Monday, August 19, 2019

United We Stand, Divided We Fall

Answering the Kennedys’ Call


The day after last Thursday’s DOW Index plunged 800 points, President Trump Tweeted a request that Israel’s Prime Minister Netanyahu block Congresswomen Ilhan Omer and Rashida Tlaib’s visit to Israel and the West Bank.

His action was more than an attempt to distract from economic policies that might be adversely affecting the financial markets. It was just his latest attempt to promote a fear of dark-skinned immigrants, in order to divide and conquer real or imagined adversaries.

He wanted to stir up as much anti-Islamic sentiment as possible by painting them as the face of the Democratic Party, and Republicans the supporter of Israel, when both political parties staunchly support Israel, the only Democracy in the Middle East.

He is following the precedents of autocratic rulers everywhere that attempt to weaken those that oppose their autocratic behavior. But the United States was founded on the principle that we are equal, regardless of race or creed (though not always in practice).
Patrick Henry, the Revolutionary War patriot, was an early supporter of the United States as a delegate to the Confederate Congresses, though not the Constitutional Convention. His last public speech given in March 1799 said, "Let us trust God, and our better judgment to set us right hereafter. United we stand, divided we fall. Let us not split into factions which must destroy that union upon which our existence hangs."
The actual proverb, United we stand, divided we fall, is said to originate from an Aesop’s fable of a lion stalking oxen for his dinner, who realize they are only safe by herding together.

England was the predator ‘lion’ at the time that Patrick Henry believed could only be successfully opposed by a United States of America. Modern nations have avoided major conflicts and been kept safe by the same credo since WWII because they were united by alliances.

Any predator—whether a person or country—can only succeed in weakening the U.S. by exacerbating our divisions, whether between Red and Blue states, or white and dark races, or the rich and poor.

And we now have a predator in our White House that wants to instill the fear of immigrants to divide us.

But we can take comfort in what results from predatory behavior. Autocrats seldom last long in the modern world because they lack the one major element in human behavior that has evolved to create modern civilizations—empathy, or the understanding of others that comes from the realization we are all in this together.

Autocracies are considered pariahs by a civilized world, says Stephen Pinker in The Better Angels of Our Nature—Why Violence Has Declined.

In spite of modern populist movements that oppose the migration of darker-skinned populations to more prosperous (light-skinned) countries, the number of democratic countries has risen sharply to more than 90, while the number of autocracies has declined to just 10 in countries with more than 500,000 in population, cites Pinker from a 2009 Marshall & Cole study.

There is a good reason for the growth of modern democracies, continues Dr. Pinker. “Not only are democracies free of despots, but they are richer, healthier, better educated, and more open to international trade and international organizations.”

Democracies make their citizens more prosperous by inducing them to cooperate peacefully rather than quarrel among themselves. Patrick Henry’s cry, United We Stand, Divided We Fall, was a plea to oppose any behavior that threatens to weaken the United States of America—whether it is by fomenting trade wars, or culture wars.

Harlan Green © 2019

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Wednesday, August 14, 2019

How Low Can Interest Rates Go?

Popular Economics Weekly


 Calculatedriskblog

 Why are interest rates so low—not just in the US? It’s been below 0 percent in the northern EU countries and Japan for years because there is little worldwide inflation, which means there’s not sufficient demand for the things people and businesses buy that would boost inflation and interest rates higher.

The housing market is usually an infallible indicator of inflation trends. The S&P Case-Shiller Home Price Index, for instance, shows housing prices rising 3.4 percent annually in May, when it was rising at 5 percent over the past several years. It’s a 3-month average of same-home sales that smooths out some of the bumps due to the difficulties in collecting national sales data that always qualify the price estimates with + or – double figure brackets.

The above Case-Shiller graph highlights the percentage changes. Its huge dip occurred during the Great Recession that busted the housing bubble. Its highest point since then was in 2014, and it began to dip below 5 percent in early 2018.

There’s not much the Central Banks can do about the falling interest rates, since they are already so low. They equivocate as much as the financial markets, which tells us things could get worse. The stock market is swinging wildly as more investors flee to save haven investments like bonds, which drives down interest rates further.

For one thing, JP Morgan says a recession could occur in 9 months if Trump can’t resolve the China trade war soon (Hong Kong unrest, for starters?). And economists are beginning to conjecture that if the inverted yield curve—with 1.65 percent 10-yr Treasury yield below the 2-2.5 percent fed funds rate and 2-year bond yields—remains inverted for too long, 1) banks could cut back their lending sharply, tightening credit markets, and 2) investor confidence will fall as more flee from stocks to bonds, while corporations cut back on capex spending due to future uncertainty.

It certainly looks like housing prices might continue to decline, in spite of still record-low mortgage rates, and even though mostly higher-priced homes are being built these days.

The conforming 30-year fixed mortgage rate has now fallen to 3.25 percent, the lowest I’ve seen it in my 30+ years as a Mortgage Banker, though the Prime rate on which most installment and credit card rates are based is at 5.25 percent. Prime dropped 0.25 percent in concert with the last week’s 0.25 percent Federal Reserve rate reduction, but stay tuned on further Prime rate drops, if consumers cut back on their spending.

Consumers might continue to spend for the rest of this year if consumer sentiment holds up, because the job market is still expanding. The latest JOLTS report (Job Openings and Labor Turnover Survey) says there were 1.65 million more job openings (7.35 million) than the 5.7 million new hires in July.

Why do I see interest rates, and inflation declining further? There’s a worldwide decline in foreign trade that totaled $17.7 trillion in 2017, on which most economies depend. And tariffs will become more reciprocal as other countries retaliate with their own import tariffs. It should be obvious to all by now that tariffs are really a tax on imports, and financial markets know this.

So the financial markets are telling us this isn’t the right time to raise taxes.

Harlan Green © 2019

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Tuesday, August 6, 2019

Trade Protectionism = Recession?

Popular Economics Weekly


BEIJING (AP) — China’s government has threatened unspecified “necessary countermeasures” if Trump’s planned tariff hike goes ahead said the AP. And it followed up the threat by devaluing their Yuan by more than 7 percent against the dollar, say news reports.

President Trump Thursday had suddenly tweeted that he would levy a 10 percent tariff on $300 million of Chinese imports last week, after what he perceived to be Chinese backtracking on their good faith efforts to negotiate. It completely unsettled financial markets, causing the DOW to plunge more than 600 points Friday and almost 1,000 points today from a rally spurred by the Federal Reserve rate cut on Wednesday, and today’s counterpunch by the Chinese—though some commentators remarked that investors should have seen it coming.

The beefed-up tariffs on Chinese imports add to an existing 25 percent tax Trump has already placed on Chinese goods. As the New York Times notes, the United States is now “taxing nearly everything China sends to the United States, from iPhones to New Balance sneakers to children’s books.”

Republicans and Trump seem to have a bad case of historical amnesia. Historians generally agree it was the Smoot-Hawley Tariff Act of 1930 that helped to precipitate the Great Depression. The US lost some 50 percent of its foreign trade as a result. Other governments reciprocated with higher tariffs, just as the China is doing with Midwest farmers, and now devaluation that makes their exports cheaper. They are also threatening to ban the export of rare earth minerals used in high-tech manufacturing components, of which China is the world’s major supplier.

China’s Commerce Ministry said Trump’s announcement is a violation of his agreement with President Xi Jinping in June to revive negotiations aimed at ending their fight over Beijing’s trade surplus and technology ambitions. The ministry had earlier said if the U.S. measures took effect, “China will have to take necessary countermeasures to resolutely defend its core interests.”

What is really happening between the lines? One Chinese minister posited that China had slowed negotiations for any meaningful trade agreement to a crawl until after the 2020 election, when it will know with more certainty who to deal with over the longer term.

Whereas President Trump sudden announcement must mean he is trying to divert media attention away from his other problems. To name a few: Trump hadn’t vetted Republican Congressman Daniel Radcliffe, who had to withdraw from consideration for the CIA Chief after it was obvious he wasn’t’ qualified for the job; Senate Majority Leader “Moscow Mitch” McConnell is drawing fire from all sides for refusing to allow a Senate bill to come to the floor that protects upcoming elections from foreign interference; and lastly, all signs are pointing to a gradually slowing economy precisely because of the ongoing trade war.

It is not a pretty picture, but empty bluster and posturing rarely is. We now have the makings of a currency devaluation war, says former Fed Vice Chair Alan Blinder, when other countries may now want to also devaluate their currencies. Such a result could lead to plummeting commodity prices worldwide, and what else…?

The Chinese know the clock is ticking on the Trump administration and Republicans who continue to blindly support him, when congress is by law the real maker or breaker of trade agreements. Who will step up that actually knows the “Art of the Deal?”

Harlan Green © 2019

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Thursday, August 1, 2019

What Happened to Main Street—Part II?

Popular Economics Weekly


Corporate responsibility is back in the air with a vengeance; not only from Senators Elizabeth Warren and Bernie Sanders who constantly remind us on the campaign trail that corporate misbehavior has tilted the “playing field” of economic benefits too much in corporations’ favor.

Now Jamie Gamble, a former corporate attorney, has touched the third rail of corporate behavior—business ethics. He has written an as yet unpublished essay that asserts corporate executives “are legally obligated to act like sociopaths,” according to Andrew Sorkin of the New York Times.
“The corporate entity is obligated to care only about itself and to define what is good as what makes it more money,” Gamble is quoted as saying in his essay. “Pretty close to a textbook case of antisocial personality disorder. And corporate persons are the most powerful people in our world.”
I call it the third rail because it’s a topic that comes up for discussion only when a crisis is brewing, or an election, though economic futurists like Hazel Henderson have been writing about the need to train business executives on higher business ethics for decades in books like, Building a Win-Win World, (Berrett-Koehler, 1996).
“When I published “Should Business Solve Societies' Problems? In the Harvard Business Review in 1968,” said Henderson, “there were few MBA courses on business ethics. By 1995 such courses were standard and often compulsory.”
Ethical behavior leads to what she calls “win-win” corporate behavior, defined as cooperative outcomes that benefit not just corporate executives and their shareholders as happened with the recent Republican tax cuts.

Simply put, such sociopathic behavior benefits just the few with its pre-occupation with maximizing quarterly profits, rather than benefiting the employees and market customers it also services, while adding to the ‘hidden’ public costs of maintaining a clean environment and public infrastructure that it depends on.

These are what are termed the social costs of doing business that Senator Elizabeth Warren intoned in her first campaign to become a Massachusetts Senator:
“You built a factory out there? Good for you. But I want to be clear: you moved your goods to market on the roads the rest of us paid for; you hired workers the rest of us paid to educate; you were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did.
 “Now look, you built a factory and it turned into something terrific, or a great idea? God bless. Keep a big hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.”
In fact, Jamie Gamble has formulated a list of ethical rules he wants corporation executives and shareholders to adopt, and be liable for if they are not adhered to.  They should include:
· Their “relationship with their employees.”
· With “their communities in which they produce and sell.”
· Their “relationships with customers.”
· Their “effects on the environment.”
· And “effects on future generations.”
It is not surprising that Gamble’s ethical rules also meet the definition of sustainable economic growth, which is growth for the long term that benefits more than the few, because it is the “win-win” path that maintains stronger, lasting economic growth with fewer down cycles and economic crises that have wreaked so much economic and social damage in recent decades.

Harlan Green © 2019

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Saturday, July 27, 2019

Economic Growth is Slowing

Financial FAQs


Gross domestic product, the official report card on the economy, grew at a 2.1 percent annual pace from the start of April to the end of June, the government said Friday. GDP slowed from a 3.1 percent gain in the first three months of the year.

American consumers don’t seem to care about signs of slowing growth in manufacturing and housing, as most can find good jobs and rising wages in the service sector of the economy, and they are flush with cash. The BEA reports disposable personal income increased $193.4 billion, or 4.9 percent, in the second quarter, compared with an increase of $190.6 billion, or 4.8 percent, in the first quarter. Real disposable personal income (after inflation is factored in) increased a very impressive 2.5 percent, compared with an increase of 4.4 percent in Q1.

But they are becoming more cautious about the future as the personal saving rate -- personal saving as a percentage of disposable personal income – is at 8.1 percent in the second quarter, compared with 8.5 percent in the first quarter, which are highs for this recovery.

The increase in real GDP in the second quarter reflected positive contributions from personal consumption expenditures (PCE), federal government spending, and state and local government spending that were partly offset by negative contributions from private inventory investment, exports, nonresidential fixed investment and residential fixed investment, said the BEA. Imports, which are a subtraction in the calculation of GDP, increased.

The deceleration in real GDP in the second quarter reflected downturns in inventory investment, exports, and nonresidential fixed investment. These downturns were partly offset by accelerations in PCE and federal government spending.

Economists had been predicting the slowdown for some time, as businesses are investing less this year. Manufacturing is the culprit, as no one wants to invest more in plant and equipment with the ongoing trade wars, as we have been saying. There is too much economic uncertainty in China and the EU, and growth in the rest of the world is also slowing because of the overall decline in foreign trade due to the uncertainties, according to the IMF.

The surge in consumer spending was also predicted by the jump in retail sales reported last week. Retail sales rose in June for the fourth month in a row, quieting concerns that the trade wars and weaker manufacturing output would also drag down consumer spending. The most surprising strength in the report was a 0.7 percent jump in auto sales, which the only component of manufacturing seeing steady growth. Nonretailers (Internet), which continue to feed off of traditional retailers such as department stores, was also surprising with a 1.7 percent for the second month in a row.


So any further decline in GDP growth will probably be due to a slower accumulation of inventories and capital investments (as seen in the above capital-goods orders graph) and a growing negative imbalance in exports vs. imports with the decline in manufacturing.

If the Trump administration and Republicans would realize the damage confrontational trade wars and other fear-mongering policies do to GDP growth, they would end such tactics. But it is obvious they only see an upside in their continuing confrontation with allies and adversaries alike, which should come back to haunt them next year when the inevitable worldwide growth slowdown impacts US, and the Presidential election.

And guess what?  The price index for gross domestic purchases increased 2.2 percent in the second quarter, compared with an increase of 0.8 percent in the first quarter, which is a sign of looming inflation, and makes it more unlikely the Fed will want to lower their short term interest rates anytime soon.

Harlan Green © 2019

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Thursday, July 25, 2019

Home Are Sales Declining

The Mortgage Corner

FRED

WASHINGTON (July 23, 2019) – Existing-home sales weakened in June, as total sales saw a small decline after a previous month of gains, said the National Association of Realtors®. While two of the four major U.S. regions recorded minor sales jumps, the other two – the South and the West – experienced greater declines last month.

The problem is still not enough affordable housing. The demand is there for mid-range housing, as 56 percent of homes sold in less than 30 days, and unsold inventory is at a 4.4-month supply at the current sales pace, up from the 4.3 month supply recorded in both May and in June 2018; when there is normally a 6-month supply if supply and demand are in balance.

Total existing-home sales, https://www.nar.realtor/existing-home-sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, dropped 1.7 percent from May to a seasonally adjusted annual rate of 5.27 million in June. Sales as a whole are down 2.2 percent from a year ago (5.39 million in June 2018).
“Home sales are running at a pace similar to 2015 levels – even with exceptionally low mortgage rates, a record number of jobs and a record high net worth in the country,” said Lawrence Yun, NAR’s chief economist. Yun says the nation is in the midst of a housing shortage and much more inventory is needed. “Imbalance persists for mid-to-lower priced homes with solid demand and insufficient supply, which is consequently pushing up home prices,” he said.
Yun said other factors could be contributing to the low number of sales, as well. 
“Either a strong pent-up demand will show in the upcoming months, or there is a lack of confidence that is keeping buyers from this major expenditure. It’s too soon to know how much of a pullback is related to the reduction in the homeowner tax incentive.”
 What are consumers doing with their high net worth? Many are remodeling, instead of moving. Existing-home owners are remaining in their homes much longer. The recent average is 10 years, when 4 years has been the historical average years of duration in the same residence.

There are slightly more first-time buyers this season with record-low interest rates. First-time buyers were responsible for 35 percent of sales in June, up from 32 percent the prior month and up from the 31 percent recorded in June 2018.

Construction of new houses also fell slightly in June and permits sank to the lowest level in two years, exacerbating the shortage and suggesting a sluggish U.S. housing market has failed to gain much momentum from lower mortgage rates.

FRED

Housing starts slipped 0.9 percent to an annual pace of 1.25 million last month, said the Commerce Department. That’s how many homes would be built in 2019 if construction took place at same rate over the entire year as it did in June.

Permits to build more homes, meanwhile, sank 6.1 percent to a 1.22 million pace, the government said Wednesday. That’s the lowest level since mid-2017.

And lastly, new-home sales also declined to a lower-than-expected 646,000 annual rate. The 3-month average is at 636,000 which compares unfavorably against a 673,000 peak in April.

This was still the highest sales for June since June 2007, and annual sales in 2019 should be the best year for new home sales since 2007, according to Calculated Risk, and suggests homebuyers haven’t let up on their enthusiasm to own a home, if they can afford one.

Harlan Green © 2019

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Tuesday, July 23, 2019

It's Up To the Consumers!

Popular Economics Weekly

Consumers are feeling good enough to keep the US economy from sinking into recession at the moment. The consumer sentiment survey edged up to 98.4 this month from 98.2 in June, according to a preliminary reading from the University Michigan.
“Consumer sentiment remained largely unchanged in early July from June, remaining at quite favorable levels since the start of 2017,” said survey chief economist Richard Curtin. “Moreover, the variations in Sentiment Index have been remarkably small, ranging from 91.2 to 101.4 in the past 30 months. Perhaps the most interesting change in the July survey was in inflation expectations, with the year-ahead rate slightly lower and the longer term rate moving to the top of the narrow range it has traveled in the past few years.”
Actually, sentiment has been fluctuating in that range for several years, per the FRED graph, as economic growth and employment finally ramped up in 2015 after the Great Recession, boosting consumer confidence.

Curtin believes that inflation expectations affect consumer confidence, as the survey indicates consumer expectations for growth and jobs (hence confidence) rise with a lower inflation rate. Hence the Federal Reserve mandate to keep inflation stable while low enough to enable growth.  So today’s ultra-low inflation (and interest rates) could be encouraging consumers to spend more.
“The Consumer Expectations Index falls as inflation expectations rise, signifying that consumers view higher inflation as a threat to economic growth,” he continued. “Higher inflation was related more frequently to rising interest rates and was associated with higher unemployment expectations.”
The Conference Board’s Index of Leading Economic indicators (LEI) that is a good predictor of economic activity over the next six months was not so optimistic.
“The US LEI fell in June, the first decline since last December, primarily driven by weaknesses in new orders for manufacturing, housing permits, and unemployment insurance claims,” said Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board. “For the first time since late 2007, the yield spread made a small negative contribution. As the US economy enters its eleventh year of expansion, the longest in US history, the LEI suggests growth is likely to remain slow in the second half of the year.”
Why? Manufacturers’ new orders, building permits in latest housing starts survey, and the yield curve were negative. The interest rate spread between the 10-year Treasury note and fed funds rate has sunk to negative -0.31 percent, from a positive +0.56 percent last December. Long term interest rates sinking below short term rates is a sign of slower growth, since investors rush to buy longer term Treasury bonds as a safe haven if there is too much economic uncertainty, as is happening at present.

A simple way to fix the inverted yield curve problem is for the Fed to lower the fed funds rate again. But is that the right thing to do when retail sales are soaring, and June payrolls totaled 224,000 new jobs? The economy is booming, in other words, so the Fed would normally allow higher interest rates unless other forces are at work—such as White House tweets that are artificially boost stock prices (which enrich stockholders and corporate CEOs), rather than policies that would help Main St. workers—like a higher minimum wage, and better worker protections, and strengthening health care policies, which would promote longer term economic growth.

So in fact other sectors of the economy have to be boosted, if we are to continue in this ‘goldilocks’ growth cycle (i.e., not too hot or too cold). Consumers won’t continue to party, otherwise.

Harlan Green © 2019

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Monday, July 22, 2019

What Happened to Main Street?

Popular Economics Weekly

FRED

The main reason we have suffered from historically slow growth and stagnated wages since the Great Recession is in large part due to so-called trickle-down economics, the fallacy that concentrating most of the largess of economic growth on the private sector, and neglecting public sector growth in health care, environmental protection, education, R&D, and public infrastructure, for starters, means the US economy wasn’t paying forward its benefits for the next generations, as Senator Elizabeth Warren intoned at the beginning of her tenure.

It is the public sector that plants the seed corn for future, sustainable economic growth, which private businesses then utilize to create private sector jobs and profits. The US may have the greatest higher education and research facilities, but our elementary and high schools rank near the bottom in the developed countries.

We also rank much lower in health care and environmental protection, which lowers labor productivity and results in sicker workers. Isn’t it better for our country to improve the health and skills of workers (while paying them more) before we replace them with robots?

The Clinton administration made the most recent steps towards the goal of sustainable growth when it cut military spending and put a 2 percent annual increase limit on government expenditures that balanced the federal budget and actually created a surplus for four consecutive years—1996-2000.

But 9/11 and terrorism put the fear mongers back in charge and military spending surged, while public sector spending declined in those seed-corn sectors we spoke of. The result post-9/11 was that Fed Chairman Greenspan kept interest rates below the existing rate of inflation, which grossly inflated the housing market and resulted in the housing bubble.

GW Bush and Fed Chair Greenspan chose the less sustainable growth path when they cut taxes, reducing government revenues at the same time they had to pay for the wars on terror. Once again, budget deficits surged because government revenues declined, and we embarked on a path that led to the Great Recession.

We have the same lesson today. Conservatives and the Trump administration are lobbying the Fed to lower interest rates to boost stock prices further, inflating stock values that are already at record levels in the hopes that it will continue economic growth in the 11th year of this record economic expansion.

There were 224,000 private payroll jobs created in June, economic growth last year averaged 3.2 percent, and first quarter GDP was 3.1 percent this year already.

Unnecessarily low interest rates inflate deficits and asset bubbles if not invested wisely. We really need to grow the public sector and Main Street in whatever way it can be done. Gradually boosting the national minimum wage above the less-than-living-wage of $7.25 per hour would be a good start. Boosting Main Street benefits will do the most to create sustainable, enduring growth—by paying it forward to the next generations.

Harlan Green © 2019

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Thursday, July 18, 2019

Retail Sales Soaring

Financial FAQs


Retail sales rose in June for the fourth month in a row, quieting concerns that the trade wars and weaker manufacturing output would also drag down consumer spending.

The most surprising strength in the report was a 0.7 percent jump in auto sales. Nonretailers (Internet), which continue to feed off of traditional retailers such as department stores, according to Econoday, was also surprising with a 1.7 percent for the second month in a row.

And discretionary spending, such as for restaurants, was up 0.9 percent following prior gains of 1.0 percent, 0.7 percent, and 0.8 percent. “This shows that consumers, flush with confidence and fully employed, are enjoying themselves,” said Econoday.

The list of strengths goes on with both furniture and building materials snapping back with 0.5 percent gains that point to strength for residential investment. Clothing stores saw sales also rise 0.5 percent as did health & personal care stores.

More good news was today’s Federal Reserve Industrial Production report that showed renewed strength in manufacturing—particularly in motor vehicle production. It’s still far below last year’s manufacturing output, however, that was mainly due to the 2017 tax breaks that raised profits.

Manufacturing is by far the largest component in this report and June's results are almost uniformly strong, led by a 2.9 percent monthly rise for motor vehicle production and a 0.7 percent rise for selected hi-tech. Business equipment production posted a second strong increase at 0.5 percent that follows May's 0.4 percent rise in gains that should ease the Fed's concerns over business investment.

Construction supplies also show strength, up 0.5 percent and 0.6 percent in the last two reports in what are positive signals for construction demand that reinforces the increased furniture and building materials gains in retail sales.

One month’s gain in manufacturing does not constitute a trend, however. But consumers are flush and confident, so economists may begin to raise their growth forecasts if this trend continues.

Harlan Green © 2019

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Monday, July 15, 2019

Why Worry About Inflation?

Popular Economics Weekly


Almost everyone, including Fed Chair Powell, is worried about the low inflation rate.  It’s usually nearing 4 percent at this late stage of an economic recovery, not the current 2 percent if the US economy were running on all cylinders. Consumers should be spending more and businesses investing more to expand their markets—especially with the lowest unemployment rate in almost 50 years.

But the largest corporations don’t need to invest more. They have become fat and happy controlling their market share because they have been allowed to grow enough to buy up or stifle much of their competition. And with reduced competition they can spend most of their profits on stock buybacks and soaring CEO compensation packages.

Last Friday’s wholesale Producer Price Index indicated as much, with raw materials for finished goods and services barely budging. There is very little wholesale inflation on raw materials, in spite of the increased tariffs being levied on Chinese goods and elsewhere. This is a very strange because fewer less foreign trade should mean imported goods are more expensive, not cheaper.

The Producer Price Index for final demand advanced 0.1 percent in June, seasonally adjusted, reported the U.S. Bureau of Labor Statistics. Final demand prices moved up 0.1 percent in May and 0.2 percent in April. On an unadjusted basis, the final demand index rose 1.7 percent for the 12 months ended in June, the lowest rate of increase since advancing 1.7 percent in January 2017.

The real problem that Alexandria Ocasio Ortiz for one, highlighted in her questioning of Fed Chair Jerome Powell lzt week is why there is almost no inflation, even with a full employment rate of 3.7 percent? She wanted interest rates lowered sooner to boost higher growth, with some 6-7 million workers either not looking for work, or working part time, but would prefer working fulltime and earn a living wage.

Powell said the U.S. is suffering from a bout of uncertainty caused by trade tensions and weak global growth, but he pledged to do whatever it takes to shore up the economy in what Wall Street took as a sign the central bank will cut interest rates soon.


The retail Consumer Price Index fared slightly better. Year-on-year the core is up 1 tenth to 2.1 percent. Housing and medical care which together make up about 1/2 the index -- are also on the high side, said Econoday.

But outside the core, energy prices fell a sharp 2.3 percent on the month with the gasoline subcomponent down 3.6 percent. Energy prices, which are down 3.4 percent on the year, are not helping the Fed achieve its 2 percent inflation goal.

Trade wars are not really winnable anymore, as I’ve been saying; because we no longer live in a win-lose world where the strong are able to prey or even conquer the weak and vulnerable so easily. Our world has become too populous, and thanks to modern technologies too interlinked for it not to affect world trade upon which economic growth depends.

World trade is now in decline, which means US manufacturing and exports are in decline. So we hope US consumers keep spending, since they make up two-thirds of economic activity, if we grow at all this year.

Harlan Green © 2019

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Friday, July 5, 2019

Why the Huge Jobs Report?

Financial FAQS


The unemployment rate edged up to 3.7 percent from 3.6 percent as more than 300,000 people entered the labor force in search of work, the Labor Department said Friday. That has confounded those that see slowing economic growth in the second quarter, lowering odds the Fed will begin to drop short term interest rates that have boosted credit card and installment loan payments.
Both the unemployment rate, at 3.7 percent, and the number of unemployed persons, at 6.0 million, changed little in June, said the BLS. And the number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) was essentially unchanged at 4.3 million in June. These individuals, who would have preferred full-time employment, were working part time because their hours had been reduced or they were unable to find full-time jobs.
Why, the ‘huge’ jobs gain?  In fact, these numbers tell us the US economy is still not at full employment, and most of the hiring is in the service sector that depends more on domestic demand than geopolitical and trade uncertainties.

Professional firms hired 51,000 workers; health-care providers added 35,000 jobs and transportation and warehouse companies boosted payrolls by 24,000. Shippers have been steadily adding jobs for years amid a boom in online shopping.

Construction companies hired 21,000 workers, while manufacturers' employment increased by 17,000. Both industries had grown more slowly this year and added relatively few workers because of the skilled labor shortage. Transportation and warehousing added another 17,000 jobs.

Because most of the hiring was in the service sector that has lower-paying, less skilled jobs, wage growth and inflation are still tame. The average wage paid to American workers rose just 6 cents to $27.90 an hour. The 12-month rate of hourly wage gains was unchanged at 3.1 percent, which is a low rate of gain at this stage of a recovery.
“Wage growth has tapered off recently despite the tightest labor market in decades, suggesting most workers have gained limited power in wresting higher pay from employers,” said MarketWatch. “Firms are also resorting to more automation to speed up production, keep costs down and get around a shortage of skilled labor.”
And state governments continue to hire as they ramp up their own infrastructure projects without waiting for the federal government to act. State and local government hiring brought on a 33,000 surge in public-sector payrolls.

So who knows when this business cycle will end—meaning when will US economic activity begin a downward slope? It hasn’t yet, in spite of the ongoing tariff wars and geopolitical uncertainties that have mainly hurt the manufacturing sector with the sharp cutbacks in exports and decline in world trade, as I mentioned in an earlier column.

But it hasn't yet affected the service sector, where consumers earn and spend most of their money.  This growth cycle won't end as long as consumers continue to spend, in other words.

Harlan Green © 2019

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Is Housing Market in Gradual Decline?

The Mortgage Corner


Happy 4th of July, everyone, even though it looks like we are nearing the end of this housing cycle; and maybe this business cycle as well.  But we can still celebrate what is now the longest recovery from any recession since WWII.

This Case-Shiller Home Price Index may summarize the housing market going forward. Its 3-month average of same-home prices has been declining since last year. The priciest housing markets like Seattle and San Francisco have risen the least, while Las Vegas and Phoenix that were hit the hardest because of overbuilding during the housing bubble show the sharpest increases.

The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 3.5% annual gain in April, down from 3.7% in the previous month. The 10-City Composite annual increase came in at 2.3%, up from 2.2% in the previous month. Las Vegas, said the report.

Phoenix and Tampa reported the highest year-over-year gains among the 20 cities. In April, Las Vegas led the way with a 7.1% year-over-year price increase, followed by Phoenix with a 6.0% increase, and Tampa with a 5.6% increase. Nine of the 20 cities reported greater price increases in the year ending April 2019versus the year ending March 2019.

Another marker is new-home sales, which feeds into the GDP report. It plunged in May, down to 626,000 annualized units, vs. 673,000 in April. Prices also fell sharply, down 8.1 percent on the month to a median $308,000. Year-on-year, the median is down 2.7 percent and right in line with the 3.7 percent decline in sales.

The reasons for its weakness are many. Fewer newly-adult Millennials—the largest population cohort—are buying homes because of soaring student debt and fewer entry-level homes on the market.

And consumer confidence is also sinking. The Conference Board’s Confidence Index just declined from 134.1 to 121.5 in June, a huge drop after two months of increases.
“The escalation in trade and tariff tensions earlier this month appears to have shaken consumers’ confidence," said the Conference Board. "Although the Index remains at a high level, continued uncertainty could result in further volatility in the Index and, at some point, could even begin to diminish consumers’ confidence in the expansion.”
Confidence in jobs also showed a slight decline, said the report, and may be a predictor of weakness in Friday’s unemployment report.

This may be a temporary blip, as the Federal Reserve has hinted that it may begin to drop short term interest rates at their July FOMC meeting. And mortgage rates are again at rock-bottom. So more consumers may reverse course and jump back into housing purchases.


They will face a declining supply, however.  Econoday summarized the current construction industry with these comments:

“Residential spending fell 0.6 percent in May and now shows declines each month this year. Compared to May last year, residential spending is down a very steep 11.2 percent. Single-family homes, the dominant category on the residential side, fell in May and are down 7.6 percent on the year. The one residential plus is new multi-family homes which, reflecting demand tied to high costs for single-family homes, are up 9.3 percent.
So if very low interest rates can’t sustain housing sales, what can? We seem to be nearing the end to this recovery from the Great Recession in its record-breaking 11th year.

Harlan Green © 2019

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Wednesday, July 3, 2019

Manufacturing Slows as Trade Wars Quicken

Popular Economics Weekly

Trade wars are not really winnable anymore—at least the way some world leaders conduct them—or any wars for that matter. This is because we no longer live in a win-lose world where the strong are able to so easily prey on or even conquer the weak and vulnerable.

The world has become too populous, and thanks to modern technologies too interlinked for modern economic bullies—like a Trump, or Russia’s Putin, or even China’s Xi Jinping—to succeed for long in their win-lose negotiating tactics based on perceived grievances.

And that is the reason Trump’s trade wars are failing. NAFTA is still NAFTA, because the U.S. depends so heavily on trade with Canada and Mexico. And now there are predictions that his China trade war will fail as well, because his policies are causing so many losses among his Midwest electorate, and now the US manufacturing sector.

Why are we even having trade wars with our allies, as well as adversaries?

We can thank UC Irvine economic professor Peter Navarro, a protectionist, anti-free trade advocate, for convincing President Trump that multi-lateral trade agreements that link us more tightly to our allies are bad for the U.S., including the 12-nation TPP, Trans-Pacific Trade Partnership, that was designed to curb China’s economic expansionism.

So Trump cancelled the TPP and began his trade wars with our allies in Europe, as well as Canada and Mexico, where the U.S. does most of its trade. The result has been slower growth everywhere, as has been cited in many studies.
“Trade growth, a key artery in the global economy, has also slowed markedly, to around 4 percent in 2018 from 5¼ per cent in 2017, said a recent OECD economic outlook report, “with trade restrictions having adverse effects on confidence and investment plans around the world. In Europe, trade growth has stalled, reflecting a slowdown in both external and internal demand. Leading indicators suggest that near-term trade prospects are weak. Survey indicators of new export orders remain low in China and continue to decline in Europe and many Asian economies.”


The U.S. has the Chicago ISM Business Barometer of business activity to measure such activity, a survey of more than 80 economic indicators that show a general national trend. It is giving similar results to the OECD outlook; slowing US growth as well.

The MNI Chicago Business Barometer decreased by 4.5 points to 49.7 in June from 54.2 in May, marking the first sub-50 reading since January 2017, said their press release. Business confidence dipped significantly in Q2, with the Barometer averaging 52.2, down 13 percent on the previous quarter and almost 16 percent lower than Q2 2018.

This month’s special question asked firms about the impact of government-imposed tariffs on their business. 80 percent of firms said that they were negatively impacted, with tariffs raising prices of their goods leading to a pullback in orders.

The June ISM manufacturing Index also fell to 51.7, the slowest pace in more than two years, hurt by trade tensions with China and Mexico. “Backlog orders continue to contract, inventories are coming down, delivery times are improving, import buying is flat -- all signs of weakness. Another disappointment is a 0.5 point decline in new export orders which are barely growing at 50.5,” said the report.

The LA Times has reported on other damage caused by the trade wars; the sharp decline in Chinese direct investments in US manufacturing that had been growing until last year’s start of the Chinese trade war. Investments shrank to $5 billion in 2018, after $29 billion in plant and equipment in 2017 and $46 billion in 2016, which had been responsible for thousands of new, higher-paying American jobs.

Such win-lose trade tactics are designed to fail, as skilled negotiators have been saying since the end of WWII, when allies and alliances have been necessary to keep the world peace (e.g., the Marshall Plan).
“…win-win negotiation involves working to get the best deal possible for yourself while also working to ensure that your counterpart is satisfied (see also, Win-Win Negotiations: How to Manage Your Counterpart’s Satisfaction), says an article in the Harvard Law School blog. “It means making offers that are good for them and great for you, according to Massachusetts Institute of Technology professor Lawrence Susskind. And it means thinking creatively about how you can get more of what you want by helping the other side get what she wants.”
An Eye-for-an-Eye Makes the Whole World Blind was Mahatma Gandhi's famous insight, patron saint of non-violence.

Most of the western world has progressed beyond that stage, at least, in this world of super abundance. We no longer suffer from starvation or famine in the developed world.  Only by helping those underdeveloped countries still suffering from overpopulation and droughts to enter the modern world will we be able to replace the belief in cut-throat competition of the win-lose crowd that sees conflict as the only solution, with the win-win world of cooperation, and a lasting world peace.

Harlan Green © 2019

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Monday, July 1, 2019

The Presidential Debates—Will Democracy Survive?

Popular Economics Weekly


Much of the media lament over the first Democratic Presidential debates was whether the Democratic Party had moved too far left on immigration and healthcare—whether it was about decriminalizing Central American immigrants crossing the border, or advocating some form of Medicare for all.

Could this allow the reelection of Donald Trump and bring about the decline, if not abolishment, of American democracy as we have known it post-WWII? Russian President-for-life Putin announced at the recent G20 economic summit that liberalism as we know it is now passé.

In an interview with the Financial times, Putin said the “liberal idea,” by which he meant the postwar dominance of democracy, human rights, multiculturalism and tolerance, had become “obsolete.”

Fear not, you lovers of Democracy, that isn’t true by a long shot. As much as oligarchs like Putin would like to find more worlds to pilfer, democracy cannot fail unless modern capitalism, the creation of post-WWII democracy, fails. And it won’t fail because it is the manna on which all nations now depend to sustain their citizens. There is no other economic system that will feed its citizens, as even China knows.

Modern capitalism was created out of the New Deal, with its government support of social programs and regulations that prevent capitalism’s worst excesses—such as unregulated capital markets and monopolistic profit-seeking,  causing the record income and wealth inequality that has brought on the discontent and enabled a President Trump.

It therefore behooves the Democratic presidential candidates, at least, to make the changes necessary to bring back some income parity and a greater social safety net, if for no other reason than it would reduce the souring suicide rates and gun violence that no other western democracy experiences.

How do we save a capitalism that doesn’t just cater to oligarchs like a Putin, or even China’s President Xi--who want capitalism that won’t allow dissent, and therefore the innovation necessary to nurture new ideas and inventions?

Senator Elizabeth Warren has thought out many new ways to make capitalism work for the many, and so democracy. The first step is to take back some of that wealth to strengthen the social fabric that was siphoned off to the wealthiest via lower taxes and deregulation causing many industries to become monopsonies—i.e., overly concentrated so they can control their markets, weaken social programs and employees’ bargaining power.

Warren would pay for her programs with a 3% wealth tax on fortunes over $1 billion, and 2 percent on fortunes between $50 million and $1 billion. According to University of California-Berkeley economists, it would raise about $2.75 billion over its first 10 years, all from taxpayers that the

Massachusetts senator argues have benefitted too much from a generation of tax-cutting that slashed top federal tax rates almost in half and corporate tax rates by 40 percent, accompanying a surge in inequality in both before-tax and after-tax income.

Other candidates like Senator Kamala Harris and Bernie advocate a return to the 70 percent income tax rate on the highest income earners, and an outright breakup of those corporations literally too big to fail; should we have another Great Recession.

How do these proposals benefit modern capitalism so that it benefits the many, rather than the few? Studies show that without public works programs, labor productivity declines, since not upgrading such as infrastructure slows transportation of goods and services. Reducing public health care and environmental protection sickens more people thus reducing work times. Reducing public educational programs and government R&D reduces overall literacy and scientific innovation, period.

There is good news on that front, as I have noted in past columns. Modern capitalism with its checks and balances has enabled the growth of prosperous middle classes at the heart of liberal democracies. No other economic system is able to produce the quantity of goods and services required for a healthy liberal democracy.

The club of rich democracies is not easy to join, per a recent piece in the Economist, but those who get in tend to stay there. Since the dawn of industrialisation, no advanced capitalist democracy has fallen out of the ranks of high-income countries or regressed permanently into authoritarianism.

This is not a coincidence, say Torben Iversen of Harvard University and David Soskice of the London School of Economics in their recent book, “Democracy and Prosperity”. Rather, they write, in advanced economies democracy and capitalism tend to reinforce each other, as I’ve been saying. It is a reassuring message, but one that will face severe tests in years to come.

In other words, taking government out of modern capitalism makes modern democracies weaker and more vulnerable to predictions from those who fear democracy, like Putin.

Harlan Green © 2019

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Monday, June 24, 2019

Who Can Still Afford to Buy a Home?

The Mortgage Corner
 

That question of who can still afford to buy a home is up in the air, as we say, since home sales have been trending lower of late and there is still a housing shortage. MarketWatch’s Andrea Riquier believes housing sales peaked in 2018, dropping below combined sales of 6 million for the first time in two years, per her graph of existing and new-home sales, and won’t go higher this year—in the 11th year of the recovery from the housing bubble.

Sales are falling because Ms. Riquier maintains home buying is still out of the price ranges most young adults can afford for various reasons, including a low inventory of affordable homes for sale, and lower earning potential than in past recoveries for young adults with college degrees still digging out from under student loans.

Yet total existing-home sales’, https://www.nar.realtor/existing-home-sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, jumped 2.5 percent from April to a seasonally adjusted annual rate of 5.34 million in May, per the NAR.

The share of first-time home buyers continued a three-year decline, falling 33 percent (34 percent last year), for homes at or below the $277,000 median home price. This number has not been 40 percent or higher since the first-time home buyers credit ended in 2010.  It was a 2-year Obama initiative that gave a $7,500 tax credit to first-time buyers.


Total sales are down 1.1 percent from a year ago (5.40 million in May 2018), but when combined with surging May new-home sales of 673,000 reported by the Census Bureau, the total is 6.01 million. So total sales are rising again; maybe because of the recent interest rate decline to post-recession lows?   

NAR chief economist Lawrence Yun said the 2.5 percent jump shows that consumers are eager to take advantage of the favorable conditions. “The purchasing power to buy a home has been bolstered by falling mortgage rates, and buyers are responding.”

Rates are down because the 10-year Treasury bond benchmark yield that most lenders use to set mortgage rates has fallen to 2 percent at this writing, which puts it back to yields that prevailed during the Great Recession, and the 30-year fixed conforming mortgage is holding at 3.50 percent for less than one origination point.

But can builders keep up with the declining inventory of homes for sale? Residential investment has fallen for five straight quarters though the second quarter for starts is up overall with the new May report.


Privately‐owned housing starts in May were at a seasonally adjusted annual rate of 1,269,000, said the Census Bureau. This is 0.9 percent (±12.9 percent) below the revised April estimate of 1,281,000 and is 4.7 percent (±8.9 percent) below the May 2018 rate of 1,332,000. Single‐family housing starts in May were at a rate of 820,000; this is 6.4 percent (±9.5 percent) below the revised April figure of 876,000.

Single-family homes starts were actually very weak in May, in other words, for a 12.5 percent year-on-year decline, as I said. Multi-units, in contrast, are up a yearly 13.7 percent at a 449,000 rate.
So it really looks like more new households are opting to rent, even with record-low interest rates.

What else can they do with fewer purchasing options? One problem highlighted by Ms. Riquier is current homeowners are staying longer in their residence, thus reducing the housing supply—up to 10 years in recent surveys, says Riquier, vs. staying put for the more normal average 4 years before moving on..

It sounds like we need those record-low interest rates to keep the housing market alive. All the predictions are they could even go lower this year, but for how long?  It also looks like another first-time home buyers tax credit is needed to make homes more affordable to first-timers.

Harlan Green © 2019

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Sunday, June 23, 2019

Answering the Kennedys’ Call to Promote Greater World Peace & Freedom

Introduction


I was one of 88,000 wide-eyed, mostly white, middle class students that came to hear President John Kennedy speak on March 23, 1962 in Berkeley, California to commemorate the 94th anniversary of the University of California’s founding. We wanted to see and hear what our future might look like. We were ready to believe in Kennedy’s vision that the cold war with Russia could end and lead to more peaceful collaborations.
“…The processes of history are fitful and uncertain and aggravating,” said Kennedy that day. “There will be frustrations and setbacks. There will be times of anxiety and gloom. The specter of thermonuclear war will continue to hang over mankind; and we must heed the advice of Oliver Wendell Holmes of "freedom leaning on her spear" until all nations are wise enough to disarm safely and effectively.”
We need such leaders as JFK with his unifying vision of cooperation over confrontation even more today. That is the most important question for me, a person who lived through the social upheavals and activism of those days. For if we do not find ways to grow that idealism to make the world a better place for all—both social and economic change that will preserve a livable planet and prevent future wars—then I cannot see a hopeful future.

Recognizing the many ways such a spirit of service is restoring communities and hope for a better future is the reason for this essay. In fact, the sense of community and common purpose that prevailed in the sixties via new technologies and shared values in community-building and peace-making is the path that can restore our faith in western democracies imperiled by the rise of authoritarian governments and immensely wealthy oligarchs.

Leaders have emerged in the upcoming presidential election—Senator Elizabeth Warren’s fight to curb Wall Street excesses, Senator Sanders call to right record income inequality—but they are leaders of factions fighting injustices without a unifying vision to bring younger Americans in particular together to make the changes that might save their future, as well.
One 30 year-old in 2013, 50 years after President Kennedy’s death, said “Though his goals were typically big, what he sought from individuals was often rather small. Not everyone was expected to join the Peace Corps or become an astronaut or participate in the Freedom Rides. But citizens were asked to do their part — to think about how they could improve their community or make another person’s life easier — to look past their differences and focus on our common humanity. We badly need this message again. I believe it is one that resonates very deeply with young Americans who are yearning for a time when we can search for new frontiers and once again be part of the same team.” https://www.huffingtonpost.com/scott-d-reich/jfk-millennials_b_4263057.html
Many of us followed paths of alternative service, of selfless service that I learned was the shortest path to inner peace, as well as peace among communities and nations. President Kennedy’s most famous words memorialized worldwide were in his inaugural speech—“Ask not what your country can do for you, ask what you can do for your country.”

JFK gave us the picture of a new future on that beautiful March day in Berkeley, Kennedy promised a peaceful settlement to the cold war with Russia, of scientific research and alternatives for peaceful service that could benefit all nations; while joking that Jackie was having all the fun riding on an elephant in India with Ambassador John Kenneth Galbraith.
“Yet we can have a new confidence today in the direction in which history is moving,” Kennedy continued. “Nothing is more stirring than the recognition of great public purpose. Every great age is marked by innovation and daring--by the ability to meet unprecedented problems with intelligent solutions. In a time of turbulence and change, it is more true than ever that knowledge is power; for only by true understanding and steadfast judgment are we able to master the challenge of history.”
We did not know that the Cuban missile crisis would happen in just seven months—October 16-28, 1962—that could have turned into a nuclear war, if Kennedy and Russian Prime Minister Nikita Khrushchev had not negotiated a peaceful resolution.

JFK’s words may sound like the voice from a distant past to those who have lost their faith in service of any cause, when there is no general prosperity, or hope of a more peaceful post-9/11 world. Treaties are being ripped apart, and allies shunned that would maintain peace because there is no longer a national vision of one for all and all for one.

His vision of a new frontier of possibilities began an era of higher technological growth that has brought the world’s citizens closer together, of global warming threatening cities and countries causing mass migrations, of greater economic cooperation accompanied by greater income inequality in a revolution that hasn’t yet benefited the majority of its citizens.

Keeping that spirit alive is a daunting challenge, needless to say. Today we have a young population that is generating new, diverse communities having survived generational wars between red and blue states, between young and old ages, rich and poor regions that will find their own leaders.

John F Kennedy, Bobby Kennedy, Martin Luther King, Jr., and Cesar Chavez were leaders that gave our generations hope for greater equality and liberty in a new frontier of possibilities. It was a time when communities of the political and economic classes had a consensus that progress was possible, movements formed that swept one up in causes much larger than the individual—the environmental movement, anti-war, or non-violent civil rights’ protests, and a farmworker movement that advanced minority and immigrant rights.

The boundless optimism that Americans such as myself believed could accomplish anything, solve any problem is needed as much today because of the terrible cost of continuing wars, the drug culture, and those regions of America that no longer believe they live in the United States of America.

We of the so-called silent and baby boomer generations dealt with similar obstacles by looking at what we had in common; that we are all created equal, regardless of race, gender or ethnicity, and desired the best for ourselves, our families and communities.

This is important because younger generations; like the 30-year old millennial on the 50th anniversary of JFK’s death; say they want to continue to work. Studies show they wish to make the world they have inherited a better place to live. Their preferences will be influential for no other reason than they are the largest generation ever, born from 1980 to 1996, outnumbering even their baby boomer parents. They are also a much more diverse and tolerant population, which is why they are picking up where we left off in their preference for making worthwhile life choices..
“Almost two-thirds (64 percent) of millennials said they would rather make $40,000 a year at a job they love than $100,000 a year at a job they think is boring,” the Brookings Institution recently noted in a report by Morley Winograd and Michael Hais titled “How Millennials Could Upend Wall Street and Corporate America.”
It cites a 2013 survey of over 1,200 U.S. adults that found Millennials to be the generation most focused on corporate social responsibility when making purchasing decisions.

Almost all Millennials responded with increased trust (91 percent) and loyalty (89 percent), as well as a stronger likelihood to buy from those companies that supported solutions to specific social issues (89 percent). A majority of Millennials reported buying a product that had a social benefit and 84 percent of a generation that accounts for more than $1 trillion in U.S. consumer spending considered a company’s involvement in social causes in deciding what to buy or where to shop. In 2013, 89 percent of all American consumers said they would consider switching brands to one associated with a good cause if price and quality were equal. https://www.brookings.edu/wp-content/uploads/2016/06/Brookings_Winogradfinal.pdf

“The sixties was a period of monumental social and political change, altering virtually every aspect of American life for future generations,” touts a popular CNN documentary film, The Sixties. “No other decade of the Twentieth Century has acquired the mythological status of the 1960s,” said British Historian M J Heale in his book, The Sixties in America, (2001, Edinburgh University Press Ltd, Edinburgh, UK).

The United States had already been through World War II, the Korean War, and was under the threat of nuclear annihilation in a Cold War with the Soviet Union. Yet it was also a period of unprecedented economic and social growth, when many believed in a better future—not only for U.S. citizens, but those in the developing world.

America’s annual economic growth rates in the sixties equaled that of China and the fastest-growing, developing countries today. Annual U.S. Gross Domestic Growth rates—our best measure of national business activity—were as high as 8.9 percent in 1950, and consistently higher than 6 percent through most of the 1960s. Median family incomes grew 214 percent from 1945 to 1975, and haven’t grown faster than inflation since 1975.

It was also a time of protest against all forms of authority—against loyalty oaths that foreswore radical beliefs, against segregation in the schools and workplaces, and a government continually at war. The anti-war protests created Rock-n-Roll music and Bob Dylan; who was a poet as well as a musician that portrayed the times many Americans were living through. He warned of the hardships ahead, as had his mentor, Woody Guthrie, the dust-bowl folksinger who sang for those dispossessed by the Great Depression.

Dylan songs such as Blowin in the Wind portrayed a land without peace: “how many deaths will it take 'till he knows that too many people have died?” and a rebellion against the old order in The Times They Are a-changing when: “your sons and your daughters are beyond your command.

Then the euphoria was gone almost as quickly as it came; times had changed; but not for the better for many in America. Good paying jobs began to disappear; energy shortages and soaring inflation caused deep recessions.

Younger Americans now must deal with a world that seems to have limited possibilities, with the greatest income inequality in the developed world—which means today’s children may not be able to earn more than their parents. Studies show that only half the children born in the 1980s grew up to earn more than their parents. That’s a drop from 92 percent of children born in 1940. They also face a faster, more competitive world with challenging opportunities.

The larger economic picture is that successive recessions since the 1970s have led to catastrophic drug use and high suicide rates in regions of blue-collar America that lost entire industries due to modern economies charging ahead at warp speed. Blue-collar, high school educated Americans once earned enough to enter a middle class standard of living that meant homeownership and upward mobility.

The economic death of these regions has resulted in an un-civil war between its inhabitants that has torn apart communities and created a dysfunctional national government unable to meet the urgent needs that modern times require. The overall health and well-being of Americans has declined; Americans are no longer the tallest people, live the longest, are the best educated in the developed world.

Workers have had to travel farther and move more frequently in search of a decent paying job, and better education. Social scientists such as Harvard sociologist Robert Putnam have studied the breakup of communities in his best-selling book, Bowling Alone, The Collapse and Revival of American Community. “Once we bowled in leagues, usually after work—but no longer,” he said in his portrayal of our fractured society. 

Yet it is possible to rebuild broken communities in such difficult circumstances. The loss of national consensus—which at heart is the belief that Americans share common interests and goals—is at the bottom of most of our problems. It is the antithesis of a well-functioning democracy.

President Kennedy’s speeches moved us because nuclear annihilation was always in the back of our minds. I had read Nevil Shute’s 1957 novel On the Beach. It was a terrifying tale of Australians awaiting the arrival of a deadly radiation cloud spawned by a nuclear war. World War III had just devastated most of the populated world, polluting the atmosphere with nuclear fallout and killing all human and animal life in the Northern Hemisphere. 

The icon of that age was the Peace Symbol designed by Gerald Holcomb, a British conscientious objector in despair over the possibility of nuclear annihilation. He is said to have combined naval signal semaphore codes of N with D that stood for Nuclear Disarmament into the symbol we know today. And perhaps because of the threat of nuclear annihilation hanging over us, we preferred to make love rather than war.

What could be more disheartening than the disappearance of all life? We also lived through the anti-communist witch hunts of the McCarthy era that resulted in the House of Un-American Activities Commission hearings to weed out communists and other subversives, even though membership in the American Communist Party was legal.

But those problems could be solved, because so many believed the cold war and wartime institutions were based on outmoded beliefs and ideologies, as do the young today. Wars were fought because governments saw a world of scarcity, and conflict the only solution. The U.S. with just five percent of the world’s population maintained a large military in order to have access to 25 percent of the world’s resources; such as oil.

That is why many of my generation believed in President Kennedy’s vision of a new frontier of possibilities for peaceful coexistence. All things are possible with the spirit and mind-set that enabled us to serve causes that bettered the lives of others, as opposed to the ‘me first’ narcissism so prevalent in much of American culture today. This dedication to service in peaceful ways was first realized in

President Kennedy’s call to form the Peace Corps, where I and more than 200,000 have served.
Brother-in-law Sargent Shriver, the first Director of the Peace Corps and many Great Society programs, added to that vision with his call to service above self, the Peace Corps credo, if one wanted to work to create a more peaceful and just world.

In his acceptance speech at the 1960 Democratic National convention, Kennedy said, “We stand today on the edge of a New Frontier — the frontier of the 1960s, the frontier of unknown opportunities and perils, the frontier of unfilled hopes and unfilled threats. ... Beyond that frontier are uncharted areas of science and space, unsolved problems of peace and war, unconquered problems of ignorance and prejudice, unanswered questions of poverty and surplus”

President Kennedy also benefited the poor and seniors by signing social legislation raising the minimum wage and increasing Social Security benefits. He heard Martin Luther King Jr.’s call for greater justice for African Americans by ordering his Brother and Attorney General Bobby Kennedy to protect the freedom riders in the South supporting James Meredith's attempt to enroll at the University of Mississippi.

This work in service is even more important today for the underserved. A better future for young and old is possible because of the lessons we learned; such as the non-violent tactics of Gandhi and Martin Luther King advocating peaceful coexistence. Cesar Chavez’s farm workers adopted those tactics as well, which promoted greater inclusivity and fairness among all races and ethnicities.

Working in service to higher ideals can be a spiritual quest. I learned the basic elements needed to build and strengthen communities because of the opportunities to work as a Peace Corps volunteer, with the US Environmental Protection Agency and Cesar Chavez’s United Farmworkers Union. Implementing the community development principles first realized in those earlier efforts leads to a better understanding of how to organize our own communities and provide aid in other parts of the world that gives them the tools to develop their own communities.

Domestically, we have made progress in confronting some of the inequities of race and color, yet American society is still recovering from a Great Recession; the worst economic downturn since the Great Depression that has yet to benefit the majority of Americans. There is much more that needs to be done to aid the financial recovery of Main Street households, rather than Wall Street financiers. How much time do we have? The Great Depression of the 1930s lasted ten years and didn’t fully recover until World War II.

There are solutions to what may seem like unsolvable problems that came out of that era. The sixties brought out the best and worst of America, because it was a time of transformation; of new-felt social freedoms from old customs and cultures, greater civil rights, the environmental and peace movements. There were also the darker days of Vietnam, the assassinations of JFK, Bobby Kennedy, and Martin Luther King; which caused many Americans to lose faith that change could be beneficial, or even possible.

The differences between those who see a world of limited wealth and unlimited possibilities is understandable when looking at the growing disparities that have disenfranchised large parts of the Midwest and south—whose citizens tend to blame government for their problems, when in fact these states are most dependent on government aid due to their high levels of poverty.

The debate over who benefits from western countries’ capitalist model hasn’t been resolved between the followers of Adam Smith, who saw self-interested behavior as the path to a general prosperity, and Lord John Maynard Keynes’ model of shared wealth via government programs and regulation that was the basis of the New Deal.

Yet there is no country that hasn’t adopted some elements of the capitalist model with all its deficiencies because it is able to generate almost unlimited wealth—for the few, in many cases.

In fact, we no longer live in a world of scarcity with limited resources that was a basis for the eye-for-an-eye belief system Mahatma Gandhi opposed with his tactics of non-violent protest. Survival of the fittest in a world of brutal competition was the life earlier hunter-gatherer and tribal societies faced, as described by evolutionary psychologist Steven Pinker in his best-seller, The Better Angels of Our Nature.

This is no longer the case, even in the developing world. Our modern, technological economies of almost endless innovation and invention have created the possibility of a world of super-abundance, but not how to share it equitably. In fact, many of the most developed countries, including the U.S., are suffering from the effects of overabundance—obesity, high rates of infectious diseases, cancer, higher suicide rates and the overuse of drugs.

A world of super-abundance is more suited to win-win outcomes, a term used in conflict-resolution and business negotiations. It is the opposite of a winner-take-all, win-lose mentality, because the possibility of a non-confrontational solution enables both sides to benefit in some way. That’s easy to see in limited purchase transactions between a buyer and seller, but not in more complex conflicts involving national entities.

All can profit from such abundance, as we find better ways of sharing this wealth. The sixties world believed in a sharing society, even though we had nothing like the super-abundance modern technology has provided. Only a more sharing and caring society can bring about greater peace and less conflict.

Many new developments are helping to solve the inequities generated by the enormous changes—including a new understanding of financial behavior that can mitigate the frequent recessions and growing inequities of the past four decades. It relates to implementing systems that encourage economic cooperation over competition; systems like the Green New Deal that younger leaders are beginning to propose during this presidential election season.

The U.S. became the technology leader in the sixties, a goal that President Kennedy first set at the beginning of his Presidency. We are the first (and only) nation to land on the moon, explore Mars, and send satellites beyond our solar system. But we are just beginning to develop the environmental and health sciences to create a safer, more predictable world, such as new alternative energy sources that help to mitigate the effects of global warming from the overuse of fossil fuels.

And we still fight among ourselves and in foreign wars. This is while earth’s temperature continues to rise; and why it is so necessary to participate in the efforts to restore communities, as well as strengthen organizations that seek a peaceful resolution to the environmental crises and decreased opportunities for the less fortunate.

Such efforts are succeeding because the legacies of those leaders we lost continue to resonate with the best of America. The Kennedys and King instilled the belief that service above self is more important than self-interested behavior underpinning today’s consumer-driven society of unmet wants and needs. They called for participating in the building of a more universal community that transcends loyalty to ethnic origins and political parties.

Writers from M Scott Peck to President Barack Obama since then have touted the importance of community development in bringing people together to accomplish what cannot be done individually.

A well-functioning community is able to live within the normal boundaries of peaceful coexistence. There are the usual disputes, but ways are found to compromise among the factions because a common sense of mission gives them the will to coexist, rather than become polarized into immovable opposites.

The agents of change usually include individuals that believe diversity is an essential component uniting a community or organization. This is what motivates volunteer organizations such as the Peace Corps, and Rotary International that focus on service above self in the poorest communities and countries.

The recent proliferation of non-governmental organizations (NGOs) also helps to address poverty and wealth-sharing issues in the U.S. and underdeveloped world. Rotary International’s 35,000 clubs have 1.2 million members in some 150 countries that include national leaders. More than 23,000 domestic community and non-profit organizations nurture local initiatives to further community goals and aspirations in the U.S.

The National Collaboration for Youth, an interagency council of the nation’s 50 major youth-serving organizations, notes that its member agencies serve more than 40 million young people each year, making this system second only to the public schools in the number of youths served annually. Indeed, nearly 50 percent of eighth graders in the nationally representative sample surveyed by the U.S. Department of Education reported participation in programs sponsored by one of these groups.

There are also more than 36,900 such youth organizations, according to Guidestar.org’s web database, including such long-standing programs as 4-H, Boy Scouts, Girl Scouts, Boys and Girls Clubs, YMCA, YWCA, Girls Incorporated, Camp Fire, Big Brothers/Big Sisters, and Junior Achievement. These organizations are creating the leaders of tomorrow who will bring order to the seeming chaos brought about by the sixties’ tsunami of youthful energy that swept all before it.

How much time is left for Americans to come together in a more peaceful and caring way, a way that allows greater peace of mind and freedom of expression of our better angels? How much time do we have before 50 percent of Miami is under water; hurricanes and cyclones devastate whole regions and even countries, and North Korea or an as yet unknown terror group unleashes a nuclear weapon?

In reality, there are many methods of sharing that would mitigate the effects of growing populations and a changing climate—such as better trade agreements between the developed and developing countries, and the new Paris Accord to reduce global warming that the U.S. and Syria continue to oppose.

ow do we build a world community that lives in shared values and recognizes common aspirations? It will take patience and a determined effort to find commonalities between the various races and religions, yet we all belong to Homo sapiens—the one species in charge of Planet Earth. Recognizing those commonalities will provide the vision of that new frontier of possibilities we glimpsed in the sixties; and which inspired many of us to find a path that leads to a better place for America and the world.

We know how much President Kennedy’s vision influenced other countries as well as our own from the countless memorials that honor him. They help to remind us what needs to be done, as much as what has been done. It will happen as the newer generations find their call to serve, just as we found ours.

Harlan Green © 2019

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