Category Archives: Jack Heidel

Do We Want More of the Same?

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Most of the time on this blog I address what I consider to be our country’s two biggest fiscal and economic problems: 1) economic growth which, at 2% per year for the past seven years, is too slow to create enough new jobs and higher wages for middle- and lower-income workers and 2) massive and rapidly growing debt, now at 75% of GDP, the highest since the end of WWII.
But from time to time I take a broader look such as:

  • James Piereson’s contention that the New Deal liberal consensus has broken down and we are headed for America’s Fourth Revolution.
  • Yuval Levin’s argument that both progressives and conservatives are stuck with a mid-twentieth century nostalgia to which it is impossible to return.
  • Senator Mike Lee’s (R, Utah) belief that Congress is itself responsible for its shrinking powers vis-à-vis the President and the Supreme Court.

Along this line, Yuval Levin and Ramesh Ponnuru have a powerful essay in the latest issue of the National Review saying that “Mainstream liberals now advance a vision of American government that is increasingly contemptuous of our system’s democratic character and seeks to break through the restraints of the constitutional system in pursuit of their policy ends.”

capture64This vision is advanced in three key ways:

  • Executive unilateralism, for example, by President Obama with respect to status of illegal immigrants, various suspensions and waivers in the implementation of the Affordable Care Act, and net neutrality regulations.
  • The administrative state referring to the tangle of regulatory agencies that populate the executive branch. These agencies issue thousands of regulations per year which, given the vagueness of major legislation, means that the agencies legislate through their rules. Examples are the immense power of the Environmental Protection Agency and the implementation of the Dodd-Frank financial-regulatory reforms.
  • Liberal judicial philosophy understands the courts to be in the business of advancing what is properly understood as a legislative agenda. For example, two Supreme Court cases, a health-care related case (King vs Burwell) and a same-sex-marriage case (Obergefell vs Hodges) turned out this way.

Conclude Messrs. Levin and Ponnuru: “That the constitution makes the work of progressive ideologues frustrating is not an excuse for ignoring and subverting it. Arguments for doing so amount to unprincipled excuses for lawlessness.”

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The Economy Is Improving But Not Fast Enough II. What to Do?

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Our economy is doing a little better recently but not nearly as good as it could be.  In my last post, “Men without Work,” I present Nicholas Eberstadt’s data that a significant part of the problem is the very large number (9.5 million) of prime working age (25 – 54) men who are unemployed and not looking for work.
Statistically, such men are likely to be un-workers if 1) they have no more than a high school diploma, 2) are unmarried and without dependent children, 3) are not immigrants and 4) are African American.
Two other relevant factors are 1) the huge increase in employment for prime working age women, from 34% in 1948 to 70% in 2015 and 2) the very high male arrest and incarceration rates for blacks and those without a high school diploma.
Obviously, it is highly detrimental to society to have such a large number of men who are idle during their prime working years.
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Here are several ways to address this problem:

  • Revitalize America’s job-generating capacities. More businesses have closed than opened in each year since the 2008 financial crisis.  Furthermore, the growing regulatory burden is not a recipe for encouraging entrepreneurship.
  • Reverse the perverse disincentives against male work embedded in our social welfare systems. The Earned Income Tax Credits should be extended to single adults without dependents. Eligibility for disability income should be tightened considerably.

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  • Come to terms with the enormous challenge of bringing convicts and felons back into our economy and society. The huge increase in incarceration rates in recent years has coincided with a dramatic drop in rates for both violent crime and property crime.

Conclusion. One good way to speed up economic growth is to put more unemployed prime working age men back to work. There are several very concrete steps which can be taken to do this.

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Men without Work

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As most of my readers know (but I’ll remind you anyway!), I have two major themes on this blog which are:

  • Slow U.S. Economic Growth, averaging just 2% per year since the end of the Great Recession in June 2009.
  • Massive Debt Accumulation, now 75% (for the public debt, on which we pay interest) of GDP, the highest since right after the end of WWII.

My last post, “The Economy Is Improving But Not Enough” points out that even the latest very good news, that median household incomes were up by 5.2% in 2015, doesn’t get us back to where we were before the financial crisis hit.
A new book, “Men without Work,” by Nicholas Eberstadt sheds much light on why our economy is growing so slowly.  Says Mr. Eberstadt:

  • Between 1948 and 2015, the work rate for U.S. men age twenty and older fell from 85.8% to 68.2%. Even for prime working age men, age 25 – age 54, the work rate fell from 94.1% in 1948 to 84.3% in 2015.

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  • This translates into 9.5 million prime working age men who are not in the workforce, even after correcting for the million or so of these men who are in school or training.
  • Statistically, men age 25 – 54 are more likely to be an un-worker in 2015 if 1) they had no more than a high school diploma, 2) were unmarried and without dependent children, 3) were not an immigrant and 4) were African American.
  • Looking for possible explanations for so many unemployed men, it is noteworthy that the work rate for prime working age women has increased from 34% in 1948 to 70% in 2015.

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  • One reason for so many unemployed men is the high arrest rate and incarceration rate for working age men, especially blacks and those without a high school education. In fact, Incarceration rates are way up even though violent crime is declining.

    capture62Conclusion. It seems obvious that having such a large, and growing, number of prime working age men out of the work force is a very serious problem. Besides slowing down economic growth, they are losing their best opportunity for personal fulfillment.  What should be done to turn around this deplorable situation?  Stay tuned!

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The Economy Is Improving But Not Enough

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It has been widely reported that medium household incomes were up 5.2% to $56,500 in 2015.  Furthermore the lower income quintiles have gained the most.  This is very good news.
capture54But this new peak is below the previous peak of $57,400 in 2007, before the Great Recession started, which in turn is below the absolute peak of $57,900 in 1999. Now look at economic growth more broadly.
capture55The second chart shows the annual rate of real (i.e. inflation adjusted) GDP growth, by expansion period, all the way back to 1949.  What is most striking is that growth has been steadily decreasing over this entire time period and is now down to an average rate of just 2% during the current recovery. There is really only one way to reverse this steep decline.  It is to return to proven fundamentals as well explained by the economist, John Cochrane.  In summary:

  • There is only one source of growth. Nothing other than productivity matters in the long run. And, unfortunately, the business investment which leads to gains in productivity is way down.
  • The vast expansion in regulation is the most obvious change in public policy accompanying America’s growth slowdown.
  • The basic structure of growth-oriented tax reform is lower marginal rates paid for by removing exemptions and loopholes. A high corporate tax rate hurts workers more than anyone else.
  • Solving our immigration problem would turn 11 million illegal immigrants into productive citizens. Guest worker and e-Verify enforcement are fixable problems.
  • International trade with strict reciprocity between trading partners will benefit almost everyone. Manufacturing workers who lose their jobs to foreign competition need robust retraining programs for the many manufacturing jobs which still exist.

Conclusion. Faster economic growth is imminently doable. Just follow tried and true economic fundamentals!

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The Remarkable Human Progress of the Last 200 Years II. What Has Caused It?

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In my last post, “The Remarkable Human Progress of the Last 200 Years,” I presented the findings of a new book by Johan Norberg, “Progress: ten reasons to look forward to the future.”  Mr. Norberg details how much human welfare has progressed in such fundamental ways as food availability, improvements in sanitation, increased life expectancy, poverty reduction, gains in literacy, decline of slavery, and equal rights for all.
This raises the obvious question: What is responsible for all of this enormous progress?

capture52An answer to this question is provided by Matt Ridley in his book, “The Rational Optimist: how prosperity evolves.”  First of all, Mr. Ridley points out that since the year 1800, income per capita has increased nine times (in constant dollars) and even though the rich have gotten richer, the poor have done even better.
But in addition it is the “invention of invention” attributed to the evolution of human nature which has led to the explosion of innovation in the past two centuries.  So what propels this explosion of invention?  According to Mr. Ridley:

  • It is not Driven by Science. In fact science is more like the daughter than the mother of technology.
  • Money is important to innovation but not paramount. For example, the pharmaceutical industry often simply buys small firms which have developed big ideas, rather than large companies developing their own products,
  • There is little evidence that Intellectual Property, i.e. patents, is what drives inventors to invent.
  • Government is bad at innovation. In fact it is more likely to crowd out resources which could be put to better use by the private sector.
  • In fact it is the ever-increasing Exchange of ideas which causes the ever-increasing rate of innovation in the modern world.

Conclusion. “The more you prosper, the more you can prosper. The more you invent, the more inventions become possible. … There is an inexhaustible river of invention and discovery irrigating the fragile crop of human welfare.”

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The Remarkable Human Progress of the Last 200 Years

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About a month ago I had a post, “Optimism or Pessimism for the Future: Which is More Justified?” in which I referred to the book, “The Rational Optimist,” by Matt Ridley to point out all of the positive trends in present day society. I come back to this topic today because of another remarkable new book, “Progress: ten reasons to look forward to the future,” by the Swedish economic historian, Johan Norberg. The following brief illustrated comments give the flavor of Mr. Norberg’s book:

  • The Good Old Days Are Now, referring to the rapid rise in global wealth starting in about the year 1800.capture43
  • Food. In 1968 Paul Ehrlich wrote in The Population Bomb that “in the 1970s, the world will undergo famines and hundreds of millions of people are going to starve to death.” Yet just the opposite happened.capture44
  • Sanitation. Consider that in 1980 only 24% of the world’s population had access to proper sanitation and today this has increased to 68%.capture48
  • Life Expectancy. Consider that smallpox was totally eradicated in 1980 and that the number of annual cases of polio has been reduced from 350,000 in 1988 to just 416 today.capture49
  • Poverty. Between 1981 and 2015 the proportion of the developing world population living in extreme poverty (less than $2 per day) fell from 54% to 12%.capture50
  • Literacy. The global ratio of female literacy to male literacy increased from 59% to 91% between 1970 and 2010.capture45
  • Freedom. In 1950 31% of the world population lived in democracies, increasing to 58% in the year 2000. Today that number has increased to 64%.capture46
  • Equality. Minority rights, women’s rights and gay rights have all increased enormously during the last 100 years.capture51

The author concludes, “Even though wealth and human lives can be destroyed, knowledge rarely disappears. It keeps on growing.  Therefore any kind of backlash is unlikely to ruin human progress entirely.  But progress is not automatic.  It is the result of hard-working people and brave individuals. If progress is to continue, you and I will have to carry the torch.”

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Why Medicaid Needs to Be Reformed

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One of the very most serious problems facing our nation is our massive federal debt, now over $13 trillion (the public debt on which we pay interest), or 75% of GDP, the highest since right after WWII, and predicted by the CBO to keep getting worse unless major policy changes are made.
The main contributors to this rising debt are the big three entitlement programs of Social Security, Medicare and Medicaid. All three need substantial reforms in order to rein in spending.
Today I will discuss Medicaid, based on an excellent analysis performed by the Manhattan Institute’s Oren Cass, “Over-Medicaid-Ed: how Medicaid distorts and dilutes America’s Safety net.”
capture41Consider these pertinent points:

  • Badly designed incentives for Medicaid expansion. Each state sets the size of its Medicaid program and receives matching federal dollars, from $1 to $4, for every dollar spent. States thus have a strong incentive to overinvest in Medicaid, expanding their programs far beyond the point where a marginal dollar of their own spending produces a dollar of value.
  • Health care dominates safety-net spending. During 1975 – 2015, government social spending per person in poverty more than doubled (in constant 2015 dollars) from $11,600 to $23,400. Rising health care expenditures accounted for more than 90% of that increase.

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  • Medicaid spending in 2012 was 39% higher than if it had remained a constant share of state budgets since 2000. State spending on education and welfare was 9% and 54% lower, respectively.
  • This allocation is an ineffective poverty-fighting strategy. While the majority of government social spending goes to health care, low-income households not enrolled in Medicaid allocate less than 10% of their spending to health care. Studies consistently show little or no positive impact on health outcomes from Medicaid enrollment.
  • How to strengthen America’s safety net. The federal government should consolidate all antipoverty funding streams, including Medicaid, and allow states to design programs and allocate funding to such programs as states see fit.

Conclusion. The above program outlines a way to both improve the effectiveness of social welfare spending and curtail its costs to both states and the federal government. Let’s do it!

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Donald Trump Needs a More Positive Message

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As regular readers of my blog posts know, I am not enthusiastic about either of our two main presidential candidates because neither of them has a good grasp of our two biggest economic problems which are:

  • Slow economic growth, averaging just 2% per year since the end of the Great Recession in June 2009. Faster growth would solve or alleviate many other problems, especially by creating more new jobs as well as delivering faster wage growth for all middle- and lower-income workers.
  • Massive debt now at 75% of GDP, the highest it has been since right after WWII, and projected by the Congressional Budget Office to get steadily worse unless big changes are made in spending and tax policies. Such major changes are difficult to make without presidential leadership.

Hillary Clinton promises “equitable” growth but her policy proposals will lead to a big increase in spending (bad idea) on projects of dubious value in speeding up economic growth. Donald Trump would hurt the economy with immigration controls and trade restrictions.  His proposal for lower tax rates (good idea) needs much improvement to avoid increasing annual deficits.
capture40Mr. Trump’s biggest problem, however, is his negative message about life in America today. Yes, we need stronger border security but we don’t need a Fortress America.  As the American Enterprise Institute has just reported, worker satisfaction is greatly improved since 2009 and workers are now much less anxious about job security than just a few years ago.
There is a really good way for Mr. Trump to sound a more positive note.  He could very easily take up the major themes of the Republican House Plan, “A Better Way” for solving America’s major economic problems.
Conclusion. There is an overwhelming desire for change in America, for new leadership which breaks out of the corruption, cronyism and elitism so rampant in Washington DC today.  But Americans are natural optimists and want a leader who can look forward to a bright future for our country.

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Can U.S. Economic Growth Be Speeded Up? II. A Major Roadblock

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In my last post, “Can U.S. Economic Growth Be Speeded Up?”  I pointed out that:

  • GDP growth has averaged just 2% since the end of the Great Recession in May 2009.
  • The Federal Reserve has taken unprecedented steps to keep interest rates low in the meantime but these efforts aren’t boosting GDP and, in addition, have quite harmful side effects.
  • Wages are growing and consumers are spending money but business investment is shrinking and productivity growth is slowing.
  • This means that the problem is supply side rather than demand side, contrary to what many economists are saying.

At least part of the problem is a lack of skilled workers. Two articles in today’s Wall Street Journal, here and here point out that:

  • America is now home to a vast army of jobless men, seven million of them age 25 to 54, who are no longer even looking for work. This is 15.6% of the traditional prime of working life.
  • Openings for manufacturing jobs this year have averaged 353,000 per month up from 311,000 per month in 2015 and 121,000 per month in 2009.
  • According to the Manufacturing Institute, 8 in 10 manufacturing executives say that the growing skills gap will affect their ability to keep up with customer demand.Capture39
  • As shown in the above chart, at the present time there are only an average of two unemployed manufacturing workers for each job opening, way down from the level in 2010.

Conclusion. Speeding up economic growth requires new business investment in order to increase worker productivity. But a lack of skilled and trained workers will greatly hamper this effort.  The solution here is better vocational and career training in high schools and at community colleges.

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Can U.S. Economic Growth Be Speeded Up?

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It is widely recognized and deplored, see here and here, that economic growth in the U.S. has been very slow, averaging only 2% per year, since the end of the Great Recession in June 2009.
The Federal Reserve has taken unprecedented steps to limit the severity of the recession by holding down both short term and long term interest rates.  But these efforts are only partially working and are, unfortunately, having a number of negative effects as well.
It also has been made quite clear that the problem is supply side and not demand side.  This is because, on the one hand, wages are beginning to rise more quickly and consumers are spending more money but, on the other hand, business investment is shrinking which is leading to slow productivity growth.
Capture38The American Enterprise Institute’s James Pethoukoukis has just provided new data  on the current weakness of business investment as illustrated in the above chart. Furthermore he quotes the economist, Robert Gordon, who has clearly described the many headwinds holding back the U.S. economy to the effect that:

“The American tax code exerts a downward pressure on capital formation and therefore on economic growth. It is now 30 years since the passage of comprehensive federal tax reform in the U.S.  In the intervening years, nearly every developed country has reformed its tax codes to make them more competitive than that of America.  Meanwhile the U.S. has allowed its tax code to atrophy.”

Conclusion. Yes, economic growth can be speeded up. But monetary policy won’t do the trick.  Congress must intervene with the right changes to fiscal policy, i.e. lowering tax rates for both individuals and corporations, paid for by closing loopholes and shrinking deductions.

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