The American economy is in basically good shape with a low unemployment rate of 4.2% and the likelihood of somewhat faster growth in the near future.
Income inequality and poverty are real problems, see here and here, but there are reasonable and effective ways to address them.
Rapidly accumulating debtis by far our most critical unsolved problem which is all the more frightening because our polarized political system does not seem capable of addressing it.
The Bureau of Labor Statistics has just released its projections of what the U.S. economy will look like in 2026.
The highlights are:
More dominated by the service sector amid the continuing erosion of manufacturing jobs (see two charts below).
More polarized in both earnings and geography (see top and bottom charts).
More tilted towards jobs which require at least a bachelor’s degree (see bottom chart).
The BLS report has several ramifications for public policy as follows:
Improved educational outcomes are needed all along the line: K-12 basic and vocational, training programs for the many skilled jobs going begging and also more low-cost college programs.
More low-skill immigrants, not fewer, are needed to take on the expanding number of low-wage jobs, such as caring for the growing numbers of elderly, which Americans are not willing to do.
Conclusion. These economic trends towards more earnings and geographical polarization could easily make our current political polarization even worse than it already is. This means it is all the more important to make sure that we keep speeding up economic growth, better address income inequality and poverty and get our gargantuan debt problem under control.
With Donald Trump expanding the culture wars and the Democrats lining up with the progressive policies of Bernie Sanders, the national political scene seems to be getting more confusing all the time.
And yet there is remarkable consensus on many levels about what the country really needs:
Faster economic growth would help provide more jobs and better paying jobs for the blue-collar workers which both parties are trying to appeal to.
Tax reform meaning to reduce tax rates, shrink deductions and generally simplify the tax code has widespread bipartisan support, as one way to provide the growth which everyone wants.
Shrinking the debt as a percentage of GDP is widely recognized as critical to the future well-being of our country and especially for the poor who are most dependent on social welfare programs. How to curtail spending sufficiently to get this done is inevitably a highly contentious issue.
Healthcare for (almost) all is now the law of the land, given that the GOP has failed to repeal the Affordable Care Act. The emphasis going forward should be to control healthcare costs for both individuals and families as well as for the federal government (the taxpayers).
Immigration and DACA. There appears to be strong bipartisan support in Congress for giving the Dreamers legal status in the U.S. With a very low (4.4%), and still dropping, unemployment rate, a huge labor shortage is developing in many states, including Nebraska. What the U.S. needs is an expanded guest worker visa program so that all employers are able to find the (legal) employees they need to conduct business. Perhaps DACA reform will lead to broader immigration reform as well.
Conclusion. The above issues should be largely amenable to bipartisan consensus. Both parties would benefit from putting aside petty differences and working together to solve them.
I am a non-ideological fiscal conservative and social moderate. I agree with Republicans on some issues and Democrats on others. It seems to me that there is a lot of common ground between the two national parties and plenty of opportunity for working together.
The economy. Donald Trump was elected President with the support of blue-collar workers. He wants to help them out by speeding up economic growth. But the Democrats also want to give a boost to the working class. Why not lower the corporate tax rate to encourage multi-national companies to bring their profits back to the U.S.? Why not exempt small community banks from Dodd-Frank so they can lend more money to main street businesses?
Sustainable healthcare. After failing to repeal and replace the ACA, Republicans now have to accept that universal health insurance is here to stay even though it needs much better cost control. The popularity of employer provided health insurance makes single payer healthcare unacceptable to many. Two major changes are needed to lower healthcare costs. The ACA Cadillac tax should be replaced by an upper limit on the tax exemption for employer provided insurance. The Medicare Part B premium covers only 25% of the cost of that program and should be increased on a means adjusted basis.
Immigration policy. With the unemployment rate now 4.4% and dropping, a huge labor shortage is beginning to develop which will retard economic growth. We now need more skilled and unskilled immigrants alike. An expanded guest-worker program to meet the needs of employers should be created. Enhanced border security can be part of the mix.
Military spending. In a dangerous world we need a strong military defense. But there is a lot of waste in the Pentagon budget. Do we really need 800 foreign bases in over 70 different countries? Nebraska’s own Chuck Hagel identified $25 billion a year in military waste while he was Secretary of Defense.
Conclusion. Here are just a few ways that the two parties can work together to address some of our biggest national problems. Faster economic growth and fiscal restraint just make common sense.
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.
Our economy is chugging along at 2% annual growth of GDP, not spectacular but not awful either. The unemployment rate has dropped to 4.3%, and low-wage earners are beginning to see decent pay raises. Furthermore there are good indications that GDP growth may rise in the near future to at least 2.5%, see here and here.
As growth increases, unemployment continues to drop, and wages increase more quickly, severe labor shortages in certain job categories are likely to develop. As the New York Times economics reporter, Eduardo Porter, points out, “The Danger from Low-Skilled Immigrants: Not Having Them.”
Eight of the fifteen occupations expected to experience the fastest growth – personal care and home health aides, food preparation workers, janitors and the like – require no schooling at all.
Low-skilled immigration does not just knock less-educated Americans out of their jobs, it often leads to the creation of new jobs – at better wages.
The strawberry crop in California owes its existence to cheap immigrant pickers. They are sustaining better paid American workers in the strawberry patch to market chain who would have to find other employment if the U.S. imported the strawberries directly from Mexico.
The benefits of immigration come from occupational specialization. Immigrants concentrated in more manual jobs free up natives to specialize in more communication-intensive (English speaking) jobs.
The average American worker is more likely to lose than to gain from immigration restrictions. Halting immigration completely would reduce annual economic growth by .3%.
The Pew Research Center estimates that about 30,000 unauthorized immigrants work in Nebraska, 3.2% of Nebraska’s total labor force. They are heavily represented in a handful of industries, making up 18% of Nebraska’s construction workers, 9% of production workers, and 5% of farm laborers. With an unemployment rate hovering around 3%, the Nebraska economy would be severely stressed without these immigrant workers.
Conclusion. Both in Nebraska and nationwide, the U.S. economy has a strong need for immigrant workers. An adequate guest worker visa program is badly needed to provide legal status to these workers who are so critical to the success of the U.S. economy.
Donald Trump won the presidential election because of his strong support from blue-collar workers who feel aggrieved by the U.S. economic system. Many have lost their jobs in recent years due to technology and globalization. Many others have suffered wage stagnation. Helping this large group of voters is surely Mr. Trump’s primary mandate from the election.
The best way to do this is to make the economy grow faster by implementing smart policies such as:
Corporate tax reform. Reducing the top rate from 35% to about 20% will make the U.S. competitive with other developed countries and induce American multinational companies to bring their overseas profits back home for reinvestment. This will create more jobs and better paying jobs. This can be paid for by eliminating various deductions.
Business tax reform. Allow full expensing of capital investments, paid for by eliminating the deductibility of interest payments. This will strongly encourage more business investment and therefore increase worker productivity.
Individual tax reform. Lower marginal tax rates across the board by 10%, paid for by eliminating most deductions. This would give an automatic increase in pay to the two-thirds of taxpayers who do not itemize deductions and, since most of the pay increase would be spent, grow the economy by stimulating demand.
Regulatory reform. Much can be done to alleviate the regulatory burden on business, see here and here.
International trade rules. “Tearing up NAFTA” would be a huge mistake because the U.S. exports $600 billion annually to Canada and Mexico with a trade deficit of only $40 billion. But NAFTA can be updated with side agreements to address concerns of fairness. Expand retraining programs for workers who lose their jobs to foreign competition.
Immigration reform. Secure our southern border and deport the illegal immigrants who are lawbreakers as Mr. Trump wants to do. Then give guest worker visas to law-abiding employees of legitimate businesses and use eVerify to enforce them.
Conclusion. Changes such as these will give a big boost to the economy and therefore create many new jobs and better paying jobs.
I want to emphasize that I voted for Hillary Clinton on Tuesday because Donald Trump has such a sleazy and mercurial personality. But Mr. Trump was clearly the change candidate and we need change big time. His strongest base of support is the white working class which has not really recovered from the Great Recession of 2008-2009 and he will surely try to help out these people.
Here are the changes we need in order of importance:
Grow the economy faster. Tax reform, individual and corporate, and regulatory reform are what are most needed. Mr. Trump and the House Republicans are in rough agreement on both of these major initiatives and hopefully the new Republican led Senate will go along. The best kind of tax reform means to lower tax rates and shrink deductions enough to avoid losing tax revenue. This can be accomplished if a real effort is made to do it this way.
Begin to shrink our massive debt. This can only be done by major entitlement reform, meaning to control the costs of Social Security, Medicare and Medicaid. Medicare should be transitioned over from a single payer system to a premium support system, consistent with a reformed Affordable Care Act. Healthcare costs can only be contained by giving consumers more skin in the game, meaning higher deductibles supplemented with health savings accounts.
More assertive foreign policy. Worldwide peace and stability depend on our own economic and military strength. Right now China, Russia and Iran think they can push us around. President Trump will not let this happen.
Trade and immigration policy. Most knowledgeable people agree that international trade is generally beneficial. We simply have to do a better job of retraining American workers who lose their jobs to foreign competition. The key to immigration reform is tougher border security plus an effective guest worker visa program.
Conclusion. The Republican House of Representatives has an excellent plan, “A Better Way,” for American economic, fiscal and social renewal and Mr. Trump is largely supportive of it. This augers well for fundamental progress in the next four years.