The Capital Letter

The Capital Letter: Week of November 30

Hundreds of people line up outside a Kentucky Career Center, hoping to find assistance with their unemployment claims in Frankfort, Ky., June 18, 2020. (Bryan Woolston/Reuters)
Unemployment woes, the Fed Trap, and much, much, more.

So, the V that was never a V (and was never going to be a V) continued to devolve into whatever sort of squiggle it has now become.

The Financial Times:

The US economy added a meagre 245,000 jobs in November and the unemployment rate fell to 6.7 per cent, as the labour market lost momentum in the face of the latest surge in coronavirus cases.

The data released on Friday by the US labour department will fuel fears of a sharp slowdown in the world’s largest economy. It comes in the midst of a new push in Congress for a fiscal stimulus package to help small businesses, the unemployed and state and local governments weather the latest wave of infections, after months of stalled negotiations.

The jobs report could also influence the thinking at the Federal Reserve, where officials are debating whether to add monetary support to the economy by making changes to the asset purchase programme.

On the brighter side, as the Wall Street Journal reported on Thursday:

Weekly initial claims for jobless benefits, a proxy for layoffs, fell by 75,000 to a seasonally adjusted 712,000 in the week ended Nov. 28, the Labor Department said Thursday. That follows two consecutive increases and comes amid evidence that the economy continues to recover from the spring’s shutdowns, but at a slower pace. Last week’s level was only 1,000 more than the lowest level recorded since March, and well down from this year’s peak of nearly 7 million—but was still higher than any level recorded before 2020.

As so often, Axios has been digging around the numbers. The picture now is not reassuring and in a few weeks it may be darker still (my emphasis added):

As of Nov. 14, 20.2 million Americans were receiving unemployment benefits of some kind, including more than 13.4 million on the Pandemic Unemployment Assistance (PUA) and Pandemic Emergency Unemployment Compensation (PEUC) programs that were created as part of the CARES Act and end on Dec. 26.

The 4.6 million people receiving benefits through PEUC have been unemployed for at least six months and economists estimate that only about 2.9 million will be eligible for the extended benefits program

The rest and any potential new applicants will be out of luck unless Congress extends the programs.

In addition, Axios cites former Department of Labor chief economist Heidi Shierholz, who estimates that in addition to those who are officially unemployed 7 million people have seen pay cuts, 4.5 million have dropped out of the labor force, and “3.1 million have been miscalculated as employed.”

Miscalculated?

Check out this from the GAO (h/t Axios):

Weekly news releases issued by the Department of Labor (DOL) do not provide an accurate estimate of the total number of individuals actually claiming unemployment insurance (UI) because they have potentially both over-estimated and underestimated the total number of individuals actually claiming unemployment insurance. That is because DOL presents state-reported data on the total count of weeks claimed, nationwide, as the number of people claiming benefits. DOL has traditionally used the total count of weeks claimed to estimate the number of individuals claiming benefits because the two numbers were a good approximation of each other. However, due to state backlogs in processing claims and other data issues, these traditional estimates are not appropriate in the context of the pandemic. For example, state backlogs in processing claims led to individuals submitting claims for multiple weeks of retroactive benefits during single reporting periods. So, by using claims counts to represent the number of people, many individuals are counted more than once in DOL’s estimate.

The ideal government does a little, well. Uncle Sam does a lot, badly.

Nevertheless, the combination of all those expiring deadlines, a faltering economy and a resurgent virus all underline the case for another stimulus package, if only as a band-aid to see the nation through the next few months. Taking a step back from the misery it has caused, the pandemic can be seen as a giant social experiment, and the results have, to say the least, been unimpressive. It would be wise not to push it too far.

Under the circumstances, the news that a bipartisan stimulus package may well be on the way is encouraging.

The proposal includes (according to CNN):

  • $300 a week in enhanced federal unemployment benefits (there is still a debate about how retroactive this could be)

  • A continued pause on student loan payments

  • Eviction moratorium

  • Another round of money for the Paycheck Protection Program

  • $16 billion for vaccine development and distribution and Covid-19 testing and tracing

  • Extension of unemployment programs that allowed gig workers to file for unemployment insurance

  • Extension of the program that allows unemployed Americans to get 39 weeks instead of 26.

The overall cost is likely to be around $900 billion, much less than earlier packages rejected by the Democrats for being insufficient.

John McCormack took a look at the history:

Speaker of the House Nancy Pelosi has been insisting for months on a COVID economic relief bill totaling $2.2 trillion. She repeatedly suggested that no deal was preferable to any deal smaller than that.

When the bipartisan “Problem Solvers Caucus” proposed a $1.5 trillion deal in September, Pelosi shot it down. When President Trump proposed a $1.8 trillion deal in October, Pelosi shot it down.

Now, Pelosi wants to pass a deal for half the amount proposed by Trump in October.

At a press conference on Friday, Pelosi was asked why she’s now supportive of a $900 billion COVID relief bill. “It’s for a shorter period of time, but that’s okay now because we have a new president — a president who recognizes that we need to depend on science to stop the virus,” Pelosi told reporters. She also cited the existence of an effective vaccine as another reason why a smaller bill is worth passing.

When CNN’s Manu Raju asked Pelosi if it was a mistake to reject a “half-loaf” on COVID relief in the fall, the House speaker became agitated. “It was not a mistake,” Pelosi snapped.

Denial is a river in Egypt, but whatever it takes.

None of this is to minimize the extent of the damage being inflicted upon the nation’s finances by these rescue packages, nor, for that matter, should we forget that the mispricing of risk that is flowing from the Fed’s interventions in the money markets will inevitably have significant consequences, none of them good, at least over the long term.

But deeper stresses in the economy mean that it will be difficult for the Fed to change course.

Philip Grant in Grant’s Almost Daily:

The still-swollen ranks of stressed issues add credence to persistent default worries.  Moody’s B3N and lower list (meaning those rated the equivalent of single-B-minus or lower along with a negative ratings outlook) stood at 25.5% of the total high-yield universe at the end of October, double that of a year ago and not far from the record high 27.5% peak reached in June.

Those hobbled hordes need the good times to continue. Noting that “open capital markets are critical to support speculative grade company liquidity needs,” the rating agency concludes that “weak structures will delay many days of reckoning.”

Indeed they will, which (I think) helps explain much of the rally in stocks. With rates at these levels money simply has nowhere else to go.

The Financial Times:

The markets have become too hot to handle. So intense is the frenzied stock-buying that even many of Wall Street’s biggest brokerages and wealth managers are struggling to keep up.

Almost every major US brokerage firm — from old stalwarts like Charles Schwab and Merrill Lynch to new platforms such as Robinhood — suffered at least one outage in November, according to Downdetector, a website that tracks online service problems, as a torrent of trading overwhelmed their websites.

Thomas Peterffy, the billionaire founder of Interactive Brokers, who first started trading on the now-defunct American Stock Exchange in the 1970s, says the current environment is unlike anything he has ever seen before — but understandable. “Money is now so easy, why not borrow what you can and put it into stocks? That’s what our customers are doing, and they’re making helluva lot of money,” he says.

Retail investors led the dramatic equity market recovery from the Covid-19 shock, flooding internet message boards to share memes, boast of wins and lament losses. But now they are increasingly joined by the investment industry’s heavyweights, which are helping reinforce and broaden out the most remarkable bull run in financial history.

What could go wrong?

Not unconnected (via Bloomberg):

Promoters have raised over $60 billion this year—more than in the previous 10 years combined—for companies that don’t have a business yet.

What could go wrong?

On the other hand, at least our investing institutions aren’t out there publicly asking for advice as to what to do. The same cannot be said for Japan’s Government Pension Investment Fund (GPIF), the largest pool of retirement savings in the world.

A zero-interest rate environment has firmly taken root in Japan since the country’s central bank cut the uncollateralized call rate (the policy rate corresponding to the US Federal Funds rate) to 0.15% in February 1999, despite the BOJ having departed from this policy once in 2000 and again in 2006. While zero interest rates were at first considered a temporary measure, twenty years have passed since they were first introduced, and even long-term interest rates have been kept around zero since 2016 under the BOJ’s yield curve control policy. Now, with the emergence of the first global pandemic in over 100 years, the Federal Reserve Board revived its own zero-interest rate policy in March of this year for the first time since December 2015, and the US long-term yield also dropped below 1% for the first time in history.

In light of this, GPIF is requesting information on the mechanism that has generated and entrenched this global zero-interest rate environment, and for ideas on a way to estimate expected return for domestic and foreign bonds in the midst of such an environment. We will consider conducting further research on the development of such a methodology based on the information we receive.

Meanwhile (h/t Marginal Revolution), TheStreet’s Mishtalk notes that “23.6% of All US Dollars Were Created in the Last Year.”

What could go wrong?

We opened the week on Capital Matters with James McCarthy wondering what on earth is happening to the nation’s business pages:

In what other section are journalists so uniformly filled with animosity toward the subjects they claim to cover objectively? An arts writer who despised film and music, or a sportswriter who loathed football and golf would register as odd if not unfit. But anyone who has interacted with them can tell you that most business writers are steeped in progressive worldviews intrinsically hostile to markets and predisposed to government regulation and control.

That could be because most have never worked in corporate America, nor studied economics beyond an undergraduate survey. Journalism and other liberal-arts departments at the universities that stock our press corps are dominated by faculty with an anti-market animus manifestly transmitted to their students. As a consequence, few business writers display any understanding of the motivations or worldviews of the people who drive private enterprise.

The result is coverage in which any perceived market failure yields a predictable consensus around a set of supposed bad actors with malignant influence who must be stopped via regulatory or legal intervention.

McCarthy concludes:

When the journalists we count on to be unbiased narrators fail us, where is there to turn?

Ahem.

Daniel Tenreiro noted that Amazon had been on a hiring binge. Rather more of it could have been in New York City (where unemployment stands at roughly twice the national average), but:

Ocasio-Cortez objected to the state’s offer of tax credits to Amazon, the bulk of which would be paid out over a ten-year period conditional on Amazon’s reaching hiring and salary targets. While ad-hoc tax incentives are a sloppy and ineffective means of attracting businesses, the specific policy questions here are less salient than the hostility towards business voiced by Ocasio-Cortez and her coterie.

The state never revoked the tax credits, and Amazon could have proceeded apace. Amazon’s management chose not to because they didn’t want to be in close proximity to lawmakers intent on kneecapping them at every turn.

AOC might not mind too much about that, however. Prosperity is not necessarily a “democratic” socialist’s friend.

Under the circumstances then, it wasn’t fun for me (I live in NYC) to read the Manhattan Institute’s E.J. McMahon on the Democrats winning a supermajority in New York State:

When most of the state’s record 1.9 million mail-in ballots were finally counted this week, it became clear that the New York State Senate’s existing 40-member Democratic majority would grow by at least two seats — giving them their first-ever two-thirds supermajority of the 63-member chamber, enough to override gubernatorial vetoes.

The landmark comes two years after Democrats took control of the legislature’s upper house for only the third time since World War II. Combined with their long-standing supermajority in the 150-member assembly, legislative Democrats now are positioned to have the final word on New York State’s response to enormous state and local budget gaps created by the instant pandemic recession last spring . . .

Iain Murray, meanwhile, warned that the future of socialism is green, not red:

One  of the most interesting results of our recent elections was that Americans rejected socialism — or at least its close American equivalent — despite its seemingly growing popularity. Successfully labeling their opponents as socialists propelled many Republican candidates to victories in down-ballot races, particularly in areas with immigrants who had fled avowedly socialist regimes. Socialist-style policies were also defeated in ballot-measure votes, even in progressive states such as California.

Many commentators have noted that Joe Biden’s record of moderation in the Senate made it difficult to paint him as socialist. That does not mean, however, that socialism in all its variations has been defeated outright. As we are seeing in other parts of the world, what we once would have called socialism has evolved: Its future is green, not red…

Climate change is at the heart of this radicalism. It represents the perfect excuse for socialist central planning. Industry and individual choices such as automobile driving, the argument goes, are wrecking the planet, and therefore must be centrally controlled and regulated so that emissions are reduced to a level that constrains climate change.

The regulations to achieve this end must be introduced now on an emergency basis and exist in perpetuity. According to the climate warriors, there is virtually no aspect of American economic life that does not have some effect on climate. It’s misbegotten, of course, but to be expected: If climate is at the heart of your policy, you will need to control all the myriad human actions and interactions that might affect it . . .

And to say “all” the myriad human actions is no exaggeration. As I noted:

The war on red meat, spearheaded by vegetarians (and then vegans) has been going on for years. More recently, the climate warriors have joined in. A decade or so ago, the idea that climate change might have been used as a justification for either banishing meat from the table — or repricing it so that it was treated as an occasional luxury — would have seemed outlandish. But climate warriors have a remarkable ability to turn the unthinkable into the all too real (and, no, that is not a reference to their predictions about the climate). And so it is well worth paying attention to what they are saying in this respect.

And what are they saying? Nothing good for your prospects of a good, carnivorous meal.

Speaking of green, Joseph W. Sullivan looked at the costs of Joe Biden’s energy policies:

The U.S. sits on $5 trillion of wealth in the form of fossil-fuel reserves. But President-elect Biden promises to “transition” these deposits out of the U.S. economy. This agenda would, by design, decrease the economic value of fossil-fuel deposits. But how much of this $5 trillion portfolio, exactly, would be wiped out by the implementation of a Biden energy agenda?

Some former colleagues of mine from the White House Council of Economic Advisers have a partial answer. They modeled the impact of Biden’s plan for 80 percent of American electricity generation to come from sources that do not emit carbon by 2050. According to their estimate, if enacted, this proposal would decrease the present value of proven fossil-fuel reserves by $841 billion, or about 4 percent of annual GDP. That is equivalent to an $841 billion loss in the market, today, in a $5 trillion portfolio of stocks. The number effectively represents the loss of the income that would otherwise accrue as a return on the assets you already have. Whether those assets are minerals in the ground or shares in a brokerage account, the economic concept is the same.

However, as the chart above shows, these prospective losses concentrate in certain parts of the United States, including some where their impact is likely to be overwhelming. For instance, the estimated $63 billion worth of losses in income generated by North Dakota’s reserves would exceed the state’s $56 billion annual output.  Texas, which produces $1.8 trillion annually, would see the largest losses in raw dollar terms at $275 billon. And the geographic concentration of the costs sharpens yet further within already hard-hit states, because not all counties are equally dependent on oil.

Yet the Biden administration appears to have a blind spot to these looming costs. The blind spot emerges because, wittingly or unwittingly, they’re indulging the broken-windows fallacy that economists (at least some of them) have understood since the mid-19th century. . . .

And among states that would be hardest hit by all this would be one of the poorest, New Mexico. Writing from Albuquerque, Paul Gessing of the Rio Grande Institute implicitly highlighted the irony of a poor, blue state voting for policies that would add red ink to its budget:

It is unclear what Biden will do about hydraulic fracturing, or “fracking,” which enables oil and gas producers to access previously inaccessible oil and gas sources. He backed away from an outright nationwide ban late in the campaign. However, Biden has clearly stated that he would ban new gas and oil permits — including fracking — on federal lands.

Targeting federal lands would devastate New Mexico’s oil and gas industry and its economy, because of the state’s large federal estate. According to the Institute for Energy Research, 34.7 percent of the land in New Mexico is federal. In fiscal year 2019, New Mexico received energy-related disbursement (from the federal Bureau of Land Management) of  $1.17 billion, the highest payment made in any state (Wyoming was next, with $641 million, and then Colorado, with $108 million). This was the highest payment from the bureau in the state’s history and compares with $455 million in FY 2017. A vast majority of this increased revenue is a result of fracking.

Furthermore, data from the Global Energy Institute indicate that if energy production on federal lands were banned, New Mexico would lose 24,300 jobs (10,000 direct, 14,300 indirect and induced), a significant hit for a state with a workforce of around 900,000. Making matters worse, a good number of the “direct” jobs lost are good-paying — something that is not easy to find in New Mexico, a state that consistently ranks among the poorest in the nation and has been hard-hit by the COVID-19 pandemic. Closing New Mexico’s federal lands to energy production entirely would cost the state $496 million in annual royalty collections, representing 8 percent of the state’s total General Fund Revenues . . .

As it happens — and for those that like rankings — New Mexico is my favorite state, which made it all the more shaming that I did not know this nugget:

Lew Wallace the former territorial governor of New Mexico (and author of Ben Hur), once said, “Every calculation based on experience elsewhere fails in New Mexico.”

Lew Wallace ran New Mexico?

Turning to another state, Adam Schuster examined the mess that is Illinois’s state pension system:

The Prairie State’s pension debt is the worst in the nation relative to the size of each state’s economy. Moody’s Investors Service estimates unfunded liabilities in Illinois’ five state-managed pension systems at $230 billion for fiscal year 2019, equal to about 26 percent of gross domestic product. Moody’s also projects that the debt will grow to an all-time high of $261 billion for fiscal year 2020, owing to investment losses in markets riled by COVID-19.

Many of the toughest problems facing Illinoisans stem from this crisis, leaving their home state at the bottom of too many “best” lists and at the top of many “worst” lists…

Retirement benefits for government workers are the largest financial burden borne by Illinois state and local governments. Those benefits are set by state law and afforded near absolute legal protection under a 2015 Illinois supreme court decision, interpreting the state constitution’s pension clause.

But rather than offering anyone true protection, the government continues to maintain an unsustainable status quo that endangers the retirement security of public employees and undermines the chance that almost anyone might have to build a financially secure life in Illinois . . .

But Schuster has some ideas as to how to put this right.

Ramesh Ponnuru questioned the New York Times’s view on the need for wage increases. Rough stuff ensues:

The editors of the Times further stack the deck for government-directed wage increases by misstating the argument against them. For decades, they say, the conventional wisdom has held that higher wage minima “would raise unemployment because there was only so much money in the wage pool, and if some people got more, others would get none.” This is not true. The reason a higher minimum wage is thought to cause higher unemployment is a straightforward matter of supply and demand: Raise the price of labor and its purchasers will buy less of it. It is certainly possible that this effect will be small, or that it will be considered worth it for the higher wages that some workers will receive; but the argument does not require there to be a fixed amount of money available for wages . . .

We ran an excerpt from Conscious Leadership: Elevating Humanity Through Business by John Mackey, Steve McIntosh, and Carter Phipps.

Here’s an extract from the excerpt:

In some respects, “innovationism” would really be a better name for “capitalism.” In our opinion, capitalism is at its best when we deeply appreciate that it’s more about the application of human creativity than about the allocation of financial capital. That’s why the successful innovator, entrepreneur, and even executive needs to focus on creating value rather than simply creating profits. By “value” we simply mean the quality of product or service that encourages someone else to want to do business with you. Yes, value is tested in the marketplace, in the crucible of actual trade. But always remember that profits are downstream from created value, not the other way around.

Most of the world’s great companies started with some new, game-changing form of value creation. It can be dramatic and revolutionary — like the steam engine, electricity, or the internet. It can be unheralded but transformational, like better plumbing or the washing machine. It can be unexpected but timely, like Ray Kroc inventing a new way of selling hamburgers and franchising stores, or Whole Foods providing natural and organic food to a nation that hadn’t yet realized there was a massive new business opportunity in healthier eating. Fast-forward a few decades and those innovations have changed the entire food industry.

At Capital Matters we recognize that there is room for honest disagreement on the Right over economic matters and don’t generally have an editorial line (that said, advocates of high taxation and nationalization might struggle to find space here), and so while, as discussed above, I may support a band-aid stimulus, Veronique de Rugy was decidedly more skeptical:

But the cherry on top in this proposal is this: In addition to the fact that the economy is growing even as government spending is down and that business startups are soaring, the situation has entirely changed in the last three weeks. We now have three vaccines with what looks like high efficacy. Policymakers’ singular focus should be on getting them approved, manufactured, and distributed to health-care workers, the elderly, those with comorbidities, retail employees, teachers, Uber drivers, and others.

Yet, 1.7 percent of this bill — or $16 billion according to the COVID Framework document presented this morning — is specifically about manufacturing vaccines, distribution, and testing (and please spare me the argument that the airline bailout is about vaccine distribution because it is not).

I have seen reporting that $50 billion of the total bill is to manufacture and distribute vaccine. If that’s the case, the share of the bill going to answering the question, “How do we get the vaccine to people as fast as possible?” increases to 5.5 percent. By the way, funding for education, which includes money to schools that have been failing American children for months, is $82 billion.

If spending bills are a reflection of politicians’ priorities, Americans are getting a clear signal that these politicians have incredibly messed-up priorities with very little focus on what should matter the most right now. This compromise is about business as usual. It’s about spending money on the stuff politicians always want to spend money on. The fact that some Democrats are willing to spend less than they wanted and that Republicans are willing to spend more than they should is not noble. It’s politics.

James Glassman looked at this issue from a different angle:

A good example of such a win-win was the Telecommunications Act of 1996, passed 414-16 in the House and 91-5 in the Senate. Republicans were never destined to beat Bill Clinton in 1996, but that law helped create a boom that enabled George W. Bush to promise tax cuts that helped him win the presidency. If it weren’t for the unforeseen financial crisis in 2008, Bush could well have been succeeded by a Republican president — in large part because Republicans compromised on legislation that unleashed the Internet economy.

In short, by supporting infrastructure investment today, Republicans can help themselves in states they must win to control the Senate and House, states where they can elect more governors and where their next presidential election will be decided.

Republicans who like being in the party of the aggrieved should oppose everything President Biden wants, regardless of whether it’s a good idea. Republicans who would prefer to position their party for enduring popularity should head toward the political middle — at least for the first few months of the next presidency. That is when the fate of an infrastructure bill, and the economy as a whole, will be determined.

In this connection, here are three lessons from the experience of 2008-09.

First, there’s no way to tell how bad the economy will get, so pass a stimulus bill large enough to meet the worst assumptions — in this case, that sufficient vaccine distribution will extend well into 2022. In 2009, the Republicans and Democrats negotiated the stimulus bill downward. Don’t do that again.

Second, fund all the major physical platforms the economy requires: power, communications, transportation, water, sewage. Embrace earmarks or other allocation standards as a way of making sure every worthy state and community gets funds. Republicans should even embrace the Clean Energy and Sustainability Accelerator that some GOP House members supported with Democrats earlier in 2020. The bill allocates 40 percent of its funding to disadvantaged communities, many of which are located in Republican strongholds.

Third, stimulating the economy equals reviving infrastructure, not least because workers in this category can safely do their jobs outdoors. Spending will be sustained and substantial for years. State and local governments will play a big role, as will private-sector investors from around the world. Terrence Keeley, a BlackRock official, recently wrote, “Trillions of dollars of private capital are both ready and willing to be deployed for high-quality infrastructure projects.”

There is little for Republicans to dislike in this prospect, and making the right choice now allows them to be a competitive party for years to come.

Earmarks! BlackRock! Your editor shudders, and then puts in his regular plea to put electricity lines underground in densely populated areas. It wouldn’t be cheap, but it would be labor intensive and would pay for itself very quickly.

Alexander William Salter hymned “zombie Reaganism”:

Where Trump did achieve policy victories, all were straight out of the zombie Reaganism playbook. This isn’t to say they were always in line with the policies pursued by Reagan himself: Reagan’s brand of conservatism has taken on a life of its own, concisely expressed in the Gipper’s famous quip that “government is not the solution to our problem, government is the problem.” Casey Mulligan, who served at Trump’s CEA and wrote a memoir of his time there, reminds us that the gap between Reaganism and Reagan can be large. Nevertheless, zombie Reaganism represents a specific mythos, one that has infused the GOP for decades. And if Trump’s policy victories are any indication, it isn’t going anywhere.

Trump’s accomplishments fall into two categories: constitutional wins (dealing with how America’s governing covenant is interpreted and applied) and post-constitutional wins (succeeding in the rough-and-tumble melee of partisan politics). The clearest examples of Trump’s constitutional victories are his Supreme Court justice picks. As for post-constitutional victories, it’s hard to beat his tax cuts and deregulation. Both kinds of wins carry the distinctive odor of Reaganism warmed over . . .

Trump can thank the charismatic cadaver whose lingering presence ensured his presidency was not a complete disaster. Zombie Reaganism is alive and well, thank goodness. The GOP should think twice before writing its obituary.

But Ramesh Ponnuru was ready to hammer home his stake (at least to this thesis):

Alexander William Salter argues that President Trump’s economic record vindicates “zombie Reaganism.” I am well-disposed toward the Republican tax reform of 2017, regulatory restraint, and Reaganism. (Less sold on zombies.) But I also think that all of us involved in debates over economic policy are prone to attribute too much importance to it. And I think Salter has fallen prey to this mistake.

His main piece of evidence that zombie Reaganism succeeded is that it “resulted in soaring median household incomes.”

Did it?

There are a variety of ways of measuring real median income. In what follows, I’ve relied on my American Enterprise Institute colleague Scott Winship, who used the Census numbers on median household income, adjusted them for inflation based on Personal Consumption Expenditures, and took account of relevant changes in Census methodology. But I’ve looked at the numbers using a variety of measures — using the Consumer Price Index to measure inflation, for example — and the conclusions remain intact.

Capital Matters – a space to disagree.

Veronique de Rugy effectively hosted a mini-symposium on the death of the great Walter Williams.

Rick Santorum spoke up (rightly, in my view) for the preservation of Section 230 of the Communications Decency Act, now under fire by conservatives riled up by Big Tech’s obvious anti-conservative bias, and by Democrats who will take full advantage of the opportunity that some conservatives are trying to give them:

While Section 230 enabled the explosion of user-created content online, it has also been pilloried from both ends of the political spectrum: Conservatives blame the law when their more-provocative content is restricted or removed by the big social-media platforms; but progressives blame the same platforms for failing to remove what they see as hate speech and misinformation. So some want to get rid of 230 because it limits speech, while others want to eliminate 230 because it doesn’t limit enough speech! As a senator, I always felt that when both the Left and the Right complained about my support of a compromise reached on legislation, it was likely a fair compromise.

Washington is no longer a place where compromises are forged. Who knows how Congress or the administration will reconcile those opposing priorities. But I can predict that any change by a Biden administration won’t go well for conservatives. Biden and congressional Democrats want to make Section 230 protections contingent on whether a platform does thorough fact-checking to prevent misinformation — according to rules set by Democrats and bureaucrats. You could argue that liberals at social-media companies do that now. But a change in Section 230 would affect all sites, not just ones run by Big Tech. And it is much easier to fight Big Tech than big government.

Some, such as President Trump and a few Democrats, want to repeal Section 230 and unleash a flood of lawsuits over content moderation on the big platforms. Are conservatives really for zero content moderation on these sites? One can only imagine the graphic cesspool that would ensue without some enforceable standards. And which sites would be better prepared to fight the suits — big platforms that have thousands of content moderators and a stable of lawyers, or startups such as Parler and Rumble that have neither?

Repealing Section 230 would therefore make it impossible for sites to host provocative conservative content that would trigger a flood of lawsuits from naturally litigious progressives. The Left hates competition, so in no time they would push online Americans back into the arms of now government-regulated Big Tech and the mainstream media. Gutting Section 230 would be a gut-punch for emerging social-media platforms that provide a competitive portal for President Trump’s fans.

Social media has been pivotal for every congressional and presidential election in the last decade and was essential for President Trump to reach blue-collar conservatives in both of his campaigns. From Ben Shapiro and Dinesh D’Souza to PragerU, conservatives use both legacy and emerging online platforms to share their views with millions of Americans.

Followers of President Trump should join their brethren at Parler and Rumble, while keeping up the fight on Twitter, Facebook, and YouTube to engage in the battle of ideas with their broader audiences of moderates and independent voters. Talking to ourselves is not a winning election strategy.

We justifiably want today’s Big Tech platforms to treat conservative content more fairly, but repealing Section 230 is not the answer. If conservatives want an Internet that is friendlier to our views, we should vigorously defend the law that empowers diverse online voices. At the same time, we should continue to publicly hold social media to account, and support new social-media businesses that host conservative content. But without Section 230, conservatives will lose the only avenue around the mainstream media — an avenue that reaches a broad audience of American voters.

Brad Polumbo highlighted the regressive aspects of plans to cancel some student debt:

According to the Census Bureau, just about one in three adults over age 25 have a bachelor’s degree. This slice of society, naturally, holds almost all student-loan debt. (Some is held by those who failed to graduate). Yet college graduates also typically make 85 percent more than those with only a high school diploma — and earn roughly $1 million more over their lifetime.

So, while many might think of student-debt cancellation as helping broke young people, it actually uses the government’s scarce resources to help a relatively well-off subset of society. Even (in a 2019 blog post) writers from the liberal-leaning Urban Institute took a look at data contained in the Survey of Consumer Finances for 2016 and found that the lowest 25 percent of income earners would only see 12 percent of the benefits from canceling student debt. In their view, “debt forgiveness plans would be regressive — providing the largest monetary benefits to those with the highest incomes.”

I looked at yet another proposed assault on shareholder rights, this one coming from, disappointingly, NASDAQ, a stock exchange, which would like to mandate diversity requirements on the boardrooms of companies listed on it:

NASDAQ, a private institution, is, of course, entitled to set its own rules, just as (to quote the Journal) “banks and asset managers” are entitled to try to push their clients or portfolio companies to change their ways. Nevertheless, it is hard to miss the mission creep that is currently occurring across a wide range of institutions, some private, some parastatal (take a look at the effort central banks are increasingly making with regard to climate change) to impose different aspects of a “progressive” agenda on private companies without the bother of going through the usual democratic mechanisms. In effect, they are, in different ways, gnawing away at the right of shareholders to have the last word on the way that their companies are run.

Traditionally, denying that last word to shareholders has been justified on prudential grounds directly related to the core function of the body that is setting the rules — it makes clear sense, for example, for NASDAQ to insist that listed companies satisfy certain disclosure requirements. It is, however, an entirely different matter when the reason for restricting the ultimate shareholder right of decision is, one way or another, political.

If shareholders’ rights are to be eroded on political grounds, then, in a democracy, the decision to erode those rights should be taken by a democratically elected body. In a corporatist (or other even more authoritarian) regime matters would be arranged differently, but I would hope that the U.S. has not yet reached that point.

In a typically thoughtful piece, Kevin Williamson looked at the design of government assistance programs (a brief description that doesn’t do the piece justice).

An extract:

For years, institutions such as the International Monetary Fund and the World Bank endured savage criticism for imposing “austerity” measures on developing countries as a condition of aid, requirements excoriated as miserly and meddlesome. These institutions were in most cases acting in the genuine interests of their beneficiaries, which would have had very little chance of achieving long-term stability and prosperity without reforming their public finances and opening their economies. (It is a part of leadership to understand that people’s desires and their interests are not necessarily the same thing.) And now we are seeing a domestic version of that same drama playing out as basket-case states such as Illinois use the COVID epidemic as a pretext to try to finagle a federal bailout of their grossly underfunded pension systems and other obligations resulting from bad governance and bad decisions that long predate the coronavirus. Conservatives want reform, and Democrats denounce this as short-sighted and uncharitable. Democrats also charge that failure to assist spendthrift states and municipalities threatens the overall health of the economy even as they steadfastly refuse to make the reforms that might ease the way for such relief. That isn’t an honest position — that is hostage-taking.

We should not allow our generous impulses to lure us into imposing destructive policies (student-loan forgiveness leads the current list) or to lull us into accepting the ineffectiveness and dysfunction of the institutions we entrust with the public’s resources. It is a relatively easy thing for rich people, or a rich society, to look at someone’s Christmas wish-list and check off a few boxes, making everybody feel a little better. It is a more difficult and higher kind of philanthropy to build the kind of institutions — and the kind of society — that will help people to prosper in the long term. We need clear thinking on this, urgently.

Finally, we produced the Capital Note (our “daily” — well, Monday-Thursday, anyway).  Topics covered included: DoorDash’s $32 billion IPO, GM’s ill-fated deal with Nikola, Ajit Pai’s resignation, student-loan mismanagement, Biden’s BlackRock hires, an “endorsement” of Neera Tanden, Christine Lagarde’s follies, (too much) office space, measuring inflation, reevaluating the labor share of income, COVID-19 vaccine approval in the U.K., Chinese investments in U.S. tech, and Walter Williams, R.I.P., Wall Street and China, Chinese debt and “Lake Woebegone” ratings, Europe’s banks, lawyers seeing green, and Poland flunks an Estonian tax lesson.

To sign up for the Capital Letter, follow this link.

 

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