- In which your editor struggles to avoid being baited by Trump
- The Carrier deal: We’ll call it crony capitalism even if Sarah Palin can’t
- How trade barriers kill more jobs than they save
- Will Trump use powers first claimed by Obama?
- Italian referendum is a market snooze… but for how long?
- Animal fat and the war on cash
- It’s not just “the rich” suffering under that Medicare premium increase
Your editor is having an internal dialogue this morning. It goes something like this: “Must not react to Trump’s tweets. Must not react to Trump’s tweets…”
This reactive mode is the trap much of the establishment media fall into. “Trump is aware that journalists spend an inordinate amount of time on Twitter,” writes the freelance reporter Michael Tracey, “and that his tweets will be instantly picked up by all the typical news outlets; some low-grade, like CNN, but also the more ‘sophisticated’ highly esteemed journalists — everyone will frantically seize upon every crass Trump tweet, and use it to set the ‘tone’ of their coverage for the day. It’s all so mind-numbingly predictable at this point…
“If Trump muses about some nutty idea on Twitter,” Tracey goes on, “it doesn’t mean that he plans to actually implement this idea in terms of government policy. He could just be trying to get a rise out of people. And it usually works.”
And it allows him to set the media’s agenda, without the media even realizing it.
OK, I get all that. I really do. But dammit…
That was late on Friday. And it was the windup to a tweetstorm he unleashed yesterday.
We’ll do you the favor of reconstructing the follow-up tweets into something resembling a coherent sentence: “The U.S. is going to substantially reduce taxes and regulations on businesses, but any business that leaves our country for another country, fires its employees, builds a new factory or plant in the other country and then thinks it will sell its product back into the U.S. without retribution or consequence is WRONG!”
And: “There will be a tax on our soon-to-be-strong border of 35% for these companies wanting to sell their product, cars, AC units, etc., back across the border.”
This isn’t Trump “musing about some nutty idea.” It’s one of the few issues on which his rhetoric has been consistent ever since he launched his campaign.
Will the courts act to check his power? The BBC’s coverage drily states: “Experts have warned that the president-elect will face legal challenges if he tries to impose tariffs on specific companies without congressional approval.”
But who’s to say Trump wouldn’t prevail under those court challenges?
Hold that thought for the moment…
“Special interest crony capitalism is one big fail,” wrote Sarah Palin on Friday after news of the sweetheart deal keeping a Carrier furnace factory in Indiana. “Burdensome federal government imposition is never the solution.”
To be clear, she wasn’t saying the Carrier deal is crony capitalism. “We don’t yet know terms of the public/private deal that was cut to make the company stay,” she went out of her way to say. After all, she’s still under consideration for a Cabinet gig — heh…
Here at The 5, we already know enough about the terms that we have no problem calling the deal crony capitalism. Carrier will get $7 million in “incentives” — mostly tax credits — from the state of Indiana, whose current governor is the incoming vice president.
We’re all for lower taxes, but we’d rather see them applied across the board rather than doled out on a case-by-case basis — in this case, the incoming administration seeking a quick-and-dirty PR coup.
Too, there’s the fact Carrier’s parent United Technologies is a huge defense contractor. We’re sure there was much hand-wringing in the UTX boardroom about whether they’d miss out on Trump’s plans for a new military-spending bonanza.
“The free market has been sorting it out and America’s been losing,” Vice President-elect Pence told The New York Times after the Carrier deal. Trump was in the room and chimed in, “Every time, every time.”
Sigh.
The reasons behind the “offshoring” of American jobs these last 35 or 40 years are wickedly complex — more than our 5 Mins. allow for today. Suffice to say that even if the “free market” were to blame, trade barriers sure as hell aren’t the answer.
Earlier this year, we noted how the Obama administration imposed new duties on cold-rolled steel — the kind that’s used to make auto parts, appliances and shipping containers — from seven countries. The tariffs on Chinese steel were set at a staggering 266%.
Within three months, steel imports were down 29% from a year earlier. But The Wall Street Journal pointed out how the tariffs were “raising costs for manufacturers of goods ranging from oil pipes to factory equipment to cars.”
No one ever learns. In 2002, the Bush administration imposed steel tariffs in a crude effort to help Republican congressmen win re-election in Ohio, Pennsylvania and West Virginia. Research by the Institute for International Economics found the tariffs saved 3,500 steel jobs. But industries that relied on cheap imported steel cut at least 12,000 jobs — perhaps as many as 43,000.
Still… how much power does Trump have to enforce his will? Can he really impose penalties on individual companies without input from Congress?
The president-elect might well resort to Executive Order 13603 — signed by the current occupant of the office.
We took note when it happened in March 2012. Conservative media were of two minds on this “EO.” The Washington Examiner said it “gives the executive branch the power to control and allocate energy, production, transportation, food and even water resources by decree under the auspices of national defense and national security.”
“The general impact of it is negligible,” countered Ed Morrissey at Hot Air. “This EO simply updates another EO (12919) that had been in place since June 1994, and amended several times since.”
Then and now, we were agnostic on the matter. But we noted that EO 13603 cited a law you’ve probably never heard of for its authority — the Defense Production Act of 1950.
It was the Defense Production Act that was behind one of the most blatant presidential power grabs in the decades after World War II and before Sept. 11.
President Harry Truman tried to nationalize the steel mills in 1952. He justified it as a wartime measure; the conflict in Korea was raging at the time. The Supreme Court slapped him down in a 6-3 decision. Justice Tom Campbell Clark said the Defense Production Act didn’t authorize such a drastic act.
In 2012, we wondered whether the Obama administration might have been itching for a new test case. In the end, they didn’t push it.
Now? It wouldn’t surprise us at all to see Team Trump pull EO 13603 out of the Oval Office drawer. Because, you know, America loses every time the free market sorts it out.
So if you’re a CEO knowing the new administration plans to pick winners and losers… and you don’t know whether Trump will get a bee in his bonnet and put you in his sights next… or whether the courts will come to your defense if he does… how likely are you to expand your business or hire new workers?
The economic historian Robert Higgs calls this phenomenon “regime uncertainty” — when business owners pull in their horns because they have no idea what the regime will do next.
It’s what happened under FDR in the ’30s, and one of the reasons the Great Depression dragged on for so long. It’s happened again under Obama, and one of the reasons the “recovery” has been so anemic.
The “Trump bump” of November notwithstanding… that doesn’t bode well for the stock market over the next four years, does it?
As it happens, our own David Stockman sees another phenomenon that will tank the market before Trump ever takes office. It will mark the popping of the “big, fat, ugly bubble” Trump spoke of during the first debate. We speak of the Federal Reserve raising interest rates in nine more days.
As we write this morning, David is hunkered down at his home in Aspen — refining a trading strategy to profit from the turmoil. He will take the wraps off it during a live training event this Thursday at 7:00 p.m. EST. It won’t cost you a thing to watch, but you do need to RSVP, because we’re holding only a limited number of slots. Sign up here to reserve your slot.
In the meantime, the Dow is sailing into record territory today. Fallout from the Italian referendum? What fallout?
At last check, the Dow was up nearly a half percent at 19,254. The other major U.S. indexes are up even stronger, the small-cap Russell 2000 up 1.4%. Treasuries are selling off, the 10-year yield at 2.4%.
Gold rallied in electronic trading last night, but this morning, it’s down to another 10-month low at $1,165. Crude, meanwhile, is 4 cents away from $52 — another 17-month high.
The Italian referendum went as expected — nearly 60% of those who voted rejecting constitutional reforms. For the moment, there’s no market earthquake — not that we expected one, but another European election outcome might be easing any jitters. Voters in Austria rejected a presidential candidate widely denounced as “far-right.”
We still expect a new European banking crisis in the aftermath of the Italian vote, but it will take months to play out…
There’s a lot to dislike about paper money. But a bank note that’s not vegan-compliant would be low on our list.
In September, the Bank of England issued a batch of new notes worth 5 pounds. Turns out their composition includes a small amount of tallow, made from animal fat.
“This is unacceptable to millions of vegans and vegetarians in the U.K.,” says a petition that as of this morning has gathered 129,542 online signatures. “We demand that you cease to use animal products in the production of currency that we have to use.”
The central bank has responded that it’s looking into “potential solutions”…
The tallow is part of a polymer that’s supposed to make the bank notes more durable — able to last five years, instead of two, we’re told.
Hmmm… We suppose we should be heartened that the monetary authorities in a major Western nation are giving themselves a full five years to bring the war on cash to its ultimate conclusion…
“Those poor people making $170,000–428,000 a year,” writes a reader on the premium increase facing many Medicare Part B enrollees.
“You do realize there are many of us making $50,000 and less who would happily change places with ones making almost a half a MILLION a year, don’t you?
“Of course, then we’d probably belly ache while sitting on the edge of our Olympic-sized pool in the backyard, sipping lemonade. Then we could ask our maid to bring more ice. Naturally, if it became too hot, we’d leave out playing tennis on our private court. Fifty-foot boat, here we come. Whee! (Oh, shoot, pinch me, I’m dreaming again.)”
The 5: Good grief. You know, it’s not just “high income” people getting hosed by this Medicare Part B premium increase. Maybe we didn’t make that point strongly enough in our most recent riff on the topic.
Legions of people turn 65 every year and enroll in Medicare… but they’ve not reached Social Security’s “full retirement age” of 66 (for those born before 1955).
Unless they filed for reduced early benefits at 62, these people are also stuck paying higher Part B premiums. Ditto anyone who has reached full retirement age but is waiting to file for Social Security until age 70 so they can collect a higher monthly benefit.
That’s about 8% of all Medicare enrollees. And we’re fairly sure many of them make $50,000 a year or less…
Best regards,
Dave Gonigam
The 5 Min. Forecast
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