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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The national debt is now over $23 trillion and growing at the annual rate of $1 trillion per year.  This is not only a very serious problem (see chart below), which will eventually cause enormous harm if not corrected, but it is also a very difficult problem to solve politically.

First of all, there are many proposed solutions which simply will not work such as:

• Modern Monetary Theory (ignore the debt until inflation strikes). The problem is that when inflation does take off someday, as it almost assuredly will, then interest rates will rise dramatically, and interest payments on the debt will explode.  This will lead to a  new financial crisis much worse that the Great Recession of 2008-2009.
• Issuing long term bonds at low interest rates to finance the debt. Of course, we want to pay the lowest possible rate of interest on our debt.  But long term, low interest bonds merely postpone the eventual problem of much higher interest payments on the debt.  It lulls us into complacency in the meantime while we continue to accumulate massive amounts of new debt.
• Growing our way out of debt. Our current trillion dollar annual deficits are increasing the debt by over 4% per year.  Projected annual growth going forward of 2% per year is simply inadequate to reduce the debt as a percentage of GDP and will, in fact, allow it to get progressively worse.
• Cutting military spending. The current military budget is about $750 billion per year.  Let’s suppose that 10% is waste which can be eliminated.  There are two problems with this approach.  It will be very difficult for Congress to agree on how to cut $75 billion from military spending.  Furthermore $75 billion is less than 10% of the $1 trillion size of the current deficit and so would be little more than a drop in the bucket towards solving the underlying problem.
• Cutting other discretionary spending such as for education, agriculture, foreign aid, etc. The same problem as above.  It would take a huge amount of effort by Congress, largely fruitless, to save only small amounts of money, not nearly enough to shrink the annual deficits significantly.

Secondly, the real problem, entitlement spending, is not sufficiently clearly understood as the real culprit:

• The entitlements Medicare, Social Security and Medicaid all represent big chunks of federal spending (see chart below):

  

• Entitlement spending (Medicare, Social Security and Medicaid) represents by far the largest growth in federal spending, going forward (see chart below), with Medicare the biggest expense of all:

  

• The federal government pays 41% of all Medicare costs so that Medicare recipients pay only 59% of the costs (see chart below). Note that the Medicare payroll tax of 2.9% funds Part A (hospitalization) only.  The remaining Parts B (doctors), Part C (Medicare Advantage) and Part D (drugs) are paid for from federal government revenues.

  

• Here is a breakdown of the average federal subsidy to Medicare per individual, based on retirement year. A retiree in 2020, for example, will receive a $400,00 lifetime subsidy from Medicare (see chart below):

  

• The total annual federal contribution to Medicare is now about $600 billion per year and rising rapidly (see chart below):

  

Conclusion:  Medicare represents by far the biggest single drain on federal revenues for the future.  It is therefore a huge threat to the solvency of the federal government.  Any serious plan to solve the federal debt problem must start with major reform of Medicare.

Next:  how should entitlement spending be controlled?

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