Many authors have pointed out recently that the world is gradually getting better in the sense that world-wide poverty is steadily decreasing.  The primary cause is the steady economic growth which has taken place ever since the beginning of the industrial revolution in the late 1700’s.

Faster economic growth means that more workers are needed to perform the necessary labor to produce the growth.  This in turn means that the unemployment rate goes down and wages go up as employers have to compete more vigorously to hire the available workers.
The eternal debate about the best way to increase growth has flared up again recently as Amazon has decided to back out of its plan to create 25,000 new jobs in New York City because of local opposition.

Some people say that the best way to bolster workers and the middle class is to increase minimum wages and to provide free college and federal job guarantees.
The problem is that before jobs can be enhanced with a minimum wage or hiring guarantees, for example, the jobs have to exist in the first place.  It is true that some jobs are created by government investment but this requires spending tax dollars which are usually in short supply and have to be spent carefully and efficiently so that voters won’t object to paying them.
In our free enterprise system most jobs are in the private sector.  This means that the best way to create more jobs and better paying jobs is to encourage entrepreneurs to start new businesses and existing companies to grow and expand.  Let the market determine pay levels and job conditions with minimal government interference.
In turn, the best way to help workers at the lower end of the pay scale is with the already existing Earned Income Tax Credit which provides a wage subsidy for many workers. This government program could easily be expanded to help even more low-income workers.
Summary.  The best way to address income inequality in American society is by encouraging more economic growth in the private sector and then expanding wage subsidies to apply to all workers in the lowest wage categories.

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As I remind my readers, I am a non-ideological fiscal conservative and social moderate.  I am a strong supporter of economic growth as measured by GDP.  GDP growth hit 3% in 2018 for the first year time since 2005, helped out by both recent deregulation and the tax reform which lowered our top corporate rate to an internationally competitive 21%.

But it is well understood that blue collar workers have not benefitted from recent economic growth as much as the most highly educated.  Many less skilled workers have been hurt by both globalization and the increasing automation of industry. The economic and social pain they are suffering has been especially well chronicled by the social scientist, Charles Murray, in his book, Coming Apart.

Globalization and automation are desirable trends in general because they are economically efficient ways of raising living standards worldwide. The question then is: what should the U.S. do to help those workers who have been left behind in the present job market?

The best existing program to do this is the so-called Earned Income Tax Credit.  It subsidizes low-income working families at an overall cost to the federal government of about $70 billion per year.  But is has several weaknesses.  It only applies to families with children so that many millions of individual workers are left out.  Furthermore it is only paid out once a year, at tax time, and therefore does not provide a steady stream of extra income.  Finally, the tax credit starts declining at an income of $19,000 for a married couple with two children, for example, and disappears entirely at $50,000.

A better plan has been proposed by Oren Cass in his recent book, The Once and Future Worker.  It is called a wage subsidy and applies to every worker who makes less than a target wage of, say $16 per hour.  It pays half of the difference between the actual wage and the target wage.  For example, if a worker makes $10 per hour, then his employer pays him/her an extra $3 per hour and deducts the $3 from his tax payment to the federal government.  This approach ties redistribution directly to productive employment and therefore is superior to other types of such programs.

It would cost the federal government $200 billion per year, much more than the current EITC program costs.  The additional $130 billion cost could be transferred from the $1 trillion per year now spent on federal welfare programs without hurting the poor.

Mr. Cass’s proposal is founded on the principle that “a labor market in which workers can support strong families and communities is the central determinant of long-term prosperity and should be the central focus of public policy.”

The wage subsidy program would be a giant step in this direction.

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As I have discussed in a recent post, two of America’s biggest problems, in my opinion, are slow economic growth and the increasingly serious threat of global warming.   We don’t know yet the official GDP growth figure for 2018, but it will likely be 3% or more, the economy’s best performance since 2005.

Unfortunately, U.S. carbon emissions also rose in 2018 for the first time in several years (see first chart), even though they are still significantly down from their high point in 2005.  In fact, the U.S. is still largely on track to meet its target from the 2015 Paris Accords (see second chart) as long as the 2018 increase is an aberration and carbon emissions resume their downward track in the coming years.

This presents a dilemma.  We want economic growth to increase, in order to create more and better paying jobs, but we also need to keep carbon emissions on a significant downward track in order to lessen the effects of global warming.  Last year GDP grew smartly but carbon emissions also went up.  Can we do better?

There is new technology for carbon capture and storage but it is expensive to implement.  An economic incentive is needed for industry to employ it widely.

There is a way to create such an incentive, putting a price on carbon, but unfortunately it does not have nearly enough political support at the present time.  Specifically carbon emissions would be taxed, let’s say at $20 per ton, and the revenue returned to the people in some suitable manner.  This would raise the cost of gasoline, for example, by 18 cents per gallon.

The only way to address global warming is to reduce the carbon in the atmosphere.  An incentive such as a carbon tax is the most efficient way to do it.  At the present time roughly 60% of Americans agree that global warming is caused by human activity.  As the evidence for global warming becomes more and more obvious, eventually there surely will be enough political support to take effective action.

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“There cannot be two suns in the sky, nor two emperors on the earth,”                     Confucius, 551-479 BC

Our current trade war with China will probably be resolved soon because the Chinese economy is slowing down (see chart) and the current $250 billion in tariffs on Chinese exports to the U.S. are a major contributor to this.  There is a good chance of achieving our two main goals of obtaining greater access to Chinese markets and ending intellectual property theft.

Chinese Economic Growth

But the Chinese economy is growing much faster than ours and China’s population is four times as large.  China does have some very serious long term economic problems  but it would be shortsighted for the U.S. to expect the Chines economy to collapse any time soon.  In other words, the U.S. needs to prepare for the likelihood that the size of the Chinese economy will greatly exceed ours in the near future.

Anyone who is concerned about this should read the book, “The Hundred-Year Marathon: China’s secret strategy to replace America as the global superpower,”  by Michael Pillsbury, a longtime U.S. China expert who speaks fluent mandarin.

The People’s Republic of China was founded by Mao Zedong in 1949.  No later than 2049 China will almost surely be strong enough to challenge the U.S. dominated economic and geopolitical world order founded at the end of WWII.

The hundred year marathon strategy suggests that China should, for example:

• Induce complacency to avoid alerting the opponent
• Be patient – for decades or longer – to achieve victory
• Steal the opponent’s ideas and technology for strategic purposes
• Recognize that the hegemon will take extreme action to retain its dominant position
• Always be vigilant to avoid being encircled or deceived by others

Mr. Pillsbury has performed a great service by spelling out in detail the immense challenge the U.S. will have in containing China’s growing power and influence around the world.  How should the U.S. deal with this huge threat to its current world dominance?  Stay tuned!

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I describe myself as a non-ideological fiscal conservative and social moderate.  I try to discuss political issues in an objective, rational manner and avoid personalities as much as possible.  But it is hard to avoid expressing opinions about the most important political actor of all, the President of the United States.

Mr. Trump is a highly polarizing figure.  Most people either strongly approve of how he is handling the office or else loathe him.  I am in the middle.  I recognize that he is crude, mentally clumsy and divisive but I also think that he is handling several difficult issues quite adroitly.  For example:

1. The economy. Economic growth is much improved since Mr. Trump became President, hitting 3% in 2018 and likely to continue strong for at least another year or two.  Faster growth means lower unemployment which, in turn, means more jobs and better paying jobs.  This is a big boost especially for hourly workers.  The economy was already picking up steam (because of deregulation) before the December 2017 tax cuts which were a big mistake because they badly increase the national debt.
2. Trade imbalance with China. Trump is tightening the screws on China’s unfair trade practices which is likely to lead soon to major improvements in how China interacts economically with the free world.                                                                            

                                            Our Current Wall on the Mexican Border                                
   
   

3. Immigration policy and the Wall. With roughly 12 million foreigners illegally residing in the U.S., current immigration policy is a big mess.  Whether or not more wall is needed (see map), border security needs to be greatly enhanced.  Mr. Trump rightly insists on getting this done.
4. Foreign policy. Trump is not an isolationist.  How to handle the Middle East is our biggest foreign policy challenge.  Withdrawing 2000 troops from the Kurdish area of Syria represents a possible shift away from Saudi Arabia and towards Turkey.  Pulling Turkey away from the Russia-Iran axis could be a smart move.
5. Global warming. The evidence for man-made global warming is overwhelming.  Carbon emissions are declining in the U.S. (because coal is being replaced by less expensive and cleaner natural gas) but still continuing to increase worldwide, in spite of the 2015 Paris Accords, because of massive increases in the use of coal by developing countries such as China and India.  Trump is not doing anything to address this problem, but neither is he making it worse (as he is often accused of doing).

The above are a few of the areas where the Trump Administration is moving in the right direction, or at least avoiding the wrong direction, on difficult issues.  Credit should be given where credit is due.

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In my last post I stated that the U.S. has several big problems which must be successfully addressed in order to avoid national decline.  They are:

1. National Debt
2. Slow Economic Growth
3. Trade Imbalance with China
4. Global Warming

But which of these problems is the biggest threat?  I now argue that some of these problems are less serious than others.

First of all, I am optimistic that global warming, as serious as it is, will be successfully kept under control by all nations working together to reduce carbon emissions.  Already 60% of Americans, for example, agree that global warming exists and is man-made.  As its’ effects, such as rising sea levels and more intense hurricanes, become more and more evident, the general public will strongly insist that effective action be taken to combat it and our elected representatives will respond accordingly.  Further, as Chinese air becomes more and more polluted by the burning of coal, the Chinese government will also decide that strong measures must be taken.  This will eventually lead to American-Chinese cooperation to set up worldwide standards to drastically shrink carbon emissions from fossil fuels and perhaps even to remove carbon from the atmosphere.

I am also optimistic that our trade imbalance with China will be successfully addressed in the near future.  There is strong bipartisan support in Congress to deal with Chinese theft of intellectual property and excessive restrictions on American exports to China.  It is a top priority of the Trump Administration to resolve this problem.  Significant progress is therefore likely to occur.

Again, addressing slow economic growth is a major focus of the Trump Administration.  Faster growth mean less unemployment, which in turn means more jobs and better paying jobs for American workers.  Faster economic growth will likely remain a top priority for both political parties.

I am thus reasonably optimistic that three of our four biggest problems are politically solvable at least in the sense that significant progress can and will be made.  How about the debt problem?  This is much more difficult.  Stay tuned!

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I started this blog, It Does Not Add Up, in November 2012, right after the national elections, because I was so concerned about our exploding national debt.  Of course, in the meantime it has been getting worse and worse.
A year ago I decided to put my money where my mouth is, so to speak, and enter the May 2018 Nebraska Republican Primary for the U.S. Senate seat held by Deb Fischer who had just voted for the 2017 tax bill which will raise our debt by a trillion dollars over a decade, even after allowing for increased economic growth.  Fischer went on to win the Primary and then to win reelection to a second six year term last month.
I was so discouraged by my ineffectiveness on the debt issue that I stopped writing new entries for the blog after the May 2018 Primary.

But now I am back and we’ll see what happens.  My intention is to continue dealing with the debt problem but in a wider context.  I will be discussing other urgent problems as well.  Mostly I will be focused on the following issues:

1. The National Debt now stands at 78% (for the public part on which we pay interest) of GDP and our huge annual deficits are continuously making it worse. As interest rates rise, interest payments on our huge debt will increase precipitously.  This will lead to a new fiscal crisis if stern measures to fix the debt problem are not taken soon.
2. Slow Economic Growth. Faster GDP growth means a lower unemployment rate which, in turn, means more jobs and better paying jobs.  This is exactly what is needed to give a boost to the middle- and lower-income workers who are suffering from economic insecurity.
3. Trade Imbalance with China. China has four times as many people as the U.S. and its economy is growing faster than ours.  Soon the size of the Chinese economy will exceed ours.  We can’t stop Chinese growth but we can insist that China play fair and stop stealing our intellectual property.
4. Global Warming. The evidence for man-made global warming is overwhelming. Carbon emissions in the U.S. are steadily decreasing because natural gas is less expensive and cleaner than coal.  But this is not good enough because carbon emissions are increasing worldwide, especially in China and India.  Working together, the U.S. and China have the clout to implement a plan to drastically reduce carbon emissions worldwide.
5. The Consequences of American Decline.  These are the biggest problems our country faces because together they threaten our prosperity as well as our status as the world’s leading superpower.  A multi-polar world replacing the U.S. dominated uni-polar world is likely to endanger the relative peace and stability we have enjoyed for so long.

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