Archive for the ‘Economics’ category

Wharton Withdraws Degree?

August 24, 2019

Do you think it is possible that University of Pennsylvania’s Wharton School of Finance would withdraw the degree previously awarded to Donald Trump.  Wharton might have to refund the donation Fred Trump gave on behalf of his son.  Hmmm.   But isn’t the image of a first class business school worth more than Fred Trump’s money?

Donald Trump, now President of the United States, has made a cock-up of both the US and the world economy in such a short time.  If the job was about screwing things up, President Trump would be a great face for the Wharton School.  Sadly, it appears the President has no clue as to what helps or hurts the economy.  Consequently, the world economy is trending poorly and the potential for political fallout in traditional US allies is a real possibility.  Unstable foreign governments is not good news.

  • The President and his advisors (including Republican Congress members) were gleeful in passing an unfunded tax cut.  Just watch the economy explode the President said.  So far the only things that have exploded are the national debt and the cash reserves of the US’ largest corporations.  Now if the economy is entering a recessionary period, tax policy is a tool no longer in the drawer.

 

  • Oh, but the Fed could lower interest rates and thereby stimulate the economy.  Hmmm.  This traditional tool is a bit limited since interest rates are already at historically low level.  And if the Fed did lower interest rates by 100 basis points as the President has demanded, what will the Fed do if the recession is severe?

 

  • But the economic gun that continues to shoot President Trump in his foot every day, without him seeming to recognize the source of this pain, is the President’s trade policies and his infatuation with tariffs.  “Trade wars are easy to win”, our President has said.  Hmmm.  The President seems oblivious to the consequences of imposing tariffs unilaterally both on the trading partner and on his own economy ( that is, higher taxes for US citizens and less spending pwoer).  Talking tough is easy, acting smart seems beyond the President’s reach.

 

The world economy expands for some period and then contracts.  Think about cars.  There are just so many cars people can buy and at some point people decide to wait a year or two before replacing the car they own now.  As a recession begins, people cut back on all sorts of spending “a little”.  Traditionally, government stimulates the economy (lower taxes, lower interest rates, and sometimes increased government spending) and gently slows the recession.  Where are the tools for President Trump?

Tariffs have spooked many businesses and caused their executives (globally) to be caution on new investment and spending.  As the global economy contracts, sooner or later so will the US.  But what will our President do?  My bet is he is preparing a list of others to blame.

Wharton may not be seriously considering withdraw Trump’s degree.  But they should.  In the process they could release his college academic record and the rest of us could see what a weak student he was.  That might explain why President Trump has made so many bone headed economic decisions.  

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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”?

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.

Head To Tail Thinking, Oops, And Wrong Again

August 3, 2017

President Trump joined Senators Cotton and Perdue at the White House in announcing his support for a change in US immigration law. The proposed legislation would sharply reduce the total number of immigrants allowed to enter each year and completely alter the mix of immigrants. The President boasted that this plan would dramatically improve US economic competitiveness and quickly put even more countries in the US rear view mirror. Hmmm.

The essence of the proposed legislation was to reduce the total number of immigrants, and to select immigrants based upon economic, educational, and sought after skills (a meritocratic policy). Current US immigration policy favors family and friends of current immigrants without regard to any special qualifications. So what’s wrong with this approach since most of the rest of modern wealthy countries use a system similar to what Senator Cotton and Perdue have suggested?

The President offered a clue when he said the lucky immigrants would have to already speak english. Of course there is nothing wrong with welcoming immigrants who speak english but farm laborers and hospitality workers (maids, janitorial, etc) most often speak Spanish or some Eastern European tongue.  The President was more interested in looking to bolster his white only, english only view of America.

That is not what is really wrong with this proposal. Rather, it is the total number of immigrants (guest workers) is set far below what the economy needs. While trying to bump up programmers and other technical employees is a good idea, shorting the manpower needed to harvest crops or process foods or keep hotels clean will not lead to a desired outcome.

The absence of any mention of “comprehensive immigration reform” confirms that the President is far from serious about immigration. But the President is serious about using whatever dog whistles he can find which communicate to his political base the same message, “I care about you and the other side doesn’t”.

Dog whistles are effective political tools. These euphemisms and half baked policy statements mislead the base and set the stage for a crashing disappointment when these policies come home to roost.

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.