Tag Archives: jack heidel

How to Make America Stronger

Posted on by
2

 

Americans are very fortunate indeed to live in such a strong, prosperous and free society.  But not all of us share in this good fortune.  How can we help the less fortunate among us have a better chance to succeed in life?

Here are several things we can do, in rough order of importance:

  • Grow the economy faster than the 2.1% growth rate which has prevailed since the end of the Great Recession in June 2009. Faster growth means more new jobs are created and higher wages are paid for existing jobs. Success in life for most people includes earning an adequate income to live comfortably without major wants. Appropriate deregulation and tax reform are the best ways to speed up growth.
  • Improve basic education so that more people can qualify for rewarding jobs. Right now too many kids from minority and other low-income families are not graduating from high school with the skills they need to succeed in life. Two promising solutions to this problem are more charter schools and expanded early childhood education, both targeted at kids from low-income families.
  • Alleviate poverty in a productive manner by emphasizing work requirements for most, if not all, welfare programs. Higher work force participation and lower poverty rates are strongly correlated. Work not only provides income but also provides dignity and purpose in life.
  • Promote two parent families. Two parent families are much less likely to be poor than single parent families and also more likely to be supportive of their children’s education. Federal tax policy should always encourage child raising by two parent families for this reason.

Conclusion. America will become an even stronger country than it already is if more people, especially from low-income and minority families, have the education, work training and personal qualities to make a positive contribution to society.

Follow me on Twitter 
Follow me on Facebook 

Is the World Getting Better and, if so, Why?

Posted on by
Reply

 

From a reader of my blog:

I admire your efforts to discuss issues. However, it seems your worldview is to defend the “status quo”, to say “things are pretty good”, to denigrate the critics, to downplay the negative. Perhaps this is one of the characteristics of a “conservative”.  I, and many others, on the other hand, look at the world and our country, and see many problems, much injustice, much that needs changed. … In addition, the “free market” is largely a myth. Finally, to the extent our country has many positive attributes, who do you think was responsible—those satisfied with the status quo or those who worked and struggled and protested and brought about change?

The above statement is an intelligent criticism of the point of view expressed on this blog. I will respond to it by more fully describing where I’m coming from.
First of all, I am a non-ideological (i.e. registered independent) fiscal conservative and social moderate. Furthermore, I have had much good fortune in my life. I am a citizen of a free and prosperous democratic country. I come from a loving and supportive family. I have received a good education and, in fact, have been a long time tenured university professor (now retired).
Secondly, perhaps as a result of my own good fortune, I tend to be optimistic. I believe that the world is getting better. Not in a straight line, of course, but slowly and surely, even if there are many twists and turns.
There is much objective evidence for overall optimism as I have previously demonstrated, see here and here.
To briefly summarize:

  • The good old days are now, referring to global wealth rising steeply from about 1800.
  • Freedom. In 1950 31% of the world lived in democracies. Today it is 64%.
  • Equality. Minority rights, women’s rights and gay rights have all increased enormously in the last 100 years.

Conclusion. I am not Panglossian (i.e. this is not the “best of all possible worlds”) nor do I believe that progress just occurs on its own. But progress is relentless, nevertheless. Stay tuned!

Follow me on Twitter
Follow me on Facebook 

Understanding Economic Growth

Posted on by
6

 

One of the major topics I discuss on this blog is:

  • Economic growth, in particular the fact that the U.S. economy has grown at the relatively slow rate of 2.1% per year since the end of the Great Recession in June 2009. It appears, however, that the economy may now be starting to pick up speed.

There are plenty of “experts” who say that it is unrealistic to expect economic growth to continue indefinitely at the same level (3% on average) which has prevailed since the end of WWII because:

  • Resources are limited. The earth is finite but it is also vast. It is unlikely that any mineral or even energy source such as fossil fuels will be depleted for hundreds, if not thousands, of years. If and when any particular resource becomes scarce, human ingenuity will be able to find a replacement.
  • Population growth is slowing down. It is likely that human population worldwide will level off this century somewhere between 9 and 10 billion. This is highly desirable but is unlikely to slow down economic growth. As income and education levels rise, productivity and GDP per person will also increase.
  • Growth tends to be debt financed which is unsustainable.  I agree with this reservation. This is the one problem, if not solved, which has the potential to derail continued steady progress.

The remarkable human progress of the last 200 years is likely to continue indefinitely.  In particular:

Conclusion. The world has enjoyed remarkable human progress in the last two hundred years, in the form of steady economic growth, and this progress is likely to continue indefinitely into the future.

Follow me on Twitter 
Follow me on Facebook 

Responding to Economic Trends

Posted on by
Reply

 

In my most recent posts I have been making the case that

  • 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 debt is 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.

Follow me on Twitter 
Follow me on Facebook 

 

Which Is Worse: Republican Hypocrisy about Debt or Democratic Complacency about It?

Posted on by
Reply

 

My recent posts about the American Idea have argued that our country has a great future before it.  We have a strong and prosperous economy and are the world’s leading innovator.  Furthermore there are clear cut and effective ways to address the income inequality and poverty which hold back many Americans from fully sharing the benefits of our remarkably successful society.
But there is one huge problem our political system is ignoring which will lead to a major crisis if left unattended much longer.


I am referring, of course, to our gargantuan:

  • National Debt, now sitting at 77% of GDP (for the public part on which we pay interest), the largest it has been since the end of WWII. It is predicted by the Congressional Budget Office to keep steadily getting worse without major changes in current policy. Right now all of this debt is essentially “free money” because interest rates are so low.

Republicans are very good at deploring the debt but quick to forget about it, when it gets in the way of cutting taxes.  Note that:

  • Economic growth is created by tax cuts but only 10-20% of the lost revenue from tax cuts is offset by new growth.

Democrats, on the other hand, don’t take the debt seriously, except when arguing against Republican tax cuts. Debt deniers claim that the risk of government overspending is inflation, not bankruptcy. What they don’t understand is that

  • Interest rates will return to more normal (and much higher) historical levels eventually and, when this happens, interest payments on the debt will skyrocket by hundreds of billions of dollars every year. This will crowd out all sorts of spending on popular domestic programs. It is likely to lead to a new fiscal crisis, much worse than the Financial Crisis of 2008.

Conclusion. For all of our nation’s great strengths, we are in a very serious fiscal pickle, with no clear cut path of orderly resolution. Realistically our debt problem cannot be wound down without committed Presidential leadership and this is unlikely to happen anytime soon.

Follow me on Twitter 
Follow me on Facebook 

Income Inequality in a Dynamic Economy

Posted on by
9

 

I have pointed out in a recent post that, not only is the U.S. the world’s most competitive large economy, but also that our per-capita GDP is growing faster than for our nearest rivals.
A particularly vivid example of this dynamism is ecommerce where both the adjusted (gains minus losses) size of the workforce and the average wage are increasing rapidly.
We also know that incomes in the U.S. are rising faster at the high end rather than further down (see chart below).  What to do about this has become a major political issue.


Here are my ideas (in rough order of importance):

  • Economic growth is too slow, averaging just 2% per year since the end of the Great Recession in June 2009. It is reasonable to expect that the regulatory reform already underway and the tax reform under consideration in Congress can increase growth to 2.5% per year.  Together with our low unemployment rate of 4.2%, this is already leading to more and better paying jobs.
  • Improve educational opportunities by, for example, making early childhood education widely available to low-income families and attracting the best teachers to the poorest performing schools with targeted bonus pay.
  • Better vocational and retraining programs to prepare the unemployed and underemployed for the millions of skilled jobs now going begging for a lack of qualified applicants.
  • Attempt to address the social inequality associated with income inequality, see here.  Marriage rates, civic involvement and public trust have all declined significantly in recent years for the lower class. A very difficult problem to solve!

Conclusion.   In a free society like the U.S., providing self-help opportunities for advancement is the natural and preferred way of lifting up people who need assistance. The U.S. does a okay job in this respect but there is plenty of room for improvement.

Follow me on Twitter 
Follow me on Facebook 

 

Democrats Need to Get More Serious about Economics

Posted on by
2

 

My last post makes the case that the “American Idea” is thriving, contrary to a sense of gloom from many quarters. For example, the Democratic Party is so tied up with complaining about Donald Trump, that it is failing to address the fundamental reason why Mr. Trump was elected President last fall: the plight of blue-collar workers.
For well-known reasons (globalization and the growth of technology), blue-collar workers are not yet enjoying the full benefits of rising prosperity as much as the college educated managerial and professional classes. The basic reason for this is:

  • Slow economic growth, averaging just 2% of GDP per year since the end of the Great Recession in June 2009. Our currently low unemployment rate of 4.2% and the prospects for regulatory reform and tax reform suggest that growth might start picking up soon.

Faster growth is already occurring in the area of ecommerce, see here and here.


Consider:

  • Fulfillment center weekly wages are 31% higher on average than for brick-and-mortar retail in the same area.
  • Ecommerce workers are not likely to be college graduates but need a mixture of physical and cognitive skills.
  • In the past two years the ecommerce industry has added 178,000 jobs in electronic shopping firms and another 58,000 jobs for express delivery companies. At the same time brick-and-mortar retail full time equivalent jobs have dropped by 123,000.
  • Americans spend 1.2 billion hours per week shopping in brick-and-mortar stores. Since 2007, roughly 64 million hours per week of these “unpaid hours” have shifted to fulfillment center workers and truck drivers. In this way unpaid household shopping hours are turning into paid market work.
  • The economics of manufacturing will likely soon be changed in a similar manner from producing and distributing goods in bulk to small-batch manufacturing closer to the customer.

Conclusion. “The internet of goods,” spearheaded by Amazon, has already increased the productivity and wages of many retail (fulfillment center) workers and will soon do the same thing in manufacturing. This is private enterprise at its finest.

Follow me on Twitter 
Follow me on Facebook 

 

The American Idea Is Far from Doomed!

Posted on by
2

 

The Atlantic monthly magazine is celebrating its 160th anniversary this year.  In 1857 its founders envisioned that the magazine would “honestly endeavor to be the exponent of what its conductors believe to be the American idea.”  In the current issue one of its writers asks, “Is the American Idea Doomed?” and claims that it has few supporters on either the left or the right.  Well, I happen to be in the middle and I think the American idea is doing very well indeed.

Consider:

  • The World Economic Forum ranks the U.S. as the world’s most competitive large economy and, in fact, the U.S. is getting richer faster than anybody else.
  • Productivity growth in the digital industries has grown at the annual rate of 2.7% over the past 15 years compared with only an anemic .7% annual growth in productivity in the physical industries. The U.S. economy is becoming more digital all the time.
  • The four U.S. companies, Amazon, Apple, Facebook and Google are in the process of revolutionizing all aspects of life not only in America but all around the world.
  • According to the Kauffman Foundation  entrepreneurship is flourishing in the U.S. (see chart), and not just in Silicon Valley.

  • According to Freedom House  democracy has made much progress around the world in the last 30 years, even if further growth has stalled for the past ten years. Other democratic countries are our best friends and so we want more of them.
  • Granted Donald Trump is a wild card. So far his record is mixed but he hasn’t made any big mistakes (liking dragging us into war or hurting the economy). It is unlikely that he’ll slow our huge forward momentum whether or not he helps it.

Conclusion. “The democratic experiment is fragile” (perhaps!) but it’s also got a lot going for it right now. We can never afford to be complacent but we need not be pessimistic either.

Follow me on Twitter 
Follow me on Facebook 

Another Reason for Tax Reform to Be Revenue Neutral

Posted on by
2

 

My last post noted that with our unemployment rate down to 4.2% and with median household income having increased by 3.2% in 2016, the emphasis now should be totally directed to addressing our number one long term problem:

  • Massive national debt. With a deficit of $668 billion for Fiscal Year 2017, our debt now stands at 77% of GDP (for the public part on which we pay interest), the highest it has been since the end of WWII. It is predicted by the Congressional Budget Office to go much higher without significant changes in current policy.

Obviously our annual deficits are way too large and we need to shrink them dramatically. One way to start doing this is to speed up economic growth which will increase tax revenue especially by creating more jobs and better paying jobs.  Faster economic growth is quite feasible and this is one of the main goals of tax reform, now being considered by Congress.  But it needs to increase growth without increasing the deficit which is entirely doable.

But there is another big reason for revenue neutral tax reform as well. The dollar has depreciated by 10% in 2017 while the stock market has increased by 13%.  The S&P price-earnings ratio has risen to 30 at present which is way above average.  All of this means that we are in a loose money financial bubble.  For Congress to make our annual deficits worse than they already are, with deficit increasing tax reform, would make this bubble even bigger and therefore be highly irresponsible.

Conclusion. When interest rates return to much higher normal levels, as they inevitably will, interest payments on our debt will grow dramatically and cause a huge budget crunch. If ignored, this situation will eventually lead to a new fiscal crisis, much worse than the Financial Crisis of 2008.

Follow me on Twitter 
Follow me on Facebook 

The Republicans Need to Adopt a Responsible Budget Plan for 2018

Posted on by
Reply

 

With the unemployment rate now down to 4.2% and household incomes having recently reached an all-time high, the first order of government business should be:

  • Fiscal responsibility which means to start reducing the size of the national debt, which is now 77% of GDP (for the public part on which we pay interest), the highest since the end of WWII. The only practical way to do this is to begin to shrink the size of our annual deficits from the very high level of almost $700 billion for the 2017 Fiscal Year which just ended on September 30.
  • A responsible budget for the 2018 Fiscal Year can have a deficit of at most $500 billion which amounts to 2.5% of our total GDP of $20 trillion. A realistic forecast for economic growth in the coming year is 2.5% of GDP which means that a deficit for the 2018 FY of $500 billion would at least not increase our debt as a percentage of GDP.

  • Budgets for later years need to actually shrink (not just hold steady) the debt. The goal should be to decrease annual deficits down close to zero which would mean achieving a balanced budget. The Congressional Budget Office projects that the cumulative deficits will climb by $10 trillion over the next ten years under current policy, pushing the debt up to 91% of GDP in 2027.
  • Tax reform, to be considered next by Congress, is likely to stall if it is not pursued within a sensible fiscal policy just as healthcare reform stalled last summer. Sensible tax reform, both growth enhancing and revenue neutral, is quite doable  and will make the debt problem that much easier to solve.

Conclusion. It cannot be emphasized too strongly that our rapidly growing debt puts us in a dire fiscal bind. We must change policy significantly and soon or else we will put our prized liberty and prosperity in grave danger.

Follow me on Twitter 
Follow me on Facebook