Wednesday, January 17, 2018

Immigration and Trump’s “S***Hole” Comment

Popular Economics Weekly

How should we remember Martin Luther King, Jr. on his holiday? That greater equality creates greater prosperity for all; as well as greater peace.

President Trump’s S***Hole comments were meant as a signal to his neo-nazi supporters that he wanted to exclude as many non-whites from immigrating to America as he could, and encourage more from European countries like Norway.

This means he isn’t interested in stronger economic growth over the longer term, since much of the economic growth today can be attributed to non-whites and women, according to an excellent column by the Conversable Economist, Tim Taylor, commemorating MLK Jr.’s holiday.

Non-whites and women have been contributing a larger share to our economic growth than White men since at least 1960 in high-skill occupations. Before then, many labored in the lower-skilled, unnoticed occupations that weren’t always included in growth statistics.

Professor Taylor quotes a policy brief from the Stanford Institute for Economic Policy Research cited by Peter Klenow. The percentage of White men in the high-skilled occupations of Doctors, Lawyers and Managers, “defined as lawyers, doctors, engineers, scientists, architects, mathematicians, executives/managers,” has fallen substantially, while that of Black men, White and Black women has soared. The number of White women entering these professions has tripled, Black men quadrupled, and Black women grown eight times from 1960 to 2008.

The result? Klenow estimates that economic growth increased by 15-20 percent due to these minorities entering the higher-skilled occupation, just from the fact that their numbers increased as a share of the overall profession, while the percentage of White men has fallen by approximately one-third.

It also highlights another important fact. Economic growth depends on population growth plus labor productivity. And annual labor productivity has declined approximately 50 percent since 2007, as has U.S. population growth. So the only way to boost economic growth from its current 2 percent range is to increase the working age population via immigration.

The lesson therefore is that we need greater diversity in our workforce, not less as President Trump and his racist supporters want, since our birth rates are declining; a valuable lesson to remember on Martin Luther King, Jr. Day.

Harlan Green © 2018

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Tuesday, January 16, 2018

Why Raise Interest Rates Now?

Financial FAQs

The Federal Reserve is warning about the consequences of the just passed tax reform bill, which includes adding some $1.5 trillion to the federal debt in ten years. New York Fed President William Dudley says it will put too much money into the economy (via drop in corporate tax rate to 21 percent, and maximum personal rate to 37 percent), which will boost inflation to unacceptable levels. Dudley said the U.S. central bank may have to “press harder on the brakes” at some point over the next few years, increasing the risk of a hard landing for the economy, because of the new tax bill.

Once again, we are seeing what the Fed might do to stop this economic expansion, just as Fed Chair Greenspan did in 2007 by raising the Fed’s rates 16 times to stop the GW Bush expansion (and housing bubble) that led to the Great Recession.

Greenspan’s actions raised interest rates too fast on all the so-called liar loans with negative amortization, and put house payments out of range for the less qualified; many of whom had never owned a home, or had to admit their real incomes; which led to the busted housing bubble.

The Fed could make the same mistake in the current growth cycle with retail sales booming and very little inflation. The Fed has been too occupied with inflation since the wild inflation years of 1970, when they should be more concerned about maintaining adequate economic growth, which has been averaging just 2.1 percent since the end of the Great Recession.

Retail sales rose 4.2 percent in 2017, with very little inflation even on the horizon. Retail sales rise 5 to 6 percent when the economy is growing for everyone, but inflation rates are also higher—in the 3 to 5 percent range historically. This is because the Fed is most sensitive to rising wages and salaries that make up two-thirds of product costs as an indicator of future inflation, as it did in the seventies.

By wanting to hold inflation to a 2 percent target, the Fed since the 1970s has been more concerned with tamping down household incomes, which is not the way to enable households to better themselves financially and move up the socio-economic ladder, as was possible prior to the 1970s.

Graph: Econoday

The Consumer Price Index, our best measure of retail prices, is still holding at 2 percent as it has for several years. But the core CPI index without food and energy prices plunged to 0 percent inflation in 2015 as the graph shows, and been slow to return to the 2 percent range. That’s hardly a sign of incipient inflation, but rather a sign of insufficient demand for goods and services, which in turn means household incomes are not rising fast enough to stay ahead of inflation, since consumers support two-thirds of all economic activity in the U.S. economy.

One can say the Federal Reserve has been too much in league with Big Business and multi-national corporations since the 1970s; which has kept production costs low and corporate profits at their highest levels in history as a percentage on national income.

This means we have to ‘modernize’ the Fed’s attitude about inflation, if we want to aid household incomes. Fed Governors should allow more inflation before raising interest rates further. Now is the time to be more concerned about the financial health of employees over corporate profits.

Harlan Green © 2018

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Tuesday, January 9, 2018

Aren’t Tax Cuts Wonderful?

Popular Economics Weekly

Those were President Trump’s words on the $3.2 trillion in tax cuts enacted by the Republican majority congress before Christmas. “These are the biggest tax cuts in history, even bigger than President Reagan’s.” He’s right that they will be wonderful for corporations, and the highest income earners, but not for most of U.S.

So President Trump will have to show that these cuts continue to create jobs.  He has promised 10 million jobs in the first four years. The numbers are looking good in his first year, the ninth year of this economic recovery from the Great Recession. But one ingredient is lacking; government job creation. Federal government job rolls shrank during Trump’s first 11 months, and history shows that governments have to hire enough to keep up the job numbers, and provide essential services that aid economic growth.

The real problem is tax cuts have never created many jobs. Though accounting for job creation under the various presidential administrations is tricky since business cycles don’t match presidential terms, they provide a superficial look at which tax policies have worked best.

Taxes were raised during President Clinton’s eight years with 20, 966,000 private payroll jobs created. President Reagan comes in second at 14,717,000, but had to raise taxes 11 times to reduce the ballooning deficit caused by the tax cuts. The difference is that Clinton had no recessions during his terms, while Reagan had two during his early years. But taxes were raised in both cases to create more jobs, in part to fund enough government jobs that are needed to create a fully employed economy.

Under Clinton, 1,934,000 public sector jobs (i.e., federal and state) were created, and 1,414,000 under President Reagan, whereas federal jobs declined 14,000 in Trump’s first 11 months, according to the Washington Post.

Graph: Calculated Risk

President Obama actually lost jobs during his first months as president due to the Great Recession, but ended up with 1,937,000 jobs in his first term and 11,756,000 jobs over eight years. And government payrolls actually declined 268,000 during Obama’s eight years due to a number of factors; which was when Republicans took over control of the House in 2010 and cut federal spending when they cared about deficits.

Alas, that is no longer so, as the new tax bill is actually programmed to add $1.5 trillion to the national debt, and President Trump wants to reduce government budgets by 30 percent in 2018.

It will not create the necessary jobs to keep job rolls full and deficits down. Government spending is necessary to fund all the programs that the private cannot or will not, including health care, public infrastructure, education, and R&D that fund future prosperity.

How did we build our highway system, go to the moon, and create the Internet? With government spending. But that was done before 1980 when government became the problem for Republicans and tax cuts the answer.

Now it seems that budget deficits are no longer a problem for Republicans, and President Trump is counting on those 10 million new jobs to justify the tax cuts. He may be off to a good start, but it is the ninth year of this recovery cycle, and the post- World War II record is ten years that included President Clinton’s term.

Harlan Green © 2018

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Friday, January 5, 2018

What Happens in 2018?

Popular Economics Weekly

The New Year will make some people very wealthy—mainly stockholders, corporate execs, and real estate moguls. And as minimum wages begin to rise this year in many cities and states (but not all), those at the lower income end will also get a boost.

But the middle class? They will be hit hardest by the limit to property tax and mortgage deductions in the new tax bill. And don’t forget the spending cuts to the social programs that will lower incomes of those dependent on Medicare and Medicaid.

However, this is a column about the prospects for higher paying jobs and economic growth. And it looks like upcoming statistics will show the ninth year of solid growth. But that is only if Congress finally enacts an infrastructure bill that would not only boost higher paying jobs, but productivity as well. The hurricane devastations and winter ‘bomb’ cyclones make that an obvious priority.

Just 148,000 new nonfarm payroll jobs were added to payrolls in December, according to the U.S. Bureau Labor Statistics, down from the prior two months’ 232,000 average. But economists believe it was partly due to the extreme winter weather that has essentially snowbound the northern half of the U.S.

Everyone needs to see The Day After Tomorrow, a harrowing movie about extreme climate change that brings in a new Ice Age, to understand what can happen if such extreme weather conditions continue.

All else was strong with the unemployment rate holding at 4.1 percent. Job gains were led by the health care, construction and manufacturing sectors. Other industries had smaller gains. The only significant weakness was in the hard-hit retail sector, which shed more than 20,000 jobs.

The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) was essentially unchanged at 4.9 million in December but was down by 639,000 over the year. These individuals, who would have preferred full-time employment, were working part time because their hours had been cut back or they were unable to find a full-time job.

So this economy is putting people back to work, and could equal the Clinton recovery from 1991 to 2001 before GW Bush cut taxes and swelled the federal deficit once more; that had actually been in surplus for the last 4 years of the Clinton administration.

The lesson we learned then was Clinton had to raise taxes and cut back military spending, the largest portion of the federal budget. But Republicans once again are adding to the deficit and overall debt with their tax cuts.

So the real silliness in 2018 will be one party believing that cutting taxes and social programs will keep the federal debt from growing even larger. Not possible, because over the long term the monstrous federal debt will take even more money out of the economy and growth to pay the interest required to service said debt that could grow to $25 trillion in ten years, according to some projections.

And the Fed will keep raising interest rates at the same time to prepare us for the next recession.

Harlan Green © 2018

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Tuesday, January 2, 2018

2017--A Year of Nightmares

Popular Economics Weekly

“For what does it profit a man to gain the whole world and forfeit his soul?” Jesus was to have said to his disciples. This should be the proverb that describes 2017, a year of lost souls.

What does it say about a country that elects a President who shows no sign of having a soul, but only wants profits for himself and his cronies?

Most Americans in 2017 have seen rock-bottom American values such as equality, justice, and tolerance assaulted to bring back a gilded age that profits a few. Instead of draining the DC swamp, President Trump has filled it with a record number of lobbyists; either writing the bills Republicans are pushing through congress, or installing lobbyists in the very government agencies they are tasked to regulate.

The 2017 nightmare began on the election of Donald Trump that will forever be tainted by Russia’s well-documented attempts to tilt the election to Trump and the Republican Party.
George Will, the conservative pundit, gave the best description of Trump’s inabilities in a Washington Post Op-ed: “It is urgent for Americans to think and speak clearly about President Trump’s inability to do either. This seems to be not a mere disinclination but a disability. It is not merely the result of intellectual sloth but of an untrained mind bereft of information and married to stratospheric self-confidence.”
Psychologists and psychotherapists have said more; that Trump is mentally ill, or has an untreatable Narcissistic Personality Disorder, but either way, he lives in a fantastical world of his own making the almost completely ignores the reality that most Americans live.

The nightmare grew when we learned Russia may have been behind many of the dirty tricks, and anti-Hillary chants of “Lock Her Up” made by Trump campaign advisers such as General Flynn. We now know the FBI began its counter-intelligence operation of the Trump campaign in the summer of 2016, when it learned that the Russians had hacked both Republican and Democratic Party emails.

But Russia only weaponized the Democrats’ hacked emails via WikiLeaks, Facebook, and Twitter, not those of the Republicans. Therefore the suspicion has to be that Russia could blackmail one or more Trump campaign operatives into spying for them because Russia didn’t publicize the Republicans’ emails—maybe even President Trump and his family? That is precisely what the FBI’s counter-intelligence investigation wants to determine.

The greatest nightmare of 2017 may be the record income inequity that was exemplified in the just-passed tax cuts that are to be paid for with up to $3 trillion in added federal debt plus spending cuts to Medicare and Medicaid over the next ten years, which impoverish the poorest among US.
Professors Thomas Piketty and Emmanuel Saez were the first to examine 100 years of income tax returns that highlighted the wide swings in income equality. They found that the periods of greatest inequality were just before a major recession, such the as the Great Recession, and the Great Depression itself.

Both were the result of record income inequality. The greatest prosperity was post-WWII, when the modern American middle class was formed due to rapid economic growth and unionization of the workforce.

Graph: CPBB

When will the 2017 nightmare end? Maybe in 2018, if a majority of Americans realize the fantasy world the current administration and congress has created is not theirs; but Americans see a world in which life, liberty and the pursuit of happiness is available to all.

Harlan Green © 2018

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Tuesday, December 26, 2017

More Republican Lawlessness--Greatest Heist in History

Financial FAQs

The Republican’s tax bill has passed, and it is the greatest theft of taxpayer monies in history; even greater than Presidents’ Reagan and Bush I and II tax cuts that began the immense transfer of wealth to the wealthiest in 1980, starving the government of much needed revenues that would keep the federal deficits under control.

It was written by the very lobbyists Republicans and the Trump administration have cultivated since his election. The stench of the DC swamp that Trump promised to drain has become overwhelming.

More than 130 lobbyists have been hired to work in the administration, and 36 of them have blatant conflicts of interest, working on the same issues they were lobbying on, in violation of Trump’s ethics rules, according to Marketwatch economist Jeff Nutting.

“This is so bad. We have just gotten list of amendments to be included in bill NOT from our R colleagues, but from lobbyists downtown,” said Missouri Dem Senator Claire McCaskill. “None of us have seen this list, but lobbyists have it. Need I say more? Disgusting. And we probably will not even be given time to read them.”
The bill will cut Medicare and Medicaid benefits by $1.5 trillion, and could add up to $1.5 trillion to the deficit in 10 years according to the CBO. That’s a $3 trillion outright theft from U.S. taxpayers that makes it the biggest heist in history.  It is why the top 1 percent of earners have garnered almost 100 percent of national income created since the end of the Great Recession. 
As I noted in an earlier column, Harold Myerson said in The American Prospect, “The United States now has the highest percentage of low-wage workers – that is workers who make less than two-thirds of the median wage- of any developed nation. Fully 25 percent of all American workers make no more than $17, 576 a year.”
We know what has happened when Republicans tried this taxpayer heist before. President Reagan and congress has to raise taxes 11 times to make up the deficits created by the first ‘trickle-down’ tax cuts in 1981. Two consecutive recessions followed as Fed Chairman Paul Volcker raised interest rates to record levels at the same time.

Then GW Bush did the same in 2001-03, when he cut taxes again while paying for the wars on terror, resulting in the largest federal deficit at the time, and the Great Recession.

This will not generate enough tax revenue to pay for the additional debt, as I noted in an earlier column, so foreign governments and individuals will become more reluctant to invest in U.S. debt as the deficit continues to grow and interest rates rise, while crowding out other, important investments.

It can happen again. It is suicidal economics. The U.S. won’t declare bankruptcy. But it will saddle future generations with an impossible debt load, and prevent much needed public and private investment that would increase productivity and boost growth.

Harlan Green © 2017

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Tuesday, December 19, 2017

Republican’s Tax Reform = U.S. Bankruptcy?

Popular Economics Weekly

We know most of the sordid details, by now. The Repubs’ about-to-be-approved tax bill will drive the U.S. into a defacto bankruptcy. It contains very little for the middle and lower income tax brackets that do the most to boost economic growth with their spending, and lots for the 1 percent that spend the least, including doubling the inheritance tax exemption and lowering both personal and corporate taxes.

This will not generate enough tax revenue to pay for the additional debt, so foreign governments and individuals will become more reluctant to invest in U.S. debt, as the deficit continues to grow and interest rates rise, crowding out other, important investments.

It also cuts Medicare and Medicaid benefits by approximately $1.5 trillion to pay for this huge tax cut. But that isn’t really paying for it, since this takes income away from those supported by our social programs.

How does that make sense, when financial markets are already flooded with cash, and all kinds of bubbles are popping up? Bond valuations are at all-time highs (meaning interest rates are still at historical lows), corporations are already making record profits, and stocks’ price-to earning levels resemble those of the 1929 market crash that led to the Great Depression.

Everything is already overvalued, in other words, yet the Republican congress wants to give even more money to the wealthiest, who plan to use it to boost their paychecks, and that of their stockholders.

There will be little money left to boost wages and salaries, according to CEOs that have been surveyed. And why should they boost their workers’ incomes? Most new jobs are low paying, warehouse jobs for the likes of Amazon.

A lack of skilled workers is very likely a key factor why high levels of employment have not led to meaningful wage improvement, says Econoday. Inflation is not rising because real average hourly earnings are barely rising, which is why discounting is still prevalent.

So congress is really reducing tax revenues that are needed to pay for all that debt. This is what GW Bush tried to do in 2001-2 with his tax cuts, which led to the record budget deficit, bursting of the original housing bubble, and Great Recession. 

It fantastical thinking to believe otherwise, and the Republican Party could follow President Trump over the political cliff, once the general public understands their real motive in tax reform.  It's reverse Robin Hoodism, or robbing from the poor to give to the rich.

And it can happen again. The U.S. won’t declare bankruptcy, since it can print all the money in our own currency to pay for the inflated debt levels. But it will saddle future generations with an impossible debt load, and prevent much needed public and private investment that would increase productivity and boost growth.

Harlan Green © 2017

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