Welcome to another installment of Swamponomics: Liberty Nation’s dive into the week’s morass of top news stories and the stream of economic fallacies that have been accepted as conventional wisdom by swamp creatures for years.
Art Vandelay: Importer-Exporter
In July 2015, the Export-Import Bank’s mandate expired, and it appeared that Congress was not willing to resuscitate the agency, which some critics refer to as either socialist or crony capitalist. During the 2016 election, President Donald Trump declared his opposition to the Ex-Im Bank, though he would later send mixed messages about his stance. That said, because the Republicans controlled the White House, Congress, and the Senate, it was expected that the institution would perish. This changed when Office of Management and Budget (OMB) Director Mick Mulvaney revealed in April 2017 that it was “going to continue to exist.”
He was right. In a show of bipartisanship, most Senate Republicans joined their Democratic friends in reviving the 85-year-old entity. Three of the president’s picks – Kimberly Reed, Judith Pryor, and Spencer Bachus – to serve on its board were approved and its lending powers were restored. This now means the Ex-Im board can resume financing and extending loan guarantees for sales and projects valued at more than $10 million.
Should this be a cause for celebration? Hardly. It’s a corporate welfare agency that benefits a wealthy few by handing out taxpayer-funded loans, loan guarantees, and insurance to foreign companies to purchase U.S. exports. And don’t think for a moment that it helps your mom and pop shop that specializes in Pez dispensers.
Domestically, two-thirds of its activities support just ten American businesses, including Boeing, Caterpillar, and GE – it’s referred to as the Bank of Boeing for a reason. On a foreign basis, China has been the top beneficiary, garnering 11%, or $2.3 billion, of Ex-Im’s activities offshore. Overall, a handful of state-owned foreign companies, many of whom are considered adversaries to the United States, received billions from the institution. Kenya Airways, Air China, Russian bank VEB, and Mexico’s Pemex oil company are all owned by the government.
Do any of these corporations need assistance? In the absence of handouts over the last four years, many of these businesses have excelled. Caterpillar’s stock has surged 100% with a $73 billion market cap and a 3.24% dividend yield. Boeing had its best year ever in 2018, recording $101 billion in revenues and enjoying a market cap of $193.58 billion. Air China continues to beat market forecasts and has reported profits for consecutive years. Pemex is worth more than $400 billion.
While it is absurd to subsidize billion-dollar companies at home, it is even more egregious to use U.S. tax dollars to assist firms owned by foreign governments, especially when they’re the same ones you’re engaged in a trade spat or cybersecurity war.
Give Uber a Lyft
Is the initial public offering (IPO) market wising up? Or, is the tech sector no longer able to hypnotize investors with red ink, steep annual losses, and promises of growth sometime in the distant future – after these same investors are buried six feet under?
Uber recently went public on a day that it probably wishes never happened. The ride-sharing behemoth priced its IPO at the lower range of $45, bringing the company value to $82.4 billion. On its first day of public trading, the stock tumbled 7.6%. On its second day, Uber shares shed 10%.
This will now go down in the history books as the fifth-worst IPO performance in a quarter-century and the ninth-worst first-day stock performer in market history. But this shouldn’t be much of a surprise, especially after Lyft has disappointed traders, sliding more than 7% in its first month.
What do these two brands have in common? Both companies have high debt, enormous spending levels, and negative cash flow. Most important of all, Uber and Lyft might never be profitable. This has been common in the IPO market for the last couple of years – LN reported in October 2018 that most U.S. firms lost money in the 12 months leading up to their public debuts in 2018.
Meanwhile, the vegan meat company, Beyond Meat, has defied expectations by advancing 250% since its debut. It has turned into the best performing IPO stock so far this year. It is true that Beyond Meat has not recorded a profit and the company will not report positive earnings for another couple of years. However, losses have fallen every quarter, gross margins turned positive, and net income is rising.
It is becoming clear that investors have an appetite for companies that are profitable or at least nearing profitability. Though there have been exceptions to this trend, IPOs with a superb balance sheet may be the best performers until the bubble pops and we start the charade all over again.
Warren with the Facts
Senator Elizabeth Warren (D-MA) is still seething about a Chase Bank tweet that encouraged better financial management. Not only did she respond to the digital marketing campaign on Twitter, but she also went to the Counterfeit News Network website and wrote a 790-word op-ed, titled “Americans don't need cliché financial advice. They just need to be paid more.”
The opinion piece recounted her childhood, cited various polls about the state of Americans’ personal finances, and complained about the wealthy. But there was one part of her article that needed to be called out for what it is: fake news, misrepresentation of the data, and insulting to self-made Americans.
She opined:
“So here are the facts: Americans are working more than they ever have. A much larger share of the population is in the labor force than 50 years ago. And families are not spending money on things they don't really need. The costs of child care, housing, higher education and health care have all far outpaced inflation.
Nobody in America succeeds on their own. Government-funded labs are fueling world-changing innovations. Much of American wealth was built through government-sponsored home equity. Strong American businesses are powered by American workers educated in public schools. Their goods are brought to market on roads funded by taxpayers.”
First, Americans’ wages keep growing and accelerating. In April 2019, hourly earnings rose six cents to just under $28, and all the data suggest they will continue to rise for the rest of the year because of tightening labor conditions. So, sorry Sen. Warren, Americans are getting paid more.
Second, Americans are not working more than they ever have. The latest piece of Bureau of Labor Statistics (BLS) data shows that the average workweek fell 0.1 hour to around 34 hours. This is about half of what workers used to clock a century ago. When you factor in consumer goods that have allowed for more leisure time, many Americans have relaxed lifestyles and more free time to catch up on Richard Wagner’s Ring Cycle.
Elizabeth Warren
Third, it is true that the costs of child care, housing, post-secondary education, and health care have outpaced inflation. But who is to blame for these soaring levels? The government. Anytime politicians intervene into a sector, their actions inevitably raise prices. Within a little more than a decade after the federal government extended student loans more broadly, tuition started to gradually increase, accelerating in the mid-1990s and hitting record highs this century. Child care is outrageously expensive because it is one of the most overregulated industries in the U.S., from state licensing to labor code compliance to zoning laws. When you add the Federal Reserve debasing the dollar, you have a recipe of disaster.
Fourth, it is incredibly insulting to profess that Americans have succeeded because of the state. This is the same as when former President Barack Obama told the private sector that “you didn’t build that.” But her argument is indicative of how leftists conflate society and government and assert that the only way to advance civilization is through the Leviathan. Most people cannot conceive of a world without government-run schools, roads, or sewage systems. So, Sen. Warren is both being insolent to the public and aggrandizing the state.
One more thing: Feminists typically spout the nonsense that society is run by a clandestine but iniquitous patriarchy. Does that mean Warren believes women have only succeeded because of straight white men who hold the keys to the kingdom? Try selling that idea to the pink-haired women at the next SlutWalk.
We Live in Interesting Times
Another week has gone by. Have we learned anything at all? Believe it or not, quite a lot. The Republican Party is fractured between free-market champions and those who prefer cronyism. The IPO market is being gutted by overleveraged businesses. Democrats still adhere to the concept that successful people owe the state for their prosperity. This is a reminder of former President John F. Kennedy’s 1966 speech: “Like it or not, we live in interesting times. They are times of danger and uncertainty; but they are also the most creative of any time in the history of mankind.” Next week should be fun!
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