Archive for the ‘Economics’ category

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.

Trump Meets China

April 2, 2017

President Trump will meet President Xi next week at Mar A Lago, the Florida White House. There will be no loss for topics both sides wish to discuss but almost assuredly the two lists will not include the same items. Maybe they will alternate. Hmmm.

President Trump seems set upon trade issues and steering the “free trade” towards “fair trade”. While this is a worthy objective (assuming that the President was at all interested in anything other than politics, like satisfying 2020 campaign bench marks), free and fair trade are very complex issues. What is fair to one side may be quite the opposite to the other side.

Most likely the upcoming visit will conclude with more of the phrases we have gotten use to… “Two nations pledge to work together on areas of mutual interest…” Hmmm.

China represents a clear picture of globalization and what outsourcing looks like.  Globalization has brought blessings and cruel dislocations in the same breath.

In the 80’s China began to stir. Adopting a more cooperative and welcoming attitude, China invited a few Western companies into their midst assigning them preferential business licenses. China provided space, people, and infrastructure support. The incoming companies provided manufacturing know-how and the promise of large markets overseas. Most of these new comers were American companies and with them came “outsourced” American manufacturing jobs.

On a macro scale, this arrangement seemed ordained in heaven. China got steady work for its peasant class, thereby raising the “lucky” peasant’s standard of living. With increasing volume, China (the Government) got hard currency generated by the sale of goods overseas.  And, of course, a lot of wealthy Chinese became even wealthier.

For the job exporting country (for example, the US), companies were able to offer for sale goods which cost considerably less than if had manufactured these goods been manufactured using American labor. This translated into lower selling prices, greater profits, or both.

For America (the Government), inflation slowed to a crawl. For American businesses, the way was clear to hold down wage and salary increases (because there was no upward inflation pressure).   And even better, the increased productivity could go in greater proportions to top executives and share holders. Hmmm.

So when we hear rhetoric promising to bring back to America manufacturing jobs, one must realize that the “forced” repatriated jobs will drive up the prices Americans pay (this is called inflation).  Worse, there is no reason to believe the returned jobs will pay anything more than minimum wages.  Hmmm.

There is nothing wrong with more jobs for Americans and if free enterprise were alive and well, the shift of jobs from China to the US would be cost/quality driven. (Most Americans would reject more expensive or lower quality goods.)

I wonder whether the Trump Administration will think about closing the barn door, once the lost jobs are back in the barn. Europe deals with “fleeing jobs” by making it costly for companies to simply lay people off.

Hmmm, maybe not.

Free Market Health Care

March 23, 2017

The Republican sponsored “American Health Care Act” is floundering in Congress. The replace portion (as in repeal and replace Obamacare) is in trouble for curious reasons given that Congress and the Presidency are both in Republican hands. The political farce which is unfolding casts a sharp light on the undeniable fact that there is no Republican Party united around a core set of principles. Rather today’s Republican Party is a party of convenience which unite around not being Democrat or progressive.

The shallowness of this union shows through in the Republican argument over repealing Obamacare and trying to agree upon a replacement. Maintaining “no pre-existing condition” or “no life time benefit limits” exclusions along with keeping children on parent’s policies until age 26 showed the world Republicans were caring and compassionate (or so they said).

But doing away with the individual mandate and dropping certain taxes has brought into focus the difficult task of how to pay for these benefits and keep the same number of Americans on the insured roles. The inescapable GOP conclusion is that insurance costs will not come down unless, Republicans say, the free market kicks in. If this mysterious free market does not bring down the cost of insurance, then individuals and Medicaid will see large increases in cost.

The most conservative Republicans, true believers in everyone should have access to the best healthcare they can afford, are now proposing to eliminate the 10 healthcare benefits mandated in Obamacare. Hmmm.

  1.  Outpatient care—the kind you get without being admitted to a hospital
  2. Trips to the emergency room
  3.  Treatment in the hospital for inpatient care
  4.  Care before and after your baby is born
  5.  Mental health and substance use disorder services: This includes behavioral health treatment, counseling, and psychotherapy
  6.  Your prescription drugs
  7.  Services and devices to help you recover if you are injured, or have a disability or chronic condition. This includes physical and occupational therapy, speech-language pathology, psychiatric rehabilitation, and more.
  8.  Your lab tests
  9.  Preventive services including counseling, screenings, and vaccines to keep you healthy and care for managing a chronic disease.
  10.  Pediatric services: This includes dental care and vision care for kids

It shouldn’t take a genius to realize that without some requirement like these 10, insurance companies can price policies high and steer customers to stripped down version such as  catastrophic coverage. Moderate Republicans, especially those representing poor or inner city districts, see a huge backlash coming in the next election if the ultra conservatives prevail.

Conservatives are quick to counter, “doesn’t everyone have the right to buy only as much insurance as they want? Why would a single young man want to pay for pre and post natal coverage if he is not married?”

That strikes right to the heart of the matter. Healthcare costs, are generated by hospitals, doctors, and drug companies and don’t change simply because of insurance changes. The number of pre- and post natal visits will be the same regardless of whether a young man chooses to carry broad coverage or just a stripped down policy. The implication, however, should not be lost, everyone else will pay more if the young man is allowed to buy stripped down policies. That is the definition of insurance.

Republicans are ringing their hands over this dilemma. Conservatives say they will vote against the American Health Care Act if the bill looks too similar to Obamacare and Moderates say without certain coverage and federal assistance (like tax credits and Medicaid) they will vote against it.

Congress members appear to be living in a make believe world. If somehow Congressional leaders along with President Trump can work out a compromise and pass the American Health Care Act, then just looking at the reduce insured numbers and the fewer services many Americans want (and need), Republicans will lose in 2018.

Beginning To Look Back

January 11, 2017

President Obama gave his farewell speech yesterday in Chicago. Pundits suggested President Obama wanted to write his “legacy” before the Trump Administration has a chance to eviscerate it. George W Bush, when asked in the ashes of his failed Presidency, what would his legacy be, replied to the effect, “don’t know. History will determine that and history takes a long time”. Hmmm.

Comparing the two men and their terms in office, President Obama would look hands down the more successful President. But with whom would you rather have a beer?

George W Bush, despite his wealth and familiarity with the moneyed class, seemed such an easy going person and a comfortable person to be around. Barack Obama could also at times display a friendly look but too frequently flashed a message of disdain or intellectual arrogance.

President Obama appeared not to suffer fools well. And in Washington there is no shortage of self centered, free loading, bureaucrats and legislators only too ready to claim something based on half truths or no truths at all.

President Bush was quite correct in saying history takes a long time before it renders a clear verdict. President Obama has much to be proud about but the repeal and replace of Obamacare may obscure his bold (but not bold enough) steps towards universal healthcare coverage. His efforts towards renewable energy and other quality of life issues may confront an unsympathetic Congress and Presidency once Donald Trump is inaugurated. Obama’s 8 year efforts around immigration reform, voting rights support, and inclusion will be an afterthought with the new Administration. What will remain in 8 years is open to question.

On the foreign stage, IMO, President Obama has diagnosed the Middle East (including Israel) correctly. One can argue whether the Arab world should offer the peace branch to Israel or Israel should initiate a sincere proposal first. But until the Arab world settles its power and Islamic sect differences, there is little reason to expect success. The next Administration is likely to take sides, picking which ever group seems most useful short term. Hmmm.

With respect to China and Russia, President Obama rowed against long held State Department views of a proper world order. China and Russia both have a different view, not surprisingly placing their country’s interest ahead of other countries including the US. President Obama diagnosed Asia and in particular China as the country to watch and to update US China foreign policy accordingly.

China is far wealthier and more populated than Russia. Maintaining government control requires meeting the economic needs of its 1+ billion head population.  Unfortunately it will not be easy task for China to continue spreading new wealth to Chinese peasants without 10% growth each year.  Authoritarian countries usually look for outsiders to blame when domestic policies falter.

A fair President Obama criticism might be that in all matters, his preference for “no drama” and “no theater” probably kept him from communicating effectively to the American people in terms they would understand. Whether the issue was healthcare where America spend twice as much as the modern world, and do not provide coverage to all Americans, or where America’s defense budget is 10 times as large as the next biggest spending country, or where America spends more per student on K-12 education than any other country, yet produces test score results in the middle of the pack, President Obama shunned any attempts to bring about change by dramatizing these facts.

President Obama will, however, be remembered from day 1 as a decent man with a smart and gracious wife who lead a White House life, with their children, which was above the fray but not aloof. President Obama’s few emotional occasions dealt with tragedies like the Newtown Elementary School shootings, not whether the Dow Jones Average reached a new high.

Strangely some of President Obama’s most vocal critics come from the African American community. And some of the unkindest words reference little or no progress in jobs and opportunities. Using a football analogy, offensive linemen can out block defensive linemen for just a few seconds creating an opening for a running back. If the back is not ready, or does not run through the opening quickly enough, the running back will be caught for no gain. I wonder why the African American community does not see the chance they had and squandered?

The next Administration will initially be graded in comparison to President Obama’s record. Soon however, Trump Administration policies and unforeseen world events will shape America’s history and the Obama comparisons will cease being relevant. Then historians will have their chance to cast a more informed light on legacy.

Patient Centered Healthcare

January 7, 2017

The giddy Republican Congressional majority are racing to repeal and replace the Affordable Care Act. Strangely, for reasons this majority does not discuss, there is an amazing vagueness about what steps with which Republicans will propose to replace Obamacare.

There is, however, no absence of slogans and unsubstantiated claims. Hmmm.

Ask any Republican spokesperson about Obamacare and you will hear “its a disaster, Americans overwhelmingly are against it”. When this spokesperson is asked, “don’t most people like the features such as coverage for pre-existing conditions, no limits on lifetime benefits, and keeping children on parent’s policies until age 26”, the answer is yes but “Americans are mad about “not keeping their doctor”, premium increases, often having to find a new insurance carrier every year and having to buy more insurance than they want”. Hmmm.

So the question arises, what Republican proposal can satisfy the “likes” and rectify the “dislikes”? Oh, and did I mention that there are an estimated 20 million more Americans receiving healthcare coverage with the Affordable Care Act than before?

One slogan which rolls effortlessly off Republicans’ tongue is the replacement proposal will be “Patient Centered” not “Washington Centered”. I wonder what that means?

The Institute of Medicine defines the term as follows, “Providing care that is respectful of, and responsive to, individual patient preferences, needs and values, and ensuring that patient values guide all clinical decisions.”

Doesn’t this sound like an approach everyone would want? I wonder what Republicans find about Obamacare that violates this definition?

One has to look into who the 20 million Americans now able to get healthcare coverage with Obamacare. Estimates indicate that 11 million receive expanded Medicaid benefits, 2-3 million are under 26 on parent’s policies, and the remainder is composed of those with pre-existing conditions, those working in businesses which do not offer healthcare coverage, and self employed proprietors.

In general, Obamacare is aimed at those who were either denied healthcare insurance or those who could not afford what was available from insurers. Hmmm.

So, what does “Patient Centered” have to do with anything? This slogan while originally intended to be purposeful, has been hijacked by Republican spin masters to suggest the Affordable Care Act is in conflict with Patient Centered Healthcare.

Clearly Obamacare is compatible with Patient Centered care since the 20 million now receiving healthcare coverage had nothing before. The real issue is economic.

As President Obama said recently, if Republicans can offer a better approach to insuring these 20 million Americans covered under Obamacare, he would support their proposal.

Imagine Barack Obama cheering for Republican-care. Or, it might be easier to imagine pigs flying.

The New Year Or Is It The Boo Year?

January 2, 2017

The new year is upon us and all the giddy Republicans can talk about is the repeal of the Affordable Care Act. In actual terms Republicans are unable to repeal Obamacare since Senate Democrats can filibuster such legislation. What Republicans have said is instead they will “defund” ACA, effectively rendering major parts of the healthcare legislation unusable. As for the “replace” portion, well that’s not quite on the drawing boards yet.

Does this sound like a group that can govern?

The Affordable Care Act is credited with bringing healthcare insurance coverage to about 20 million Americans who otherwise could not afford or were outrightly denied healthcare insurance. Medicare, Medicaid, and employer provided plans cover most Americans so who cares about the Affordable Care Act anyways?

The Republican mantra is “let the free market” loose and the problem of coverage will be solved. The US will return to the slogan “the best healthcare money can buy”. If you only have a little money, you can enjoy just a little healthcare.

Republican talking heads, of course, say otherwise. President-elect Trump has promised “great healthcare” as an Obamacare replacement. Yet no one has presented a replacement plan.  Hmmm.

Healthcare spending (about 3 trillion dollars) is a much tougher problem than gutting Obamacare. US per capita healthcare spending far exceeds any other country in the world. Reigning in healthcare spending while still providing coverage, arguably, is more important to balancing the budget. These brave Republicans leaders are noticeably silent about healthcare costs.

And as for the vaunted free enterprise system which will magically fix the defects in Obamacare, recognize that free enterprise was responsible for life time insurance caps, denial of coverage due to pre-existing conditions, and limits on the age children qualify for coverage under their parent’s policies. So how exactly are these “for profit” insurance companies going to fix something they created?

So, in these early days of 2017, Americans are beginning to see what lies ahead. The amalgamation of petty and special interests which comprise the Republican Party will emerge and will signal the return to the party of the few. The “few” are those who can afford to be Americans and are willing to vote for the Republican ticket.

President-elect Trump is a different factor and may see the replace situation differently.  Trump cannot be reelected by relying on gerrymandered districts. Trump must consider the wishes of a majority in each State.

President Trump must assess what is being proposed to replace Obamacare on how voters will react. The President-elect lost the popular vote by almost 3 million votes and some suggest as little as 100,000 votes in certain States would have flipped the electoral college outcome. Hmmm.

President Trump and the Republican controlled Congress, however, have the opportunity to govern for all Americans. How they actually deal with the Affordable Care Act will foretell whether 2017 will be a new year or a boo year.

Free Trade, Positive Or Negative?

November 28, 2016

One of President-elect Trump’s campaign tenets was the renegotiation of NAFTA and the abandonment of the Trans Pacific Partnership. Trump promised that such a move would return jobs for Americans, especially those “rust belt States” workers who had lost their working spots when American manufactures either outsourced work to Mexico or set up factories in Mexico and now did the same work there which was previously done in America. While any trade deal should from time to time be reexamined, thinking the US can roll back globalization is (1) dreaming and (2) have far wider implications than just these displaced workers.

A little history. In the 80’s and 90’s, the US automotive industry was in deep trouble. Quality lagged foreign manufacturers and costs to produce a US auto was greater than an imported one. Get it, pay more for a US auto and get lower quality at the same time.

Union-management relations were mostly ineffective. Automotive companies’ management were lacking in vision and resolve. Union management were intrenched and acted as they were living in the 50’s or 60’s and competition did not exist.

The Automotive companies then hit upon the strategy of moving their captive parts manufacture to new, up to date plants in Mexico. These parts could cost less and be of equal or better quality than when they were manufactured in the US. The automotive companies asked other parts makers to match this quality and cost. Gradually automotive parts decreased in cost, improved in quality, and US produced cars became less costly to produce.  Unfortunately, US employment deceased markedly.

So, the anti-NAFTA argument suggests that had duties and tariffs remained in place as before NAFTA, then jobs would have remained in the US. If this were to be true, a less favorable outcome would have resulted.   Automotive assembly would have shrunk, if not disappeared all together.

Consumers were choosing “price” and “quality” over high price and low quality. In an ironic way, NAFTA saved the US automotive industry and a lot of jobs in the process.

So what about TPP? Is that one deal too many? Should it be rejected out of hand?

A little more history.

The norm in most countries around the world is to erect trade barriers as a means of protecting local industry. This protectionism inevitably leads to poorer quality and higher costs for the host country. In the process, however, local manufacturers or farmers are pleased but the country continues to slowly fall behind other nations in economic growth and prosperity.

More sophisticated countries erect clever regulations, such as safety and consumer protection rules instead of duties or tariffs. The imported products would be rejected unless they passed these rules (and conveniently meeting these rules adds cost to the imported goods).

The TPP is intended to enable a different group of nations to access each other’s markets with virtually no restrictions. This would include some other countries competing in the US marketplace, and if their goods or services were preferred, displace business that might be now served by US companies. It would also allow American companies to shift (outsource) jobs to these countries and import products which were previously manufactured in the US.

But, is TPP the problem or is there a lack of disincentives for American businesses, in the name of increased profits and outsource a greater and more relevant problem?

Open and “fiar” (not just “free”) trade has been fairly well established as the optimum position for a strong and growing economy. More restrictive trade is seductive and countries which succumb to domestic politics and revert to tariffs, embargoes, or duties might win in the very short term but inevitably lose in the longer term.

If the GOP or President-elect Donald Trump are seriously interested in workers who are currently or will soon be displaced by trade agreements, should the Trump Administration walk away form open and fair trade arrangements or instead look to worker protections and/or new taxes on outsourcing companies windfall profits.

What will Donald do?