How to Really Make America Great Again

October 10, 2018

America was great(er) before Trump. This administration is on the wrong track. The focus is on military power and border security, and domestic policy caters to corporations and the wealthy. We are bullying allies over the balance of trade, while virtually all economists see this as a straw man, the real economic issue driving  trade balances (or imbalances) being national savings and relative costs of production.

As Trump tries to retreat to the manufacturing era of our past, we are dangerously delinquent in addressing the most important problem and opportunity for America–creating jobs for the future in the knowledge and service economy–our proper destiny.

While in most respects, America has always been great, we have flaws, and some have been compounding. Our infrastructure is decades behind. Wages for the working class have been stagnant since Reagan. Our pell mell approach to globalization has been without attention to the downside for at risk members of our working class. Our shortcomings have become increasingly evident to voters, and, indeed, became the fulcrum for the Trump ascendence to President.

I believe the worst of our problems is inequality. We’re tragically deficit in reaching reasonable levels of inequality in our treatment of race, religion, gender, disability, and many other measures. But the most important of these is economic inequality–because, without enough for shelter and food, good education and health care, and all the rest fade in importance. Economic sufficiency is simply fundamental to life.

Economic inequality has been rising steadily since the 1980s, and has now reached the level of the Robber Baron era of the 1920s. See previous posts.

To be fair, the fundamental problem needing to be addressed is not of Donald Trump’s making. It has been advancing (worsening) for 40 years, under both Republican and Democratic administrations. It is true, however, that President Trump seems oblivious, and only seems certain to further advance the fortunes of the well to do (e.g., his tax relief legislation).

So, what could an administration do to actually reduce inequality (not to total equality, of course, but to a level which preserves motivation, but enables all of us to have decent lives and opportunity)?  The answer is in jobs and a constant focus on shared prosperity.

It’s not on more welfare (or “handouts,” as Conservatives call social safety net programs). Those are necessary in the interim, but not the long term solution. The ideal is for everyone who wants a good job to be able to find a path to one–with a little help.

In his campaign, Trump capitalized on the key problem–jobs. He offered a convenient  and appealing solution: He identified the culprits to the deterioration in good jobs as immigrants, globalization, and foreign nations. He promised to bring back manufacturing by bullying US manufactures to stop producing abroad and forcing foreign companies who want to sell here to produce here. Immigrants, China, and Mexico became the primary enemies.

No decent economist bought these arguments, but a huge swath of America did. A big segment of support came from blue collar workers who hadn’t seen an increase in real wages in 40 years. They had struggled through the jobs losses of the Great Recession begun under George Bush. Another segment of support came from the wealthy, who liked his plans to cut taxes and eliminate regulations. Few on the political right chose to point out the obvious that bringing back manufacturing was impossible–in fact, manufacturing jobs had been declining steadily for 30 years, an irreversible factor of cheaper labor elsewhere. That cheaper labor elsewhere meant cheaper products for blue collar workers at US Walmarts, but somehow this advantage seemed lost on his supporters.

An intelligent President could collect a panel of the best known experts on the nature of work. Here are a few of the most significant findings he would discover:

  • It’s not possible to bring back traditional manufacturing.
  • The obvious future of work in the US is in skills based work, and the better paying jobs are in the service and “knowledge economy,” meaning technology, science, engineering, and such as AI, robotics, and the like.
  • Our education system has fallen prey to reduced funding and a widening differential between cost of education and wages.
  • Opportunities in trades are short of vocational training opportunities which need to be local and affordable.

The objective of a plan to fix inequality would not be to build a permanent welfare state–socialism. The objective would be to restructure our capitalistic workplace such as to best enable a continuing flow of entrepreneurism driven by scientific and technological experimenting and creativity.

And here is some of what must be included in an intelligent approach to fixing jobs of the future, wages, and consequently, inequality:

  • Education
  • Collaboration between local employers, local educational institutions, and local governments, supported by federal government incentives
  • Government investment in basic research
  • Immigration–more of it, at all skills levels–proven to raise economic growth
  • Foreign countries–partnering to allow other countries to use their natural advantages to our benefit
  • Infrastructure

Since Trump regards himself an expert at virtually everything, listening and learning not among his limited skills, there does not appear much opportunity for anything like this to begin to materialize–until perhaps 2020! Don’t hold your breath for a greater America in the meantime.

*I must give credit to my Harvard Professor Dr. Roberto Unger for thoughts on work of the future in the US.

I Love Trump: He Does What He Promised

July 16, 2018

In my last post, I identified the two problems with “I love Trump because he says what he thinks.” The other common defense of his supporters is that he does what he promised.

As with the former, there are two problems with this defense. First, he hasn’t delivered on a good many of the promises he made. Here is a partial list of promises not fulfilled:

  • Health care
  • Bringing back manufacturing
  • Infrastructure
  • Solving our immigration problems
  • Building a wall and making Mexico pay for it
  • Expanding national right to carry concealed weapons
  • Eliminating wasteful spending in government
  • Bringing back waterboarding (or “a helluva a lot worse”)

What he has done is cast blame for these failures on Democrats and fake media. This, coming from a President who campaigned on being the best deal maker and the best negotiator–ever. Having his party controlling both chambers of Congress, he is nevertheless in need of scapegoats. It seems his deal making skills are insufficient, even with all this power at his fingertips. Of course, there are millions of us who hope he will never succeed with some of his promises, e.g., the wall, waterboarding, etc.

The second problem is even more negative in consequence. For the promises he has kept or in the process of trying to keep, many of those are highly detrimental to the US:

  • The tax cut
  • Tariffs on imports
  • Suspending immigration from certain countries
  • Increasing military spending
  • Moving the Embassy to Jerusalem
  • Pulling out of the Iran nuclear deal
  • Temporary ban on new regulations
  • Defunding Planned Parenthood
  • Nominating Supreme Court Justices

The promise to cut taxes was received by economists as something not needed, because the economy was already strong on his arrival to the Oval Office. Furthermore, it was taken by the citizenry to portend big benefits for the working man. He refused to structure it such as to primarily benefit workers, financed by higher taxes on wealthy and corporations. Instead, what he delivered went 80% to the wealthy (his donors) and to corporations, with only a little trickle down to the middle class. He financed it by adding more than $1 Trillion to the national debt.

The trade war he has ignited by raising tariffs on imports is now threatening the global recovery, and is already costing US manufacturer and consumers in higher prices.

The increase in military spending for a country already spending more than the next seven nations combined is not something supported, except by conservative hawks. Why not, instead, spend more on education and infrastructure?

And on, and on. So, many of the promises kept are harmful in the opinion of many of us, and among the unfulfilled are many we hope will never be fulfilled.

It is hard for Liberals to find anything undertaken by this administration as positive. But even in the destruction of a wrecking ball, there seems to accidentally result a few positives. The attempt to reduce regulations is commendable, were it not for the choices of regulations, including severe damage to our environment, as an example. His attempt this week to use Executive order to demand job training of major corporate employers is positive–depending on how it is executed.

In school, a failing grade was anything below 70. Many of us feel the grade for this administration is between zero and maybe 20, stretching to be generous. The problem is that the  whole philosophy or strategy (if there is one) seems to be selfish (“America First”), economically oriented toward the wealthy, and stoking fear of immigrants and foreigners to build military at the expense of much greater needs.

The great unanswered question of this period is how, why, do his supporters fail to see the Emperor has no clothes. His economic policies are seen by economists as detrimental to those who voted for him. Yet, their blind devotion to him seem unfailing. No doubt, this phenomenon will be the subject of a vast psychological, sociological, and political literature in the aftermath of this administration.

Let’s just hope the the first (“destructive”) phase of this Populist era ends soon, and is followed by a positive second phase–a reconstruction of a better America, one dedicated to shared prosperity for all, to peace, and generosity toward the rest of the world, which is almost all poorer and in greater need than are we.

 

I Love Trump: He Says What He Thinks

July 15, 2018

This is what one of President Trump’s supporters said of his recent trip to London. To be sure, a group of thousands protested him there. The media made much of how he failed to respect protocol with the Queen, and how he insulted Prime Minister May in his comments to the Sun, a respected British newspaper. Those comments were recorded and played back verbatim, making senseless his later denials that he said those things.

Yet, saying what he thinks is often a defense among Trump supporters. For those of us trying to be reasonable about a President who is highly objectionable, this kind of defense is exasperating. We hunger for something like this from his supporters: “I like his policy of America first because… {explaining how this will benefit us, addressing its negative consequences, such as trade wars, and explaining why it doesn’t matter if it hurts others in a needy world}. But, no. Often this is all we get: “We love him because he says what he thinks.”

There are two problems with his saying what he thinks: The lesser one is that what he thinks one minute can be totally inconsistent with what he thinks the next–as when he roundly criticized the British PM, and then later praised her the next day–over the same issues–trade. He has no stable set of principles or strategy. It seems that whatever  comes into his head at the moment is what we (and his staff) are left to try to sort out. In a world struggling for direction and predictability, this from the “leader of the free world” is far from comforting.

The second issue with saying what he thinks is that whenever he finally lands on a position, the opinion of millions of us is that what he thinks is not good for America or the world. Here’s a partial list of my own problems with what he thinks:

  • Focus on our trade deficit, when our savings rate is the real issue, and thus dragging us into trade wars destined to raise costs to Americans.
  • Moving our Embassy to Jerusalem without resolving issues with neighbors.
  • Backing out of the Iran Nuclear Deal, when other nations feel it is a good deal and is working.
  • Withdrawing from the Paris Climate Accord.
  • Focusing on “bringing manufacturing back,” when the future of US work is in the knowledge economy.
  • Promising a “tax cut,” and then delivering benefit mostly to the wealthy, financed with debt.
  • Again, this is only a partial list.

He is rapidly losing any foreign support as the “leader of the free world.” That is being surrendered to Macron, Xi, Merkel, Putin and others, with some of whom he shares and admires strong man or dictatorial ambitions.

But, saying what one thinks apparently has appeal to millions. After all, this is a world where politicians and institutions have failed in many countries–failed to deliver prosperity for all, justice, fairness, and even safety, as some see it. This is a world where blunt criticism of the status quo is widely admired.

That’s all fine in the first stage of populism, which is where we are in the US and in Russia, Hungary, and many other nations, with many more moving dangerously in that direction–nationalism, objection to immigrants, and a desire to tear down existing institutions and dismiss the politicians who supported those institutions. So that is what Trump and others are doing–tearing down. Some periodic tearing down is good, as with eliminating regulations that are outdated or where benefits are outweighed by costs.  But Trump’s tearing down lacks an overall plan which does that.

Thankfully, second stage of populism is the critical part–after flawed institutions have been torn down. In this stage, the key is what replaces them, and what kind of leadership is chosen to take us into a future which can deliver shared prosperity and all the above–or at least an improvement over what caused all the discontent in the past.

This is not a role Donald Tump can play. He lacks a vision of the future which will make America or the world a better place. He’s just into indiscriminate tearing down.

PS. This writer is primarily concerned with the growth of inequality in the US and the world. I am driven to write about politics because what is happening, particularly in my country, is terribly troubling.  Understandable discontent is being stoked to anger against those not responsible and no plans for a better future are evident, two years into this administration. At the root of the discontent and the rise of populism, I argue, is inequality. If we had good jobs, rising wages, and reducing inequality, there would be less discontent, less populism, and less room for this kind of highly flawed leadership.

Mind the Gap

May 26, 2018

As the subway train pulls up to the platform in Hong Kong, the announcement is “mind the gap.” It’s really a small gap between the platform and the train, but it’s wise to pay attention.

We have failed to mind the gap as it relates to income and wealth inequality in the US. The gap has been steadily widening across both Republican and Democratic administrations since Reagan in 1980. What is the outlook for the gap under Trump?

Screenshot 2018-05-28 20.08.50

Inattention to the gap is all the more true under the Trump administration. Economic inequality is never even mentioned by this administration, and nothing this administration has done is likely to narrow the gap. Infrastructure improvement would better enable workers to get to work in expensive cities, from the distant suburbs they can barely afford. Health care for all, promised but not being addressed, would significantly improve lives and income for the middle class and below. These things are not being worked on.

The massive tax cut enacted went 80% to the wealthy and corporations. The rhetoric about restoring manufacturing jobs is only talk. It’s not happening, except in higher tech manufacturing, with an education/skills gap that is also widening as fewer youth can afford the cost of colleges.

Trump inherited a robustly growing economy. He added a little steam with his tax cut and loosened regulation. We are now near full employment and wages have increased modestly, the first real increase in years. This is welcome to the working class, many of whom are heralding the prowess of their idol, while failing to understand the source–the global recovery momentum largely driving wages and jobs. And, most don’t understand the dangers of Trump policies for future years, although many credible economists (e.g., Larry Summers, Jason Furman, and others) see this spurt in growth and wages as temporary, predicting the $1.5 trillion debt financing of the tax cut will come home to hamstring the economy in the future.

While Trump doesn’t seem to understand economics, he may be the luckiest President in ages. He inherited an economy that was already producing much of what he promised, not of his making. He quickly claimed it as his own, with daily compliments to himself, via FaceBook, Twitter and rallies held wherever he could find Americans fed up with decades of stagnant wages and rising inequality, and told them immigrants were responsible for all that, plus foreign nations cheating on trade. Suddenly the unemployment statistics were proclaimed as accurate, whereas the same statistics from the same sources during the election were “fake.” He boasts as if the employment gains all occurred in his first year, whereas in fact, this is the 9th year of a global recovery.

The current issue of The Economist tackles the question of whether US capitalism under Trump is delivering for more than just shareholders, benefits for all. They ask whether investment is rising and whether employees are benefitting.

The answer is “yes, but….” They find a “tech-centricity” of investment, suggesting a possible future trend of jobs and payrolls declining. That’s because tech firms, where most investment is occurring, on average create fewer jobs for the same amount of investment. Many traditional firms are  experiencing slower growth as they compete with the likes of Amazon. “Spillover” jobs which economists predict as replacements to those lost to automation, are generally at much lower wages. Examples are home health care, paying $22,000, or driving for Uber.

The Trump administration is trying to offer the same bargain China has had with its citizens across its rapid growth era since 1979. The deal is that as long as China can sustain an economic growth rate that produces full employment and slowly increasing wages, citizens will tolerate steadily increasing inequality, and other problems. But if the growth rates falls to insufficiently providing these modest advances, there will be an uprising.

The Economist finds it is unlikely the current administration and its policies can yield sustained growth with adequate benefits for all. An NBER study found that between 1978 and 2015 the share of income losses sustained by the bottom 50% of American workers were far greater than those sustained by the the bottom 50% in China.

In US inequality parlance, “we don’t care how much the wealthy get, as long as we are getting increases and doing ok.” Workers are getting a little now, while the wealthy are raking it in.

The American workers’ willingness to tolerate increasing inequality baffles American political scientists. The poor don’t vote for redistribution. Is it because of the uniquely American ideology of personal independence–the Horatio Alger story? Is it because the poor hope to become rich and they don’t want to share those riches when they do? Or, is it because the wealthy are so effective at bundling their proposals with gun rights, abortion, anti-immigrantion, and other themes popular among the lesser privileged?

No one knows, but in the meantime, no one is minding the gap. Trump isn’t. Congress isn’t. And, regrettably, the Trump voters aren’t, although this demographic has the most to lose.

The gap is so wide already, that millions of Americans cannot make it to the train. What is it going to take to wake us up?

 

The Fake Deep State

May 22, 2018

There is no “Deep State” in the US.

It’s that simple. This subject doesn’t justify a study, a committee, an investigation, or anything. This is a simply a politically based fiction of the Trump organization, supported by paranoid ultra Conservatives.

The only thing that deserves studying is this: How could the United States of America, of all nations, come to the stage that this kind of fabricated danger has gained traction?  How?

Just look at the Trump feed on FaceBook and you’ll be shocked. There are a LOT of Trump supporters who have somehow been deceived into truly believing this ridiculous lie.

Of course, the problem is that this kind of science fiction cannot be disproved, just as the belief that UFO’s exist cannot be disproved.

And, this fabrication is fed on the rare, but occasional discovery that perhaps (not for sure, but alleged) some government operative may have behaved in a way that can then be used by fiction writers on the ultra right, to provide a fake kind of “evidence” that something nefarious is going on. There may have been an FBI operative engaged in the Trump campaign–but only to determine the activities of Russians trying to support the campaign.

The Trump MO with this kind of lie is to embellish and repeat constantly: That this person must certainly have been working in some kind of highly organized secret underground network which is planning to overthrow the present government.

While many, including Trump Jr. have said publicly that the “deep state” exists, no one who believes it has published even a smattering of the names of those who are alleged to belong to it.

For the Trump supporters, such a diabolical network was not in place when Obama was President, but has suddenly emerged to try to overthrow Trump. And, for many of them, Obama is now one of them–he’s part of the “deep state,” trying to overthrow Trump. His name and that of Hillary Clinton are the only names thrown out–and with no evidence.

Nothing could be farther from the truth.

Writing in his column of today, Gideon Rachman of the Financial Times points out that this is a fabrication of the Trump supporters to distract citizens from the reality that his administration is under serious legitimate scrutiny and threat, as it relates to possible collusion with the Russians and whatever other crimes which might be under examination by the Mueller team. He also points out that a variation of such extremist thinking can sometimes be found among ultra leftists, who believe that capitalist interests constitute such a malevolent and secret organized force to take advantage of the masses.

Neither of these extremist views is correct. There is no “deep state.”

There are many of us who would like to see the Trump administration overturned (by legitimate and legal means), just as there are many on the Left who would like to see the power of capital diminished. But neither side has a clandestine secret underground network of the powerful who are highly organized and will stop at nothing to see the destruction of that which they abhor.

As Rachman points out, this is the stuff of third world countries where coups do indeed occur, but simply is not the case here.

Whatever flaws may be found with our form of government (and these days there seem to many), and whatever damage you may feel the Trump administration is doing to our nation, we have abundant and adequate protection from anything resembling a “deep state.”

A Story of a Family

Feb 1, 2018

There was once a very large family which was rich in assets, spending more than their income, and thus heavily in debt. The father proposed to build a big fence on one side of the property. Since they had no money to pay for it, he promised the people on the other side of it would pay for it. Few in the family thought it was needed, but the father insisted it was needed for their safety from those people. Most of the family did not feel they were unsafe, and if they should be, the big fence wouldn’t do any good.

Later, when the people on the other side refused to pay, had no obligation or reason to do so, he said we will just borrow more to do it. He said someday, someway, he’d fulfill his promise to get the money from those people, through a scheme that seemed very hard to understand or believe.

And he said to the family, if you don’t support me in this, I’m going to punish some other people. These people were not members of the big family, had hoped to be, and were law abiding, honest, hard working, and paying their taxes. They were very afraid of the father. He was in a position to harm them with a stroke of his pen.

Then, the father promised to give big Christmas presents to the family this year. He admitted he didn’t have the money to do it, but he said he could borrow the money and that the outcome of this big Christmas would be so great for everyone, and that somehow it would pay for itself. Very few family members believed that could happen.

But he found a way to borrow the money for the Christmas presents, even though the family was heavily in debt. Enough older children supported him to get the bank to agree. He couldn’t show how it would get paid, so he just said, “Trust me, I’m the smartest person ever. I am a genius.” So, they did.

Then, at Christmas, it turned out that some of the youngest children only got a small piece of candy in their stockings, while older children in the same family received new bicycles, iPhones, and laptops. The oldest got new Teslas, and not the cheaper Model 3 with delayed production, but the luxury Model S with a range of 300 miles. The father took one for himself.

When the youngest children asked about the way Christmas gifts were divided up, the father berated them. He called them names in public–one Pocahantas, another Crazy Jim, and continued with Sneaky Dianne, Frankenstein Al, Wacky Frederica, Crooked Hillary, Crazy Bernie, and many other names.

He said they should trust that the older children would let them play with their toys and they would get to ride in the Teslas sometimes. None of that seemed to be happening, because the older children did not really want to share. They felt they deserved everything they got, and more.

He said if the younger children did not like it, maybe they shouldn’t be in the family anymore, because he didn’t want anyone in the family who wasn’t “on my team.”

This is a real family. This really happened. It’s a very big family with a lot more younger children than older children, a lot more who got very little, while a few got a lot.

There are many outside the family who are threatened with punishment if he doesn’t get everyone agreeing to the new fence, and very soon. The family doesn’t have enough money to pay its bills next month unless he gets his way, so he can borrow even more–$1 Trillion dollars to pay for the big Christmas and to pay family bills. He has a lot of armed guards stationed around the family property already, and it costs a lot of money to provide for them. No other family has anything like that in the way of guards and expense and debt—only this family.

Most of the younger kids saw through the broken promise of the new fence for security reasons and who would pay for it, and they saw that the “big Christmas” was big only for the older kids and very, very small for the younger kids. They didn’t see any promise fulfillment and felt highly betrayed. But the older kids had more power.

And a very strange thing was also true in the family. A smaller group of the younger kids who got very little continued to believe the father. They believed their security was at risk. They believed the small gifts they got were great and that they would get more later, as promised. They joined the father in threatening the other kids who didn’t agree.

And for those outside family threatened with punishment, this part of the family agreed. They thought it would be just fine to punish those people. They only cared about their family, and only for those who agreed with the father.

No one knows what’s going to happen to this family, which was once a great family.

Americans Do Care About Inequality!

It’s very tiring to hear politicians on the right (some even on the left) say, “Americans don’t care about inequality. They only care about opportunity.”

The implication is that we should celebrate being a country where one can achieve great wealth, and we don’t want to do anything to disturb that opportunity–just try to create more of that, so anyone can “make it big.” Certainly don’t tax the wealthy more. That might reduce their incentive to keep creating jobs, And, I’m planning to be wealthy someday, so I don’t want to create obstacles that would further tax me at that time.

It turns out this is a popular theme, since Americans have a long standing commitment to independence–the idea that anyone can make it on his own if he just works hard enough. The last place we want help from is the government, which is far too wasteful and inefficient. So, we’re headed the other direction–tax the rich less and reduce government more.

But there are serious problems with this set of beliefs. First, studies show that mobility has declined dramatically in parallel to the increase in inequality, all since Reagan.

And, there are many of us who do care about inequality. Why do we care? If everything was gained not only legally, but also fairly, the problem would be smaller. There would still be a worthy debate, but it would be constrained to considerations associated with the differing natural genetic inheritance of citizens and the differences in the households into which they were born (wealthy or poor, educated or not, etc.). This would still leave a lot of room for diagreeemnt as to whether or not it is fair for someone with good genetic inheritance and/or the benefits of privileged birth and upbringing to succeed highly, vs. the lesser opportunity of those without such advantages.

But there is more. There is the question of the fairness of our system. Examples:

What about the hundreds (or thousands) of loopholes and deductions that have been granted certain businesses and individuals in our complex tax code, not reduced much in the newly approved tax plan? The shareholders and executives of such companies benefit enormously from these protections, at the expense of the rest of us, who must pay more to make up for those losses.

Then, there are industries which are subsided by the government, either with direct payments to keep them afloat or with any variety of export or import quotas or tax protections to protect them. Who makes those decisions? Are these decisions fair to taxpayers like me?

Carried interest deductions for hedge fund managers. Even Republicans refuse to defend this, but continued it in the new legislation.

What about corporate executives like John Stumpf of Wells Fargo, who get paid $23 million, while the company is spiraling into multiple frauds and regulatory failure?.

Warren Buffet, one of the richest in the world, admitted he pays a lower percentage of tax than his secretary. No one really thinks this is fair. Mitt Romney was found to be in the same situation when he ran for President. Both are lawful, no one can blame them for taking advantage of the legal loopholes, but it isn’t fair.

What about President Trump, who launched many businesses that failed, leaving stockholders, banks, vendors and workers with the losses, because he did not guarantee the debt? Legal, but unfair.

So, how do you feel when you walk through the Business Class section of the airplane on your way to crowded and uncomfortable coach seating, while privileged customers are sipping their free champagne? Do you have any moment of wondering how their wealth was obtained, whether every one of them gained it fairly, or without privilege of birth?

I venture to suggest that most of us do have such moments, considering that there is so much opportunity for wealth interests (corporate and individual) to influence legislation with unlimited advertising, lobbying, and tax free “think tanks” creating justification for legislators who cater more to the wealthy of their constituents than to the poor.

Inequality matters.

We need to provide a great deal more transparency about the legislative and taxing decisions–who is benefited and why? And, we need to make a commitment to fairness in such decisions.

Legality is not the ultimate determinant of fairness.

I don’t like to hear that the American people don’t care about inequality. Who asked me? I care.