According to news reports, President Biden wants to reduce the unemployment rate back to where it was (3.5%) before the pandemic hit, see here and here. This is a highly worthwhile goal that will do more than anything else to raise wages for low-income workers.  But is he really serious?  Consider:

• Killing the Keystone Pipeline and a likely federal leasing moratorium, see here  and here, will cost thousands of jobs and greatly affect revenues in western states such as New Mexico, Wyoming, and North Dakota. These measures will furthermore do nothing to reduce carbon emissions.
• Red states, with their open economies, have lost far fewer jobs than blue states, with their massive lockdowns.  Avoiding a job-killing stimulus, with excessive unemployment benefits, will do much to get workers back on the job, especially in the blue states with the highest numbers of unemployed workers.
• A $15 minimum wage, will lift 900,000 Americans out of poverty but also cost 1.4 million workers their jobs over the next four years.

Recall that the low 3.5% unemployment rate achieved for several months under President Trump, before the pandemic hit, was brought about by a combination of tax reform (lowering the corporate tax rate from 35% to 21%) and significant federal deregulation.  President Biden proposes to take a completely different approach (massive fiscal stimulus) to attempt to restore the same low unemployment rate, but this risks a new round of inflation.  Which approach will work best?  We might well know the answer before the midterm elections in 2022!

Conclusion.  Some commentators claim that Democratic Presidents are better for the economy than Republican Presidents.  We may have at least a partial and preliminary answer to this question real soon!

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The New York Times published an article several days ago, “The Economy Does Much Better under Democratic Presidents.  Why?”  Their conclusion is based on the chart of GDP growth going back to FDR  (attached).  Based on this chart alone it certainly appears that they are correct.

But let’s look into this matter more carefully and completely.  Consider the following graph of GDP growth from 1930 to 2020.  It fluctuates greatly over the entire 90 year period.  This makes it hard to draw conclusions about which economic policies are better than others.

We also observe that the average GDP value is dropping from left to right, over the entire period from 1930 to 2020.  In other words, there is an overall decrease in GDP growth over time.  From the top chart, it is clear that there is a rough correlation with the chronological time period served by the particular president.  In other words, not only is Roosevelt at the top of the list and Trump last, but earlier presidents appear nearer the top of the list and more recent presidents near the bottom.

It turns out that there is a plausible reason why overall GDP growth is shrinking over time.  The economist, Dietrich Vollrath, says it is because our economy is “Fully Grown.”  What this means is as follows:

• “Human capital” has been shrinking because the percentage of retirees is increasing relative to working-age adults. Furthermore, the average level of education has stopped rising because high school graduation rates, and women’s college graduation rates, have peaked and plateaued in recent years.
• Furthermore, economic activity has shifted significantly from manufacturing to service industries where productivity gains are harder to achieve. This is an indication that people are getting wealthier, a sign of social and economic progress.

If GDP growth is declining for good reasons, as Mr. Vollrath claims, then we should pay more attention to the unemployment rate and less attention to GDP.  The unemployment rate was a very low 3.5% for several months before the pandemic hit in early 2020. This led to big wage gains for lower-income workers.  The Biden Administration hopes to restore the low unemployment rate to its pre-pandemic level.  But excessive fiscal stimulus could easily set off higher inflation.

Conclusion.  I conclude that it is very hard to say, probably impossible, that one party does a better job for the economy based on looking at only the rate of GDP growth.  In fact, if the overall rate of GDP growth continues to decline over time, it will become even more important to look at the unemployment rate as a measure of how the economy is doing.

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There is wide-spread relief in having Donald Trump out of office, so President Joe Biden’s honeymoon period may last longer than usual.  But there are several ways in which Mr. Biden could lose popularity quickly.

Last week I discussed the pitfalls of overstimulating a strong underlying economy, see here and here.  This risks setting off inflation which, in turn, would lead to higher interest rates and speed up a new fiscal crisis over debt.

Today I discuss several social issues that can flare up into major national controversies much more quickly.  Consider:

• The year 2020 was one of the most violent in U.S. history.  Murder was up 37% in 57 large cities.  2000 more Americans, most of them African-American, were killed in 2020 than in 2019.  Police Officers are already facing a poisonous environment after last summer’s race riots.  And the Biden Justice Department will treat disparate stop or arrest rates as evidence of police bias and seek to place police departments under consent decrees.  The many law-abiding residents of troubled areas beg for vigorous law enforcement and probably will not now get it.
• President Biden has proposed an eight-year pathway to citizenship for the estimated 11 million undocumented aliens living in the U.S. But, there is no provision in his plan for increased border control to cut down on illegal border crossings.  Voters want lawmakers to fix the border, not pretend that we don’t need one.  Amnesty for 11 million illegal immigrants without strict border control is a recipe for political upheaval.

  

• Fracking and the price of gasoline. Thanks to fracking, the U.S. is now the largest oil producer in the world and has become energy independent.  The Biden Administration has already put a 60-day suspension on any new leases on federal land.  If this suspension becomes permanent, it will greatly restrict oil and natural gas production in several western states such as New Mexico, Colorado, Utah, and Wyoming.  Furthermore, career officials are now temporarily prohibited from signing off on environmental reviews, etc. for new fossil-fuel investment on private lands.  Such restrictions bode ill for the future of fracking in the U.S.  An oil shortage will lead to a rapid increase in the price of gasoline at the pump, which, in turn, means massive consumer discontent.

  

Conclusion.  These three issues: a dramatic increase in crime caused by interference with effective policing, giving amnesty to all undocumented aliens without establishing secure border control, and letting the cost of gasoline rise dramatically by putting major restrictions on fracking, have the potential to cause enormous social unrest which could easily destroy the Biden Presidency.

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As President Joe Biden takes office, the coronavirus daily infection rate is beginning to drop significantly and vaccines are rolling out.  Most Americans will soon be back to work and schools will reopen full time.

As I pointed out in my last post, fundamental inflationary forces, caused by world-wide demographic changes, are starting to reappear in the world economy.  This will have a serious negative consequence for our national debt by dramatically increasing interest rates and, therefore, interest payments on the debt.

Furthermore, even short term inflationary forces are rearing their heads:

• Five-year inflationary expectations are growing rapidly.

  

• S. fiscal stimulus (including Biden’s new $1.9 trillion proposals), is massive by world standards.

  

In evaluating the need for more stimulus, it is important to take into account the underlying strength of the economy:

• Median U.S. household income has grown dramatically in recent years and was $68,703 at the end of 2019, right before the pandemic hit.

  

• The unemployment rate, a very low 3.5% when the pandemic hit, has already dropped back down to 6.7% from a pandemic high of over 14%.

  

• The federal debt held by the public, now $21.3 trillion, is a very high (and rapidly growing) 99.4% of GDP.

  

• Only a relatively low 9.2% of U.S. citizens are without health insurance, the lowest number in many years.

  

The above overall data show the good shape of the American economy, as we are pulling out of the pandemic.  All of these factors indicate a need for restraint in providing additional fiscal stimulus.

Conclusion.  The combination of the underlying good health of the U.S. economy plus the building up of inflationary forces worldwide, suggest that any additional fiscal stimulus for the U.S. economy at the present time should be quite limited.

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The main theme of this blog, It Does Not Add Up, is our country’s huge and out-of-control, national debt.  This rapidly growing debt will have very serious long-term consequences.

There is a simple connection between inflation and debt.  Higher inflation means higher interest rates because investors will insist on higher returns.  But higher interest rates mean higher interest payments on the debt.  In recent years, interest rates have been so low that our debt is virtually free money.  This has lulled national leaders into complacency.  As interest rates rise, interest payments on the accumulated debt will increase dramatically and, before long, will cause a new fiscal crisis.

The threat of inflation is rearing up, short-term and long-term.  Short-term because of the expected rapid recovery from the pandemic, see here and here, as vaccines become widely available.  This is not especially alarming in the short term.

It is the long-term, fundamental trend which should be of great concern.  This is well explained in a new book, “The Great Demographic Reversal: ageing societies, waning inequality and an inflation revival” by the economists Charles Goodhart and Manoj Pradhan.

Consider:

• Between 1990 and 2017, the working-age population of China increased by 240 million and in the USA and Europe by 60 million. The employment of women also greatly increased.  This meant a dramatic decrease world-wide of the dependency ratio, the ratio of workers relative to non-workers.
• The effective labor supply for the world’s advanced economic trading system more than doubled over the 27 years from 1991 to 2018. The inevitable result is a weakening in the bargaining power of the labor force.
• This produced a strong deflationary force which has been so aggressive that it has caused inflation to remain at or below 2% since 1990.
• Over the next few decades, the steady decline in birth rates to below the rate at which the population is self-sustaining will bring about a sharp reduction in the growth of the labor force in many countries.
• This means that the deflationary bias of the past 30 years will change to an inflationary bias. The sharp worsening of the dependency ratio around the world means that non-workers who consume but do not produce will outnumber the workers who do produce.
• The bargaining power of the decreasing number of workers will increase and so real wages, and the relative income share of labor, will start rising again. This produces inflation.
• It also means that inequality between lower-income and higher-income workers will begin to fall.

Conclusion.  As the demographic trend reverses, and the current world-wide surplus of workers over non-workers begins to make a fundamental shift in the other direction, workers will be able to demand higher wages.  This will have a large inflationary effect.  It will also lessen inequality.  In other words, our current climate of low-interest rates, low inflation, and higher inequality will reverse to high inflation, high-interest rates and less inequality.  This demographic reversal has many implications for public policy.  Stay tuned!

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Donald Trump crossed a constitutional line on January 6 when he recklessly urged his followers to march on the U.S. Capitol.  This is an impeachable offense.  Here is how it is likely to play out:

• The Democratic House of Representatives will impeach him.
• Since the Republicans still control the Senate until January 20, when Joe Biden becomes president, there may not be a vote to convict, and if there is, it may fail to get the required 67 two-thirds majority.
• It is unlikely that Mr. Trump will be the Republican presidential nominee again in 2024. He has now become too toxic for many traditional Republican voters, who were already starting to leave him in the 2020 election.

But consider his significant accomplishments as president:

• First of all, the focus on populist and nationalist policies such as cracking down on China for unfair trade policies and securing our southern border to keep out illegal immigrants. Both of these policies are directly beneficial to his working-class base.
• The tax reform and deregulation led to the low unemployment rate of 3.5% for several months before the pandemic hit. Such low unemployment means big wage gains for low-income and middle-income workers and increases their economic wellbeing.
• Major reform in foreign policy: withdrawing troops from Afghanistan, Syria, and Iraq and switching focus from the Middle East to eastern Asia and especially China. China is rapidly becoming the biggest challenger to continued U.S. world primacy.
• Aggressively and successfully appointing 200 conservative judges to the federal bench. This will have a long-lasting stabilizing effect on American society.

Conclusion.  Of course, some of these significant successes will be diminished by the incoming Biden administration.  But this will draw a sharp contrast between the Trump policies and the likely less successful Biden policies.  Trump’s free-market reforms will compare well with what is likely to come next.  Such political competition will define the national elections in 2022 and 2024.

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The beginning of a new year is a good time to assess one’s overall business strategy.  My “business” (as a retired math professor!) is discussing major policy issues facing the United States.  In my last post I discussed the U.S. economy which is on the verge of a rapid recovery as vaccines for Covid-19 become widely available in the next few months.

Today I summarize my overall world view:

• U.S. standing in the world. The U.S. is by far the strongest country in the world, both economically and militarily.  This overwhelming strength has provided unipolar status to the U.S. in world affairs since the end of WWII.  It has been the main contributor to overall world peace and stability since 1945.
• The Cold War ended in November 1989 with the falling of the Berlin Wall. The Soviet Union collapsed in 1991 because of the unworkability of its communist/socialist economy.  Free enterprise (capitalism) has reigned supreme in the world ever since.  The Russian economy, now ranked 11^th in the world in GDP, is mired in corruption. Russia is now only a disrupter in world affairs.
• The rise of China. China decided in the 1970s to combine capitalism with communist authoritarianism and now has the second-largest economy in the world.  It may soon surpass the U.S. in economic strength.  In other words, the world is rapidly becoming bipolar with China as the major challenger to U.S. dominance.  The west has many strengths in the competition of democracy vs totalitarianism, see here and here.

  

• The outlook for U.S./Chinese trade relations. The two economies are heavily linked with hundreds of billions of dollars in annual trade.  Various trade issues, such as increasing U.S. access to Chinese markets and intellectual property theft by China, can be solved peaceably.
• Will the U.S. defend Taiwan? China feels strongly that Taiwan, with 24 million people, should be returned to the mainland.  But Taiwan wants to remain free and independent.  It is a symbol that Chinese people desire personal and political freedom, even though the Chinese Communist Party dictatorship is now in control of the mainland.  The U.S. will lose much credibility if it fails to defend Taiwan’s independence.
• Global warming is a serious problem worldwide. Much of the world, including the U.S. and Western Europe, is making progress in reducing carbon emissions.  But Chinese emissions are still rapidly increasing (see chart).  The world needs Chinese participation to mitigate global warming.  What if China offers to get serious about global warming if Taiwan is forced to unite with the mainland?  Will the U.S. go along with such a deal?

  

Conclusion.  The U.S. is still dominant because of its economic and military strength.  But the Chinese economy is growing fast and China has already become a major challenger.  The U.S. and its democratic allies have many advantages in the competition between two very different systems.  But continued support for Taiwan against Chinese encroachment is crucial.

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In my last post, I stated that blacks would be better off if they spent less time complaining about being victims of white supremacy and more time taking personal initiative to participate more fully in the upwardly mobile American economy.  Of course, this applies to all Americans who would like to better their station in life, not just minorities.

Today I would like to discuss some specific ways to accomplish this.  For example:

• 30 million workers in the U.S. have abilities to earn 70% more than their current job pays. This applies especially to workers without a four-year college degree. It typically requires a combination of personal initiative, foundational skills and perhaps additional preparation such as an outside course or company sponsored training.

  

• A revolution in how people – high school students, college-goers, midcareer adults, and others – are prepared for the labor market, has occurred in the last decade.  A variety of public and private organizations are providing the leadership in implementing this program.
• Here is a list of 20 specific skills in great demand in today’s workforce.
• Finally, here are some suggestions from Linda Chase, who created the company Able Hire to especially help people with disabilities build rewarding, successful careers.

How to Enter the Business World

If you’re entering the job market for the first time in years — or the first time ever — it can be difficult to know how to make your mark. Our guide offers advice on how to make the most of your job search and land a role that will bring you personal and professional fulfillment.

Getting A Degree

You always hear about those famous, influential business people who took the market by storm despite not having a degree. This can fool you into thinking that college isn’t necessary but remember: they’re famous because they’re rare. The vast majority of successful business people have gone to college and took it seriously.

College isn’t just a chance to learn (although it is that). It’s also a chance to build vital connections. Your network can make or break your ability to succeed, and college is most people’s first chance to start building up that network. Take advantage of professional groups and networking opportunities, and always go the extra mile to foster connections.

As far as what kind of degree you’re interested in, ultimately it comes down to what appeals to you and what you’re good at. It’s always wise to pick a degree that lends itself to both traditional employment and self-employment in order to keep your options wide. For example, studying IT gives you the technical skills companies look for, but also plenty of self-sufficiency. Accounting and technical writing offer similar career outlook flexibility, but these are far from the only options. Look through degree offerings and see what excites you.

Finding Internships

Most degrees will require an internship before you graduate, and for good reason. Simply put, your coursework is not enough to prove to companies that you know what you’re doing. After all, many people can pass a class without any of the skills you truly need to succeed in the business world.

However, landing a good internship takes a lot of the same work finding a paying job does, because you’ll likely be competing with other qualified candidates. Do plenty of practice interviews and learn how to sell your strengths — this will serve you well at the collegiate level because many of your peers will not know how to interview well.

The Job Hunt

Once you’ve earned your degree, it’s time to find your post-college job. This is where that network you built in college comes in. Hiring managers love meeting people that come highly recommended by someone they know within the company, so make sure people in your network know you’re searching, and don’t be afraid to ask for an opportunity directly. You’ll have a far easier time getting in the door with an ally at your side.

The business world may take some work to break into, but that doesn’t mean you can’t make your mark. Find your allies, keep focused on your goals, and don’t be afraid to speak up for yourself. The road might not be easy, but it will be worth it.

Conclusion.  There are a huge variety of opportunities for all Americans to move up the ladder of economic and social success.  Of course, a certain amount of hard work and perseverance will likely be needed.  But individual initiative is the primary ingredient for success.  Good luck in your endeavor!

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The noted author, Robert Putnam, has recently addressed the topic of black economic and social progress in America.  He and his coauthor, Shaylyn Garrett, show that blacks had already made much progress before the civil rights era of the 1960s.  For example:

• The life expectancy gap between black and white Americans narrowed most rapidly between 1905 and 1947 (see chart), after which gains were much more modest.

  

• The black/white ratio of high school completion improved dramatically between the 1940s and early 1970s, after which it slowed (see chart).

  

• Income by race converged at the greatest rate between 1940 and 1970, and has since stalled (see chart).

  

• The South saw a dramatic increase in black voter registration between 1940 and 1970 which has since slowed down (see chart).

  

The authors attribute the lack of faster progress in the above measures since the civil rights era to:

• white backlash and
• a widespread change in American society from a sense of shared values to a more self-centered culture. The authors measure this trend with an inverted U-shaped I-We-I curve (see chart) which, they show, has fundamental social significance.

  

I do not doubt the value of the I-We-I interpretation of American history and society.  It will prove to be a useful explanatory tool in many contexts.  But it is not a major factor in understanding the stalled black progress of recent years.

As I have already discussed, too many blacks consider themselves victims of white supremacy and therefore unable to make it on their own.  The American way, the reason we are the most economically and socially advanced societiety on earth, is based on our belief that personal success depends on individual initiative.
Of course, some people have a head start in life.  But the answer to this reality is to strive to provide more opportunity for everyone, and especially better opportunities for the disadvantaged.   More on this coming soon!

Conclusion.  The inverted U-shaped I-We-I curve is an important sociological discovery with many ramifications.  But blacks will move up more rapidly in American society as they take more personal initiative for their own success and stop considering themselves as victims of white supremacy.

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