Month: August 2022

Shouldn’t We Get Something For Our Money?

Dave Davis Commentary, Policy, Stopping Inflation

It’s hard to keep up with the Biden debacles. While we wait for the administration to explain the latest fiasco, the raid on Trump’s Florida residence, we need to continue evaluating Build Back Better, oops, the Inflation Reduction Act. While the Congressional Budget Office (C.B.O.) points out that the legislation does nothing to reduce inflation, the claim is it will save the planet. Just ask the New York Times columnist, Paul Krugman. 

Too bad the $380 billion spent on this march to the Green New Deal will make no noticeable difference in the earth’s temperature by the end of the century. Wall Street Journal contributor Bjorn Lonberg ran the numbers and found that the most optimistic case lowers the temperature by 0.028 degrees Fahrenheit. The pessimistic case is 0.0009. 

This result is understandable once you realize nothing we in the U.S. does will make any difference in the earth’s temperature as long as the third world, China, and India continue to expand the use of fossil fuels massively. Nations desiring to improve the lives of their people understand the need for cheap reliable energy. Suppose it’s locally sourced; so much the better. That isn’t the windmills and solar panels we’re pushing.  

To make the pain equal worldwide, The World Bank is lobbying for a single world carbon tax. Even though this idea has support in some quarters, the National Bureau of Economic Research (NBER) finds a slight increase in world G.D.P. at the turn of the next century from a lower temperature wouldn’t be worth the pain getting there. 

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Widget’s Revenge

Dave Davis Commentary, Policy, Stopping Inflation, Uncategorized

Senator Joe Manchin and Senate Majority leader Chuck Schumer have agreed on what they call “the Inflation Reduction Act.” This bill is a slimed down but a still expensive version of the multi-trillion dollar “Build Back Better.” At the core is a minimum of 15% tax on over-billion dollar corporations. The revenue from this tax pays for much of what’s in the legislation.

Democrats and much of the media have applauded this provision as only fair. After all, many big corporations pay no tax. How can that be fair? At least they can give a pittance. !5% isn’t too much to ask from these wealthy corporations. 

Maybe there is more to the story. Let’s look at what I’ll call The Internation Widget Corp (IWC). In my days in Business school, a widget was the stand-in for anything produced. Company A Turns out 100 widgets an hour, but company B only 75. How can B match or exceed A?  

How would this “Inflation Reduction Bill” affect this mythical company? Demand for widgets outstripped production, leading to inflationary supply-chain disruptions. Investment in increased production is necessary to fill orders and maintain the company’s competitive position. IWC will post a profit in 2022 of a billion dollars from selling this essential to many industries.

IWC is investing $4 billion in plant and equipment to meet the challenge. Three billion borrowed. Trump’s 2017 tax reform let it offset its tax liability by rapidly depreciating this investment resulting in zero tax. It’s committing all the company’s profits and the maximum money it can borrow without losing its excellent credit rating.

Expansion means more jobs and economic activity- More taxable income down the road. Trump understood it takes invested capital to create viable employment. Business investment underpinned the Trump boom before the pandemic. In any case, expanding supply to meet demand curtails inflation.

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