Democrats Need to Get More Serious about Economics

 

My last post makes the case that the “American Idea” is thriving, contrary to a sense of gloom from many quarters. For example, the Democratic Party is so tied up with complaining about Donald Trump, that it is failing to address the fundamental reason why Mr. Trump was elected President last fall: the plight of blue-collar workers.
For well-known reasons (globalization and the growth of technology), blue-collar workers are not yet enjoying the full benefits of rising prosperity as much as the college educated managerial and professional classes. The basic reason for this is:

  • Slow economic growth, averaging just 2% of GDP per year since the end of the Great Recession in June 2009. Our currently low unemployment rate of 4.2% and the prospects for regulatory reform and tax reform suggest that growth might start picking up soon.

Faster growth is already occurring in the area of ecommerce, see here and here.


Consider:

  • Fulfillment center weekly wages are 31% higher on average than for brick-and-mortar retail in the same area.
  • Ecommerce workers are not likely to be college graduates but need a mixture of physical and cognitive skills.
  • In the past two years the ecommerce industry has added 178,000 jobs in electronic shopping firms and another 58,000 jobs for express delivery companies. At the same time brick-and-mortar retail full time equivalent jobs have dropped by 123,000.
  • Americans spend 1.2 billion hours per week shopping in brick-and-mortar stores. Since 2007, roughly 64 million hours per week of these “unpaid hours” have shifted to fulfillment center workers and truck drivers. In this way unpaid household shopping hours are turning into paid market work.
  • The economics of manufacturing will likely soon be changed in a similar manner from producing and distributing goods in bulk to small-batch manufacturing closer to the customer.

Conclusion. “The internet of goods,” spearheaded by Amazon, has already increased the productivity and wages of many retail (fulfillment center) workers and will soon do the same thing in manufacturing. This is private enterprise at its finest.

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Why Can’t Democrats and Republicans Work Together?

 

I am a non-ideological fiscal conservative and social moderate. I agree with Republicans on some issues and Democrats on others.  It seems to me that there is a lot of common ground between the two national parties and plenty of opportunity for working together.


For example:

  • The economy. Donald Trump was elected President with the support of blue-collar workers. He wants to help them out by speeding up economic growth.  But the Democrats also want to give a boost to the working class.  Why not lower the corporate tax rate to encourage multi-national companies to bring their profits back to the U.S.? Why not exempt small community banks from Dodd-Frank so they can lend more money to main street businesses?
  • Sustainable healthcare. After failing to repeal and replace the ACA, Republicans now have to accept that universal health insurance is here to stay even though it needs much better cost control. The popularity of employer provided health insurance makes single payer healthcare unacceptable to many. Two major changes are needed to lower healthcare costs.  The ACA Cadillac tax should be replaced by an upper limit on the tax exemption for employer provided insurance. The Medicare Part B premium covers only 25% of the cost of that program and should be increased on a means adjusted basis.
  • Immigration policy. With the unemployment rate now 4.4% and dropping, a huge labor shortage is beginning to develop which will retard economic growth. We now need more skilled and unskilled immigrants alike.  An expanded guest-worker program to meet the needs of employers should be created. Enhanced border security can be part of the mix.
  • Military spending. In a dangerous world we need a strong military defense. But there is a lot of waste in the Pentagon budget. Do we really need 800 foreign bases in over 70 different countries?  Nebraska’s own Chuck Hagel identified $25 billion a year in military waste while he was Secretary of Defense.

Conclusion. Here are just a few ways that the two parties can work together to address some of our biggest national problems. Faster economic growth and fiscal restraint just make common sense.

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Should I Run for the U.S. Senate?

 

For the past almost five years, beginning in November 2012, I have been blogging about fiscal and economic issues facing the United States. With the unemployment rate now down to 4.3%, and the economy growing at 2% annually and likely to pick up speed, our biggest problem by far is an exploding national debt, currently 77% of GDP (for the public debt on which we pay interest), the highest since the end of WWII.
There are two announced candidates so far for the Nebraska Senate seat which becomes open in January 2019:

  • The incumbent, Senator Deb Fischer, a Republican
  • Jane Raybould, Lincoln City Councilwoman, a Democrat.

There is always enormous pressure on members of Congress to maintain or increase spending for popular projects and little pressure to cut anything. In general, Republicans deplore large deficits and debt but are ineffective in implementing fiscal restraint while Democrats simply don’t want to talk about the debt problem at all. I am a non-ideological (registered independent) fiscal conservative and social moderate, highly focused on substantially shrinking our annual deficits over a short time period.


Here are my options for the Senate race:

  • Enter the Republican Primary. I would get almost no traction running against the incumbent Republican in the Primary, even though she is a big spender, and I am antiabortion and support a national 20 week cutoff for most abortions.
  • Run as an independent. This is futile without huge name recognition or financial resources, of which I have neither.
  • Enter the Democratic Primary. The announced candidate has a strong party affiliation which I lack. But she has little chance of defeating Senator Fischer in the general election whereas I could by credibly hammering Fischer as a big spender.

Please respond! Please give me you input on this matter one way or another. My email address is jackheidel@yahoo.com.  Would you support me as a Senate candidate?  Congress badly needs more members who are serious about shrinking our debt and I am such a person.  More later!

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The Democrats and the Economy

 

The Democratic Party is starting to wake up. Donald Trump was elected President because he was able to appeal to blue-collar workers who feel left behind in today’s high tech global economy.
Yesterday the Democratic Congressional leadership held a rally in rural Berryville, Virginia to lay out an economic program to try to appeal to these very same Trump voters.


Such a program, would, for example:

  • Increase people’s pay by lifting the national minimum wage to $15 per hour and also creating jobs with a $1 trillion infrastructure plan.
  • Reduce their everyday expenses by providing paid family and sick leave as well as breaking up large monopolies which can raise prices without restraint. Also empowering Medicare to negotiate lower drug prices for older Americans.
  • Provide workers with the tools they need for the 21st century economy by giving employers, especially small businesses, a large tax credit to train workers for unfilled jobs.

Unfortunately, there are problems with most of these ideas. In Seattle even a $13 per hour minimum wage has significantly reduced minimum wage work. The national minimum wage should be raised but to a more modest level.
There is no demonstrated need for a large-scale publicly funded infrastructure program and it would add hugely to the national debt.
A jobs program to maintain the employment rate for prime-age workers without a bachelor’s degree at the 2000 level of 79% and at a living wage of $15 per hour plus benefits would cost $158 billion per year.


Conclusion. Yes, blue-collar workers are hurting.  Yes, some of the ideas suggested above would help them get ahead.  But many would also increase already large deficit spending and therefore add dramatically to the national debt.  What is needed is a combination of free market initiatives and carefully targeted government programs.  Stay tuned!

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Is the Democratic Party Giving Up On Growth?

 

Prospects for future economic growth are decidedly grim.  The Congressional Budget Office has just reported that after a brief improvement for a couple of years, annual GDP growth will likely hover around 2.2% for the remainder of the ten year window 2015 – 2025.  This means, in turn, that the unemployment rate will also not likely fall much below its current level of 5.7% for the same ten year period.
CaptureA new report from the McKinsey Global Institute makes the even gloomier prediction that average U.S. GDP growth rate for the next 50 years will be only 1.9% per year, given current trends and policies.  A summary of this report is provided by the Brookings Institution social economist, William Galston.
On the other hand, according to New York Times columnist, Nate Cohn, the Democratic Party may be adopting a new policy direction, “The Parent Agenda, The Democrats’ New Focus.”  By this new focus he means:

  • Paid family leave
  • Universal preschool
  • An expanded earned-income tax credit and child tax credit
  • Free community college
  • Free four year college in time

Mr. Cohn points out that both President Obama as well as Hillary Clinton have endorsed such ideas.  Initiatives such as these are unlikely to go far in the current Republican Congress but they may still sound very attractive to the many hard-pressed middle class families with stagnant incomes.
The problem is that to emphasize a “family” political agenda like this is in effect to accept the conventional wisdom that faster economic growth is unattainable.  This is a defeatist attitude which is very harmful to the 20 million Americans who are either unemployed or under-employed. Here, briefly, is what could be done to boost economic growth in the short term:

  • Implement broad-based tax reform with lower tax rates for all, paid for by closing loopholes and limiting deductions.
  • Reduce regulatory burdens on business by, for example, streamlining (not repealing!) the Affordable Care Act and the Dodd-Frank Financial Reform Act.
  • Expand legal immigration with additional high-skill visas as well as an adequate guest worker program.
  • Expand international trade with new trade agreements.

These are all political footballs, of course, but also policies with much potential to speed up economic growth.  Either we take initiatives such as these or we consign our country to a future of relative economic stagnation with slow wage growth, high unemployment and increasing income inequality.