I don’t want my kids to do this!

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.

The 2% Economy

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.

 

21st Century World Leaders Merkel, Macron, Xi

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.

 

Relative Status Matters

June 11, 2017, from Da Lat, Vietnam

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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.

Inequality Matters!

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.

The Failed Legacy of Grover Norquist

May 30, 2017

Grover Norquist is the author of the “no tax” increase pledge (under any circumstances). He has persuaded 90% of Republicans to sign. I argue that he is a danger to the US and his legacy is doomed.

David Axelrod interviewed Grover Norquist on May 25 on The Axe Files. Axelrod did an excellent job of teasing out the basic assumptions of Norquist’s doctrine, challenging  Norquist at the extremes.

99% of Americans will surely agree with Norquist’s starting position–that there is much waste in government. Just cut the waste and we won’t even need future tax increases, he says. His plot is to hold tax increases hostage to reform and reduction in government spending. The existence of waste is indisputable. The elimination of it is not.

A second precept is Libertarian: He has been quoted as saying, “I don’t want to abolish government. I simply want to reduce it to the size where I can drag it into the bathroom and drown it in the bathtub.” His view of necessary government expenditures would stop with national security, prisons, rule of law, and property rights.  Infrastructure, basic science research, and health care wouldn’t be covered. Leave those to the private market, he says.

There is a huge flaw in Norquist’s doctrine. The whole discussion of cutting government waste is academic, regardless of where you’d focus. It’s simple. We can’t reduce government spending. Those savings are not available to fund our government needs.

I offer one relevant fact and two major obstacles: The fact is that the size of the US government (including federal, state, and local) in terms of percentage of GDP is less than that of the Euro Zone–about 16% less. Large highly developed countries apparently require a lot of expensive institutions to make them function well.

The first major obstacle is that there has been historically little focus on reducing government waste, under any previous administration. No administration has ever developed a plan for government reform. Perhaps a major reason is that agreement cannot be reached on what is waste. Noquist and I would certainly never agree.

Second, we simply do not have the governance structure necessary to conduct such a cleanup. For example, Ben Carson, a neurosurgeon, is going to reform the HUD $40 Billion budget?  Rick Perry will do that for Energy? In China, heads of agencies are chosen in large part based on merit. In Singapore, private sector executives rotate in and out of government agencies and continue to be paid as they would in the private sector–in seven figures. Singapore is efficient. Maybe we should reform our governance as a first step.

Like Trump, Norquist makes his math work without further tax cuts by promising unrealistic GDP growth. He thinks 4% is likely–Reagan did it, is his economic justification. Actually Reagan fell short. Lyndon Johnson and Bill Clinton did it, both Democrats, but times have changed, and I don’t know of any respected economist who expects even 3% under Trump. First quarter 2017 was 1.2%.

In summary, (1) other smaller developed countries spend more than we do, indicating that reduction is certainly hard; (2) there never has been a US political commitment to prioritize government reform and cost reduction; and, (3) we simply do not have the governance structure to accomplish it. Norquist started the “pledge” of no tax increases in 1986. Has there been any significant reform or reduction in government in the thirty years since? Not even under the Republican icon Ronald Reagan. I rest my case.

If Norquist is as smart as he seems, he understands reforming government and reducing its cost is appealing to talk about, but just abut impossible to do. If that’s the case, then what is Norquist’s real agenda in further cutting taxes…? It seems to come down to enriching the wealthy.

With slow growth and almost the entire Republic party committed to no tax increases, we cannot fix our infrastructure or our schools, much less restore starved social programs.

Grover Norquist’s position on government and taxes is totally flawed and is damaging our country. It’s a danger to the advancement of our commitment to culture, community, and progress as a nation.

I expect the legacy of Grover Norquist will be that of an obstructionist who only weakened the USA. He sold the Republicans based on false assumptions. Shame on them for buying it.

8 Things China Has on Us

May 26, 2017

Around the globe, things are changing. The US is no longer the best at everything. China is the contender for global leadership. Perhaps we can improve by considering some of China’s advantages:

  1.  Leadership. China has an experienced leader who came up through the ranks. He doesn’t shoot from the hip. He is not a laughingstock. China has a meritocratic system of choosing leaders in its federalist system.
  2. China has a governance structure which gets things done–fast. Infrastructure, cities, commerce, the new Belt & Road Initiative.
  3. China’s economic growth rate will continue to outdistance ours for the foreseeable future. As a result, the Chinese have a better opportunity to enable upward mobility and to moderate inequality. Growth alone is insufficient to enable these, but it is certainly necessary, short of strong interventions, which the US dedication to free markets prohibits. And while some have questioned China’s ability to compete with the US in innovation, it is increasingly clear they can. Just take look at what is happening in the Pearl River Delta.
  4. China has more than $3 Trillion in foreign reserves. The US has only a little over $100 Billion. China has a trade surplus of around $500 Billion. Our President says he can’t find one country with which we have a trade surplus.
  5. China’s heterogenous institutional and financial management across 30 years has avoided every single one of the world’s financial crises across that period, while ours has has exposed us to many, notwithstanding our complex and costly regulatory system. We have also initiated many crises, impacting the world. We increasingly seem to resent and starve government, while the Chinese maintain a strong balance between government and business. The Chinese government invests in key research to the benefit of Chinese business.
  6. China does not engage in foreign wars, does not meddle, and does not try to proselytize or impose its values on other nations.
  7. Chinese citizens do not carry guns. Murders are rare in China.
  8. China is not a focus of external terrorism. One might surmise that there is something working poorly in Western foreign relations, resulting in enmity toward the US and other nations.

Say what you will about dictatorship. Say it will never survive the long term. Say it inevitably leads to corruption at the top. Say Chinese leadership is currently harshly eliminating those who threaten the Party.

Then consider our President’s attempt to surround himself with only those who pledge allegiance to him. Then consider that we currently have an investigation going in regard to possible campaign collaboration with Russia and our election. Consider the Supreme Court’s disapproval of districting in NC and Texas. Is there a difference between us an China? Perhaps, but only by degree.

I could easily make a different list of things we still have over China, starting with democracy and human rights. But our prized democracy is functioning very poorly now. Our human rights are nothing to brag about, considering our incarceration rates, our attitude toward Muslims and Mexicans, and our still lacking full acceptance of race, gender, and sexual preferences.

There are three generally agreed factors determining world power: Economic, soft power (reputation globally), and military.  It’s easy to see we can no longer command the first two. Military might alone won’t do it, Mr. President. We’re already spending more than the next eight countries combined.

Pew Research reports that 49% surveyed globally believe China will surpass the US as global leader. Only 34% disagree. This view is also widely held by many of our strongest European allies. This doesn’t bother me–not at all.

It would behoove us to consider China’s advantages, welcome China to the world leadership table, and maybe even learn from China.

I don’t recommend we emulate China. China is far from perfect. We are different. But, I don’t recommend we strive to be #1 in the world in global power. That time is past. It’s past partly because of our failures, but mostly because of the natural ascendence of other strong nations. I don’t recommend we try to make America great at the expense of others globally.

I recommend we try to fix our own shortcomings, be the best possible government for all our citizens, and set a gold standard of global citizenship. This is what I want our new President to focus on. If we can be better than China at these things, I will be satisfied, and a very proud American.