The economy has been doing very well lately and I would prefer to be talking about this.  But, of course, we now have a more immediate problem to deal with.

The atmosphere in the U.S. about the coronavirus threat is almost panicky but consider:

• There are currently 3115 confirmed cases of the virus in the U.S. and 60 deaths.
• There have been 81,000 cases in China (with four times our population) so far and 3199 deaths.
• China now reports that there are fewer and fewer new cases reported every day.
• Since China, with a late start, has been able to get the virus under control in a ten week period, the U.S. with a sensible strategy, should be able to do the same.
• Just in the last few days a very sensible strategy has sprung up spontaneously around the country: social distancing. Isolate yourself from other people to minimize your infection risk.
• Also, the federal government has declared a national emergency and has set up a flu testing strategy with major businesses such as Walmart, CVS and Walgreens.

  

• Our economy is being hurt by the coronavirus outbreak, especially for transportation and entertainment. Cruise ships, airplanes and restaurants will all be badly affected.  In Omaha NE, where I live, both  the College World Series (each June) and the Berkshire Hathaway annual convention (each May) have been cancelled for 2020.  Omaha will thus take a big financial hit.
• Performance theaters and art galleries in Omaha are suspending operations but not yet movie theaters and restaurants. This will also hurt the economy.
• Economists are mixed on whether or not the U.S. is likely to go into recession  which requires two successive quarters of negative growth. We won’t know officially until October of this year, after the third quarter ends.
• In the meantime, watch the monthly unemployment rate which activates the Sahm Signal indicator of recession. I will be watching this carefully and reporting on it.

  

Summary.  The coronavirus is very serious.  The federal government is now responding forcefully even if it did delay initially.  Practice social distancing but without overreacting.  My wife and I (both retired) will continue most of our normal daily and weekly activities such as working out, meeting with others in small groups, going to movies and eating out at our favorite restaurants.

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The U.S. economy has been doing very well lately.  The unemployment rate, under 4% for the last two years, has just been reported to be a continued low of 3.5% for February 2020 and, moreover, 273,000 jobs were added last month.

There’s other good news to report about the economy as well (coming soon!) but, of course, we also have the coronavirus to contend with at the present time.  How should we evaluate the coronavirus threat?  Consider:

• During the 2019-2020 flu season so far there have already been about 14,000 deaths in the U.S. Typically there are from 12,000 – 61,000 flu deaths in the U.S. each year.
• So far there have been 17 coronavirus deaths in the U.S., including 14 in Washington State 1 in California and 2 in Florida.

The most likely course of a coronavirus recession is steep but very short:

• The DJIA has plunged 3500 points since February 19 or 12% of its value. This represents good buying opportunities for savvy investors like Warren Buffett.
• The price of oil has dropped 33% in the past two months, from $63 per barrel to $42. This is great for consumers even though it is not so good for producers.
• Ten year Treasury bonds are now yielding less than 1% annual interest, a very low rate. Investors are unlikely to continue to tie up money for 10 years at such a low rate.
• 30 year home mortgages are now available for 3.29%, again very low but good for home buyers.

Conclusion: Most reactions to the coronavirus threat have been quick and dramatic.  Very soon, within a few months or less, the long term threat is likely to fade and the U.S. economy will bounce back to its previous growth mode, by continuing to exhibit strong consumer spending.

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Income inequality is a hot topic these days, especially in the Democratic presidential primary race.  The New York Times writer, Nelson Schwartz, says it is so bad that he asks the question “Is America on the Way to a Caste System?”

But consider:

• The top four Democratic presidential candidates, Sanders (Vermont), Biden (Delaware), Bloomberg (New York) and Warren (Massachusetts) are all east coast residents.
• Los Angeles has by far the largest homeless population, 44,000, in the whole country.
• The average monthly rent for a one BR apartment in San Francisco is $3438, the highest in the country.
• In fact, the scholar, Richard Florida, has a book, “The New Urban Crisis” pointing out that it is our biggest cities, especially coastal, which are increasing inequality and failing the middle class.

In contrast with the message from the Democratic presidential candidates and the stark figures above, consider that, throughout the country as a whole, Life in America is continually getting better:

• The middle class is not shrinking. The number of middle income ($35,000 – $100,000) plus higher income (> $100,000) households together is expanding rapidly (see chart).  The number of low income households (< $35,000) is shrinking significantly and the middle class is actually thriving.
• Many developed countries have more billionaires per capita than the U.S.!  Warren Buffett, who lives in Omaha NE where I also live, is the third wealthiest American at $80 billion. His wealth and prestige are of enormous value to Omaha.
• So what if the wealthy have more and more special privileges?  As a retired math professor from the University of Nebraska Omaha, an average university, and with no extra financial resources, my wife and I are in the group of high income households (see above). We live somewhat frugally by choice but are not restricted in any way from doing what we want to do, from generously supporting our favorite charities to traveling anywhere we want to go.

Summary.  Income inequality is very real, especially in the blue states.  But poverty is a bigger problem than inequality.  There are practical ways to alleviate poverty and society is making much progress in doing this.

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In my last post “What Is Wrong with the Democrats?,” I discussed the fact that the Democratic party is moving so far to the left that it may nominate a presidential candidate who makes Trump look like the safer choice.

Here is an additional explanation of what is going on:

• In the short span of a generation, the face and focus of the Democratic Party nationally has shifted from a glorification of the working-class ethos to multi-culturist militancy pushed by the Far Left of the party.
• The narrow elite – people with national influence – coincides with the Big Four centers of cultural impact: New York, Los Angeles, San Francisco and Washington DC.
• Liberalism which seeks to spread cosmopolitan relativism to the masses, by force if necessary, instead of spreading economic equality, is destined to leave a decisive slice of the American electorate in search of a new home.
• If the people who make branding news, and political decisions, are immersed in environments hostile to a coalition that represents a governing majority of the nation, cultural schism is the most likely outcome.
• Trump’s often coarse language on the issues serves as an attractant for the kind of marginal voters who were previously unmotivated by more conventional presidential candidates such as Mitt Romney.
• For the typical voter, the speech of normal candidates has them saying “What’s going on? I just want a job.  Just get me a job.  I don’t need the rhetoric.  I want a job.”
• The question of whether Trump has remade, or can remake, the Republican Party on a less-ideological, but more strident, forge, is one that will persist past his presidency.
• A key to projecting the staying power of the Trump-made alliance between populists and conservatives is understanding not just the changing influences within this coalition but also the forces pushing Democrats further toward the multinational worldview that enabled the coalition to form.
• In the long run the Republicans have a demographic problem and the Democrats have a geographic (coastal) problem. What happened in 2016 is only the beginning. “Unchecked by the need to accommodate centrists in their own party, the Democrats are continually redefining the litmus test for acceptable liberalism.
• The 2020 election may determine whether the American electorate has altogether realigned, or merely had a hiccup.

Summary.  Did 2016 represent a great revolt or just a great surprise?  This is what the American voters will decide in 2020.  It will truly be a momentous election.

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In spite of President Trump’s post impeachment surge in popularity to 49% (Gallup Poll), he is still vulnerable for re-election.  “Millions of Americans like the results of Mr. Trump’s policies but not his divisive brand of politics and personal behavior.”

And yet the top Democratic candidate is a “socialist who wants the government to control energy production and health care, who wants nationwide rent control, and who calls America a racist society from top to bottom.”

Consider the intellectual currents Bernie Sanders is riding:

• The attack on capitalism and markets. The left blames the market for the 2008 panic and crash rather than failed government regulation, subsidies for bad housing risks and loose monetary policy.
• Inequality replacing growth as the top economic policy concern. Don’t Democrats realize that a 3.5% unemployment rate is far more beneficial to workers than demonization of billionaires and equating business success with corruption?
• The critique of America as irredeemably racist. After police shootings in 2014 and 2015, Black Lives Matter erupted and demanded that politicians bow to its concerns, neglecting 50 years of racial progress and the huge reduction in crime which has saved thousands of black lives.  For example, 200,000 African-Americans have been able to move out of Chicago in the last two decades alone to seek a better life.

  

• Climate change as religion, not science. Yes, global warming is real and serious, but the alarmists have greatly overstated the problem.  All over the country Americans are implementing practical ways of increasing the use of renewable energy and cutting back on carbon emissions.  The last thing we need is a Green New Deal to strangle the American economy.

Conclusion.  Americans “are looking for an alternative who doesn’t scare them.  The agony of the Democrats is that years of bowing to the left means they may nominate someone who makes Mr. Trump look like the safer choice.”

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Donald Trump will leave office in either January 2021 or January 2025.  I certainly don’t know which year it will be or who will be the next President.  Trump is a populist disrupter.  The real question is: do we return to “normal” after he is gone or rather set off in a new direction?

The New America scholar, Michael Lind, has a timely book: ”The New Class War: saving democracy from the managerial elite” which explores this very important question.

Says Mr. Lind:

• The hub-heartland divide that is reshaping politics is the geographic manifestation of a class divide. The interests of hub-city over-classes and heartland working-classes collide when it comes to environmental policies, trade, immigration and values.
• Between 1999 and 2009 U.S. multinational corporations cut 864,600 workers in the U.S. while adding 2.9 million workers abroad.
• The center of gravity of the over-class is center-right (pro-market) on economic issues and center-left on social issues. In comparison, the center of gravity of the much larger working-class is just the opposite.
• Populists have succeeded because they opportunistically champion legitimate positions that are shared by many voters but excluded from the narrow neoliberal over-class political spectrum. For example, a 2018 poll found that 64% of Americans, including 53% of Latinos, favor immediately deporting anyone who crosses the border illegally.
• Populism is a sign of a sick body politic, not a cure.
• Only a new democratic pluralism that compels managerial elites to share power with the multiracial, religiously pluralistic working class for the economy, politics and culture can end a cycle of oscillation between oppressive technology and destructive populism.
• The neoliberal establishment panaceas of higher education, retraining, geographic mobility, redistribution, and anti-monopolism may ameliorate the symptoms but will not cure the disease: the imbalance of power between the over-class and the working-class.
• The alternative to both technocratic neoliberalism and demagogic populism is democratic pluralism.
• The rootedness of most working-class Americans in their hometowns and regions is often lamented by the intellectuals of the managerial over-class.
• It has been argued that “democracy, national sovereignty and global economic integration are mutually incompatible.” The solution to this “impossibility theorem” is to give up on global integration.
• Every democratic nation-state should tailor both its immigration policy and its trade policy to promote the interests of the members of its working-class majority, native-born and foreign-born alike.
• Managerial elites are destined to dominate the economy and society of every modern nation.
• But the new class war will come to an end in one of only two ways: either there will be a new cross-class compromise embodied in a new democratic pluralist order or, the grim alternative: a future of gated communities and mobs led by demagogues at their gates.

Conclusion.  Mr. Lind’s message is clear: the neoliberal over-class must learn how to effectively work with the working-class on their common interests.  This is the answer to the question of the title:  Donald Trump is a demagogic disrupter.  What we need next is a bridge builder between the elite over-class and the working-class.

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This blog,It Does Not Add Up, addresses important fiscal and economic issues in the U.S.  It is remarkable that our unemployment rate, currently 3.5%, has been under 4% for going on two years.  This is the equivalent of a huge labor shortage which is very good news for our lowest-income workers who now have lots of new employment opportunities as well as big wage increases.

But here is another very interesting fact.  A new book, Fully Grown, by Dietrich Vollrath, makes a convincing argument that U.S. per capita GDP growth has actually slowed dramatically in the 21^st century and for very positive reasons:

• Per capita GDP growth averaged 2.25% annually from 1950 – 2000 and only 1% annually from 2000 – 2016. Most of the slowdown comes from the effects of smaller family sizes and aging as well as the shift from goods to services.
• This slowdown represents success since child-rearing has become a smaller burden on families, we are living longer and we are able to spend more on enhancing the quality of life rather than just physical necessities.

But this raises the obvious question:  how can we have both slower GDP growth and a labor shortage at the same time?  Here is at least a partial answer to this question:

• The U.S. unauthorized immigrant total has fallen from a high of 12.2 million in 2008 to 10.5 million in 2017 (see chart) and is probably still continuing to fall further. This means that unauthorized immigrants have declined as a share of the U.S. labor force (see second chart).
• Concurrently with our overall labor shortage, the number of H-2A (agriculture) and H-2B (non-agriculture) guest worker visas has increased from 103,000 in 2010 to 408,000 in 2019 (see chart).
• This means that there are now more legal immigrants to fill the physically demanding jobs which Americans don’t want.  It also means more jobs, and higher wages, overall for low-income Americans!

Conclusion.  Overall, we have an amazingly strong economy even though annual per-capita growth has slowed in the 21^st century.  The U.S. is doing something amazingly right!

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As the readers of this blog well know, I am highly concerned about our rapidly growing national debt and how to fix it.  I have stated many times that the only feasible way to do this is to get entitlement spending, and especially health care spending, under much better control.

The Committee for a Responsible Federal Budget has prepared a report, “Primary Care: Estimating Leading Democratic Candidates’ Health Plans” comparing the health care plans for Joe Biden, Pete Buttigieg, Bernie Sanders and Elizabeth Warren.  Even though their plans are campaign oriented and not fully developed policy documents, they are still indicative in a general sense of the direction in which a future Democratic President would attempt to implement health care reform.

All four of these candidates would expand coverage by an additional 20 to 30 million people, thereby assuring nearly universal health insurance coverage. But there are still two huge problems remaining.

• First of all, it is too expensive overall, roughly double the cost as compared to other developed countries.
• Secondly, as mentioned above, it is the health care entitlement programs, i.e. Medicare and Medicaid, which are the fundamental drivers of our national debt.

How do the four leading Democratic Presidential candidates compare on addressing these two remaining fundamental problems?

On the first question, according to CRFB, their plans would have relatively minimal impact (see chart below). Total national healthcare expenditures would either slightly decrease (by 2%) or slightly increase (by 6%).

On the second question likewise, their plans would vary (see chart below) from having a minimal effect on the debt to making the debt substantially worse.

Conclusion.  The healthcare plans of the top four Democratic Presidential candidates would have either a very small positive effect or a major negative effect on the two biggest problems of American health care, the cost issues.  Basically their effect would be to significantly expand access to health care without addressing the cost problems or else making them worse.

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Sunday’s New York Times (1/19/2020) is incredibly negative about life in the U.S. today.  Consider the following opinion pieces in the Sunday Review section:

• The Injustice of This Moment Is Not an Aberration by Michelle Alexander which deplores mass incarceration, mass deportation and the rise of white nationalism.
• We Don’t Understand China’s Power by David Leonhardt which claims that as China continues to move forward, the United States is slipping into reverse.
• How Did Americans Lose Faith in Everything? by Yuval Levin who claims that we are living through a social crisis of isolation, alienation and despair which has sent suicide rates climbing and driven an epidemic of opioid abuse.

These authors are addressing serious problems in our country.  But what I observe in Omaha NE is that the economy is booming and there is a huge labor shortage.  For example, our local Target store is now hiring at a starting salary of $13 per hour.  This is economic opportunity in action!

For an optimistic national perspective, see the recent Wall Street Journal editorial The Economy’s Inequality Dividend which points out that:

• The current jobless rate of 3.5% is the lowest in 50 years. The labor participation rate (currently 63.2%) has grown steadily for five years.
• During the last three years wages for the bottom 10% of earners over age 25 rose an average of 5.9% annually and even faster (6.1%) for workers without a high school degree.

  

• The black unemployment rate of 5.5% is the lowest that has ever been recorded. The poverty rates for blacks (20.8%) and for Hispanics (17.6%) are also the lowest ever recorded.
• In 2019 forty million fewer people lived in households receiving government assistance than in 2016 and the food stamp rolls have shrunk by 9.5 million in the last three years.
• Between 2016 and 2018 the number of taxpayers earning less than $25,000 declined 5% while increasing 8% for those making between $100,000 and $200,000.

Conclusion.  There are both good and undesirable aspects of life in today’s America.  Although I tend to accentuate the positive, I am aware of the less fortunate members of our society and support programs designed to give them a lift.

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My last post, “Why It Is So Difficult to Fix Our Debt Problem” made the case (I hope!) that there is really only one practical way to fix our debt problem.  It is to control the cost of healthcare spending in the U.S. and especially the cost of entitlement healthcare spending such as for the programs Medicare and Medicaid.  In fact, Medicare by itself is the biggest part of this problem.

Consider that:

• In 2018 there were 60 million Medicare recipients and this number is projected to reach 81 million by 2030, just ten years away (see chart):
• Medicare spending, 4.2% of GDP in 2020, is projected to reach 7.1% of GDP by 2040.  Again, as pointed out in the previous post, Medicare is the fastest growing single government program in our entire country.

  This means that strong action needs to be taken to control the rise of Medicare costs as well as other public healthcare programs such as Medicaid.  For example:

• Let Medicare negotiate drug prices with pharmaceutical companies. This is currently banned under the ACA and so will require congressional action.  It would have the effect of lowering drug prices for all Americans.
• Require Medicare recipients to pay more than the 59% of the cost of their healthcare benefits which they now pay.  This could be done on a means-adjusted basis so that the affluent, at least, would pay the full cost of their own healthcare and with even middle-class recipients paying more, say 50% of parts B and D, than they pay at present.
• Put Medicaid on a block-grant financial basis so that the federal government pays only a fixed amount to each state (increasing with inflation) rather than a fixed percentage of the expenses of each state. This will not only control the federal cost but also give the states a greater incentive to control their own Medicaid expenses.
• (blunderbuss last resort) Medicare prices for all. Note that I did not say “Medicare for All” as has been proposed by several Democratic presidential candidates.  Medicare has a reasonable price control system which could be used for all of U.S. healthcare.  All of the world’s other advanced economies have both universal healthcare coverage and price controls of some sort for all medical expenses.
• The CEO, Michael Hansen, of the Columbus (NE) Community Hospital has figured out to prosper financially with Medicare and Medicaid payment rates for most of his patients. This is reported (pages 66 – 69) in the book “The Price We Pay” by Marty Makary, MD

Conclusion.  The U.S. national debt is a very serious problem which must be addressed by our national representatives in the very near future.  Controlling the cost of the healthcare entitlement programs, Medicare and Medicaid is by far the best way to make significant progress on this huge problem.

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