Tag Archives: jack heidel

Black Lives Matter

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I describe myself as a fiscal conservative with a social conscience. Most of the time I discuss issues like slow economic growth and excessive national debt.  But occasionally, like today, I deal with related issues such as social inequality.
Capture11Last fall I had a post entitled, “Why Racism Exists in America” in which I made the case that it’s not just our different skin color which divides blacks and whites, but also the large degree of social inequality between the two races, such as disparities in family structure and education levels as well as for income levels.
Capture10Today I am pleased to refer to an article in yesterday’s New York Times, “Black Americans See Gains in Life Expectancy.”  In fact, the black-white life expectancy gap has dropped from 7 years in 1990 to 3.4 years today.  This is for a multitude of reasons:

  • The suicide rate for black men has declined from 1999 to 2014, the only racial group to show such a drop.
  • Births to black teenage mothers, who tend to have higher infant mortality rates, have dropped by 64% since 1995, faster than for whites.
  • The rate of deaths by homicide for blacks decreased by 40% from 1995 to 2013, compared with a 28% drop for whites.
  • The death rate from cancer fell by 29% for blacks over the same period, compared with 20% for whites.
  • Smoking has declined faster for blacks than whites and, in fact, blacks now have lower smoking rates than whites.
  • The decline in black deaths from AIDS accounts for a fifth of the narrowing of the mortality gap with whites from 1995 to 2013.

One way that black lives matter is that blacks are living longer! This offers hope that blacks can and will make progress on other fronts as well.

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Ten Thousand Commandments 2016

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I have written several posts recently, here and here, about the need for faster economic growth in the U.S. and how to achieve it. Part of the problem is the huge size of the federal bureaucracy and the enormous and rapidly growing number of rules which they issue each year.
Capture3The magnitude of this problem is clearly shown in the above chart included in the latest annual report of the Competitive Enterprise Institute.  According to the CEI:

  • Federal regulatory cost reached $1.885 trillion in 2015, which averages out to $15,000 per U.S. household for just one year. This exceeds the $1.82 trillion which the IRS is expected to collect in both individual and corporate income taxes in 2015.
  • In 2015, 114 laws were enacted by Congress while 3,410 rules were issued by agencies, 30 rules for each law enacted.
  • Some 60 federal departments, agencies and commissions have 3,297 regulations in development at various stages in the pipeline.
  • The 2015 Federal Register contains 80,260 pages, the third highest page count in history.
  • The George W. Bush administration averaged 62 major (having an economic impact exceeding $100 million) regulations annually, while the Obama administration has averaged 81 major regulations annually over seven years.

One way to do something about out-of-control regulation is a recently proposed Regulation Freedom Amendment to the U.S. Constitution:

  • “Whenever one quarter of the Members of the U.S. House of Representatives or the U.S. Senate transmit to the President their written declaration of opposition to a proposed federal regulation, it shall require a majority vote of both the House and Senate to adopt that regulation.”

Another intriguing approach to attacking regulatory overkill is given by Charles Murray in his new book, “By the People, rebuilding liberty without permission.”  The point is that there are measures which can be taken to address this particular aspect of our slow growth problem.

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Ending America’s Slow Growth Tailspin II. What It Will Take.

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One of the biggest problems facing the U.S. today is the slow growth of our economy, averaging just 2.1% per year since the end of the Great Recession seven years ago, well below the 3.5% average from 1950 – 2000.
Capture11My last post introduced an excellent Wall Street Journal Op Ed by the Hoover Institution economist John Cochrane.  He says that “the U.S. economy needs a dramatic legal and regulatory simplification.”  In particular:

  • Tax reform. Instead of arguing over tax rates, what’s really needed is deep tax reform, cleaning out the insane complexity and cronyism.
  • Social programs. Rather than arguing over whether to increase or cut spending, what’s needed is a thorough overhaul of the programs’ pernicious incentives. For example, Social Security disability (almost 9 million beneficiaries in March 2016) needs to remove its disincentives to work, move or change careers.
  • Education spending. Rather than arguing about the level of public spending, America needs the better schools that come from increased choice and competition.
  • Over-regulation. Most of all the country needs a dramatic legal and regulatory simplification. Middle-aged America is living in a hoarder’s house of a legal system, including state and local impediments such as excessive occupational licensing.
  • Growth-oriented policies will be resisted. Growth comes from productivity which comes from new technology and new companies. These displace the profits of old companies, and the hefty pay and settled lives of their managers and workers.
  • The presidential frontrunners are not championing economic growth. But the House of Representatives, under Speaker Paul Ryan, is doing exactly this. Perhaps economic policy leadership can be transferred from the Presidency to Congress.

After two disappointing presidencies our economy is lagging far behind where it could and should be. This is the reason for the rise of Bernie Sanders and Donald Trump.  Regardless of the outcome of the 2016 presidential election, there is hope for better days ahead!

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How to End America’s Slow-Growth Tailspin

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My last three posts, here, here, and here address America’s slow economic growth for the past 15 years and why it is such a serious problem.  Today I begin to discuss how we can turn this around.
In today’s Wall Street Journal, the economist John Cochrane has a very informative Op Ed, “Ending America’s Slow-Growth Tailspin” which describes a clear path to speed up economic growth.  Says Mr. Cochrane:

  • From 1950 – 2000 the U.S. economy grew at an average rate of 3.5% annually. Since 2000 it has grown at only half this rate, 1.76% annually. By 2008 the average American was more than three times better off than in 1952. Real GDP per person grew from $16,000 to $49,000 during this time period.
  • There are three main theories as to why growth is slowing down.
  1. We’ve run out of new ideas.  Get used to it and start fighting over the shrinking pie.
  2. The culprit is “secular stagnation” which the Federal Reserve is unsuccessfully trying to overcome with low interest rates and quantitative easing. The only other solution is vast new stimulus spending.
  3. The U.S. economy is overrun by an out-of-control and increasingly politicized regulatory state. America is middle-aged and overweight. The solution is to eat better and exercise.
    Capture3
  • The first two camps are doubtful that better policies will produce faster growth. But the examples of North Korea vs South Korea and East Germany vs West Germany show that government policy matters for economic growth. In fact Mr. Cochrane’s chart (above) shows how a country’s “ease of doing business” score, compiled by the World Bank, correlates with increased average income. Even though the U.S. is near the top by this measure, there is still plenty of room for improvement.

In my next post I will delineate specifically how to streamline our oversized regulatory state. In the meantime, take a look at Mr. Cochrane’s article in today’s WSJ.

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Why Faster Economic Growth Is So Important II. Replacing Factory Jobs

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Populists such as Bernie Sanders and Donald Trump are doing so well in the 2016 presidential primaries because the middle class is suffering from the slow economic growth of the past 15 years.
Capture2My last post is based on the report of a typical victim.   Today’s post is based on an article by Eduardo Porter in yesterday’s New York Times discussing the loss of U.S. manufacturing jobs.  Says Mr. Porter:

  • Fifty years ago, 45,000 workers were employed in California to harvest 2.2 million tons of tomatoes. Now, with mechanization, it only requires 5000 workers to harvest 12 million tons.
  • In 1950, 24% of nonfarm jobs in the U.S. were in manufacturing. Today only 8.5% of nonfarm jobs are in manufacturing.
  • The same thing is true worldwide. Global employment in manufacturing is going down because productivity increases are exceeding increases in demand by significant amounts. The likelihood that we will get a manufacturing recovery is close to nil.
  • The U.S. has a trade surplus in manufacturing with the 20 countries with which it has trade agreements (which does not include China). We have an overall annual trade surplus in services of more than $200 billion.

In other words, an attempt to recover or save manufacturing jobs with smarter trade policies is simply impractical and will likely do more harm than good. What should be done instead is to:

  • Definitely do a better job of helping displaced manufacturing workers with Trade Adjustment Assistance and smarter job retraining programs.
  • Adopt policies to speed up overall economic growth from the anemic 2.1% annual growth rate since the end of the Great Recession in June 2009. Faster growth such as the 3.5% annual average from 1971 – 2001 will do wonders in creating more jobs and better paying jobs. For how to do this see an earlier post.

Our very serious economic problems can be solved if policy makers (and presidential candidates) would only get serious about it!

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Why Faster Economic Growth Is So Important

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The main topic of this blog is addressing America’s two biggest problems which are:

  • Slow economic growth, averaging 2.1% since the end of the Great Recession in June 2009, and
  • Massive public (on which we pay interest) debt, now 74% of GDP and growing, the highest it has been since right after WWII.

In a recent post, “Is America’s Middle Class Really Shrinking?” I showed that middle-income households did very well from 1971 – 2001, while our economy was growing on average at a rate of 3.5% per year.  Middle-income households then stood still from 2001 – 2008, and have lost ground since.
Capture2A vivid example of what has happened in the last 15 years is provided in the article, “My Secret Shame” in the current issue of the Atlantic magazine.  The author describes his own financial hardships supplemented with pertinent data from several sources:

  • In 2013, 47% of Americans responded to a survey that they would have great difficulty coming up with $400 to handle an emergency.
  • The inflation-adjusted net worth of a typical (median level) household in 2003 was $87,992. By 2013 it had declined to $54,500, a 38% drop.
  • A family headed by someone of prime working age, between 24 and 55 years old, and with an income of $50,000, could continue to self-fund its current consumption, if the family were to lose its current income, presuming the liquidation of all financial assets except home equity, for only six days!

As this data clearly shows, many Americans are in a precarious financial situation! The solution to this very serious problem is to speed up the growth of the American economy.  I have discussed how to do this over and over again in previous posts, i.e. here and here.
It is both surprising and disturbing that the presidential candidates are either ignoring this problem or making unserious proposals for how to solve it.

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Can She Fix It?

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As I have recently pointed out, Hillary Clinton is now likely to be our next president.  In my last post I provided vivid evidence that middle class income grew dramatically between 1971 and 2001 and has been either stagnant or declining since then.  The fact is that the years from 1971 – 2001 were a time of rapid economic growth, about 3.5% per year.
Capture2So it is obvious what needs to be done to fix America’s economic woes: grow the economy faster!  In its latest issue, the Economist asks, “Can she fix it?” The tentative answer suggested by the Economist is no, based on Mrs. Clinton’s tepid policy proposals to date:

  • She wants to make college more affordable, grant paid leave to parents, raise the national minimum wage to $12 per hour, and increase infrastructure spending. These are nice sounding proposals but will have only minor effects on growth or add greatly to the national debt (infrastructure spending).
  • She proposes a tax-credit for companies to encourage profit-sharing schemes. This would just make the tax code more complicated.
  • She wants an extra tax on the debt of big banks but simply increasing capital requirements on big banks would be more effective.
  • She wants to raise the top tax individual tax rate to 45% but shrinking deductions and closing loopholes would be a more efficient way to make the tax code more progressive.
  • She wants to abandon the Trans Pacific Trade Partnership rather than figuring out how to help those workers who lose from expanded trade with such measures as wage insurance or better job retraining.

As the Economist concludes, “A bigger plan to help American workers would start by boosting competition, both by slashing unnecessary regulations for small businesses, and by ensuring that big firms no longer operate in protected markets.”
If we are going to end up with another Clinton presidency, we certainly don’t want four more years of Obama-type economic stagnation!

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Is America’s Middle Class Really Shrinking?

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For several years now Americans have been having a lively debate about income inequality and the supposedly shrinking middle class. The American Enterprise Institute scholar, Mark Perry, has an enlightening new post on this topic.
Capture0The AEI has produced a vivid graphic showing that the American Middle Class (defined as the middle 50% of Americans by household income) has dramatically increased in income from 1971 through 2001 but has been stagnant since the Great Recession in 2008-2009.
Capture1He has other charts showing that both the Low-Income group and the Middle-Income group have been shrinking since 1971 precisely because the High-Income group (defined to be households with $100,000 or more in income in constant 2014 dollars) has been growing so rapidly. Isn’t it obvious what we need to do to restore confidence to the Middle Class?  Clearly we need to speed up economic growth.  For example we could:

  • Implement broad-based tax reform. Lower the rates for both individual and corporate taxes, paid for by closing loopholes and limiting deductions. Better yet, shift from taxing income to taxing consumption.
  • Remove roadblocks to innovation by making it easier to start new businesses.
  • Improve K-12 education, especially for low-income kids who need extra help. Enhanced early childhood education, more emphasis on career (vocational) education, and charter schools in big cities are the way to get this done.
  • Make attending college more affordable. There are many good schools around the country which are not expensive to attend (the University of Nebraska at Omaha where I teach is one of them). College students and their families should make it a top priority to avoid huge debt. Attending a prestigious (and expensive) institution is simply not necessary to get a good education.

There are other more controversial ways to speed up economic growth such as increasing international trade and reforming our broken immigration system. But just the measures above will go a long way and shouldn’t be that difficult to implement.

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Five Ways to Destroy the U.S. Economy

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For seven years following the end of the Great Recession in June 2009 our economy has been plodding along at an average growth rate of 2.1% per year, much more slowly than after a typical recession. Instead of talking about how to fix the mess we are in, most of the presidential candidates are proposing measures which will make things even worse.
Capture0The economists Glenn Hubbard and Tim Kane, writing in the Weekly Standard, take a novel approach.  Rather than suggesting ways of speeding up economic growth, which may no longer be of interest to voters in primary elections, they list their “Top Five Ways to Destroy the U.S. Economy” which are to:

  • Restrict Trade. Free exchange is the cornerstone of a growing economy. Raising tariffs will restrict imports, cause inflation and harm American consumers. Killing the Trans Pacific Partnership, stopping the Keystone Pipeline, and curtailing legal immigration would just be a start.
  • Make Work Illegal. Raising the minimum wage to $15 per hour will do lasting harm to underprivileged teenagers who are denied a first job. In the U.S. today over 30% of jobs require a government license compared to only 5% in the 1950s. This creeping need for permission keeps untold millions out of the labor force.
  • Tax People More Unequally. Why should the tax code be riddled with exemptions, deductions and credits which primarily benefit the wealthy? Why do we insist on taxing corporations at 35% when all other advanced economies are competing to lower their corporate taxes? This simply drives jobs overseas.
  • Stop Innovation. Why does Washington continue to favor big banks and bail out old established industries? A generation ago 1 in 6 companies were startups: today 1 in 12 are.
  • Increase the Debt. Debt has more than doubled in the past decade, yet interest payments in 2015 were the same as in 2006, because rates are artificially low. How long can this last? A sure path to a slow growth future is this kind of fiscal profligacy. Just call it investment and hope that most people will ignore the problem.

As Mr. Hubbard and Mr. Kane conclude, “The good news about this policy agenda is that it requires no sacrifices. If Washington just stays on course we will reap the whirlwind.”

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After Donald Trump

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It looks more and more likely that Hillary Clinton will be our next President. She is almost certain to be the Democratic nominee and unlikely to be indicted for mishandling classified information.  If Donald Trump is the Republican nominee, she will trounce him because his negatives are much worse than hers.  If Mr. Trump is denied the Republican nomination, he is likely to run as an independent candidate and take votes away from the Republican nominee, thereby also electing Mrs. Clinton.
Capture0What happens then?  The Republicans will regroup by broadening their base to better appeal to Mr. Trump’s constituency of disaffected white working class voters.  Yuval Levin, editor of National Affairs, has visualized what policies a reconstituted conservative party might want to embrace to replace the no longer affordable progressive model:

  • Healthcare: a new approach would liberate insurers and providers to offer many different models of coverage and care and empower consumers to choose between them.
  • K-12 Education: a new approach would allow parents to make choices for their children and reshape the educational system around their preferences.
  • Welfare: a new system would empower local problem solvers to mix resources, advice, experience and moral leadership in a process of bottom-up experimentation.
  • Higher Education: a new model would no longer reinforce a cycle of rising tuition and declining value with inflationary federal loans. Rather it would open up accreditation to allow for more options and offer aid to the needy which rewards high value rather than high prices.
  • Cultural Issues: moral traditionalists should emphasize building cohesive and attractive subcultures, offering alternatives to the chaos of the mainstream permissive society.
  • Diminished Opportunity for the Working Class: Improvements to Trade Adjustment Assistance and Job Retraining programs (wage insurance?) will have to be embraced.

Conclusion. The disruption caused by Donald Trump could lead to a new and more broadly based Republican Party better equipped to address the emerging problems of the 21st century.

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