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.

 

 

Preparing for Jobs Lost to Automation

To Prepare for Automation, Focus on Productivity

By: Dale Walker

Photo Credit: Alex Kotliarskyi on Unsplash.com 

As a 2017 Fellow in Harvard’s Advanced Leadership Initiative, I have come to rank David Autor among the best economists in my primary area of study, economic inequality.

This commentary responds to an excellent paper by Drs. Autor of MIT and Anna Salomons of University School of Economics in Utrecht, The Netherlands. Their June 17, 2017 paper attempts to answer a critical question “Does Productivity Growth Threaten Employment?”

Technology is advancing rapidly in robotics, artificial intelligence, machine learning, 3D printing, self-driving vehicles, and a wide variety of software and digitization services and products. Oxfam has estimated that 45 percent of U.S. jobs are highly likely to be eliminated by automation within 20 years.

Autor and Salomons conclude that as certain industries adopt technology and downsize human employment, there will probably be equivalent or larger offsetting increases in “spillover” jobs in other industries.

Here’s why: Productivity increases as technology is added. As productivity increases, the economy grows. Economic growth results in more jobs being created in health care, food, recreation, travel, and other services and products. Companies manufacturing robots or creating software solutions also hire to meet the demand for new technology.

While their analysis seems sound, the fate of displaced workers is not sufficiently addressed. There is a relatively straightforward way for the downside to be significantly softened, enabling workers to navigate the change without undue pain.

We should prepare for the worst, and celebrate if it turns out better.

There is a possibility that Autor and others are wrong. There is a stronger possibility that there are sufficient but less desirable, jobs – jobs with lower pay, less security, fewer benefits. But there is a certainty also – that the transition for displaced workers will be hard.

Perhaps today’s kids see it coming, take the right courses and prepare to land good jobs in the new economy. But while younger generations might be able to correct their professional course for the oncoming wave of automation, their parents cannot. A whole generation of today’s adults, especially those without a college education, suffers a painful transition.

Such a generational transition happened when industry replaced agriculture as the main employer in the first half of the 20th century. Steinbeck’s Grapes of Wrath paints the picture of family after family starving, homeless, moving from one overcrowded labor camp to another until there was simply nothing but death as relief. The government was not there for its people.

Technology is good for America. We don’t want to slow it down. Technology adds productivity, and that means economic growth. It brings amazing lifestyle benefits to all of us. But it has a downside for many caught without the right skills in the transition.

Average U.S. net worth is only about $69,000, according to the Census Bureau. The average worker, when displaced, is quickly in trouble with this paltry financial protection.

The fix for the painful transition is within our power. We can easily forecast the industries in which technology is going to reduce jobs. We know where companies are located. Training programs specific to the employment opportunities in the areas of expected displacements can be developed in advance. Facilitating collaboration between local employers, local educational institutions, and local governments and citizens can do this.

Skill development and job placement services can be supplemented by federal unemployment compensation and temporarily added obligations on employers who are gaining the technological benefits.

It is not government’s role to eliminate all job risk. But we cannot justify or afford to leave job displacement due to fully anticipated rapid technological change solely to individual worker responsibility.

There is a significant return on this investment. We will experience reduced costs to homelessness, crime, drug addiction, and other societal costs for displaced workers vulnerable to a downward emotional spiral. We will gain from their early return to productivity.  We can restore the global image of America as a place where people help people.

Millennials and the American myth: Opportunity is not knocking for many

October 12, 2017

illustration Photo: JGI/Jamie Grill, Getty Images/Blend Images

Photo: JGI/Jamie Grill, Getty Images/Blend Images

Raj Chetty of Stanford University and associates analyzed the likelihood that an American child will earn more than his father. In their 2016 study, they found 90 percent of us Baby Boomers did. But for people born in the ’80s, the chances fall to only 50 percent.

This is hard for Baby Boomers to believe, because most of us did so well. My annual salary rose to 45 times that of my father’s highest salary. Many had similar results, especially around the prosperous Bay Area.

 My parents were factory workers. They could only get the four of us through public schools. But public schools were good. Students could manage the cost of college in the ’60s with work, borrowing and modest scholarships. Good jobs abounded. Wages increased. Economic growth was strong.

The country was also much more equal in wealth and incomes.

Underscoring the crisis, Donald Trump rode to the presidency on a wave of anger over jobs, wages and loss of opportunity.

Americans are also blinded by a stubborn national prejudice preventing us from accepting loss of opportunity. Since our founding, Americans have prided themselves on individuality. Notwithstanding the facts, the myth of American opportunity available for all has strengthened, even in the face of declining opportunity. More of us say we don’t need government, because this is the land of opportunity. Everyone can make it without help, if only they try.

While many of us have the money to protect opportunity for our own kids, opportunity has plummeted for the underprivileged. If the average achieving the American dream has fallen from 90 percent to 50 percent, the chances for a kid of color from a poor neighborhood are now dismal.

They concluded:

“If one wants to revive the ‘American Dream’ of high rates of absolute mobility (opportunity), one must have an interest in growth that is shared more broadly across the income distribution.”

We are advancing toward a highly stratified society of haves and have-nots. This will make walking down the street unpleasant, maybe dangerous. Crime, drug addiction, homelessness and other societal costs will increase.

Eventually, continuance of this trend will result in bloodshed and revolution.

Antitax hawk Grover Norquist says we should drown government in the bathtub, but it turns out opportunity goes down the drain with it.

We don’t need to grow government. We can reallocate to provide funds. Local and state governments can do a lot.

Let’s take the first step by agreeing that our priorities are restoring shared prosperity and opportunity.

It’s not just in the interest for the underprivileged among us. It’s in everyone’s best interest.

Dale Walker is a San Francisco retired financial services executive. He serves on the boards of Pacific Vision Foundation, the Graduate Theological Union and Beneficial State Bank. He is a 2017 Fellow in Harvard’s Advanced Leadership Initiative.