Public-Sector Union Fees

Today the U.S. Supreme Court agreed to hear a case that has the potential of delivering a death blow to the legal privileges enjoyed by public-sector unions.

The case is Janus v. American Federation of State, County, and Municipal Employees, Council 31. At issue is whether it is constitutional for state governments to compel public-sector workers to pay union fees as a condition of employment even when those workers are not union members.

The case was brought by Mark Janus, a state employee in Illinois who objects to paying mandatory fees to a union that he has refused to join. Janus argues that the state’s scheme violates his First Amendment rights by forcing him to support political speech and activity that he does not wish to support.

Janus’s overarching goal is to overturn the Supreme Court’s 1977 precedent in Abood v. Detroit Board of Education, in which the Court approved mandatory public-sector union fees on the grounds that non-union “free riders” should have to contribute something toward collective bargaining activities that benefit them too. That ruling provided a massive boon to public-sector unions nationwide.

“The Court should take this case,” Janus and his lawyers argued in their petition, “to overrule Abood and declare [mandatory public-sector union] fees unconstitutional.”

In 2016 the Supreme Court nearly overturned Abood in a case called Friedrichs v. California Teachers Association. But after the death of Justice Antonin Scalia, the Court could not reach a majority decision and tied 4-4. Most court-watchers believe that if Scalia had not died, Abood would have been overturned by a 5-4 margin.

The Supreme Court is now back to its full strength. Will recent appointee Justice Neil Gorsuch provide the fifth vote needed for Janus to prevail and for Abood to be overruled? We’ll find out later this term.

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Beijing Orders All North Korean Businesses To Close

In the latest sign that China is moving to dramatically limit its exposure to its restive neighbor and long-time economic dependent, Chinese authorities on Thursday ordered all North Korean firms to stop doing business in the world's second-largest economy, fulfilling Beijing's obligations according to the latest round of UN Security Council sanctions, which were passed two weeks ago.

The order comes just days after President Donald Trump revealed that the People’s Bank of China had asked the country’s banks to sever their business ties with North Korea.

Specifically, they were ordered to stop providing financial services to North Korean customers and to wind down existing loans, severing one of North Korea’s most reliable connections to the global financial system. It was reported that the banks were warned that continuing to transact with North Korean business could result in embarrassment and economic losses, according to Russia Today.

After the UN Security Council passed new sanctions two weeks ago, the Chinese Commerce Ministry said North Korean firms and joint ventures in China would be closed within 120 days.

Meanwhile, on Tuesday, the US announced sanctions against eight North Korean banks and 26 individuals. The new punitive measures followed President Trump’s executive order targeting North Korea’s access to the international banking system.

Perhaps the intensifying economic desperation in the isolated country has helped push more young men and women to volunteer for the country’s army. According to official propaganda, nearly 5 million North Koreans have volunteered for the army over the past week. That’s a staggering success rate for the country’s recruiters, considering the North has a population of about 25 million people.

China's President Xi Jinping has sought to sooth Trump’s doubts about Beijing’s commitment to denuclearizing North Korea, though the Chinese government has continued to advocate for talks between the two countries that could eventually lead to a peaceful settlement.

Pyongyang has accused the US of “declaring war” on the North, claiming that Trump’s violent rhetoric and repeated promises to “destroy” North Korea and topple the Kim regime constituted a declaration of war. Of course, the US has denied this, and both sides have continued to trade increasingly detailed threats. The North, for example, recently threatened to test a hydrogen bomb over the Pacific Ocean. Meanwhile, Trump responded that the US has devised “four or five” military options for dealing with North Korea.

US officials have expressed hope that the economic sanctions will force North Korea to the negotiating table. However, their economy has proven resilient so far. But will China’s decision to sever ties with the North make a difference? We should know soon. 

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Market Gives Up Trump-Tax-Hope Gains After UBS Says “Tax Reform Won’t Happen”

Well that de-escalated quickly…

 

Following yesterday's breathless rip higher in small cap stocks (which are down today) and 'high-tax' stock outperformance (which is collapsing today), it appears 'sell the news' is more today's meme as many on Wall Street question the chances of getting a bill through… and what its effect would be.

As UBS' Seth Carpenter wrote overnight: "We don't believe that tax reform or even sizable tax cuts will happen. Even if a tax cut of 1 percent of GDP somehow happens, it is not a game changer."

Larger tax cuts than we anticipate are likely the single, most-easily identifiable upside risk to our forecast. Our baseline forecast incorporates no fiscal stimulus in 2017. For 2018, we have incorporated only modest corporate and personal tax cuts. Even with the new tax proposal from the Administration, our outlook remains unchanged. We are sceptical that a large fiscal stimulus package that increases the deficit will occur. There has not been substantial legislation passed so far this year, despite control of the Congress and the White House by a single party. Moreover, the fiscally conservative wing of the Congress will have to confront another vote to raise the debt limit next year in the context of any decision made about fiscal policy.

We could, of course, be wrong. While we do not expect the passage of a substantial tax reform package, there will be strong motivation to pass something. There is clear, long-running desire for tax reform. Moreover, 2018 is a mid-term election year, and without major legislative achievements to date, there is a clear incentive for the governing party to demonstrate an ability to produce results. The Administration released an outline of a tax reform proposal, but the Congress will dictate the finalform of any legislation. Put differently, a proposal from an Administration is non-binding.

Tax reform has historically been extremely difficult, in part because there are many different views on what sectors should receive preferential treatment. Even for the Senate to reach 50 votes in order to pass a reform package, in our view, the Administration's proposal would have to be pared back. The debt ceiling was recently suspended until December. Given the Treasury Secretary's ability to use what are referred to as "extraordinary measures" to finance the government into 2018, a new vote on the debt limit will be necessary next year.

For fiscal conservatives, voting for a substantial increase in the debt limit while also voting for a tax package that will substantially increase the deficit will likely prove an uncomfortable set of votes, particularly because 2018 is a mid-term election year.

The estimates of the budgetary impact of the Administration's proposal range widely. We do not think it is useful to wade into that debate, as the Congress will craft any legislation that arises. A plausible—though still to our minds, extremely unlikely—scenario would be tax cuts that amount to roughly 1 percent of GDP. Tax cuts of this size would justifiably be seen as large and would probably achieve political goals. But in our view, even a tax package of this size would change our forecast by a matter of degree, not of kind.

Fiscal multipliers, which tell us how much each dollar of fiscal stimulus is worth for overall output, are notoriously difficult to estimate precisely. Most estimates find that multipliers from tax cuts are smaller than multipliers from spending. Moreover, if taxes are reduced for agents with a relatively low marginal propensity to spend, the multiplier will be lower still.  ad fiscal stimulus been enactedwhen the economy was far from full employment and the Fed was trying to be as accommodative as possible, the effects would likely have been larger. But with the unemployment rate at historically low levels and with the Fed already embarking on a path of policy tightening, fiscal stimulus will in part likely lead to further policy rate hikes to prevent an overheating in the economy.

The table below presents a range of estimates on fiscal multipliers from a survey published by the Congressional Budget Officeand the CBO's own work. We present the 25th and 75thpercentile of the distribution of the estimates.

Corporate tax cuts are generally found to have relatively low multipliers as do tax cuts for the upper-end of the income spectrum. Tax cuts for lower and middle class families tend to have higher multipliers, as these households tend to spend a larger fraction of additional disposable income. In transforming the dollar amount of a tax cut into stimulus, however, because of the progressive nature of the tax system, across-the-board tax cuts will tend to cut taxes substantially more for upper income households.

Taking all of these multipliers together, we believe a reasonable assumption is that a compromise tax cut that would come out of the Congress would have a multiplier of about 0.5 or less. That is, each dollar cut in taxes translates to 50 cents on output. In the case of a tax cut that amounts to 1 percent of GDP, then, we would expect to see something like a one-half percentage point increase in GDP. The specifics of the tax plan will matter greatly:  whether the tax cut is permanent or temporary will matter, how much focus is paid to business versus individual taxes, and other considerations. Regardless, a tax cut of roughly this size would push our forecast for 2018 up to no more than 2¾ percent if the tax cut is rapidly enacted. That type of growth would clearly be an acceleration compared to recent growth rates, and the unemployment rate would fall further than our current projection of 4.0 percent. We currently envision two rate hikes from the Fed in 2018, one in June and one in December. That outlook is less aggressive than the FOMC currently projects, because we think inflation will rise less rapidly than the Fed does. With a substantial tax cut, inflation could rise as rapidly as the Fed envisions, and the downside uncertainty to inflation would be meaningfully reduced. As a result, the Fed would likely hike three times next year under such a scenario. A fourth hike would be possible if the tax package is implemented this year and the data show a sharper-than-anticipated decline in the unemployment rate right away.

The takeaway for us  is to be wary. We see little likelihood of a meaningful tax cut. But even if taxes were cut substantially, the size of the package would likely be of a size that would lead to only a modest revision to our outlook.

*  *  *
So back to the de-hoping cycle…

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California Is Adding Gender Category ‘X’ to State IDs. Good—Your Gender Isn’t the Government’s Business.

California is poised to become the second American state to allow for a gender category “X” on state-issued documents such as driver’s licenses. (Oregon became the first this past June.) The California change—which would go further than Oregon’s by allowing “X” instead of “M” or “F” on birth certificates and other forms of official ID, not just licenses—was approved by the state legislature and now awaits the governor’s approval.

The new non-binary category is being heralded—and slammed—as part of the growing U.S. movement for transgender rights and the recognition that many people don’t fit comfortably into the gender roles and traits typically assigned to their sex. The latter has given rise to the growth of gender-neutral pronouns (they, ze) and self-descriptions (genderfluid, genderqueer, non-binary) among Americans, especially younger ones.

Libertarians—even those just fine with the gender binary and their place in it—should celebrate the change. It allows people more choice about how to define themselves in a way that is noncoercive and decreases government control.

Should D.C. ever give residents the option to essentially delist their sex/gender from their driver’s license, I would do it. (At least, you know, the next time my license is up for renewal or if there was some sort of online option; I’m not crazy enough to subject myself to the Department of Motor Vehicles any more than necessary.) And I would hope anarchist, libertarian, and limited-government-supporting types of any sex or gender might do the same.

There is no good reason the state, its representatives, and the countless people tasked with checking IDs for one reason or another need to know every individual’s gender or sex.

In Beyond Trans (which I reviewed in Reason‘s August/September issue), Heath Fogg Davis details the many objections people raise to this, then obliterates each one. For each purpose in which a need for sex/gender identification is assumed, Davis reveals a surveillance-state mindset, a status-quo prejudice, or social conservatism at the root—not a legitimate government purpose.

The bottom line for driver’s licenses and the kinds of IDs we deal with on a daily basis is the old adage: A picture is worth 1,000 words. Whether someone identifies as male, female, or X doesn’t matter so long as the photo on their ID looks like they do in person. Bouncers don’t look to see if you’re male or female; they check your age and photo. Airport agents check your photo and name. And so on.

Adding an X designation to state-issued IDs doesn’t threaten to destroy gender as we know it, but it does say that it’s none of the state’s business—a rare decollectivizing move from politicians.

Davis doesn’t think that this goes far enough: it “neither dismantles nor significantly challenges the bureaucratic use of the traditional sex binary,” argues Beyond Trans. “These policies create exceptional categories.” Rather than give people the option to choose “X” or some other non-binary designation, Davis encourages the removal of sex- or gender-identification markers from government-issued IDs and documents more broadly—a step fitting of the fact that “a person’s sex classification is irrelevant to most public transactions.”

There’s a lot of interesting material for libertarians in Davis’ arguments, or “for anyone interested in privacy, individualism, and striking a blow against needless bureaucracy,” as I wrote in my review:

Davis situates the struggle for transgender dignity and rights squarely within a larger framework of personal freedom and privacy concerns, and shows how removing institutional barriers to living beyond the gender binary can help everyone live fuller, freer lives.

California and Oregon’s “X” designation might not live up to this lofty goal, but they are a big move in the right direction.

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What Hugh Hefner’s Daughter Told Reason About Feminism and Pornography

Last night Playboy founder Hugh Hefner passed away at age 91. Reason interviewed Hefner’s daughter, Christie Hefner, back in 1986, a time the magazine was facing intense criticism from elements of both the left and the right. (At the time, the younger Hefner was Playboy‘s chief operating officer.) Here’s an excerpt:

Reason: What do you think of feminist efforts to ban or restrict the display and dissemination of pornography?

Hefner: Well, I think it’s an enormous error of judgment, both in misunderstanding what impact pornography has on society and in misunderstanding what laws like that would be used to do. On the latter, the reason why a lot of feminists have now become so outspoken against that effort is because censorious laws are interpreted by the people with power in society, not the people without power. It was only the ’70s when Bill Baird was arrested for talking about contraception in front of an audience that included a woman with a baby—and he was arrested for contributing to the delinquency of a minor. So if you think that laws that have to do with sexuality are going to be interpreted by feminists, that’s very naive. If you think that the first things that are gone after are not things related to abortion and lesbianism, that’s a very naive understanding of the process. So that’s one perspective that I have that I think a lot of feminists share.

On the impact of pornography on society, the rhetoric has so overwhelmed the reality that there is no reasonableness applied to the subject at all anymore. If, for example, the president of the United States really wanted to have a useful commission on pornography, one would have thought that what the commission would be doing is updating the research that the 1970 Commission on Pornography and Obscenity did. That would mean original research, reviewing research that has been done in the interim, looking at what’s happened in Denmark and other countries that have liberalized pornography laws, and coming out with a thoughtful report. Instead, the commission has no budget for research and has been traipsing around the country listening to individuals give their life stories, which is anecdotal evidence that has no validity. It would be like deciding whether or not to go back to Prohibition by having people come forward, and some people would tell terrible stories about being beaten up by a husband who was drunk or having their child killed by a drunk driver. I don’t want to take away from the seriousness of those problems, but they don’t have anything to do with the cause and effect of pornographic images in society.

Other questions from the Q&A include “Would Playboy survive in the marketplace without pictures?” and “Is Playboy a victim of hardercore pornography?” To read the whole thing, go here.

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NATO Splinters: Germany Completes Withdrawal From Turkey’s Incirlik Airbase

Several months after an unprecedented collapse in relations between two NATO member states, on Thursday Germany’s military announced it has finished its withdrawal from Turkey’s strategic airbase Incirlik, which as a reminder was prompted by Ankara’s refusal to allow visits by German parliamentarians. Going forward, Bundeswehr planes will instead be based in Jordan.

As we reported at the time, in June Germany’s parliament, which ultimately decides on deployments, voted overwhelmingly to leave Incirlik amid a multifaceted dispute with Turkish President Recep Tayyip Erdogan over his post-coup crackdown. As a “parliamentary army,” the Bundeswehr requires a vote of approval from Bundestag lawmakers for each foreign deployment and a parliamentary committee regularly evaluates Germany missions abroad.

As Deutsche Welle reports, Germany’s transfer of reconnaissance and refueling aircraft from Incirlik to Jordan’s al-Asrak airbase had been “an unprecedented, mammoth task” according to German contingent commander Stefan Kleinheyer said Wednesday.

The Bundeswehr relocated a set of Tornado reconnaissance jets, a German refueling aircraft, logistical equipment and 260 personnel to Jordan. The troops are involved in oversight of the US-led aerial campaign against “Islamic State” (IS) militia in adjacent Syria. According to German Defense Minister Ursula von der Leyen the unit was being redeployed to a Jordanian air base used by numerous NATO partners.

The two countries tried to patch up badly damaged relations In early September, when seven German parliamentarians visited NATO’s Konya airbase in central Turkey under a compromise access arrangement via the military alliance. At the time, Germany’s Foreign Ministry said that visit was only a temporary compromise, adding that Berlin would endeavor to arrange politically “smoother” parliamentary oversight in Turkey in the future.

However, despite detente attempts, the tensions have remained after Turkish military officers who sought asylum in Germany were deemed by Erdogan to have been among plotters of the failed coup. Amid high German-Turkish tension, several German cities barred rallies by pro-Erdogan politicians.

Separately, also on Thursday, in a tit for tat “hostage” exchange, Turkish President Recep Tayyip Erdogan suggested that Ankara could free a detained US pastor if Washington extradites Muslim cleric Fethullah Gulen, who Turkey accuses of being behind last year’s failed coup attempt. “‘Give us the pastor back,’ they say. You have one pastor as well. Give him (Gulen) to us,” Erdogan said during a speech to police officers at the presidential palace in Ankara.

“The (pastor) we have is on trial. Yours is not – he is living in Pennsylvania. You can give him easily. You can give him right away.”

Erdogan was referring to pastor Andrew Brunson, who was detained in Turkey on terrorism charges last October. According to Turkish media, Brunson’s charges include being part of Gulen’s network. However, the US says the pastor has been wrongfully imprisoned and has called for his release. Previously, Trump asked Ankara to return Brunson to the US in May, according to the White House.

Meanwhile, Turkey continues to have an increasingly tense relationship with the EU, which criticized Erdogan’s actions following the coup. The crackdown negatively impacted Turkey’s lengthy efforts to receive EU membership, with German Chancellor Angela Merkel making her opinion clear that Turkey should not become a member of the bloc. Erdogan has responded with his own thoughts on the EU, telling Reuters last week that the bloc has “never kept their promises” when it came to Turkey gaining membership.

As a result, Erdogan has broadly pivoted toward Russia, recently completing the purchase of an advanced S-400 missile batter from Moscow.

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Tech Bulls- Concerning if support breaks here!

The Nasdaq 100 and Nasdaq Composite index both remain in solid rising trends (Bull Markets), Nothing of late has changed the long-term trend!

Below looks at the Nasdaq ETF QQQ over the past few years and highlights some short-term price action that could become concerning to Tech bulls.

weekly chart of nasdaq QQQ, chris kimble chart

CLICK ON CHART TO ENLARGE

QQQ has remained above rising support since last summer. Of late some sideways to soft action in this ETF has it attempting to slip below rising support at (1), which could be support of a short-term bearish rising wedge. As this is taking place, lofty momentum has been creating a series of lower highs for the past few months at (2).

At midweek, QQQ has created a bullish reversal pattern (bullish wick) just below support.

If rising support would break at weeks end and selling pressure picks up at (1), would send Short-term caution message to tech bulls.

 

 

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The FBI Just Stopped Publishing Data On America’s Ridiculous Marijuana Arrest Rates

Authored by Carey Wedler via TheAntiMedia.org,

According to the latest FBI data, drug arrests in the United States increased from 2015 to 2016. Though the federal agency used to provide breakdowns on the details of these arrests in its annual “Crime in the United States” report – including which drugs were in question and whether the arrests were made over possession or sale – in its latest report, the FBI is withholding specifics.

On Monday, Tom Angell, a contributor at Forbes, wrote about the increase in drug arrests across the country, noting that while in 2015 there were 1,488,707 drug arrests (“the highest number of arrests” out of all offenses, according to the FBI), in 2016 the agency reported 1,572,579 arrests for drugs, a figure that again accounted for the highest number of arrests.

Angell notes that “That’s an average of one drug arrest every 20 seconds” and that “The total number is up roughly 5.6% from the 1,488,707 arrests for drug crimes in the country in 2015.”

According to the 2015 data, 83.9 percent of drug arrests were for possession, and 38.6 percent of those possession arrests were over cannabis, the highest of any drug.

Aside from the troubling increase in arrests from 2015 to 2016, however, is the fact that this year, the FBI did not include a table breaking down the types of drug arrests as it did in 2015.

As Angell reported later on Monday, “due to a change in how the annual law enforcement numbers are publicized, it is now harder to determine how many people were busted for marijuana or other drugs specifically.”

Though the numbers are missing from the FBI’s public 2016 report, Angell was able to obtain data from the agency by contacting them directly.

Stephen G. Fischer Jr., the chief of multimedia productions for the FBI’s Criminal Justice Information Services Division, shared that, as Angell summarized:

“Marijuana possession busts comprised 37.36% of all reported drug arrests in the U.S. in 2016, and cannabis sales and manufacturing arrests accounted for another 4.18% of the total.”

These percentages are slightly down compared to 38.6 percent for possession of cannabis in 2015 and 4.6 for sale of that plant that year. Nevertheless, they remain high in a country that has largely rejected the war on weed, if not the war on drugs altogether, and where an increasing number of states are legalizing the plant.

Further, the number of cannabis-related arrests is still higher than 2015 because the total number of drug arrests increased in 2016. Angell explained:

“Added together, marijuana arrests made up 41.54% of the 1,572,579 drug busts in the country last year.

 

“That means, based on an extrapolation, that police arrested people for cannabis 653,249 times in the U.S. in 2016.

 

“That averages out to about one marijuana arrest every 48 seconds.

 

“According to the same calculation, there were 643,121 U.S. cannabis arrests in 2015.”

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Jones Act Protectionism Is Why Tax Reform Is Probably Doomed to Fail (UPDATE: It’s Waived!)

(See the UPDATE at the bottom of this post for some welcome good news, and analysis thereof.)

You’ve heard of Economics in One Lesson? Well, here’s economic policy in one quote:

It’s hard to imagine a more vivid example of the notion of concentrated benefits and dispersed costs than the Jones Act, a 97-year-old Mercantilist garbage-law that requires all ships traveling between U.S. ports to be totally American, which in practice means everything on U.S. islands (including hurricane relief) is way more expensive than it should be. As free-trader Scott Lincicome quickly tabulated, “At best, it’s 1400 workers in Jones Act shipping in/around PR (GAO 2013) vs 3.4 MILLION suffering Puerto Ricans.” The moral calculus is hideous.

It’s easy to blame Trump, because those words did tumble out of his protectionist mouth, and his Department of Homeland Security has already announced its opposition to waiving the Act after Hurricane Maria (though there are reports the White House is wavering). But the lure and/or sway of concentrated benefits does not require politicians to have 19th century notions of trade. Sen. Marco Rubio (R-Fla.), an ardent free-trader in rhetoric, is a grubby protectionist in practice when it comes to the all-powerful sugar lobby in Florida. Politicians are incentivized to please local constituents, and avoid getting on the wrong side of heavily motivated lobbies with deep pockets.

If Rubio can’t stare down Big Sugar, and Trump can’t translate his version of populism into helping an actual population of suffering people instead of a withering industry, how on earth will they locate the courage to overhaul the tax code?

“This is a revolutionary change,” Trump crowed today, when unveiling the administration’s framework for tax reform. I’ll take the under.

As was the case in the White House’s previous big heave on taxes, this reform proposal mixes 1981-style tax cuts with 1986-style simplification of the tax code. In other words, everyone would pay at lower rates, but most deductions for individuals and corporations would disappear. For instance, the state-and-local-tax deduction. Here’s how I described that in April:

This idea, which makes intuitive sense, would nonetheless be heavily disruptive to those of us who live in high-tax states. And not just in those Democratic-bubble strongholds like New York, California, and Illinois—according to this WalletHub analysis, vying for worst American state/local tax burden are the deep red states of Nebraska and Iowa (ranked 50th and 43rd out of 51, respectively), plus the Trump swing states of Michigan (44th) and Ohio (45th). That’s five Republican senators right there, at a time when the GOP advantage in the Senate is just 52-48. If this provision passes, I’ll eat my baseball glove. (And then move to Nevada.)

The New York Post points out that A) “Manhattan leads the way nationally in taking the deduction, with residents writing off an average of $24,898 on their federal returns,” B) “More than 3.2 million people in New York — or about 35 percent of the state’s tax filers — claim their state and local taxes as deductions on their federal returns,” and therefore C)

New York congressional Republicans had pleaded with Trump to retain the tax breakover concerns it would hit New Yorkers hard and amount to an unfair double tax.

Republicans from New Jersey and California have also cried foul, and together with New York Republicans like Reps. Dan Donovan and Peter King, they could amass enough opposition to sink the proposal in the House.

So much for that.

Those benefits, comparatively speaking, are dispersed; it’s on the corporate side where concentrated blocs are going to fight like cornered wolverines to keep their special treatment intact. The New York Times reports that the White House plan “calls on the tax committees to eliminate most of the tax credits that businesses currently use.” Here’s a report from 2015 showing $68 billion in federal subsidies and tax breaks from the prior 15 years; let’s pull a paragraph at random:

A small number of companies have obtained large subsidies at all levels of government. Eleven parent companies among the 50 largest recipients of federal grants and allocated tax credits are also among the top 50 recipients of state and local subsidies. Six of the 50 largest recipients of federal loans, loan guarantees and bailout assistance are also on that state/local list. Five companies appear on both federal lists and the state/local list: Boeing, Ford Motor, General Electric, General Motors and JPMorgan Chase.

So a Republican Party that can’t even close down the crony-capitalist Export-Import Bank thinks it’s going to take on that bank’s biggest customer, as well as G.E. and G.M.?

Look, I hate to be a Matty Morose on this stuff—I would love-love-love to see the elimination of basically every subsidy and almost every tax break, including the untouchable mortgage interest-rate deduction, in return for a lot of across-the-board reductions and some of the stuff the Trump administration is advocating today (like no longer taxing the overseas profits of U.S. corporations). But this White House has not been very impressive on either policy detail or legislative wrangling, and this Congress has shown precious little in the way of courage, let alone results.

Stay tuned to this space for more analysis of the tax reform rollout!

UPDATE: Hey, some welcome good news from Donald Trump!

So, in addition to the much-needed relief this will provide for Puerto Ricans, what does Trump’s reversal do to my tax reform thesis? It depends on what comes next. A temporary executive-branch waiver is a good deal better than nothing, but only a full congressional repeal, with votes on the record against a motivated industry, would be a comp for the many hundreds of fights that would break out over ending breaks and subsidies in the tax code.

Sen. John McCain (R-Arizona) is trying for a fourth time to at least partially repeal law that almost no honest analyst even tries to defend, and accordinng to this Lexology analysis from a month ago,

Like his prior attempts, the new McCain campaign seems unlikely to gather sufficient support to pass either the Senate or House, or to stir much debate leading to other legislation or policy changes….Despite strong support from much of corporate America and traditional Republican interests, including the oil majors and Heritage Foundation, and continuous pressure from U.S. jurisdictions heavily reliant upon ocean shipping trade with other states – such as Alaska, Hawaii and Puerto Rico – historical efforts to reduce the scope of the Jones Act materially have failed outright or been heavily diluted. The current political landscape is no more favorable. Weakening the Jones Act in any way would appear to run directly counter to the protectionist themes of the Trump Administration.

As with deregulation, the executive branch can only do so much. In a long season of congressional deference to executive action, you generally won’t lose too much money betting against courage.

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Venezuela’s Maduro Flunks His Economic Literacy Test

During my testimony in April, 2017 before the U.S. House of Representatives Committee on Foreign Affairs, I stressed that, to establish stability and turn Venezuela’s economy around, runaway inflation must be stopped in its tracks. After all, stability might not be everything, but everything is nothing without stability.

Since then, Venezuela’s inflation has skyrocketed to new levels, approaching hyperinflation. To grasp the magnitude of Venezuela’s inflation problem, take a look at the chart below. It shows the annual inflation rates (yr/yr) for chicken. Venezuela’s current chicken-price inflation is running at a whopping 771% annual rate. Notice, the surge in the chicken price inflation rate mirrors the spike in the overall implied annual inflation rate for Venezuela.

There are only two sure-fire ways to kill Venezuela’s inflation and establish the stable conditions that are necessary to carry out much-needed economic reforms. One way would be to dump the bolivar and officially dollarize the economy, an option I covered in a Forbes piece in August, “Stop Venezuela’s Economic Death Spiral – Dollarize, Now.”

A second method would be to adopt a currency board system. In such a system, the bolivar would become a clone of a reliable anchor currency, such as the U.S. dollar.

Just what is a currency board? An orthodox currency board issues notes and coins convertible on demand into a foreign anchor currency at a fixed rate of exchange. It holds low-risk, interest-bearing bonds denominated in the anchor currency as reserves. The reserve levels (both floors and ceilings) are set by law and are equal to 100%, or slightly more, of its monetary liabilities. A currency board generates profits from the difference between the interest it earns on its reserve assets and the expense of maintaining its liabilities.

A currency board’s operations are passive and automatic. The sole function of a currency board is to exchange the domestic currency it issues for an anchor currency at a fixed rate. Consequently, the quantity of domestic currency in circulation is determined solely by market forces, namely the demand for domestic currency.

A currency board cannot issue credit. It cannot act as a lender of last resort or extend credit to the banking system. It also cannot make loans to the fiscal authorities and state-owned enterprises. Critically, a currency board imposes a hard budget constraint and discipline on the economy.

A currency board requires no preconditions for monetary reform and can be installed rapidly. No reforms of government finances, state-owned enterprises, and trade are necessary for a currency board to begin to issue currency.

Countries that have employed currency boards have maintained currency convertibility and delivered lower inflation rates, smaller fiscal deficits, lower debt levels relative to GDP, fewer banking crises, and higher real growth rates than comparable countries that have employed central banks.

It is important to mention that, at the turn of the century, the currency board idea became engulfed in controversy. Thanks to Argentina. What Argentina termed “Convertibility” was introduced in April, 1991 to stop inflation, which it did. The system had certain features of a currency board: a fixed exchange rate, full convertibility, and a minimum reserve cover for the peso of 100% of its anchor currency, the U.S. dollar. However, it had two major features that disqualified it from being an orthodox currency board. First, it had no ceiling on the amount of foreign assets held by the central bank relative to the central bank’s monetary liabilities. As a result, the central bank could engage in sterilization and neutralization activities, which it did. Secondly, it could hold and alter the level of domestic assets on its balance sheet. Consequently, Argentina’s monetary authority could engage in discretionary monetary policy, and it did so aggressively.

Because of these flaws, I penned an article that appeared in the October 25, 1991 edition of the Wall Street Journal. I concluded that, unless Argentina embraced orthodoxy and amended the Convertibility Law, the system would eventually collapse, which it did in 2002.

The collapse of Convertibility spawned a cottage industry of currency board critiques. But, since Argentina’s Convertibility System allowed for both monetary and exchange rate policies, it was not a currency board – something most economists failed to recognize. Indeed, a scholarly survey of almost 100 leading economists who commented on the Convertibility System found that almost 97% incorrectly identified it as a currency board system. So, those that used the collapse of Argentina’s Convertibility System to argue against currency boards literally didn’t know what they were talking about.

Just how can the international community support the currency board solution for Venezuela’s runaway inflation? For me, the answer harks back to 1992. That’s when I worked with the then-leader of the U.S. Senate, Bob Dole, and Senators Steve Symms and Phil Gramm, to draft U.S. legislation that would encourage countries with unstable currencies and runaway inflation to install currency boards. This legislation, (HR-5368, Law no. 102-391), was signed into law on October 6, 1992. 

Without the adoption of a currency board (or dollarization), Venezuela will continue to be in the grip of an economic death spiral. Forget President Maduro’s rhetoric: “Venezuela is going to implement a new system of international payments and will create a basket of currencies to free us from the dollar.” Indeed, the President has flunked every economic literacy test he has ever taken. 

via http://ift.tt/2yJoPad Steve H. Hanke