Can President Trump break the International Corporate Tax Cartel?

 From the Economist:

The international tax system has long suffered from two related problems: firms go to great lengths to book profits in low-tax jurisdictions, and governments thus have strong incentives to compete with each other in cutting levies so as to attract investment [only a dirigiste would consider this a problem]. Hoping to forestall a [competitive] race to the bottom, 136 countries reached a [collusive] compromise in 2021 to overhaul tax rules—the outcome of talks held under the auspices of the OECD, a group of mainly rich countries. The crucial element was that governments would impose a minimum tax rate of 15% on the profits of multinational companies.

...Unlike America’s withdrawal from the World Health Organisation and the Paris climate agreement, the OECD framework is not a formal treaty that America can leave. Rather, it is a common approach that depends on governments each passing legislation to impose top-up taxes on companies that pay less than the 15% minimum. This means that, if some countries choose to tax a multinational firm at a lower rate, others can claim the difference.

In other words, if the US doesn't tax its corporations at 15%, foreign countries can claim the difference.

...Mr Trump hopes to break this logic by promising brutal retaliation. Any country that imposes a top-up tax on an American company would, in his administration’s view, be guilty of extraterritorial overreach. In executive orders issued on January 20th, the day of Mr Trump’s inauguration, it said that it could respond by doubling taxes on citizens and firms from any offending countries. These orders displayed his advisers’ talent for unearthing obscure statutes that serve their goals: the law that allows the doubling of taxes on foreigners has been in place for nine decades without being used. Even if Mr Trump’s objection to the OECD deal was expected, his threat’s ferocity surprised observers.

Airline Yield Management

 It had been hard to manage an airline in the Covid-19 and early post-Covid-19 era. As Alison Sider
 at the WSJ reports:

Airfares plunged in the early months of the Covid-19 pandemic, only to soar in 2022, when airlines couldn’t add flights quickly enough to keep up with the frenzied urge to travel. Then prices tumbled when airlines expanded service and flooded into popular routes. Now airlines are constraining supply and lifting prices. 

Now it looks like things have settled back into a yield management problem. The quantity demanded has been  rising for the past three years, but the seems to have plateaued.

Airline price increases have begun to outpace inflation.

This suggests that demand has shifted out enough that it is constrained by airline capacity. Airline load factors have rebounded to pre-Covid-19 levels. At these higher prices, Airlines would like to sell more seats, but there are no more seats, at least in the short-run.

Is $5,000 enough to screen out bad dates?

That is how much it costs to join Tawkify.  A friend said he found his dates interesting (so it was)  but complained about the distance he had to travel to meet them.  

Would eliminating DEI improve government procurement?

Yes, by 15%.  From a paper by some middling economists,

Mergers, Cartels, Set-Asides, and Bidding Preferences in Asymmetric Oral Auctions, The Review of Economics and Statistics, 2000, vol. 82, issue 2, 283-290.  

The SBA [Small Business Administration] set-aside program limits auction participation to "small" firms... The set-aside program has numerous analogies in other areas of government contracting in which, for example, bidding is restricted to minority-owned firms (Froeb and McAfee (1988)).

The costs of the SBA program can be simulated by assuming that small, high-cost firms evolve into large, more efficient firms. The expected price change under this hypothetical scenario is computed over all 51 [Forest Service] auctions... . On average, [timber] price [revenue to the govt] would increase by 14.8%. 

Gig Work as Entrprenerial Training

There can be many hurdles to becoming an entrepreneur, particularly for those without a background in business startups. New findings from Denes, Lagaras, and Tsoutsoura indicate that Gig work can help budding entrepreneurs overcome these hurdles. Using data from U.S. Tax Returns, they can track individual's sources of income.

We find that gig workers are more likely to become entrepreneurs, particularly those who are lower income, younger, and benefit from flexibility. We track all newly created firms and show that gig workers start firms in similar industries as their gig experience, which are less likely to survive and demonstrate higher performance. Overall, our findings suggest on-the-job learning promotes entrepreneurial entry and shifts the types of firms started by entrepreneurs.

Of course the obvious benefit from Gig work is that we consumers have more choices to acquire goods and services. This is a static benefit. But a dynamic benefit is that Gig work becomes a stepping stone for workers to realize their potential. They will create new goods and services or they provide competitive pressure on existing suppliers. Policies that limit Gig work could undermine an economy's growth potential.
 

 

Do Environmentalists and NIMBYs share blame for LA fires?

The Economist thinks so:

Strict regulations in LA require new homes to be fire-resistant, but most homes are not new. NIMBYism and convoluted environmental rules make it extraordinarily difficult to build, so much of the housing stock pre-dates the modern building code and is packed with flammable wood.

CA gov prevents voluntary wealth-creating transactions

From REASON:

On January 7, Newsom issued a state of emergency as fires spread in Los Angeles County. On Tuesday, Newsom signed Executive Order N-7-25, prohibiting buyers for three months from "making any unsolicited offer to an owner of real property" in fire-affected areas "for an amount less than the fair market value of the property or interest in the property on January 6, 2025."

I sent Newsom a copy of Chapter Two.

High US interest rates strengthen dollar, weaken Asian equities

Economist: Jan 13, 2025

The dollar reached a two-year high against a basket of major currencies, bolstered by a strong jobs report, released on Friday. The data dampened expectations that the Federal Reserve will cut interest rates aggressively in 2025. Share prices in Asia fell, as investors fear that prolonged high interest rates in America will draw capital to the dollar, draining funds from weaker currencies and emerging markets.

Is ESG investing illegal? In TX it is.

Breaking:

...US District Judge Reed O’Connor found that the airline breached its fiduciary duty ... by prioritizing ESG considerations over the financial interests of participants.  ... The court criticized American Airlines for allowing its asset manager, BlackRock, to advance goals unrelated to maximizing returns for plan participants.

“ERISA does not permit a fiduciary to pursue a non-pecuniary interest no matter how noble it might view the aim,” O’Connor said, according to separate reporting by Bloomberg Law. He went on to maintain that ESG investments “often underperform traditional investments by approximately 10%

See related posts:

• The paradox of ESG investing.
• Can ESG investing stop climate change without sacrificing returns?
• Is ESG investing illegal?

Price controls destroy wealth: California Fire Insurance

Noah Smith via Marginal Revolution, and Kim Mai Cutler.

•  The CA insurance regulator is elected, and is reluctant to allow higher rates for fire insurance, despite the big risks, lest she be voted out of office. 
• As a consequence, expected profits are low, so a majority of top insurers have stopped issuing fire insurance in CA. In 2024, State Farm decided not to renew tens of thousands of policies in the state, including about 1,600 in Pacific Palisades.
•  Instead, CA becomes the insurer of last resort through it FAIR program.
• FAIR insures risks of about $458B but has less than $700M in cash. The Jan 9, 2025 fires may cost FAIR about $24B. As a result, CA residents may face big surcharges to shore up FAIR's finances.
• Expect more insurance companies to exit the state because insurers in the state are on the hook to pay into the plan when FAIR can’t cover its claims.

BOTTOM LINE: insurance rates are too low and dont cover expected losses. Furthermore, they are not risk adjusted, so low risk homeowners subsidize higher risk ones. And the risks are getting worse, due to regulation that delays and deters fire prevention efforts, like controlled burns.

UPDATED WSJ:  

FAIR now covers about half a million homeowners who can’t obtain private coverage. Its exposure has ballooned to $458 billion as of last September from $153 billion four years earlier, with $5.9 billion in exposure in the Palisades. Yet it has only about $700 million cash on hand to pay claims.

The capitalist revolution Africa needs

Economist:

In the coming years Africa will become more important than at any time in the modern era. Over the next decade its share of the world’s population is expected to reach 21%, up from 13% in 2000, 9% in 1950 and 11% in 1800. As the rest of the world ages, Africa will become a crucial source of labour: more than half the young people entering the global workforce in 2030 will be African.

This is a great opportunity for the poorest continent. But if its 54 countries are to seize it, they will have to do something exceptional: break with their own past and with the dismal statist orthodoxy that now grips much of the world. Africa’s leaders will have to embrace business, growth and free markets. They will need to unleash a capitalist revolution. ...

In the past decade, as America, Europe and Asia have been transformed by technology and politics, Africa has, largely unnoticed, slipped further behind. Income per person has fallen from a third of that in the rest of the world in 2000 to a quarter.

Mortgage debt is rising, but lending standards are strong

From CalculatedRisk:

The bottom line is there will not be a huge wave of distressed sales as happened following the housing bubble. Most homeowners have significant equity, were well qualified, and have a mortgage with low rates that they can afford.

Leftys get screwed again