Sunday, December 29, 2019

Christmas Isn't For Bullies

Popular Economics Weekly

This is how one of our political parties celebrates the Christmas spirit. Restrict as much aid to the poor and weak as possible—i.e., cut up to $1.5 billion in Medicaid and Medicare spending to ‘pay’ for their 2017 tax cuts, and build a wall while cutting back immigration quotas (even of family members) to keep out as many non-white peoples as possible.

Wait a minute, doesn’t President Trump need them to maintain his properties? Then create enough H2-B exemptions for low-skilled workers to benefit him personally, including 70 granted last year just for Mar-a-Lago, his Florida White House.

What was once the Republican Party is now the Trump Party, cleansed of all Christmas spirit. There’s not even a whiff of Christmas or Christian charity left—instead the Trump Party is tearing babies away from immigrant mothers seeking safe haven, and cutting some $1.4 billion from the food stamp programs that aid the poorest among US.

Why the malevolence towards the weakest who are least able to protect themselves? I have called it the Bully Mentality that tends to prevail during chaotic times a time of pervasive fear and paranoia. It is the prevailing psychosis of the American far right movement.

Bullying behavior manifests itself in many ways, but bullies come into the open when there are no leaders that will stand up to them to condemn the hate and cruelty bullies always manifest against those weaker than them. And today we have a leadership vacuum. There is no spiritual leader such as Martin Luther King, Jr., and no political leader since former President Obama has disappeared from the public sphere.

Such malevolence towards others shows in many ways and fits the definition of bully behavior. Psychology Today has posted a list of bullying behavior, a list that fits the Trump Party to a tea:
  • – Uncontrolled anger and unpredictable irritability, frequently directed at the weakest people (‘safe targets’) or those perceived as a future threat
  • – A sociopathic ability to control their own image – the selective ability to look like a different person to different audiences – for example, being aggressive to ‘subordinates’, while being charming and helpful to others
  • – Having little status outside of work, bullies wield the power that their job gives them with vicious zeal
  • – Running ‘witch-hunts’
  • – Gratuitous domineering behaviour – sometimes physical
  • – The ability to make the unreasonable seem reasonable, even to the victims
  • --Projecting their own inadequacies onto others
  • – Making irrational accusations
  • – Publicly putting people down
  • Sadistic enjoyment in humiliating others
Americans love to celebrate the Christmas spirit. It is the time to give aid and comfort to those less fortunate, to treat all with empathy and love, rather than hateful cruelty. Celebrating brotherhood is also one of the best ways to stand up to bullies. Remember, bullies are really cowards who only dare to prey on the weakest.

So Merry Christmas and Happy New Year to everyone in the spirit of love that is the best weapon against hate!

Harlan Green © 2019

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Friday, December 27, 2019

A New Year’s Wish—Greater Prosperity for All!

Popular Economics Weekly

Although this cannot happen until results of the 2020 presidential election overturn a Republican Senate, I wish for something that President Eisenhower has said best. With higher tax rates that prevailed in the 1950-1970s, corporations in the past chose to spend their wealth on investments for future growth that were tax deductible, rather than pay the government.

Corporate tax rates since then have dropped to a low of 21 percent today.  What have corporations done instead with their record profits? Rutgers Economic historian James historian has been sounding the alarm about the results:
” So corporate profits do not drive economic growth — they’re just restless sums of surplus capital, ready to flood speculative markets at home and abroad. In the 1920s, they inflated the stock market bubble, and then caused the Great Crash. Since the Reagan revolution, these superfluous profits have fed corporate mergers and takeovers, driven the dot-com craze, financed the “shadow banking” system of hedge funds and securitized investment vehicles, fueled monetary meltdowns in every hemisphere and inflated the housing bubble.”
The architects of the Reagan revolution tried to reverse these trends as a cure for the stagflation of the 1970s, said Professor Livingston, but couldn’t. “In fact, private or business investment kept declining in the ’80s and after. Peter G. Peterson, a former commerce secretary, complained that real growth after 1982 — after President Ronald Reagan cut corporate tax rates — coincided with “by far the weakest net investment effort in our postwar history.”

There are many ways to look at the huge wealth disparities suffered by Americans whose household incomes have stagnated since the 1970s, when maximum tax rates were still in the 70 percent range. Americans wanted lower taxes so they could become voracious consumers, rather than pay for government services, which caused public investment to decline at the same time that it became the government’s job to create all the necessary public investments to protect consumers, and invest in their future.

It was public spending that in the past had enabled the building of our modern infrastructure of interstate highways and energy grid, as well as scientific research that led to the moon landing and Internet, for starters.

President George W. Bush’s tax cuts had similar effects between 2001 and 2007: real growth in the absence of new investment. According to the Organization for Economic Cooperation and Development, retained corporate earnings that remain uninvested were 8 percent of G.D.P. in 2000. 

They have reached a record 14 percent of G.D.P. since then, even with a looming $1 trillion annual federal budget deficit.

Sadly, corporations began to spend their growing wealth from lower taxation on themselves and their lobbyists that where able to push through legislation to strengthen their monopolistic consolidation (via deregulation) and labor unfriendly legislation,

It has resulted in the likes of such undemocratic lobbying entities as ALEC, the American Legislative Exchange Council, the advancer of red state policies such as voter ID laws that restrict voting rights, protector of NRA gun rights like Florida’s Stand Your Ground law that protects shooters rather than their victims, and the fossil fuel industry that has no interest in protecting our environment.

The ironic result is that consumers haven’t become wealthier with all the available and cheap consumer goods, haven’t really benefited from higher GDP growth, even with the increased employment we have today in lower-paying service jobs.

The decline in corporate tax rates to the current 21 percent has been disastrous for householders’ wealth and health. It is at the core of America’s record income inequality.

So let us wish for a greater prosperity for all in the New Year!

Harlan Green © 2019

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Saturday, December 21, 2019

Q3 GDP Unchanged

Popular Economics Weekly 

The Commerce Department’s final estimate of third quarter U.S. economic growth was unchanged at 2.1 percent, as strong consumer spending was offset by weaker business investment and shrinking inventories.

Consumers were the difference, as they kept up spending at a 3.2 percent annual pace, which was not quite as strong as the second quarter’s very strong 4.6 percent rate but enough to counteract the drop in business investment and inventories. Companies are not restocking their shelves as if they expect things to improve next year, in other words.

In fact there was a significant decline in spending that would create future growth. Q3 investments in structures fell 2.3 percent and spending on equipment declined 9.9 percent.

Why? Corporate profits are declining. Adjusted pretax corporate profits were revised in the final estimate to show a -0.2 percent decline instead of a +0.2 percent increase. Profits have fallen 1.2 percent in the past year, suggesting that business investment is unlikely to accelerate anytime soon.

The Business Roundtable on Wednesday said an index that measures CEOs’ outlook for the economy fell for the seventh quarter in a row, adding to doubts about future growth. The index slipped 2.5 points to 76.7, a bit below its historic average, reports MarketWatch.

Once again CEOs are saying the trade fight with China is widely viewed to have weakened the global economy, dampened U.S. exports and hurt American manufacturers.
“CEOs remain cautious in the face of uncertainty over trade policy and an associated slowdown in global growth and the U.S. manufacturing sector, which is currently contracting,” said the Roundtable.
This is while another indicator of future growth was basically flat. 
“The US Leading Economic Index (LEI) was unchanged in November after three consecutive monthly declines. Strength in residential construction, financial markets, and consumers’ outlook offset weakness in manufacturing and labor markets,” said Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board. “While the six-month growth rate of the LEI remains slightly negative, the Index suggests that economic growth is likely to stabilize around 2 percent in 2020.”
This is what happens when corporate profits decline. It has to mean CEOs will eventually cut back on hiring as well. Stocks are rallying to record highs on news that a Phase I trade agreement with China should be signed in January. But its details are extremely vague, as China says it doesn’t want to buy all the agricultural products that Trump is demanding to help him in his re-election, for starters.

That is to say, there are too many details to still be worked out. And there is so much geopolitical uncertainty that companies will have to deal with in the New Year—Brexit, the EU maybe in recession, Trump’s impeachment trial, Russian interference with the 2020 election, etc.

So lots to worry about. The CEOs are saying why not keep some cash on hand for the next rainy day?

Harlan Green © 2019

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Wednesday, December 18, 2019

Full Speed Ahead for Housing Construction, Sales?

The Mortgage Corner

The ultra-low interest rates are making a difference as homebuilder sentiment is soaring along with new building permits, which should boost new and existing-home sales as well. For instance, more new homes on the market encourage existing-home owners to move up or downsize, depending on their age and family.

Builder confidence in the market for newly-built single-family homes increased five points to 76 in December off an upwardly revised November reading, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI) released today. This is the highest reading since June of 1999.

This is making a small dent in the severe housing shortage since the Great Recession that has resulted in soaring rents and the current homelessness in communities that haven’t been building enough new housing.
“While we are seeing near-term positive market conditions with a 50-year low for the unemployment rate and increased wage growth, we are still underbuilding due to supply-side constraints like labor and land availability,” said NAHB Chief Economist Robert Dietz. “Higher development costs are hurting affordability and dampening more robust construction growth.”
All three components of that gauge -- present sales, future sales expectations and prospective buyers traffic -- improved, said Wrightson, but the biggest gain was a seven-point rise in current sales of new homes to a 21-year high of 84.  Regionally, the gains were more mixed, with the Midwest index improving sharply, the South rising marginally, and the West and Northeast declining.

Homebuilders also boosted construction on new homes in the U.S. at an annual pace of 1.37 million in November, the Commerce Department said today. This was a 3.2 percent (±10.0 percent) increase from a revised 1.32 million in October, 13.6 percent higher than a year ago.

And new building permits hit another post-recession high, up at a seasonally-adjusted rate of 1.48 million. That was 1.4 percent (±1.4 percent) above the pace of 1.46 million set in October and 11.1 percent above last year’s rate.

We know there is still a tremendous shortage of housing that came from the reluctance of builders to build for years after the Great Recession. Some of the shortage also came from Wall Street firms buying up housing abandoned from the busted housing bubble that were then turned into rentals.

A recent report by CBSN documented the carnage from the busted housing bubble and Great Recession. More than 9 million homes were foreclosed or sold at a loss after the bubble popped, leading to fears that tracts of abandoned neighborhoods would become "ghost towns."

This led government officials such as then Fed Chair Ben Bernanke to suggest foreclosed homes could be sold in bulk to private investors as rental properties. But that wasn’t enough, as there was very little government help to keep homeowners in their homes as happened during the Great Depression when the Home Owners' Loan Corporation (HOLC lent low-interest money to families in danger of losing their homes to foreclosure. By the mid-1930s, the HOLC had refinanced nearly 20 percent of urban homes in the country, allowing homeowners to stay in their homes with very lenient terms to enable them to weather the joblessness of the Great Depression.
“In the decade since the crash,” said the CBSN report, “7 million more households have become renters, while only 1 million more have become homeowners, according to Census data. And "institutional landlords," as the Wall Street investors are called, have become a major driver of the affordable housing woes many Americans are now facing—from steep rent payments all the way to eviction.”
The homeownership rate as a percentage of households that own vs. renting hasn’t recovered, dropping from its pre-recession high of 69 percent to 64.3 percent of households today. The U.S. has become a nation of renters at a time when rental rates are soaring due to the lack of new housing, resulting also in the more than one-half million homeless.

Another casualty of the Great Recession was lack of new household formation among the millennial generation children of the baby boomers who in fact outnumber their boomer parents; but alas, were without adequate available housing.

But now residential construction is beginning to meet the demand from new household formation that is back to the longer-term 1.2 million historical average, according to the U.S. Census Bureau. Millennials are paying down their college debt enough to move out of their rental or parents’ home, and forming more families.

There is more economic good news to report this week in upcoming columns. Industrial production has picked up in autos and trucks after the GM strike, according to the Federal Reserve, though not back to pre-recession levels. And job vacancies continue to soar with 1.4 million more vacancies than new job hires.

It means jobs are plentiful, so look for housing construction and home sales to keep this economic recovery afloat!

Harlan Green © 2019

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Friday, December 13, 2019

Why Are Consumers Buying Less?

Financial FAQs

President Trump tweeted this morning that U.S. and China were close to a “really big deal”, and stocks rallied with the S&P up as much as 30 points and the DOW 250 points higher in early trading. Yet both chief economic spokesman Larry Kudlow and OMB chief Mick Mulvaney said there was no agreement on reducing or eliminating the December  tariff increases on Chinese imports of consumer goods.

A report from the Wall Street Journal indicated U.S. trade negotiators are offering to cancel new China tariffs and reduce existing levies on Chinese goods by up to 50% on $360 billion worth of imports.

So there is no agreement of even a Phase I trade agreement with China, as I said yesterday, which is why inflation has remained moribund for so long. And today’s decline in the Producer Price Index for final demand—a term that describes the demand for wholesale prices that go into product prices—confirms that fact. That is the surest sign of falling prices, which is the real measure of economic growth.

The PPI is an index economists understand, but few others. It measures how much consumers and businesses want and are able to buy, because it filters into retail inflation, the market price consumers pay, which hasn’t risen much above 2 percent, either.
“The November results held the YOY increase in the headline final demand PPI steady at the October level of 1.1 percent,” said Reuters’ ICAP summary, “but trimmed the YOY rise in the narrow core index from 1.5 percent to 1.3 percent.  That is the smallest 12-month increase in the core measure since September 2017.
This tells us why predictions for Q4 GDP growth are now below 1 percent, when third quarter GDP growth was revised slightly upward to 2.1 percent. Falling final demand is a stark result of the toll from an erratic foreign policy that the Trump administration uses to play to public popularity rather than a foreign policy that serves the public interest.

It turns out that reducing tariffs on $360 million Chinese imports would be a good thing for consumers, since consumers are buying fewer imported goods, and Midwestern farmers’ bankruptcies have skyrocketed due to the lost revenues that combine with record floods decimating crop yields.

Yet Trump seems to be holding out for China to agree to $60 billion in agricultural purchases from farmers, whereas it has historically never been higher than $20 billion per year and is currently just $8 billion. Meanwhile China has gone to Brazil and other countries that grow lots of corn and soybeans to replace that from Trump’s Midwestern constituents. Will those farmers ever recover from their lost revenues that Trump has been replacing with taxpayer money, and that contributes to the $1 trillion annual budget deficit?

So in the end it is Americans who are really paying for the tariff wars that are not in the public interest; which has been obvious for a long time.

Harlan Green © 2019

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Wednesday, December 11, 2019

Why Our Endless Tariff Wars?

Popular Economics Weekly


POTUS and the Trump administration can’t end their trade wars, although House Speaker Nancy Pelosi just announced they had reached agreement with Republicans on a new NAFTA accord with Canada and Mexico—now called the USMCA, or U.S. Mexico Canada Agreement—because it gives more protections to U.S. workers. She said there’s nothing wrong with a win for President Trump “when it’s the right thing to do (sic).”

But there is no agreement with even a Phase I trade agreement with China, and Trump has basically neutered the World Trade Organization that settles trade disputes by blocking any new appointment to its arbitration panel, which will not only prolong trade disputes but create new ones, since there’s no longer a mechanism for resolving them.

The result has been declining labor productivity and manufacturing output, which puts future economic growth in jeopardy. Productivity declined in mid-2019 after several years of acceleration, in part because companies reduced investment in manufacturing and production in response to the U.S. trade fight with China and the EU. The dispute has also undermined exports and made it harder for businesses to plan ahead.

Labor Productivity, or output per hour worked, declined for the first time since 2015. It fell at a 0.2 percent annual rate from July to September, the government said Tuesday. This means that the hours worked increased faster than output, so that it is increasing just 1.5 percent annually, which means workers will have difficulty improving their standard of living within their working lifetime. They haven’t been able to increase their median income since the 1980s, and trickle-down economic theory prevailed.

This was the theory that lower taxes and less government services lifted all boats, when it fact it only lifted the most expensive yachts. The cutback in government investments in such as infrastructure, education, and R&D, which all serve to increase productivity and efficiency, was another reason for the productivity decline.
And, “Productivity is likely to continue to lag unless there’s a rebound in business investment,” said MarketWatch’s Jeffery Bartash, “but that probably won’t happen unless the trade dispute is largely resolved.”
Higher productivity is the key to a rising standard of living, resulting in higher pay, more profits and low inflation. Low productivity is a sign of an inefficient economy.Productivity in the U.S. has risen at an average rate of just 1.3 percent since 2007, compared with a 2.1 percent average since the end of World War II.

There are better ways to settle trade disputes, such as remaining in trade alliances like the Trans-Pacific Partnership that Trump withdrew from. The other 11 Asian trade partners then drew up their own agreement to better bargain with China, in particular; whereas the U.S. has been unable to reach any agreement by going it alone.

So we know another path to increased productivity is the ability to get along with our economic friends and find a way to work with our enemies.

Harlan Green © 2019

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Friday, December 6, 2019

Big November Employment Boost

Financial FAQs

Total nonfarm payroll employment rose by 266,000 in November, and the unemployment rate was little changed at 3.5 percent, the U.S. Bureau of Labor Statistics reported today. Notable job gains occurred in health care and in professional and technical services. Employment rose in manufacturing, reflecting the return of workers from a strike.

What happened to the slowing economy, especially in manufacturing since last year’s sugar high from the 2017 Republican tax cuts? Manufacturing added 54,000 jobs, but it was mostly GM workers returning to work after their successful strike that gave them some of the enormous profits GM has been generating. It showed labor unions are finally taking back their power to negotiate higher benefits for their workers, after years of decline.

Though in fact, it was the 74,000 new jobs in Leisure and Hospitality highlighting strong consumer spending in restaurants and hotels that is sustaining economic growth.

Consumers are still optimistic, per the University of Michigan sentiment survey that rose to a preliminary December reading of 99.2 from a final November reading of 96.8. Consumers’ views on current conditions rose to 115.2 in December from 111.6 in November, while a barometer of their expectations rose to 88.9 from 87.3.

The only caveat was the slight drop in average hourly pay to 3.1 percent, down from 3.4 percent earlier in 2019. Why? It’s all the lower-paying jobs that benefit from consumer spending; like Transportation and warehousing (15.5k new jobs), and the aforementioned Leisure and Hospitality jobs.

Longer-term inflation expectations fell to 2.3 percent, matching a record low in the U. of Michigan survey. Federal Reserve policy makers watch this figure closely and have cited below-target inflation as one of the reasons behind the three interest- rate cuts this year. The Fed, which holds a meeting next week, has signaled it will keep rates on hold barring a material shift in the outlook.

There is little wage growth, and therefore little inflation, which means consumers can keep spending through the holidays. The ongoing trade wars aren’t yet boosting import prices enough that would bring on higher inflation, while energy prices have also fallen, keeping gas prices low.

These are all reasons to keep the economy afloat, with the additional caveat that importers can’t keep absorbing the tariff increases forever.

Harlan Green © 2019

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Wednesday, December 4, 2019

Economic Growth...Watch Out--Part II

Popular Economics Weekly

It is obvious from the above graph that manufacturing activity is contracting, whereas the service industries continue to grow.  Exports that depend mostly on manufactured goods are therefore declining, while imports that depend on consumers are increasing. This also means slowing economic growth, since shrinking exports add less to GDP growth, while much larger import totals actually subtract from growth.
November was the fourth consecutive month of PMI® contraction, at a faster rate compared to the prior month, said Timothy R. Fiore, Chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee. “Demand contracted, with the New Orders Index contracting faster, the Customers’ Inventories Index remaining at ‘too low’ levels and the Backlog of Orders Index contracting for the seventh straight month (and at a faster rate). The New Export Orders Index returned to contraction territory, likely contributing to the faster contraction of the New Orders Index.”
Manufacturing is in recession, in other words. The Philadelphia Inquirer reports that Kentucky’s steel industry has suffered because of steel and aluminum tariffs that have in fact slowed demand for its products. The result is steel prices have dropped by more than 40 percent since last summer.

“They have been hurt by tepid domestic demand for steel production amid a U.S. manufacturing recession and a global slowdown in economic growth, among other things,” reports the Inquirer.
Demand for steel in the U.S. grew 2.1 percent in 2018. But this year, a slowdown in American construction and automobile production helped diminish demand to just 1 percent, and it is projected to grow just 0.4 percent in 2020, the World Steel Association said this month, per the Inquirer.
And “Global trade remains the most significant cross-industry issue,” said ISM’s Fiore. “Among the six big industry sectors, Food, Beverage & Tobacco Products remains the strongest, while Fabricated Metal Products is the weakest. Overall, sentiment this month is neutral regarding near-term growth,” says Fiore.
Why the decline in manufacturing? It has to be the Trump administration’s trade policies, as manufacturing depends on foreign trade for many of its components, and foreign demand for many of its products.

This is while the Trump administration has just announced new tariffs on steel and aluminum products from Brazil and Argentina, further hurting global trade.

We also know overall Industrial Production is declining. Total industrial production was 1.1 percent lower in October than it was a year earlier. Capacity utilization for the industrial sector decreased 0.8 percentage point in October to 76.7 percent, a rate that is 3.1 percentage points below its long-run (1972–2018) average.

Last week’s revised Q3 GDP report was upped to 2.1 from 1.9 percent, with a slight increase in consumption and inventories. But it won’t help an even weaker Q4 GDP which is predicted to barely grow due to declining exports, as I said last week.

Manufacturing and consumer spending are really the two main components of economic growth. Stock prices of the largest steel companies have declined as much as 50 percent, also according to the Inquirer. And with steel prices down, their earnings have begun to decline.

So trade wars seem to be wreaking as much havoc to economic growth as other geopolitical concerns, such as growing civil unrest in the Middle East and Asia (Hong Kong). Continuing to wage trade wars in the name of national security is really becoming a danger to our national security, as well as economic growth.

Harlan Green © 2019

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Sunday, December 1, 2019

Consumer Confidence Is Boosting Housing

The Mortgage Corner

New-home sales are now back to the long term average in the above graph that dates back to the 1960s, and consumers are still reasonably confident of their future.
"Sales of new singlefamily houses in October 2019 were at a seasonally adjusted annual rate of 733,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 0.7 percent below the revised September rate of 738,000, but is 31.6 percent above the October 2018 estimate of 557,000."
This was the first time since 2007 that the annual pace of single-family home sales remained above 700,000 for three consecutive months, according to Calculated Risk. New-home sales were nearly 32 percent higher on an annual basis in October.

This means that residential construction is also increasing the supply of new homes, as I said last week; at the same time as there is a significant housing shortage and housing construction isn’t yet back to historical levels.

Whereas, “Consumer confidence declined for a fourth consecutive month, driven by a softening in consumers’ assessment of current business and employment conditions,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “The decline in the Present Situation Index suggests that economic growth in the final quarter of 2019 will remain weak. However, consumers’ short-term expectations improved modestly, and growth in early 2020 is likely to remain at around 2 percent. Overall, confidence levels are still high and should support solid spending during this holiday season.”
So, although consumer confidence is down a bit from last year, it is still enough to cheer consumers for the holidays.

I said I was also going to say something about interest rates trends last week. We only have to look to Japan and the EU to see that U.S. interest rates could continue downward; but only if our government doesn’t step in with public investments that are sorely needed—such as in our energy network, infrastructure, education, environmental protection and the like that we have been discussing ad nauseum.

As of now, the opposite is true. Republicans rammed through tax cuts that have run up a $1 trillion dollar annual deficit. But the windfall went into corporation profits rather than into public spending programs that would have produced more productive workers and sustained growth.

It meant that financial engineering has created a huge savings glut—both here and in Europe—that is driving down interest rates to zero or below. EU countries are so desperate to put their excess savings to work that they are willing to pay investors to use their savings with negative interest rates. The same could happen here if we don’t find a way to use those savings productively.

This came out of so-called austerity measures in an overreaction to the Great Recession. Conservative ‘austerians’ as they were called worried more about budget deficits than investments that would stimulate more spending by domestic consumers and businesses that would in turn boost future growth.

This is what happens with the savings glut we have now. Too many policymakers and investors are obsessed with saving—in fact, hoarding wealth—rather than putting it to productive use that would lower public debt over the long term.

Though it’s really rational financial behavior when individuals hold on to savings for a rainy day. But that’s not the case for governments that won’t spend what’s needed for the future. It will bring on the rainy days sooner. Lord John Maynard Keynes knew it in the 1930s. He was the creator of Keynesian economics and a government that gave us the New Deal.

Harlan Green © 2019

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