Archive for the ‘economic growth’ category

The Anti-Vision President

January 25, 2019

President Trump has spent his first 25 months in office trying to show that life is much easier taking structures apart than building them in the first place.  The President most likely does not appreciate his actions are examples of entropy and the tendency for disorder.   Does the President think disorder is a natural state?

The President has not been shy about his intentions to withdraw from this or revoke that, or to fire this person or to promote that one.  Regardless of the issue, for instance the Paris Climate Accord, the Iran Nuclear Agreement, the Trans Pacific Pact, or the infamous “concrete wall” which would keep dangerous people and drugs from crossing the border, the President knew what needed to change and he was likely the only person who knew how to fix “it”.  Hmmm.

If one looks at what ever the President’s hand touches, there is not a hint of constructing something new.  Rather, the President’s actions are all about taking apart (and not replacing).  The reason for this phenomena is that the President has no vision of how things should be.  What?  Didn’t the President say he wanted to make America great again?  Doesn’t that prove that President Trump has a clear vision and his making steady progress towards it?

The short answer is NO.

Whether the President or his ardent supporters like it or not, the world is already “global” and only “losing economies” will play outside of the global community.  National security is also “global” and the days of simply being the biggest and toughest kid on the block, so to speak having more guns, ships and planes than anyone else, have passed us by. 

Human nature is regrettably prone to settle conflict with fighting (war).  The aim of our foreign affairs policies, therefore, must be to engage other countries in “win-win” trade and development deals while making clear America’s position on certain global requirements.  For example keeping key waterways (Suez Canal, South China Seas) open, restricting air and water pollution (at a minimum to within a countries borders), and facilitating trade arrangements where win-win is both side’s objective.

President Trump even while presiding over a partial Government shutdown, has pronounced his first two years a complete success.  The facts, of course, speak otherwise.  Domestically, the President’s actions have produced a tax cut which enriched corporations and already wealthy people at the expense of future generations (the tax cuts were unfunded).  The President instituted tariffs on steal and aluminum and reduced regulations around the use of coal.  The results are an angry group of countries who were exporters of steal and aluminum to the US, a coal industry still dying,  and not surprisingly, less jobs than when he began the Presidency.

On the international stage, most of the world leaders have by now figured him out.  His “smash mouth, take a hostage, then negotiate” modus operandi is no longer very difficult to detect and therefore to defend.   The TPP partners have signed their agreement and each member will have an inherent trade advantage over American farmers.  Thanks President Trump.  The Chinese have reduced American export purchases again hurting American farmers.  Thanks Mr President.  Climate change initiatives aimed at reducing global temperature increase have all but vanished predicting unchecked global warming and the dangers associated with a warner environment.  Thanks again Mr President.

Adding a cup of sawdust to a work horse’s feed brings no problems for the first cup.  Keep adding another cup each day until the feed is mostly sawdust will bring entirely different results.

Americans need to study closely the actions the Trump Administration continues to take.  Invariably, Trump policies will take apart existing policies in order to claim “action” and by definition, a “win”.  Almost assuredly, given time for  the dust to settle, Americans will see (1) the Trump actions are unrelated to some strategic policy, and (2) these actions, both individually and collectively, the will leave America “less great” again.

What ever happened to “Visions, Values, and Results”?

Is Socialism A Real Fear?

January 20, 2019

Recently I got into a discussion with friends over what danger some of the new Democrat Congress members posed.  “Why that woman from New York wants free college education for everyone” one friend said.  “How is the country going to pay for it?”  The person added, “that woman wants to tax the rich to pay for it and that means we are going to have to pay more in taxes”.  Hmmm.

Where does one begin?

The friend making that statement probably lives in the 90th% income bracket which is about $150,000 in yearly income.  The couple probably have a pension, social security, and some income from investments.  They own a home and a vacation house.  They live comfortably but certainly not extravagantly.  Compared to average household income of $61,000, they are doing well.  So why the fear of free college?

My friend did not stop at having to pay higher taxes.  My friend quickly added, free college education would take the US to socialism.  And another friend said, “from socialism, communism was next.  And just look at Russia, Venezuela, and Cuba”  (I guess they had never visited China.)  Hmmm.

These two friends are both educated, well spoken, and otherwise reasonably charitable people.  From where could this disconnect from logic and reality come?  That’s a “foxy” question I think.

I wonder whether my two friends have thought why someone would advocate for free college education in the first place?  I wonder whether they realize that educated people are a resource just like rivers, roads, and electricity.  An educated work force drives prosperity.  In the US, unemployment, average income, and home ownership are all correlated to whether one has a college education or not.

Of course the likely reply would be, “I had to pay for my college education, so should the kids today”.  Hmmm.  I would quickly agree to that if there were options for kids to borrow at no interest the money to pay for their college education and depending upon what profession they chose or where they applied their college education, there were “forgiveness” provisions.  

In many respects, the free college education argument is a red herring with respect to the risks posed by socialistic regulations and laws.  And the connections between socialism and communism are faint if at all.  Socialism arises invariably to counter the excesses of capitalism.     Hmmm.

Most people are surprised to see how much in our daily lives is a form of socialism.  Public roads, libraries, and utilities are starters.  Social Security, the VA hospital system, and the host of consumer protection agencies are socialistic in nature.  All our discrimination laws, rent protection, and FHA loans in some way overcome excesses of unfettered capitalism and are a bit socialistic.

The question of why unfettered capitalism is not dangerous is deceptively difficult to answer.  Unfettered capitalism opens a world of possibilities for those who seek to succeed in business and accumulate wealth.   But given time, the entrepreneur becomes very wealthy and for most everyone else, life can become a little (or a lot) less good.  

In a wealthy country, like the US with abundant natural resources and protection from enemies by the Atlantic and Pacific Oceans, great wealth can be amassed though hard work and intelligence. Question… if all it took was hard work and intelligence, why would these entrepreneurs not go to the Sahara Desert or the North Pole and put their skills to work?  Capitalism’s success has a lot to do with the inherent natural resources, which in some way belong to everyone, and how these natural resources are harvested by the risk taking capitalist.  A hard working, risk taking socialist should be just as successful under similar circumstances, I would think.

But, one might ask, why aren’t socialist Venezuela and communist Cuba successful countries?

Does anyone think that if Venezuela or Cuba simply said “unfettered capitalism” is the way of the future, that life would change?  IMO, history has shown that all that would change is who the rich people were.  The poor would remain poor.  

There is no simple formula for accumulating national wealth.  Clearly abundant raw materials play a big role.  So does motivated entrepreneurs and an educated and skilled work force.  And, don’t forget “guns and butter”.  A country consumed with defending itself militarily will not have the time or ability to concentrate on economic development if it is preoccupied defending its borders.

With Venezuela and Cuba there is another factor which IMO outweigh all the others.  These countries lost their way when they cast aside “democracy”, rule of law, and free speech/free press.  Graft, corruption, and incompetent leader escape the natural consequences of their decisions when free speech and free press are suppressed.

One last observation.   Countries like Japan, Germany, France, the Netherlands, Denmark, or Canada all utilize more socialistic laws and regulations than the US.  None of these countries are teetering on the edge of communism.  And all these countries offer their citizens healthcare costs roughly 1/2 or less that the US with healthcare outcomes uniformly better.  Hmmm. 

Wall Street Highlights The Trump Genius

December 26, 2018

“I’m the smartest person in the room” or words to that effect have punctuated President Trump’s first two years in office.  Reflecting upon 2017 and 2018, one can see an opportunists who has picked the lowest of hanging fruit and cut as many corners of established good manners and protocol to claim his “wins”.  Now at the close of 2018, the world (and hopefully Americans) can see what ill considered, opportunistic, and uncoordinated adventures can bring.

The Wall Street Journal reported today more bad news for American farmers.  Japan has announced it will reduce agricultural tariffs as part of its role in the “Trans Pacific Partnership”.   President Trump rejected the TPP and pulled America’s participation from it.  Now American farmers can look forward to increased competition in Japan from Canada, Australia, New Zealand, and the EU.  This type of competition usually means lower prices and lower sales. Wall Street sees this.

President Trump’s rejection of the Iran Nuclear Agreement and withdrawal from the deal has changed little other than providing a wake up call to other nations that there is a new sheriff in town and one that can’t be trusted.  President Trump complained about Iran’s “bad behavior” in the region, not any violations of the agreement, as his reason to void the agreement.  And this past week, President Trump order all US troops out of Syria opening the door wide for increased Iran access (and bad behavior).  What was he thinking?  Wall Street sees this.

The President also saw if fit to stand up for Saudi Arabia over the third world-like killing of Jamal Khashoggi.  There has been plenty of media attention and condemnation but hardly an uproar from banks and industry.  The President spoke volumes about where morality and the rule of law stood with his Administration.  Wall Street sees this.

The President’s wall (not Wall Street) between the US and Mexico has prompted a Presidential temper tantrum.  President Trump has chosen to shut down about 1/3rd of the US Government until he receives funding for a boarder wall.  Forgetting for a moment that almost everyone informed about restricting undocumented immigration rejects the notion that any type of wall will eliminate smuggling or illegal immigration, the President continues to link national security with the wall.  If the President was serious about this issue, he would negotiate a trade-off involving DACA residents and increased spending on the Wall.  The President is myopic and only seems to see his role to bring satisfaction of his “base”.  Wall Street sees this too.

The stock market (Wall Street) has never been accused of being overly moral or ethical.  Wall Street is about making money for and by investors.  Unfortunately, stocks and bonds make up a large part of everyday citizens wealth and when the Market does well, so do a broad cross section of Americans.  

And to be sure, there are behaviors by Wall Street insiders which can prolong periods of market growth and soften the pain of retreats.  But there are events (like period mild recessions) that Wall Street can not make pretty and, in those situations, Wall Street becomes a herd.  “Herd Mentality” takes over and sharp swings in stock prices rules the day.  Sooner or later, unless there are legitimate corrective measures taken by Government policy makers, the natural consequence is sustained market decline.

The month of December has seen this volatility with dramatic drops in stock market valuations.  Pension funds and 401Ks are again seeing their valuations clipped.  A lot of Americans (not just the wealthiest) have less wealth today than 6 months ago.  

Lay these Trump inspired events upon each other along with market volatility, and one should worry.  Our President has driven wedges between the US and its trading partners and created global unstable situations. Wall Street knows this.

While we should not expect any moral or ethical pronouncements from Wall Street, we can expect the Street to act in its own self interest.  Wall Street will take profits when it can and care nothing about who gets hurt.  Sooner or later this instability will permeate “main street” and a recession will set in.  Wall Street knows this.

And “the leader of last resort”, the President of the United States is absent on duty.  How can anyone expect the President’s first two years of accomplishments to predict sound leadership when the country needs it?

Go Figure

October 16, 2017

President Trump along with Republican Congressional leaders are getting hot over the prospects of tax reform. The President, in his usual manner, is questioning the manliness of key Republican Senators and asking rhetorically, can Congress finally pass key legislation.

Apparently, President Trump has something in mind and thinks it is Congress’ job to figure out what will satisfy the President, pass the Senate, and meet the smell test of a “huge middle class tax cut”.

Senator Ted Cruz is panting that unless this tax reform passes, the 2018 elections will not go well for incumbents. Other Senators like Lindsey Graham are saying more or less the same message. I wonder why?

Could it be that Republican incumbents are carrying two “bull’s eyes” on their backs?

The first bull’s eye comes from the conservative right who now view anyone who hesitates on proposed legislation as “too” moderate. Without clear and definitive action, moderate Republicans should expect an extremely well financed primary challenge. Hmmm.

The second bull’s eye is probably not as obvious to Republicans. Simply stated, what will happen if these greedy Republicans do pass tax reform?

Will anyone, other than the wealthy and big corporations be better off?

The answer is assuredly the middle class will see nothing despite the President’s promises. And, when nothing appears in middle class pockets, Republicans will urge patience, the roaring economy is coming. And, so is Christmas.

The Republican Party boasts about 30-35% of the electorate. This groups is home to wealthy “dyed in the wool” Republicans who will vote GOP almost every time. It is just a question of how conservative one of this 35% will vote.

Democrats sport a similar 30-35% who will find it difficult to vote Republican ever. Simplifying the tax code and offering a “huge” middle class tax cut will get more than a snap rejection for these Democrats. If Democrats pay attention and do not get lulled into believing the President and thinking Congress has their interest in mind, a tax bill which primarily helps the wealthy and big corporate interests to the exclusion of the middle class, will become obvious.  Consequently the recognition should come back to haunt Republicans.

The middle group (30-40%) who like to call themselves independents will see this issue as well as healthcare more similar to Democrats. Should Republicans pass tax reform, aka tax cuts for the rich and corporations, and leave the middle class out in the cold, independents will help make 2018 and 2020 bleak for the GOP.

The irony is that there is real need for tax reform and the corporate tax codes put US corporations at a disadvantage on a global basis. The current corporate tax code also allows corporations to shield billions of foreign earnings from the the US tax man.  There is a genuine need for tax reform, not tax cuts for the wealthiest Americans.

Regretfully, we are living in a world where “what I mean is not what I say”. Shame, shame, on the GOP.

Hand In The Cookie (Tax) Jar?

October 4, 2017

This past weekend, Republican talking heads shared with Americans their absolute guarantee that Republicans would work “hard” trying to deliver middle class tax cuts. Americans found out that not every tax return was the same and so officials such as Steven Mnuchen, Treasury Secretary, and Gary Cohn, Chief Economic Advisor simply could not predict that every middle class American would receive a tax cut.

These leaders did emphasize that corporate tax relief would bust open the dam holding back job creation and that was a good thing they said. Interestingly the leaders were silent over whether there would be cookies for America’s wealthiest in their Christmas basket. A drop in the top bracket from 39 1/2% to 35% should reward these wealthy Americans handsomely.

One of the cute features of the Republican tax reform would be the elimination of deductions for State and local taxes along with mortgage interest deductions. (Surprisingly, it just happens that “blue” States use these deductions more than “red” States).

In the concept stage, Republicans had thought lower tax brackets and larger personal deductions would offset State, local, and mortgage deductions and allow the middle class to see a tax savings. Ironically, at this time the details (you know where the devil lives) are not set and Republicans are unable to categorically say one way or the other. Just as with the repeal and replace Obamacare, Republicans are beginning to realize how bad the “optics” will look if the middle class gets nothing and the wealthy get a lot.

Regrettably, truly simplifying the tax code and adjusting corporate taxes more in line with global competition could be useful efforts. The big money funding so many Republican legislators, however, does not think that way unless they get their cut first and right off the top.

As it stands now, the “repeal and replace” fiasco will make Republicans look good compared to how they are setting out to “reform” the tax code.

Close To Greatness

July 14, 2017

Republicans are running the ship. The GOP controls the Presidency and both Houses of Congress. What more could any party want if they wished to leave their imprint upon America. Each day, however, Americans are observing a President and a Congress aim at greatness but suddenly swerve away, missing the mark by a mile.

  • The “Healthcare” train went off the tracks quickly. Instead of focusing on premium and drug costs, the GOP struck up the “repeal and replace” band only to find they possessed no consensus on “replace”. The one attempt at attacking cost was instead diverted to bait and switch. The GOP offered to sell “stripped down” policies, as if they were Obamacare quality, for lower price. That was their version of cost reduction. Would you buy a car with no passenger or back seat (just the open space) just because the price was slightly lower?
  • Even more obvious as a ripe target is the cost of prescription drugs. What other country in the world makes drugs and sells these patented compounds in other countries for less than they sell the exact same materials in the US? The GOP could have seemed genuinely interested in the well being of Americans had they not taken the “repeal and replace” course.
  • The “Tax Reform” train, on a different track, seems destine for a similar miss. Anyone who prepares their own taxes knows full well how complicated a reasonably straight forward process can be. But “tax reform” is political code for “tax cuts”. And if you are wondering how much you might realize, don’t waste your time, the GOP tax cuts are about those who don’t need them, the wealthy.
  • Infrastructure investment, like building roads, bridges, harbors, and airports, is a time proven method to improve productivity by modernizing shared means necessary for economic growth (read jobs). Infrastructure investment is also a popular method to just put people to work regardless of whether the work produces any economic return. Under certain circumstances, even just employing people can be a good thing.
  • Not, apparently, with this Administration. Infrastructure investment means privatization and transferring more wealth from tax payers to private investors.
  • Along these same lines, the growing crisis around student loan debt is viewed as another opportunity to use private enterprises to assist the financial needs of students seeking higher education… at a substantial profit.
  • If training skills and higher education are needed to make workers more employable and more productive, then why would government add a layer of profit from loan administrators? Why would government treat student loans differently in bankruptcy cases than if someone bought too much house or too many cars?

Americans may have been frustrated with these situations in 2016, and decided Hillary Clinton and the Democrats were not the route to fixing them, hence Donald Trump became the 4 5th President and the Republican Party got control of both Houses of Congress. With seven months of this new Administration, Americans instead are seeing “greatness” by-passed in favor of wealth transfer from the average American to the wealthiest Americans. Hmmm.

A Big Fat Nothing Sandwich

July 4, 2017

On this “Independence Day” holiday, Americans are taking stock of their blessings. Through the years, other Americans have sacrificed much, often their lives, in order to defend the liberties we too often take for granted. This year, Americans do not have to rely upon memories of past valor to appreciate the deeds of past generations. Instead, we can open our eyes and witness a President Trump and Republican Party’s attack on what has made America Great.

The President ran on the campaign promise to Make America Great Again, and most Republicans ran on the idea of “taking back their freedom”. President Trump’s slogan pre-supposes Americans agree that America has slipped or that Donald Trump’s vision is greater than our past.   The Republican Party’s charge of taking back their freedoms similarly supposes that whatever constitutes a “freedom” was theirs to take back. It might be more appropriate to say “take the average person’s freedom and give it to the wealthy”.

The Trump White House’s first six months have marked a bazaar chapter in American history. President Trump’s advisors seem set upon the appearance of keeping campaign promises regardless of whether any of them are in the best interest of the average American.

  • Lower healthcare insurance costs sounds attractive but some 20+ million fellow Americans must lose their coverage while the top earners pocket a huge tax reduction.
  • The world is currently awash in oil. Yet, the President has moved to “drill, baby drill”, no matter what the cost. Could this policy be for the benefit of the average American, or maybe just for the fossil fuel industry barons who stand shoulder, wallets open, for Trump in 2020?
  • President Trump has not restricted himself to just domestic issues. His “bull in the china shop” approach to trade and international relations is poised to sell out most all Americans. Either his naivety or his incompetent has the US ready to begin trade wars on many fronts. In trade wars there are no winners, especially the average American consumer.
  • America is a land of immigrants as most Americans can realize if they research their family tree. Making immigrants the enemy is completely out of touch with our history, not to mention our current economic needs. Without a growing population (immigrants plus birthrate), GDP growth must be low or potentially even negative.
  • But by far the greatest danger facing Americans on this 4th of July is President Trump’s child-like assault upon free speech and the freedom of the press. The President’s endless streak of demonstrably false statements will have the effect of trivializing all public officials speech.  Meanwhile, President Trump’s invocation of “fake news”, while patently unprovable, never the less poisons his supporters thinking and increases the odds that real data and facts won’t interfere with their prejudges and false beliefs. History has shown that free speech and freedom of the press are the first casualties of a budding authoritarian regime.

President Trump demonstrates each day that our Country’s best days are behind us.

So, as Americans celebrate July 4th, and gather around the barbecue grill, the President is sending you “a big fat nothing sandwich”.

 

Democracy’s Message

June 20, 2017

When Donald Trump was elected President, the US democratic process spoke loudly. Americans had elected someone inexperienced, uninformed, and some said unqualified emotionally to become President by a narrow electoral college margin (Trump lost the popular vote by 3 million votes). What was democracy’s message?

American democracy approximates one man, one vote but it actually reflects the popular vote in each State times the number of House and Senate members apportioned to that State. Therefore it is possible to win the popular vote but lose in the electoral college. So is that why Donald Trump is President?

There’s more. Along with electing Donald Trump, voters returned the Republican Party to majorities in both the House and the Senate. And with these majorities, GOP leaders feel a mandate to roll back much of what constitutes “entitlements” and “excessive regulations”.

Republicans favor less healthcare coverage, less Medicaid spending, and have proposed large changes to Medicaid and even Social Security. On the regulatory front, Republicans are pro-fossil fuels, less regulations on banking and industry, and anti-labor. How can this type of negative, past looking policies appeal to a majority of Americans regardless of which State they reside in?

As usual, there is another way to see life. Republicans claim that best government policy is that which is originated closest to the people (State and local levels). Therefore by definition, healthcare, tax levying, and regulations should be done at the lowest government level which is practical.  Since the governing process is complicated, this simple explanation has appeal. Hmmm.

Traditionally, two key Republican Party segments have been the wealthy and business/banking leadership. Not surprisingly, lower taxes, more fossil fuels, more dependence upon healthcare insurance companies, and anti-labor policies directly benefit these groups. But strangely Republican policies put far more regular people at risk. So, once again, how did American democracy elected a Republican majority and a President of questionable ability?

Hmmm.

  • Could there have been too many litmus issues? Like is a woman’s right to choose, or the protection of individual rights of other Americans regardless of sex, gender preference, or gender identity.  Are these considerations more important than healthcare, a progressive tax code, or reasonable controls (checks and balances) on banking and industry?
  • Could it be that many Americans choose to believe what their elected officials tell them and do not fact check their assertions?
  • Could it be that too many Americans want it all but do not want to do the hard work of paying for what they receive?

Democrats lost the 2016 election mainly because they could not, and would not tell the voter what the voter needed to hear. Democrats equivocated on the big issues and pander on the social issues.

And by the narrowest of majorities, Americans have gotten what democracy delivers, this time an incompetent President who harbors no agenda, a Congress with a shameful agenda currently split along serious fault lines but teetering on choosing the darkest options, presenting the average America with no reasonable outlook for good jobs, more discretionary income, or hopes for a secure future.

Democrats need to wake up. Rather than stand by and watch Republicans promise the moon and deliver dirt, Democrats need to tell voters what is realistic to expect and why Americans can expect a Democrat to deliver.  That was democracy’s message in the 2016 election.

Tax Reform On The High Wire

April 28, 2017

With a one page, 200-ish word handout, President Trump presented his outline for revamping the Federal Tax code, and in one fell swoop, jump starting US economic growth. The Trump Administration announced the largest tax cuts “in history” and with a straight face assured listeners that these cuts would pay for themselves by boosting current 2% annual growth to 3+%. Hmmm.

The supply side argument is that lower taxes puts money in Americans pockets and with the extra cash, Americans will spend more. More spending, in turn, stimulates industry which adds more capacity, employing more Americans. The increased employment then ignites another round of investment and job hiring. If nothing else, it is an exciting story.

Regrettably, supply side economics (George H W Bush called it VooDoo economics) has been tried before and has been discredited by most economists. Arguably if most Americans received a big positive hit from a tax cut, one might feel President Trump’s outline was worth a shot.  Unfortunately most of President Trump’s tax savings proposal would flow to the already wealthy.  Hmmm.

Progressive economists (Keynesian followers) would prefer outright government spending if the desired policy is to stimulate growth. In practice tax cuts have tended to find their way into the already wealthy’s pockets and not into business investment. Surprised?

The proposed tax cut is a shameless attempt to steal from the average person and give to the wealthy. Hillary Clinton had proposed somewhat the opposite when she proposed new taxes on the wealthiest of Americans. While it is fair to question why the very wealthiest should pay more in taxes (as oppose to everyone paying more), the Trump proposal, as outlined, could increase the taxes of average Americans living in States with high State taxes (which are deductible now on Federal returns). But more than anything, the Trump proposal promised the lower income Americans nothing, question marks to middle income, and a bountiful gift to the wealthiest. For what?

First quarter GDP growth numbers were announced this morning.  The 0.7% growth underlines the problem America’s economy is facing.  Consumers aren’t spending nor are they choosing to save instead.  The average American does not feel flush with money and is choosing to wait on discretionary purchases.  A small increase in most consumer’s discretionary income (via a tax cut) will likely have only a small impact compared to an equal sized increase in direct Government spending.

There is another and important part to the tax cut announcement. Trump Administration is proposing to lower the “corporate” tax rate from 35% to 15%. This is worth listening too. Why? The stated objective is to make our corporation globally competitive and in the process encourage (and not discourage as in now the case) American corporations to repatriate their overseas earnings. (One report estimated that there may be over 2 trillion dollars in overseas banks.) Corporations claim that the 35% tax on repatriated earnings is too onerous compared to their alternatives.

The reasoning goes that repatriated overseas earnings could be used to invest and stimulate the economy, and once taxed, provides the Government a means to increase spending without increasing the debt.

As with many well intended objectives, lowering the corporate tax rate across the board could bring handsome savings to many who do not compete with foreign companies or have hoarded money in far away places. Lawyers, doctors, and hedge funds, to name a few, could spin this lower rate and change their tax paying status for income taxed at 35% to the new lower !5% corporate rate. And why would that be a wise use of the tax code?

There is precious little known about the exact tax code reform but what is implied in the one page press release, the rationale (stimulating growth) for implementing this reform is highly doubtful.

What seems not doubtful is that the very wealthiest Americans will take home a bundle. Hmmm.

The French Message

April 24, 2017

Yesterday France held the first step in electing its next President. In the French system all candidates run in round 1 and if one candidate receives more that 50% of the votes, that person becomes President. If not there is a round 2 between the two top finishers. The results were: the top finisher Emmanuel Macron, about 24% and Marine Le Pen, about 21%. Said differently, a centrist, not aligned with either of the two major parties and a far right (formerly fringe) candidate will meet in the run-off.

Macron, is a new comer who has never held a major elected position, garnered more votes than all the other 10 candidates. Early pundit predictions say Macron should win the run-off and become France’s next President. Le Pen, however, has been attempting to steer her far right party back towards the middle and may take advantage of unexpected events over the next month.

So what should Americans take as the message from this election?

For France, jobs and border security were key concerns of the electorate. As in America, jobs are a spotty issue. For those unemployed, it is a big deal while those with jobs don’t see the urgency.

Le Pen cites globalism (France First) as the unemployment problem’s root. For Le Pen the answer is leaving the EU and enacting protectionist measures. Macron, on the other hand, sees the world as global and that France must become more competitive in order to lower unemployment.

Border security is another matter. Le Pen used this term to explicitly call for restriction on Muslims including deportation of French Muslim citizens (two passport holders) under certain situations. Le Pen also paints these mainly North African Muslim immigrants as job takers and social services sponges. Macron is relatively silent on this issue reflecting the majority of French citizens (live and let live) attitudes.

France, population-wise is a bi-modal country with one large, densely populated city (Paris) and all the rest. Paris which most tourist flock to is also the center of banking and business. The rest of France is mainly agrarian and in certain cities home for large factories (like auto and air industries).

France has a strong socialist history featuring today the 35 hour work week and a highly developed set of regulations around work rules (pay, benefits, transfer, lay-offs, and firing). In short, it is easier (and often less costly) for a French company to not hire when demand increases. Consequently, even when times are good, one should expect less hiring in France.  The French social contract is well appreciated by French citizens and proposals to change it present a large challenge.

Blaming the EU misses entirely the point and returning France to the French franc will only acerbate the economic situation (where will investment come from?) and open the door for economic policies convenient to the ruling party but ruinous to the country.

So what are the messages relevant to the US?

  • Muslim baiting is not a sure winner. North Africans and other Muslims have had a difficult time fitting into French society.  They look and act differently than the traditional French population. It is true that unemployment and economic distress are higher amongst these Muslim groups but connecting these residents to the overall French malaise is not self evident. (Hmmm, do you think undocumented US residents from Mexico have anything to do with the employment rate in the coal industry?)
  • Jobs is a complicated subject. The idea that closing borders will increase employment is a tough sell (what about exports or reprisals from other countries?). Proposals to increase specific sectors present risk to other sectors. French citizens realize this. (Hmmm, do you think rhetoric will return jobs to the coal mining industry, or tax cuts for the wealthy will translate into lower unemployment?)
  • Voters lack confidence in their legislators. The rejection of the left and right traditional national parties confirms the lack of confidence that traditional leaders can improve the overall French life. (What do Americans think of a Congress which has voted almost 50 times to repeal Obamacare and cannot agree now on what to replace Obamacare with, even though Republicans have control of both houses of Congress and the Presidency?)

One must be careful to not read too much into the French first round election results. French voters have traditionally been volatile people living amongst general apathy. At this point, the French seem to have acted prudently.

Vive La France.