Why Nations Fail

 Popular Economics Weekly

Amazon

The Nobel memorial prize in economics was awarded Monday to Daron Acemoglu, Simon Johnson and James A. Robinson for research that explains why societies with poor rule of law and exploitative institutions do not generate sustainable growth, as with some U.S. states as well.

Whereas the peoples of more democratic countries with institutions answerable to their citizens are more prosperous than those with weak democratic institutions, such as North Korea, Mexico, Russia, and even China, say the authors of Why Nations Fail, Daron Acemoglu and James Robinson, two of the new Suth Nobel Laureates.

“Reducing the vast differences in income between countries is one of our time’s greatest challenges. The laureates have demonstrated the importance of societal institutions for achieving this,” said Jakob Svensson, chair of the Committee for the Prize in Economic Sciences.

The authors use the example of the twin cities of Nogales, Texas and Nogales, Sonora, Mexico. Anyone driving across the border can see the difference. Nogales, Texas has three times the income level, better roads, schools, and better law enforcement to protect its citizens than Nogales, Sonora that has been ruled by drug cartels.

The contrast between North and South Korea is even greater—a prosperous South Korean government elected by its citizens vs. a North Korean dictatorship that has literally starved its people to keep one family in power.

It’s also a devastating analysis of why we have a partisan divide between red vs. blue states that Republican Parties have been able to capitalize on by falsely rationalizing the reason for their differences; especially economic rationalizations.

It is a case of the exploiters—wealthy individuals who don’t like to share their wealth—blaming a Washington elite that has dominated most government institutions since World War Two.

The truth is Republican Party economic programs have performed badly; causing massive deficits from tax cuts without concomitant growth that would pay for the tax cuts that have made the red states they govern poorer; because Republicans have adopted policies designed to weaken governmental institutions that are protected by the rule of law.

Republicans began to actually break laws with President Nixon’s Watergate break-in, President Reagan’s secret Iran-contra weapon shipment to Khomeini’s Iran, and GW Bush’s fabrications about Sadam Hussein’s weapons of mass destruction that justified the invasion of Iraq.

It has culminated with Donald Trump and the Republican Party’s outright contempt of laws and even the constitution in not accepting its loss to Democrats and Joe Biden in 2020.

This is born out in the major thesis of this year’s Nobel Prize-winners: that so-called illiberal democracies with central governments only answerable to a powerful minority rather than a majority of its citizens have performed poorly.

Georgetown Public Policy Review

A Georgetown Public Review measured the different median household incomes of red and blue states in the U.S.--$74,000 in blue states vs. $60,000 in red states. It’s in part because most red states have lower minimum wages, and fewer social services such as healthcare for their citizens. And even those social services are mostly subsidized by the federal government.

It is why democracies work best when they follow economic rules that serve the majority, and most in danger when attempts are made to weaken or discredit their institutions. The choice for Americans in the upcoming Presidential election should be clear—belong to a party and vote for a country that works for all of its citizens.

Harlan Green © 2024

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

The Tariff Bomb

 Financial FAQs

Getty

Now that Elon Musk, the world’s richest man, is doing all he can to elect Donald Trump the next American President with his $Billions; because there are too many regulations (read environmental), which means he might never otherwise get to Mars; it’s time to ask what a Trumpian economy would look like if Elon succeeds in his quest.

It would be a big win for wealthy oligarchs such as Musk.

Trump’s biggest lie is that a 20 percent tariff on almost all imports is a tax paid by the exporter, not American users of those imports. Common sense tells us that we can only tax foreign products after they arrive on our soil, not in the country of origin.

Any tax on imports arriving in the U.S. is therefore an American tax, so that the product’s final price charged to American consumers includes the import tax added to whatever the exporter is charging for said product, a price increase.

The results would do horrendous damage to our economy just out of the worst pandemic in 100 years that killed one million Americans. In fact, it would precipitate another recession because past history has shown Americans the damage wrought by high inflation on the working classes that pay taxes on a larger proportion of their income, than the one percent of earners and corporations.

A recent report by the Peterson Institute for International Economics, a serious non-partisan think tank, asserted that the labor shortages and higher tariffs on imports Trump proposes would return inflation to pandemic levels of 6 to 9 percent, not to mention the damage to employment and the USDollar if Trump exceeded in deporting immigrants, or hamstringing the Federal Reserve in its inflation fight.

“We find that all the policies examined could cause a loss of production and employment, especially in trade-exposed sectors such as manufacturing and agriculture.”

CPI consumer inflation rate reached the astronomical height of 14.6 percent during the 1981 and 1982 recessions, 5.5 percent during the Great Recession (2008-09), and rose as high as 9 percent in 2022 during the COVID-19 pandemic.

Trump’s tariff lie exposes an even larger lie beneath it. He can only pay for the tax cuts, such as were enacted in his Tax Cuts and Lobs Act (TCLA) on wealthy individuals and corporations, with a consumption tax that all Americans pay.

It lets corporations and the wealthiest off the hook on paying for the necessary programs that fund Medicare, Medicaid, and defense, which is what the TCLA did that is about to expire and was the only major legislation during his four years in office.

A Brookings Institute analysis of his TCLA was even more damaging, and he intends to renew it if elected: “The new law will reduce federal revenues by significant amounts, even after allowing for the impact on economic growth. It will make the distribution of after-tax income more unequal. If it is not financed with concurrent spending cuts or other tax increases, TCJA will raise federal debt and impose burdens on future generations.”

So, it’s also time to ask exactly what policies have made the U.S. economy the stronger than any other developed countries since the COVID-19 pandemic. Is it by Republicans or Democrats, since it’s become and election issue?

Former president Obama claimed in a recent Detroit campaign speech that it was his eight years—2008-2016, during the recovery from the Great Recession—that his administration was responsible for creating what became almost 11 years of positive GDP growth, longer even than President Clinton’s record recovery streak of 10 years.

That recovery continued into the Trump administration from 2016-2020 and the onset of the COVID-19 pandemic that briefly stopped all growth, but recovered quickly due to the government aid that flooded into the economy (before the supply-chains recovered) and inflation skyrocketed.

The Fed has finally tamed inflation and even more importantly, job growth returned to pre-pandemic unemployment levels. And that was due to President Biden’s Bidenomics policies that are modernizing the American economy for future generations.

Yet Trump has said climate change is hoax; so the increasingly frequent hurricanes and tornadoes must also be illusions. He has also said that he wants to eviscerate many of President Biden’s spending programs and policies, in the name of cutting the budget deficit, as well as once again attempt to repeal Obamacare, if elected.

It is what very wealthy oligarchs such as Elon Musk also say that they want.

Harlan Green © 2024

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

Full Speed Growth Ahead--Part II

 Popular Economics Weekly

The September Consumer Price Index (CPI) continued to decline, further evidence that the inflation battle has been won. All eyes are now on whether strong economic growth can continue with the labor market beginning to falter, which the Fed has said is a primary concern.

An early sign of labor weakness is that the weekly initial claims for unemployment has risen. The number of Americans who applied for unemployment benefits surged by 33,000 to 258,000 in the week that ended Oct. 5, the Labor Department said on Thursday. This is the highest level of initial claims since early August 2023.

Some of the increase may be due to one-off events like the Boeing strike and hurricanes ravaging the east coast. But that’s another reason the Fed should continue to cut interest rates for consumers that are facing uncertain futures, whether it’s more frequent natural disasters as our planet continues to warm, or future labor unrest.

FREDcpi

“In September, the Consumer Price Index for All Urban Consumers rose 0.2 percent, seasonally adjusted, and rose 2.4 percent over the last 12 months, not seasonally adjusted. The index for all items less food and energy increased 0.3 percent in September (SA); up 3.3 percent over the year (NSA),” said the Bureau of Labor Statistics.

Up just 2.4 percent in a year, retail inflation has reached the Fed’s target rate, for all intents and purposes. Continuing to hold interest rates too high for too long could precipitate more job losses.

NY Fed President John Williams said recently that it was now time to help the labor market.

“The FOMC “instituted and maintained a very restrictive monetary policy stance until the data gave us confidence that inflation is sustainably on course to 2 percent,” President Williams said. “With this progress toward achieving price stability, moving toward a more neutral monetary policy stance will help maintain the strength of the economy and labor market.”

Williams predicted what more balanced growth would look like:

· Real GDP to grow between 2-1/4 and 2-1/2 percent this year and to average about 2-1/4 percent over the next two years.

· The unemployment rate to edge up from its current level of about 4 percent to around 4-1/4 percent at the end of this year and stay around that level next year.

I reported another important fact last week. The BEAsaid that profits from current production (corporate profits with inventory valuation and capital consumption adjustments) almost doubled in the final revision. So strong economic growth continues as inflation is declining.

Even more optimistic growth predictions for third quarter growth come from the Atlanta Federal Reserve GDPNow estimate.

AtlantaFed

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2024 is 3.2 percent on October 9, unchanged from October 8 after rounding. After this morning's wholesale trade release from the US Census Bureau, the nowcast of third-quarter real gross private domestic investment growth decreased from 3.4 percent to 3.3 percent.

So why has job growth been so high, even with the Fed’s restrictive credit policies for the past two years? A grand total of 256,000 jobs were added to nonfarm payrolls in September.

September’s unemployment report showed governments, and the construction industry created 56,000 new jobs. These are largely jobs in rebuilding our infrastructure, a product of Bidenomics. Another 156,000 jobs were added in Leisure/Hospitality, Education and Healthcare.

The Infrastructure Investment and Jobs Act (IIJA), aka Bipartisan Infrastructure Law (BIL), was signed into law by President Biden on November 15, 2021. The law authorizes $1.2 trillion for transportation and infrastructure spending with $550 billion of that figure going toward "new" investments and programs.

Need we say more on what is continuing to power economic growth?

Harlan Green © 2024

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

Why Have Republicans Dumbed Down So Many?

 ANSWERING the KENNEDYS CALL

What is the reason Republicans have become the party of anti-intellectuals? The danger is that it may drown out any intelligent discourse about the most important issues of our day. It's driving at least one of our political parties into insanely ridiculous positions.

Huffington Post

I wrote in 2015 about the issues Republicans discussed in their primary debates. It also explains why Donald Trump took over the party. And nothing has changed in 2024.

We saw in the 2015 CNN Republican candidate debate the results of what seemed to be a prolonged campaign to discount almost all scientific facts, as well as intelligent discussion of the most important issues of the day.

Especially scary was Donald Trump saying if we build up our military enough, we won't have to negotiate with anybody. Or Marco Rubio, the seemingly most moderate Republican, endorsing a 1,900 mile fence along our entire border with Mexico (or double fence, says Dr. Ben Carson) over mountains and rivers, or Carli Fiorina saying that Planned Parenthood was aborting live babies to harvest their organs.

What is the reason Republicans have become the party of anti-intellectuals—some even want to abolish the Department of Education, and otherwise defund public education?

Journalist Chris Hedges once said in a PBS interview President Clinton in co-opting moderate Republican positions, such as deregulation of the financial industry, putting 100,000 more cops on the street, and reforming welfare, had driven the Republican Party to "insanity".

But the anti-intellectual, anti-science bias goes much deeper. It is in fact an almost totally American phenomenon that Republicans have taken advantage of to ‘dumb down’ the electorate to levels that would believe whatever an aging, increasingly incoherent Donald Trump says.

Why would anyone not want to support public education, when it educates more than 80 percent of American students?

The result is that higher education is also falling behind. According to the National Research Council, only 28 percent of high school science teachers consistently follow the National Research Council guidelines on teaching evolution, and 13 percent of those teachers explicitly advocate creationism or "intelligent design," said Psychology Today in a very damning 2014 article entitled, Anti-Intellectualism and the Dumbing Down of America:

"After leading the world for decades in 25-34 year olds with university degrees, the U.S. is now in 12th place," said Psychology Today. "The World Economic Forum ranked the U.S. at 52nd among 139 nations in the quality of its university math and science instruction in 2010. Nearly 50 percent of all graduate students in the sciences in the U.S. are foreigners, most of whom are returning to their home countries."

Republican candidates are still echoing the Republican platform that advocated the deportation of all illegal aliens, would abolish or cripple whole government agencies (including the Environmental Protection Agency), shut down the federal government over Planned Parenthood funding, and maintain that a fertilized egg is a viable human being that can't be aborted.

Pundits give other reasons for such a dumbing down of a segment of the electorate--such as social media and television replacing literacy, or education that no longer teaches math and science or even history.

Maybe that has enabled the Donald Trumps of the world to shout louder. The danger is that it may drown out any intelligent discourse about the most important issues of our day. It has driven one of our political parties into no longer believing in Democracy.

Harlan Green © 2024

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

NO MORE INFLATION

 Financial FAQs

The Fed is no longer worrying about inflation, since its preferred inflation gauge, the Personal Consumption Expenditure Index (PCE), recently dropped to a 2.2% inflation rate, close to the 2.0% target rate.

Fed Chairman Powell said recently the Fed is more worried that the job market is faltering, hence the -.50% Fed Funds rate cut last week with at least two more rate cuts in the offing this year. It would cut the Bank Loan Prime Rate to 7.50% that is the basis for most credit card and installment loan rates.

It is still too high for most borrowers, but auto sales have picked up, which is a sign consumers are still buying, that in means that Q3 GDP growth could also match second quarter’s GDP growth of 3.0 percent.

This is remarkable growth, even with the labor market slowdown, and the unemployment rate up to 4.3 percent in a year.

FREDpceindex

From the same month one year ago, the PCE price index for August increased 2.2 percent. Prices for goods decreased 0.9 percent and prices for services increased 3.7 percent. Food prices increased 1.1 percent and energy prices decreased 5.0 percent. Excluding food and energy, the PCE price index increased 2.7 percent from one year ago.

Job formation is slowing, as the BLS JOLTS report showed 8 million job vacancies, with 5.3 million Hires and 5.0 million Separations in the month. The 300,000 difference approximates the net number of new hires in August.

We are still fully employed, in other words, but the number of vacancies posted by employers looking for workers has come down considerably from the 12 million job opening high during the pandemic and lockdowns.

(That’s why it’s called the Job Openings and Labor Turnover Survey.)

Consumer spending is the biggest ‘tell’ on future employment and economic growth and it barely dropped to 2.7 percent annual growth from 2.8 percent in August. The savings rate is still a healthy 4.8 percent, close to historical norms, so the surge in vehicle sales is no fluke.

Business activity in the service sector is soaring (mainly dining out, travel, leisure activities), but the manufacturing sector is still contracting.

“In September, the Services PMI^® registered 54.9 percent, 3.4 percentage points higher than August’s figure of 51.5 percent. The reading in September marked the seventh time the composite index has been in expansion territory this year,” said survey Director Sterve Miller.

Whereas, manufacturing “Demand remains subdued, as companies showed an unwillingness to invest in capital and inventory due to federal monetary policy — which the U.S. Federal Reserve addressed by the time of this report — and election uncertainty,” said survey director Timothy Fiore.

I see good growth this year. More reductions in interest rates will certainly boost manufacturing, and consumers are still saving, another sign they aren’t tapped out. 

But with one political party wanting to cut back on Bidenomics, the policies spurring much of the growth, economic and job growth next year could depend on which party wins the White House in November.

Harlan Green © 2024

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

LUCKY LOSER--Part II

 A Distrust of the Truth

Born to a rich father who made him the beneficiary of his own highly lucrative investments, Trump received the equivalent of more than $500 million today via means that required no business expertise whatsoever.

Random House

Last night’s Vice President’s candidate debate highlighted the differences between two men coming from the same Midwest. Senator JD Vance was the polished Ivy League debater, and Governor Tim Walz the earnest teacher and sportsman eager to tell the truth about himself and the country.

So what should we think of Donald Trump, Vance’s leader of MAGA Republicans, a man who claims to be the smartest person in the world, and his opponent a loser, who would not release his tax returns, and has even forbidden the release of his school grades, from prep school to college?

Maybe we have heard this so many times that we have become inured to Trump’s blatant obfuscation. But I have always thought it meant only a very stupid person would say what Donald Trump has said repeatedly as he has tried any means to cloak his repeated business failures yet was “Born to a rich father who made him the beneficiary of his own highly lucrative investments…that required no business expertise whatsoever.”

This was highlighted in Pulitzer Prize-winners Russ Buettner and Susanne Craig’s just released book, Lucky Loser that raises a bigger question in a Washington Post review by Bethany McLean about the ‘fake it ‘til you make it’ ethos of modern America. In a world that conflates the ‘trappings of wealth with expertise and ability,’ where ‘fame, detached from any other marketable talent or skill,’ is ‘a highly compensated vocation,’ does it even matter if you never actually make it?”

The outright distrust of truth is a propaganda tool used by autocrats that public media has normalized. This probably tells us best why he was able to take over the Republican Party that has drifted so far from conservative values and was once the environmental party when Republican President Nixon signed the US Environmental Protection Agency into law in 1970.

Nobel Laureate Paul Krugman cited the damage Trump and MAGA Republican propaganda policies could do to the country in a recent NYTimes Op-ed.

He cites Trump’s response to a question in Michigan on what he would do to keep auto jobs in Michigan: “So, pretty much as we’ve been saying and what I want to do and be able to do—look, your business years ago, in this area, I was honored as the man of the year. It was maybe 20 years ago. Oh, and the fake news heard about it, they said it never happened.”

In a word, the chaos in Trump’s mind has morphed into his economic policies that would cause widespread damage to the American economy. What Krugman calls Trumponomics “could create economic disruptions similar to those caused by the Covid-19 pandemic…Round up millions of foreign-born workers would cause an immediate large reduction in labor supply. Tariffs would drive up the cost of imported goods as surely as shipping costs and inadequate port capacity did in 2021-22.”

A recent report by the Peterson Institute for International Economics, a serious non-partisan think tank cited by Krugman, posited that the labor shortages and higher tariffs on imports Trump proposes would return inflation to pandemic levels of 6 to 9 percent.

Republicans had learned to “fake it ‘til you make it” when the Trump administration attempted to break up the USEPA during his tenure so that Trump’s call to “Drill Baby Drill” for more fossil fuels could continue and their call to preserve tax cuts first enacted under Trump will further increase the national debt.

Buettner and Craig’s work exposes how many passes Trump has gotten over the years, how thoroughly he is a creation of the public media that has normalized his propaganda as another kind of truth, without revealing the real man behind it who has never known truth in his own world, and public media as the authors write, ‘rarely revisited his claims and afforded credibility to everything he said.”

The Vice-Presidential debate highlighted the vast gap between truth and propaganda, between substance and the lies that attempt to conceal it. Polls are showing the public can understand the difference, will our media?

Harlan Green © 2024

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

US Growth Picks Up Speed

 Popular Economics Weekly

Any signs of a recession are declining. The U.S. economy is picking up speed in the BEA’s third and final revision of second quarter GDP growth. The U.S. economy has held the 3.0 percent growth rate, mostly due to strong consumer spending, our main growth engine, which was revised down to 2.8% from 2.9%.

Government spending was also an important ingredient, revised up to 3.1% from 2.7% in the second revision, as more Bidenomics investments kicked in. And, the personal consumption expenditures (PCE) price index in the GDP report was 2.5 percent, the same as the previous estimate. Excluding food and energy prices, the PCE price index increased 2.8 percent, also the same as the previous estimate.

BEA.gov

The BEA also reported that profits from current production (corporate profits with inventory valuation and capital consumption adjustments) almost doubled in the final revision. So strong economic growth continues without any inflation increase.

The real take from these results is that government investment is driving much of the higher growth where it counts, in future growth, whereas most corporate profits finance corporate stock buybacks that benefit corporate executives, stock and bondholders but not the public sector of roads, bridges, the environment, and healthcare supported by public investment.

The White House said last June just how well Bidenomics policies have been working. “Our economy has added more than 13 million jobs—including nearly 800,000 manufacturing jobs—and we’ve unleashed a manufacturing and clean energy boom. There were more than 10 million applications for new small businesses filed in 2021 and 2022—the strongest two years on record.”

It has given a significant boost to labor productivity, which began to rise in 2023 and boosts wage earners’ standard of living.

Nonfarm business sector labor productivity increased 2.5 percent in the second quarter of 2024, the U.S. Bureau of Labor Statistics reported today, as output increased 3.5 percent and hours worked increased 1.0 percent. (All quarterly percent changes in this release are seasonally adjusted annualized rates.) From the same quarter a year ago, nonfarm business sector labor productivity increased 2.7 percent.

This in turn has stimulated more capex spending—private sector investments that expand production facilities—which is growing at 6% in Q2 2024, seasonally adjusted.

The Economic Strategy Group highlighted the importance of the recent surge in labor productivity: “US labor productivity has enjoyed a period of renewed growth over the past year, interrupting a nearly twenty-year decline: the 2.7 percent productivity growth in 2023 outpaces the 1.5 percent annual average since 2004, and it nearly matches the 2.9 percent pace seen during the country’s last productivity surge in the 1990s.”

The Economic Strategy Group report said a major factor in the productivity surge was the post-pandemic surge in business creation that was also highlighted in the 10 million small business increase touted by the White House report.

There is no question it has taken both public and private sector spending to continue our post-pandemic recovery and reduce worries of an impending recession.

Harlan Green © 2024

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