Shock and Awe

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It’s odd how people seem surprised at the level of corruption and outright incompetence coming from the Republican party.  We need to remember a bit.

The arrival of George W. Bush was not as traumatic as Trump’s, but then as now we got a new troupe of players (remember the neocons?) who were convinced they were geniuses, and that every other idea represented the stupid old world they were here to transcend.   That affected both the economy (government regulation does nothing good) and international relations (let’s remake the world for freedom and democracy).

It took a little while, but they were a catastrophe on all fronts.  The deregulation movement’s hands-off treatment of the economy produced a new, unregulated banking system (mortgage-backed securities) that ultimately crashed, producing the worst downturn since the great Depression.   $6T of “safe as banking” securities were wiped out.  Only the Democrats’ support of the bank bailouts kept us out of a real depression.

And of course we fought a $2T war that was justified by lies, produced no benefits to the US, and undermined US interests everywhere in the Middle East.  (ISIS was one consequence.)  Even today it’s hard to know what was really behind that war, but it is a fact that the only place in the world where people think it was anything but oil is here!

There are two other important but largely unstated points to be made about that war:

– That fact that it was unbudgeted contributed mightily to the difficulty of recovering from the crash.  In general terms governments need to act countercyclically, i.e. they should save in good times, because they need to spend in bad.   This is not rocket science, but we did exactly the opposite and in a big, untransparent way.   So recovery from the crash had to be all deficit, which made it easier for the Republican balanced-budget hypocrisy to prolong the pain.

– The result of the war was not just what was done, but also what couldn’t get done.  That affected the Middle East, where the greatest opportunity for change was for US money to grease the peace process.   That opportunity was lost forever.  ($2T would have created a true land of milk and honey!)  But that wasn’t the end of it.  That lost money also affected US domestic finances as well.   Post 2008 we find we have money for nothing, not even education.  Part of that problem has been Republican party priorities, but the fact remains we are not the first country to impoverish ourselves with a stupid war.

 

Fast forward to the present.   We’ve got a new bunch of geniuses who have no need for either information or expertise.  They’re smart!

We are now at a stage like the “shock and awe” of the Iraq war.  Reality has not yet had time to intrude on the fantasies.  But we need to remember, it can be that bad!

Where will we go from here?   The picture has a lot in common with the story just told:

– The economy

We seem to have learned nothing from 2008.  With the tax plan we are stimulating the economy at the wrong stage of the business cycle and running a deficit to do it.  Further we are removing Dodd-Frank and everything else enacted to control bad behavior.   There’s also little evidence that these people will do what it takes in case of a crash.

– War

This administration seems even more cavalier about war than Bush people.  We’ve had continuing belligerence with North Korea and Iran and a budget with an untargeted military buildup.  There’s real risk of a crazy war on impulse—with as little planning or understanding of consequences as last time.   We have to hope it won’t be nuclear.

– Russia

Russian is a constant adversary, and our buddy-buddy relationship with Putin is problematical.  Russians are proven experts in cyberwarfare, and the demonstrated impact of viruses points out the threat.  There is even a possible Russia-North Korea connection.  We stop watching them at our peril.

– Climate change

The evidence behind climate change is more than considerable.  As a risk, it is well past the point where any serious business would start paying attention to it.   We have instead decided we’re too smart to have to think.   We are risking our own future, and handcuffing our businesses that would be part of the solution.  The Chinese have taken our place and are running with it, while for us even planning is out of the question.  This is a double whammy—more heat, storms, and drought combined with loss of industrial preeminence.

Those items are not just speculation.   We’re all set to pass the economics into law.  The war rhetoric is if anything more pronounced than with the Bush administration.   For climate change this is stated and active policy.    The Russian case is a little different, but it underlines the seriousness of the dangers.  We just barely escaped with Bush; this time it looks worse.

Again we’re powerless in dealing with geniuses who can’t be bothered with facts, expertise, public opinion or anything else that gets in the way of their greatness.  We can have no confidence, for example, that Trump either understands or takes seriously the fact that a nuclear attack on North Korea will have consequences for the US even without retaliation.  Trump’s statement on deregulating Wall Street, just like his statement on leaving the Paris Accords, acknowledged no risks.

It’s all too easy to forget the past, but we’ve learned that such “genius” has consequences.  The end of this story will not be pretty.

No segment of the population—Republican or Democratic—should believe anything else.

Inequality

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Inequality is a term so apparently self-evident that it shows up everywhere in political discourse on both the left and the right.  Much of that discourse, however, is so simplistic that it is easily dismissed by the other side:

– For the left, inequality is morally wrong—despite the fact that it can accompany rising living standards even for the people on the short end of the stick.   A fair number of the 238 cities vying for Google’s second headquarters would probably see a rise in both inequality and the general standard of living if they won (just based on an influx at the high-income end).

– For the right, inequality is good since rich people are the “job creators”, so the happier they are the better—despite the fact that there is no evidence for that logic at all. It also seems rather odd to assert that businessmen are so incompetent as to make hiring decisions based on personal satisfaction rather than opportunities to be staffed.

Despite those points, the effects of inequality are neither uncertain nor hard to understand—it’s just easy to be sloppy about it.  This note is an attempt to be more real.

First one must acknowledge that inequality itself is neither bad nor good.  What matters is the well-being of the population, including in particular those on the lower end of the scale.  For people like Steve Jobs (always the first example) personal wealth is the result of creating an economic engine with benefits to many.  It’s hard to argue with that.   And you can push it one step further and say that the incentives for innovation in the US economy are an important reason why the US has been able to stay ahead of the technology curve.  You can even say that the potential for success is an important part of well-being for many people, so that an economy of pure equality—even in the abstract—is not necessarily a good thing.

None of that, however, tells you very much about the effects of growing inequality in the US.  First of all let’s be clear that the increase in inequality is well-established and true for any definition of wealth (income, assets, …) you might want to use.

Further rising inequality here has been no obvious driver of innovation—on the contrary with increasing inequality the US economy has become more and more dominated by large entrenched companies, with less and less room for new companies to succeed.   And no one can argue that the inequality has improved opportunities for people to succeed—on the contrary US society has become less upwardly mobile by every measure.

As for the effect on peoples’ finances—for that there is no ambiguity.  Some of the most telling statistics came in a recent paper examining per-adult income growth for the bottom 50% of the US population.  It turns out that since 1980 there has been no per-adult income growth for the bottom 50%!  That is compared with a 64% increase for the upper 50%, and vastly more for the top 1% (see the chart at the beginning).  Note this was a period when women entered the workforce in large numbers.  Since we’re dealing with per-adult statistics, we’re saying that for the bottom half of the population the net effect of women working was just to keep things from getting worse!  As another example of the same thing—essentially all the benefits of the 2008 – 2015 recovery went to the top 1%.

So what is going on with inequality and what should we think about it?  In broad terms there is no secret.   We can start with the usual three inter-linked suspects:  automation, globalization, and de-unionization.  All of those decrease the power of lower-skilled workers in dealing with management, so growing inequality is no surprise—and the effects are continuing.  While those effects have been felt everywhere, the response of government to that situation has been different in different countries.  In most countries government has attempted to cushion the blow.   That has not been wildly successful, but intervention has at least damped the situation.

In the US the exact opposite has happened.   Perhaps because of the horrendously expensive electoral process here (assisted by Citizens United), we have seen a precipitous rise in the political power of the increasingly rich top.  And political dialogue has naturally evolved to reflect their interests.  Even previously sacrosanct services such as education have suffered loss of public financing; the student debt crisis is an obvious sign.  If you make a list of the public services that the ultra-rich don’t need, e.g.

– Education

– Healthcare

– Retirement

– Social welfare

– Broad-based infrastructure,

it is obvious that all of it has become controversial.   That is contrasted with an area such as defense, where we’re looking for a buildup.

While Trump’s tax plan has been sold as a job creator, that’s not where it came from.  No one is hiding that fact that it is the Republican donors’ tax plan, and its benefits to anyone else are ancillary—and to say the least unproven.  Trump himself came on-board late in the game and conveniently seems to believe that whatever is good for him personally is best for everyone else.  The tax plan shows inequality as a self-reinforcing trend:  more money => more power => even more money.

The bottom line is that inequality in the US is in the process of making this a very different country.  For the poor it means simply less support, though the US has never been very good at that.   The big difference is for the middle class.   Services that they have traditionally relied upon are becoming problematical, and the tax system is increasingly skewed to benefit the rich.  Furthermore the ongoing effects of automation, globalization, and de-unionization have made the threat of falling out of the middle class very real.   It should be emphasized that automation in particular is accelerating as an issue, with artificial intelligence pushing the threat up the income scale.  A recent report predicts almost one-third of existing US jobs could be lost to automation by 2030.

And there’s another problem as well.   Adam Smith himself pointed out that the private sector cannot be trusted to provide the proper environment for its own success.   He saw both policing the private sector (e.g. anti-trust, free entry) and education (to sustain the private sector) as tasks for government.   So growing inequality—with the ultra-rich running the government for their own sake—is not only a threat to the well-being of the population, it is a threat to the vitality of the economy itself.

While solutions are outside the scope of this note, we must recognize that rising inequality puts us on track to become a second-class power with few rich and many poor.  That, as noted last time, is our future as banana republic.

The Foreigners Threatening America

25700577124_b9b3d89b92_kRepublicans are good at hateful, manufactured stereotypes.  “Welfare queens” worked pretty well for a while.   Now we have snobbish, nose-in-the-air elitist liberals.  They’re all like that right?  Just like shiftless blacks and Mexican rapists.  Who needs reality when you can tell who to hate based on skin-color, clothing or even the music they listen to.

Let’s get some reality.  Maureen Dodd did us a service last week with her annual piece presenting her brother’s comments from the other side of the political fence.   There was surprisingly little of substance—just breezy support for Trump’s “delivering on his promises to shake things up” and dissatisfaction with the Republican Congress for not getting the job done.  Nothing on actual policy beyond a hint of racism with the kudos to Bannon for “holding Republicans’ feet to the fire”.  All told this was another confirmation that the Trump core will follow wherever he leads.  It wasn’t different from the content of the Trump rallies or from any of the many recorded interviews with Trump supporters.   Just a reminder that after a year of Trump sell-outs nothing has changed.

It’s time to get over the white racism of the left—that the core Trump supporters are ultimately our people who need to be brought back into the fold.  They may be perfectly okay in normal life, but so were the Nazis who saw the Jews being rounded up in their neighborhoods and thought it was okay.   Fascism will do that to people.  Financial reverses plus a skilled demagogue, and reasonable, intelligent people can succumb to it.  And it’s not going to change any time soon.

It’s also clear what Trump and his supporters are doing to this country.  In their assertion of ultimate white privilege, they are undermining what has made this country great—the opportunity for everyone to succeed.  The fascist denial of objective reality is undermining US economic success, denying educational opportunity, and crippling the worldwide response to climate change.  Like Britain, we are on the way to becoming a second-rate power.  However the dangers here are worse—from another economic crash, from a war, or from our uncritical buddy-buddy relations with the Russians.

Two books in particular have shaped ideas about Trump core supporters:   Hillbilly Elegy and Strangers in Their Own Land.   Both tried to be sympathetic, describing the people, their views, and their reasons.  But the second is particularly relevant because it described Louisiana—a state where they’d won.   It was a disaster of epic proportions:   an environmental catastrophe and an educational system gutted to provide tax breaks for oil companies.  The whole business kept running by tax revenues transferred from the north.

The Trump campaign liked to say the last election was the last chance to protect the country from a Latin American takeover.  We now know he may have been right—we are well underway to becoming a banana republic where the ultra-rich control everything (through Citizens United and the Koch Organization) including how little they are taxed.   Public services, including education, are not priorities.  Hannah Arendt (quoted by Michelle Goldberg) talked succinctly about the collusion between the Nazi economic elite and the fascist-inspired masses they controlled, “The temporary alliance between the elite and the mob rested largely on this genuine delight with which the former watched the latter destroy respectability.”

That is what is foreign to America.   That is what must be pushed back before it is too late.

 

Big Brother

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The big story today is the Koch-financed purchase of Time Inc.  While this did make the NY Times—in a rather innocuous, long-winded article—you have to go to the Guardian to get a notion of what is going on.  There are three points:

– Most obviously this gives the Koch organization a direct mouthpiece in print media. To be clear—the Koch organization does not represent just Koch money.   It channels money from the richest people in the US and distributes untraceable billions of dollars through a political organization of 1600 staffers.   It quite literally owns the Republican party (Pence is their creation) and is the source (and explanation) for the current tax bill.

– Also this month, the FCC with its new Trump-appointed head, “eliminated protections against monopolies in local broadcast news, a move widely seen as clearing the way for the expansion of a Trump-friendly local broadcasting network”.  This is the Sinclair Media Group, which forces all local subsidiaries to broadcast centrally-prepared Trump agenda propaganda.

– Finally we have the much-discussed FCC ruling last week rolling back net neutrality.  This action has not gone unnoticed, but its impact has been discussed primarily in terms of network providers’ ability to block competitors for their own services.   In the current context however, it is equally important to recognize this amounts to oligarchic control of internet content.

So there you have it.  Print media, television, and internet all at risk of coming under control.  It can happen here.

Why Isn’t the Tax Cut Bipartisan?

In previous posts we’ve talked about possibilities for bipartisan cooperation on the federal budget and the tax plan.   There were obvious possibilities for that to happen.   The biggest cuts after all are to the corporate income tax, and Obama already discussed his interest in that in the 2015 State of the Union.  Other Democrats talked to Trump about bipartisan options prior to the announcement of the tax plan.

Why didn’t that happen?  Let’s look at the primary provisions.

  1. The Corporate Tax Cut

First of all, as many have mentioned, the average effective corporate rate in the US is not 35% but more like 24%, which is not so far from the international average.   Real tax reform would bring the effective and nominal rates in closer line with each other–with the advantage of removing artificial lobbyist-created inequities in the tax plan.   That, with adjustments to assure parity with other countries, would not break the bank.  It would help the country and could have bipartisan support.

We have instead chosen to close few loopholes, insist on a nominal 20% corporate tax rate, and incur a massive revenue shortfall.  That choice gives us the deficit as well as the middle-class tax increases.  The connection to jobs is weak at best, so most of this additional corporate saving going to investors.   Since it isn’t a matter of competitive parity—why are we doing it?

  1. The Pass-Through tax cut

The stated target of this tax cut was small business, but in fact few small businesses would be helped.   Further, as was recognized early, this tax cut opens opportunities for wealthy people to avoid personal tax rates.   The current form of the tax cut has rules that attempt to limit that.  However many loopholes remain, and the rules are strangely targeted.   Manufacturing and real estate can benefit, but not services.

Since most of this money is going to people who can exploit the loopholes—not to the stated targets—why are we doing it?

  1. The Estate Tax cut

This is of course the most problematical of all.   Only rich people with estates over $10 million are involved, and the benefit increases with wealth.  It is worth emphasizing that we don’t just raise the tax-free limit, we completely abolish it and with no unpaid capital gains taxes on the heirs!

As to why we’re doing it, the explanation is the most transparent of self-serving nonsense—“making rich people richer is good for everyone”.

 

These tax cuts are not bipartisan, because their logic has nothing to do with the welfare of the country.   Donors are complaining they haven’t gotten what they paid for, so it’s time to get the job done.  Bipartisanship is not on the agenda.   These tax cuts are delivered as ordered.

It is important to recognize that there is nothing mysterious about the small, ultra-rich donor community (with the Koch organization as primary mover channeling money from others) and also nothing ambiguous about their demands—both money and power.  You might even argue—though it’s a stretch—that perhaps the stock market is rising not on business prospects, but on all that extra money the ultra-rich donors will have to invest somewhere!

And there’s another twist to this too.   Trump and the Koch brothers have much the same motives, but Trump is the President after all.  How can he get away with a tax program that has been precisely engineered for his own benefit?

Trump was born for this job.   He actually believes that whatever is good for him personally is by definition the best possible thing for the country.

So we are left with a philosophical quandary.   Is a crook who uses his office to pocket more than a billion dollars from the country excused if he is too self-intoxicated to realize what he’s doing?

 

 

Some History and Consequences of a Tax Cut

1929

In the years since the Great Depression economists of all stripes have come to a consensus about what happened.   Wild speculation produced a crash.   That led to intense stress on the banking system.   The Federal Reserve (as primary villain) was unwilling and unable (because of the gold standard) to provide support.   So the banks failed, and the rest of the economy collapsed.  National income was down a massive 60% by 1932.

The collapse originated in the US and was much worse here than elsewhere. Germany, still paying World War I reparations, was a special case and fared badly.  It is important to remember that without the 1929 crash, Hitler would have remained a curious side-show.

Recovery in the US took a full decade.  There was a serious blip in 1937-38 when Roosevelt dialed back on stimulus and a GDP slowdown followed.  International trade dwindled in the 30’s, as many countries instituted protectionist barriers.   The US wasn’t fully out of the depression until the second World War.

 

2008

Fast forward to the crash of 2008.   The banking system was again central, because mortgage-backed securities brokers had become unregulated de facto banks.  (Why should businesses earn nothing on cash when mortgage-backed securities paid real interest and were rated “just as safe”?)  When the deteriorating economy led to large-scale mortgage defaults, the mortgage-backed securities collapsed in value and trillions of dollars of supposedly safely-banked assets disappeared.

People running things had fortunately learned the lessons of 1929, and stepped in immediately to keep the banking system afloat and pump money into the economy to prevent a depression.  That stopped things going from bad to worse—very painful but not a depression.

 

Crisis and Recovery

Even at the beginning, however, something strange happened in this country.   At the very end of his presidency, George Bush did the right thing  (for once) and in the face of disaster introduced legislation to keep the banks afloat.  Despite advice of economists, his own party refused to support him—claiming to fight socialism.  However 172 Democrats and 91 Republicans did support the bill, and by a 263 to 171 vote helped pull the country back from the brink.

The episode seemed odd at the time.  But with the start of the Obama presidency and the new Congress, it quickly became clear what had happened.   That had been a transitional moment.  The old Republican party that at least cared (conservatively!) about the well-being of the country was no more.

The new Republican party, more and more a creature of the Koch machine, had only one goal—cutting taxes on the small group of ultra-rich backers who now owned the party.   That translated immediately to a surprising position.   Mitch McConnell (always quick to know which way the wind was blowing) later summarized it as “The single most important thing we want to achieve is for President Obama to be a one-term president.”  Private statements of position were even stronger. There would be no cooperation on anything—even on recovery from the recession.  Obama wouldn’t give them the tax cut, so it was scorched earth.  Republicans at the time trotted out ideological objections to stimulus—which the current Republican enthusiasm for both presents and deficits shows up for the hypocrisy it was.   Everything that kept the country going had to be passed over Republican opposition.

Even with a Democratic majority, that limited what could be done as stimulus.   At the same time the Kochs founded and funded the Tea Party as an apparently populist, anti-spending front group.  Slow growth plus anti-establishment rhetoric plus an unprecedented dose of Koch money (enabled by Citizens United) helped Republicans gain control of the House.  Keeping the country poorer was a rousing success!

After Obama was reelected Republicans doubled down on slowing the recovery and preserving the remaining pain.  Their ploy was a commitment to balanced-budgets (today of course demonstrated to be bogus), including even a proposal for a constitutional amendment.  On that basis they deliberately blocked any further stimulus or social programs (such as Obama’s State of the Union proposals for community colleges and daycare)—starving government to sow discontent for the election.   By 2016 they had held the country hostage to their tax cuts for the full six years they controlled Congress.

Trump wasn’t their chosen candidate—too much of a loose cannon—but he would do.   He was an even better populist front than the Tea Party.  He didn’t even notice the irony in his “slowest recovery” claims.  Pence was their guy all the way, and Trump picked a cabinet full of other Koch people.  On tax cuts there was no problem managing Trump.   He already believed anything good for himself was good for the country.  The tax cut plan is now here.   It is worth more than $1B for Trump himself, and is everything the rich donors could have hoped for.

You have to hand it to the Koch machine.  All the distributed power in the power in the American political system has now been centralized and controlled.  Local, state, Congress, the Presidency, the Supreme Court—the Koch organization has money in all of it.   More to spend than the Republican party itself, and all under strict control.  A few hundred fabulously wealthy people are running the USA for their benefit.

 

Now

That’s where we are.

For the tax cut, what’s on the table is an astonishing giveaway of the country to the richest few.   The asserted benefits to the middle class are nothing but after-the-fact propaganda.  There is no logical or historical justification for claiming that upper class tax cuts produce jobs.   Business tax cuts, while they sound good, are actually no better.   Businesses hire people because of opportunities, not cash on hand.  With today’s low interest rates the cost of capital is not a big barrier to new opportunities, so tax cuts will end up going to the investors.

This is not really a stimulus package, and it’s a myopic approach to our real problems in any case.  One reason the recovery hasn’t helped everyone is that the Republicans’ past financial lock-down has prevented whole categories of problems from being addressed.  The economy is changing and issues such as skills mismatch, automation, educational opportunity and even infrastructure aren’t addressed just by throwing money at the private sector.

There’s another problem too.   All that tax cut money will now be chasing investment—a dangerous invitation to speculation.   And we’re incurring new large deficits to pay for it at the wrong time in the business cycle.  The country is out of recession, and large deficits in good times are bad.   When our speculative bubble comes to an end, it will be all the harder to find the stimulus money to get up off the floor.

There is also a real question about who’s going to be around to help.  Remember the disastrous Federal Reserve behavior in 1929 and the unanimity it took to get back from 2008.   Janet Yellen may not be retained as Federal Reserve Chairman when her term expires next February.  One prominent candidate to replace her has no specialist background in economics and opposed all stimulus after 2008 out of an unsubstantiated fear of inflation.   Trump has not chosen his nominee, but it’s something to worry about.

Too many pieces from 1929 are coming back together. The ultra-rich are getting their tax cuts.   By all evidence there is little interest in learning from the past and even less in looking out for the lot of the rest of us.

Finding Reality

pew-studyThis item grows out of a recent study noting that in the US today few people have friends on the other side of the ideological fence.

It’s easy to imagine how that happens—there are just too many subjects to avoid!   That raises the question of why all those topics are taboo.   There are many reasons, but we deal here with one specific problem:  distinguishing real issues from pretexts.

The problem is that while there are plenty of real policy issues where debate should be possible, they tend to be mixed-in with taboo topics where the policy positions are actually donor’s self-interested pretexts (“climate change is a discredited hoax”).  Public debates can be (and often are) staged to discuss issues in the taboo category, but they never get very far.  There’s not much to be discussed when the stated policy is not the point.

It’s not necessarily easy to figure out what’s real, and undoubtedly many people will disagree with the examples here.   However the idea is to focus on a few issue areas where we as a country ought to be able to make progress if we can keep track of what is real and what isn’t.

We put issues in two categories:  non-issues and real issues.  Non-issues are issues only if donors (or other political considerations) force them to be.    We owe it to the country to get past them.  Real issues are the significant questions we need to solve.

 

  1. Climate change

As just noted, climate change is a poster child for pretexts.  There is of course one primary reason this whole subject is partisan, and his name is Charles Koch.  In addition to the false hoax claim, there is a continually-morphing litany of other misrepresentations.  It used to be easier to be a skeptic.  By now more than enough is known, so that ordinary risk analysis says the time has come to get serious.

Non-issues

Climate change is real.

Burning of fossil fuels is causing it.

The people working on it are not political hacks, but dedicated scientists faced with a hard problem.

Real issues

Risk assessment and what needs to happen now.  Steps and timing.

Roles of government and the private sector, e.g. supporting the power companies.

How research, particularly energy research, can best support the private sector.

What infrastructure changes will be needed and when?  Where will the jobs go?

Coordinating the whole effort.

It is worth pointing out that there are plenty of good, multi-year working-class jobs involved in dealing with climate change.

 

  1. Environmental policy and the EPA

What is frustrating about this topic is the extent to which the whole discussion of environmental regulation has gone on without specifics.   Is it really possible to believe that all environmental regulation is bad?  Even after the Flint disaster?  It is not viable to have environmental regulation whipsawed back and forth between administrations.

Non-issues

Not all environmental regulation is bad.

Not all environmental regulation is bad for business.

Real issues

Agreed-upon standards for regulation.  Work from the current list of Trump administration actions and responses.   Criteria to avoid overreach by all sides.

What is an appropriate process to assure that both the public interest and businesses have a say?

Should there be compensation for consequences of new rules?

 

  1. Healthcare

Now that all the repeal and replace nightmares are out of our system, we really ought to be able to do something good about healthcare.   This isn’t rocket science.   Every other prosperous country has come up with something that works.

Non-issues

Obamacare works well enough to be a starting point.  Sabotaging it helps no one.

The country needs a nationwide solution.  Uniform treatment for all people is good.

Single-payer systems are used by most of the world and may have a role to play.

Real issues

Availability of plans

Cost of plans

Assuring participation and coverage

Addressing needs of businesses

Getting religion out of the debate

Controlling costs of the program

 

  1. Jobs

Thus far the whole treatment of jobs has been based on campaign slogans.  The current tax cut plan is a case in point.   The millions of affected people deserve better.

Non-issues

Decline of good, low-skill working class jobs.

Decline in workforce participation.

Decline of upward mobility in the US.

No silver bullet.

Real issues

What is and isn’t cured by growth.

Workable options for tariffs, subsidies, or other government actions on trade.

Long-standing issues with wage growth and inequality.

Role of education.

Role of government as an employer (e.g. infrastructure, climate projects).

Budget impact and tax plans.

Geographic coverage.

Protecting the next generation.

 

It would be nice to believe that the country is now ready to get down to work.   On real issues some level of bipartisan cooperation could even be the norm.

This is it!

This is it!  Finally it’s here.

After six years of holding the country hostage (no question now about the meaning of “party of no”)—

After thousands of Fox News stories full of arrogant and nasty liberals—

After untold campaign contributions—

We finally have what we’ve waited for.   The dearly-bought gift—the tax cut, our tax cut has arrived in Congress!

 

Think about what we’ve done to get here.  First some of the ground work:

– Republican Supreme Court justices Roberts, Thomas, Alito, Gorsuch.

– Citizen’s United—liberating our money as protected free speech.

– The unprecedented Koch organization—funded by billionaires and with a staff of 1600 and billion-dollar budgets to control state and federal legislatures.

– A full complement of Koch people (e.g. Pence, Pruitt) in Trump’s government.

 

Then our messaging with Fox News and Rupert Murdoch leading the way:

– First one fabulous job of divide and conquer.  We’ve made “liberals” even more detestable than “welfare queens”.   What a line we’ve got: “They’re laughing at us and think we’re stupid.   They’re stealing our jobs and our money.  Can’t believe a word they say.  Our team will bash their heads in when we win!”  We’ve even got real liberals apologizing for our stereotypes!  And then there’s racism…

– Next the subtler part—governments can do nothing, everything they offer is either worthless or for someone else.  There’s quite a list of things governments can’t do:  education, social services, medical care, even police (we just need “good people with guns”).  Funny thing about all those wastes of taxpayer money—they’re things we’re already doing for ourselves.

– Finally a bit of warm and fuzzy nonsense.  Jobs are gifts from corporations and rich people.   Make us rich and we’ll take care of you!

Sounds like a tax plan.

 

And look now at what we’ve got.  Let’s count the tax cuts:

– Estate tax.  Only helps families with at least $10 M to pass on.  Worth $1 B for Trump himself.   Just for us.

– Tax rates.  The top bracket is down to 35%, but that’s just the beginning.  We’ll really get 25% with the new passthrough loophole (our lawyers will certainly take care of any fine print).

– Corporate tax rates.   We’ve got the clout to get most of this as dividends or stock repurchases.

– Deficits.   That’s a particularly good one.   Those nonsensical growth predictions are just one more piece of the pie.  The deficits will mean cuts in services and correspondingly lower taxes going forward!

It’s actually marvelous how this has worked out.   We’ve got a tax cut before there’s even a real budget!  Exactly the way the world should be.

 

Where is all this going?  Funny you should ask.   There’s an article in today’s NY Times talking about it.   It seems Mexico is actually doing something right.   They’re not wasting money on parasites.   People like us live in walled communities with their own security and service.  Some of it they pay for, and the state does the rest. And they pay practically no taxes!  The world as God created it!

 

The tax cut has come.   We are saved.

Private Sector Fantasies

This note is about a subject with perhaps more deliberately-sown confusion than any other:  the role of government in a market economy.

We start with the saint of free markets Adam Smith.   Adam Smith had no delusions that the free market system would somehow manage itself.   He saw three roles for government in a market economy:  defense, justice, and education.  Further he understood that the private sector and the free market were not the same thing—one of the roles of justice was to prevent the private sector from creating monopolies and thus perverting the free market.  In other words even as an ideal, the free market was neither self -policing (it needed to be protected against its own tendency to create abuses) nor self-sustaining (it needed government to create the population of educated workers).

With that as introduction, we want to talk more about the relations of business and government.  There are three sections.  The first two expand on policing and sustaining of the free market, as just discussed.  The third talks about scope—what objectives for society are in or out of scope for the free market. The Trump administration has positioned itself as the defender of free markets against government.  Instead they are defenders of something rather different, with real dangers as a result.

 

Policing the free market

Monopolies are bad.  they raise prices and stifle progress.  They are also by many measures growing in power.  But they are not the only area where the free market needs to be protected from itself.   For example, lack of business transparency perverts the capital markets, so the SEC plays a crucial role.

A more complicated but equally crucial role is regulation of the boom and bust cycles (with bank failures and human misery) that used to be endemic to capitalism.  Government has two responsibilities for controlling those cycles:

  1. It needs to act “countercyclically”. Despite the jargon term, this is so basic as to be biblical—save in good times to prepare for bad. In a recession the government is the only party able to stop the spiral of low sales -> layoffs -> even lower sales-> even more layoffs.  It does that by injecting money into the economy to stabilize sales.  But in a recession, tax revenues are down, and the money has to come from somewhere–preferably savings but if necessary debt.  In 2008 George W. Bush had just fought an off-budget 2 trillion-dollar war, so the cupboard was bare.  Republicans screamed about increasing the deficit, even proposing constitutional amendments for balanced budgets.  Their line “real people tighten their belts when they have to” was a deliberate misrepresentation.  Real people save for bad times; otherwise they have to borrow to put food on the table.
  2. Government needs to recognize and control the excesses that can creep in to cause havoc in the business cycle. While many factors contributed to the 2008 crash, the most spectacularly deadly was the perversion of the banking system caused by mortgage-backed securities. In the giddiness of deregulation no one was looking.  The aftermath produced the Dodd-Frank legislation as an antidote.

Finally, as a last example, there are categories of risk where you can’t count on the business decision-making process to do the job.  Low-probability/high costs events (plane crashes, oil rig blow-outs) should in theory be prevented by rational decision-making, but in practice it’s hard to refrain from increasing profits by ignoring something that “really isn’t going to happen”.  So there is a role for government there too—protecting both the public and the businesses.

Current status:

– The administration’s anti-trust position remains to be seen.  Trump campaigned against mergers, but appointed an industry-representing trust lawyer to head the anti-trust division.

– There seems to be no recognition of business cycle issues.  Trump’s tax plan runs a big deficit to stimulate an economy close to full employment.  This runs the risk of repeating 2008 with an even worse debt position to fight it.  He also wants to repeal Dodd-Frank and says he won’t enforce it now.

– The general rule is that any regulation opposed by any business is bad.

=>  There is no serious recognition that the financial system needs policing.  Trump runs the show based on what he has wanted to see for his own businesses.  This is a blind dash into another 2008 or worse.

 

Sustaining the free market

Adam Smith pointed out the need for government to supply a suitably-trained workforce.   In the eighteenth century that meant simply literacy.   The definition of suitably-trained has changed over time.  By 1940 a then astounding 50% of American students finished high school.  In that era no other country approached that level of broad education support.   Then the GI bill made college possible for veterans, and public colleges expanded widely throughout the 1960’s and 70’s.  This coincided with unquestioned American economic dominance.  An educated workforce (at all levels) remains a critical national requirement.

You can take that one step farther.  Equality of opportunity is usually discussed in terms of social effects, but there is a corresponding benefit to the free market.   Business and the market benefit when all persons are able to achieve up to their capabilities.  The United States used to lead the world in upward mobility, but with rising inequality it now ranks behind most developed countries.

There is one more government role that fits here as well, namely research.  Government support of research produces people to be hired by cutting-edge businesses, and also supports the creation of new businesses to exploit the progress of science and technology.

Current status:

– For college, the student debt crisis speaks for itself.  A whole generation of students can’t imagine when they will be able to get out of debt.  This is compounded by De Vos’ support of shady lenders and weakening of controls on fraudulent educational institutions.

– For K- 12 education, states have retreated in funding, and De Vos is proposing a voucher system that will abandon the broader population.  Vouchers will be fixed in dollar value, to be augmented by surcharges at the now-privatized schools.   If you want a good education you pay for it; if you can’t, there is no guarantee of what you get.  This is institutionalized separate and unequal.

– Trump’s budget essentially abandons the government’s role in research, and his appointees have attempted to minimize the role of science.

=> There is surprisingly little recognition that government has an important role here at all–except to privatize it!

 

Scope of the free market

Adam Smith felt that the private sector could not be trusted even to defend free markets.  So it is not surprising that there are other aspects of society that need defending as well.

We give a few examples:

– Well-being of workers.   Smith describes effects of supply and demand on workers, and he even points out that adequately-paid workers may be more productive, but he makes no claim of utopia from the free market.   In fact in Smith’s description, workers’ welfare depends on a market for labor in which individuals have little bargaining power.

– Resources and the environment

Enterprises will use the environment for their own benefit, unless there are rules to the contrary.

– Infrastructure

Public resources such as roads, bridge, airports, internet, etc. should be built and maintained as needed by everyone.

Current status:

– Trump has pushed to limit OSHA workrules, opposes unions, and has no plans to raise the minimum wage.

– The EPA is being severely cut and redirected to helping businesses.

– The stated approach to infrastructure is via private investment, which will go where the money is.

=> There is no recognition that areas such as these can be out of scope for the private sector.  Instead there is a blind belief that growth solves everything.

 

From this summary it should be clear how far we are from free market economics.

The current national policy is that the private sector just needs to be encouraged to go do its thing.   We don’t have to care about policing its risk, we can let it take care of education and research, and nothing other than its success is needed to solve every other problem in society.  Just make sure it’s flush with cash and let it go.

That was the history of the nineteenth century, and for vast part of the population it was no picnic.  And it is worth remembering that 1929 really did happen.

Even thinking of the more recent past there’s an eerie familiarity about our situation.  We have a supremely confident lunatic fringe with the power to run amok.  The last lunatic fringe to take control of our government (remember the neocons?) gave us the Iraq war—which destabilized the Middle East and bankrupted the country—and the crash of 2008.

This time it could well be worse.

The NFL and the EPA

Nothing more needs to be said about the cowardly and calculated attacks launched by Trump on individual NFL and NBA players.  But it’s hard not to be shocked by the deliberate appeal to racial hatred—we know all about those traitorous bastards.

However, the main subject here is the attack on the NFL itself and what’s behind that one.  For anyone who has somehow managed to escape it, here is the quote:

“Today if you hit too hard—15 yards! Throw him out of the game! They had that last week. I watched for a couple of minutes. Two guys, just really, beautiful tackle. Boom, 15 yards! The referee gets on television—his wife is sitting at home, she’s so proud of him. They’re ruining the game! They’re ruining the game. That’s what they want to do. They want to hit. They want to hit! It is hurting the game.”

The first thing about this quote is that it was not made up off-the-cuff; he told exactly the same story a year ago so he knows what he is saying.  In that case he made the conclusion explicit:  the problem with the NFL is that “it’s become soft and our country has become soft.”

What does that actually mean?  He is asserting that it shows our moral superiority as a nation if one of our most widely-watched activities is a spectacle in which people are maimed for life.   Why would he say that?  Part of it may be cultural I suppose, but not all of it.   In this particular context he’s talking about working conditions and attitudes of viewers.   There should be no constraints on what people are asked to do, and it shows weakness to care about it.

The “working conditions” comment is not far-fetched.   This is exactly what is proposed for OSHA—businesses should be able to get away with whatever they deem necessary.  Bosses should tell workers what has to be done, and workers need to be tough enough to go do it.   It’s like the army.  Of course you’re going to be shot at—stop being a sissy.

But implications go farther than that.  The latest event at the EPA was the nomination of Michael Dourson–whose career has been spent helping businesses fight restrictions on toxic compounds in consumer goods—as lead chemical regulator for the EPA.  We the public need to suck up that pollution stuff and be tough too.  Business needs to be able to do what is necessary to get the job done.  If anyone gets in the way it’s because “our country has become soft.”

It’s a great world where you can order people around, and anyone who doesn’t agree is a traitor or a sissy.  There are people with a lot of money trying to make it happen.   If we don’t watch out they will.