On this blog, It Does Not Add Up, I discuss major issues affecting our country.  For example, in my last post, I discussed the strength of democracy around the world.

Today, I write about the incredible strength of the American economy, following Michael Beckley of the American Enterprise Institute.

Consider:

• The United States is an economic powerhouse, accounting for 26% of global GDP, the same as during the unipolar moment of the early 1990s. Even the Chinese economy is shrinking relative to that of the U.S. in current dollar terms.  In reality, China’s economy is smaller than the Communist Party claims, and it is barely growing.  From 2021 to 2024, Chinese citizens illicitly moved hundreds of billions of dollars out of China, and became the fastest growing migrant group crossing the U.S. southern border.
• From 1990 to 2019, U.S. median household income rose 55% after taxes, transfers, and adjusting for inflation, with income in the bottom fifth seeing a 74% gain. Since 2019, wages for the lowest-paid decile have grown nearly four times as fast as for middle earners and over ten times as fast as top earners.
• Consider the dollar. The currency now accounts for nearly 60% of global central bank reserves. It is used in roughly 70% of both cross-border banking liabilities and foreign currency debt issuance and almost 90% of global foreign exchange transactions.

  

• Once the world’s largest energy importer, the U.S. is now the leading producer of oil and natural gas, surpassing both Russia and Saudi Arabia. European companies currently pay two to three times as much for electricity and four to five times as much for natural gas, prompting some foreign manufacturers to relocate to the U.S. Meanwhile, the huge American consumer market, equivalent to China’s and the Eurozone’s combined, pressures foreign companies and governments to align with U.S. trade policies to maintain access to the world’s most lucrative revenue source.
• The U.S. lead in global innovation further strengthens its structural power. S. firms generate over 50% of the world’s high-tech profits, whereas China captures only 6%.
• The U.S. also attracts human capital, drawing thousands of scientists, engineers, and entrepreneurs from around the world each year. Coupled with higher birthrates, the average annual influx of over a million immigrants makes the U.S. the only great power whose prime working-age population is projected to grow throughout the century.
• The decentralized U.S. system also excels at adopting and scaling innovations across industries, a capability more crucial for long-term growth than invention alone. American localities – like American businesses – face fewer constraints from central government red tape.  As a result, successful ideas tend to spread quickly.  This diffusion advantage is reinforced by the U.S. deep venture capital markets, which account for about half of the global total.
• China’s subsidy-driven, authoritarian model creates isolated pockets of innovation without enhancing productivity across the economy. China prioritizes what it thinks of as internationally important sectors, such as the electric vehicle and renewable energy industries.  But these two industries make up only 3.5% of the Chinese economy, too little to offset declines in the bloated property and construction sectors, which account for roughly 30% of GDP and have erased $18 trillion in household wealth since 2021.

Conclusion.  The U.S. economy is enormously productive, totally surpassing any other country in the world, friend or foe alike.  This creates the responsibility, and opportunity, for the U.S. to provide enlightened leadership to help other countries increase their own economic growth.  This will be the topic of a future post.

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Lately, on this blog, I have concentrated on what I consider to be our country’s biggest problem: enormous (($1.85 trillion in FY 2024) annual spending deficits and a rapidly growing national debt. This is unsustainable and will lead to a weaker U.S. if not brought under control soon.

But there is also much good news from around the world in 2024.  Democracy is thriving!  Consider:

• Voters in over 60 countries went to the polls last year. The elections were peaceful and the results were accepted by all parties without violence and civil division.  The largest democracy in the world, India, reelected Narendra Modi as president even though his party, BJP, underperformed expectations and denied Modi the supermajority he had anticipated.   The world’s oldest continuous democracy in the world, the United States, reelected Donald Trump in an orderly, peaceful, fashion.
• It was a bad year for autocracies.  Most dramatically, Bashar al-Assad’s dictatorship in Syria was overthrown by rebels.  Russia’s invasion of Ukraine is draining its economic and military resources.  Iran’s Middle Eastern proxies Hamas in Gaza, Hezbollah in Lebanon, and the Houthis in Yemen are coming under increasing pressure from Israel.

  

• The world’s largest autocracy, China, has huge, self-inflicted, demographic and economic problems. Its recently ended one-child policy is leading not only to dramatic population decline, but also a major worker shortage.  It has an estimated 80 million empty apartment units, creating a huge financial drain.  It is unlikely to catch up with the U.S. in GDP anytime soon.

Conclusion.  The world is largely free and getting freer all the time.  Yes, there are autocracies (unfree countries) but they have major problems to deal with.  The U.S. and its democratic allies largely predominate both economically and militarily.  Free and open societies like ours will always have problems to deal with, but they are not the severe problems facing our autocratic adversaries.  We can never become complacent, of course, but we should be confident that democracy is ascendent and that our future is bright (if we can fix our debt problem).

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I have stated many times on this blog, It Does Not Add Up, that our biggest national problem by far is the exploding national debt, now sitting at $36 trillion, and growing at the rate of almost $2 trillion per year ( $1.85 trillion for FY 2024).

My last post stated that President Trump’s greatest challenge will be keeping inflation under control.  The Federal Reserve is doing its part by keeping short-term interest rates elevated.  But large spending deficits put upward pressure on inflation, and only the President and Congress can reduce federal spending.

Here are several major ways in which to shrink our annual deficits:

• Implementing DOGE (Department of Government Efficiency).  Setting Elon Musk and Vivek Ramaswamy loose on the inefficiencies of the federal government will help a lot. For example, simply requiring federal employees to work in the office will likely lead to hundreds of thousands of resignations, thus saving tens of billions of dollars per year.  Brian Riedl, of the Manhattan Institute, thinks that several hundred billion dollars per year can be saved with increased efficiency.
• Requiring welfare recipients to work. Requiring all able-bodied welfare recipients (and without dependents) to work would also save tens of billions of dollars per year.

  

• Reducing tax expenditures. https://www.wsj.com/opinion/gop-takes-control-headed-for-a-fiscal-cliff-policy-economy-550653a5  Consider tax expenditures, which consist of various exclusions, deductions, credits, and preferences, otherwise known as tax loopholes.  According to the Joint Committee on Taxation, these expenditures annually cost $1.8 trillion in lost revenue and have grown in number from 53 in 1970 to more than 200 today.  Many need to be eliminated.

  

• Entitlement reform. Of course, reforming both Social Security and Medicare is badly needed. These are valuable programs for  retired people and need to become fiscally sustainable to survive for the long run.  The federal government is subsidizing them at the rate of $600 billion a year (and rising), which cannot last much longer.

Conclusion.  There are several ways in which big savings can be achieved in the federal budget.  The important thing is to get started doing this soon, with either one or a combination of these methods.  The survival of our great nation depends on it.

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Kamala Harris was defeated, and Donald Trump won, primarily because of the failure of Bidenomics.  Of course, there were other issues, such as an open southern border, weak foreign policy, and woke culture, but inflation is the main reason for Trump’s victory. The working class, Trump’s main supporters, have been badly hurt by the rapid rise of inflation that has exceeded wage gains since it took off right after Biden took office in January, 2021. The consumer price index (CPI) is now down to 2.6% (October 2024), but this is not good enough, and inflation has not yet been licked. The problem, of course, is continuing huge federal deficit spending, which reached $1.8 trillion for FY 2024 just ended.

The Federal Reserve can’t control inflation by itself.  Its only tool is raising short-term interest rates which are already quite high.  Trump is apparently unwilling to reform the entitlements, Social Security and Medicare, where big savings could be found.  Furthermore, he is threatening to raise tariffs around the world, which, of course, means raising the prices that Americans pay for many basic commodities.

Inflation will not be subdued, in a sustainable way, until federal deficit spending is greatly reduced.  Trump and Republicans, in general, want to keep taxes low, and, in particular, renew the 2017 major tax reform from Trump’s first term.  This is a good idea because it will stimulate the economy and make it grow faster, thereby boosting employment and wages.  But this means that the only way to reduce the deficit is to cut federal spending.

This is where DOGE (Department of Government Efficiency), to be headed by Elon Musk and Vivek Ramaswamy, comes in:

• Simply ending remote work for the federal workforce’s 2,000,000 employees could make a big difference. 17 federal agencies had less than 25% utilization of their headquarters buildings in 2023.  Requiring all federal employees to work full-time in their assigned offices would likely lead to a huge number of resignations, saving hundreds of billions of dollars every year.
• Repealing the grossly misnamed Inflation Reduction Act would save $100 billion a year for many years to come.  Of course, it would also repeal one of Biden’s worst attempts at implementing a harmful industrial policy.

Conclusion.  To be a successful President, Donald Trump must keep inflation subdued which can only be accomplished by slashing federal spending.  His best chance of doing this is by unleashing his DOGE team, Musk and Ramaswamy, on the federal bureaucracy.  There are hundreds of billions of dollars to be saved in this way if DOGE is effective.

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My last post, Donald Trump’s Mandate, stated that Trump’s basic mandate is to undo the Biden Administration’s biggest blunders: inflation, open southern border, and weak foreign policy.  The American people want a solution to these major problems.  That’s why Trump was elected, for all his personality flaws, instead of Harris.  How should he deal with these problems?  Consider:

• Department of Government Efficiency (DOGE). Trump has asked the two billionaire entrepreneurs, Elon Musk and Vivek Ramaswamy, to lead a massive effort to eliminate waste and inefficiency in the Federal Government.  The Manhattan Institute scholar, Brian Riedl, says that they should be able to trim several hundred billion dollars a year in such if they are serious about it.  This would make a serious dent in U.S. annual deficit spending now approaching $2 trillion. Shrinking our annual spending deficits is critical for a sustainable solution to the inflation problem.

  

• Closing the Southern Border. The first thing the Trump Administration will do is close the border to all new illegal entrants and require asylum applicants to remain in Mexico until their asylum request has been approved.  This will cut way down on attempts at illegal entry.  The other immediate action will be to expel all existing illegals with a criminal record.  Since the U.S. has a huge labor shortage overall, a program should be worked out for law-abiding illegal immigrants to stay in the U.S. indefinitely, perhaps with a temporary guest worker visa.  It would be economically disruptive to try to round up all illegals and deport them en masse.

  

• Identity politics and polarization.  The main cause of political polarization is the identity politics practiced by the Democratic Party. Trump did quite well among nonwhite voters this year.  For example, he won more than 20% of Black men and more than half of Hispanic men. This doesn’t mean the end of identity politics but it might be the beginning of the end.  After all, minorities care about the same quality of life issues (e.g. inflation, housing availability, crime) as everyone else.
• Foreign Policy. It is not clear what specific policies Trump will adopt in foreign policy but we can assume that he will be much tougher on our primary autocratic adversaries: China, Russia, Iran, and North Korea.

Conclusion.  President Biden’s major policy mistakes (inflation, open border, weak foreign policy) led to Trump’s election and give him a huge opportunity to achieve a positive change in direction for our country.  Let’s hope he adopts the right policies to accomplish this.

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Now that the election is over and Donald Trump has won not only the electoral vote but the popular vote as well, it is time to think about what he may do and should do in his second term.  It seems to me that he should forcefully address the issues where the Biden/Harris Administration was especially weak and which led to Trump’s massive victory.  What are these issues?

• Inflation, deficit spending, and the economy. It is now widely accepted that it was the excessive Covid stimulus spending that tripped off inflation in Spring 2021; especially Biden’s $1.9 trillion American Rescue Plan, passed by the Democratic Congress in March 2021.  Our spending deficit for FY 2024, which just ended September 30, was over $1.8 trillion, which is way too high for a growing economy and puts upward pressure on the consumer price index.  The solution is to massively cut federal spending and Elon Musk has agreed to help Trump do this.  Hopefully, this will become a major priority for the new administration.

  

• Border Security. Another huge weakness of Biden/Harris was to greatly relax security at our southern border with Mexico.  We are already taking in a million new immigrants legally each year and we need even more to meet our large labor shortage.  But letting undocumented immigrants pour over the border without restraint is not the way to get this done.  Let’s increase worker visa programs as well as new categories for legal immigration.  This shouldn’t be that hard to accomplish.

  

• Weak Foreign Policy. Starting with Biden’s disastrous withdrawal from Afghanistan in August 2021, his response to international crises has been weak.  Putin was encouraged to invade Ukraine in February 2022 for this reason.  Hopefully, Trump will get much tougher with Russia.  Also, letting the Houthis disrupt shipping in the Red Sea is another disaster.  We need to continue working with our democratic allies in Asia (Japan, South Korea, and Australia) to deter China’s military buildup, but China is unlikely to invade Taiwan anytime soon.  The resulting sanctions from the US and our allies would do great damage to the already precarious Chinese economy.

Conclusion.  The new Trump Administration has a clear mandate to strongly address these three issues which are the primary reasons Trump defeated Harris so handily.  A Republican Senate and likely Republican House will surely support sensible policies to fix these three problems.

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As our November 5 election draws closer and closer, Americans are more and more focused on the issues involved.  My blog is now almost exclusively devoted to discussing these issues.  The charge has now been made repeatedly in the mainstream press that Donald Trump is a fascist.  To respond to this charge we need to have at least a working definition of what fascism is.

Consider a description of fascism provided by Heather Cox Richardson:

• What is fascism?
  Fascism, the U.S. government document explained, “is government by the few and for the few. The objective is seizure and control of the economic, political, social, and cultural life of the state.” “The people run democratic governments, but fascist governments run the people.”“The basic principles of democracy stand in the way of their desires; hence—democracy must go! Anyone who is not a member of their inner gang has to do what he’s told. They permit no civil liberties, no equality before the law.” “Fascism treats women as mere breeders. ‘Children, kitchen, and the church,’ was the Nazi slogan for women,” the pamphlet said.

  Fascists “make their own rules and change them when they choose…. They maintain themselves in power by use of force combined with propaganda based on primitive ideas of ‘blood’ and ‘race,’ by skillful manipulation of fear and hate, and by false promise of security. The propaganda glorifies war and insists it is smart and ‘realistic’ to be pitiless and violent.”

  Fascists understood that “the fundamental principle of democracy—faith in the common sense of the common people—was the direct opposite of the fascist principle of rule by the elite few,” it explained, “[s]o they fought democracy…. They played political, religious, social, and economic groups against each other and seized power while these groups struggled.”

  

• Is Donald Trump a fascist? According to Ms. Richardson above, fascism can only exist if democracy is subverted and overthrown or at least weakened.  Trump tried to overturn the 2020 election, but had no success in doing so.  His campaign filed over 60 lawsuits around the country but not a single one had any success.  The mob riot at the Capitol on January 6, 2021 did not succeed in changing the outcome of the election.  If Trump is reelected this year, he will serve four more years and will be ineligible to run for reelection in 2028.  If Trump is defeated for reelection this year, he will remain a private citizen as he is now.The U.S. Constitution was ratified in 1787, and has now helm firm for 237 years.  Democracy is thriving in the U.S. today.  It has persevered under previous crises such as the Civil War and the great depression.  It will surely survive the disruptive presidency of Donald Trump, whether he ends up serving two terms or only one.

Conclusion.  Fascism does not now exist in the U.S. nor can it appear unless and until our fundamental democratic institutions are greatly weakened.  Of course, we should never be complacent, but this is unlikely to happen anytime soon.

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Neither presidential candidate for President, Kamala Harris nor Donald Trump, has expressed concern about our enormous national debt of $35 trillion, nor our annual deficit spending now approaching $2 trillion per year and growing. This, of course, is a dereliction of duty on a grand scale by both candidates.  This being the case, voters will have to try to figure out as best they can who will be the best steward of the economy for the next four years.  It is assumed below that Harris’s economic policies are likely to be a continuation of Biden’s.

Consider:

• Deficit spending. Deficits under Trump (fiscal years, 2017 – 2020) totaled $5.5 trillion while under Biden (fiscal years 2021 – 2024) they have totaled $7.6 trillion. And this includes a major Covid spending year for each, 2020 for Trump and 2021 for Biden.  Score one more point for Trump.
• Inflation. There was little inflation under Trump and the CPI (consumer price index) was 1.4% when Biden took office in January 2021.  The new Democratic Congress then passed the $1.9 trillion American Rescue Plan, signed by Biden, and inflation immediately started rising and reached over 9% in 2022.  It has now dropped back to 2.4% for September 2024.  Even though excessive quantitative easing by the Federal Reserve made inflation more likely, it is still correct to say the Biden Administration tripped off our current round of inflation.  Score one more point for Trump.
• Tariffs. Trump’s proposed major increase in tariffs would be anti-growth, but would not be inflationary. Tariffs increase relative prices in specific goods or industries but do not increase general price levels (which is the cause of inflation).  Trump’s first-term tariffs hurt economic growth but were not inflationary.  Score ½ point for Harris who will probably keep the existing (lower-level) Biden tariffs.
• Taxation. Trump has proposed several tax cuts (on tip income, social security income, overtime pay income, increasing SALT deductions, and deducting interest on car loans) none of which have good economic motivation and are unlikely to be approved by Congress.    Harris wants to rate the corporate tax rate from 21% to 28%, which is a bad idea.  Trump will approve extending the present 21% corporate tax, a good idea.  Declare a draw on tax policy and spending.

Conclusion.  Trump is likely to have better economic policies than Harris.  His deficit spending should be less which means a smaller chance of reigniting inflation.  His unilateral and universal tariff proposals are a bad idea.  Hopefully, they will serve primarily as a bargaining tool to encourage lower tariffs from our democratic allies.

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America is a blessed country.  We have the strongest economy and military in the world.  We have many democratic allies around the world with whom we work closely on our many common interests.  We are one of the most prosperous countries in the world with a constantly growing and expanding middle class.

We do, however, have one huge problem that is not being adequately addressed by our national leaders.  It is our national debt, now $35 trillion, and growing at the rate of $2 trillion per year.  Two things could be done to drastically reduce our annual deficits: 1) reform the entitlements Social Security and Medicare to make them self-sustaining for the long term and 2) require welfare recipients (who are able-bodied and without dependents) to work in return for their benefits.

Neither presidential candidate is willing to touch entitlements for obvious political reasons.  Furthermore

• Kamala Harris wants to dramatically increase federal spending.  For example, she wants new entitlements for childcare, preschool, long-term healthcare and paid leave. She wants restoration of Covid’s $3600 child tax credit and a new $6000 tax credit for families with newborns, and tripling the earned income tax credit for childless adults.  She wants $25,000 grants for first-time homebuyers, more student loan forgiveness, and sweetened Obamacare subsidies. She wants more subsidies for solar panels and EVs on top of the $1.2 trillion already in the IRA pipeline.
• Donald Trump wants to stop taxing tip income, stop taxing social security benefits, and raise the SALT (state and local tax) deductions from its current $10,000 per household level. All such tax cuts would increase the deficit without having any redeeming economic value. However, he also says he would ask Elon Musk to head up a Commission on Government Efficiency. This could lead to dramatic federal budget savings.

But, on the otherhand, House Speaker Mike Johnson takes fiscal responsibility very seriously. (https://www.speaker.gov/) He understands that Congress has a moral and constitutional duty to resolve the fiscal crisis, reform and modernize entitlement programs, and eliminate waste fraud and abuse across the federal government.  Also, he thinks that the workforce should be cut, eliminating non-essential jobs across the federal bureaucracy.

Conclusion.  Kamala Harris apparently has no concern about our $2 trillion annual spending deficit and no plans to address this horrendous problem.  Donald Trump says he won’t touch entitlements but he will ask Elon Musk to identify possible spending cuts.  House Speaker Mike Johnson is very serious about our debt problem and will try hard to lead the House to make extensive spending cuts.  In other words, the Republican House takes our national debt very seriously.

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As I have been saying recently on this blog, our country’s biggest problem by far is the exploding national debt, with annual deficits now rising to $2 trillion.  Furthermore, there are some conceptionally easy (even though not politically easy) ways to effectively address the debt problem, see here, and here.

Neither presidential candidate, Kamela Harris nor Donald Trump, has been willing to publicly address the debt problem.  To address this problem effectively, I make the following suggestions for staffing a Trump Administration:

• Elon Musk to head a Government Efficiency Commission. There is enormous waste and inefficiency in the federal government and Mr. Musk has the credibility and clout to ferret out and shine a spotlight on the hundreds if not thousands of ways that substantial savings can be saved in federal government operations.

  

• Mitch Daniels for Secretary of the Treasury. Mr. Daniels is a former federal budget director, governor of Indiana, and President of Purdue University.  He clearly understands the need for drastically cutting federal spending.  He would be an excellent choice for watchdog of the federal treasury.

  

• Mike Pompeo for Secretary of State. Pompeo served in this capacity in the first Trump Administration.  He has recently outlined a plan to resolve the Russia/Ukraine conflict without capitulation to Russia.  This involves unleashing America’s energy potential, working with Saudi Arabia to squeeze Russia out of global energy markets, and imposing real sanctions on Russia.  The idea here is to support Ukraine both militarily and economically at minimal expense to the U.S.

Conclusion.  Of course, getting the federal budget under control is a difficult political problem because every program has supporters who don’t want spending cutbacks.  However, it is essential to drastically reduce federal spending overall.  Otherwise, we will soon have a new financial crisis much worse than anything we have seen so far.  If elected, Trump will need highly qualified people in key leadership positions to have a successful presidency.  Here are three specific individuals who could serve in such roles.

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