The Origins of Trumpism II. A National Crisis for Working Men

 

The American Enterprise Institute’s Nicholas Eberstadt has performed a valuable national service with two recent publications: “Men without Work” and “Our Miserable 21st Century”  These works lay out in great detail what has gone wrong in our country in the past 16 years:

  • Overall household wealth has doubled as a result of a surging stock market fed by the Federal Reserve policy of quantitative easing.
  • The recovery from the crash of 2008 has been singularly slow and weak compared to the 1947 – 2007 trend line.
  • The work rate for Americans aged 20 and older has declined by 4% from 66% to 62%.
  • Half of all prime working age male labor-force dropouts take opioid medication on a daily basis paid for by Medicaid. 57% of this population class is collecting disability benefits.
  • 17 million male ex-prisoners and convicted felons are now in our midst and largely unable to find the employment which would lead to productive lives.

Here is Mr. Eberstadt’s initial prescription for addressing this very serious social problem:

  • Revitalize American business and its job-generating capacities. According to the Brooking Institution’s Ian Hathaway and Robert Litan, “business deaths now exceed business births for the first time in the thirty-plus-year history of our data.”capture63
  • Reducing the immense and perverse disincentives against male work embedded in our social welfare programs. For example, U.S. disability programs are subject to widespread abuse and gaming. Social welfare programs should emphasize a “work first” principle emphasizing training and education, job placement, and tax credits, etc.
  • Drawing men with a criminal record back into productive work life. Note that the huge increase in America’s ex-prisoner and ex-felon population in recent years coincides with a dramatic drop in rates for both violent crime and property crime. This suggests that former criminals do not pose a continuing danger to society.

Conclusion. For the future prosperity and social cohesion of our country addressing this problem should be a very high priority. Let’s hope that President Trump gets the message.

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Does the U.S. Care About Europe?

 

“After Paris, Islamic State’s rise and Syria’s agony are shaking a weakened Europe – and the broader international system,” writes the Brookings Institution’s Robert Kagan in yesterday’s Wall Street Journal. “Can the U.S. summon the will to respond?”
Capture“What the U.S. now does or doesn’t do in Syria will affect the future stability of Europe, the strength of trans-Atlantic relations and therefore the well-being of the liberal world order. … Just as in the 1990s, when Europeans could address the crisis in the Balkans only with the U.S. playing the dominant military role, so again America will have to take the lead, provide the troops, supply the bulk of the air power and pull together those willing and able to join the effort.”
Such an effort would require:

  • Establishing a safe zone in Syria to avoid having more refugees flood Europe and provide a place to return for those who have already fled. This would require not only U.S. airpower but also ground forces numbering up to 30,000.
  • An additional 10,000 – 20,000 troops to uproot Islamic state from its havens in Syria and Iraq.
  • An internationally negotiated transition in Syria ushering Mr. Assad from power and establishing a new provisional government to hold nationwide elections.

As Mr. Kagan reminds us the U.S. has taken lots of police actions in the last 70 years since the end of WWII:  Korea, Vietnam, Panama, Kuwait, the Balkans, Afghanistan and Iraq being the big ones.  “Not today.  Americans remain paralyzed by Iraq, Republicans almost as much as Democrats, and Mr. Obama is both the political beneficiary and the living symbol of this paralysis.  He may be the first president since the end of WWII who simply doesn’t care what happens to Europe.”
Mr. Kagan concludes, “Perhaps there are Europeans today wishing that the U.S. will not compound its error of commission in Iraq by making an equally unfortunate error of omission in Syria.  They can certainly hope.”

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What’s Wrong With U.S. Manufacturing Policy

 

The Brookings Institution’s Martin Baily has an informative article, “what’s wrong with U.S. manufacturing policy,” in a recent issue of the Wall Street Journal.
Capture1Says Mr. Baily, “Of the 5.7 million manufacturing jobs that disappeared in the 2000s, only 870,000 have returned so far, according to the Bureau of Labor Statistics, and the claim that millions more are coming back is nothing more than a myth. … If the U.S. is serious about promoting a recovery in manufacturing, it will stop measuring success by the number of people employed in the sector and start supporting the technological advancements that are making factories more productive, competitive and innovative.”
CaptureAccording to Mr. Baily the technological shift taking place is powered by three developments:

  • The internet of things in which machines are able to communicate with each other.
  • Advanced manufacturing including 3-D printing, new materials and more accurate digital logistics.
  • Distributed innovation in which crowdsourcing is used to find solutions to technical challenges more quickly.

Such advances must be supported even if it means putting robots in place of workers.  It follows that:

  • there will still be good jobs in manufacturing for those with big data, programming and other specialized skills
  • a shortage of qualified workers means we want highly qualified immigrants to stay in the U.S. instead of returning to their home countries
  • propping up uncompetitive jobs with tax breaks and subsidies won’t work for long and just interferes with introducing a lower corporate tax rate to drive new investment
  • new trade agreements strengthen U.S. manufacturing by reducing foreign barriers to U.S. goods
  • Displaced workers Should be supported with retraining programs especially through community colleges
  • Government can further help with infrastructure improvements and expedited permitting processes.

Conclusion:  U.S. manufacturing will continue to thrive in a rapidly changing environment as long as it is properly supported with intelligent government policies.

Learning By Doing

 

The two biggest problems facing our country today are a stagnant economy and an exploding national debt.  Faster economic growth would help pay our bills by bringing in more tax revenue.  It would also create more jobs and give a boost to stagnant wages.  One of the causes of this stagnation is that our economy has become less entrepreneurial over time as shown by this often cited chart from the Brookings Institution.
CaptureA very interesting new book by James Bessen, “Learning by Doing: the real connection between innovation, wages and wealth.” looks at both our economic history and our current economy to understand how society can best meet the challenges posed by new technology.  Mr. Bessen  identifies the basic problems as follows:

  • Funds have been shifted away from vocational education and community colleges at a time when large numbers of workers could acquire valuable skills at these institutions.
  • The rapid growth of occupational licensing restricts training and jobs open to mid-skill workers and, in many cases, limits their use of technology.
  • Military procurement favors large defense contractors over start-up firms, while heightened secrecy requirements limit the development of open standards and the broad sharing of knowledge.
  • Job mobility has declined, limiting knowledge sharing and weakening labor markets.
  • Abusive patent litigation has exploded, making it harder for startups and small firms to develop new technology.

Mr. Bessen concludes:“The practical skills of ordinary people have been a wellspring of widely shared wealth for 200 years, and the economic power of mighty nations rests on the technical knowledge of the humble.  Provide the means for ordinary workers to acquire the skills and knowledge to implement new technology today and the economic bounty will not only grow, it will be widely shared.”
What are the roadblocks to implementing Mr. Bessen’s recommendations?  I will return to this question later.

Escaping the Student Debt Trap

 

Student debt in the U.S. now tops $1.2 trillion with 37 million borrows, 5.4 million of whom have already defaulted.  President Obama has proposed to expand a program which allows students to repay debt based on what they earn, eventually forgiving the balance.  Massachusetts Senator Warren has proposed taxing millionaires to pay for student loan refinancing.  Small scale free market proposals abound.  What is badly needed is a sensible broad-based public program approved by Congress.
CaptureThe Brookings Institution has recently proposed just such a model for student loan repayment “Loans for Educational Opportunity: Making Borrowing Work for Today’s Students”.  It is based on four observations:

  • Moderate debt for the typical student borrower. 69% of students have borrowed $10,000 or less.
  • The high payoff of a college education. Over a lifetime the holder of a bachelor’s degree earns several hundred thousand dollars more than a high school graduate. Even those who attend college but do not graduate will experience an income gain of about $100,000.  Postsecondary education should be encouraged as widely as possible.
  • The highest rates of default are on typical loan balances. The average loan balance in default is $14,000 while the average loan balance in good standing is $22,000.
  • The highest rates of default are among young borrowers. For borrowers under age 21, 28% have defaulted, for borrowers between ages 30 and 44, 18% have defaulted and it is 12% for borrowers aged 45 and older.

The Brookings’ authors propose that student loan payments be deducted from pay by the employer, in the same way as for income taxes and Social Security.  The payment rate would be only 3% of the first $10,000 in annual earnings and would rise with higher earnings topping out at 10%.  Loan payments will stop when the loan is repaid or after 25 years, whichever comes first.  Various measures can be adopted to protect against deadbeats.  See the Brookings report for details.
The fairest system would be for all students, past and present, to be put into a program like this.  Nobody would be expected to pay during periods of unemployment. Interest rates could be adjusted from year to year to make the program self-supporting. Something along these lines is badly needed!