Not surprisingly, several of our clients have called in a frenzied panic about the recent drops across the board in stock markets. Our wiser clients haven’t bothered to call–full well knowing how overvalued the market was (propped up largely by government money that was never really there), and realizing during a panic the only people who jump in are the suckers.
Tariffs appear to have spooked THIS particular event, but it could be anything. If you go long in the big picture on everything in life and buy into companies of value, spikes are not worrying. We’ve long espoused the concept that in economics you never get something for nothing (which Keynesians seem to disbelieve), and how could this NOT happen given the circumstances. We’ve advised clients not to panic (or really do anything at all) and WAIT. For in the wait there is wisdom. For those who can’t wait or haven’t hedged in a balanced portfolio (containing cash, bonds, gold, and equities), we feel sorry for you but urge you not to worry and sit tight.
As far as the Tariffs, this is well explained in our Tariff section. Trump uses these as a negotiation ploy to drive economic positioning and compel behavior. He’s brilliantly used ‘trade imbalances’ to terminate long-term US subsidies in foreign markets (who go crazy with ‘decarbonization’ and other woke principles while sacrificing their people), reset the paradigm to allow for increased industrialization in the US in the interests of national security or supply chain disruption (you don’t build a blast furnace overnight nor set up a factory for essential pharmaceuticals), and placed nations in competition for our trade (most of these nations tariffed US goods at an astonishing rate; why trade with China who overtariffs our goods–and is a currency manipulator as well as using dollars to bolster their military position in Asia at the expense of friends–when countries like Vietnam and Cambodia would step up to the plate and be happy trading partners (as well as balancing the military forces in Asia–another win). The globalists–those who’d sacrifice American sovereignty (and make us slaves to the global elitists) have lost too–which we can’t overstate as a win for America. These dynasties view themselves as able to force governance by proxy and America has rightly rebelled once again against such miscreants. In the past it took muskets; now we seem to be able to do the trick with dollars and coal (but reserve our ARs in case this later breaks down). No longer can the Soroses of the world buy influence in America. No longer can the ‘decarbonization’ crowd tell us what to do; out with the man made ‘climate change’ nonsense and in with coal and nuclear power plants. Perhaps we’ll see a few smoke-belching EPA-scoffing blast furnaces like the magnificent J&L Steel Mill on the north side of the Mon in Pittsburgh or the Armco works in Butler. America is BACK !
For those of you wondering, our position on Tariffs remains unchanged–you’ll find it here:
Our founder had the good fortune of studying at CMU under a professor named Steve Klepper. And would help teach under the same principles. Steve being a sort of modern-day Milton Friedman/Friedrich Hayek type having an uncanny understanding of markets–even as technology or philosophy changed. As modern-day John Locke amid a bunch of Keynesians the man would provoke independent thought which is a true blessing–and was also notorious (again a blessing) for having a Socratic/John Houseman style of calling on students in front of their peers without mercy to defend their understanding of the lessons and their understanding and position thereof (we only would hope such a learning method would exist in the universities of today). Unlike the woke universities of today where groupthink is the norm (or touchy-feely crap makes its way into the curriculum), students were taught–using some guiding ideas–to think for themselves and stand out and up to defend their ideas and principles. Even if these were unpopular or very uncomfortable. To stick their neck out. To stand on their own too feet. To F… up and recover. It’s a rarity in today’s universities but our founder was blessed to be a part of that era.
Fr’ example, minimum wage is espoused as a ‘good thing’ by just about EVERY politician in America. Yet a minimum wage–if it has any effect–will ALWAYS hurt ANY economy and EVERY worker. Period. It’s an unpopular view, but it is and always has been correct. You never get something for nothing. And it’s not particularly hard to demonstrate HOW it hurts any economy.
So do we have a ‘market failure’ today ?
Nope.
We have a short-term glitch brought on by panic. Panic that the globalists have lost control. Panic that Wall Street is no longer propped up at the expense of Main Street. Panic that the adults are back in charge. Panic that the US is standing up for itself. Panic that the ‘commoners’ in the US–truck drivers, pilots, drill press operators, plumbers, engineers, electricians, auto workers, steel workers, and everyone else that makes things and does things have said ‘enough.’ And we’re not supporting your woke ‘stakeholder,’ ‘diversity,’ ‘net zero,’ ‘decarbonization,’ ‘climate change,’ ‘reparations,’ or ‘gender’ crap anymore. You’ve gone too far and Trump is our proxy to kill your BS.
And at D-J we fully support this; even if it demands some temporary pain. America is a winner and we love a fight (and don’t lose) when a fight is to be had.
But getting back to the point, what IS a ‘market failure’ ?
A market failure is where any market fails to achieve economic efficiency. Esoterically, ALL markets fail to some extent; the justification for intervention by government in a ‘market failure’ needs to meet two tests. One–is there a bona-fide REAL market failure (it’s really a problem) and Two–can a regulatory body do anything to make it better. It’s an ‘and’ condition; both must be true before governmental or regulatory intervention is ever justified. Fortunately, the framers of our Constitution gave us pretty good guidance of when government should get involved within that brilliant document. Unfortunately our government just couldn’t help but jump in where wasn’t wanted and regulate anyway.
So when is regulatory/governmental intervention justified ? It involves exactly FOUR categories (and only FOUR) and these always involve either the principle of simultaneous consumption or bona-fide barriers to entry and exit of a market.
The FIRST–and most salient–is a bona-fide public good. Things like basic infrastructure (highways and dams) as well as defense. This is both due to eminent domain as well as the ‘free rider’ concept. Diatomaceous and Keshawndra live close to each other in the village of Sabinsville, Pennsylvania (home to a major compressor pipeline on the Dominion line). If the Russians chose to attack the Dominion compressor station, it’s unlikely a privately owned military force could exclude Keshawndra’s and Diatomaceous’ house from collateral damage or know the intent of the attacking force or their target–and it would be necessary to defend the entire area (and nation) even if the target was actually Keshawndra’s house and not the pipeline. As such, we have a need to provide for a common defense (enumerated in our Constitution) to thwart ANY attack. Now K and D might not want to voluntarily pay for such a force but would receive a benefit from it in that the Russians would be deterred from making an attack on THIER house. And become ‘free riders’ –they have a willingness to pay (WTP) to avoid an attack on themselves but are unwilling to front the money to pay for it yet benefit from a common defense (local police and fire services fall into this category as well but COULD charge on a per-protection or per-use basic; such a philosophy might prove socially unacceptable). People benefit from flood control from dams and waterways yet might not pony up the money to build a dam on an individual basis. And so on. As such government intervention is justified.
The SECOND is a ‘natural monopoly.’ These are the few industries who enjoy increasing returns to scale (as they get larger their marginal costs drops). There aren’t many of these; think electrical grid (not power production but grid itself), waterworks, some types of highways, etc. (“public utilities). The phone company USED to be in this category; with the advent of satellite communications and cell phones the wire network became superfluous and technology changed its status (which is a good example of how ‘natural monopolies’ is a dynamic process). Teddy Roosevelt made his mark in being a “Trustbuster” — breaking up the so-called ‘natural monopolies’ of the day. To some extent these entities at the time had the makings of a ‘natural monopoly’ had things played out they wouldn’t be at present. But there aren’t many of these.
The THIRD is bona-fide externalities. Things like REAL pollution (CO2 isn’t one of these). Let’s say a steel mill is built next to an established community. The people of that community are made worse off by the pollution emitted by the steel mill yet that isn’t included in the price of the steel nor are the residents compensated. There is a reason for government intervention. The externality isn’t there if a resident buys a property next to an existing steel mill (knowing the pollution is there and buying the property anyway–some buying property near existing airports fall into this category but if you know the airport’s there and buy the property anyway you have no right to complain about the noise). Or a factory starts emitting nasty chemicals into a water supply downstream; that’s an externality. And the basis for regulation it to regulate to the extent to mitigate the externality and it’s impacts. On the whole, pollution controls in the US have been EXTREMELY effective; so much so that the environwackos had to make up new pollutants (like Freon or CO2) to justify their position. We got TOO clean and put the agendists out of a job. We finally got clean air and water in the 80s; as such the social constructionists had to ‘make up’ a pollutant (literally out of thin air) to justify their existence. And we got the ‘climate change’ and ‘freon’ nonsense. In any case, you ONLY regulate pollution to the point that the marginal benefit equals the marginal cost which is remarkably LITTLE pollution controls (usually targeting a 95% solution vs. best available technology).
The FOURTH and last reason for government intervention in a market economy is asymmetric information. The producer of a good or service knows more about its product than the consumer. Think food labels, or concise (easy to read) statements about the actual interest you’ll pay on a loan. The pure food and drug act of 1906 was an early attempt to solve this disparity–although continuing to allow such drugs as heroin or morphine–its duty was to INFORM rather than prohibit. And that’s the direction that the government need take to solve this. It doesn’t mandate standards for shower heads, water heaters, light bulbs, furnaces, toilets, or washing machines–it only requires manufacturers to inform consumers as to the characteristics and let them make the choice for themselves.
And that’s it — the ONLY reasons for ANY governmental intervention in an internal market economy. Citizens need be free to choose; the only ‘market failures’ are those listed above.
As far as the rest of the ‘economic crisis,’ we’d suggest to clients they not panic, stand pat, enjoy the show, and look forward to unbridled US growth. For us, it’s about time.
Diatomaceous-Johnson 