I am just as personally embarrassed by President Donald Trump as most other people I know. He is rude towards other world leaders and especially our own allies. His destructive behavior endangers even his own policy initiatives. He was elected by blue-collar workers who feel left behind in today’s global economy. But how can he possibly lead others in implementing policies to help even his most avid supporters?
What is the Democratic Party doing about this? First of all, they are trying to stop acting so elitist toward the working class. But more fundamentally a new progressive social agenda apparently is emerging, here and here. It has many attractive features but there is one big thing missing, namely fiscal responsibility:
A “public apprenticeship” jobs program. The idea here is to maintain the employment rate for prime-age workers without a bachelor’s degree at the 2000 level of 79%. This would require the creation of 4.4 million jobs, ideally at a living wage of $15 per hour plus Social Security and Medicare payroll taxes, and therefore at a wage of $36,000 per year. This would cost $158 billion per year.
A universal child allowance of $250 per month. This would cost $190 billion per year, although half could be offset by consolidating less-efficient existing programs. This would cut child poverty by 40%.
An expansion of the earned income tax credit. A family of four making $40,000 per year would get a tax credit of $6000 instead of the current credit of $2000. This would cost $1 trillion over ten years. The idea here is extra motivation to hold a job.
Conclusion. Who is opposed to creating millions of new living wage jobs to put the unemployed and underemployed back to work? Such a program would give our economy a huge boost. Who is opposed to cutting child poverty in half (or doing even better)? But how in the world would we make room for such new programs in the federal budget? With $500 billion annual deficit spending already, we need to curtail federal spending, not increase it.
Like many other people I am upset that President Trump has decided to withdraw from the Paris Climate Accord. It’s not that Paris solves the global warming problem but it is a major step in the right direction. We’re the biggest contributor of carbon emissions so it is our responsibility to lead in reducing them.
Here are some other major issues that need leadership:
Trade. The Trans-Pacific Partnership would have been a big win for the U.S. But it is with China, responsible for two-thirds of our trade deficit, that we need a major rebalance.
NATO. Mr. Trump has withdrawn his campaign statement that NATO is “obsolete.” His criticism of NATO could turn out to be useful if it leads to an increase in NATO defense spending.
Faster Economic Growth. Economic strength is the backbone of our influence in world affairs. Lower corporate tax rates will encourage our multinational companies to bring their profits back home for reinvestment in the U.S. Administration efforts already under way to deregulate various aspects of the U.S. economy should soon lead to faster growth.
U.S. Budget. Mr. Trump has proposed to balance the U.S. budget within ten years which is hugely important. Unfortunately many of his specific proposals on spending and growth are not realistic.
Infrastructure Spending. This is an excellent idea if it is paid for directly and does not add to the federal deficit. Apparently Mr. Trump will soon announce a plan for private industry, cities and states to take the lead in new infrastructure spending with possible contributions from the federal government.
Conclusion. Although Paris is a disappointment, Mr. Trump will have many opportunities to redeem himself.
When Barack Obama was President I described our country’s two biggest long range problems as:
Massive Debt, now 77% of GDP (for the public part on which we pay interest) and predicted by the CBO to keep steadily getting worse.
Slow economic growth, averaging just 2% since the end of the Great Recession in June 2009. This means fewer new jobs are created and lower raises for existing jobs.
Now, under President Trump, I have modified this list to read:
Massive Debt, etc.
Global Warming, for which the evidence is overwhelming.
All three of these issues are large and urgent problems but President Obama was insufficiently concerned about both debt and economic growth while President Trump is insufficiently concerned about both debt and global warming.
Today’s Wall Street Journal, “Paris Climate Discord” has perhaps the best possible argument for withdrawing from the Paris Accord but it is ultimately unpersuasive. Even if full implementation of the Paris standards would have only a tiny effect on global temperatures by 2100, and even if other countries aren’t contributing their fair share, Paris represents a big step in the right direction.
Global warming is real and if the U.S. is the world leader which it needs to be, and often purports to be, then it needs to be part of the Paris Accord. Adjustments to our own domestic energy policies (such as adopting a revenue neutral carbon tax) will enable us to decrease carbon emissions much more efficiently than we are currently doing.
Conclusion. Global warming presents an opportunity for President Trump to show real leadership. I hope he is up to it.
It is well known that the cost of higher education is increasing much faster than inflation and even faster than the cost of healthcare. In turn, student debt is also rising rapidly and creating a financial burden for lots of young people.
The New York Times writer, David Leonhardt, has an article in Sunday’s paper showing that most states have reduced their funding of higher education since 2009, some quite dramatically. This is not surprising since higher ed has to compete with K-12 education, Medicaid, prison operations, public employee pensions, etc. and states have to balance their budgets. But it means that the cost of tuition will continue to rise even faster than usual.
However, except for a few specific fields such as computer programming, high school STEM teaching and nursing, there is no overall shortage of college graduates to keep our economy going. In fact there is a surplus of college graduates in many non-technical areas.
But there is a growing labor shortage more generally, first of all for construction and agriculture workers which can be filled by unskilled immigrants. Furthermore, there are now millions of job openings for middle skill workers which are going unfilled for lack of qualified applicants. Training for such jobs as emergency medical technician, robot-heavy factory worker, and wind turbine technician is where states and localities should invest more public resources.
The huge demand for middle- and high-skill blue collar workers provides an opportunity to put laid-off middle-aged (Trump voting!) factory workers back to work in high paying middle class jobs. A little ingenuity at the local and state level should be able to figure out how to do this. Conclusion. A college education is not the only path to a productive and satisfying middle class life. In fact U.S. economic growth is being held back by a lack of qualified middle- and high-skill workers.
President Trump’s proposed 2018 Budget lays out a plan to achieve a balanced budget over a ten year period. I strongly endorse this goal whether or not the Trump budget is a realistic way to get this done.
The virtue of the Trump budget is to tackle waste and inefficiency across many different domestic programs (see chart below).
Its main defect is that neither healthcare reform nor tax reform has yet been implemented and the cost and/or savings of these two major initiatives are not yet known.
In the meantime the only way to think about balancing the budget is conceptually in terms of how it might be done. Barron’s economic analyst Gene Epstein has done this recently.
Mr. Epstein proposes:
$8.6 trillion worth of spending cuts over ten years, of which 40% would come from programs other than Social Security and healthcare. By achieving a balanced budget in ten years it would lower our public debt (on which we pay interest) from 77% today to 58% in 2027.
By raising the age limit for full SS benefits to 67 (already enacted) at a faster pace, and indexing initial benefits to price inflation rather than wage inflation, $200 billion can be saved over ten years. Another $300 billion can be saved by phasing in a 25% reduction in SSDI benefits.
Cutting the estimated improper payment rate for Medicare of 12.1% in half would save $400 billion over ten years. Raising the premiums for Medicare Part B and Part D to 35% of costs from the current 25% of costs would save $400 billion.
Another $600 billion would be saved by turning Medicaid into a block grant program to the states and giving the states much more flexibility in how it is spent.
$950 billion could be cut from the military budget by cutting back on overly expensive new weapon systems as well as closing unnecessary military bases, both foreign and domestic.
Many cuts in government subsidies to individuals and businesses would save $1 trillion. Grants in aid to sates could be cut by $500 billion.
Conclusion. There are many different ways to curtail federal spending. It has to be done and the sooner we get started the less painful it will be for all concerned.
President Trump’s budget for 2018 presents a plan to achieve a balanced federal budget in ten years, by 2027. This is a highly desirable goal but there is much skepticism about whether or not his budget is realistic, see here and here.
My thoughts on this important matter are:
Fiscal restraint is a common sense necessity, and is not austerity. Our public debt (on which we pay interest) now stands at 77% of GDP, the highest since WWII, and will continue to increase without major changes in public policy. Right now the debt is almost “free” money because interest rates are so low. As interest rates inevitably go up in the near future, interest payments on the debt will skyrocket and become a huge drain on our federal budget and make annual deficits even worse than they already are.
3% annual GDP growth, as assumed in the Trump budget, is almost certainly too optimistic. However the Trump Administration is on track to achieve significant deregulation and averaging 2.5% growth over the next ten years is doable.
Insufficient entitlement reform is a big drawback for the budget. It will be very difficult, essentially impossible, to achieve and sustain a balanced budget without modifying Social Security and Medicare to make them self-financing. Turning Medicaid into a block grant program to the states would finally put Medicaid on a sensible budget.
Requiring able-bodied welfare recipients to work is a good idea and is the basis for cutbacks in social welfare programs.
The Departments of State, Interior, Education and Justice should be able to absorb cutbacks and operate more efficiently.
Conclusion. There are many good initiatives built into the Trump budget. Unfortunately there are also some invalid assumptions and glaring omissions. It does not represent a bona fide plan to balance the budget in ten years but at least it recognizes the importance of doing so.
The newly released Trump budget for Fiscal Year 2018 claims that it will lead to a balanced budget in ten years. This is a highly desirable goal. However the projected $4.5 trillion in spending cutbacks for many popular programs, as well as the projected 3% GDP growth for the next ten years, are both unrealistically optimistic. Nevertheless, at least the Trump Administration is moving in the right direction.
Here is a good summary by Donald Marron in National Affairs of why it is so important to keep deficits and debt under control:
Prolonged deficits and mounting debt will undermine economic growth by interfering with investment in the private sector.
Prolonged deficits risk fueling inflation as the government lowers the value of the dollar by printing more of them.
High levels of debt held by foreign lenders put us at the mercy of foreign countries.
The growing debt exposes America to greater “rollover” risk with the increasing reliance on short term debt which frequently has to be rolled over.
Rising debt limits flexibility for increased spending in times of recession or other emergency. For example, when the Financial Crisis occurred in 2008, the debt level was just half of its current level. This meant the government could risk higher deficit spending in order to stimulate the economy.
Deficits have an unfortunate tendency to feed on themselves. Our current deficit level of approximately $500 billion per year is so large that it can only be significantly reduced with great pain. The only possible way to make deficit reduction politically feasible is to spread this pain widely amongst the public as shared sacrifice. This will be very hard to do.
Deficits and debt are grossly unfair to future generations who are stuck with servicing the debt and/or struggling to pay it down.
Conclusion. The Trump Administration recognizes the strong need to get deficits and debt under control. Unfortunately its current budget just submitted is not a realistic plan to get this done.