Monday (11/27/2017) Joe Biden, the FBI, tax reform, and trade

Joe Biden loves to fondle little girls

A current popular Democratic Party meme is that if Joe Biden had run against Trump in 2016 he would have won and that if he runs in 2020 against Trump he will win. One skeptic has posted a YouTube video that, in the current anti-child-molesting environment wouldn’t bode well for The Joe vs The Donald. We didn’t find the video convincing when Joe caressed the first girl and whispered sweet little nothings in her ear. But after the second, and the third, and the fourth fondle…oh my!

hat tip: Eaglebeak

What good is the FBI?

This correspondence we received today from Eaglebeak merits wider publicity:

Growth features of tax reform bill the best hope for reducing deficits

Former Secretary of State and Treasury George Shultz, joined by a blue ribbon list of economists — most of whom have served in top economic posts in previous Republican administrations — have written Treasury Secretary Mnuchin endorsing present tax reform proposals approved by the House and being finalized in the Senate. Their key bullet points are that

• “Reducing corporate tax rates, as proposed, will increase economic activity,
• “Lowering individual tax rates also offers generally positive economic effects, and
• “Confirming a pro-growth objective is important for the path forward.”

Republican senators McCain, Flake, and Corker are reported to have concerns about the tax reform’s potential to increase already large US deficits. But dynamic scoring at an anticipated growth rate of 3% eliminates most of that concern.

But for all this to come together, the Senate and then the House-Senate reconciliation process must not undercut the pro-growth features of present draft bills. As the letter to Treasury Secretary Mnuchin underlines, the key concept is

“the ‘user cost of capital’ which essentially measures the expected cost to firms of making additional investments in equipment. A considerable body of economic research concludes that reductions in the user cost of capital raise output in the short and long run….For example, expensing, which allows firms to deduct the full cost of investment at the time it is made, lowers the user cost of capital relative to depreciation over time. A lower corporate tax rate also lowers the user cost of capital, which not only induces U.S. firms to invest more, but also makes it more attractive for both U.S. and foreign multinational corporations to locate investment in the United States.”

Loan-growth slowdown a concern

But supposing a decent tax reform bill is passed by Congress and signed by the President. Are we certain that the hoped-for business investment actually takes place? One worrisome sign:

“Loan growth at banks is slowing, casting a cloud over what was supposed to have been a banner year for financial institutions following last November’s elections.

“The rate of 12-month loan growth at U.S. banks in the third quarter hit its lowest level since the end of 2013, according to data released last week by the Federal Deposit Insurance Corp. That marked the sixth consecutive quarter of decline for this measure of loan growth….

“Why that is remains unclear. Throughout the year, some banks have said that more subdued business lending was due to a lack of clarity from Washington on the fate of key initiatives such as taxes and health care.”

Growth prospects not helped if administration undercuts trade pacts

We suggest that there is an additional concern multiplying US business uncertainty: the Trump administration’s scuttling of US participation in the Trans-Pacific Partnership (TPP) and its threats to abandon the World Trade Organization (WTO), NAFTA, and the United States-Korea Free Trade Agreement (KORUS).

Our trade correspondent L.C. writes:

“The US is reportedly blocking agreement on a ministerial declaration to be presented at the conclusion of the WTO’s 11^th Ministerial Conference (MC11), in Buenos Aires December 10-13…because it is too supportive of the WTO and trade liberalization….[T]he global trading system is quite fragile at the moment with prospects for protectionism rising, and most countries do not want MC11 to result in open rancor and a weakening of the WTO. “

The US has is also blocking the appointment of three judges to the WTO’s Appellate Body (AB), whose full complement is seven judges but now has only four. This is seriously impeding the work of the AB, which is overwhelmed by a backlog of cases.

WTO Director-General Roberto Azevedo politely disagrees with the US position:

“‘I think the system has fulfilled its role and I think that if we compromise the system, the threat of unilateral action, the threat of an escalating trade war, becomes very real….It’s something that is well known by everyone.’

“Azevedo also pointed out that although President Trump says the US gets a ‘bad deal’ from the WTO, in fact it has a high success rate in WTO disputes.”

Conflict with South Korea

The Commerce Department’s US International Trade Commission (ITC) on November 21st recommended that President Trump help Whirlpool Corp. by imposing stiff duties on above-quota imports of residential washing machines made by South Korea’s LG and Samsung, using facilities in third countries, primarily Thailand and Vietnam.

“The case is controversial, not only because importers, retailers, and consumers (including home-builders) don’t want to see prices hiked and choices limited by import restraints, but also because the two Korean companies are currently in the process of building manufacturing facilities to make these washers in the US: LG in Tennessee and Samsung in South Carolina. Local politicians have been speaking out against imposing punitive duties over concern that the companies may retreat from their US investments.”

Click here to go to yesterday’s Founders Broadsheet (“Where things stand in the Mideast post-Sochi”)