The Capital Letter

The Capital Letter: Week of December 14

(Jonathan Ernst/Reuters)
Inflation (or not), stimulus (or not) and much, much more.

So, as I write (12:31 p.m.), it’s still wait and see when it comes to a stimulus package.


Stocks slipped from record highs on Friday as lawmakers rushed to bridge differences on additional coronavirus stimulus measures.

The Dow Jones Industrial Average fell about 150 points, while the S&P 500 dipped 0.4%. The Nasdaq Composite traded 0.1% lower. All three indexes touched new intraday highs in morning trading after closing at records in the previous session.

Leaders on Capitol Hill said they are close to an agreement that would provide $900 billion in additional aid. The talks, which have stretched on for months, are up against the wire, with federal funding lapsing at 12:01 a.m. ET on Saturday.

Senate Majority Leader Mitch McConnell, R-Ky., said Friday that the negotiations “remain productive.” “In fact, I am even more optimistic now than I was last night that a bipartisan, bicameral framework for a major rescue package is very close at hand,” he added.

Last-minute disputes preventing Congress from passing a relief deal includes direct payments, small business loans and a boost to unemployment insurance.

I’ll stick with my view from the previous Capital Letter:

With any stimulus package still stuck in the congressional mire, it is difficult to see what will reverse what is looking alarmingly like a renewed economic downturn. As I have mentioned before, it is impossible not to be concerned about the slaughter unraveling on the national balance sheet. But it is unwise not to be even more concerned about the social and economic consequences of letting the chips now lie where they have fallen. The pandemic has been a humanitarian tragedy, but the governmental response to it has, effectively, been a giant, unprecedented experiment conducted on our society. The results have not been good. Stress-testing the country still more would be . . . unwise.

Fred Bauer makes this important point, tweeting today:

Hot take: The COVID aid package is not just a “stimulus” bill; it’s a *relief* bill. Businesses are struggling not because of the dynamics of the economic cycle but because of a global pandemic that has caused government entities to shut them down or restrict their business.

Writing in yesterday’s Capital Note, Daniel Tenreiro argued that a stimulus package of the type that is under consideration is not likely to generate inflation, despite the increase in already bloated M2 money stock.

How is this possible?

In part, it reflects the caution of businesses and consumers navigating the pandemic. While the amount of credit and currency in the U.S. has expanded, so has the savings rate. As Tyler Cowen pointed out in a Bloomberg column today, corporations’ preemptively borrowing to cushion their balance sheets leads to an increase in monetary aggregates but not in aggregate demand. And that borrowing is unlikely to spur inflation in the next few years because businesses will only spend this new debt if the recovery is weak and demand is low.


“[The] recovery will proceed at a rapid clip, and businesses will have extra cash on their hands for a while. That likely would translate into lower borrowing for the rest of the year and a smoothing of monetary flows — and no major increase in inflationary pressures.”

It’s hard to resist that logic, especially given the experience in the years after the financial crisis, in which inflation remained subdued despite all the dollars injected into the system in an effort to keep things ticking over. Those who piled into gold (moi?) were left disappointed.

Quite why inflation failed to soar in the way that those piling into gold had then expected owes a lot to the absence of “animal spirits” (in Keynes’s phrase) in the Obama years, a product both of Obama’s policy mix and of the psychological scarring left by the dramas of 2007–09. The same absence (after an initial bounce back once the coronavirus is brought under control) may well be felt under Biden, and not just because many of those running companies have now realized that their businesses can be shut down by the state almost on a whim. That will be another new risk to price in before making any investments, as will be fear of yet another epidemic, a fear that will have been enhanced by those who have attempted to link, however risibly, the coronavirus to climate change.

And even ultra-low interest rates may dampen down the willingness of businesses to spend. Of course, low rates make it cheap to borrow (something of which many companies have taken advantage), but they also deliver a signal about expectations for the business climate ahead which is hardly designed to encourage companies to pull out their wallets.

On top of this, there is the possibility of tax increases (much will be riding on Georgia next month) and the certainty of a renewed regulatory onslaught, this time made more acute by Biden’s apparent determination to put climate change at the center of his administration, a project that may well lead to significant capital destruction. And if the climate warriors are at the helm, there is a danger that the infrastructure program may create considerably less value than some hope, unless, that is, the money is spent on labor-intensive projects that make sense regardless of just how catastrophic climate change is ever likely to be, projects such as improving the flood barriers of low-lying coastal cities, or, an obsession of mine, burying far more power lines in densely populated regions, something that (judging by the Northeast anyway) would not take too long to pay for itself.

Meanwhile, I couldn’t help noticing this from Tim Congdon’s Institute of International Monetary Research:

Commodity price movements were at one time closely monitored by central bank officials, since they gave – or were thought to give – early warning of more general inflation trends. Nowadays central banks regard themselves as more sophisticated. They have research departments which can estimate the “output gap”, produce forecasts drawn from large-scale econometric models and so on. Commodity price indices – like money supply data – are therefore little watched. This is a shame, because changes in commodity prices are definite and straightforward facts about inflation (or deflation), whereas forecasts are only forecasts.

Various indices are available. Unfortunately, composition and weighting systems vary enormously, and no single index is authoritative. The Economist magazine, long a contributor to the field, has a dollar-based “industrial-all items” index which reported a 38.3% (yes!) increase in the year to 8th December. Key influences here have been surges in the prices of iron ore and copper, both of which are up by over a third compared with late 2019. By contrast, the S & P GSCI index – which serves as a basis for some derivatives trading – is at present more than 10% down compared with a year ago. The S &P GSCI index has a 60% weighting for oil and gas, where prices are still significantly lower than in late 2019.

All the indices report an upward leap from the end of October – typically in the 10% – 20% vicinity – which presumably reflects the news that several Covid-19 vaccines have become available, and are deemed to be safe and effective. To some extent traders are anticipating a revival in demand next year and taking bull positions, even though the immediate medical news (of yet more lockdowns and the like) has been discouraging. A vital point needs to be emphasizedIf energy is excluded, most commodity prices have been rising in recent months and are well above year-ago levels, even though globally total demand and output remain down on those year-ago levels. What will happen to commodity prices when the lockdowns are over and life returns to normal?

Good question.

The strength in commodities, priced, of course, in dollars, partly reflects the weakness in the greenback, which is now trading at a 33-month low, something which might (it’s complicated) also indicate inflation to come.

Some inflation, of course is not going to concern the Fed, which has made clear that it is not changing course any time soon:

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With inflation running persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved. The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time. In addition, the Federal Reserve will continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage-backed securities by at least $40 billion per month until substantial further progress has been made toward the Committee’s maximum employment and price stability goals. These asset purchases help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses.

And Fed chairman Powell is not too worried about  stock valuations:

If you look at P/Es they’re historically high, but in a world where the risk-free rate is going to be low for a sustained period, the equity premium, which is really the reward you get for taking equity risk, would be what you’d look at.

Bloomberg notes:

The S&P 500’s earnings yield — profit relative to share price — is 2.5 percentage points higher than the yield on 10-year Treasury notes. The comparison, loosely labeled the Fed model, sits well above what the spread was before the burst of the internet bubble, when bonds yielded more than equities by that measure.


“Admittedly P/Es are high but that’s maybe not as relevant in a world where we think the 10-year Treasury is going to be lower than it’s been historically from a return perspective . . . ”

Translation: it’s difficult to find anywhere else to invest for any sort of yield, so stocks it is . . .

And, speaking of collapsing yields, there was this from Almost Daily Grant’s on the 14th:

A new benchmark in financial repression.  As of today, a record $18.4 trillion in global debt is priced to yield less than zero, up from less than $8 trillion in March and a five-year average of $10.3 trillion. Of course, nominal negative yielding debt had never been seen in material size in the 4,000 years of interest rate history prior to the current cycle, according to financial historians Sidney Homer and Richard Sylla.  Recent happenings suggest that upside-down debt pile may grow larger still. . . .

Call me old-fashioned, but it’s difficult not to feel a little uneasy . . .

Standing athwart the calendar we opened the week early on Capital Matters, on the 12th, a Saturday, with Senator Rick Scott (R., Fla.) objecting to Democratic pressure for bailouts for states and local governments:

What Democrats really want is for Congress to just send money to liberal politicians who have already shown they can’t be trusted with it. If these politicians have budget shortfalls, it’s because they did not prioritize their struggling constituents in the first place, and instead wasted money on other things. New York and California are of course free to burn tax dollars for fun. But they shouldn’t expect Florida and the rest of the country to pay when the bill comes due.

I’ve argued all along that states could moderate the economic harm caused by the COVID pandemic through reasoned, balanced measures that protect citizens without destroying their economies. States also have taxing authority and the ability to borrow money if their fiscal situations get too dire.

The federal government can play a significant role in boosting the unemployment-insurance program, propping up small businesses to avoid layoffs, and investing in vaccine research, development, and distribution. But it shouldn’t write blank checks to poorly managed states. . . .

John Fund cast an eye over the corporate exodus from California to Texas:

“This Oracle project is another huge economic-development trophy for Texas governor Greg Abbott’s wall,” John Boyd, a corporate site-selection consultant based in New Jersey, told the San Francisco Business Times. Texas has no state income tax, a much lighter regulatory touch, and a lower cost of living. Tax experts estimate that companies moving to Texas can save a minimum of 15 percent to 30 percent on their taxes.

By contrast, California’s 13.3 percent top tax on personal income and capital gains is so high that Tom Siebel, one of the Bay Area’s most prominent entrepreneurs, told the Silicon Valley Business Journal this month, “I think every responsible chief executive officer has to consider moving their company out of California. If you’re not considering that, you’re not fulfilling your job for your shareholders and your employees.”

“Anyone who doesn’t believe that this latest departure isn’t a threat to California’s economy is a business-climate denier,” Jim Wunderman, president and CEO of the Bay Area Council, said in a statement. “We are watching the unraveling of one of the world’s mightiest economies and the consequences will be devastating.”

Dan McLaughlin reviewed claims that Senator David Perdue (R., Ga.) had engaged in insider trading to enrich himself from information obtained from his role in office. Spoiler: Dan wasn’t impressed:

There is far less here than meets the eye. The one example of possibly questionable judgment by Perdue is unrelated to his job as a senator, has been thoroughly examined by federal investigators without any charges, and has obvious, innocent explanations.

Despite the volume of ink spilled on Perdue’s investments, many of the accusations against him fail for simple reasons. There are five core elements to insider trading: (1) receiving information, (2) in a confidential relationship, (3) when the information is non-public, (4) the information is material (important enough to affect a reasonable investor’s decision), and (5) one trades on it before it becomes public. In a typical insider-trading case, the big fights are over the more technical elements — the materiality of information and whether the investor received it in some confidential capacity, such as serving on a company’s board or (in Perdue’s case) through briefings to Congress. But most of the insider-trading theories about Perdue’s trades fall down at a much more basic level: they either lack evidence that Perdue received information or made the trades himself; or they cite instances of Perdue selling stock before good news as opposed to bad news became public as evidence of wrongdoing, which is backwards; or they ignore obvious indicators that Perdue’s trades are inconsistent with receiving inside information. . . .

David Bahnsen came to the defense of capitalism and, in a nutshell, explained what we’re trying to do here at Capital Matters:

Somehow, I doubt even Bill Buckley could have predicted that “standing athwart history, yelling stop” would have meant, in 2020, an actual plea in the United States of America to repudiate the failed and catastrophic economic worldview of the 20th century. Yet here we are. And perhaps even more surprisingly (and disappointingly), we find ourselves not having to fight the forces of socialism and collectivism primarily on Capitol Hill (though surely there, too), but even more so in the halls of academia and, horror of horrors, in corporate America herself. Nowhere is the danger of lurking progressive economic fallacy more perverse than in the institutions that owe their existence to the majesty of freedom and capital markets.

In an age when too many in the political class, the ivory tower, and yes, even Fortune 500 companies have abandoned the empirical testimony of history and rejected the inherent morality of markets, the duty those of us have to defend ordered liberty is most profound.

National Review Institute, the nonprofit journalistic think tank that supports the National Review mission, has collaborated with NR to launch a new, bold project — National Review Capital Matters — because we take this duty seriously and believe that the greatest defense against the argument of leftist economics is to, well, win the argument. . . .

Alexander William Salter got down and (moon) dirty:

NASA is paying for moon rocks. In September, America’s civil space agency announced its intention to purchase lunar regolith. On December 3, NASA said it was buying from four companies, two from the United States and two international. The price for the moon-rock contracts? As high as $15,000, and as low as $1! Not exactly an extraterrestrial gold rush, but for those looking for pro-commerce space policy, it’s a welcome step.

Intriguingly, NASA administrator Jim Bridenstine affirmed that these were “in-place” transfers of ownership. The companies don’t actually have to bring the materials back to earth. The primary motivation for the program isn’t science. And neither is it money: These paltry sums are hardly a financial incentive for making a market in space dirt. Instead, the goal is to create precedent. The rules for using and transferring space resources, which historically have been fuzzy, just became a little more concrete.

David Bahnsen subjected share buybacks to a richly deserved critique:

Stock buybacks have often been presented as a case for dividend payments being obsolete — that companies have a consistent, repeatable, beneficial, tax-efficient way of returning cash to shareholders now that trumps dividends. I have responded to this argument for years by pointing out: (a) authorizations for buybacks do not have to be executed; (b) most buybacks just offset new share issuance being used as employee compensation; (c) you just compound risk with buybacks — you can’t eat the reverse-diluted share, and then the whammy of them all. . . .

Stock buybacks aren’t repeatable, consistent, growing returns of cash to shareholders. They are the first thing to go when the going gets rough, they are inconsistent, and the actual invisible cash they represent to shareholders is dubious, to begin with, because of competing accounting realities.

Exactly right. Buybacks should not (as some argue) be banned, but give me a dividend any day.

William Levin looked at one of the most abused notions in the climate-change debate: time.

While the scientific time horizon for combating climate change is 80-150 years, the political time horizon is 1.5-10 years. Ten years is an ideal framing window for demanding immediate action. It is close enough to justify urgency, but sufficiently distant (and outside the election cycle) so as never to be provably wrong. That is the strategy employed repeatedly, if illogically, since the 1980s.

Yet there is no science to support a 10-year time horizon for assessing climate sensitivity. The best the IPCC can offer is that a 20-year time horizon may be relevant for addressing select, non-systemic “short-term” climate-change issues. This is a question of policy, not science. The science is in ECS, which the IPCC unequivocally puts at 80 years, or the minimum realistic time frame for CO2 concentration levels to double, or at least increase substantially.

When the IPCC quantifies interim impacts, it states that relative to 1986-2005, the 20-year increase from 2016 to 2035 likely ranges between 0.3°C and 0.7°C. Since this includes an approximate 0.2°C increase for the period 1986-2005 to 2006-15, the net IPCC forecast over the next two decades approximates 0.1°C to 0.5°C. No one argues that such an increase threatens the earth’s existence, or that it would even be readily detectable.

The next-most-prominent climate-change deadline calls for zero carbon emissions by 2050. Why 2050, why zero? The sole basis articulated in the International Energy Agency’s World Energy Outlook 2020 is that “A rising number of countries and companies are targeting net-zero emissions, typically by mid-century.” That is not science; it is a boot-strapping scheme. Adopt a politically determined time frame, then back into the scenario that achieves the pre-ordained result. Unsurprisingly, Biden has made 2050 net-zero emissions a centerpiece of his energy agenda. . . .

Biden has vowed to make combatting climate change the centerpiece of his administration. Wherever you stand on this issue, Levin’s is a must-read piece.

Thomas Miller counseled slowing the roll in the student-loan market:

About 43 million people have chosen to take on student-loan debt. A recent poll claims that 81 percent of the respondents say the government should make it easier for borrowers to repay their debt. How? Are all borrowers struggling to repay? Is it wise to cancel billions in debt without knowing the answer to that question, and without any lending reforms that would prevent the problem from reappearing?

In the Consumer Credit Protection Act of 1968, Congress chartered a National Commission on Consumer Finance, tasked with studying the entire consumer-financial market in America. At the time, student loans were virtually nonexistent. Still, that commission offers us a useful rubric on how to study complex questions about consumer credit.

We need to know what is going on in the student-loan market. As in 1968, Congress should now create a new bipartisan national commission, this time charged with studying all aspects of the student-loan market. Our policy-makers are sorely in need of — and would surely benefit from — a thorough and dispassionate study of the history and current state of the program.

The necessity for a depoliticized commission could not be more apparent. Already battle lines have been drawn, and political pressure for further executive action is growing. There seems to be little thought about any problems that a blanket debt jubilee can create. . . .

Alex Muresianu warned of what Joe Biden’s plans could mean for manufacturing:

President-Elect Joe Biden campaigned on bringing manufacturing back to America as part of his post-pandemic economic-recovery plan. In his “Made in America” plan, Biden promises to strengthen heavy industry, delivering results where the Trump administration failed. However, Biden’s proposal for a tax on minimum book income, intended to reduce corporate tax avoidance, would make this promise harder to keep.

The minimum tax is a response to stories about companies such as Amazon avoiding income taxes despite making profits (Amazon paid $162 million in U.S. federal income taxes in 2019 after paying none in 2017 and 2018). The outcry over this jarring statistic reflects a basic misunderstanding about taxable income. Specifically, people fail to realize that book income is calculated differently from taxable income.

Corporate profits are equal to revenues minus costs. When calculating book income, capital spending is spread out over the course of an asset’s life — e.g., a $20,000 investment in a truck that lasts ten years with no resale value means a $2,000 annual deduction. However, when calculating taxable income, there are several tax rules that allow companies to deduct a larger portion (or all) of their investments in the year they’re made.

There are good reasons for this difference. For book income, spreading investment costs out on the income statement rather than recording them all in one year prevents them from having to report giant losses in years when they make large capital investments. Such losses would make businesses’ expenditures needlessly volatile, conflating short-term spending with long-term financial commitments. . . .

John Fund offered up the rather cold comfort that the heavy-handed authoritarianism often seen in this country in response to COVID-19 has its equivalents on the other side of the Atlantic:

Once coronavirus-lockdown rules are imposed, there’s no limit to how insane and unchangeable they can be. In California, outdoor dining is prohibited while next door a movie company can run a full outdoor-catering operation.

In much of Europe, you can’t serve alcohol in a pub unless it’s ordered “with a substantial meal.” A big problem is that many people who want to drink ignore the meal, leading to huge food waste.

A Dublin pub told its customers they could donate the price of its least expensive €9.00 ($11) meal to a homeless charity instead of having it served to them. But local police have nixed the plan, saying the food must be served. . . .

Timothy Fitzgerald argued that now,

after years of contention, the federal government is slated to sell oil and gas leases in part of Alaska’s Arctic National Wildlife Refuge (ANWR) days before President Trump leaves office. With oil prices still depressed due to the COVID-19 recession, it is not a great time to be selling leases. Yet with the incoming Biden administration promising to stop all oil and gas leasing, especially for ANWR, the taxpayer is better off taking what revenue is raised now than accepting nothing at all.

If all goes as currently planned, on January 6 the United States will hold a lease auction for almost 1.6 million acres on Alaska’s North Slope that are newly eligible for oil and gas development. This auction is the result of a concerted effort by the Trump administration to promote domestic oil and gas production. Debate about these particular leases in the controversial 1003 area of the Arctic National Wildlife Refuge long predates the Trump push. Yet even without considering the impact of development on barren-ground caribou and other ecological assets, this sale presents an unusual tradeoff for both the seller and the prospective buyers. The tradeoff is nearly all about revenue, because drilling in a faraway place that most taxpayers will never visit does not resonate as an environmental concern the way drilling in the backyard might. . . .

Climate-change policy is likely to eat into returns for oil and gas producers. A change in regulatory oversight might make times more difficult as well. Joe Biden has pledged to stop issuing new oil and gas leases on federal lands and waters. If the Alaska leases are issued before he takes office, the owners will have a decade to bring them into production and a strong legal precedent created by a century of federal leasing. Once producing, continuing to pump oil and gas allows the leaseholder to maintain control indefinitely. There are plenty of examples: Leases issued nearly a century ago in the wake of the Teapot Dome scandal that toppled an Interior Secretary are still held by production today. That said, even if the ANWR leases come in under the wire, companies might expect a very different oversight by the federal agencies after January 20.

Calls for stricter environmental standards for investors are another issue. Wall Street has adopted a more tight-fisted posture toward the oil and gas industry, in part because of an increased focus on SRI (socially responsible investing) and in part because of lousy returns on shale investments. The slower flow of funds toward oil and gas could crimp the ability of bidders to spend or could reduce their number to a few deep-pocketed companies. Yet these leases offer a unique prospect of tremendous reserves on large acreages in the United States.  In other words, the opportunity might be too good to pass up. . . .

Recently, the Trump administration introduced rule changes designed to limit the ability of investment managers to play politics with their clients’ retirement funds. Those changes might now be in danger. Richard Morrison wasn’t impressed:

This year, the Trump administration’s Department of Labor — which has responsibility over pension funds covered by the Employee Retirement Income Security Act (ERISA) of 1974 — published two important rules related to politicized investing. The first rule restated ERISA’s longstanding expectation that plan managers must make investment choices for plan beneficiaries solely with an eye to financial return (with one limited exception) rather than with regard to any “socially responsible” considerations, although plans that allow beneficiaries to self-direct their retirement savings are allowed to include ESG-themed funds as an option, if, in essence, those goals can be achieved without sacrificing financial return. The second rule applied to pension-fund managers voting on corporate shareholder resolutions on behalf of their beneficiaries, and it similarly reinforced that investment returns rather than politics should guide their decisions.

Unfortunately for American retirees, Team Biden is widely expected to ignore or actively undermine the enforcement of both of those rules. Because formally repealing a published regulation can be time-consuming and legally complex (as the Trump administration found out on more than one occasion), it will be much easier to simply publish a new interpretation of what the rules mean. Jon Hale of Morningstar predicted in November that “the Biden [Department of Labor] will look at ways to clarify if not reverse the [ESG pension-fund] rule. We expect subregulatory guidance such as FAQs and advisory opinions to help bring things back toward the old status quo.”

Robert VerBruggen took a look at what were (then) the stimulus proposals:

Lawmakers are still finishing the $900 billion bill, but they expect to vote on it as soon as tomorrow. Based on the details available thus far, they seem to be getting things mostly right. I am not a fan of deficit spending or of big government programs, but the case for spending large during a pandemic is not hard to make. This has been a horrible year, with many businesses shut down and millions of workers put out of their jobs through no fault of their own. Even as we approach the end of the pandemic, we are fighting a third wave of infections, and unemployment claims are on the rise again.

We need to keep the economy afloat in an emergency, and that is precisely when you should borrow. It will be much less painful to pay this money back later than it would be to suffer COVID-19’s full wrath all at once. To make the decision even more obvious, interest rates are low and expected to stay low, meaning this debt shouldn’t be too expensive to maintain.

Michael Strain discussed criticism of his new book:

Much of the criticism of my book, The American Dream Is Not Dead: (But Populism Could Kill It), has come from those on both the left and populist right who think I am not concerned enough about inequality — see this, for example, from former labor secretary Robert Reich, who argues for the psychological importance of inequality — and that I am too quick to argue that the United States is still characterized by economic mobility.

So I’d like to highlight a critique from the other side. . . .

Steve Hanke found that the Swiss franc (good) and the Vietnamese dong (a less than Alpine currency) now found themselves in a surprising pairing:

The U.S. Treasury is required to issue a semi-annual report in which it fingers so-called “currency manipulators.” On Wednesday, it issued its most recent report. Switzerland and Vietnam were both nailed as currency manipulators. Talk about an odd couple. Perhaps the world’s greatest currency, the Swissie, and the pathetic Vietnamese dong. Indeed, the little dong isn’t even fully convertible. Never mind.

The absurdity of putting the Swiss franc and the dong in the same basket brings back memories of May 1, 2002. That’s when I appeared before the Senate Banking Committee, along with then-Treasury secretary Paul O’Neill, to testify on exchange rates and the Treasury’s “Report on Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States.” I was highly critical of both the entire concept and the particular methods used to label a country as a currency manipulator. I indicated that the U.S. Treasury’s report was little more than an invitation for political mischief that would interfere with free trade. In short, I thought, and think, that the entire semi-annual currency-manipulator ritual is rubbish and should be trashed. The Swissie-dong odd couple certainly suggests that I am on to something. . . .

Kevin Williamson found an example of (brace yourselves) stupidity in the New York Times:

 “Big pharma is fooling us,” reads the New York Times headline. “Heroic work went into the development of the coronavirus vaccines. But that doesn’t mean this industry deserves your affection.” The essay is by Stephen Buranyi, and it contains some absolute gems. . . .

Amitabh Chandra of the Harvard Business School raises one obvious multiple-choice question in response: “Let’s think about the argument in this article: A virus causes over $16 trillion to damage to the U.S., through lost lives and lost economic activity. The government pays $10 billion and we get two vaccines with 95 percent effectiveness in nine months. This was: 1.) a really good deal; 2.) a handout to big pharma.”

The issue of “affection” raised in the headline is interesting. One of the things that is genuinely great — and, ultimately, humane — about the free-market system is that it doesn’t matter very much how buyers and sellers feel about one another. If I need to fill up the car and the price is right, does it really matter if I feel any “affection” for 7-Eleven, or do I just give them the money and get my gasoline and go? (I do feel some affection for 7-Eleven, a former employer of mine, many years ago. I also kind of hate 7-Eleven, because they are a very bad neighbor.) Even the companies people tend to have affectionate feelings about — Apple, Porsche, Armani, whatever — mostly work for money, not love. That’s how it should be. Adam Smith had that one right. . . .

Veronique de Rugy didn’t think that the Export-Import Bank is doing as well as it could against China:

You know that something doesn’t smell quite right when politicians and political appointees write a fluff piece about how great they are doing but fail to give any concrete examples and only repeat tired and debunked talking points. That what North Dakota senator Kevin Cramer and outgoing Export-Import Bank chair Kimberly Reed have done today in The Hill.

In the piece, they do what Reed has been doing for about a year: remind us that when Ex-Im was reauthorized in December 2019, the agency was given a mandate to focus on fighting China. . . .

[A]ny goal-oriented individual (or institution) would know that regurgitating the statutory language that Congress handed to you in the reauthorization bill is quite different from actually doing something. Reed and Cramer seem to assume we wouldn’t notice the difference. Tellingly, the piece includes no examples of what Reed, as the head of ExIm, has actually done to fulfill that mandate. Why? Because she’s not done much at all, as I explained back in September.

Beyond the repetition, the timing for this propaganda is quite unfortunate. Just two days earlier Brendan Bordelon at National Journal produced a detailed report called “Is the EXIM Bank’s push to thwart Chinese tech smoke and mirrors?” Read it, and you will see that there’s little evidence of a coherent strategy in anything that the ExIm chairman has said or done, and she certainly has no results to show for it. . . .

Casey Mulligan told of how economics is helping in the fight against the coronavirus:

Although COVID-19 would not arrive in the U.S. for two more years, the National Security Council’s biodefense team asked the CEA to look at the economics of vaccine innovation during pandemics. CEA concluded that “improving the speed of vaccine production is more important for decreasing the number of infections than improving vaccine efficacy” and emphasized the need for large-scale manufacturing and the possible advantages of public–private partnerships.

The CEA vaccine report prompted an executive order, also before the pandemic, noting that “viruses emerge from animals . . . that can spread efficiently and have sustained transmission among humans.” President Trump concluded that “vaccination is the most effective defense.” As two of Trump’s former senior staff members put it, “when COVID-19 emerged, the White House was ready and expeditiously applied the report’s deregulatory and fiscal lessons to streamline FDA approval for vaccines and their parallel manufacturing on a large scale.”

I was in the Oval Office with the president and his economic team in February, when COVID-19 cases were beginning to spread. His staff was worried that the FDA would not be interested in removing any more approval barriers. But the president was confident, telling us that “I’ve done it before and will do it again . . . bring the FDA management in here.” President Trump initiated his Operation Warp Speed, led by HHS, to give many private companies incentives for “speed and scale” of vaccine production and to give all companies the opportunity for streamlined FDA approval.

COVID-19 vaccines are now being administered to the general public at least six months earlier than Dr. Fauci expected. The economists were correct that accelerating medical innovation is both possible and worth trillions of dollars to Americans. . . .

Finally, we produced the Capital Note (our “daily” — well, Monday-Thursday, anyway).  Topics covered included: foreign investment in China, a massive cyberattack, the boost to small banks from PPP, a new critique of economic theory, the Fed joins the climate club, the end of the free Internet (maybe), California (still) looking at tax increases, New York’s food vendor crunch, a worrying case for leveraged buyouts, FOMC December meeting, the dollar’s global-reserve status, a theory of IPO pops, a look at yield-curve control in the mid-20th century, why stimulus isn’t likely to cause inflation, and how the pandemic is strengthening large corporations.

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