Tag Archives: Wall Street Journal

Can We Trust Donald Trump to Do What’s Best for America?

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From a reader of my blog:

You are an eternal optimist. Have you factored in these possibilities:

1. Paul Ryan and others will support the Wall and what it costs.
2. Immigration control will limit much needed manpower.
3. Trade wars with Mexico and other countries might severely reduce the output of
the USA.
4.Tax reform will favor the ultra-wealthy, thus not do much to stimulate the
economy, causing a dramatic increase in the debt.
5. Defense spending will be massive, thus up with the debt.
6. Charter schools will lack sufficient oversight, thus poor results will follow.

You seem to convey that Trump will execute a strategy much as you think it should be done. I doubt it.

The above outcomes are unlikely for the following reasons:

  • Trump obviously likes being President, will continue to do so, and will hope to be re-elected in 2020. His re-election prospects will depend almost entirely on his boosting economic growth in order to increase the wages of his key blue-collar supporters.capture97
  • The quickest way to speed up growth is through corporate and business tax reform and deregulation. Trump’s entire team of advisors and cabinet secretaries, as well as congressional majorities, agree on this strategy. These things are likely to get done, sooner rather than later.
  • A trade war with Mexico or any other major trading partner (China, Canada, etc.) will badly hurt the economy. Trump knows this as well as anyone and won’t let it happen. A 20% tariff on Mexican imports to pay for a wall will just transfer the cost to American consumers and will be very unpopular. Trump’s people can figure this out.
  • Having 11½ million illegal immigrants in the U.S. is a significant problem and Trump has a mandate to fix it. His plan is to 1) build a wall, 2) deport the 800,000 or so lawbreakers amongst these illegals, and then 3) figure out what to do with the rest. This sounds to me like a reasonable plan and has a good chance of being successfully implemented.Conclusion. I admit to being an optimist. It keeps me going! I’ll respond to the other specifics (debt, charter schools, etc.) in the near future.

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Fixing Obamacare: Keep it Simple and Low Cost

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Straightening out healthcare insurance is a high priority for the new Trump Administration and Congress as it should be. The U.S. spends 18% of GDP on healthcare, public and private, twice as much as any other developed country and this percentage is likely to keep on increasing without major changes.

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Republican thought is converging, see here and here, on a plan with these broad features:

  • Repeal of both the individual and employer mandates so that health insurance can be individually tailored and purchased at a much lower cost than under the ACA.
  • A Universal (and refundable) tax credit sufficient to pay for catastrophic insurance coverage.
  • Health Savings Accounts to pay for routine healthcare expenses up to the deductible for catastrophic insurance. Such HSAs could be funded, at least initially, with (refundable) tax credits.
  • High risk pools and coverage for pre-existing conditions. It is estimated that 500,000 people with pre-existing conditions would need protection if the ACA is repealed. This would cost about $16 billion annually, much less than the full cost of the ACA.

Conclusion. Such a plan will insure coverage for all Americans who want it. The high deductibility feature, coupled with HSAs, will strongly encourage healthcare consumers to shop around for the best price on routine care.  Such price consciousness by consumers is the only way (short of a single payer system with severe rationing) to get our national healthcare costs under control.
A modification of such a plan, proposed by Senator Bill Cassidy (R, LA) and Senator Susan Collins (R, ME) would give each state the choice of either keeping the ACA or replacing it with a version of the above plan.  This is a poor idea because the ACA has no cost control and this is what is sorely needed.  In other words, the above plan should be made universal, identical for all states.  Let the states provide and pay for supplemental coverage if they wish.

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Trump as the Anti-Obama

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Donald Trump assumes office with perhaps the lowest favorability ratings of any modern president. According to the New York Times,

  • Mr. Trump’s approval rating is only 40% among all adults and just 46% among likely voters.
  • But a recent CNN poll reports that 48% of adults think he’ll do a good job as president and 61% think he’ll bring back well-paying jobs to economically depressed areas.capture97

Contrast this with Barack Obama’s latest poll ratings:

  • According to Gallup Mr. Obama leaves office with an approval rating of 57%.
  • But Rasmussen reports that only 35% of likely voters think the country is heading in the right direction (with 55% saying that we’re headed in the wrong direction).

I interpret this to mean that the country is largely turned off by Mr. Trump’s crude speech and sleazy behavior, while still liking his economic program.  On the other hand, voters like Mr. Obama personally while disapproving of many of his policies and accomplishments.

All of this leaves Mr. Trump in an amazingly good political position:

  • With unemployment currently at a relatively low 4.7% and the economy fully recovered from the Great Recession, even modest reform in tax policy coupled with energy, healthcare and financial deregulation could provide a significant boost to long stalled economic growth.
  • He is criticized for having no clear cut political philosophy but this means he is free to do whatever makes good sense regardless of ideology. This will be a huge advantage in working with both parties to get things done.
  • He has nowhere to go but up in the polls. Such an increase in personal popularity will create the semblance of forward momentum.

Conclusion. The prospects are indeed propitious for Donald Trump to become a transformational president.

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Trump Could Become a Transformational President

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According to the historian John Steele Gordon, “Trump May Herald a New Political Order,” there have been just four transformational presidencies so far in U.S. history:

  • Andrew Jackson in 1828 moved the locus of political power sharply down the socioeconomic scale.

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  • Abraham Lincoln in 1860 preserved the Union, freed the slaves and turned the South into essentially a third world country for the next 100 years.
  • William McKinley in 1896 ushered in an era of almost unbroken Republican dominance which lasted until the 1930s.
  • Franklin Roosevelt in 1932 who overcame the Great Depression and greatly expanded the reach and power of the federal government.

Ronald Reagan in 1980, constrained by a solidly Democratic House, was less transformational than the four presidents above, even though he ushered in the era of Great Moderation which lasted until the Great Recession hit in 2007-2008.
Barack Obama in 2008 took office with strong Democratic majorities.  However the last eight years have proved a disaster for the Democratic Party.  They lost the House in 2010, the Senate in 2014, and Republicans now control most governorships and state legislatures as well.
Now consider Donald Trump’s strong political position as he takes office:

  • The Republicans hold a big majority in the House and a small majority in the Senate. And ten Democratic Senators in states carried by Mr. Trump are up for re-election in 2018.
  • He was elected to change the self-serving ways of Washington and owes little to the political establishment.
  • His cabinet picks, many with excellent qualifications, signal profound changes in government policy, especially lower tax rates and a regulatory environment more friendly to business.

Conclusion. Mr. Trump has excellent prospects for achieving faster economic growth and therefore rising incomes for the blue-collar workers who provided his victory margin. If he can also improve life in the inner cities, as he has promised to do, he and the Republican Party will be unbeatable for many years to come.

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The Obama Legacy: Personal Popularity Coupled with Poor Judgement

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As President Obama prepares to leave office many observers are weighing in on his accomplishments, as I have already done myself, see here and here.

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Today let’s evaluate his major achievements:

  • Reviving the economy after the Great Recession. This was done but the recovery has been unnecessarily slow with annual growth averaging just 2% of GDP ever since June 2009. In fact, stagnant middle-class and especially blue-collar incomes are the reason Donald Trump eked out a victory over Hillary Clinton.
  • A giant step towards national healthcare. Even if the Affordable Care Act is repealed, its replacement will be much more universal than before. Unfortunately, however, the ACA increases access but does nothing to control the cost of healthcare (now 18% of GDP) which continues its steady rise. This is what has to change.
  • A global pact to combat climate change. Global warming is real but our response should be more circumspect. China has only pledged to reduce carbon emissions after 2030. India has 300 million people off the electric grid. It also has an abundant supply of coal. Heroic efforts by the developed world alone will have little effect on worldwide C02 levels.
  • A rash of new financial and environmental regulations. Both Dodd-Frank and new EPA regulations have contributed significantly to the economic slowdown which is why they are likely to be modified by the Trump Administration and Congress.
  • The Iran nuclear deal. The problem here is what will happen when the 10 – 15 year deal expires. Iran then will have a green light to develop nuclear weapons unless China and Russia agree to new sanctions which is unlikely.
  • American retreat from superpower status. Obama deposed a dictator in Libya but walked away from the aftermath. His premature decision to leave Iraq allowed ISIS to spring up. He let the civil war in Syria run out of control. A “reset” with Russia did nothing to prevent Putin from invading Ukraine and annexing Crimea.

Conclusion. As the first African-American President, Barack Obama is certainly a historical figure. But “a presidency of great promise is now ending in rancor and disappointment.”

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Globalization without Globalism

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Ever since the November election, when Donald Trump eked out a victory in the Electoral College, I have been trying to understand the significance of his win. Of course it has a lot to do with populism and anti-elitism as I have said previously.

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In yesterday’s Wall Street Journal the economics journalist, Gregg Ip, makes a strong argument that what is happening has more to do with globalism than with globalization:

  • Globalization refers to people, capital and goods moving ever more freely across borders. Globalism is the ideology that globalization should lead to global governance over national sovereignty. This refers to such global structures as the European Union, the World Trade Organization, NATO, the United Nations and the North American Free Trade Agreement.
  • The problem is not globalization itself, which just means specialization and trade across borders, but rather the damage which breakneck globalization has inflicted on ordinary workers. Since China joined the WTO in 2000 a wave of Chinese imports wiped out 2 million American jobs, with no equivalent boom in the U.S. from exports to China.
  • Globalists have been blind to the nationalist backlash because their world – entrepreneurial, university-educated, ethnically diverse, urban and coastal – has thrived as the whiter, less-educated hinterlands have stagnated.
  • Globalists should not equate concern for cultural norms and national borders with xenophobia. Large majorities of Americans welcome immigrants so long as they adopt American values, learn English, bring useful skills and wait their turn. Opposition to open borders does not imply racism.

Conclusion. Says Avik Roy, President of the Foundation for Research on Equal Opportunity, “There is a middle ground between a nationalist and globalist approach.”  This is what we should be looking for.

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The Meaning of 2016

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For my last blog post of each year I briefly summarize the main events of the preceding year and then try to evaluate their significance. Last year I was badly off in one respect. I said that the rise of Donald Trump was a disaster for the Republican Party because he could not possibly be elected president!  I badly underestimated the force of populism sweeping the country.
Here are the main events of 2016:

  • Brexit. On June 23 Great Britain voted 52% – 48% to leave the European Union. Elite opinion advocated staying in and the polls predicted majority support for staying. The world was shocked when the vote went the other way.
  • Donald Trump was elected the next U.S. President on November 8. The polls predicted a Hillary Clinton victory and she in face won the popular vote by a 3,000,000 vote margin. But Trump squeaked by in the Electoral College by winning the rust belt battleground states of Michigan, Pennsylvania and Wisconsin by a combined total of 100,000 votes (see attached map to understand the Trump electoral vote margin).capture17
  • The Mid-East Refugee Crisis, Terrorism and Russia’s Vladimir Putin were even bigger problems in 2016 than in 2015 and will present huge challenges to Donald Trump when he becomes President on January 20.

Granted that Trump was elected by a slim electoral vote margin and a smarter campaign by Clinton could have led to a different outcome, nevertheless for such a sleazy, non-politically correct candidate to have done so well, has huge significance. It constitutes a major slap down of elitism:

  • Consider where our most recent presidents went to college: Reagan (Eureka College), George H.W. Bush (Yale), Bill Clinton (Yale Law), George W. Bush (Yale), Barack Obama (Harvard Law) and Donald Trump (Fordham). In other words, Trump will be the only president since Reagan not to have graduated from Harvard or Yale.
  • Consider that since John Paul Stevens (Northwestern Law) retired from the Supreme Court in 2010, every current Supreme Court Justice has graduated from an Ivy League Law School.
  • Consider that most nationally prominent Republicans, including members of Congress, shunned Donald Trump on the campaign trail even as his poll numbers steadily increased. In other words he was elected largely without the help of the Republican establishment.

Conclusion. The American voters have decided to take a big chance on a nontraditional presidential candidate. Are the voters collectively smarter than the elites to whom they usually turn for leadership?  I am optimistic that the answer will turn out to be yes!

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What Trumponomics Will Look Like (Hopefully!)

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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.

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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.

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Bush Failures Led to Obama and Obama Failures Led to Trump

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As I have previously stated, I voted for Hillary Clinton because Donald Trump is so crude and sleazy even though our country will now greatly benefit from the change which Mr. Trump represents.  This is the way the political process often works.

capture79 Consider that after eight years of George Bush we had:

  • Ongoing war in Iraq and Afghanistan, of which the Iraq war was an unnecessary mistake.
  • $2.5 trillion of additional debt, even after Mr. Bush started out with a budget surplus, compliments of Bill Clinton.
  • An expensive new Medicare Part D prescription drug plan which just makes overall Medicare even less affordable than it already is.
  • The Financial Crisis of 2007-2008 which the Bush Administration could have seen coming if they had been more vigilant.

 

Under such political circumstances, the 2008 election of the Democratic nominee, Barack Obama, over the Republican nominee, John McCain, was almost inevitable. But then in the next eight years we have experienced:

  • Slow economic growth averaging only 2% per year, ever since the end of the Great Recession in June 2009. The unemployment rate has fallen to 4.9% but there is still a lot of slack in the labor market which holds wages down. This is the main reason for the huge support Mr. Trump had from white blue-collar workers in the election.
  • Massive debt, now 76% of GDP (for the public debt on which we pay interest), the highest since right after WWII and double the debt in January 2009 when Mr. Obama entered office. Such a high debt level means greatly increased interest payments as soon as interest rates go up which they are likely to do anytime. The high annual deficits contributing to the debt mean little budget flexibility for new programs.

Conclusion. Democrats like to say that slow economic growth is “the new normal” which can only be overturned with budget busting new fiscal stimulus. This is a pessimistic point of view which refuses to consider other alternatives.  This is what led to Ms. Clinton’s defeat on November 8.

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Election Day 2016: The Fourth Anniversary of this Blog

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I have now been writing this blog for four years, beginning right after the presidential election of 2012. I was a candidate in the May 2012 Republican Primary for the 2nd Congressional District of Nebraska.  I campaigned on the platform to “eliminate the deficit.”  I lost to the incumbent Lee Terry who was in turn replaced in office by the Democrat Brad Ashford in 2014.

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The overriding theme of my blog is “how to restore fiscal responsibility to our national government.”   I discuss two fundamental and related issues:

  • Massive Debt now 75% of GDP, the highest level since right after WWII, and predicted by the Congressional Budget Office to keep rising steadily under current policies.
  • Slow Economic Growth averaging just barely 2% per year since the end of the Great Recession in June 2009. Although the unemployment rate is down to a respectable 4.9%, the labor participation rate is also lower than usual. Faster growth would mean more jobs and better paying jobs. It would also mean more tax revenue to shrink our annual deficits.

How should these problems be addressed?  In briefest outline:

  • Balanced Budget Amendment to the Constitution. This is a drastic measure but I see no other way to get the job done. The pressure on Congress is always to create new programs and spend more money, not less. A BBA could be designed in a flexible manner to allow emergency overrides. It could also be phased in by, for example, having an effective date three years after ratification. It so happens that 28 states (out of 34 needed) have now called for a Constitutional Convention to propose such an amendment. (http://bba4usa.org/)
  • Tax Reform, lowering rates for individuals and corporations, paid for by shrinking deductions, would do wonders for encouraging business investment and entrepreneurship, as well as encouraging American multinational companies to bring their foreign earnings back home for reinvestment.

Conclusion. Much more can be done but this would be a very good start.

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