Tag Archives: Economist

Disruption Involves Taking Chances

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I am a fiscal conservative (I want to balance the budget) and a social moderate. I voted for Hillary Clinton for president because Donald Trump is a sleazy person and has such a volatile temperament.  But I’m also in favor of making big changes and Mr. Trump will certainly do this.

capture79As the Economist points out, “his voters took Mr. Trump seriously but not literally, even as his critics took him literally but not seriously.”  The Economist goes on to point out some of the risks involved in making the kinds of changes Mr. Trump is talking about:

    • If Obamacare is repealed, 20 million Americans will lose their health insurance. Yes, but it’s not going to happen this way. Obamacare will end up being modified and improved, not abolished.
  • His tax cuts would chiefly benefit the rich and would greatly increase our national debt. Yes, but the House of Representatives has a much better plan to do this and it is Congress, not Mr. Trump, which will develop a detailed plan.
  • Even if he does not actually deport illegal immigrants, he will foment the divisive politics of race. The illegal immigration problem needs to be solved and Mr. Trump is likely to get this done, with or without a wall.
  • Mr. Trump has demanded trade concessions from China and NAFTA. If he causes a trade war, the fragile world economy could tip into a recession. Blue collar workers, his strongest base of support, have had stagnant incomes for years and deserve some help. If he can increase our exports, blue collar workers will benefit.
  • He wants to reverse the Paris agreement on climate change which would harm the planet and undermine America as a negotiating partner. Global warming is real but the Paris accord does essentially nothing to slow it down. Increased coal use in China and India will more than negate what the U.S. and Western Europe are doing to cut back on fossil fuels.
  • Mr. Trump has demanded that other countries pay more towards their security or he will walk away. NATO members should be doing more on their own and if he can prod them to do this, then NATO will be stronger as a result.

 

Conclusion. Mr. Trump’s expressed views should be interpreted as initial bargaining positions. They are likely to have the effect of leading to progress on many serious problems which need to be addressed.  The risks involved in the negotiation process are worth taking

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Labor’s Share of National Income Is Falling

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The latest issue of the Economist shows quite dramatically in the article “Labour Pains” that labor’s share of national income is dropping.  In the U.S. workers’ wages have historically been about 70% of GDP.  In the early 1980s this figure started falling and is now 64%.  Similar declines are occurring in many other countries.
This phenomenon is closely related to what others are observing as I have reported recently.  Tyler Cowen’s new book “Average is Over” discusses the threat of technology to the middle class.  Daniel Alpert in “The Age of Oversupply” talks about the increase of competition from various global forces.  Stephen King’s “When the Money Runs Out” makes the case that “a half-century of one-off developments in the industrialized world will not be repeated.”
Historically the stability of the wage to GDP ratio “provides the link between productivity and prosperity.  If workers always get the same slice of the economic pie, then an improvement in their average productivity – which boosts growth – should translate into higher average earnings. … A falling labour share implies that productivity gains no longer translate into broad rises in pay.  Instead, an ever larger share of the benefits of growth accrues to the owners of capital.”
A shrinking share of a GDP which itself is slowing down is a double whammy.  The only way to address the problem effectively is to deal with the root causes.
First of all, we need to boost overall economic growth by the proven methods of broad based tax reform, especially including much lower corporate tax rates, making regulations less onerous, carrying out immigration reform, and giving special attention to helping entrepreneurs create new businesses.
How can we, additionally, help low skilled and low waged workers move up the ladder?  Long term the most worthwhile action is to change K-12 education by putting more emphasis on career education to produce more highly skilled workers.  Short term, we should provide crash job training for the estimated three million current job openings in the U.S. which require skilled workers.
Economic inequality in the U.S. is becoming progressively worse all the time.  There are fiscally sound ways to address this alarming problem and it is important that they be clearly and forcefully advocated.

A Pessimistic View of America’s Future

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The George Mason University economist, Tyler Cowen, has written a provocative new book entitled “Average is Over”, which has just been reviewed by the Economist: “The American Dream, RIP?” .  His thesis is that the slow recovery of middle class jobs following the Great Recession of 2008-2009 portends a new economy more and more devoid of middle class jobs and broad prosperity.
Mr. Tyler says that “An elite 10-15% of Americans will have the brains and self-discipline to master tomorrow’s technology and extract profit from it.  They will enjoy great wealth and stimulating lives.  Others will endure stagnant or even falling wages as employers measure their output with ‘oppressive precision’.  Some will thrive as service providers to the rich….Young men will struggle in a labor market which rewards conscientiousness over muscle.”  Some highly motivated individuals, born poor, will be able to move into the elite group with cheap online education.  This creates overall a sense of “hyper-meritocracy” at the top which “will make it easier to ignore those left behind.”
What Mr. Cowen has done is to take the strong social and economic forces of globalization and technology, add to this mix emerging machine intelligence (Google is a prime example) and then to use his vivid imagination to conjure up an image of what life will be like in the not so distant future.  America will still likely be the dominant country in the world but the historically strong middle class will shrink as the rich become richer and the poor become poorer.
Is this pessimistic vision of America’s future inevitable?  Is there anything we can do to at least slow down if not to reverse these trends?
Speeding up economic growth is our only chance to turn things around and mitigate this grim future.  Better K-12 education (and therefore early child education as well) will help in the long run.  In the short run, broad based tax reform, healthcare cost control, relaxing overly burdensome regulations, and immigration reform are the four things which will help the most.  The same old basic stuff is what we need to do!  Tyler Cowen’s story just makes the need for such changes more compelling and more urgent!