National Review‘s John Puri is right: “We don’t need a strategic petroleum reserve.”
The Editorial Board of the Wall Street Journal applauds the reality-signal now being broadcast by the bond market. Here’s its conclusion:
But overall the return to normal debt markets is a good development. U.S. debt held by the public at 100% of GDP is a problem, and on present trend it will get worse. Interest on the debt is now $1 trillion a year, more than the defense budget, and growing. Neither party in Washington is willing to reform the runaway entitlements that are driving the debt.
The bond vigilantes aren’t yet in full cry, but their early murmurs are welcome. They are sending a message to Washington and other Western nations to clean up their fiscal acts. Bond investors may be the only people who can force the politicians to pay attention. The real worry is if the politicians don’t listen.
GMU Econ alum Dave Hebert ponders trade-war strategies.. A slice:
But leverage is not measured by how large your market is. It’s measured by the other party’s next-best alternative. Every time Canada, Europe, Japan, or Britain signs a new trade agreement, that next-best option improves and lowers the cost of saying no to Washington.
This is what tariff strategists and their defenders keep missing. Tariffs can work as a negotiating tool only if two conditions are met. First, the other country must have something it can do to make the tariffs go away. Second, they must not have viable alternatives. If the rules and justifications for tariffs keep changing, if the list of demands keeps expanding and shifting, and if compliance today does not mean predictability going forward, the only rational response is diversification.
And that is exactly what the G7 have been doing.
But while Washington was raising tariff rates on friends and foes, the rest of the G7 has been busy signing new agreements around the world. In January, the European Union concluded its agreement with Mercosur, linking 700 million consumers and saving European firms €4 billion ($4.7 billion) per year in duties once it is fully in force. Shortly thereafter, the EU finished a free-trade agreement with India, which will cut Indian tariffs on 96.6 percent of EU exports. And in March, the EU completed another deal with Australia and signed a security and defense partnership on top.
As the United States under President Donald Trump endeavors to coerce international trading partners through the employment of economic leverage to address both its trade and non-trade concerns, those trading partners, more and more, are simply circumventing the United States.
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In all this, and much more, the current transformation of international trade positions the United States on the outside looking in—and likely to watch its already-middling share of global exports shrink even more in the years ahead. US trade policy has increasingly turned the country from a paragon of international trade into a pariah and a market to be avoided, if at all possible. The distinguished international trade economist Robert Lawrence has asserted that President Trump’s trade policies are helping “create a world without America.” This stark assertion may edge a bit toward exaggeration, though less and less so as time passes. What can be stated with increasing certainty is that the protectionist trade policies of Donald Trump, ever in flux, are making it less likely that archaeologists 5,000 years from now will identify the geographical center of 21st-century world trade as being in the United States. To avoid this fate, the US must return to its long-standing policy of freeing trade and establishing and upholding the international rule of law in trade. This should be done through regional agreements, if need be, but preferably within the multilateral legal structure of the World Trade Organization, a vital international institution for which President Trump has so far expressed only contempt.
We’ve seen this before. After the 16th Amendment authorized the federal income tax, it started small. In 1913 the tax rate on married couples filing jointly was 1% on income up to $20,000 (equivalent to some $674,000 today). The top rate was 7%, on income above $500,000 ($16.8 million today). Five years later, in the midst of World War I, the rate was 6% on income up to $4,000 and 77% on incomes over $1 million.
Under Presidents Warren G. Harding and Calvin Coolidge, and with the urging of Treasury Secretary Andrew Mellon, Congress brought rates down substantially at all income levels. But the lowest level they reached, in 1928, was still much higher than in 1913: 25% for incomes over $100,000, and 1.5% to 9% on income up to $20,000.
Then World War II brought higher rates again at all levels. Tax rates on lower incomes were high: 23% on income up to $2,000. Before World War II, the income tax was thought of as the class tax—a high tax on high-income people. In World War II, it became a mass tax.
There’s a lesson here. If you vote for a measure to tax the very wealthy, you might find yourself paying rates even above those meant for the very wealthy. Proposition 40 has the potential to become a stealth tax on all Californians.
Let’s hope that Christian Britschgi is correct when he argues that data centers will be saved by federalism…. And perhaps he is!
We document an increase in U.S. income risk from 1969 to 2019 using newly digitized IRS tax returns, distinguishing permanent from transitory risk. Since the 1970s, permanent income risk increased across the distribution, but most sharply among high earners, rising nearly 70% among the top 5%. We show that, even among top earners, large negative income shocks strongly predict financial distress and higher income risk is linked with higher savings. In a quantitative life-cycle model, rising income risk concentrated at the top lowers the risk-free rate by 0.7pp, increases wealth inequality, and contributes to the “savings glut of the rich.”
