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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The American Idea Is Far from Doomed!

 

The Atlantic monthly magazine is celebrating its 160th anniversary this year.  In 1857 its founders envisioned that the magazine would “honestly endeavor to be the exponent of what its conductors believe to be the American idea.”  In the current issue one of its writers asks, “Is the American Idea Doomed?” and claims that it has few supporters on either the left or the right.  Well, I happen to be in the middle and I think the American idea is doing very well indeed.

Consider:

  • The World Economic Forum ranks the U.S. as the world’s most competitive large economy and, in fact, the U.S. is getting richer faster than anybody else.
  • Productivity growth in the digital industries has grown at the annual rate of 2.7% over the past 15 years compared with only an anemic .7% annual growth in productivity in the physical industries. The U.S. economy is becoming more digital all the time.
  • The four U.S. companies, Amazon, Apple, Facebook and Google are in the process of revolutionizing all aspects of life not only in America but all around the world.
  • According to the Kauffman Foundation  entrepreneurship is flourishing in the U.S. (see chart), and not just in Silicon Valley.

  • According to Freedom House  democracy has made much progress around the world in the last 30 years, even if further growth has stalled for the past ten years. Other democratic countries are our best friends and so we want more of them.
  • Granted Donald Trump is a wild card. So far his record is mixed but he hasn’t made any big mistakes (liking dragging us into war or hurting the economy). It is unlikely that he’ll slow our huge forward momentum whether or not he helps it.

Conclusion. “The democratic experiment is fragile” (perhaps!) but it’s also got a lot going for it right now. We can never afford to be complacent but we need not be pessimistic either.

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The GOP Congress Needs to Get Back to Fundamentals

 

Granted that it is hard to implement good policy with a populist President like Donald Trump who is most interested in stirring up his base, nevertheless the Republican Congress is making some serious policy mistakes:

  • Healthcare. The GOP should accept the fact that universal healthcare is a desirable societal goal and is here to stay. The Graham-Cassidy bill is bad policy because some states, such as debt-ridden Illinois, can’t possibly handle healthcare on their own. The fact that the ACA needs operational fixes gives the Republicans leverage for insisting on cost lowering changes in a bipartisan bill.
  • Tax Reform. The GOP should focus on the most serious problems in our tax system. The complexity of the tax code is partly responsible for the fact that taxes paid lag true tax liabilities by an estimated 16% or $406 billion per year.  As an example of waste, the IRS has paid out $132 billion in EITC benefits over the last decade to people who were ineligible.
    Our uncompetitive corporate tax rate of 35% encourages multinational companies to leave their profits overseas rather than bringing them back home for reinvestment.  Even so, corporate tax revenue as a share of GDP is less than in most other developed countries.
    Republicans claim to be the party of fiscal responsibility and should therefore be highly uncomfortable with any tax plan which reduces federal revenue and increases our already very large annual deficits.  With a low unemployment rate of 4.4%, any additional artificial (deficit financed) fiscal stimulus is likely to kick off a new round of inflation.

Conclusion. Republicans have a relatively short window of opportunity to enact policy changes beneficial for the country. They need to get serious about what is really important before time runs out.

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Why Is Political Progress So Difficult in the United States?

 

 

 

With Donald Trump expanding the culture wars and the Democrats lining up with the progressive policies of Bernie Sanders, the national political scene seems to be getting more confusing all the time.


And yet there is remarkable consensus on many levels about what the country really needs:

  • Faster economic growth would help provide more jobs and better paying jobs for the blue-collar workers which both parties are trying to appeal to.
  • Tax reform meaning to reduce tax rates, shrink deductions and generally simplify the tax code has widespread bipartisan support, as one way to provide the growth which everyone wants.
  • Shrinking the debt as a percentage of GDP is widely recognized as critical to the future well-being of our country and especially for the poor who are most dependent on social welfare programs.  How to curtail spending sufficiently to get this done is inevitably a highly contentious issue.
  • Healthcare for (almost) all is now the law of the land, given that the GOP has failed to repeal the Affordable Care Act. The emphasis going forward should be to control healthcare costs for both individuals and families as well as for the federal government (the taxpayers).
  • Immigration and DACA. There appears to be strong bipartisan support in Congress for giving the Dreamers legal status in the U.S. With a very low (4.4%), and still dropping, unemployment rate, a huge labor shortage is developing in many states, including Nebraska. What the U.S. needs is an expanded guest worker visa program so that all employers are able to find the (legal) employees they need to conduct business. Perhaps DACA reform will lead to broader immigration reform as well.

Conclusion. The above issues should be largely amenable to bipartisan consensus. Both parties would benefit from putting aside petty differences and working together to solve them.

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Donald Trump and American Progress

 

I am a non-ideological (registered independent) fiscal conservative and social moderate. I was not very excited about either presidential candidate last fall but finally decided to vote for Clinton because of Trump’s sleaziness.
As it turned out Mr.Trump was elected because of his strong support from the white working class, especially in the upper Midwestern states of Wisconsin, Michigan and Pennsylvania.  Interestingly, the Democrats are responding by proposing legislation to try to appeal more strongly to blue-collar workers.
Of course I disapprove of Donald Trump’s poor handling of the Charlottesville tragedy but I try to avoid being distracted by all of the drama and rather stay focused on his policies and actions.  In this respect there are both plusses and minuses.


On the positive side:

  • North Korea. He is handling this crisis well simply by working through the UN to condemn North Korea’s provocative testing of ballistic missiles. Also his Administration has clearly stated that the goal of U.S. policy is to denuclearize the Korean peninsula, not to achieve regime change in North Korea.
  • The economy is still chugging along at 2% annual growth. On the deregulation front, the annualized pace of new regulations for 2017 is 61,000 pages, down from 97,000 in 2016. This is the lowest level since the 1970s and has the potential to speed up growth.

On the negative side:

  • NAFTA renegotiation is just getting started. Any shrinkage of U.S. exports will badly hurt the economy, especially in states like Nebraska which depend so much on agricultural exports.
  • Immigration. Mr. Trump proposes to dramatically decrease annual legal immigration quotas, especially for low-skilled workers. This is a very poor idea  which will hurt the economy, especially in states like Nebraska which have low unemployment rates.

Conclusion. President Trump’s record at this point is mixed, all the more so since the two very important issues of the 2018 budget and tax reform have yet to be resolved in Congress. Mr. Trump’s election may or may not be good for progress in America.  We simply don’t know yet.

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Making the World Safe for Democracy

 

One hundred years ago, in 1917, President Woodrow Wilson asked Congress to declare war on Germany “to make the world safe for democracy.”  Pax Americana, the relative peace and stability which has lasted since the end of WWII, is due to the overwhelming economic and military strength of the United States.
The Chinese population at 1.3 billion is four times as large as the U.S. population.  Its economy is growing much faster than ours and will surpass ours in 10 or 15 years.  There is little, if anything, the U.S. can do to prevent this from happening.


China is a non-free, non-democratic, totalitarian state.  We hope that it will remain peaceful towards the U.S. as its economic strength, and eventually also its military strength, surpasses our own, but it would be risky to assume this for sure.
What then should we do to prepare for the day when we are no longer the dominant power on earth?  In my opinion, our best preparation for this inevitable day is to make democracy as strong as possible around the world.


In this respect, look at the latest report from Freedom House which measures the state of freedom around the world on an annual basis.

  • In the past 30 years the percentage of free countries has increased from 34% to 45% and the percentage of non-free countries has declined from 32% to 25%.
  • In the past 10 years, the number of free countries has declined from 47% to 45% while the number of non-free countries has increased from 23% to 25%. In other words democratic progress has been stagnant for the past ten years.

Conclusion.  Democracies rarely go to war against one another.  Other democratic countries are our best friends and so we want more of them.  But there is nothing simple or obvious in figuring out how to accomplish this.

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The Origins of Trumpism IV. The White Working Class

 

The U.S. political and cultural establishment is constantly bemoaning the election of Donald Trump as President and is convinced that it will hurt our country. He was elected because of his strong support from blue-collar workers.
I’m not so much afraid that he’ll be a disaster as that he will be ineffective in addressing our country’s many urgent problems.  Primarily I am trying to understand, here and here, why he was elected and what this means for the future.


Here is another clue.  The book “White Working Class: overcoming class cluelessness in America,” by Joan Williams, describes clearly who constitutes the white working class (WWC) and how it differs fundamentally from the class of professional and managerial elites (PME). Here is a brief outline of her argument:

  • Definitions. The top 1% (in income) are the wealthy, the top 20% are PME, the next 50% are the working class and the bottom 30% are the poor. The median income of a working class family is $75,000 while the median income of a poor family is $22,500.
  • The PME are order givers and value sophistication, boundary breaking and creativity. The WWC are order takers and value stability and dependability.
  • Why does the working class resent the poor? The poor get welfare benefits while the working-class may have rigid, highly supervised jobs which are often boring and repetitive which makes their work psychologically challenging. They do not receive welfare.
  • Why does the working class resent professionals? Elites seek out novelty, irony and polish while the working class seeks out stability and sincerity. The WWC often see the PMC as phony.
  • Is the working class sexist? For working class women becoming a homemaker signals a rise in status. For PME women this entails a fall in status.
  • Don’t they understand that manufacturing jobs aren’t coming back? This is more or less true but too pessimistic. There is a severe shortage for Americans trained for middle-skill jobs requiring some post-secondary education but not a four year college degree.

Conclusion.  This description should be understood as a general overview of the differences between the WWC and the PME (with many individual and particular exceptions). As such it helps in explaining why Donald Trump received such a large share of the WWC vote.  

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