Archive for the ‘economic growth’ category

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.

The Jobs Promise

April 17, 2017

President Trump campaigned on the promise to make America great again and a key step was creating lots of great jobs. As these words rolled off Trump’s tongue, one would have thought jobs would be growing on trees when Spring arrived. Hmmm.

As the 100 day mark approaches, a period far to short to measure President Trump’s jobs performance, all that can be said is that the Trump Administration has done nothing to change the former President Obama’s job creation momentum. Frankly this should not be a surprise and President Trump’s ultimate performance is an event for the future.

Most everyone has heard (and seen) the President’s strong arm on the auto industry as well as other American manufacturers like Carrier Air conditioners. Plenty of “new” jobs have been promised but there has been a deafening silence by these same companies on whether they were promising “net” job increases or just a gross number overlooking job cuts, layoffs, and retirements.

The ironic aspect of Candidate Trump’s jobs promise is his selection for domestic cabinet appointments and his much ballyhooed budget proposal. His cuts to the EPA, FDA, Lobor, Energy, and Commerce will (if enacted in the budget) be a real jobs killer, especially when one considers the zealous nature these new Cabinet heads are bringing to the job. To be sure beefing up Homeland Security will add some jobs but the net impact appears to be significant jobs decrease.

President Trump’s ace in the hole has been his infrastructure proposal. A robust infrastructure investment would certainly mean a lot of new jobs, both direct and indirect in support of those working directly on infrastructure activities. Trump’s challenge will be how to get a reluctant Republican conservative faction to go along with his plan.

To understand President Trump’s quandary, one has to understand who are really his constituents. Let’s begin with the unavoidable truth that President Trump’s most important supporters are not voters like the coal miners or the out of work/under employed rust belt workers either. The people who moved heaven and hell for the Republican majority are deep pocketed conservative and libertarian Americans. It is with their money, filtered through an alphabet of foundations, charities, and 401 c (4)’s which turn these charitable donations into ammunition for faceless operatives who in turn destroy the political careers of anyone who does not vote the way this dark money wishes. (Read “Dark Money” by Jane Mayer for a fuller accounting.)

So, why wouldn’t these moneyed interests not also want infrastructure work?

The very best one could say is that these rich interests are agnostic about infrastructure work, providing they do not have to pick up the bill. From an ideological argument perspective, dark money participants do not want the debt expanded. So the question is how to pay for this trillion dollar investment?  Hmmm.

President Trump’s path forward, however, must be as cynical as these rich people. This group seeks less regulations so that their business interests can make greater profits, and they want lower tax rates so that they can keep more of their businesses’ profits.  Accordingly, these dark money leaders approve of Trump’s draft budget and the aggressive roll back of regulations.

These wealthy people speak glowingly about America and the American dream but at the end of the day its about how they personally can make more money and keep more of it by paying less taxes. To be perfectly clear, this large donors care not a dime about average Americans or anything that even hints at fairness. The most important issue, morning, noon, or night is freeing their businesses from government rules and regulations and lowering the tax bill.

President Trump, if he is perceptive, will realize that if he pushes through tax “reform” and delivers for the top 1/2 of 1% wealthiest earners, these greedy interests will lose interest in the rest of the President’s agenda.  The infrastructure initiative which could create lots of new jobs will be last year’s fashion.  The President will suddenly find no friends in Congress where each Republican Congress member will worry more about reelection than doing their job.

The “jobs promise” was a cruel trick to play on voters.  The dark money behind financing the election wants less regulations to make more money, not to create new jobs. The dark money wants smaller government in order to pave the way for their businesses to operate without oversight or burdensome (in their opinion) rules.

Why?

Greed is just that. Greed consumes and often consumes so much that the greedy person does not see it consuming themselves. A lot of voters are expecting a much more dynamic labor market and are very likely to be disappointed.

In time, the dark money trail of revoked regulations leading back to the prime sources will be documented and reveal the unpleasant fact that certain wealthy persons and their businesses were never interested in creating more jobs, just making more money for themselves.  IMO, the grass roots disappointment and disgust could become so big that by 2020 voters throw out this GOP set of bums and give the reins of government to the bums of the other party.

Negotiating 101

March 18, 2017

In 1973, Robert J Ringer, wrote a book titled “Winning Through Intimidation”, a self help book describing ways to be more successful in the art of selling. For someone who approached business as a “tell it as it is, win-win” person, Ringer’s examples were eye opening. The picture Ringer painted of unsavory, but successful characters one would have to deal with in the business world was shocking. Why would anyone waste their time dealing with intimidators and not prefer honest brokers? Hmmm.

President Trump (and his senior advisors) are giving Americans a refresher “Winning Through Intimidation” course. For the Trump Administration, there appear to be no limits on veracity and no retreat from prima facia falsehoods. Yet, four of Trump’s favorite words are “believe me, it’s true”.

Trump’s budget proposal is a clear example of a 21st century negotiation using 1970’s tactics. (I have carefully avoided using the word “strategy” because at this point there are no indications of what the Trump Administration’s objectives and strategies might be.) Trump’s “Winning Through Intimidation” tactic opens with proposed draconian cuts in order to boost Defense and Homeland security spending.

For example, the President has proposed increasing the defense budget about 10%, and offsetting those costs by decreasing a host of Federal programs (including support for science, the arts, and poverty programs). Budget cuts are also to include 30% decreases to the State Department and EPA’s budgets. What is the President thinking?

The President must privately realize that the “mess” he inherited is not former President Obama’s mess. Congress, and more specifically the fundamental division among Republicans, has produced a deadlock and Congress is incapable of making budgetary decisions. The more conservative Republican elements seem ready to throw the baby out with the bath water if that would reduce the size of government.

Medicare and Medicaid make up the largest drivers in both size of government and the deficit components. Although, healthcare reforms similar to healthcare systems in two dozen other “best in class” foreign countries, where effort is put into cost control (doctors, hospitals, and drug companies), and where the waste associated with “for profit” insurance administrators is eliminated, could dramatically reduce healthcare costs, lower the size of government, and in the process secure the benefits of Medicare and Medicaid for years to come. Why no mention of these expenditures yet?

So, let’s speculate.

The President and his advisors want tax reform (read tax cuts for the wealthy) and want a second term. They connect both of these with more jobs and a growing economy. Unfortunately, more jobs (if ever possible) and growth will take time. What can the Trump White House do in the interim to keep his faithful supporters quiet? Hmmm.

Let’s make the EPA and other regulatory agencies the “bad guys”. Let’s debunk science and focus short term on job promises. Let’s emphasize “America First” in a world where an isolationist retreat will stall the economy (but most voters don’t understand that), and buy time.

Inconveniently for President Trump, Republicans have made a “do or die” issue out of repeal and replace Obamacare. President Trump and his advisors realize that a replacement is politically near impossible. They realize there is no way “replace” can happen (60 votes in Senate) with drastic cuts in healthcare benefits or increasing the national debt (which is politically toxic amongst most Republicans). Hmmm.

President Trump is cleverly drawing Republican leadership further out on the “replace” limb knowing that an option acceptable to moderates will be unacceptable to conservatives and vice versa. At some opportune time in the near future, President Trump will inform Republican Congressional leaders that he is about to cut them loose and walk away from their plan because it’s wrong for the people. Of course, Congress could support an Obama-Lite alternative, keep his support, and move onto tax reform which could garner enough support to pass (at the end of the day, all Congress members like to tell their constituents they voted for lower taxes).

President Trump will show Congress members how lower taxes will stimulate the economy and generate new tax revenue, even at lower marginal rates, thereby not increasing the debt. While factually this is extremely unlikely, too many voters will believe it to justify a Congress member taking the chance of going against the President. Hmmm.

“Winning Through Intimidation” will become a must read during the Trump Administration. The Republican Party is a misnomer and will eventually break apart. Unfortunately, during the next four years a lot of unwise actions could take place.

Keep your eyes open and double check what ever you hears. There is a new sheriff in town.

Pipelines – Why?

January 25, 2017

President Trump has issued an executive order authorizing the completion of the Keystone XL- and Dakota Access pipelines. With a flourish and an “in your face” stare, President Trump reversed positions taken by President Obama. Should we care?

The XL pipeline is intended to bring Canadian tar sand oil to refineries on the US Gulf coast. The Dakota Access project in intended to relive dependency upon rail cars to bring North Dakota “fracked” shale oil to a variety of US refineries. Both projects were opposed by environmental groups and in the case of Dakota Access, native Americans protested the use of what they consider their land and in particularly disturbing their ancestral burial grounds.

President Trump campaigned on a jobs creation platform and said this executive order would create thousands of good paying jobs. Who can be against good paying jobs?

Authorizing the pipelines can best be described as a “non-issue issue”. To be sure concerns about the environment and native American rights are important and issues worthy of consideration. But keep in mind, there is no way importing oil is any better for the environment. And with proper planning (and maybe sharing a little of the oil’s value) with native Americans, all parties could have come to an understanding.

Overlooked so far in this discussion has been the demand for oil has dropped significantly in lock step with the decline of the world oil price. President Obama’s actions were symbolic at best. The builders of both projects were only mildly upset with President Obama’s actions. And yes, behind closed doors, they are only mildly pleased with President Trump’s reversal.

So, was President Trump’s executive order childish pay back? Was it theater? Or, could it have been part of a strategy to unleash US production and help depress world oil prices which would hurt Russia, Iran, and most of the Middle East?

The take away, IMO, completing XL and Dakota Access pipelines are like bullets that didn’t need to be used at this moment. Both represent legitimate global strategies aimed at hindering economic growth in unfriendly foreign powers. Shooting those bullets now, lessens if not negates, their strategic value.

And as for jobs, forget it. These two project represent modest temporary job increases which will not impact in any Rust Belt State. Hmmm.

With Democracy, You Often Get What You Asked For

January 20, 2017

Donald J Trump is the 45th President of the United States. The transfer of power from former President Obama to President Trump has gone smoothly as it has 44 times before. What lies ahead, however, has not been scripted.

Giddy Republicans on Capital Hill can’t wait to begin passing conservative legislation rolling back much of what President Obama prevented during the past 8 years. And, President Trump tells American to “fasten your seat belts” because he plans to make America great again… fast. Hmmm.

A question; was Trump’s election the voice of America’s democracy speaking? Hmmm.

Donald Trump was elected with less votes than Hillary Clinton received. His electoral college victory was the 48th largest, meaning almost all other winning Presidents received more electoral college votes. So any talk of a landslide victory or a national mandate is simply misinformation, and a dangerously wrong interpretation of the election results.

Congressional Republican leaders are fond of the term “Americans have spoken”. The implication, of course, is that the GOP is free to make huge changes in policy in response to an alleged ground swell of American opinion. It is true “some” Americans favor Republican policies. It is also true that almost half of voters have swallowed the red meat baited hooks cast out by GOP operatives. Repeal and replace, renegotiate NAFTA, renegotiate the Paris climate agreement, renegotiate the Iran nuclear deal, put tariffs on all imported cars, enact a huge tax cut, and eliminate the threat of ISIS to name a few.

American democracy does grant the right to the winning party to enact legislation of its choice. American Democracy grants broad latitude to the chief executive and executive orders can impact all Americans in both predictable and unpredictable ways. So, keeping the campaign pledges voters heard is possible if not likely.

What American Democracy can’t change or escape is that actions have consequences.

What may seem a marvelous gift to some may be to others a hurtful event. What may benefit certain parts of the economy may be an unwanted or damaging force for other parts. Changes in America’s foreign policies or trade practices may appear to benefit some parts of the American economy but can produce pain in other parts. And, who can be against economic growth? Consider what may happen if the growth is unevenly distributed (rich get richer) or the cost of living sky rockets and the social safety net has already been removed (as promised)?

There are no crystal balls to my knowledge that can tell us how the next four years will play out. There seem to be a large number of highly predictable consequences to proposed Republican and Trump policies. On top of that, what consequences may emerge changing so many policies at the same time are unknown.

What is not a mystery is that comedians, song writers, and journalist should have a field day with the hypocrisy, threats, and outright mistakes the GOP and the Trump Administration may bring upon itself.