How Goes the ‘American Project’? I. Background

 

The main topic of this blog is U.S. fiscal and economic policies and especially, how, and to what extent, they are lacking. But every so often I take a broader perspective.
For example, the Swedish economist, Johan Norberg, has described in detail the remarkable human progress of the past 200 years, starting with the industrial revolution.  The British scholar, Matt Ridley, has given a cogent explanation of what brought about all of this progress.  Conclusion: human life, overall, has improved dramatically in the last 200 years and most likely will continue to improve well into the future.
How are things going in the U.S.?  Not so well, relatively speaking, according to the economist, Tyler Cowen.  He thinks that too many Americans are so self-satisfied with enjoying the fruits of prosperity that as a society we have become complacent about many hidden, but very serious, problems, such as debt, deteriorating life conditions for blue-collar workers, and a huge buildup of internet crime.  This complacency is likely to make America less dynamic in the future.


The eminent political scientist, Charles Murray, has weighed in on this issue with his tour-de-force tome, “Coming Apart: The State of White America 1960 – 2010.”   Mr. Murray describes a new kind of segregation which has developed in the U.S. based on socio-economic class, largely fueled by educational attainment and professional status.  The new Upper Class (20% of all Americans) are largely separated from the rest of society not only by the neighborhoods where they live and their professional employment but also because they are more likely to be married, hardworking and engaged in society.  The new Lower Class (30% of all Americans) has just the opposite characteristics of the Upper Class.
Mr. Murray argues that the four sources of deepest satisfaction in life are: family, vocation, community and faith and that these four main sources of satisfaction have become enfeebled for the Lower Class over the past 50 years.  But the Upper Class is also being hollowed out in other ways.
Conclusion. “Great nations eventually cease to be great,” observes Mr. Murray.  Is America doomed to moral deterioration and decay?  Stay tuned!

How to Counter Political Islam

 

Let me remind my readers that I am a non-ideological fiscal conservative and social moderate. My two main sources of background information for this blog are the New York Times and the Wall Street Journal both of which I read assiduously on a daily basis.  When they agree on a particular issue, I will probably agree with them.  Otherwise I’m on my own!


In last Saturday’s WSJ there appeared a powerful article, “Ayaan Hirsi Ali, Islam’s Most Eloquent Apostate.”   Ms. Ali explains that “The West’s obsession with ‘terror’ has been a mistake.  Dawa, the subversive, indoctrinating precursor to jihad, is a broader threat.” Here is the gist of her argument:

  • There are 1.6 billion Muslims in the world and at least 10% of them, or 160 million, are Islamists (who practice political Islam). Islamists want to impose Sharia (Islamic law) on society which is fundamentally incompatible with the U.S. Constitution: religious tolerance, the equality of men and women, and other fundamental human rights.
  • The ultimate goal of dawa is to destroy the political institutions of a free society and replace them with the rule of Sharia law. This is accomplished by subversion from within – the abuse of religious freedom in order to undermine that very freedom. The U.S. is in a weak position to combat nonviolent extremism because of the First Amendment which bars Congress from prohibiting the free exercise of religion, etc.
  • There are now 2.6 million Muslims in America and likely to be 6.2 million in 2030. Half say they think of themselves first as Muslims, second as Americans. A fifth of Muslim Americans say there is support for extremism in the Muslim American community.
  • The U.S. government should ally itself with genuine Muslim moderates and reformers, not with “nonviolent” Islamists. The FBI should scrutinize the ideological background and nature of all Islamic organizations. The DHS should deny entry to foreign individuals involved with or supportive of Islamism.

Conclusion. According to Ms. Ali, “We are dealing with a lethal ideological movement. … We have to grasp the gravity of dawa. Jihad is an extension of dawa.  It is dawa by other means.”

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The Folly of Building a Streetcar System in Omaha

 

The City of Omaha is now considering building a Streetcar System for an estimated cost of $156 million. Both of the two mayoral candidates have endorsed this proposal.

Here are the basic facts about the project:

  • It would run from TD Ameritrade Park in downtown Omaha to 42nd and Farnam Streets in midtown Omaha, a distance of about four miles. It would cost about $7.5 million per year to operate the line and would generate about $700,000 a year in annual revenue with a fare of $1.25 per ride. Adding a fee of $1.50 per ticket per College World Series event (at TD Ameritrade Park) would generate about $500,000 per year in additional income.

  • The financial assessment of the project by HDR suggests that the Federal Transit Administration could be asked for a grant of $78 million, or one-half of the total cost. The FTA is already contributing $15 million towards a $30 million Bus Rapid Transit system along Dodge Street approved by the City Council. The BRT involves 27 sleek, modern bus stop shelters along the route at a cost of $260,000 each.
  • The FTA has an annual budget of $19 billion. The Trump Administration is asking for a $2.4 billion cut in the FTA budget for 2018.  Congress has not yet taken any action on the Trump Budget proposal. But the FTA budget is clearly funding extravagant local projects around the country and is ripe for a major budget cut.

Conclusion. Omaha is simply not large enough, nor with a sufficiently dense population base, to support a downtown street car system aimed at the tourist trade. It could only be financed with massive federal support at a time when the federal government is rightly trying to cut back on unnecessary and wasteful spending. Don’t do it, Omaha!

The Fading American Dream and Donald Trump

 

It is now generally accepted that Donald Trump was elected President because of his strong support amongst white blue-collar workers, especially in the battle ground states of Wisconsin, Michigan and Pennsylvania. Mr. Trump was able to persuade these voters that he would be able to raise their stagnant incomes and even bring back the millions of manufacturing jobs which have been lost to automation and globalization.


Now the two economists, Anne Case and Angus Deaton, have shown that mortality rates for white, U.S. non-Hispanics, aged 45 – 54, with a high school degree or less, have doubled since 1990.
Here is the general situation:

  • Overall, U.S. life expectancy at birth has increased from 63 years in 1940 to 79 years in 2010.
  • Life expectancy is still increasing for the college educated as well for U.S. Blacks and U.S. Hispanics. It is also still rising in many other developed countries.
  • The main cause for the rising death rates of the vulnerable group is “deaths of despair” – suicides, drug overdoses and the consequences of heavy drinking.

The authors point out that:

  • It is precisely working class whites whose economic prospects have deteriorated the most in recent years, especially since the financial crisis.
  • The U.S. has moved largely to defined-contribution pension plans with stock market risk in recent years whereas in Europe defined-benefit pensions are still the norm.
  • The current mortality crisis bears a resemblance to the AIDS epidemic which took the lives of 650,000 Americans from 1981 – 2015. However, public awareness of the AIDS crisis was far greater than for the current mortality epidemic.

Conclusion. The basic American dream of home ownership, modest financial and job security and a bright outlook for one’s children has faded for a large class of middle-aged workers. The crisis is manifested in an increase in mortality rates for this vulnerable class.  Donald Trump’s election mandate is to fix this problem but it is a tall order indeed.

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Keeping Global Warming in Perspective

 

The evidence for man-made global warming is now overwhelming. For example:

  • The extent of artic summer sea ice is steadily shrinking.
  • The world’s oceans are getting warmer.
  • Spring in the U.S. is coming sooner each year on average.

The three biggest carbon emitters in the world are China, the U.S. and India in that order. But what is also true, and not sufficiently well appreciated, is that carbon emissions in the U.S. are dropping while they are still increasing in China and India:

  • In the 2015 Paris climate agreement, China pledged that it would start reducing carbon emissions by 2030 but, in the meantime, is still continuing to open coal burning power plants.
  • In the U.S. carbon emissions have been steadily decreasing since 2000 (see chart).
  • In India the economy is growing at 7% per year and 240 million people still lack electric power. This means that carbon emissions from coal burning are likely to double in the years ahead.

Coal use in the U.S. will continue to drop with or without enforcement of the Obama era Clean Power Plan because natural gas is now so plentiful and so much less expensive than coal. The best way for the U.S. to continue showing leadership in combatting global warming is for it to adopt a revenue-neutral carbon tax.  This would let the market sort out which type of energy is the cleanest and most efficient in meeting our country’s growing energy needs.  In fact a carbon tax might even be beneficial for the coal industry by creating a strong incentive to develop carbon capture and storage technology.
Conclusion. Most Americans now agree that global warming is real and that this presents a huge threat to human civilization.  It is likely that a revenue-neutral carbon tax will be adopted by our country in the near future.

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“The Federal Government’s Budget Is on the Road to Hell”

 

So declared Douglas Holtz-Eakin, former director of the Congressional Budget Office, in March 2011.  At the time, federal debt held by the public (on which we pay interest) stood at 63% of GDP.  Now, just six years later, that ratio stands at 77% and is projected by the CBO to reach 150% by 2047 if current laws remain unchanged.


The CBO has just released its latest (March 2017) report and the debt situation continues to get worse:

  • The interest rate on federal debt has averaged 5.8% over the past 60 years. It is now at an unusually low 2% and the CBO projects that it will climb no higher than 4.4% by 2047. Even with such a conservative projection, the total cost of servicing the debt will rise to almost 1/3 of federal revenue by 2047, compared with just 8% today.

Here are some of the dire consequences of such a large and growing debt:

  • Reduces national savings and income in the long term because more of people’s savings would be used to buy Treasury securities, thus crowding out private investment.
  • Increases the government’s interest costs and thus makes it much more difficult to lower deficits.
  • Reduces the ability to respond to unforeseen events. For example, when the Financial Crisis hit in 2008, public debt stood at 40% of GDP and lawmakers had the flexibility to respond to the crisis with both TARP and a fiscal stimulus. Such costly actions will be much more difficult next time.
  • Increases the chances of a new fiscal crisis if investors become less willing to finance more federal borrowing or demand higher interest rates in return.

Conclusion. The more debt that accumulates and the higher interest rates rise, the more painful it will become to implement a solution. What is really scary is that nothing will be done until a new crisis occurs.  Then we will be forced to act and it will be very painful indeed.

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Trump’s Bark Is Worse than His Bite

 

The anti-Trump fervor seems to be slowly dying down as his appointees take hold of their agencies and begin to promulgate new policies. I have expected this to happen because of the excellent quality of many of the people he has appointed.
Here are a few recent developments:

  • Interior Secretary Ryan Zinke has said that “the border is complicated as far as building a physical wall” and there are all sorts of problems to be resolved before it can be done.
  • Reality is setting in with regard to Russia policy “given Russia’s continued provocations in terms of weapon’s deployments, overtures to Iran, cyber intrusions and intervention in Ukraine.”
  • The Brookings Institution has just issued a new report showing that school choice options are increasing in the country’s largest school districts. This indicates that Education Secretary Betsy DeVos is in the mainstream by supporting more choice.
  • Coal jobs Trump vows to save no longer exist.  In other words, cancelation of the Obama Clean Power Plan will have little effect on the huge drop in coal use because coal has become so much more expensive than natural gas.
  • Of course, the Trump 2018 Budget Proposal will be heavily modified by Congress but it does contain some good ideas. Agriculture, Foreign Aid and Community Development Block Grants are all ripe for big cuts.
  • The biggest unknown with respect to administrative action concerns trade policy. The question here is what concessions he can get from China and Mexico without starting a disastrous trade war.

What is mainly lacking at this point is any significant action by Congress on the Trump agenda. What will happen with healthcare reform, tax reform and deficit reduction, for example?

Conclusion. Trump is doing fine so far but it is on relatively straightforward issues under his control. Hopefully he will be able to make progress on the bigger issues as well which require working with Congress.

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