June 26, 2017, from Da Lat, Vietnam

My brother and I often debate this. Are the people of this world better off today than before, or worse off? He’s on the positive side of this and I am on the negative side.

The answer is both, of course, depending on what segment of our global population, what factor of progress, and what two points in time are being compared.

In my brother’s defense, there is indeed a very long list of improvements the world has enjoyed, say over the last 50 years: All manner of health outcomes, literacy, transportation, access to technology, constantly reducing prices for physical products, even less conflict in many regions of the world. A very poor family in 1967 might not have had a TV, air conditioning, a decent refrigerator, and no mobile phone, of course, just to mention a few of the notable advancements almost everyone can enjoy.

My concern starts with economic inequality. Global poverty has declined dramatically but most of the reduction is in China and India. In the US, poverty has not declined measurably. In 1967, we had 11.4% of our US families in poverty, and in 2015, 10.4%, a negligible improvement. We have about 40 million Americans living under $25,000 for a family of 4, as an example. I’m sure all will agree it’s really tough to survive on that, no matter where you live in the US. Wages for the bottom 20% of our population have not increased in real terms since 1967.

Of course, I acknowledge that a family of four may have better health care, better 2nd hand car, and TV than the same family had in inflation adjusted equivalent wages in 1967.  They may have a mobile phone. You may hold that such a family is better off in eking out an existence.

But two major intangible elements swing the evaluation negative in my opinion: inequality and mobility. Please see previous posts in which I argue that relative status matters, inequality matters. Inequality has skyrocketed across this period. High levels of  inequality are tied to slower economic growth, impaired health results, more crime, and other negative outcomes.  Even those who continue in disbelief as to the negative impacts of inequality, all seem to believe mobility matters. But in tandem with the increase in inequality, mobility (ability to earn more than your father) has steadily declined across the last 50 years in the US.

While physical products cost less, the important costs have increased dramatically–housing and education.  That family of 4 cannot even consider college for their kids. Primary and secondary education is in starved public schools which have deteriorated. They can’t afford to even consider owning a home, and costs in the city have pushed them to slums or to distant suburbs far from good jobs. We’re about to make health care a lot more expensive.

My brother, my sisters, and I are clearly better off than in 1967. We had good public educations, went to college, landed good jobs, enjoyed improving health care, raised families, all of whom went to universities. We clearly enjoy a much better life than my parents’ family did in 1967. But I see how much harder it is for my children to find and land solid jobs, how much more in annual income equivalent is necessary to buy a home and to send my grandchildren to the best schools.

Will the future be better or worse? Climate change, terrorism, global conflict, inequality, mobility…?  At the end of this semester, I discussed my primary concern with a Harvard professor I respect. “Will inequality increase because of robotics, automation, self driving vehicles, artificial intelligence, machine learning, etc.?” He said he’s cautiously optimistic that will not happen. He referred to the way the abundance of agricultural workers no longer needed (when automation came to farming) were absorbed over a few decades into factory jobs. But as to how something like this could happen in the advancing digital age, he did not have a theory. I’m worried.

Whether you think we’re better off or worse off, whether the future will evolve beneficially or harmfully, without intervention, what difference does it make? The implications of taking a stance are probably significant. If you think we’re better off, perhaps you don’t see a need to invest heavily in fixing the problems. If you think the opposite, perhaps you are more motivated to influence change.

I want change. Hoping for a miracle is not satisfactory.

June 26, 2017, from Da Lat, Vietnam

“To be honest, I steered my children as far away from manufacturing as I could.” This from Jeff Niebauer, age 60, who spent his career in manufacturing at about $30 per hour, reported by Heather Long of CNN.

I never worked in a factory as an adult. I managed to get a college education and get a good “white collar” job on graduation. However, as a teenager in High Point, North Carolina, I did all manner of menial work–mowing lawns, painting schools, filling stations, grocery stores, tobacco fields, and also in a textile factory. Using a Trumpism, “I will tell you, believe me..,” I quickly determined I had to do everything in my power to avoid the kind of factory life my parents had manufacturing stockings and socks at Adams Millis.

Does anyone have trouble understanding this? It’s the hard repetitive work, the low pay, and the limits on ability to use your mind. For parents in our early 20th century agricultural economy, the route upward for their kids was the factory, but now it must be from the factory to the services and knowledge economy.

Niebauer worked for GE on industrial engines at $30 per hour, work far better than my parents and I had, and pay at twice today’s proposed federal minimum wage. Yet, he doesn’t want his children to do this kind of work.

If parents understand that manufacturing is not the opportunity of the future, why doesn’t our new President understand that? How can he satisfy the distress which garnered him the votes, by proposing to reverse our course in jobs advancement, trying to “bring back” manufacturing? The ironic good news is that bringing manufacturing back is impossible. Manufacturing is pressed on one side by low wage countries and on the other side by automation. Trump’s touted Carrier deal has already evaporated, as Carrier announces 600 layoffs.

There is a clear avenue of opportunity.  We are among the few leading developed countries with a burgeoning service sector, required to meet our growing needs, some of which is highly exportable. Furthermore, the US is at the leading edge in technological development, and has a clear opportunity to grow in the knowledge economy. However, our administration has yet to offer even a recognition of this opportunity, much less a plan to  prepare us to realize it.

What would it take for us to realize the opportunity in services, technology, and the knowledge economy? I argue it would take three things: (1) a commitment to shared prosperity, which goes beyond redistribution to a commitment to “good jobs” for everyone; (2) a new approach to good education for all, in which everyone has a reasonable chance for developing new trade skills, technological skills, or other skills, each in accordance with her/his abilities and aspirations; and, (3) our government helping by investing in fundamental research and infrastructure, as well as capital to promote new business development.

I acknowledge this is a tall order. It would require revolutionary thinking not consistent with government policies of the last 30 years, and perhaps especially resisted by this government. Some will say it is utopian. It is lacking the abundance of details which would seem to be required to even start down this path. Here I must acknowledge Roberto Unger, my professor at Harvard this semester, who urges such an approach. Unger is often challenged by students who want a “roadmap” to this ideal society. Unger repeatedly advises the specifics can only be determined by experiment in communities, small and large. Certainly some experiments with institutions involving citizens, business, and government will fail, but we will learn and correct our mistakes. If the objectives cited above are kept in mind, a zig-zag path of advancement can lead to such a society.

The only reason voters rallied to the empty promise of restoring manufacturing jobs is that we have not laid out the path to the only real opportunity ahead. So, even if our new President was able to restore our manufacturing economy (which no one can do), it would not satisfy the needs of unhappy American factory working parents.

Manufacturing parents, you need to demand better answers for your kids.

Yes, that’s what Ellen Zentner, Chief US Economist for Morgan Stanley, says. Maybe 3% for 2nd quarter, only because of a rebound from 1.2% in the 1st quarter. But, on average, look for a very sluggish 2% growth rate for 2017 and for the entire Trump period of office. Or worse.

It could be worse. There could be a major negative shock, such as the sudden failure of our subprime mortgage derivatives in 2007, arguably due to Federal Reserve interest rate management in years prior. Many see this in retrospect as a failed government ploy to stimulate additional spending based on inflated home values. This is an example of how poor government and failed regulation can turn even 2% into a crisis. This kind of shock is very damaging, especially to the working class. During  the “Great Recession,” we were losing more than 500,000 jobs per month, and GDP growth was negative.

It’s much harder to imagine an event or a development which would result in a positive lift in growth rate. TheTrump administration projects 4%, but that’s impossible with a mature economy such as ours at this time, barring politically impossible major stimulants–such as a dramatic increase in immigration (millions more than the 1 million we currently take). Or something far worse and perhaps a bit more likely–the Trump administration stumbling into a major new war. A war might raise the GDP growth rate as we stock up weapons, but the overall consequences would be horrendous.

The Trump administration pins its 4% hopes mostly on tax cuts. It’s rather hard to believe they have succeeded to sell the belief that lowering taxes across the board, corporate and individual, will somehow stimulate the economy in a significant way. That won’t happen. The major impact of tax cuts will be further cuts in programs which benefit the working class, starting with health care, extending to education and other support programs.

The so called “Laffer curve” theory of tax cuts stimulating growth has long been discredited. This would only happen only in a situation where  there is demand to buy, but a constraint on supply of investment and where tax cuts are funneled into creating new businesses which need employees to satisfy the demand. Lately, tax cuts have not resulted in the wealthy investing in jobs creating businesses. And, why should they, when so many citizens have so little money to spend?

The major implication of a 2% economy is that there will not be enough economic growth to enable improved incomes and opportunity for the working class. Our major corporations may still find modest growth in profits and value by reducing expenses, by taking greater advantage of advancing technology, and from the lower tax rates Trump intends. That will benefit those who own stock, but not the working class.

The fact is that economic growth is necessary, but not sufficient to enable any reduction in inequality, any improved access to better jobs, or any reversal in the decline in upward mobility. These require not only strong economic growth, but also political will to enact legislation that favors the working class. We’ve been enacting the opposite type of legislation for more than 30 years now.

At this time, we should be laying the foundation of the next era of solid growth for the US. That growth can only be in the exciting knowledge economy, and not in trying to turn back the clock to restore the manufacturing economy, when so many others nations can do that so much better and cheaper now. We should set about preparing to lead the knowledge economy of the world, with the companion goal of making the future US a society of shared prosperity.

Donald Trump was elected on an agenda of restoring American jobs. He promised to do that largely by threatening foreign countries and large US corporations with jobs in manufacturing going abroad. That plus much stronger economic growth–4%.

Nothing this administration has promised or has done engenders confidence of respected economists to project anything more than a 2% economy.

One has to wonder how long it will take supporters to realize the promises are not going to be kept.

June 12, 1017, from Da Lat, Vietnam

Donald Trump won his populist campaign on an isolationist agenda for the US. In the process of his feeble attempts to deliver on that set of promises, he has not only surrendered world leadership, but embarrassed a great nation in the eyes of the rest of the world.

World leadership is a combination of three factors: Military power, economic power, and “soft power,” the latter defined as how the country is viewed by other countries in terms of ideology, life style, fairness, and a wide variety of factors adding up to reputation.

Trump’s economic plan is widely seen as unlikely to grow the US economy much above 2.5% annual growth. He threatens trading partners, offers a highly flawed and tiny plan for our massive infrastructure needs, and pays no attention to the reality that we should focus on preparing for the knowledge economy of the future, not to turning back to try to recover manufacturing jobs.

His attitude toward allies, trading partners, Muslims, Mexicans, Russia, his businesses, his nepotism, and immigrants has dramatically lowered our soft power.

If Congress approves his outrageous military buildup, maybe we sustain that element of leadership, but with a budget already equal to the next 7 counties combined, spending even more only motivates others to spend more to protect against us. His cozying up to Saudi Arabia and Russia has left major parts of the world in confusion as to what are our military and foreign affairs intentions.

I don’t offer Putin as a contender for global leadership, because I believe the “soft power” of Russia is in the gutter, and the Russian economy is also performing very poorly.

Thankfully, there is Angela Merkel in Germany, who strives to hold the European Union together, and who leads a country with strong growth and good reputation for sensible foreign relations as well as welcoming arms for the immigrants and refugees of the world.

Of late there is Immanuel Macron, a surprising victor in French elections, who has a strong mandate, and has an agenda likely to re-start the French economy. Macron appears quite able to hold his own with Trump, and will work well with Merkel to fix some of the problems of the EU. He speaks of “making the planet great,” while Trump makes it clear that only the US is his only concern.

Finally, there is President Xi. The Chinese economy is now larger than the US.  The percentage growth rate of the Chinese economy for the foreseeable future will widely exceed that of the US, so the gap in economic power will only grow. China is deeply engaged with infrastructure investments in many countries, just announcing a huge “Silk Road” project benefitting surrounding countries. Chinese military spending is less than ours, but rising rapidly. They build their own fighter planes and aircraft carriers now and are planting military bases on reefs in the S. China Sea. The reputation of China is far from perfect in terms of human rights and the environment, but they don’t interfere with other countries, and it appears they are quite willing to pick up the mantle of climate change from the gutter where Donald Trump threw it.

Isn’t it ironic (and ridiculous) that Donald Trump actually thought that his agenda would take the US to stronger global leadership? In fact, within only three months, it has already diminished our global standing measurably. Trump shows zero concern for global citizenship. He has opened the door wide for other leaders to guide global affairs. Thankfully, several promising candidates appear to be stepping right up to the plate. Even his own party leader, John McCain, says Obama was a better global leader.

Perhaps its not hard to see the connection between Putin and Trump. Both seem hell bent to diminish the greatness of their countries, all for nothing more than a personal power binge.

June 11, 2017, from Da Lat, Vietnam

This post is about balance, the balance of relative status, the balance of inequality. The US is out of balance.

When I started grammar school, I became vividly aware that the sophistication, demeanor and clothing of my family did not compare to that of many of my classmates’ families. My parents both worked in a textile factory. Neither had a college education. Our used car always had dents my father couldn’t afford to have repaired. Jerry’s father owned a successful plumbing business. Glenn’s father was an optometrist and he lived in Emerywood. My home was a small rectangular house with shabby furniture and a garden behind, in which we raised vegetables which mom put up in mason jars for the winter. My brother and I shared a bedroom. Glenn’s large home had a garden too, but it was a flower garden. He had his own bedroom.

We always had enough. For most of our childhood, our parents had secure factory jobs. Although they never had three months of savings, we  never had to worry about “enough” food or ability to have clothing or transportation. They even found the $130 to buy me a trombone when I begged to be in the band. While having enough was necessary, of course, it wasn’t sufficient. I was painfully aware of our relative status, how it felt to me, and how I imagined we were viewed by my friends and their parents, who never chose to invite my parents to their social events.

Later, when I was a Vice President of a bank, I remember feeling troubled when one of my peers was promoted to Senior Vice President and I wasn’t yet. I’ve just finished The Broken Ladder by Keith Payne. I recommend it to everyone, especially those who argue (for a variety of reasons) that inequality doesn’t matter. Payne shows with dozens of examples and studies, that in fact, it matters greatly. Inequality is a matter of relative status. Relative status matters.

Payne makes the point in his book that relative status is more important than pay–at least up to a point. If my boss at the bank had offered me a choice, stay as VP for a while with a 20% increase in pay, or become an SVP with no pay increase, I would have chosen the latter, without hesitation. Wouldn’t you?

Throughout my career, I always had “enough,” but I was always aware of my relative status. I am not unique. Relative status matters to most everyone. The feelings I described as a child were during a period of much lower US inequality. How much greater the feelings now among our citizens today, when we are so out of balance! Steadily increasing inequality across the last 30 years has exacerbated this troublesome reality for the current generation.

I don’t dispute the way many other ways people prefer to talk about inequality without using that word. As long as they are trying to make life better for the working man and woman, it’s all good. But I continue to argue that high inequality will continue to be a major problem, even if everyone has “enough, and even if we all have dependable jobs and steady wage increases. If everyone had their income doubled, we’d still have a big problem. Inequality, already high, would be even higher in that scenario, because doubling for the high incomes would be so much more than doubling for the low incomes.

Study after study shows that high inequality carries with it high levels of negative health outcomes, more crime, more drug abuse, even reduced life expectancy, along with lower levels of happiness. This is true when comparing New York (high inequality) to Iowa (lower), and also when comparing the US (high) with Sweden (moderate to low).

Various inclusions and exclusions of sources of income or redistribution result in different Gini coefficients. For the US, these range across various methods to a high of about .5 today. Regardless of method, no one disputes that inequality has risen dramatically since the 1970s and is now equal to that of the “Robber Baron” era in the 1920s. When the public thinks CEO pay should be 4.6 times that of the average employee and the reality is that it is 350 times, we are in dangerous territory.

If you’re riding your bike and lean too far to the left, you’ll fall over. If you lean too far to the right, you’ll fall over. To have a safe journey, you have to maintain balance within a  range that prevents trouble.

No one wants total equality. At some low level of inequality, the motivational benefit of increased inequality outweighs the negative costs. But at this point, we have the opposite problem. The costs outweigh the motivational benefits to our society.

Our national policy should prioritize steadily reducing inequality through political action, until we find the balance that is right for our country.

June 6, 2017

I’m so tired of hearing people say inequality doesn’t matter. I expect it of Conservatives, but even Liberals say this.  They argue that people don’t care if a segment of society is wildly rich, so long as everyone else can enjoy modest advancement in income. I don’t believe that. Alternatively, they argue that mobility is the issue–that as long as people have the chance to rise up the ladder with hard work and intelligence, then inequality doesn’t matter. That suggests mobility is independent of inequality. In fact, mobility has fallen dramatically across the last 30 years, pretty much in tandem with the rise of inequality.

I was born into a poor family in the tobacco fields of North Carolina. I have been relatively successful. I paid all my taxes. I never cheated along the way. There are many like me. The successful of us baby boomers now have more than we need. Do we now have the sole moral right to our wealth, since we worked hard and played by the rules? We could just relax at the club. If the poor want wealth, we could remind them they have to go out and get it on their own. No matter their genetic inheritance as to height, health, intelligence, and other valuable human traits, their race, family situation, native language, neighborhood, role models, economic status? No matter that government has withdrawn a lot of services which paved my road to success? I don’t buy that, Ben Carson, Morgan Freeman, and others who makes such arguments.

I feel we do have an obligation to help others not so fortunate, and also an obligation to force government to take actions to correct the rise in inequality.

Being a white anglo-saxon protestant male didn’t hurt. Maybe my luck of birth gave me a slightly above average intelligence, and a predisposition to hard work. I probably didn’t originate these things. They were handed to me by my genetic inheritance and my community. I only further developed them. I didn’t singlehandedly pull myself up by the bootstraps. No one does. We all got a lot of help along the way–family, friends, and teachers, for example. And some luck.

We have an obligation to share what we have, to help those less fortunate, especially in this era, in which success and mobility is indisputably harder to achieve than when I started working in the 60s and 70s.

In his column of June 3, Nicholas Kristof makes a brief and powerful argument that inequality matters. He references a great book, The Broken Ladder, by Keith Payne.

Payne provides many examples illustrating that inequality matters. One example is the discovery that sports teams perform better when wage inequality between players is lower. Another asks how you feel as you walk through the first class section of the airplane on your way to your cramped coach seat? Do you feel congratulatory for those who have “made it,” or do you wonder how fair the system is, just a little? I do.

It is frustrating to see all the ways intelligent people find to avoid acknowledging the negative influence of inequality. I expect it of Republicans, but it’s also Democrats, Yes, inequality, separate and apart from mobility or having “enough,” whatever that means. And “shared prosperity” is not enough to me. That sounds too much like “trickle down,” which hasn’t worked.

Kristof references surveys showing that both liberals and conservatives would prefer the inequality of Sweden (Gini coefficient of 27) over that of the US presently (Gini coefficient of 41). Sweden is among many more egalitarian countries where there is healthy economic growth, some super wealthy individuals, but a significantly more shared national prosperity. Payne references abundant research showing inequality matters–in terms of health, longevity, happiness, social conflict, and much more. Even monkeys and rats care. People certainly do, too.

Inequality matters. It is not a natural or inevitable consequence of healthy economic growth. High inequality is the result of numerous political actions taken, over time, benefitting the wealthy over the working class. We need to roll back some of those.