The Democrats Are Half Right (and Half Wrong!) on the Economy


In my opinion both of the two main presidential candidates have overall poor economic plans.  But at least several major Democratic figures such as Hillary Clinton, the NYT columnist Thomas Friedman, and the economist Larry Summers do understand the importance of economic growth.
In particular, says Mr. Summers, “What is unfortunate is that many (progressives), in their eagerness to focus on fairness, neglect the single most important determinant of almost every aspect of economic performance – the rate of growth of total income, as reflected in the gross domestic product.”

  • More growth means more employment. For each 1 point increase in adult male employment, the employment of young black men rises by 7%.
  • More growth reduces the need for desperation monetary policies that risk future financial stability.
  • If U.S. growth continues to have a 2% ceiling, it is doubtful if we will achieve any of our major national objectives. If we can boost growth to 3%, interest rates will normalize, middle-class wages will rise faster than inflation, debt burdens will continue to melt away and the power of the American example will be greatly enhanced.
  • The question is not whether business success is desirable. The question is how it can be achieved.

All of the above is very positive on the part of Mr. Summers. But then he adds, “What is needed is more demand for the product of business.  This is the core of the case for policy approaches to raising public investment and increasing workers’ purchasing power.”  In other words Mr. Summers is ignoring that:

  • Our national debt is huge and growing way too fast.
  • Wages are now increasing fairly rapidly which increases demand by itself.


  • Investment in new business structures, equipment and intellectual property has now fallen for three quarters in a row.


Conclusion. The way to achieve the faster rate of growth which Mr. Summers (and almost everyone else) wants is not more public investment but rather more private investment. The House Republicans have a plan to accomplish exactly this.

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Racism and Black Progress


At this time of heightened racial tensions in the U.S. it is worthwhile to step back and take a broader view of the economic and social status of blacks in America. The Washington Post’s Robert Samuelson has done just this in a recent column. As pointed out by Mr. Samuelson blacks have made much progress since the 1960s:

  • Poverty. Black poverty has dropped from 39.3% in 1967 to 26.2% in 2014, which was still double the white rate of 12.7%
  • Education. In 1950 only 13.7% of adult blacks had completed high school. By 2014 this had jumped to 86.7%. Over the same period the percentage of black adults with a four year college degree jumped from 2.2% to 22.8%. The corresponding percentage for whites in 2014 is 36%.
  • Upward Mobility. The black upper middle class (with incomes of $100,000 or more, inflation adjusted) has grown form 2.8% of households in 1967 to 13% in 2014. For the U.S. population as a whole it is now 31%.
  • Politics. In 1965, when the voting rights act was passed, there were five blacks in Congress, now there 46. Over the same time period, the number of black state legislators grew from 200 to 700.
  • Life Expectancy. The life expectancy gap between blacks and whites shrank from 8 years in 1970 to 5 years in 2010.

Conclusion. Most people understand that life for blacks in America is more difficult than it is for whites. On the whole American society is trying to help blacks lift themselves up to be able to enjoy a more prosperous and satisfying life.  Much progress has been made in this respect in the last half-century but there is clearly still a long way to go in achieving full equality with white America. In my next post I will discuss one of the biggest barriers which remain in achieving equality between races.

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How Progress Has Led to Discord


We were reminded by Robert Samuelson in yesterday’s Washington Post that America has made amazing progress in the last half century.
Consider that in 1960:

  • Men and Women held rigid gender roles.
  • African-Americans were restricted by legal segregation in the South and informal segregation almost everywhere else.
  • Homosexuality was virtually under the radar.
  • There was little environmental regulation.
  • Immigration was not an issue.
  • Defense made up 52% of government spending.


Think about all the (mostly) positive changes which have taken place in the meantime:

  • Women have taken paying jobs by the millions.
  • Racial segregation has been outlawed.
  • Gay rights have been established.
  • Environmental regulation has exploded.
  • Immigration, both legal and illegal, has increased.
  • Social spending has soared.
  • Defense is down to 16% of the federal budget in 2015.

Consider how our national politics is now stalemated:

  • The political system favors extremes.
  • Minorities live largely in big cities where they produce Democratic super-majorities.
  • Rural areas produce Republican super-majorities.
  • Incumbents are insulated from general election challenges which might pull them towards the center but are perpetually vulnerable to primary challenges from extremists who pull them towards the fringes.
  • Ideological purity trumps pragmatism. In the internet and cable-news era, politicians are constantly reassuring their constituents that they haven’t sold out.
  • The center sags and paralysis prevails.

Meanwhile serious national problems are getting much worse and not being addressed. Our public debt (on which we pay interest) is 74% of GDP, the highest since WWII.  The U.S. economy is growing only slowly at the rate of 2.1% per year ever since the end of the Great Recession seven years ago.  Neither presidential candidate has a credible plan to deal with these two most aggravating problems.
As a country we are in a huge mess.  How do we break out of it?  I wish I knew!

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Why the U.S. Strategic Defense Initiative Is So Important


North Korea recently launched another long-range rocket as reported by the New York Times, the Wall Street Journal, and the Washington Post The editorial boards of all three newspapers deplore this development but differ in suggesting how the U.S. should respond.

  • The NYT says that sanctions should be imposed to limit North Korea’s ability to finance warheads and missiles. Such sanctions would most acutely be felt by the Chinese companies doing business with North Korea.
  • The WP supports economic sanctions as well as deploying an advanced missile defense system in South Korea as quickly as possible.
  • The WSJ is concerned about the “rogue state” ICBM threat in general. North Korean missiles can now reach Los Angeles, Denver and Chicago. Iran recently conducted two ballistic missile launches in violation of the recent nuclear deal.

Ronald Reagan’s launch of the SDI in the 1980s helped win the cold war. The Bush Administration is responsible for the missile defenses which exist today, including long-range missile interceptors in Alaska and California and Aegis systems aboard Navy warships.  The Obama Administration has cut its missile defense budget request from $9.8 billion in 2016 to $9.1 billion for 2017.
Capture6Admiral Bill Gortney, Commander of the North American Aerospace Defense Command, says that “We’re ready 24 hours a day if he’s (Kim Jong Un) dumb enough to throw something at us.”  But any miss would be catastrophic and a 100% interception rate won’t happen without engineering advances and presidential leadership.
SDI should be a very high priority within the overall military budget.  Our national security depends on it!

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It’s Easy to be Pessimistic about America’s Future


As I remind readers from time to time, this blog is concerned with America’s fundamental fiscal and economic problems: a slow economy, massive debt, and increasing income inequality. Largely because of these apparently intractable problems, more and more people are becoming pessimistic about the future of our country.
CaptureAlthough I am by nature an optimist, these matters weigh on me as well:

  • The just introduced “Bipartisan Budget Act of 2015” is a sell-out to the status quo. It breaks the agreed upon sequester spending limits by $112 billion over two years with essentially no attempt to create long term spending restraint.
  • As pointed out recently by the Washington Post’s Robert Samuelson, the presidential candidates are talking mainly about new entitlements (the Democrats) or tax cuts (the Republicans). In both cases this represents a flight from reality.
  • Entitlements: The number of people aged 65 or older will increase from 15% of the population today to 22% of the population in 2040. The cost of Social Security, Medicare and Medicaid will jump from 6.5 % of GDP today to 14% of GDP in 2040. We simply must control these costs by raising eligibility ages for SS and Medicare and increasing premiums for wealthier recipients.
  • Economic Growth: Annual growth has averaged only 2% of GDP since the end of the Great Recession in June 2009. Slow growth means weaker gains in wages, more unemployment and larger spending deficits. This can be fixed long term with honest tax reform, but not with unrealistic tax cuts.

Conclusion: Isn’t it obvious that we need political candidates who will speak forthrightly with the people about the need for addressing these humongous problems? Americans aren’t dumb.  They will respond to straight talk from their supposed leaders.   

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The Six Issues That Could Cause a Government Shutdown


It is now just ten days until the new government fiscal year begins on October 1 and Congress has not yet passed a budget for the new fiscal year. Although a temporary funding bill could be brought up and passed at any time, the Washington Post thinks that there are six big impediments to adopting a new budget.
CaptureThey are:

  • Planned Parenthood. 31 House Republicans insist that they will support no spending bill which has funding for Planned Parenthood. Short term funding should not be in danger because the Democrats will step in if necessary to keep the government open.
  • The Sequester. This is a much tougher issue because the Democrats want to break the 10 year Sequester spending limits. It’s the Republicans strongest leverage and they should insist on dollar for dollar spending cuts elsewhere in order to relax the Sequester cuts.
  • A Challenge to Boehner. The anti-Planned Parenthood caucus is threatening to try to oust John Boehner as Speaker if they don’t get their way. Hopefully the Democrats would help to keep Boehner because any replacement would be more conservative and less accommodating to them. I personally think that John Boehner is a miracle worker given the hyper-partisanship in Washington at the present time.
  • The Iran Nuclear Deal. Republican desire to express opposition to the Nuclear Deal could surface as a bargaining chip in budget negotiations. As bad as the Nuclear Deal is, this is a bad budget strategy.
  • The Export-Import Bank. The Ex-Im Bank expired in June. Its supporters might try to refund it as part of a budget deal for next year. It should be allowed to die unless it undergoes reform to remove subsidies for big businesses such as Boeing and GE.
  • The Highway Trust Fund. The problem is that the 18 cent/gallon federal gasoline tax is insufficient to fund our infrastructure needs. The most sensible approach is to raise the gas tax by a few cents per gallon. Attempts to provide funding from other sources should be resisted.


Bottom Line: Republicans should be flexible except on overall spending limits. It is absolutely essential to the future wellbeing of our country to strongly focus on eliminating budget deficits.

Baltimore Is About Economics, Not Racism


The death of another black man at the hands of the police, this time Freddie Gray of Baltimore, has again set off a national debate about poverty, inequality and racial injustice.
CaptureThe Washington Post journalist Marc Thiessen wrote about this several days ago in, “The Baltimore Democrats Built,” saying that:

  • Although 63% of Baltimore residents are black, so are 40% of police officers.
  • City officials injected $130 million into the Sandtown-Winchester community (where the riots took place) in a failed effort to transform it.
  • The poverty rate in Baltimore is 24% compared with 14.5% nationally.
  • The unemployment rate for black men in Baltimore between the ages of 20 – 24 is 37%.
  • Among the nation’s 100 largest counties, the one where children face the worst odds of escaping poverty is the city of Baltimore.
  • In 2014, Baltimore public schools ranked third in the country in per-pupil spending, yet 55% of Baltimore fourth graders scored below basic in reading.
  • In the Sandtown-Winchester community, nearly half of all high school students missed at least 20 days of school in 2011.
  • This community’s murder rate is double the average for Baltimore, which in turn had the fifth highest murder rate last year among major U.S. cities.

In other words, Baltimore’s problems cannot be blamed on racial prejudice or on a lack of resources to combat poverty and low educational performance.  Clearly needed are better schools and more employment opportunities.  Better state and local leadership would help in this respect. But what is most needed is faster economic growth for the whole country.  There are many things which could be done to accomplish this.  It’s a shame that our current political system is too fractured to allow this to happen.

Status Quo on the Budget Is Not Good Enough


I have now been writing this blog for just over two years.  I usually write three posts per week and this one is #280.  My top sources for background information are the New York Times and the Wall Street Journal.  My own local newspaper, the Omaha World Herald, carries the Washington Post economics journalist, Robert Samuelson, whom I greatly respect.
A column of his discusses a recent report from the Senate Budget Committee prepared by its outgoing chair, Patty Murray (D-WA), entitled “The updated fiscal outlook and its implications for the budget debate next year.”  To me this report clearly shows why there has been so little progress made in straightening out the budget over the past few years.
CaptureCapture1Here are some highlights of the report:

  • “Both our current fiscal situation and the outlook going forward have significantly improved, meaning we need a budget approach more focused on jobs and growth, not just on cuts.”
  • “Deficits have fallen dramatically over the last five years, and projected debt and deficits have also declined.”
  • “Revenue losses due to the recession and slow recovery were significant enough to counteract nearly half of the improvement in projected deficits, which highlights the need for new revenue from the wealthiest Americans and biggest corporations as part of any future deficit reduction effort.”
  • “It is clear that we need a federal budget approach more focused on jobs and growth, not on cuts for the sake of cutting. That leaves Republican leaders with a critical choice.”

In my opinion there are two basic problems with Senator Murray’s analysis:

  • Deficits have indeed fallen dramatically from their very high level in 2009, but not far enough! Deficits are projected to rise back to 3.9% in just ten years, as shown in the first chart. This means that debt will keep growing indefinitely, as shown in the second chart. This is unacceptable!
  • We do badly need to focus on jobs and growth but more deficit spending is not the way to do it. Although immigration reform and expanded trade would help, fundamental tax reform, individual and corporate, is what is really needed to grow the economy.

Hopefully a new Congress will be able to move in this direction next year!

What the EPA Is Doing about Climate Change


My last post, “The Latest Scientific Report on Climate Change,” summarizes a new report from the Intergovernmental Panel on Climate Change. It makes a very strong case that global warming is real and that it will badly disrupt human civilization before the end of the twenty-first century if not substantially mitigated.
What are we doing about it? The Environmental Protection Agency reports on its many actions as follows: “What EPA is doing about Climate Change

  • Inventorying of U.S. Greenhouse Gas Emissions and Sinks has been tracking all GHG emissions since 1990.
  • Developing “Common Sense” Regulatory Initiatives. For example, EPA’s vehicle greenhouse gas rules will eliminate 6 billion metric tons of GHG pollution by 2025. EPA is developing carbon pollution standards for the power sector which will cut carbon emissions 30% below 2005 levels.
  • Partnering with the Private Sector. EPAs partners reduced over 345 million metric tons of GHG in 2010 alone.
  • Advancing the Science. EPA works with the IPCC to understand the environmental and health impacts of climate change.


Here is how the Washington Post describes another EPA activity, the recently announced Clean Power Plan. “The rule provides every state with a target carbon-emissions intensity for its power plants, with preliminary standards kicking in by 2020 and full goals to be achieved by 2030.  As the map (below) shows, the rule generally asks the least from the states with the worst carbon-intensity at present – those that are very dependent on coal generation, such as West Virginia, Kentucky and North Dakota.  While cross-state variations in the intensity of pollution controls are a standard feature of regulation under the Clean Air Act, they usually have a compelling justification: the negative effects of emissions are local, and so areas suffering from pollution problems must be more stringent.  But greenhouse gas concentrations are uniform globally, making it somewhat awkward to subject identical emitters to divergent standards simply because their home states’ power mix is more or less carbon-intensive.”
CaptureThe purpose of this whole discussion is to illustrate how complicated it already is and will continue to be to achieve a significant reduction in GHG carbon emissions by regulation alone, even the relatively modest 30% reduction which the EPA is trying to accomplish.
Fortunately there is a better way of achieving an even bigger reduction in carbon emissions.  Stay tuned for my next post!

How to Control Federal Spending III. Reform Medicaid!


One of the many controversies involving the Affordable Care Act concerns the expansion of Medicaid to cover low income people up to 138% of the federal poverty level.  As Robert Samuelson reported in the Washington Post a few days ago, “The Real Medicaid Problem,” 24 states have refused to expand Medicaid coverage even though the federal government will pay 100% of all additional costs until 2017.
CaptureAs Mr. Samuelson points out, the underlying issue is a matter of cost:

  • The basic Medicaid program is funded with a fixed percentage of each state’s costs paid by the federal government. This means that the more a state spends, the more is contributed by the federal government. From 1989 to 2013, the share of state budgets devoted to Medicaid has risen from 9% to 19%. This upward trend is clearly unsustainable.
  • In Medicaid, children and adults up to age 65 represent three-fourths of beneficiaries, but only one-third of costs. The quarter of beneficiaries who are aged or disabled are responsible for two-thirds of costs.
  • More than 60% of nursing home residents are on Medicaid.
  • There is no assurance that the federal share of the expanded coverage will continue at the announced rate of 90% after 2017 because the federal government is in much worse financial shape than are most states.

An interesting Op Ed appeared recently in the Wall Street Journal, “The Smarter Way to Provide Health Care for the Poor,” written by Mike Pence, the Governor of Indiana.  In 2008 Indiana set up the Healthy Indiana Plan to better serve low income Indianans.  It now provides Health-Savings Accounts to 40,000 low income citizens, with very good results.  Indiana is applying for a waiver to the ACA to use Medicaid expansion funds to provide HIP to all low income families up to 138% of the poverty level ($33,000 for a family of four).
Clearly, individual states, when offered the opportunity, are quite capable of coming up with innovative solutions for difficult problems.
A good way to resolve the problem of state resistance to Medicaid expansion is to fundamentally change Medicaid into a block grant program whereby the federal government contributes a specific amount of money to each state each year.  Then the states design their own programs to meet their own needs.  Block grant funding for Medicaid is a common sense approach to address one aspect of our huge fiscal problem in an intelligent way!