Losers

Dave Davis Uncategorized, Policy, Commentary , , , ,

The Republican Party obviously suffered a devastating defeat. One it will have a much more difficult time recovering from, if it recovers at all. When the party lost in 2020, confusion over our COVID response, coupled with a relatively unpopular standard-bearer, led to a narrow defeat.

As the Biden administration proceeded, the public reeled from almost double-digit inflation, the worst in forty years. Our borders seemed wide open. By comparison, many remembered the Trump administration’s economy fondly, buoyed by lower capital taxes and reduced regulations. Inflation was relatively tame:

Out of office, Trump’s off-putting character wasn’t as omnipresent; Republican policies looked pretty good. Trump was returned to power in 2024

Inflation is a cruel tax as it’s regressive, meaning it hits the lower earners harder. Nobody wants to see prices go up every time you shop. Most people have never been fond of Donald Trump, yet he seemed ubiquitous. While he kept many of his first-term, capital-favorable policies on taxes and regulations, he veered off course by giving tax breaks to special voting groups, such as no-tax tips.

Worse, his two major policies made it impossible to reduce inflation. Tariffs halted any downward price movement, while his Iran war sent them skyward. Nobody signed on for this program. The result was a wipeout not only at the federal level, but also in state and local contests. Your local dog catcher probably changed to Democrat.

When the Democrats suffered a similar rout in 2010, they suffered from poor candidate quality that persists today. They lost their farm clubs. Now the Republicans face the same future.

In a presidential election year, an incumbent getting soundly wiped out leaves the party to look for new leadership and policies. Unfortunately for the GOP, this was a midyear, and Trump is in place for two more years.

Is a pleasant presidency with new war and tariff policies in the cards? With Trump, you never know. Remember, he has changed parties several times. The only ideology he’s consistently held is what’s best for himself and his family. Before Trump, tariffs found more favor with Democrats, while Republicans were mostly free traders.

Notice how chummy he has been with New York City Mayor Mandani, even when the Republicans were trying to portray the Democrat as a communist. Cutting deals with Democrats on key legislation might improve his perceived legacy while shielding him from some investigations.

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Will Anything Change?

Dave Davis Commentary, Policy, Uncategorized , , , ,

While we wait for the midterm election results, I’ve been struck by how the election has largely focused on one issue: “affordability.” Everyone knows prices have risen sharply, starting in the Biden administration. Since January 2021, prices have risen 28.32% cumulatively. Wages during the same period rose only 22.7%, at best. No wonder people feel they’re falling behind at month’s end:

What we’re not hearing is how we first arrest the rise and then bring prices down from either major party. “I feel yor pain,” worked for Clinton; we need more now.

I’ve pointed out that the Law of Supply and Demand tells us that when demand exceeds supply, prices rise because too many dollars chase too few goods and services. The Federal Reserve (FED) can tighten the money supply until demand falls. FED Chairman Paul Volcker did that to stop the Great Inflation of the 1970s, but it caused a painful recession, with unemployment hitting almost 11%. Cutting demand in this way can feel worse to many than the inflation.

It wasn’t until we eased supply constraints by lowering capital taxes and deregulating key areas that supply met demand, real growth followed, and inflation was tamed. I’ve written about all this before, but have our two major parties seen the light?

Subsidizing everything from groceries to healthcare only increases demand. Price controls on basics such as rent distort supply. Yet that seems to be the bedrock of Democratic policies.

Republican policies are nothing if not contradictory. Cutting taxes on capital and cutting regulations will encourage supply growth, but tariffs disrupt supply. Constant tariff changes create confusion and stop business planning. If someone, like farmers, is really suffering from retaliation, send them money. Sounds like the Democrats.

The one area both seem to agree on is ending the Iran War. There’s no doubt the conflict has added to inflation, with a sharp rise in petroleum-based products and natural gas. However, neither has a plan to obtain an acceptable peace.

Beyond knocking off much of Iran’s leadership and destroying a lot of its military assets, the administration in the beginning lacked a coherent plan for what came next. The resulting standoff, with two major trade routes in constant jeopardy, keeps prices high.

Now we hear the administration is planning heavy attacks after the midterms. Another carrier group is on the way, possibly to add more firepower. It is fair to ask: to what purpose?

Operation Epic Fury in February showed a serious absence of planning. Without any land component, regime change wasn’t in the cards. As I assumed at the time, arming and training an uprising within the Islamic Republic was a mandatory piece.

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Election Twists

Dave Davis Commentary, Policy, Uncategorized , , , ,

One week out from the midterm elections is a good time to see how things are perceived, so we can judge what happens when the votes are counted.

Early on, most experts thought Republicans could lose the House, with Democrats needing only to flip a few seats. The Senate, however, looked safe for the GOP with a favorable map. Now polls show Democrats in a good position to take both houses.

This change may lead to a very contentious future. While the House can give an administration a tough time, losing both Houses can cause real pain. Confirming appointments for itself and the judiciary will be difficult, and in many cases impossible. If the two houses of Congress disagree on legislation, they go to conference for possible compromise. With both houses Democrat, that’s far less likely.

Facing opposition legislation, Trump can only veto—anything he proposes is a dead letter. He has more leeway in foreign affairs, but even there he may run up against the power of the purse. The administration will face endless congressional hearings.

An impeachment may be in the cards. The Democrats may think the third time is the charm. Trump could be the lamest lame duck.

Trump has only himself to blame. When he took office, inflation had declined to 3% year over year. Still high, but down from a whopping 7% under Biden. While the Big Beautiful Bill had some questionable stuff, like no tax on tips, it had enough supply-side elements, when paired with regulatory reform, to help supply meet demand—a proven way to bring inflation down:

*The latest inflation data (12-month based) is always displayed in the chart’s final column.

Then came Trump’s “Liberation Day,” when he slapped big tariffs everywhere. Tariffs raise prices. How did this square with Trump’s promise to bring them down? It didn’t. It contradicted it. Even though the Supreme Court found the tariffs illegal and refunds are going out, Trump doubled down with new tariffs. Confusion reigns. Businesses don’t invest much when they’re confused.

Not content with his tariffs adding to prices, last February he decided to attack Iran. Claiming it would be a short war, here we are with trade restricted in two of the world’s most important trade routes. This situation is raising prices worldwide. Still without a workable war plan, there is no end in sight. Instead of falling to the Federal Reserve’s 2% goal, we’re at 3.7% and likely heading toward 4%.

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Capitalism Under Fire III

Dave Davis Commentary, Policy, Uncategorized , , , ,

I probably should’ve started here. Any discussion of capitalism assumes people understand the role of capital. This may be a false assumption. Ask your friends or others to define or describe capital. You might get a blank stare, or something like, “Oh, that’s stocks and bonds.” Can you define or describe it?

Apparently, this lack of awareness is widespread. I asked AI whether many Americans could describe economic capital. The answer is that very few can. On the other hand, surveys show that at least 17% can define socialism, and many more have some idea of it. This knowledge includes Karl Marx’s concepts like his convoluted labor theory of value:

However, capital, unlike Marx, isn’t hard to understand. The easiest way to understand capital is to think of it as foregone consumption. Eons ago, our hunter-gatherer forebears would forage for grains and fruit over distance. At some point, they brought some back closer to the cave. Maybe some dropped on the ground, and new plants grew. Someone noticed and, rather than eating everything on later forays, planted some of the seeds instead. When the crop ripened, the planter saved some of the harvest for the next crop, again foregoing consumption; in agriculture, we called the saved amount seed corn. In economics, we call it capital.

If you want similar crops in the future, you save a similar amount of seed, but to grow more, you need more seed, more capital. Growing the tribe’s economy requires ever-expanding seedcorn-capital.

Of course, risk is ever-present. Rats may eat your saved seeds. A flood may wash away the crop. Drought or locusts may loom. Thieves and hostile governments, both foreign and domestic, are ever present. So capital is also a bet on the future. It stands to reason that the most successful farmers can take the biggest risks. Through their knowledge and resources, they have the best chance of overcoming the risks.

Properly assessing the risk-reward ratio is often key to moving forward. The old saying, “nothing ventured, nothing gained,” is true for people and societies. Refusing to take a chance guarantees you won’t make progress.

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Capitalism Under Fire II

Dave Davis Commentary, Policy, Uncategorized , , , ,

No monopoly lasts without government sanction. That’s just a fact. If you can think of one, I’d like to know. In competitive free markets, dominance is fleeting; look at American Online, Sears, IBM, or Microsoft.

You might ask, what about the Gilded Age Robber Barons? Didn’t Standard Oil and U.S. Steel use their dominance to gouge the public? Even then, both competed in the world market and faced plenty of competition. Instead, out of fear of competitors and to reach lower price points that expanded their markets, they lowered their product prices during the period.

Given the thousands of years of government favoritism, patronage, monopolies, and corruption, pointing to Capitalism’s so-called moral deficiencies is laughable. If Government didn’t control so much of the economy, we wouldn’t need the vast army of lobbyists encamped in Washington. All seek some favor or try to prevent others from using Government favor against them. We now mimic a Royal Court, attracting those seeking benefits:

The recent Skydance-Warner Bros merger illustrates how far down the road to corruption we’ve come. The Government, with its power over “monopolies ” and “restraint of trade ” at various levels, seems to have extracted large sums from the Ellisons and their company, Skydance, to ensure completion of a merger they had already committed large sums to.

No one in their right mind thinks the merger could create a media monopoly or meaningfully restrain trade. At 27%, its largest share of any media sub-market, Motion Pictures is hardly a monopoly—just a large entity in a vast market. Still, the Ellisons contributed 45 million dollars to the Trump ’24 election campaign, and more to other Trump-favored endeavors.

Then many states jumped in through their attorneys general, forcing Skydance to commit huge sums for favored constituencies. Doesn’t this sound more like doing business in a banana republic than in the U.S.?

Adam Smith was, in fact, a moral philosopher; he saw greater virtue in businesses serving their customers rather than their rulers. A business that loses its customers’ confidence will go out of business, but if the Government protects it from competition, serving the public matters little. The invisible hand sorts the trustworthy from the rest.

If you order from Amazon today, you expect it to arrive on time at the agreed-upon price. Even as big as it is, it works hard to keep your trust, knowing that if it doesn’t, someone else will. Do you feel the same when you deal with the Government? How about the IRS or the motor vehicle department?

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