​In "This Week's Economy" Ep. 2, I provide brief insights on the economies of U.S., Texas, & Louisiana; talk about the TX House Budget; and note how Biden's green energy agenda results in poverty.

​Thank you for listening to the second episode of "This Week's Economy," a new series of the "Let People Prosper" podcast, where I quickly recap and share my insights every Friday morning on key economic news from the preceding week.

Today, I cover:

1. What the latest economic indicators tell us about the economies of the U.S., Texas, and Louisiana, and where things are heading.
2. How the Texas House’s budget for the upcoming 2024-25 period increases substantially leaving less money available for needed property tax relief, as I recently wrote in this report; and
3. How the Biden administration’s green energy agenda increases poverty and why it must stop (Read my op-ed at Real Clear Energy).

​You can watch this episode on YouTube or listen to it on Apple Podcast, Spotify, Google Podcast, or Anchor (please share, subscribe, like, and leave a 5-star rating).

​In co-dependent relationships, there’s often an enabler compounding the destructive behavior. In the case of the Silicon Valley Bank collapse and a possible crisis for the banking industry, the Federal Reserve and its fast-and-loose monetary policy is that toxic enabler. If only couples counseling could fix the muddled relationship between the Fed and the banking industry.

Over the past three years, the Fed has monetized much of Congress’s excessive deficit spending, thereby bringing inflation to a 40-year high and distorting the banking industry and economy. To take advantage of that extra liquidity, SVB (and many other banks) invested in riskier assets: interest-rate-sensitive bonds.

​Banks were unprepared for the Fed’s sudden pivot last year when it began increasing interest rates in an effort to control elevated inflation. To be sure, they ignored many warning signs, such as a bloated Fed balance sheet and supply chain disruptions. And when the Fed raised its target federal funds rate from near 0% to today’s range of 4.75% to 5%, bonds began losing significant value.

In SVB’s case, the bank had to realize huge losses when it made its mark-to-market calculations for its balance sheet, as it shifted investments from hold-to-maturity to available-for-sale status, hoping to satisfy its depositors by selling those assets. The losses proved too substantial, rendering the bank insolvent.

The actions of the Fed certainly incentivized the kind of risk-taking that led to SVB’s insolvency and failure, but the bank was far from an innocent victim as it abandoned basic risk management. It loaded its balance sheet with risky investments while prioritizing social agendas over profits, investing in ESG initiatives that performed poorly. At the time of its failure, SVB looked more like a hedge fund than a commercial bank.

But instead of letting SVB and its depositors face the consequences of the bank’s mismanagement, the Federal Deposit Insurance Corporation, Federal Reserve, Department of Treasury, and White House launched coordinated rescue actions, determining that all depositors of the failed bank would be saved. The FDIC’s traditional policy of insuring accounts up to $250,000 was seemingly obliterated by this decision, establishing an entirely new regime.

The Fed and FDIC justified the SVB rescue by claiming that the bank represented a “systemic risk” though it was only a mid-level-sized bank. This further muddied the waters as to how the Fed and FDIC determine which institutions are “too big to fail.” Further compounding the issue was Treasury Secretary Janet Yellen’s testimony to the Senate Finance Committee guaranteeing all deposits of “Too Big to Fail” banks.

The fallout from this new regime, which focuses only on the deposits of the largest banks, creates an incentive for depositors with more than $250,000 to shift their deposits to the largest banks that will accept them. This will put pressure on mid-level and smaller banks as they must now compete for larger deposits that will be uninsured at their banks. The result of this challenge will likely be more consolidation across the banking sector, thus making the big banks that much larger.

In a sane society, troubled banks such as SVB would be allowed to fail, and the depositors would lose their deposits above the $250,000 insured amount. But financial socialism is growing. Profits are privatized, losses are socialized, and everyone in government is tripping over each other to bail someone out.

The current rescue actions and the promise of more are not a part of the free market capitalism that has supported wealth and prosperity throughout America’s history. These actions send a loud and clear signal to all banks: go ahead and take the risk! We’ll finance your failure with a more accommodative monetary policy. It should come as no surprise when more banks begin backsliding due to this messaging.

As things stand, no sector, including the banking industry, is incentivized via market discipline to reduce risky behaviors thanks to the government’s outsize role. The ones who suffer most from this are consumers seeking services, who will inevitably be left with more mediocre options as government handouts cover competition.

To avoid this and strengthen the economy, Washington needs to end bailouts. The Fed needs to keep raising its target federal funds rate and more aggressively reduce its bloated balance sheet, which it increased by $300 billion recently, to rein in inflation and let markets work. Likewise, Congress should cut spending to stop issuing so many Treasury securities that fund the more than $31 trillion national debt.

This system where the Fed micromanages the free market instead of allowing the free market to work out problems on its own will continue to impoverish the economy. Indeed, Fed Chairman Jerome Powell’s suggestion last week that target rate hiking is nearing an end means Americans can expect more inflation and more economic distortions for a longer period of time.

The recent events provide further evidence that it is past time to reevaluate the structure, governance, and operating rules of the Fed. Indeed, Washington’s response to the SVB failure proves the entire financial arm of the government ought to be thoroughly reformed so that market discipline can be returned to the banking sector.

If significant change doesn’t happen, the troubled co-dependent relationship between the banking sector, the Fed, and Washington’s bureaucracy will never heal. For Americans, that means waiting on the next Fed-fueled boom and bust cycle.

Originally published at the Washington Examiner.

Overview

• Texans for Fiscal Responsibility provided a three-step process to eliminate all property taxes over the next decade by simply limiting government spending at the state and local levels of government and returning surplus collected taxpayer dollars to taxpayers.
  
• Unfortunately, the Texas House’s budget substantially increases all funds appropriations in the proposed 2024-25 budget above the 2022-23 budget by 14.3% to $302.7 billion, and by 9.8% to $290.7 billion (excluding the $12 billion in new property tax relief). Likewise, the Texas House increases state funds appropriations by 21.5% to $202.0 billion, and by 14.3% to $190.0 billion excluding the new property tax relief.
  
• These increases in appropriations would be better allocated to new property tax relief, primarily through compression of school district maintenance and operations property taxes. This would create a path to eliminating these property taxes, thereby giving Texans more of the right to own their property instead of perpetually renting from the government.

Originally posted at Texans for Fiscal Responsibility. 

On today's episode of the "Let People Prosper" show, which was recorded on Feb. 24, 2023, I'm honored to be joined by Dr. Tyler Goodspeed, who is an economist, fellow at the Hoover Institution at Stanford University, and was acting chairman of the White House’s Council of Economic Advisers from 2020 - 2021.

We discuss:

• His fascinating experience working inside the White House in numerous roles from 2017 to 2021;
• What decisions led to present-day inflationary pressures, and why we need market growth; and
• Why America is at high risk for a recession as well as reasons to be optimistic for future improvement and much more.

​You can watch this interview on YouTube or listen to it on Apple Podcast, Spotify, Google Podcast, or Anchor (please share, subscribe, like, and leave a 5-star rating).

Dr. Goodspeed’s bio and other info (here):

• Tyler Goodspeed is a Kleinheinz Fellow at the Hoover Institution at Stanford University. From 2020 to 2021 he served as acting chairman of the Council of Economic Advisers, having been appointed by the president as a member of the council in 2019. In that role, he advised the administration’s economic response to the coronavirus pandemic, as well as subsequent economic recovery packages. He previously served as chief economist for macroeconomic policy and senior economist for tax, public finance, and macroeconomics, playing an instrumental role in designing the 2017 Tax Cuts and Jobs Act.
• Before joining the council, Dr. Goodspeed was on the faculty of Economics at the University of Oxford and was a lecturer in economics at King’s College London. He has published extensively on financial regulation, banking, and monetary economics, with particular attention to the role of access to credit in mitigating the effects of adverse environmental shocks in historical contexts. His research has appeared in three full-length monographs from academic presses, as well as numerous articles in peer-reviewed and edited journals.
• Goodspeed has a PhD in history from Harvard University and a PhD in economics from the University of Cambridge. He also received a BA in economics and history from Harvard, an MA in history from Harvard, and an MPhil in economic history from Cambridge, where he was a Gates Scholar. He is currently a member of the American Economic Association and the Economic History Association and an adjunct scholar at the Cato Institute, and was previously a member of the Economic History Society and the Royal Economic Society.

For thoughtful economic insights, media interviews, speeches, blog posts, research, and more at my website: https://www.vanceginn.com/.

The push to ditch reliable energy is out of control. Politicians are manipulating the energy market through subsidies, tax breaks, and environmental, social, and corporate governance (ESG) initiatives in regulations and government pensions.  

It’s also concerning that the “big three” investment institutions, which collectively hold over $20 trillion in assets, too often coerce the companies in which they have significant investments to bend the knee to their big-government political ideology, such as complying with the Paris Climate Accord.  

Sadly, the result of this virtue signaling to prop up unreliable wind and solar comes at high costs for little benefits—if any benefits at all. And more than hemorrhaged taxpayer dollars are at stake: this green energy agenda increases poverty. It must stop. 

While the media is constantly ringing alarm bells about the always-changing climate, not enough people are alarmed by the economic trade-offs these unreliable green energy initiatives create. But that requires an honest comparison of the climate change risks versus the economic costs, both of which impact future generations. 

The International Energy Agency (IEA) finds that there were an expected 20 million more people without electricity globally, totaling 775 million people, in 2022. Many of these people are in sub-Saharan Africa, who are facing increasing hardship due to rising costs for food, fuel and other necessities. This situation is made worse by the left’s insistence on unreliable sources of energy that have forced many Europeans to use wood for stoves and heat instead of much cleaner-burning natural gas. 

Forcing some of the population to depend on energy sources that don’t work ultimately pushes them into hardship and poverty when those methods fail.  

Texas experienced this problem in a tragic way two years ago during its historic weather event of freezing temperatures and accumulations of ice and snow that left thousands without power, contributing to an estimated 246 deaths.  

Such a tragedy should never have happened in America’s energy capital, but these are gambles that politicians take when offering subsidies to unreliable variable energy providers that make it difficult for reliable thermal energy to compete, even though thermal energy is the most stable and reliable form.  

Fortunately, Texas let a property tax break for businesses called Chapter 313 expire in December 2022. That tax break was often used by renewable energy companies to lower their tax bills (and operating costs). Still, some already want to bring Chapter 313 or something like it back. This should be a non-starter.  

That’s not to say that climate change couldn’t have consequences, but considering the projected minimal benefits from expensive initiatives by politicians and the need for adaptation, the trade-offs seem hardly worth it. And this says nothing of the benefits of more CO2, which is necessary for life on earth.  

More broadly, if every signatory of the Paris Accord, including India and China, decarbonized by 2050, the temperature differentiation by 2100 would be just 0.17 degrees. And according to climate change activists, the cost to get there could be as much as $21 trillion through 2050. 

Businesses attempting to go green would be forced to raise their prices significantly to make a profit, a normally tough task that’s only made harder by present-day sky-high inflation. But if subsidies and other artificial means of skewing the energy market continue, then businesses that don’t receive subsidies and can’t afford to “go green” simply won’t be able to compete. This would result in a massive reallocation of resources that will contribute to less economic growth, more poverty, and less energy stability. 

Not only can over-dependence on unreliables lead to hardship, but it often counteracts the green energy innovation it wants to spur. 

​One of the reasons the U.S. is so prosperous is that it is the most responsible and efficient at producing and utilizing energy, having reduced criteria pollutants 78% in the last 50 years. And what has supported this is our wealth acquired via free-market capitalism.  

That’s why the best thing for activists and politicians seeking improved adaptation to climate change is to get out of the way and let the free markets, meaning free people, work.  

Subsidies, tax breaks, ESG initiatives, and other hindrances to a well-functioning market process should be abandoned. When politicians push funds into green energy agendas, often to win votes through virtue signaling, precious scarce taxpayer resources are wasted.  

Markets work, but we have to let them.  

Individuals and entities should be left alone when choosing which energy sources to direct their funds and business. Otherwise, the outcome is less prosperity and more poverty. There is a better way. 

Originally posted at Real Clear Energy.