Trade Deficit or Basic Economic Knowledge Deficit?

  According to the Republican Party Platform (2016), "massive trade deficits" are not good for America's economy.
     Trade deficit is short for "trade deficit between Nation A and Nation B." It's a fairly useless concept. Nations, like human beings, don't conduct trade on a purely bilateral basis. Trade is multilateral. That means that while A may have a deficit with B, they can still have a surplus with C or D. If A doesn't have a surplus with anyone (i.e., produces little if anything that anyone else wants), then no trade involving A can even occur. But as long as trade continues to occur, and keeping in mind that trade can only occur if both parties expect to benefit, we have to assume that A's surpluses are more or less equaling A's deficits.
     The concept of a deficit in trade between only two nations, then, amounts to a kind of statistical cherry-picking. Deficits would only be a problem if they were absolute (i.e. between Nation A and all other nations) and not merely bilateral.
     The whole idea of "parity in trade" as measured according to nations is completely unrealistic and could never be applied consistently in practice. There is no logical reason to think that each other country's value of imports from the U.S. should balance with its exports to the U.S. Some countries have more stuff that Americans want than others. And not all the people in every other country want or can afford a lot of the stuff that Americans make. The point of international trade is not that each and every country will want a certain amount of U.S. exports to offset a certain amount of U.S. imports, but that there will be enough aggregated countries' imports of U.S. exports to offset all U.S. aggregated imports of other countries' exports.

     The only way that trade deficits could be a sign of something wrong is if they were funded by government debt. If the U.S. government issues massive amounts of debt in order to fund its deficit-spending, and if this debt is purchased by persons or institutions in foreign countries, and if this debt is then counted as a "trade deficit," then you might claim that trade deficits are bad. But to be accurate, you'd have to say that the real problem isn't the deficit; it's the government debt that enables the deficit.

On Giving and Giving Back

     I'm a little skeptical of the idea of school vouchers.
     But one thing caught my attention when glancing over an article on the topic:

"Arizona voters will get the last word on expanding a program that gives parents money to send their children to private and parochial schools."     

     "A program that gives parents money." In other words, the state is giving money to some parents who will then be able to send their children to special schools, leaving less money for the rest of the children. Isn't this unfair?
     Let's think about that. Where does the state of Arizona get the money in question? Does the state government of Arizona sell or trade something to willing partners or customers, and fund its activities from the profits of such activity? No. Does the state government of Arizona solicit contributions or gifts from voluntary donors? No. Does the state run a lottery? No. Then how does the state get the money that it gives?
     It comes from taxpayers. That's the sole source of the state money. So, the money given by the state is money that has been extracted by some people from other people by coercion or the threat thereof.
     Considering the source of the state's money, this might mean that some parents are being given back some of the money that was originally stolen from them. So, "give" should, in some cases, read "give back."
     When viewed in this light, maybe school vouchers aren't unfair after all.
   

Tariff Anyone?

     Recently, one sees a lot of warnings in the media about President Trump's intention to institute tariffs on steel. Steel is a strategic producer's good used in many chains of production and a tariff on it can be expected to have a significant impact on the economy. Many economists are saying that it will be an impact for the worse, not for the better. Why do they think they can say that?  To quote from Human Action by Ludwig von Mises:

"If A is in such a way more efficient than B that he needs for the production of 1 unit of the commodity p 3 hours compared with B's 5, and for the production of 1 unit of q 2 hours compared with B's 4, then both will gain if A confines himself to producing q and leaves B to produce p. If each of them gives 60 hours to producing p and 60 hours to producing q, the result of A's labor is 20p + 30q; of B's, 12p + 15q; and for both together, 32p + 45q. If, however, A confines himself to producing q alone, he produces 60q in 120 hours, while B, if he confines himself to producing p, produces in the same time 24 p. The result of their activities is then 24p +60q, which, as p has for A a substitution ratio of 3/2q and for B one of 5/4q, signifies a larger output than 32p + 45q. Therefore it is manifest that the division of labor brings advantages to all who take part in it."

     So it's obvious why people who aim at having more prosperous lives would participate in the division of labor.
     A tariff applied to an existing free market undoes the work of the division of labor. Instead of concentrating on producing the product or service in which a comparative advantage is enjoyed, the tariff makes competing products or services from outside of the tariff area more expensive, i.e., non-competitive. This allows factors of production in the tariff area to be used to produce a product or service that could not compete in a free market. The inevitable result of this hampering of the market is more input for the same output, i.e. impoverishment.
     
   

New Excise Tax in Pinal County

     A group of Republican politicians in Pinal County will submit two propositions to the voters in November having to do with the establishment of an excise tax meant to fund transportation infrastructure in the county.
     Why is a new tax necessary?
According to Steve Miller (R), Casa Grande,

“(What we’re) asking the citizens to really understand is, [state and federal] revenues for transportation have virtually dried up, particularly for new projects. There’s just not money that’s gonna be available.”

And Craig McFarland, mayor of Casa Grande, says:

“I’m not a pro-tax guy . . . I don’t like taxes, but I don’t see any other alternative … From my perspective, if we do nothing, our roads won’t change. In fact, they will continue to get worse . . . We all benefit from that spending.”

Well, OK. But below are some questions you might want to ask, plus my comments.

How are roads in Arizona funded?
     Some localities (mainly Maricopa and Pima counties) fund their road projects with local excise taxes.
     In general, roads are funded by the state via the Highway User Revenue Fund (HURF). The idea is that highway users should pay for the highways they use.
Comment: A state entity like the State of Arizona can't manage a highway system efficiently. Resources will always be wasted and apportioned according to political factors. Furthermore, it's not possible to know how many resources should be allocated to a certain use outside of a market structure.
     Smaller government entities (such as counties) might be able to apportion resources more efficiently than the State.

Where does the HURF get its money?
Gas tax of $0.18 per gallon goes to HURF. Vehicle license and registration fees also contribute to the HURF.

Who steals money from the HURF?
     HURF revenues are raided to fund the Department of Public Safety. The governor and legislators do this.
Comment: Laws that punish victimless "crimes" and enforce bureaucratic regulations are expensive to administer. The War On Drugs and Securing Our Borders has sucked resources away from maintenance of the transportation system.

What is the argument for a hike in the gas tax?
     Some legislators have proposed a $.10 hike in the gas tax, arguing that since there has been no hike in the gas tax since 1991, fiscal realities and present-day technology are not being taken into account. Since 1991, electric cars have become a reality, gas- and diesel-engine cars get better mileage, and inflation has lowered the value of tax revenue.
Comment: Although inflation has increased the prices of goods that consumers buy, incomes have not necessarily increased proportionally.

Will all residents of Pinal County benefit equally from the proposed transportation scheme?
     This topic is seldom brought up, but occasionally a politician will claim that tax money spent on roads benefits everyone.
Comment: Apportionment of tax resources for transportation is done on the basis of "need," i.e., who can muster enough political pressure. The greater the population, the greater the political power. Under a democratic system, one would expect resources to flow from sparsely-populated areas to populated areas.
     There is no objective way to measure whether or not resources are apportioned efficiently, since coerced resources (taxes) can never be an indication of the tax-payer's utility. Therefore, it's actually impossible to prove that anyone will benefit from government spending on transportation infrastructure.
     Transportation is important. But does that mean that anything labelled "transportation" is good? How is the bureaucrat to decide between roads and railroads? If roads, by what calculus does he decide between two- four- or six-lane highways? If he decides wrong, what does it matter to him? He still draws a salary and a handsome pension. And what is the metric that would show whether a right or wrong decision had been made? Traffic jams ostensibly prove that road capacity is insufficient. But if the resources to build the road were coercively extracted, then everyone has an incentive to use the road that might not have existed if resources were allotted according to market forces.

Kent Volkmer, Civil Asset Forfeiture, and the War on Drugs

     Civil Asset Forfeiture has been and will continue to be a significant factor in the erosion of justice in American society. Nonetheless, prosecutors and law enforcement agencies have lobbied ceaselessly to retain these laws in their most virulent form. Case in point is this recent article about Kent Volkmer's reaction to the passage of HB2477, which mitigated some of the worst features of Civil Asset Forfeiture in Arizona.

"Prosecutors must now prove before a judge there is 'clear and convincing evidence' to seize criminal assets, a more rigorous standard than the previous 'preponderance of the evidence' measure. Volkmer compared the former standard to tipping the scales of justice by at least 51 percent, and said the new standard raises that threshold to 75 percent."

      First of all, 75 percent of what?
       Secondly, if Civil Asset Forfeiture in its most extreme form tips the scales of justice "51 percent," then the scales of justice must be terribly out of kilter. A scale is supposed to be set at zero. Can't quite understand the analogy.

"It won’t have much impact on his office, he said, because his staff already aims to meet the 'clear and convincing' standard."

     It may sound reassuring to some that they "aim" to meet the "clear and convincing standard," but remember: there are no metrics for "aiming!"

 "But raising that legal burden does lower a barrier for drug cartels to do business in Arizona, according to Volkmer. He compared it to any other type of business decision; when a barrier to entry is lowered, then the more activity there will be in the market."

     Many barriers to entry in the illegal drug market have been erected, yet the "War on Drugs" goes on and on. How many barriers and of what kind would have to be erected in order to win the War on Drugs? Meanwhile, our justice system has begun to resemble that of a banana republic.
     What Volkmer either forgot, doesn't know, or purposely didn't mention is that barriers can be surmounted if demand is great enough. All that has to happen for a market to exist is for the supply curve to intersect with the demand curve at some point. If the reward for supplying the demand is great enough, suppliers will come into existence.
     Given that the War on Drugs has failed so far, we can assume that the barriers to market entry haven't been great enough.
     Civil Asset Forfeiture has been a leading tactic in the War on Drugs since the 1980s. Politicians, prosecutors, and law enforcement agencies revived the idea (which had previously been used during Prohibition) as a way to strengthen the barriers to illegal drug market access. Funny thing was that they arranged for the seized assets to fall under the control of law enforcement and prosecutors' offices. In fact, their range of control was such that they could be said to be the new owners of these assets. The new legislation does little to curb the incentive for corruption, as Volkmer himself admitted.
     If people wanted to help drug-users not to use drugs, this is obviously not the way to do it. The War on Drugs is the way to strengthen governmental and bureaucratic power in society at the expense of the taxpayer and the rights of the citizen.
     Legislation is the problem, not the solution.

Out of the Woods on RICO Seizure in AZ?

The ABC15 website carried an article about the signing into law of HB2477. When signing the bill, Gov. Ducey stated:

"Reforms have been needed in this area for some time. As public servants, we are entrusted with not only protecting public safety, but also the rights guaranteed to every citizen of this great state and nation, . . .Today’s important legislation strikes an appropriate balance between enabling law enforcement to do their jobs while upholding civil liberties. I commend Representative Eddie Farnsworth for his work on this legislation, and lawmakers on both sides of the aisle for supporting it. This bill will allow law enforcement to take appropriate action against drug cartels and other criminal enterprises, while ensuring citizens do not have their property seized without proper due process.”

The article went on to explain:

"The new law strengthens the burden of proof required before a person’s money or property can be seized from a 'preponderance of the evidence' to 'clear and convincing evidence.' In addition, the law will allow property owners to recoup their legal fees if they prevail in getting their property or money back. Also, the legislation adds another layer of oversight by requiring prosecutors to receive approval from their county board of supervisors before RICO funds can be disbursed."

The struggle against asset forfeiture laws has been waged almost single-handedly by the libertarian Institute for Justice. Concerning the passage of HB2477, the IJ had this to say:

"Today, Arizona Governor Doug Ducey signed bipartisan legislation to meaningfully reform Arizona civil forfeiture laws. . . Arizona’s civil forfeiture maze is the greatest threat to property rights and due process today,” explained Institute for Justice Senior Attorney Paul Avelar. “HB 2477 makes incremental but important reforms to Arizona’s forfeiture laws to protect innocent property owners and ensure that government powers are not abused.”

    And: 

"Arizona has some of the worst civil forfeiture laws in the nation, and we applaud the Arizona Governor and Legislature for curbing many abusive practices,” noted IJ Attorney Keith Diggs. 'But we will keep fighting until Arizona’s rigged system is completely abolished, once and for all.'”

     The Institute for Justice intends to continue its suit against Arizona, as not all of the abuses of the current law have been remedied:

   

"In Arizona, owners have only 30 days to either petition the prosecutor to reconsider the forfeiture or ask permission to go to court to fight back. But this process requires owners to file a sophisticated legal document—often without the benefit of a lawyer. If they miss the 30-day window or mess up the document, they lose their property forever. And most of the time, it is the prosecutor—not a judge—who decides what to give back and what to keep."

     These laws were bad from their very inception---tools in the War on Drugs, a "war" against people exercising their natural right to control their own bodies.

     The concept of justice implies that the rules should be the same for everyone. There shouldn't be special rules for persons suspected of being linked to a "drug cartel or other criminal organization." And it certainly is ironic that these drug cartels and other criminal organizations could only have come into existence due to the incentives created by previous misguided legislation.

     The passage of RICO seizure laws hasn't produced a definitive victory in the War on Drugs; instead they've given rise to rampant police corruption as law enforcement agencies have used the laws to scam even more money and resources out of unsuspecting citizens. 

     County prosecutors and law enforcement agencies, supposedly constituted to protect their citizens, were the biggest lobbyists against any mitigation of the RICO laws which should be a sobering thought for those who think that government is the solution and not the problem. 

Tax on Gold is a Tax on Money

Mark Finchem wants to eliminate the state capital gains tax on gold coins. Article.
Finchem's argument is as follows:

1. The establishment of the Federal Reserve System in 1913 gave it the power to control the size of the money supply in the form of either printed federal reserve notes or bank ledger entries.
2. The FRS seeks to increase the supply of money by about 2 or 3% per annum, believing that this must be good for the economy.
3. Economics tells us that when the supply of something increases, its price goes down.
4. When the price of money goes down, people experience a decrease in the purchasing power of their money.
5. Ownership of gold, whose price can't be controlled by the FRS, is a way of maintaining one's purchasing power.
6. The state capital gains tax, when applied to gold, prevents Arizonans from using this valuable tool to preserve the purchasing power of their savings.

According to the article, Rep. Ken Clark, D-Phoenix, claimed that "people buy gold coins in hopes of making a  profit." This is not necessarily true. People may buy gold simply to try to protect the purchasing power of their savings from the intended bad consequences of the Federal Reserve System.