The Return of Stagflation

 The Mortgage Corner

“From the same month one year ago, the PCE price index for June increased 2.6 percent. Excluding food and energy, the PCE price index increased 2.8 percent from one year ago.” BEA.gov

FREDpceinflation

President Trump hasn’t succeeded in convincing the Federal Reserve to cut interest rates or fired Chairman Jerome Powell just yet. So he fired the head of the Labor Department’s Bureau of Labor Statistics without cause that published the weak July unemployment report instead.

It is heralding another era of stagflation that has destroyed the wealth of too many Americans.

It now looks like he wants to recreate what happened to two other Republican Presidents—manipulating the data to disguise the fact that looming inflation can be a big problem as it was in the stagflation of the 1970s and housing bubble and Great Recession of 2008 that was the worst economic downturn since the Great Depression.

President Nixon first tried it when combatting the looming oil price-inspired inflation from the Arab Oil Embargo by fixing prices to keep them artificially low, then pushed his Fed Chair Arthur Burns to keep interest rates low in the face of slowing economic growth caused by the OPEC embargo.

It resulted in 14 percent inflation in 1980 that caused then Fed Chair Paul Volcker to raise the Fed Funds rate to 20 percent, resulting in two recessions early in President Reagan’s tenure.

President GW Bush also tried it in 2000 by pushing then Fed Chair Alan Greenspan to keep interest rates low to finance his wars on terror. Greenspan held interest rates too low for too long, which resulted in the housing bubble and Great Recession that followed.

And now Trump is looking for a successor to the Senate-vetted BLS official, Dr. Erika McEntarfer, who will manipulate employment statistics for him. The result will be less trusted unemployment reports, masking the effects of historically high tariffs that will again create product shortages and slow economic growth.

The Labor Department’s unemployment report understated what happened in the past three months, as I said last week. The U.S. economy created 73,000 nonfarm payroll jobs, but just 19,000 and 14,000 payroll jobs in revisions to May and June totals when more data came in (see graph).

The change in total nonfarm payroll employment for May was revised down by 125,000, from +144,000 to +19,000, and the change for June was revised down by 133,000, from +147,000 to +14,000, per the BLS.

Trump’s main reason for wanting to manipulate economic facts? He also wants to hide the damage to the employment numbers from what could be the loss of one million immigrants leaving the adult labor force, many of them running for cover because of the Gestapo tactics of Trump’s Homeland Security masked Storm Troopers breaking into homes and businesses to round up as many undocumented immigrants as possible, as I said last Friday.

It’s really the first indication of the immigrant’s importance in our economy, and why most of July’s hiring was in healthcare (55,000) while government employment lost 12.000 jobs and -87,000 jobs this year.

The next economic shoe to drop will be the changing of the guard at the Federal Reserve. Trump could not bully Fed Chair Powell to lower interest rates sooner, but that will soon change when he appoints a new Fed Chairman.

He will want to politicize the Fed as he is doing to the rest of the federal government when Powell steps down next year, so that he can enact more Republican ‘trickle down’ economic policies first initiated by President Reagan: in particular the tax cuts + deregulation that supposedly increases efficiencies and productivity, but instead increased corporate CEO pay to more than 300 times that of their employees while weakening union collective bargaining laws.

The results of ‘trickle-down’ economics have been frightfully obvious for decades. The Reagan-era creation has succeeded in maximizing profits of the owners of capital and corporate CEOs while suppressing incomes of salaried workers via right to work laws and low minimum wages, mostly in the poorest Republican controlled red states.

It’s why economists are now calling this the second Gilded Age. We are seeing the results—higher inflation and slowing economic growth once again unless a majority of Americans can be convinced to stop the steal of the worst robber baron of all.

Harlan Green © 2023

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

Second Quarter Growth No Big Deal

 Financial FAQs

“Real gross domestic product (GDP) increased at an annual rate of 3.0 percent in the second quarter of 2025 (April, May, and June), according to the advance estimate released by the U.S. Bureau of Economic Analysis. In the first quarter, real GDP decreased 0.5 percent.” BEA.gov

BEA.gov

The big jump in second quarter economic growth wasn’t a surprise. Consumers continued to shop but bought fewer imported goods because Trump's tariff wars were already raising prices. Imports are a subtraction in the GDP equation.

It might be a one time jump because consumers are saving more and buying less these days, as I’ve been saying, while waiting to see how much damage the Trump tax cuts and higher tariffs might wreak on the U.S. economy, especially to those it will harm the most.

The two-month GDP average was a 1.3% growth rate. The U.S. economy expanded at a 2.8% rate in 2024 and 2.9% in 2023 under President Biden, which was in large part because of the New Deal legislation that pumped $billions into economic growth and caused higher inflation.

The Fed then raised their interest rates to bring inflation back down to its present mid-2% range, and Republicans took over the congress. The result was Trump initiated his tariff wars and passage of the big beautiful big tax bill that will increase the federal debt by some $4 trillion.

But because at least some of the additional federal debt must be paid for to preserve the no longer great faith and credit of our economy, Trump has raised tariff rates to 15-20 percent, which means raising taxes on U.S. consumers and businesses.

And as any economist will tell you, taxes slow economic growth, regardless of what Trump and his cabinet cronies say. And our economy is slowing. The so-called final sales of consumers and businesses increased just 1.2 % in Q2, and there is no indication that it might pick up as the tariff agreements (i.e., taxes) are finalized.

Inflation has declined because of less spending. Consumers spending as measured by the personal consumption expenditures (PCE) price index in the Q2 GDP report increased just 2.1 percent, compared with an increase of 3.7 percent. Excluding food and energy prices, the PCE price index increased 2.5 percent, compared with an increase of 3.5 percent because consumers bought ahead of the price increases due to the April 2 tariff announcements.

What about those Federal Reserve interest rate cuts that Trump wants? Fed Chair Powell said at his latest press conference after the July FOMC meet that its twin mandates of price stability and maximum growth are still in balance, so there’s no reason to lower interest rates at this time.

The unemployment rate remains stuck at 4.1-4.2 percent because the mandates are in balance. Powell said the Fed would act to lower interest rates sooner—i.e., ease credit conditions--if the unemployment rate were to increase substantially.

The Trump administration’s agenda paints a sordid picture in following a very similar trajectory of the GW Bush administration—with its wars on terror (like Trump’s tariff wars), huge tax cuts for the wealthiest and less regulation (like Trump’s big beautiful bill) fueling what became the Great Recession.

Trump’s tariffs won’t help the very people in the red states that elected him but raise their prices. His cuts to social services harm those in red states in the most need. His DOGE cuts are not only endangering air travel, but disaster relief when the worst storms are also happening in mainly red state territories.

So, its not even the blue states that Trump wants most to harm, but his own MAGA supporters that will suffer the most. It’s what bullies do, prey on the weakest and most vulnerable, especially immigrants and minorities that are least able to protect themselves.

Harlan Green © 2025

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

The EU's New Trade Deal

 Popular Economics Weekly

“This will hurt the world economy, with the burden falling mainly on lower-income Americans. The Yale Budget Lab estimates that Trump’s tariffs will leave the U.S. economy 0.4 percent poorer in the long run, which is very close to my own back-of-the-envelope calculations.” Paul Krugman

Evelyn Hockstein | Reuters

I quote Paul Krugman again as with Trump’s Japan trade deal because it is also Trump’s usual smoke and mirrors—lots of promises but little substance. Why are markets relieved that Trump’s announced 30 percent EU retaliatory tariffs are now 15 percent, when retaliatory tariffs are illegal according to the Foreign Trade court?

Because it means less chaos and more predictability for the moment, but only for the moment.

Neither the EU nor Americans are better off with the new 15 percent tariffs levied on EU products, but none on U.S. exports to the EU. And it will once again shift more of the burden of paying off the tax cuts that benefit Trump and his buddies “onto poor and working-class families,” per Krugman

There is a very small trade imbalance when services as well as goods are included in our trade with the EU, despite Trump’s claims there’s a huge trade deficit. And U.S. exports to EU have just a 1 percent tax at present, so there’s no discrimination.

The biggest lie of all is Trump’s attempt to disguise the fact that a tariff isn’t an import tax, when it is levied at the U.S. Custom ports on goods entering the U.S., not elsewhere.

“…the tariffs are basically a sales tax that will reduce real income for poor and working-class families by about 1.5 percent, even as cuts in other taxes raise income for the wealthy,” says Krugman.

The trade deals are also hiding the fact that neither Japan nor the EU requirements for investing in the U.S. are specific enough.

The tariffs on EU manufactured autos will be lower than those manufactured in the U.S. and Canada, for instance, as with Japan. And the investment guarantees don’t specify whether they will result in actual factories.

So what are the Europeans really paying for? Protection. They have promised to buy more American weapons and keep Trump on their side in the Ukraine war that requires U.S. weapons to stop Putin and end the war.

There is much more to Trumponomics, Trump’s economic agenda, that I will cover in future columns. His insistence on cutting interest rates resembles GW Bush’s push to have then Fed Chair Alan Greenspan’s Governors keep interest rates artificially low to pay for his wars on terror. The inflation rate then was higher, in the 3-5 percent range.

I believe we will see inflation rise to a similar range when the tariff taxes really begin to take effect and kick in the slower growth plus higher inflation formula that prevailed during the Greenspan era at the Federal Reserve, and led to the Great Recession.

Trump contends the U.S. will no longer be paying as much to defend Europeans. Their smaller defense budgets made it possible for Europeans to afford their universal health plans and better social services, higher minimum wages, paid leave and mandated vacations.

The problem with having a conman as our president, is that most Americans won’t benefit from the cutbacks in military aid to the EU. We aren’t reducing our military budget but increasing it, while reducing our already underfunded social safety net, including social security.

What happens when the smoke clears and ordinary Americans realize that we have been short changed?

Harlan Green © 2025

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

A Place of Tolerance and Understanding

 Answering Kennedy’s Call

“I believe our political divide can be repaired. But our leaders must act with moral clarity and take their cues from the good people of this nation, who in times of tragedy always seem to find our better angels.” Pennsylvania Governor Josh Shapiro

Pennsylvania Governor Josh Shapiro wrote the above appeal just days after an arsonist invaded and attempted to burn down the Governor’s residence. Governor Shapiro attributed the attack to “the political division and violence in America today.”

He also gave thanks for the good people, whose “…prayers, blessings and messages of support we’ve received have lifted us up and shown us the way forward in the wake of a traumatic event.”

How do we find the “better angels” of our nature; was there a time when Americans were less partisan, more united in purpose?

There are many explanations and explainers of the political divide that led to red states vs. blue states and Donald Trump’s re-election. A major economic reason was the migration of many manufacturing jobs overseas, and politics shifting to the right after the stagflation of the 1970s while Fed Chair Paul Volcker’s Federal Reserve raised the Fed Funds rate to 20 percent, causing several recessions .

The loss of manufacturing jobs resulted in a very angry rust-belt populace and a huge surge in drug use and suicides among white males living there that was first documented in the best-selling Deaths of Despair and the Future of Capitalism by Nobel Laureate Angus Deaton and his wife, Ann Case.

The result is the share of Americans still living middle class lives in 2023 has shrunk to 51 percent from 61 percent in 1971 due to the loss of those jobs as well as Republican legislatures and the Supreme Court limiting labor unions’ collective bargaining power to replace them.

PEW

The loss of incomes and jobs led to the current economic divide, GW Bush’s war on drugs and the highest incarceration rate in the world. The hollowed out American middle class became a predominantly consumer society living on cheaper imports mostly employed in lower paying service sector jobs, whether as professionals in high tech or recreation and leisure activities.

Best-selling author Robert Putnam in Bowling Alone: The Collapse and Revival of American Community attributed the growing political divide to the consequent breakup of communities as they moved away from their birthplace or original communities in search of better jobs.

Whereas our neighbor Canada with a similar population mix had greater income equality by maintaining a predominately middle-class society, in part because it had strong labor unions. A 2023 Pollara survey of 3,000 Canadians 18 and older found that a much larger 78 per cent of Canadians consider themselves middle class, including 39 per cent of those earning less than $20,000, and 92 per cent of those earning more than $150,000.

Australia with a similar population mix is also considered a much more egalitarian society. Approximately 56 percent of the population self-identify as middle class, while 43 percent identify as working class and 1.4 percent as upper class. Other surveys suggest that around 58 percent of the population is in the middle-income class. The HILDA survey indicates that a significant portion, roughly 80 percent, of Australians are classified as middle class based on one measure.

Just the fact that most of their inhabitants considered themselves in the middle-class contributed to their sense of wellbeing.

We can also begin to restore our sense of wellbeing by growing our middle class once again with a simple but profound change—heeding Governor Shapiro’s appeal to find political leaders who will work to raise the national minimum wage above $7.25 per hour that was last raised in 2009.

Many of the poorest red states in the south and Midwest rust belt don’t even have a minimum wage, so they must adhere to our national minimum wage. Yet we know blue states such as California and New York have raised their minimum wage above $15 per hour, attracting a more creative and productive work force.

Working towards greater income equality that other developed countries have maintained with a strong middle class would help to bring Americans together again.

“William Penn founded our commonwealth as a place where all would be welcome — a place of tolerance and understanding where people of different faiths could live together in peace,” said Shapiro.

Where better to find such a leader who will take his cues from the good people and listen to our better angels than the Governor of Pennsylvania, in the original home of the Declaration of Independence and U.S. Constitution.

Harlan Green © 2025

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

Who Will Drain the Swamp?

 ANSWERING KENNEDY’S CALL

“This is so bad. We have just gotten list of amendments to be included in bill NOT from our R colleagues, but from lobbyists downtown,” said Missouri Dem Senator Claire McCaskill. “None of us have seen this list, but lobbyists have it. Need I say more? Disgusting. And we probably will not even be given time to read them.”

NICHOLAS KAMM/AFP/Getty Images

Donald Trump will be President and could have control of both the House and Senate again. The same happened in 2017 when he last won on the campaign promise to Drain the Swamp of corruption in Washington.

He didn’t succeed in his first term, actually creating a deeper swamp with rampant corruption at almost all levels of government. Will he do better this time; might he and his Republicans learn from their past mistakes?

Republicans will want more tax cuts, for starters, as well as extend the tax cuts his administration engineered in 2017, The Tax Cuts and Jobs Act, that they passed with House and Senate majorities.

I wrote at the time, “The Republicans tax bill has passed, and it is the greatest theft of taxpayer monies in history; even greater than that of Presidents’ Reagan and Bush I and II that began the immense transfer of wealth to the wealthiest in 1980 with their tax cuts starving the government of much needed revenues that would keep the federal deficits under control.”

Why? It was written by the very lobbyists Republicans and the Trump administration had cultivated during his 2017 election.

More than 130 lobbyists were hired to work in his first administration, and 36 of them have blatant conflicts of interest, working on the same issues they were lobbying on, in violation of Trump’s ethics rules, according to MarketWatch economist Jeff Nutting.

“This is so bad. We have just gotten list of amendments to be included in bill NOT from our R colleagues, but from lobbyists downtown,” said Missouri Dem Senator Claire McCaskill. “None of us have seen this list, but lobbyists have it. Need I say more? Disgusting. And we probably will not even be given time to read them.”

The bill cut Medicare and Medicaid benefits by $1.5 trillion and could add $1.5 trillion to the federal deficit in 10 years according to the CBO. That’s $3 trillion taken from U.S. taxpayers for the biggest heist in history.

We know what happened when Republicans tried this taxpayer sleight of hand before. President Reagan and congress had to raise taxes 11 times to make up the deficits created by the first ‘trickle-down’ tax cuts in 1981. Two consecutive recessions in 1981 and 1982 followed as Fed Chairman Paul Volcker raised interest rates to record levels to choke off inflation at the same time.

Then GW Bush did the same in 2001-03, when he cut taxes again while paying for the wars on terror, resulting in the largest federal deficit in history at the time, as well as the Great Recession.

This did not generate enough tax revenue to pay for the additional debt, so foreign governments and individuals will become more reluctant to invest in U.S. debt, as the deficit continues to grow and interest rates rise.

It can happen again. It is suicidal economics. The U.S. won’t declare bankruptcy. But it will saddle future generations with an impossible debt load and prevent much needed public and private investment that would increase productivity and boost growth.

This happened in 2017, and the stench of lobbyists filling the swamp became so overwhelming in Donald Trump’s first term that it was the reason his Republican majority were voted out of office, as I said.

Is there any reason to doubt it will happen again?

Harlan Green © 2024

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

Greater Lawlessness Causes Great Recessions

 Financial FAQs

I began writing about Republicans’ disregard for laws in 2012 after the Great Recession of 2007-09, in which as many as 8 million jobs were lost. But not the Republican Party’s lawlessness itself, though it has always been the party of the wealthiest oligarchs fighting for lower taxes and downsizing of the IRS that monitors their tax shelters.

There were always lawbreakers in both political parties, but I never thought it possible that Republicans would allow a convicted felon to take over their party, who is now their presidential candidate, and who advocates programs that could cause another Great Recession.

Larry Summers, former treasury secretary under the Bill Clinton administration who also has served as the top White House economic adviser for former President Barack Obama, told The Atlantic as cited in MSN.com, of economic policies Trump wants to enact that could increase inflation, if re-elected, and perhaps lay the groundwork for another recession.

"These included compromising the independence of the Federal Reserve Board, enlarging the federal budget deficit by extending his 2017 tax cuts, raising tariffs, rescinding Biden policies designed to promote competition and reduce 'junk fees,' and squeezing the labor supply by restricting new immigration and deporting undocumented migrants already here," The Atlantic wrote in an article published last Sunday.

But that is just the beginning. Trump wants to weaken regulatory oversight by appointing more political appointees if elected that would carry out his agenda who could neutralize officials and whole departments that enforce regulations, a major cause of the Great Recession under President GW Bush.

There were many causes of the Great Recession, but front and center were the GW Bush administration appointing officials who consciously downgraded governmental powers of enforcement so that regulators such as the SEC looked the other way when Goldman Sachs, for instance, sold funds to their investors that they then secretly bet against would fail.

Real laws were broken then -- from conflicts of interest to outright fraud that were never prosecuted. The 2010 congressional hearings unveiled much of the double dealing that was rationalized by Goldman Sachs' buyer-beware code -- its clients should be sophisticated enough to know that Goldman would try to maximize its own profits, before those of its clients.

But even more damage was the disregard of basic economic safeguards by successive Republican administrations. It was really the attempt of Big Business to unravel the economic safeguards of the New Deal, first spelled out in Paul Krugman's The Great Unraveling, by advocating massive budget deficits to pay for a Pax Americana -- with especially severe consequences for the old and poor. The Bush administration then ran up the first $1 trillion federal deficit.

Saez/Piketty

A culture of greater lawlessness can be traced back to the early 1980s when President Ronald Reagan trumpeted that government was the problem and more private enterprise the solution for greater prosperity.

The number of convicted criminals in those administrations tells part of the story. President Reagan's administration was marked by multiple scandals, resulting in the investigation, indictment, or conviction of over 138 administration officials, the largest number for any U.S. president.

And Salon.com had documented 34 incidents of law-breaking in just the first 4 years of G.W. Bush's Presidency, the most blatant being unmasking covert CIA operative Valerie Plame, and its fabricated claims that Iraq had weapons of mass destruction.

Former President Trump is the latest example with dozens of convicted felons in his administration that he pardoned while still President.

"Deficits don't matter" was the infamous chant of Bush VP Dick Cheney. At a time when economic inequality had risen to levels last seen in the 1920s, these administrations wanted to divert attention from a vanishing social safety net by proposing the ago-old Darwinian solution -- the free market. For only the fittest will survive in a world ruled by self-interest, rather than laws and regulations.

The United States, beginning in the 1980s once again became the most ardent advocate and practitioner of the oldest form of capitalism, now a primitive relic of 18th century enlightenment. This is but one part of our aging democracy that U.S. hegemonists put up as the model for western civilization. But it is a very imperfect model for the rest of the world as well.

A 2002 survey of 38,000 people in 44 countries by the Pew Center for the People and the Press found what they think of our American Way. "Since 2000, favorability ratings for the U.S. have fallen in 19 of the 27 countries where trend benchmarks are available ... pluralities in most of the nations surveyed complain about American unilateralism," says the study. They think we disregard their interests in pursuit of our own self-interest.

Few dispute that our capitalistic economic system has won the day. It produces great wealth, particularly for those at the top of the wealth pyramid. Robert Reich's book, The Future of Success said it best: "By the end of the (20th) century, the richest 1 percent of American families, comprising 2.7 million people, had as many dollars to spend after taxes as the bottom 100 million."

It is also no coincidence 25 states have now passed anti-union Right to Work laws that are also the poorest states with the highest income inequality, lowest educational achievement, and receive the most in public subsidies. Taking incomes and wealth away from those states' workers can only make them poorer in relation to other states and regions that is a continuing drain on public finances.

It is the real lesson of our greater lawlessness. By choosing to break laws and regulations that govern economic activity, some region are being pushed back to levels of past centuries, including holding the minimum wage at $7.25 per hour. Workers will only produce more and better products and services when they have the incentive to do so.

In the end, such greater lawlessness means a disregard for everyone but one's own clan or tribe, a greater selfishness. No country can remain prosperous with such a breakdown in social welfare. That is the lesson learned from the Great Depression and Great Recession. Policies that ignore economic as well as civil laws and well-being, that continue to divert incomes and wealth to the wealthiest, impoverish all of US.

Harlan Green © 2024

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

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 11^th 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

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

Professor Stiglitz’s Plea to Save Capitalism

Popular Economics Weekly

MarketWatch

Nobel laureate economist Joseph Stiglitz has been saying he wants to make capitalism work for everyone again in various writings, just as it did post-WWII, including this CNN commentary on the recent Earth Day. Is there even a viable alternative?

“America's economy has not been working for a large portion of the country. Workers at the bottom of the income scale earn wages, adjusted for inflation, that are not much higher than what they were 60 years ago, while the income of a typical full‐time male worker hasn't budged much from 40 years ago. In addition, life expectancy is in decline. But the economy is not only failing American citizens. It's failing the planet, and that means it's failing future generations.”

So how do we make it work for more Americans in the face of almost united opposition by the Republican Party? Firstly, we have to recognize the actual problem—Republican attempts to disempower large segments of Americans—women and blue-collar workers, for starters that have suffered the most from rollbacks in healthcare and workers’ collective bargaining rights.

We know the cost of the 2017 Republican tax cut bill; more than $1.5 trillion of spending cuts in Medicare and Medicaid coverage over 10 years in an attempt to lessen the projected $1 trillion annual budget deficit it is already costing; not to mention the endless attempts to cripple or outright abolish Obamacare without an alternative, and ban abortions, if not contraception outright.

And “In a new study for the Brookings Institution’s Hamilton Project, we report survey results in which we find that one in five workers with a high school education or less are subject to a noncompete. A quarter of all workers are covered by a noncompete agreement with their current employer or a past one,” reports the NYTimes.

This means they are banned from working for a competing company in a similar line of work for a certain period, limiting their mobility and hunt for a better job.

This is why Americans’ life expectancy is on the decline, while rising in all other developed countries; which have universal health care, pay for the costs of state-run, higher education institutions, and in general protect their citizens with an extensive social safety net.

Why does America have more than ten times the per capital prison population than other developed countries, and stratospheric gun violence—now 40,000 per year killed with white males the largest segment of gun suicides—whereas other developed countries annual gun deaths number in the 100s?

We don’t need to be diverted by the many “crimes and misdemeanors” of POTUS and the White House. Republicans have been rolling back social benefits and increasing inequality since at least 1980 by commandeering the levers of power—Wall Street with the repeal of Glass Stegall and deregulation of whole industries, corporate America with now unlimited fund-raising due to their Supreme Court win in citizens vs. united, and gutting of the Voters Rights Act that weakened federal enforcement of voter discrimination against minorities in states with a history of discrimination.

The list goes on and on. So what can be done about it? Make government(s) again the solution, rather than the problem that Reagan liked to intone to his supporters, and that ran up the first record public debt. It wasn’t until President Clinton’s successful attempt to actually create a budget surplus in his last four years (1996-2000) that America first began to pay down that debt.

But the Bush/Cheney government frittered it away with multiple budget cuts and foreign wars, increasing it again rather than diverting the savings to domestic programs that would strengthen America, and led to the Great Recession.

The lesson is obvious. Government wasn’t ever the problem, since Republicans have been willing to spend taxpayers’ money to support their own programs and run up record debt without any intention to pay it back to the American taxpayer.

Instead, government has worked very well when it funded their wars, higher corporate profits, or gone into the pockets of their high-net worth supporters. We should never buy Republicans’ attempt to brand-name government as the problem, particularly when it has benefited them far more than the average American.

Will it save capitalism, as we know it?  Only if we don’t buy the Republicans’ mischaracterizations.  Modern capitalism is really the creation of modern liberal democracies, with its ability to nurture growth and innovation that accompany the democratic checks and balances to prevent its excesses.

So  in saving democracy, we can save a modern capitalism that works for the many.

Harlan Green © 2019

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

When is the Next Recession?

Financial FAQs

Graph: TradingEconomics.com

We are nearing the end of the second-longest growth cycle since the Clinton era’s 10-year 1991-2001 boom years; because once again a huge amount of debt has accumulated that ultimately has to be paid for. Are we dangerously close to the end of this growth cycle, as the Fed tightens credit after years of easy money and consumers then cut back on their spending that powers some 70 percent of GDP growth?

The Clinton era ended with four years’ of budget surpluses, thanks to higher taxes, and caps on government expenditures that included lower defense spending as the USSR disintegrated and the Cold War wound down; a virtuous cycle that paid down the public debt substantially for future generations.

Then GW Bush was elected and he immediately pushed through huge tax cuts, while declaring war on Afghanistan and Iraq after 9/11. This meant massive budget deficits as they hadn’t put aside any monies to pay for those tax cuts and ongoing wars. To make a long story shorter, the massive borrowing that resulted to finance that debt left us with the busted housing bubble and Great Recession.

Which of these endings will we see with the current business cycle, the second-longest since the Clinton era? How will this cycle end with the current wild swings in stock and bond values? Does such uncertainty signal an oncoming recession, as more investors lose faith in the financial markets?

A simplified description of business cycles is economies begin a new cycle with big boosts in borrowing to stimulate additional demand with easier credit after a prior downturn (e.g., 2001 dot-com recession), and end with too much borrowed money in circulation that overextends business activity and ultimately begins the next downturn in business activity (e.g., Great Recession).

And when the day of reckoning comes that requires some of the debt to be paid down—it can be because foreigners flee our credit markets, or record credit defaults as happened with the busted housing bubble—credit is tightened, interest rates rise, and demand declines so that economic growth begins to contract causing millions of job losses.

The US economy is again dangerously over indebted, so much so that Congress cannot find the monies to fund some of the $2.2T in deferred infrastructure maintenance and replacement that would boost growth and create more good jobs. Republicans have instead focused on cutting back health care spending and taxes of businesses that say they don’t plan to spend very much of the savings on increased wages and future investments that would grow more jobs.

“In short,” says New York Times Nobel columnist Paul Krugman, “the effects of the Trump tax cut are already looking like the effects of the Brownback tax cut in Kansas, the Bush tax cut and every other much-hyped tax cut of the past three decades: big talk, big promises, but no results aside from a swollen budget deficit.”

So once again we are approaching that budget precipice of December 2007, which was the beginning of the Great Recession—too much debt with no additional tax revenues to pay for it. The Trump tax windfall has gone to those that invest and spend the least—corporations, their CEOs, stockholders, Wall Street, as I’ve said—while the Federal Reserve will continue to restrict credit to consumers by raising short term borrowing rates.

When do we reach the end of this boom cycle and begin another recession? One indicator is the narrowing difference between short and long term interest rates—the so-called declining Treasury yield curve. Long term rates are still at post-WWII lows, so the gap has narrowed, meaning commercial lenders cannot make much of a profit on what they lend longer term, which also restricts available credit.

Another sign is the very low personal savings rate of consumers today—some 3.4 percent of disposable income (because they must borrow to keep spending). Fourth quarter GDP growth surged to 2.9 percent because consumers went on a spending spree. But Q1 GDP’s advance estimate was lowered to a 2.3 percent growth rate because consumers were tapped out. And most of the tax cuts benefit just 10 percent of skilled professionals and stock holders, according to initial estimates—so this won’t benefit most consumers.

That means government expenditures on public works and other forms of public assistance that directly boost economic growth is needed to mitigate the effects of the next recession, as it did during the Great Depression. The lesson, as always, is our tax dollars should primarily be used for the public good, not to increase the private wealth of wealthy donors and their special interests.

Harlan Green © 2018

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

Aren’t Tax Cuts Wonderful?

Popular Economics Weekly

Those were President Trump’s words on the $3.2 trillion in tax cuts enacted by the Republican majority congress before Christmas. “These are the biggest tax cuts in history, even bigger than President Reagan’s.” He’s right that they will be wonderful for corporations, and the highest income earners, but not for most of U.S.

So President Trump will have to show that these cuts continue to create jobs.  He has promised 10 million jobs in the first four years. The numbers are looking good in his first year, the ninth year of this economic recovery from the Great Recession. But one ingredient is lacking; government job creation. Federal government job rolls shrank during Trump’s first 11 months, and history shows that governments have to hire enough to keep up the job numbers, and provide essential services that aid economic growth.

The real problem is tax cuts have never created many jobs. Though accounting for job creation under the various presidential administrations is tricky since business cycles don’t match presidential terms, they provide a superficial look at which tax policies have worked best.

Graph: Calculated Risk

Taxes were raised during President Clinton’s eight years with 20, 966,000 private payroll jobs created. President Reagan comes in second at 14,717,000, but had to raise taxes 11 times to reduce the ballooning deficit caused by the tax cuts. The difference is that Clinton had no recessions during his terms, while Reagan had two during his early years. But taxes were raised in both cases to create more jobs, in part to fund enough government jobs that are needed to create a fully employed economy.

Under Clinton, 1,934,000 public sector jobs (i.e., federal and state) were created, and 1,414,000 under President Reagan, whereas federal jobs declined 14,000 in Trump’s first 11 months, according to the Washington Post.

Graph: Calculated Risk

President Obama actually lost jobs during his first months as president due to the Great Recession, but ended up with 1,937,000 jobs in his first term and 11,756,000 jobs over eight years. And government payrolls actually declined 268,000 during Obama’s eight years due to a number of factors; which was when Republicans took over control of the House in 2010 and cut federal spending when they cared about deficits.

Alas, that is no longer so, as the new tax bill is actually programmed to add $1.5 trillion to the national debt, and President Trump wants to reduce government budgets by 30 percent in 2018.

It will not create the necessary jobs to keep job rolls full and deficits down. Government spending is necessary to fund all the programs that the private cannot or will not, including health care, public infrastructure, education, and R&D that fund future prosperity.

How did we build our highway system, go to the moon, and create the Internet? With government spending. But that was done before 1980 when government became the problem for Republicans and tax cuts the answer.

Now it seems that budget deficits are no longer a problem for Republicans, and President Trump is counting on those 10 million new jobs to justify the tax cuts. He may be off to a good start, but it is the ninth year of this recovery cycle, and the post- World War II record is ten years that included President Clinton’s term.

Harlan Green © 2018

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

More Republican Lawlessness--Greatest Heist in History

Financial FAQs

The Republican’s tax bill has passed, and it is the greatest theft of taxpayer monies in history; even greater than Presidents’ Reagan and Bush I and II tax cuts that began the immense transfer of wealth to the wealthiest in 1980, starving the government of much needed revenues that would keep the federal deficits under control.

It was written by the very lobbyists Republicans and the Trump administration have cultivated since his election. The stench of the DC swamp that Trump promised to drain has become overwhelming.

More than 130 lobbyists have been hired to work in the administration, and 36 of them have blatant conflicts of interest, working on the same issues they were lobbying on, in violation of Trump’s ethics rules, according to Marketwatch economist Jeff Nutting.

Graph: @clairecmc

“This is so bad. We have just gotten list of amendments to be included in bill NOT from our R colleagues, but from lobbyists downtown,” said Missouri Dem Senator Claire McCaskill. “None of us have seen this list, but lobbyists have it. Need I say more? Disgusting. And we probably will not even be given time to read them.”

The bill will cut Medicare and Medicaid benefits by $1.5 trillion, and could add up to $1.5 trillion to the deficit in 10 years according to the CBO. That’s a $3 trillion outright theft from U.S. taxpayers that makes it the biggest heist in history.  It is why the top 1 percent of earners have garnered almost 100 percent of national income created since the end of the Great Recession. 

As I noted in an earlier column, Harold Myerson said in The American Prospect, “The United States now has the highest percentage of low-wage workers – that is workers who make less than two-thirds of the median wage- of any developed nation. Fully 25 percent of all American workers make no more than $17, 576 a year.”

We know what has happened when Republicans tried this taxpayer heist before. President Reagan and congress has to raise taxes 11 times to make up the deficits created by the first ‘trickle-down’ tax cuts in 1981. Two consecutive recessions followed as Fed Chairman Paul Volcker raised interest rates to record levels at the same time.

Then GW Bush did the same in 2001-03, when he cut taxes again while paying for the wars on terror, resulting in the largest federal deficit at the time, and the Great Recession.

This will not generate enough tax revenue to pay for the additional debt, as I noted in an earlier column, so foreign governments and individuals will become more reluctant to invest in U.S. debt as the deficit continues to grow and interest rates rise, while crowding out other, important investments.

It can happen again. It is suicidal economics. The U.S. won’t declare bankruptcy. But it will saddle future generations with an impossible debt load, and prevent much needed public and private investment that would increase productivity and boost growth.

Harlan Green © 2017

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

Who Really Needs Tax Reform?

Financial FAQs

Firstly, we know this isn’t real tax reform when the respective Senate and House bills allow an additional $1.5 trillion in debt added to the existing $20 trillion of national debt. Why, when during prosperous times such as these with two consecutive quarters of 3 percent GDP growth, good economics tells us it is time to pay down the debt?

It gets worse. Some spending is cut—up to $1.5 trillion in Medicare and Medicaid benefits for the poorest and elderly. And the House bill proposes cutting out the exemptions for property taxes, state and local taxes, as wellas abolishing the estate tax.  The Senate bill cuts the $1 million mortgage interest deduction in half to make up for the loss in tax revenue.

So, instead of a tax cut, the middle and lower income earners actually have an income cut--both in benefits and loss of homeowners' tax deductions.  Real tax reform would mean higher taxes for the wealthiest and the close out of the tax loopholes that enable them to conceal their wealth overseas; rather than pay down the huge federal debt.

And all this is to be done without any input from Democrats. Why would Republicans even try to ram this through with only Republican votes in the first place? Instead of spending the increased tax revenues on reducing our national debt, they want to give it to their wealthiest donors and corporations—that are already making record profits.

It also happened in 2001, when President GW Bush and VP Dick Cheney blithely erased President Clinton’s preceding four years of actual federal budget surpluses with tax cuts for these same people. What was their rationale?

Their actions were based on the thesis of a then unknown economics graduate student, Arthur Laffer, who drew what came to be known as the Laffer Curve on a napkin in a 1974 meeting with Dick Cheney, then President Gerald Ford’s deputy chief of staff. It was a rationalization never confirmed or evidenced by either history or validated by economic theory.

“The conventional wisdom was: You want more revenue, you raise taxes,” Cheney recalled 30 years later, in a Bloomberg interview reenacting that landmark 1974 meeting. “What Art brought to the table with these curves is that if you wanted more revenue, you were better off if you lowered taxes, to stimulate economic growth and economic activity.”

But that didn’t happen. In 2013 the Center for Budget and Policy Priorities estimated that, when the associated interest costs are taken into account, the Bush tax cuts (including those that policymakers made permanent) would add $5.6 trillion to deficits from 2001 to 2018.  This means that the Bush tax cuts will be responsible for roughly one-third of the federal debt owed by 2018.

In other words, the Clinton surpluses were squandered, instead of bolstering the social security and Medicare funds. Brookings Institution economist William Gale and Dartmouth professor Andrew Samwick, former chief economist on George W. Bush’s Council of Economic Advisers, found that “a cursory look at growth between 2001 and 2007 (before the onset of the Great Recession) suggests that overall growth rate was … mediocre” and that “there is, in short, no first-order evidence in the aggregate data that these tax cuts generated growth.”

When will this foolishness stop, and rational economic thinking return to congress? New York Times’ Paul Krugman says: “..anyone who has paid attention to U.S. politics knows the answer. First, they will lie, unashamedly, about what their bill actually does. Second, they will try to distract working-class voters by stoking racial animosity. That didn’t work too well in Tuesday’s elections, but they’ll keep on trying.”

Harlan Green © 2017

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

Trump Voters and The Drug Epidemic

Popular Economics Weekly

Why should so many rust-belt citizens vote for President-Elect Donald Trump, who is patently against the interest of working class voters? I am speaking of his promise to revoke Obamacare, which will make the 20-30 million dependent on it poorer and sicker. And his selection of Oklahoma Attorney General Pruitt to run the EPA, who we know wants to roll back environmental regulations, making everyone warmer, or House Speaker Ryan, who really wants to abolish Medicare as we know it and turn it into a voucher plan.

A recent Penn State study tells us why so many of the poorest and displaced white, blue collar workers voted for him. It was the desperation of depressed families and communities rampant with drug and alcohol abuse, in part from the loss of jobs and the identities that went with holding a decent paying job, who would trust a strong white male with authoritative tendencies who made enough pie-in-the-sky promises more than a female President.

One can say that such desperation leads to an irrational kind of anger, against anything that looks like the old order. Yet it was the old, white male order that created both the Great Recession—because GW Bush’s trickle-down economics cut regulations as well as taxes of the wealthiest, frittering away the budget surpluses of President Clinton’s last 4 years in office—and obstructed a robust recovery by opposing almost any stimulus spending, even shutting down the government in 2011.

The Penn State study showed how hopeless was the situation to the inhabitants now isolated from the modern multi-ethnic, multi-racial, multi-national economy. Most of those industrial, high-paying blue collar jobs are gone, replaced by high tech machines and little effort was made to replace them or rebuild those communities.

Graph: Econoday

The factory sector has been contracting since October 2014, but has recently shown signs of strength. Factory orders surged 2.7 percent in October. Both commercial and defense, were major positives, but the strength was well distributed with the monthly gain excluding all aircraft at a very strong 0.7 percent.

Donald Trump got significantly more votes in areas with high rates of drug addiction, alcohol abuse and suicide, according to the study done by Shannon Monnat, a Penn State researcher who specializes in rural issues.

"I think Trump's anti-free trade message resonated in these places and his rhetoric was very simple -- Make America great again," Monnat said. "And you have to understand that in some of these places that have experienced widespread decline in manufacturing and extraction and the types of jobs that pay livable wages, people there really feel like America is not so great anymore. I think the message that he was the change candidate really resonated with people in these places."

According to Swayne's article, the mortality rate from drugs, alcohol and suicide is 36 deaths per 100,000 people in the least economically distressed parts of the country. The rate is 49 deaths per 100,000 in the most economically distressed areas.

There is now some hope for the rust belt if Trump can carry through on his infrastructure rebuilding promise. After two years in contraction, factory orders year-on-year rates are again positive, at 1.3 percent, and for shipments, at 0.4 percent. October details included a useful 0.4 percent rise in shipments and a 0.7 percent jump in unfilled orders that ended a long run of contraction for this reading.

We hope the factory sector and manufacturing in general can recover in those areas most affected by high addiction rates.  The CDC reported in a 2007 report that more people now die from heroin overdose that gun homicides in those same rust-belt areas. And opioid deaths continued to surge in 2015, surpassing 30,000 for the first time in recent history, according to CDC data released Thursday. That marks an increase of nearly 5,000 deaths from 2014. Deaths involving powerful synthetic opiates, like fentanyl, rose by nearly 75 percent from 2014 to 2015.

Harlan Green © 2016

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

What Is the Future of Interest Rates?

The Mortgage Corner

The deficit is moving to the back burner with Donald Trump and congressional Republicans in charge of Washington, and that is causing interest rates to rise quickly. Republicans leaders on Capitol Hill are now papering over divisions with Trump and deficit hawks are sounding the alarm, reports Politico.

“There is now a real risk that we will see an onslaught of deficit-financed goodies — tax cuts, infrastructure spending, more on defense — all in the name of stimulus, but which in reality will massively balloon the debt,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget.

 
So it's no longer a secret that bond yields are rising, with the 10-year bond yield now at 2.25 percent up from 1.71 percent just one week ago. But this is still far below the 4-6 percent yields in mid-2000, when 4 percent inflation and 6 percent fixed rates prevailed.

Calculated Risk’s Bill McBride predicts higher mortgage rates ahead, though still at historic lows. “With the ten year yield rising to 2.25 percent today, and based on an historical relationship, 30-year rates should currently be around 4.1 percent,” he said.

The 30-year conforming mortgage rate is already approaching that rate, with 30-year fixed rates @3.625 percent for a 1 pt. origination fee (3.875 percent for 0 pts.), and the Hi-Balance conforming fixed rate now 3.875 percent for 1 pt. origination, up ¼ percent just from last Friday.

Graph: St. Louis Fed

So we know part of the reason the 10-year Treasury--the main determinant of mortgage rates--is rising so quickly, after staying below 2 percent for most of this year. It’s also partly because we are at full employment while incomes are rising, and rising wages are two-thirds of product costs. Hence companies will raise their prices in response to such rising costs.

But that alone can’t account for such a quick rise. It has to be because investors and the financial markets are anticipating that President-elect Trump will be able to push through a massive, possibly $1 trillion plus infrastructure rebuilding with little thought to the budget deficit, as Politico reports.  It was a campaign promise, and he also wants to cut taxes.

This happened in 2001, when GW Bush pushed through massive spending to pay for his Wars on Terror, while also cutting taxes. His budget deficit therefore increased, and bond markets in particular don’t like large deficits, as it means too many bonds are in circulation to pay for those deficits, which reduces their price—and bond yields rise in inverse proportion to falling bond prices.

Graph: Calculated Risk

There’s also the anticipation that this will cause future inflation with so much money flooding into the economy at once. The above Calculated Risk graph shows the historical relationship between the 10-year bond yield and 30-year fixed mortgage rates.

We are therefore lucky at this late stage of a recovery to still see 4 percent fixed mortgage rates. One can see when the 10-year yield returns to a more normal 3.5 to 4 percent yield, fixed mortgage rates could almost double.

That’s why the 30-year fixed rate mortgage rose as high as 6.48 percent in 2006 at the top of the housing bubble. Will this hurt first-time homebuyers in particular? Not if inflation and housing prices don’t rise as fast, and construction can keep up with the rising demand for new homes.

Harlan Green © 2016

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

The Divided States of America

Financial FAQs

It is now becoming obvious that we are not a United States of America. There are many states that restrict voting rights, abortion rights, immigration, even the collective bargaining rights of workers that are no longer able to negotiate for their own living wages.

This is when the media is lamenting the possible breakup of the European Union with Great Britain’s Brexit vote to depart from the EU. But the US is breaking up in far more serious ways, even without the influx of millions of Muslim refugees that Europe has to deal with and is causing its drift to xenophobia and the fear of foreigners.

The US in many ways is still fighting the Civil War of 150 years ago, with the defacto apartheid of poor vs. wealthy neighborhoods, and the police killing of blacks at traffic stops. A recent study by the New York based Center For Policing Equity showed that African Americans are more than 3 times as likely to be beaten, bitten by police dogs, pepper sprayed, Tasered, or shot, according to the New York Times.

There are now 26 right-to-work states that either don’t allow workers to join unions, or pay dues, or bargain collectively for their wages, even when their workplace may be under a union contract. This has resulted in those states having the greatest income inequality and lowest wage-earners.

Graph: Wikipedia

There are a very similar number that restrict abortions—even in the case of rape for women—and restrict voting rights when the Voting Rights Act was gutted by a 5-4 Supreme Court vote in 2015.

And it is many of those same states that don’t allow convicted felons that have served their time from voting—as many as 30 percent of voter-age African Americans in southern states, thanks to the War on Drugs, according to Michael Moore’s movie, Where To Invade Next. GW Bush probably only won Florida because some 80,000 ex-felons were stricken from the voting roles—mostly in Democratic-leaning counties.

This is why African-Americans now comprise 50 percent of our 2.3 million prison population when they are 12 percent of our population. It provides the cheap labor that prison factories have used to generate products for most large corporations plus the military—another form of slave labor.

Florida leads the pack in the number of citizens excluded. According to Desmond Meade of the nonprofit Florida Rights Restoration Coalition, "Over 1 million people in Florida right now are disenfranchised. Nearly 1 in 3 of them are African American men.” If these people were able to vote, Meade continues, "Florida would no longer be a swing state."

But according to the Brennan Center for Justice, 48 states (exceptions: Maine and Vermont) prohibit current prisoners with felony convictions from voting and 29 of them also bar those on probation or parole. All told, felony disenfranchisement prevents more than from voting. And of the four states that permanently bar voting by former felons—Kentucky, Florida, Iowa, and Virginia—the latter three are battleground states.

Then there are the gun laws. Only 6 states restrict or outright ban the sale of military-style assault weapons, when more than 30,000 gun deaths are recorded every year, and Orlando-style massacres occur because of unlimited magazine sizes of those same assault weapons.

What is behind the defacto civil war still raging? Many economists says it’s the globalization and export of good jobs to developing countries with cheaper wages that have hurt those blue collar workers in the poorer states.  But too many blame immigrants, or nonwhites, or anyone not belonging to their tribe. But we also have to look at the monopoly power of corporations that have pushed such free trade treaties, suppressing their employees’ wages while paying their executives record incomes.

In fact, these states have in many ways already withdrawn from the United States of America in trumpeting state and local rights over inalienable rights. It is just a modern incarnation of our ongoing Civil War.

Harlan Green © 2016

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

Housing Now Leading Economic Recovery

Popular Economics Weekly

Harvard economist and GW Bush chief economic advisor Greg Mankiw’s recent New York Times Upshot column attempts to explain why US growth is so slow. “Here is the sad fact,” he says: “Over the last decade, the growth rate of real G.D.P. per person has averaged just 0.44 percent per year, compared with the historical norm of 2.0 percent. At a rate of 2.0 percent, incomes double every 35 years. At a rate of 0.44 percent, it takes about 160 years to double.”

And Mankiw blames it on policy missteps. E.g., when Barack Obama took office in 2009, the economy was in the midst of the Great Recession, and President Obama’s advisers relied on standard Keynesian theory when they proposed a large increase in government spending to energize the economy.  But it wasn't enough.

Instead of waiting for the stimulus spending to take effect, Obama listened to conservative economists (such as G Mankiw) and supported tax increases too soon in an attempt to pay down the debt accumulated during the Bush administration. The economy hadn’t yet recovered from a very Great Recession. President Roosevelt made the same mistake in 1937 when he also raised tax rates with a Republican Congress, which shrank growth so much that it prolonged the Great Depression.

We do have more signs of improved growth led by housing sales, which may offset some of the policy missteps--due in large part to misjudging the depth of the Great Recession. Sales of previously owned homes increased in May to the highest level in nearly a decade, reports the National Association of Realtors, another sign of durable demand in the housing market despite ongoing headwinds. And a recovering housing market has historically been a leading economic indicator of healthier consumers, hence future growth.

Graph: Calculated Risk

Existing-home sales rose 1.8 percent to a seasonally adjusted annual rate of 5.53 million, the National Association of Realtors said Wednesday. That was 4.5 percent higher compared to a year ago and the highest pace since February 2007 during the housing bubble.

Lawrence Yun, NAR chief economist, says existing sales continue to hum along, rising in May for the third consecutive month. "This spring's sustained period of ultra-low mortgage rates has certainly been a worthy incentive to buy a home, but the primary driver in the increase in sales is more homeowners realizing the equity they've accumulated in recent years and finally deciding to trade-up or downsize," he said. "With first-time buyers still struggling to enter the market, repeat buyers using the proceeds from the sale of their previous home as their down payment are making up the bulk of home purchases right now."

Any recovery depends on boosting aggregate demand—the demand for goods and services from all sectors of the economy, including governments. And to date the Obama administration has been too lax in encouraging both private and public investment that would expand capacity, and so productive jobs.

This is particularly true of government jobs. State and local government employment has been the largest drag on job growth. State and local governments lost 129,000 jobs in 2009, 262,000 in 2010, 247,000 in 2011, and 29,000 in 2012, for a total of 669,000 jobs lost due to the Great Recession. 

Through November 2015, reports Calculated Risk, state and local employment is up a net 70,000.   So, in the aggregate, state and local government layoffs are over.  However state and local government employment is still 561,000 below the pre-recession peak.  It is public sector jobs that have suffered the largest decline due to the Great Recession, in other words. Here is the comparison during presidential terms of government job creation.

Graph: Calculated Risk

The public sector grew during Mr. Carter's term (up 1,304,000), during Mr. Reagan's terms (up 1,414,000), during Mr. G.H.W. Bush's term (up 1,127,000), during Mr. Clinton's terms (up 1,934,000), and during Mr. G.W. Bush's terms (up 1,744,000 jobs).

However public sector declined significantly since Mr. Obama took office (down 638,000 jobs in 2015). These job losses have mostly been at the state and local level, but more recently at the Federal level.  This has been a significant drag on overall employment, needless to say.

How does one boost additional growth with a no-compromise Republican Congress that resists any and all Obama initiatives? (Yet he was able to pass Obamacare, but unable to defend it, resulting in the all-Repub 2014 Congress!).

So public employment is as important as private sector jobs. Not only does this put more people to work, but it provides the necessary energy-transportation-communication networks without which private industry cannot operate.

Harlan Green © 2016

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

Middle Class Finally Gets A Raise

Popular Economics Weekly

A new rule announced by the Obama administration will, effective December 1, double the overtime-pay salary threshold and set it to automatically increase every three years. It’s about time. The salary of employees has been diminishing since the 1970s, as a share of the economic pie, believe it or not. While the profits of businesses are at record highs, as a percentage of GDP.

The high point of employee earnings was 50.1 percent of Gross Domestic Income in 1970, a proxy for Gross Domestic Product, and the current low point is 42.5 percent.  Why the discrepancy? It’s complicated, but has resulted in the decline of middle class wealth—and so of the middle class itself. The Obama administration, thanks to Labor Secretary Thomas Perez, is set to correct the deficiency.

The Labor Department says about 4.2 million workers will gain overtime benefits as a result of the rule, though the labor think tank Economic Policy Institute, which has argued strongly in favor of the rule, says this is a major undercount. Up to 13.5 million employees could be affected.

Americans’ paychecks have not kept pace with their productivity in part because millions of lower-middle-class and even middle-class workers are working overtime but not getting paid for it. President Obama directed the Labor Department to modernize the rules that require employers to pay workers time-and-a-half if they work overtime. The department issued a proposed rule to raise the overtime threshold from $455 per week, or $23,660 per year, to a “standard salary level equal to the 40th percentile of earnings for full-time salaried workers,” which is $921 per week in 2013 dollars, or $933 per week adjusted to 2014 dollars.

Salaried workers whose earnings are $933 per week or more can be exempted from the right to receive overtime if they fall into one of three categories: professionals, administrators, and executives. Each of these exempt categories is defined by a set of duties showing that the exempt employee is skilled and exercises independent judgment, or is a boss with a department and employees to supervise.

Unfortunately this rule was ignored by the Bush administration when the overtime pay rule was last adjusted.

The threshold was kept at $23,660 per year, and even those workers were required to work overtime, even though they had little or no management duties.

The result has been record corporate profits, and very low productivity improvements with little incentive for businesses to raise workers’ wages or make investments that would create more jobs.Why does private business have so little incentive to put some of their record profits to productive use? Nobelist Joe Stiglitz and other economists have labeled it “Monopoly’s New Era”.

“Capitalists are rewarded for saving rather than consuming – for their abstinence, in the words of Nassau Senior, one of my predecessors in the Drummond Professorship of Political Economy at Oxford (in order to pass their wealth on to succeeding generations)…The second school of thought takes as its starting point “power,” including the ability to exercise monopoly control or, in labor markets, to assert authority over workers.”

 In other words, Big Business in particular has since the 1970s focused on maximizing profits, not to create even more wealth for their employees or communities, but to pass it on to future generations. Economist Thomas Piketty has labeled it a return to Europe’s Gilded Age when most of the wealth was inherited.

US President Barack Obama’s Council of Economic Advisers, led by Jason Furman, has attempted to tally the extent of the increase in market concentration and some of its implications, says Stiglitz. In most industries, according to the CEA, standard metrics show large – and in some cases, dramatic – increases in market concentration. The top ten banks’ share of the deposit market, for example, increased from about 20 percent to 50 percent in just 30 years, from 1980 to 2010. Hence the need for Dodd Frank to avoid any more ‘too big to fail’ scenarios.

And the result is our middle class is shrinking, the economic class that is the most productive in our society. After more than four decades of serving as the nation’s economic majority, the American middle class is now matched in number by those in the economic tiers above and below it, reports a recent PEW Research study.

In early 2015, 120.8 million adults were in middle-income households, compared with 121.3 million in lower- and upper-income households combined, a demographic shift that could signal a tipping point, according to a new Pew Research Center analysis of government data.

Over the same period, however, the nation’s aggregate household income has substantially shifted from middle-income to upper-income households, driven by the growing size of the upper-income tier and more rapid gains in income at the top. Fully 49 percent of U.S. aggregate income went to upper-income households in 2014, up from 29 percent in 1970. The share accruing to middle-income households was 43 percent in 2014, down substantially from 62 percent in 1970.

So it’s no surprise that economic growth has slowed. There are fewer households that tend to spend their earnings into the economy, which would generate the jobs and future economic growth. This is something the wealthiest do not do—they tend to save most of their wealth for other uses.

Harlan Green © 2016

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