Our economy is chugging along at 2% annual growth of GDP, not spectacular but not awful either. The unemployment rate has dropped to 4.3%, and low-wage earners are beginning to see decent pay raises. Furthermore there are good indications that GDP growth may rise in the near future to at least 2.5%, see here and here.
As growth increases, unemployment continues to drop, and wages increase more quickly, severe labor shortages in certain job categories are likely to develop. As the New York Times economics reporter, Eduardo Porter, points out, “The Danger from Low-Skilled Immigrants: Not Having Them.”
Eight of the fifteen occupations expected to experience the fastest growth – personal care and home health aides, food preparation workers, janitors and the like – require no schooling at all.
Low-skilled immigration does not just knock less-educated Americans out of their jobs, it often leads to the creation of new jobs – at better wages.
The strawberry crop in California owes its existence to cheap immigrant pickers. They are sustaining better paid American workers in the strawberry patch to market chain who would have to find other employment if the U.S. imported the strawberries directly from Mexico.
The benefits of immigration come from occupational specialization. Immigrants concentrated in more manual jobs free up natives to specialize in more communication-intensive (English speaking) jobs.
The average American worker is more likely to lose than to gain from immigration restrictions. Halting immigration completely would reduce annual economic growth by .3%.
The Pew Research Center estimates that about 30,000 unauthorized immigrants work in Nebraska, 3.2% of Nebraska’s total labor force. They are heavily represented in a handful of industries, making up 18% of Nebraska’s construction workers, 9% of production workers, and 5% of farm laborers. With an unemployment rate hovering around 3%, the Nebraska economy would be severely stressed without these immigrant workers.
Conclusion. Both in Nebraska and nationwide, the U.S. economy has a strong need for immigrant workers. An adequate guest worker visa program is badly needed to provide legal status to these workers who are so critical to the success of the U.S. economy.
I did not vote for Donald Trump because of his often crude remarks and sleazy behavior. But I am now cautiously optimistic about the prospects for his presidency based on the quality of his nominees for important government posts. Like many of his voters, I “take him seriously but not literally.”
Here is what I think he will do:
Economic Policy. He will try to speed up economic growth, well above the average 2.1% annual GDP growth of the past 7½ years. This can be accomplished with tax reform (lowering tax rates paid for by shrinking deductions), regulatory reform (including paring back Dodd-Frank and the ACA), immigration reform and tougher trade policies. Faster growth benefits the whole country and especially the blue-collar workers who voted for him.
Improving life in the inner cities. K-12 education is a disaster in many inner cities and Betsy DeVos will be a reformer in the Education Department. Ben Carson grew up in public housing and is an excellent choice for HUD.
Foreign Policy. Mr. Trump wants changes from China on currency and trade practices. He also wants more cooperation from Russia in fighting terrorism. He wants our NATO partners to bear a bigger share of their own defense. His Secretary of State designee, Rex Tillerson, supports arming Ukraine against Russia and also supports the TPP trade agreement with Asia. This all sounds good to me.
Fiscal Policy. My biggest concern at this point is our national debt, now 76% of GDP (for the public part on which we pay interest) which is historically high and steadily getting worse. The House Republicans are serious about shrinking deficit spending and hopefully Mr. Trump will support their efforts.
Conclusion. Donald Trump has a highly unconventional (but very effective) style of communication. If it leads to progress in addressing our biggest problems as above, then he’ll have a very successful presidency.
Donald Trump won the presidential election because of his strong support from blue-collar workers who feel aggrieved by the U.S. economic system. Many have lost their jobs in recent years due to technology and globalization. Many others have suffered wage stagnation. Helping this large group of voters is surely Mr. Trump’s primary mandate from the election.
The best way to do this is to make the economy grow faster by implementing smart policies such as:
Corporate tax reform. Reducing the top rate from 35% to about 20% will make the U.S. competitive with other developed countries and induce American multinational companies to bring their overseas profits back home for reinvestment. This will create more jobs and better paying jobs. This can be paid for by eliminating various deductions.
Business tax reform. Allow full expensing of capital investments, paid for by eliminating the deductibility of interest payments. This will strongly encourage more business investment and therefore increase worker productivity.
Individual tax reform. Lower marginal tax rates across the board by 10%, paid for by eliminating most deductions. This would give an automatic increase in pay to the two-thirds of taxpayers who do not itemize deductions and, since most of the pay increase would be spent, grow the economy by stimulating demand.
Regulatory reform. Much can be done to alleviate the regulatory burden on business, see here and here.
International trade rules. “Tearing up NAFTA” would be a huge mistake because the U.S. exports $600 billion annually to Canada and Mexico with a trade deficit of only $40 billion. But NAFTA can be updated with side agreements to address concerns of fairness. Expand retraining programs for workers who lose their jobs to foreign competition.
Immigration reform. Secure our southern border and deport the illegal immigrants who are lawbreakers as Mr. Trump wants to do. Then give guest worker visas to law-abiding employees of legitimate businesses and use eVerify to enforce them.
Conclusion. Changes such as these will give a big boost to the economy and therefore create many new jobs and better paying jobs.
I want to emphasize that I voted for Hillary Clinton on Tuesday because Donald Trump has such a sleazy and mercurial personality. But Mr. Trump was clearly the change candidate and we need change big time. His strongest base of support is the white working class which has not really recovered from the Great Recession of 2008-2009 and he will surely try to help out these people.
Here are the changes we need in order of importance:
Grow the economy faster. Tax reform, individual and corporate, and regulatory reform are what are most needed. Mr. Trump and the House Republicans are in rough agreement on both of these major initiatives and hopefully the new Republican led Senate will go along. The best kind of tax reform means to lower tax rates and shrink deductions enough to avoid losing tax revenue. This can be accomplished if a real effort is made to do it this way.
Begin to shrink our massive debt. This can only be done by major entitlement reform, meaning to control the costs of Social Security, Medicare and Medicaid. Medicare should be transitioned over from a single payer system to a premium support system, consistent with a reformed Affordable Care Act. Healthcare costs can only be contained by giving consumers more skin in the game, meaning higher deductibles supplemented with health savings accounts.
More assertive foreign policy. Worldwide peace and stability depend on our own economic and military strength. Right now China, Russia and Iran think they can push us around. President Trump will not let this happen.
Trade and immigration policy. Most knowledgeable people agree that international trade is generally beneficial. We simply have to do a better job of retraining American workers who lose their jobs to foreign competition. The key to immigration reform is tougher border security plus an effective guest worker visa program.
Conclusion. The Republican House of Representatives has an excellent plan, “A Better Way,” for American economic, fiscal and social renewal and Mr. Trump is largely supportive of it. This augers well for fundamental progress in the next four years.
My last several posts have discussed the strengths and weaknesses of the U.S. economy and where the presidential candidates stand on the main issues. As Donald Trump now slides further and further behind in the polls due to his juvenile tit-for-tat personality, his personal views matter less and less. What does matter now is how the Republican Party will use the Trump disruption to broaden its appeal in the future. Here is a restatement of several of my ideas, influenced by two recent articles in the New York Times, here and here:
Reject tax cuts for the wealthy. But rather support tax rate cuts across the board, paid for by shrinking deductions which primarily benefit the wealthy. Such tax reform will give a sorely needed big boost to the economy.
Help workers displaced by foreign trade with expanded retraining programs and wage insurance. Increased globalization will also boost economic growth but it will stall without greater public support.
Acknowledge that universal health care is here to stay but push for market-oriented changes such as eliminating the mandates required by the ACA.
Disavow mass deportations but set up a firm border security program along with an adequate guest worker program to provide businesses the workers whom they are unable to hire locally. Again, legitimate immigration reform will boost the economy.
Admit that Invading Iraq was a mistake but nevertheless insist on a muscular foreign policy. U.S. economic and military strength provide peace and stability for the whole world including us.
Loosen up on social policy. Insist on restrictions on abortion (e.g. a 20 week cutoff) rather than abolition and work requirements for social welfare recipients rather than cutbacks in aid. In general turn over more social policy regulation to the individual states.
Conclusion. The U.S. badly needs more fiscally conservative national leaders. But conservatives will not prevail in the political process without using more common sense.
In my last post, “Donald Trump’s Best Chance to Win in November,” I said that the best way for Mr. Trump to broaden his appeal beyond working-class whites and to have any chance of winning the presidential election is for him to endorse the reform plan, “A Better Way,” recently developed by the Republican House of Representatives. Here is a brief and positive summary of the Trump platform so far:
His tax plan is highly pro-growth and will not cost nearly as much as the previously advertised $10 trillion over a decade.
He supports legal immigration and simply wants to solve the illegal immigration problem, one way or another.
He is not opposed to foreign trade per se but wants to negotiate, from a position of strength, with countries that manipulate their currencies, steal intellectual property or compel companies to disclose trade secrets as a condition of entering their markets.
His policy proposals so described are completely compatible with the House’s “A Better Way” reform plan whose planks are:
Poverty. Reward work. Tailor benefits to people’s needs. Improve skills and schools. Demand results.
National Security. Defeat the terrorists. Protect the homeland. Defend freedom.
The economy. Regulate smarter. End bailouts and cronyism. Put students and workers first.
The constitution. Make government more accountable and more representative. Restore constitutional checks on spending.
Health Care. More choices and lower costs. Real protections and peace of mind. Cutting edge cures and treatments. A stronger Medicare.
Tax reform. Simplicity and fairness. Jobs and growth.
These guiding principles are being fleshed out into complete policy documents. They do indeed represent a better way forward for our national government. Donald Trump could do far worse than to endorse this comprehensive reform plan developed by the House Republicans. It would show that he is serious about “Making America Great Again.”
My two main sources of information for this blog are the New York Times and the Wall Street Journal. In particular I am always eager to read Eduardo Porter’s weekly column, Economic Scene, in the NYT. He frames the issues very well, even though I often disagree with him on the details. Yesterday’s column, “In Brexit and Trump, a Populist Farewell to Laissez-Faire Capitalism,” points out the similarities in the white working class support for both Brexit and for Donald Trump. It then goes on to advocate for what the economist Larry Summers refers to vaguely as “responsible nationalism.”
I couldn’t agree more with Mr. Porter and Mr. Summers that we need policies to boost the fortunes of blue collar workers, and here are some good ways to do it:
Tax reform to put more disposable income in the pockets of middle- and lower-income workers, to support job creators, and to provide a big incentive for American multinational companies to bring their earnings back home for reinvestment.
Immigration Reform. The key here is a rigorous Guest Worker Visa program to provide immigrant employees for businesses who are unable to hire enough qualified domestic workers. At the same time, a strict eVerify enforcement system would also be established to catch illegal immigrants and deport them.
Free and Fair Trade. Free trade among nations has lifted hundreds of millions of people out of poverty worldwide, as well as benefitting all Americans with lower prices. What we have failed to do is to adequately help displaced workers retrain for the millions of high skilled jobs available in the U.S. which go unfilled for lack of qualified applicants.
Conclusion. Our country faces severe problems. If we don’t get deficit spending under greater control, we risk a new and more severe financial crisis. If we can’t create more and better paying jobs for the modestly educated, we will be faced with Trump-like demagogic candidates for president every four years. It will be a huge challenge for us to extricate ourselves from this mess in a peaceful manner.