Tag Archives: economic growth

America’s Huge Challenge: Giving Blue-Collar Workers a Boost

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The American economy has been stagnating since the end of the 20th century and has grown especially slowly (2% per year on average) since the end of the Great Recession in June 2009.  This slow growth has various unpleasant causes and consequences:

  • Men without Work. The political economist, Nicholas Eberstadt, has pointed out that the work rate for prime working age (25 – 54) men has dropped from 94.1% in 1948 to 84.3% in 2015. This translates into 9.5 million prime working age men who are not currently in the workforce.
  • Mortality Crisis. The economists, Anne Case and Angus Deaton, show that the mortality rate for working class whites in America, aged 45 – 54, has doubled since 1990, and that these new deaths are largely “deaths of despair.”
  • Complacency.  The economist, Tyler Cowen, makes a strong case that too many Americans are so comfortable in their own worlds that they have become complacent about the structural problems facing American society.
  • Segregation by Class.  The political scientist Charles Murray has described a separation of American society into a new Upper Class (20% of all Americans) and a new Lower Class (30% of all Americans) with the Upper Class enjoying the four deepest satisfactions of life: family, vocation, community and faith while the Lower Class is largely left out.

What can be done to improve the fortunes of America’s blue-collar workers? There are actually a lot of things:

  • Greatly improve vocational training for the millions of skilled jobs for which there aren’t enough qualified applicants.
  • Revitalize America’s job-generating capacities. More businesses have closed than opened each year since the Financial Crisis.
  • Reverse the perverse disincentives against male work embedded in our social welfare systems. The Earned Income Tax Credit should be extended to single adults without dependents. Eligibility for disability income should be tightened considerably.

  • Come to terms with the enormous challenge of bringing convicts and felons back into society. The huge increase in incarceration rates in recent years has coincided with a dramatic drop in rates for both violent crime and property crime.

Conclusion. It’s a scandal that so many blue-collar workers are struggling to live a fulfilling life. There are many different actions government can take to improve their lot.

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The Fading American Dream and Donald Trump

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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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Things are Looking Good but Can We Afford to be Complacent?

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Everybody should read Tyler Cowen’s compelling new book, “The Complacent Class.”  As I have discussed in two recent posts, here and here, Mr. Cowen lays out the thesis that America has lost much of its dynamism in recent years because life has become so comfortable for so many people, especially the professional elites.


But now things are looking even better yet:

  • A global economic upturn is under way, especially in manufacturing.
  • The Federal Reserve is continuing to raise interest rates, confident that fundamental data on employment and inflation (see chart) is looking more and more positive.

  • Progress is being made on fixing the American healthcare system even if it’s not as good as it could be.
  • The Republican Congress and Trump Administration are united in their desire for corporate and business tax reform which will give the American economy a big boost when it gets done.

These trends auger well for the American economy in the immediate future. However there is one very dark cloud on the horizon:

  • Our national debt (the public part on which we pay interest) is now 77% of GDP, the highest since the end of WWII and is predicted by the Congressional Budget Office to keep steadily getting worse without fundamental changes in public policy. In fact, the debt limit, which had been suspended in November 2015, was reinstated by law on March 16. It will have to be raised in the next few months in order to avoid default by the federal government.
  • I fervently hope that the fiscal conservatives in Congress (such as the Republican Study Group and the Freedom Caucus) will insist on real fiscal restraint going forward as their price for voting to raise the debt limit.

Conclusion. We affluent Americans are so wrapped up in enjoying our good fortune that we lose track of a huge problem on the not so distant horizon. Our prosperity is being heavily financed with borrowed money and we will soon have to pay the piper, unless we are willing to bite the bullet.  Do we have the political will to do this?

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Donald Trump’s Popularity is Steadily Increasing

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Like many things about Donald Trump, his approval ratings are contradictory and misleading. The Wall Street Journal reports that:

  • Only 44% of Americans currently approve of President Trump’s job performance (while 48% disapprove) which is historically low for a new President.capture107
  • On the other hand, the percentage of Americans who have positive feelings about him has been steadily increasing ever since he declared his candidacy in June of 2015, and has now reached a high of 43% (see chart). Since his State of the Union speech was generally well received, this rating is likely to go even higher.

Here is my own perspective. As I have said many times on this blog, I believe our country’s two biggest and most urgent problems are:

  • Slow economic growth, averaging just 2% per year since the end of the Great Recession in June 2009. This means fewer jobs, smaller raises for workers and less tax revenue to spend on important national initiatives.
  • Massive Debt, now standing at 77% of GDP (for the $14 trillion public debt on which we pay interest), the highest since right after WWII. The Congressional Budget Office predicts that this debt level will keep on steadily getting worse, without big changes in current policy. It is therefore a huge threat to our national security and prosperity.

I have great confidence that the Trump administration and Congressional allies will put a high priority on faster growth and are likely to be able to achieve it. I can’t yet tell if Trump understands the seriousness of our massive debt.  But the Tea Party and Freedom Caucus members in the House of Representatives do very strongly understand this problem and will insist on addressing it.  I believe that they will be able to persuade the President to support them in doing this.

Conclusion. At this point I am a supporter of President Trump because I think that our national government is moving in the right direction.

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Is 3% Economic Growth Possible?

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Donald Trump was elected President because of strong support from blue-collar workers in the battleground states such as Wisconsin, Michigan, Pennsylvania and Ohio. The American Enterprise Institute scholar, Nicholas Eberstadt, has explained clearly why this happened.  It is largely a result of a slowdown in economic growth in recent years which has hit blue-collar workers especially hard.

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Can this recent slow growth trend be reversed?  The economist, Edward Lazear, has a positive answer to this question in today’s Wall Street Journal.  According to Mr. Lazear:

  • 3% growth is the long term norm. The annual growth rate in the 30 years preceding the 2007 recession was 3.1%. It has averaged just 2% annually since the end of the recession in June 2009.
  • GDP growth is the sum of two components: growth in productivity and in labor hours. Historically productivity has grown at a rate of about 2% per year and labor at about 1%.
  • Nonfarm labor productivity rose by a total of 7% between 2009 and 2016 which amounts to only 1% per year. It rose 18% between 2001 and 2008 or 2.3% per year.
  • Both President Trump and the House Republicans advocate business expensing (immediate tax write-offs for new investment) as an important part of tax reform. It has been estimated that just this one change in policy will induce an increase in GDP of from 5% to 9% over ten years. This would raise GDP from the current 2% annual growth to between 2.5% and 2.9% annually.
  • The Social Security Administration predicts no increase in the U.S. population age 20 to age 64 between 2020 and 2030.
  • But note that the labor participation rate fell during the recession by 2% among Americans between ages 25 and 54, the prime working age. Two drivers of this loss of workers are: 1) a large increase of the disability rolls and 2) the fact that the ACA will likely reduce the number of hours worked by about 2% between 2017 and 2024.
  • Eliminating burdensome business regulations will also help significantly.

Conclusion. There is clearly much that can be done to speed up both labor productivity and the number of hours worked by Americans. President Trump and the Republican Congress have a good shot at increasing economic growth to 3% annually.

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The Origins of Trumpism II. A National Crisis for Working Men

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The American Enterprise Institute’s Nicholas Eberstadt has performed a valuable national service with two recent publications: “Men without Work” and “Our Miserable 21st Century”  These works lay out in great detail what has gone wrong in our country in the past 16 years:

  • Overall household wealth has doubled as a result of a surging stock market fed by the Federal Reserve policy of quantitative easing.
  • The recovery from the crash of 2008 has been singularly slow and weak compared to the 1947 – 2007 trend line.
  • The work rate for Americans aged 20 and older has declined by 4% from 66% to 62%.
  • Half of all prime working age male labor-force dropouts take opioid medication on a daily basis paid for by Medicaid. 57% of this population class is collecting disability benefits.
  • 17 million male ex-prisoners and convicted felons are now in our midst and largely unable to find the employment which would lead to productive lives.

Here is Mr. Eberstadt’s initial prescription for addressing this very serious social problem:

  • Revitalize American business and its job-generating capacities. According to the Brooking Institution’s Ian Hathaway and Robert Litan, “business deaths now exceed business births for the first time in the thirty-plus-year history of our data.”capture63
  • Reducing the immense and perverse disincentives against male work embedded in our social welfare programs. For example, U.S. disability programs are subject to widespread abuse and gaming. Social welfare programs should emphasize a “work first” principle emphasizing training and education, job placement, and tax credits, etc.
  • Drawing men with a criminal record back into productive work life. Note that the huge increase in America’s ex-prisoner and ex-felon population in recent years coincides with a dramatic drop in rates for both violent crime and property crime. This suggests that former criminals do not pose a continuing danger to society.

Conclusion. For the future prosperity and social cohesion of our country addressing this problem should be a very high priority. Let’s hope that President Trump gets the message.

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The Origins of Trumpism

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Everyone is trying to figure out what Donald Trump is all about and I am no exception. My last two posts, here and here, compare his positives and negatives and what he is doing well so far and also not so well.
The American Enterprise Institute’s political economist, Nicholas Eberstadt, has an article in the current issue of Commentary, “Our Miserable 21st Century,” describing very cogently the economic and social conditions which have led to the election of Donald Trump as President of the United States. Says Mr. Eberstadt:

  • The year 2000 marks a grim historical milestone for our nation. The warning lights have been flashing for 15 years and now these signals are impossible to ignore.
  • First of all, the estimated net worth of American households has more than doubled between 2000 and 2016, from $44 trillion to $88 trillion (see below).capture103
  • At the same time the recovery from the crash of 2008 has been singularly slow and weak. By late 2016 per capita output was just 4% higher than in late 2007. In effect the American economy has suffered something close to a lost decade (see below).capture104
  • Then there is the employment situation. Between 2000 and 2016 the work rate for Americans aged 20 and older declined by 4% from 66% to 62%. To put this in different words: if our nation’s work rate today were back up to its start-of-the-century highs, 10 million more Americans would currently have paying jobs (see below).capture105
  • Half of all prime working-age male labor-force dropouts (totaling 7 million men) take opioid medication on a daily basis, typically paid for by Medicaid. In fact, 53% of prime-age males not in the labor force are enrolled in Medicaid.
  • Of the entire un-working prime-age male Anglo population in 2013, 57% were collecting disability benefits.
  • Currently 17 million men in America have a felony conviction somewhere in there past. This amounts to one of every eight adult males in the country. It is difficult for felons to find work and therefore to become productive members of society.

Concludes Mr. Eberstadt, “The abstraction of inequality doesn’t matter a lot to ordinary Americans. The reality of economic insecurity does.  The Great American Escalator is broken – and it badly needs to be fixed.  With the election of 2016, Americans within the bubble (of affluence) finally learned that the 21st century has gotten off to a very bad start in America.  Welcome to the reality.  We have a lot of work to do together to turn this around.”

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Donald Trump and Foreign Policy

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“Speak softly and carry a big stick”              President Theodore Roosevelt, 1858 – 1919

Donald Trump was elected President because of his strong support from white blue-collar workers who feel left behind in the modern world of globalization and rapid technological change. While the President has to work with Congress to implement new economic and fiscal policies, he has almost free rein in conducting foreign policy.

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There are major international issues that President Trump will have to deal with such as:

  • Rapid Chinese economic growth and assertion of power in Southeast Asia. Also currency manipulation and over-protection of domestic industry against foreign imports.
  • Russian assertion of power in Eastern Europe and the Middle East make it a dangerous adversary. All the more so since the Russian population is in decline and its economy is stalled under Putin.
  • Iran’s nuclear ambitions are only temporarily halted under the Iranian nuclear deal of 2015. Iran continues to support terrorism in Syria and elsewhere in the Middle East.
  • The defeat of ISIS and the containment of terrorism all around the world but especially in the Middle East.
  • Support of our democratic allies in hotspots around the world such as Japan and South Korea in Asia as well as our NATO allies in Europe.

Ever since WWII when the U.S. emerged as the sole superpower, the world has benefitted from overwhelming U.S. economic and military strength. The resulting “Pax Americana” has resulted in a long lasting period of relative peace and stability. But U.S. military strength is not automatic nor does it occur in a vacuum.  It depends fundamentally on the underlying strength of the U.S. economy which has been growing at the very slow rate of 2% annually since the end of the Great Recession in June 2009.

Conclusion. If we want continued peace and stability around the world, then we need faster economic growth to better support the U.S. effort to project strength.

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What Donald Trump Is Doing Right

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Amid the steady and intense criticism of President Trump, he is actually doing a lot of things right, as pointed out by the Hudson Institute’s Christopher DeMuth:

  • He has picked highly qualified and independent-minded assistants such as Jim Mattis for Defense (who considers Russia to be a threat), Rex Tillerson for State (who has urged action on climate change) and Mike Mulvaney for Budget Director (who wants entitlement reform). Mr. Trump has tweeted that “I want them to be themselves and express their own thoughts, not mine.”

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  • For a president to have strong willed assistants is in the best American tradition: Washington (with Jefferson, Madison and Hamilton), Lincoln (with Chase, Seward and Stanton), Roosevelt (with Acheson, Marshall and Stimson), and Reagan ( with Baker, Shultz and Weinberger) all wanted their cabinet members to engage in vigorous discussion about fundamental policy.
  • Trump forgoes ideology for simple cross-partisan principles such as America First, safety from terrorism and violent crime and better jobs and schools for the poor and working class, and defiance of self-serving elites.
  • He is comfortable with controversy and dissent and often incites it to advantage. His tweets and pronouncements can be outrageous and overstated but they demonstrate a healthy skepticism toward ossified orthodoxy and are designed to stimulate debate rather than to close it down.
  • His biggest mistake so far, the ill-advised travel ban for immigrants put on hold by a judicial Temporary Restraining Order, has been taken in stride by his administration while they reconsider how to proceed.

Conclusion. Ever since Mr. Trump’s election to the presidency, I have been saying  that his ultimate success in office depends on whether or not he can address our country’s two biggest problems: 1) slow growth and 2) massive debt.  At this point I am optimistic that he will succeed in doing these things.

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Why I Am Optimistic about President Trump

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I voted for Hillary Clinton last November. Not because I liked her program.  I was voting against Donald Trump.  He is crude, sleazy and a terrible narcissist.  I preferred John Kasich, Governor of Ohio, in the Republican Primary.  But he didn’t make it.  I voted for Mitt Romney in 2012 but he didn’t make it either.
The question now is whether or not the Trump Administration will effectively address our country’s two biggest problems, both of which are very serious and need urgent attention:

  • Slow economic growth, averaging just 2% per year since the end of the Great Recession in June 2009. Faster growth means a tighter labor market which in turn means more workers and higher wages. This in turn means less inequality. Furthermore, it is the United States’ dominant economic strength which assures world peace and stability. The Chinese economy, now half the size of ours, will catch us eventually. But stronger U.S. growth will delay this and enable us to cope with it better when it happens.
  • Massive Debt. The public debt of $14 trillion (on which we pay interest) is now 77% of GDP, (https://itdoesnotaddup.com/2017/01/31/trump-needs-a-wall-of-fiscal-discipline/) the highest since the end of WWII and steadily getting worse. With current low interest rates the debt is now essentially “free” money. But what will happen when interest rates return to normal historical levels? At this point interest payments on the debt will rise precipitously and become a huge drain on the budget. We can’t prevent this from happening but we can lessen the impact by acting now.

Will the Trump Administration take these two problems seriously?

  • For sure on economic growth. His re-election chances in four years depend largely on the fortunes of his base of blue-collar workers. His appointments at Treasury (Mnuchin), HHS (Price), and EPA (Pruitt) all support the tax reform and deregulation needed to get this done. I am confident that Trump will avoid a disastrous trade war.capture99
  • The debt. This is trickier because Trump has said he won’t touch Social Security or Medicare. My optimism is based on the fact that the Debt Ceiling will be re-imposed on March 16 at its level on that date. This will give Congress just a few months to raise the ceiling to a higher level. It is likely that the many fiscal conservatives in the House will insist, in return, for some sort of spending restraint such as a ten-year plan to balance the budget.

Conclusion. We’re not out of the woods yet. But there is a clear path showing the way forward.

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