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Saturday, November 19, 2016

Weekend news

Gotta study for a stats test this weekend, but I really can't be arsed. So here's some news instead:

Calculated Risk - October housing starts assplode! That should let the US economy coast for another year. At which point:

WaPo - Trump's "big infrastructure plan" is actually a massive giveaway. Well, there goes any hope for actual growth:
It’s a tax-cut plan for utility-industry and construction-sector investors, and a massive corporate welfare plan for contractors. The Trump plan doesn’t directly fund new roads, bridges, water systems or airports, as did Hillary Clinton’s 2016 infrastructure proposal. Instead, Trump’s plan provides tax breaks to private-sector investors who back profitable construction projects. These projects (such as electrical grid modernization or energy pipeline expansion) might already be planned or even underway. There’s no requirement that the tax breaks be used for incremental or otherwise expanded construction efforts; they could all go just to fatten the pockets of investors in previously planned projects.
Well, American economists should be fully in favour of it then, since they've been advocating tax breaks and subsidies to the kleptocracy for thirty years now.

The Krugginator - Trump's big infrastructure plan isn't. Pointed question:
Third, how much of the investment thus financed would actually be investment that wouldn’t have taken place anyway? That is, how much “additionality” is there? Suppose that there’s a planned tunnel, which is clearly going to be built; but now it’s renamed the Trump Tunnel, the building and financing are carried out by private firms, and the future tolls and/or rent paid by the government go to those private interests. In that case we haven’t promoted investment at all, we’ve just in effect privatized a public asset — and given the buyers 82 percent of the purchase price in the form of a tax credit.

Again, all of these questions could be avoided by doing things the straightforward way: if you think we should build more infrastructure, then build more infrastructure, and never mind the complicated private equity/tax credits stuff. You could try to come up with some justification for the complexity of the scheme, but one simple answer would be that it’s not about investment, it’s about ripping off taxpayers. Is that implausible, given who we’re talking about?
I'd also add that private toll roads don't provide the economic benefit that public roads do, since all toll road companies know how to capture all of the consumer surplus (i.e. the externality) that a toll road generated. Economists, however, have no fucking clue about this.

FRBNY - the panic of 1907 and the birth of the Fed. There's something in this story explaining yet another reason why having a gold-backed currency is so fucking moronic:
The tight monetary conditions were compounded by the usual autumn surge in demand for currency and credit by farmers harvesting and shipping their crops east. Absent a central bank to accommodate this seasonal surge in demand, interest rates would spike instead. This “perverse” elasticity of the money supply (Miron 1986) had sometimes triggered banking panics and was central in the “great debate” (Wicker) over the need for a central bank.
Yup, money demand is seasonal. And when money demand is high, interest rates naturally spike. Great idea, guys! Let's spike interest rates every year!

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