Daily Commentary

MarketMinder’s View: The wider debate about electric vehicles (EVs) has generally been whether they are truly green (pros: no tailpipe; cons: heavy mining footprint, energy-intensive manufacturing, the electricity has to come from somewhere). But as a glut of unsold EVs piles up at the same time manufacturers are jacking up prices of pickups and SUVs to preserve margins, the economic implications of this are starting to come into focus. This piece delves into this, exploring the economic consequences of governments’ attempts to engineer a societal shift to EVs before the technology is really ready for primetime, along with the similarly subsidized shift to wind and solar. Both differ from prior societal transitions, which happened as markets evolved and prices drove the shift. The result? So far, it seems to be investment going to less productive areas, robbing other parts of the economy of capital. “Germany’s power system illustrates the problem. Since 2000, its generating capacity has more than doubled as the country has built wind farms and solar plants. Demand for power itself has fallen 5%, according to BloombergNEF. With two energy systems serving the same economy, the industry’s productivity has cratered. There are other reasons why Germany is struggling to grow, but this likely isn’t helping.” Meanwhile, even with subsidies, EVs are too expensive for wide swaths of the population (not to mention impractical for long commutes). Mostly, these shifts thus far amount to governments picking winners and losers, rarely a recipe for the optimum economic outcomes. “Ultimately, an energy transition that imposes high economic costs simply isn’t likely to happen as politicians shy away from public backlash. Only innovation can cut through the trade-offs. A very rough guideline: When that EV is easier on your pocket than the gas equivalent, it might also help the economy.”

MarketMinder’s View: Whenever food commodity prices spike, speculators tend to get a bad rap, with many implying greedy Wall Streeters are driving up food prices and contributing to inflation. This piece seemingly tries to go down that route, exploring how speculators appear to have contributed to volatility in cocoa prices above and beyond what this year’s failed crop would normally be expected to do. But in its thoroughness, it ends up showing why speculation tends to have less of an impact on consumer prices than people expect. One, in two of the biggest cocoa-producing nations, the government sets the prices—and government-set prices are currently far below market-based futures prices. Two, most volatility happens when liquidity is low, which means fewer sales of the physical commodity, which means less of it changes hands at wild prices. Low liquidity generally means too little trading—yes, including “speculation”—is happening. Three, a lot of smaller producers negotiate their own prices with farmers, which might be above where the global market trades, in the name of ethical commerce, fair trade and living wages. “Some ‘bean to bar’ chocolate makers, which have always paid a premium for the cocoa they get from smaller farmers, say they’re having a different experience. ‘The premium cocoa price never changed,’ said Dan Maloney, who runs Sol Cacao, a chocolate business in the Bronx, with his two brothers. ‘It’s almost like the bulk price caught up with the premium price, but we were always paying premium.’” The global futures price is a guide, not a prophecy. Oh, and in the vast majority of food markets, speculation helps keep costs down by facilitating transactions, adding to liquidity and helping improve price signals for producers.

MarketMinder’s View: Amid another round of Social Security handwringing, this debunking of the biggest fears is a welcome breath of fresh air. Succinctly and clearly, it puts to bed some of the biggest myths about the forecasted depletion of the Social Security trust fund. One, if and when the fund depletes (which the latest forecast estimates will happen in 2035, but this is a moving target), Social Security will be “bankrupt.” Not true! It is a pay-as-you-go system, with incoming tax revenue financing current benefits. Revenue will still cover the vast majority of payouts if nothing changes, but Congress has a history of making changes when needed. Two, contrary to popular belief, it wouldn’t take much tweaking to extend the program’s life for a good long while, eventually extending benefits to today’s young people. Three, a depleted trust doesn’t make collecting benefits early a wise move, necessarily. That could diminish your total lifetime payout. Fourth, the federal government doesn’t use the trust as a slush fund. The trust is required to invest in US Treasurys, which Uncle Sam repays with interest. And lastly, Congress actually does have skin in the game, as members have participated in Social Security since 1984.