Donald Trump and American Progress

 

I am a non-ideological (registered independent) fiscal conservative and social moderate. I was not very excited about either presidential candidate last fall but finally decided to vote for Clinton because of Trump’s sleaziness.
As it turned out Mr.Trump was elected because of his strong support from the white working class, especially in the upper Midwestern states of Wisconsin, Michigan and Pennsylvania.  Interestingly, the Democrats are responding by proposing legislation to try to appeal more strongly to blue-collar workers.
Of course I disapprove of Donald Trump’s poor handling of the Charlottesville tragedy but I try to avoid being distracted by all of the drama and rather stay focused on his policies and actions.  In this respect there are both plusses and minuses.


On the positive side:

  • North Korea. He is handling this crisis well simply by working through the UN to condemn North Korea’s provocative testing of ballistic missiles. Also his Administration has clearly stated that the goal of U.S. policy is to denuclearize the Korean peninsula, not to achieve regime change in North Korea.
  • The economy is still chugging along at 2% annual growth. On the deregulation front, the annualized pace of new regulations for 2017 is 61,000 pages, down from 97,000 in 2016. This is the lowest level since the 1970s and has the potential to speed up growth.

On the negative side:

  • NAFTA renegotiation is just getting started. Any shrinkage of U.S. exports will badly hurt the economy, especially in states like Nebraska which depend so much on agricultural exports.
  • Immigration. Mr. Trump proposes to dramatically decrease annual legal immigration quotas, especially for low-skilled workers. This is a very poor idea  which will hurt the economy, especially in states like Nebraska which have low unemployment rates.

Conclusion. President Trump’s record at this point is mixed, all the more so since the two very important issues of the 2018 budget and tax reform have yet to be resolved in Congress. Mr. Trump’s election may or may not be good for progress in America.  We simply don’t know yet.

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Making the World Safe for Democracy

 

One hundred years ago, in 1917, President Woodrow Wilson asked Congress to declare war on Germany “to make the world safe for democracy.”  Pax Americana, the relative peace and stability which has lasted since the end of WWII, is due to the overwhelming economic and military strength of the United States.
The Chinese population at 1.3 billion is four times as large as the U.S. population.  Its economy is growing much faster than ours and will surpass ours in 10 or 15 years.  There is little, if anything, the U.S. can do to prevent this from happening.


China is a non-free, non-democratic, totalitarian state.  We hope that it will remain peaceful towards the U.S. as its economic strength, and eventually also its military strength, surpasses our own, but it would be risky to assume this for sure.
What then should we do to prepare for the day when we are no longer the dominant power on earth?  In my opinion, our best preparation for this inevitable day is to make democracy as strong as possible around the world.


In this respect, look at the latest report from Freedom House which measures the state of freedom around the world on an annual basis.

  • In the past 30 years the percentage of free countries has increased from 34% to 45% and the percentage of non-free countries has declined from 32% to 25%.
  • In the past 10 years, the number of free countries has declined from 47% to 45% while the number of non-free countries has increased from 23% to 25%. In other words democratic progress has been stagnant for the past ten years.

Conclusion.  Democracies rarely go to war against one another.  Other democratic countries are our best friends and so we want more of them.  But there is nothing simple or obvious in figuring out how to accomplish this.

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The Origins of Trumpism IV. The White Working Class

 

The U.S. political and cultural establishment is constantly bemoaning the election of Donald Trump as President and is convinced that it will hurt our country. He was elected because of his strong support from blue-collar workers.
I’m not so much afraid that he’ll be a disaster as that he will be ineffective in addressing our country’s many urgent problems.  Primarily I am trying to understand, here and here, why he was elected and what this means for the future.


Here is another clue.  The book “White Working Class: overcoming class cluelessness in America,” by Joan Williams, describes clearly who constitutes the white working class (WWC) and how it differs fundamentally from the class of professional and managerial elites (PME). Here is a brief outline of her argument:

  • Definitions. The top 1% (in income) are the wealthy, the top 20% are PME, the next 50% are the working class and the bottom 30% are the poor. The median income of a working class family is $75,000 while the median income of a poor family is $22,500.
  • The PME are order givers and value sophistication, boundary breaking and creativity. The WWC are order takers and value stability and dependability.
  • Why does the working class resent the poor? The poor get welfare benefits while the working-class may have rigid, highly supervised jobs which are often boring and repetitive which makes their work psychologically challenging. They do not receive welfare.
  • Why does the working class resent professionals? Elites seek out novelty, irony and polish while the working class seeks out stability and sincerity. The WWC often see the PMC as phony.
  • Is the working class sexist? For working class women becoming a homemaker signals a rise in status. For PME women this entails a fall in status.
  • Don’t they understand that manufacturing jobs aren’t coming back? This is more or less true but too pessimistic. There is a severe shortage for Americans trained for middle-skill jobs requiring some post-secondary education but not a four year college degree.

Conclusion.  This description should be understood as a general overview of the differences between the WWC and the PME (with many individual and particular exceptions). As such it helps in explaining why Donald Trump received such a large share of the WWC vote.  

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The Democrats and the Economy II. A Path Forward

 

On Monday the Democratic Congressional leadership held a rally in rural Berryville, Virginia. They laid out a program designed to appeal to the middle class and blue-collar workers who voted for Donald Trump.  However many of their proposals involve expensive government programs and therefore would add significantly to the national debt.


What is needed is a greater emphasis on free-market ways of helping middle- and low-income workers such as:

  • Increasing basic economic growth which has stalled to a relatively slow 2% per year of GDP since the end of the Great Recession in June 2009. For example:
  • Revenue neutral tax reform, lowering rates for both individuals and corporations, paid for by closing loopholes and shrinking deductions, would have many benefits. It would stimulate business investment, create new demand by lowering the taxes paid by the approximately 2/3 of taxpayers who do not itemize deductions, and provide an incentive for multinational corporations to bring their foreign profits back to the U.S. for reinvestment.
  • Targeted deregulation of the financial sector by exempting main street banks from the onerous requirements of the Dodd-Frank Act would enable these smaller banks to lend more money to small businesses.
  • Fundamental healthcare reform to lower costs from the current 18% of GDP to the approximate 12% average of other developed countries. This would save the American economy $1 trillion annually which could be spent far more productively. The Democrats are on the right track here by refusing to accept Republican half measures.
  • Improve educational opportunities such as early childhood education for low-income families, expanded career education and job training in high school and community colleges, and more emphasis on income-based repayment for student college debt. There would be some cost involved here.
  • Modest increase in the national minimum wage from the current level of $7.25 per hour to perhaps $10 per hour and then index it to inflation going forward. The Democratic proposal for a national $15 per hour minimum wage would put too many people out of work.

Conclusion. This collection of proposals involves both Democratic and Republican ideas and should be implementable with a bipartisan effort.

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The Democrats and the Economy

 

The Democratic Party is starting to wake up. Donald Trump was elected President because he was able to appeal to blue-collar workers who feel left behind in today’s high tech global economy.
Yesterday the Democratic Congressional leadership held a rally in rural Berryville, Virginia to lay out an economic program to try to appeal to these very same Trump voters.


Such a program, would, for example:

  • Increase people’s pay by lifting the national minimum wage to $15 per hour and also creating jobs with a $1 trillion infrastructure plan.
  • Reduce their everyday expenses by providing paid family and sick leave as well as breaking up large monopolies which can raise prices without restraint. Also empowering Medicare to negotiate lower drug prices for older Americans.
  • Provide workers with the tools they need for the 21st century economy by giving employers, especially small businesses, a large tax credit to train workers for unfilled jobs.

Unfortunately, there are problems with most of these ideas. In Seattle even a $13 per hour minimum wage has significantly reduced minimum wage work. The national minimum wage should be raised but to a more modest level.
There is no demonstrated need for a large-scale publicly funded infrastructure program and it would add hugely to the national debt.
A jobs program to maintain the employment rate for prime-age workers without a bachelor’s degree at the 2000 level of 79% and at a living wage of $15 per hour plus benefits would cost $158 billion per year.


Conclusion. Yes, blue-collar workers are hurting.  Yes, some of the ideas suggested above would help them get ahead.  But many would also increase already large deficit spending and therefore add dramatically to the national debt.  What is needed is a combination of free market initiatives and carefully targeted government programs.  Stay tuned!

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Can Economic Prospects for the Middle Class Be Improved?

 

Donald Trump was elected President last fall because of his surprising and unexpected strength with blue-collar workers. These folks have had a rough time in the 21st century economy: high unemployment, unstable marriages, opioid addition, lower longevity, etc.

My last post discusses a new book by Richard Reeves which makes the case that the real inequality in the U.S. is between the top 20% (the upper middle class) and the lower 80%.  The upper middle class are mostly the well-educated professionals who benefit from the modern high-tech global economy.  Mr. Reeves believes that this elite group is so entrenched with privileges as to be self-perpetuating. His response to this situation is to try to expand opportunity more widely by, for example:

  • Reducing unintended pregnancies through better contraception by making LARCs (long-acting reversible contraceptives) more widely available to free more young women from the burden of unwanted children.
  • Expanding access to early childhood education including home visitation to give a big preschool boost especially to kids from low-income families.
  • Getting better teachers for unlucky kids by giving teachers a substantial bonus to teach in high poverty schools. This will attract better teachers to the more challenging schools.
  • Funding college more fairly. Free college is a terrible idea. It would just be yet another boondoggle for the upper middle class. All student debt repayment should be income-based. The status of vocational postsecondary learning (at community colleges) should be elevated.

Conclusion. The idea here is not to pull down those who are well off but rather to give more people the opportunity to succeed in the modern economy. Of course, faster economic growth is another way to create more and better paying jobs.  But faster economic growth has its own limitations and, at any rate, is difficult to achieve with a rapidly aging population.  I will return to this topic soon!

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The Origins of Trumpism III. The Upper Middle Class

 

Like everyone else, I am trying to understand how such a sleazy and personally obnoxious individual as Donald Trump was elected President of the United States. We know that his core supporters are white working-class voters.  We also know that our relatively stagnant 21st century economy has been very difficult on blue-collar workers.


But here is another thread.  The author, Richard Reeves, in the new book “Dream Hoarders” makes a strong case that the real inequality gap in the U.S. is not between the top 1% (the wealthy) and the bottom 99% but rather between the top 20% (the upper middle class) and the remaining 80%.
Consider:

  • The top 20% consists of households with an income above $112,000 per year (see chart). Such households saw a $4 trillion increase in incomes between 1979 and 2013. A third of this income rise went to the top 1%. But this still left $2.7 trillion for the next 19%. The lower 80% saw an income rise of $3 trillion over this same period.
  • The top 20% are the highly educated doctors, lawyers, business managers, academics, think tankers, journalists, etc. These are the people who flourish in a global economy, largely shielded from the intense market competition faced in the nonprofessional occupations.
  • Donald Trump tapped into the anxiety of the lower 80%. He received 58% of the total white vote but 67% of the votes of whites without a college degree.
  • The upper middle class tend to perpetuate their inherent advantages. They tend to have stable marriages and live in the best neighborhoods with the best public schools. They can afford to send their kids to the best colleges. Most of their kids will remain in the upper middle class.

Conclusion. Such a thriving and self-perpetuating upper middle class can cause severe resentment amongst the bottom 80% who have to work much harder to make ends meet. How should this very difficult problem of entrenched elitism be addressed?  Stay tuned!

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