What Happens Next?

 Financial FAQs

“In an interview with Fox News on Sunday, Trump refused to rule out a recession for the U.S. this year, implying his tariff strategy and attempts to cut government spending were part of a necessary transition that in the short term could cause problems for the world’s biggest economy.” MarketWatch

AtlantaFedGDPNow

I find it laughable that President Trump is now saying the ‘R’ word on a Sunday talk show, when one of his most famous campaign promises was that “Starting on day one, we will end inflation and make America affordable again, to bring down the prices of all goods.”

So the question to ask is, what happens next when and if he succeeds in enacting his agenda? We should know by now it isn’t words but his administration’s actions that will determine (or hinder) how much the economy and prices will grow (or shrink) this year.

In fact, Trump has inherited a fully employed and still growing economy. Prices and inflation can’t come down in such a situation because there is more demand (i.e., money in circulation) than goods available. It’s good old Economics 101 that is taught in business classes.

But economists do agree on what would bring prices down, a recession. Many economists and pundits have been looking at the Atlanta Fed’s estimates of first quarter GDP growth, and been seeing the possibility of the ‘R’ word.

Why? It’s mainly because consumers have been spending less since the holidays, in part because they are losing confidence that they may even have a job, or the ability to change jobs in the future. Why wouldn’t they lose confidence when “chainsaw Musk” cuts federal jobs with abandon and the newly jobless federal workers competing in the private sector?

That why first quarter growth estimates, such as the Atlanta Fed’s GDPNow estimate have fallen.

“The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2025 is -2.4 percent on March 6, up from -2.8 percent on March 3,” is their latest

That’s also why the stubbornly high inflation and interest rates are making creation of a new fiscal budget so difficult. Republicans want the tax cuts they promised to spark more spending, which is inflationary, but need Democrats to agree. Yet Democrats don’t want the cuts to social security, Medicare, and Medicaid that Trump said would never happen, but must happen for any preservation of the tax cuts enacted during Trump’s first term.

Hence there will probably be a so-called continuing resolution to keep the existing budget until end of the fiscal year in September. This will avoid a possible government shutdown, but what then?

This week’s news will be mostly about inflation, since February’s Consumer Price Index and wholesale Producer Price Index will come out that may paint a clearer inflation picture, and whether the Fed might resume cutting interest rates.

And we need not only to be talking about the prospects for higher prices from tariffs, but also the trade disruptions that tariff wars cause, because President Trump will antagonize both friend and foe in his flailing (and counterproductive) attempts to decree rather than negotiate a new foreign trade policy.

There is something seductive to many voters about a new foreign trade policy that promises to bring more jobs home. But firstly, it’s more expensive to make things in the U.S., which is why we import more than we export. And with Trump making enemies of our friends and closest allies, they will be sure to reciprocate with higher tariffs.

Trump has to know that is no way to do business from his history of bankruptcies and lawsuits. He has always chosen confrontation over cooperation to get what he wants, and the financial markets as well as consumers will soon figure this out. The only question is when, and what happens next.

Harlan Green © 2025

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

Don't Blame the Workers

Popular Economics Weekly

FREDavghourlywages

What are we to make of Senator Elizabeth Warren’s reaction to Fed Chair Powell’s recent remarks on inflation?

“He’s pushing hard to get more people fired because he thinks that is one way to help bring down inflation,” Sen. Elizabeth Warren (D-Mass.) told HuffPost on Wednesday. “But it’s sure painful for the families who lose their jobs.”

But that is not the only way to bring down inflation, because a tight labor market is not even the major cause of current inflation.

Powell had said in his press conference after last Wednesday’s FOMC meeting, “Really there’s an imbalance in the labor market between supply and demand so that part of it, which is the biggest part, is likely to take a substantial period to get down.”

The Fed Governors didn’t like the November unemployment report that 263,000 nonfarm payroll jobs were created, and average hourly wages are still rising 5.1 percent annually. Jobs were created in every job category except retail/trade and transportation/warehousing.

In other words, the Fed Governors have been saying they won’t know if inflation has been conquered without higher unemployment, which means the unemployment rate rising to 5 or 6 percent from its current 3.7 percent.

Why? Because they believe rising wages are a major cause of inflation since wages and salaries make up two-thirds of product costs. But that doesn’t mean they make up two-thirds of the current inflationary surge.

The Fed has made workers’ wages the culprit of high inflation since the wage-price spiral of the 1970s, when an overly accommodative Federal Reserve kept the credit spigot open to combat soaring oil prices. Unions had bargaining power then and it resulted in wages keeping up with inflation.

So top business leaders formed the Business Roundtable and began spending Big Bucks on lobbying and campaign contributions to weaken labor unions and introduce legislation that cut taxes, resulting in ‘trickle-down’ economic policies that lowered taxes for the wealthiest while asserting that some of their wealth would trickle down to workers.

It was the beginning of an economic counter-revolution, instituted to counter the influence of Keynesian, New Deal, economics that had prevailed since the Great Depression.

But we know that not much trickled down, in part because newly enacted laws not only restricted unions’ bargaining power but cut social programs as well.

We also know that prices have been rising even faster than production costs since the pandemic in various studies, including one such I reported by Nobel Laureate  Joe Stiglitz that showed corporate profit margins are the highest since 1950, and as a percentage of Gross Domestic Product.

This is while the current 5.1 percent average hourly wage rise of employees doesn’t even match the current annual inflation rate of 7.1 percent. Wages after inflation have been falling 1.9 percent annually since the pandemic, so they now make up a smaller portion of costs.

Wages and household incomes haven’t kept up with inflation since the 1970s. So Big Business did its job of suppressing the incomes of salaried workers during all those years of trickle-down economics.

It was also the beginning of record budget deficits, since Big Business justified the tax cuts by invoking President Reagan’s famous assertion that “deficits don’t matter”.

But deficits matter now because of record spending needed to vanquish COVID and assist the Ukraine in its war with Russia. So this is the wrong time to be penalizing workers and shrinking the American economy into a probable recession.

Harlan Green © 2022

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

 

The American Rescue Plan Must Pass

 Popular Economics Weekly

Calculated Risk

The number of job openings was little changed at 6.6 million on the last business day of December, the U.S. Bureau of Labor Statistics reported yesterday. Job growth slowed in January with just 49,000 net payroll jobs created, which is why even Fed Chair Janet Yellen maintains the American Rescue Plan currently in debate must pass.

Janet Yellen said on Sunday the country was still in a “deep hole” with millions of lost jobs, but that President Joe Biden’s $1.9 trillion relief plan could generate enough growth to restore full employment by next year.

“There’s absolutely no reason why we should suffer through a long, slow recovery,” she said.

Otherwise, the Congressional Budget Office projects the unemployment rate could remain elevated for years to come and take until 2025 to get unemployment back to 4 percent, in a recent CBO analysis done on the effects of raising the national minimum wage to $15 per hour by 2025. The jobless rate stood at a half-century low of 3.9 percent a year ago before the pandemic.

Barron’s reports retailers, warehousing, construction, durable-goods manufacturing, and healthcare lost a combined 110,000 jobs in January—all for the first time since last April.

The above graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS. The sharp spike in red columns showed how severe were last year’s job losses, with 20 million jobs lost last April and May 2020. Layoffs and Discharges were back down the 5.5 million in January.

In December, the number of hires decreased to 5.5 million (-396,000), per the BLS. Hires decreased in accommodation and food services (-221,000); transportation, warehousing, and utilities (-133,000); and arts, entertainment, and recreation (-82,000). Hires increased in retail trade (+94,000).

Nfib.com

The NFIB Small Business Optimism Index also declined in January to 95.0, down 0.9 from December and three points below the 47-year average of 98. Owners expecting better business conditions over the next six months declined seven points to a net negative 23%, the lowest level since November 2013, said the report.

Small business owners are just as excited as consumers in seeing more economic aid from the congress, in part because a separate survey from the NFIB showed a third of small businesses reported in January that they had vacancies they could not fill, with 28% of those for skilled workers.

“As Congress debates another stimulus package, small employers welcome any additional relief that will provide a powerful fiscal boost as their expectations for the future are uncertain,” said NFIB Chief Economist Bill Dunkelberg. “The COVID-19 pandemic continues to dictate how small businesses operate and owners are worried about future business conditions and sales.”

There is some concern that it could be too much aid on top of the recently passed $900 trillion aid package. But how else do we get the 10 million that lost their jobs back to work that want to work? There is an additional 4 million that have stopped looking for work.

The task at hand must bring back a US and world economy under attack by an enemy that has inflicted far more casualties than any war.

Harlan Green © 2020

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

A 'New' New Deal

 Popular Economics Weekly

FREDgdpgrowth

Even before his inauguration, the Biden administration announced its ‘new deal’ for a new administration doing government’s business as we recover from the worst recession since the Great Depression of the 1930s. Yes, this is the worst of the worst as the FRED graph dating from 1950 shows. Only government at such a time of need can provide aid to businesses and working Americans.

President Biden’s first priority will be closing the income inequality gap that has persisted since the 1970s when most of the fruits of increased productivity and technology were kept by the owners of capital rather than paid to their employees.

This is when we have just witnessed one of the consequences of that inequality, as I said last week—the storming of the US Capital by extreme-right terrorists bent on overthrowing our duly-elected government that was verifying the electoral victory of President-elect Joe Biden and Vice president-elect Kamala Harris.

Here is what the Biden administration is proposing to Congress:

• · Direct payments of $1,400 to most Americans, bringing the total relief to $2,000, including December’s $600 payments
• · Increasing the federal, per-week unemployment benefit to $400 and extending it through the end of September
• · Increasing the federal minimum wage to $15 per hour
• · Extending the eviction and foreclosure moratoriums until the end of September
• · $350 billion in state and local government aid
• · $170 billion for K-12 schools and institutions of higher education
• · $50 billion toward Covid-19 testing
• · $20 billion toward a national vaccine program in partnership with states, localities and tribes
• · Making the Child Tax Credit fully refundable for the year and increasing the credit to $3,000 per child ($3,600 for a child under age 6)

It is a lot to ask of American taxpayers with more than $3 trillion already appropriated to keep the United States from sinking even deeper into a long term depression. Cash payments and extended unemployment benefits will boost incomes, while raising the minimum wage will double what was a starvation-level minimum wage to $2,580/month with a 40-hour week that barely rectifies the disparity.

Less obvious is the child tax credit that makes childcare more affordable as well as improving K-12 education. A huge income and opportunity gap has yawned between high school and college educated citizens, which has caused an alarming increase in “deaths of despair” from alcohol and drug abuse among high school-educated, unemployed males that have suffered from the pandemic.

Incoming Treasury Secretary Janet Yellen at her confirmation hearing said, “It will be my core focus if I’m confirmed as Treasury secretary to focus on the needs of American workers, those living in cities and rural areas, and to make sure that we have a competitive economy that offers good jobs and good wages.”

The coronavirus pandemic has reinforced the need for an economic science that recognizes the needs of all Americans. As many have said before, we are all poorer if we ignore the plight of the poorest.

Harlan Green © 2020

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

Finding Path to Greater Equality

 

Popular Economics Weekly

Finding the Path to Greater Equality

CenterforEquitableGrowth

 Economic theory is finally catching up to political theory in showing policymakers how to right the record income inequality—worst in the developed world—that has plagued working Americans since the 1970s.

It is about time when we have just witnessed one of the consequences of that inequality—the storming of the US Capital by extreme-right terrorists bent on overthrowing our duly-elected government that was in the midst of verifying the electoral victory of President-elect Joe Biden and Vice president-elect Kamala Harris.

Economists are modernizing New Deal Keynesian economics that brought us out of the Great Depression and World War II, the economics that says government must be part of the solution to today’s problems, including the protection of workers’ rights, the environment, and keeping America strong and prosperous for all Americans, not just the 1 percent.

For instance, a recent MIT research project confirmed that Four decades ago, for most U.S. workers, “…the trajectory of productivity growth diverged from the trajectory of wage growth. This decoupling had baleful economic and social consequences: low-paid, insecure jobs held by non-college workers; low participation rates in the labor force; weak upward mobility across generations; and festering earnings and employment disparities among races that have not substantially improved in decades.”

Much of that divergence was caused by trickle-down economics, a political theory from the Reagan era that rationalized making the wealthy wealthier with the teaser that some of that wealth might trickle down to the 80 percent, which are wage and salary earners that power most economic activity.

While new technologies have contributed to these poor results that promote labor-saving AI and robotics, researchers are now saying these outcomes were not an inevitable consequence of technological change, nor of globalization, nor of market forces. Similar pressures from digitalization and globalization affected most industrialized countries, and yet their labor markets fared better.

It was, “…the decay of unions and collective bargaining, the explicit hardening of business (by the Business Roundtable formed in the 1970s), the popularity of right-to-work laws (mainly in conservative red states), and the fact that the wage lag seems to have begun at about the same time as the Reagan presidency all pointing he same direction: the share of wages in national value added may have fallen because social bargaining power of labor has diminished,” said the MIT study.

And therein lies the solution that only government policymakers and legislators can enact by expanding government healthcare, raising the minimum wage, more progressive taxation, making college education more affordable, and expanding workers’ collective bargaining rights that red state right-to-worker laws have drastically curtailed.

This list of economic can-dos has been obvious to any professional economist that has not been defending the one percent’s right to most of the wealth created by working Americans.  Free market ideologies have held sway for the past 40 years—not based on empirical research—that advocated unfettered economic growth by any means, and enshrined maximized profits as the greatest good, while ignoring business ethics and a morality that promotes caring for our brothers and sisters.

The economic disparities are growing due to the pandemic, as I reported earlier. In April, nearly 12 million low-wage workers were laid off, while some 6 million workers who were earning between $18 to $29 an hour were laid off. By November, all but 400,000 of those workers earning $18 to $29 an hour had returned to work, Raj Chetty, a Harvard economics professor, has said. Meanwhile, some 6 million workers who earned less than $13 an hour have yet to return to work.

Now the coronavirus pandemic has reinforced the need for an economic science that recognizes we are all in this together.  As many have said before now, we are poorer if we ignore the plight of the poorest.

Harlan Green © 2020

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

Ending Our Economic Civil War—Part II

 Answering the Kennedys’ Call

MarketWatch

President-Elect Joe Biden can call a truce from the ongoing Red vs. Blue states economic civil war with just announced picks of his economics team, including Janet Yellen as Treasury Secretary and the economic advisors.

They are what have been called “progressive” economists because they advocate a national government that works for all the people in red and blue states, including stronger labor laws to protect wages and benefits of the salaried workforce that has been suppressed since the 1980s, causing most of the record income inequality we have today.

Janet Yellen is a UC Berkeley economist known for her labor expertise in advocating policies that combat income inequality. She worked to keep interest rates low when she was Fed Chair and advocated more public investments that the private sector avoided as Obama’s chief economic advisor.

Biden’s other progressive economists include Wally Adeyemo for deputy secretary of the Treasury; Cecilia Rouse as chair of the Council of Economic Advisers; and Jared Bernstein and Heather Boushey as members of the Council of Economic Advisers, all advocates of New Deal, Keynesian economics that cured the Great Depression.

Nobel Laureate Paul Krugman said on MSNBC that the advisors are incredibly qualified--even overqualified for the job—since anyone of them could be Biden’s CEA chair and chief economic advisor.

“It is no secret that the past few decades of widening inequality can be summed up as significant income and wealth gains for those at the very top and stagnant living standards for the majority,” Yellen said in a speech to a conference on inequality sponsored by the Boston Fed.

In her conference slide show, Professor Yellen showed that after adjusting for inflation, the average income of the top 5 percent of households grew by 38 percent from 1989 until 2013, Yellen said. By comparison, the average real income of the other 95 percent of households grew less than 10 percent.

Federal Reserve

Increasing the income of ordinary Americans will not only increase economic growth with their consumer spending (which even Henry Ford understood), but the concomitant rising tax collections will also help pay down the $1 trillion annual budget deficit engineered by the 2017 Republican tax cuts.

Higher taxes would also help to bring down the deficit. But Republicans that only love budget deficits when it means lower taxes for them, must be convinced that public service projects (e.g., infrastructure) or social programs (e.g, health care) are necessary for a strong economic recovery.

This economy cannot even begin to dig itself out of the COVID-19 pandemic damage to growth and jobs unless massive government aid is injected that includes social programs such as expanded health care that will aid the recovery.

In fact, due to the seriousness of this virus, economists are beginning to discuss the possibility of a ‘double-dip’ recession occurring due to the “dark winter” epidemiologist are predicting ahead for the pandemic.

“Our failure to protect ourselves has caught up to us” said New York Times’ infectious disease expert Donald J. McNeil, Jr. in a recent front-page article. “The nation must endure a critical period of transition, one that threatens to last for too long, as we set aside justifiable optimism about next spring and confront the dark winter ahead.”

He said there are epidemiologists predicting a doubling of the death toll by next March—to more than 500,000, which is approaching the 675,000 deaths estimated to have occurred during the 1918 Spanish flu pandemic.

McNeil also cites a recent U. of Washington study that estimates 130,000 lives could be saved by February if mask use became universal in the US immediately.

Unfortunately, this modern economic war had been caused by one political party’s nostalgia for an illusory past with their attempts to limit government’s role by repealing Obamacare and undermining support needed to conquer this virus, as well as a White House that won’t institute a national mandate to wear masks and socially distance in the name of personal responsibility.

And, “The regions of the country now among those hit hardest by the virus;” continued McNeil, “Midwestern and Mountain States, and rural counties, including in the Dakotas, Iowa, Nebraska and Wyoming; are the ones that voted heavily for Mr. Trump in the recent election.”

A majority of Americans in this election—six million and counting—have said that the income and wealth inequality resulting from owners garnering the lion’s share of income and wealth will no longer be tolerated with their choice of President-Elect Biden.

It has taken natural or human-made catastrophes--such as wars and disease-caused pandemics—to bring Americans together in past times. Let US not lose this opportunity the COVID-19 pandemic presents to end the economic civil war and begin a new economic peace.

President-Elect Biden looks to have picked his economic advisors that will do just that.

Harlan Green © 2020

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

Nobelist Daniel Kahneman on Thinking, Fast and Slow

Financial FAQs

Amazon

Thinking, Fast and Slow; what else should Nobel Laureate Daniel Kahneman be noted for, the son of Lithuanian Jewish parents fleeing the Russian Empire in the 1920s who grew up to the sound of black boots marching during the Nazi occupation of Paris, if not the study human behavior in both wartime and peacetime?

This was the second year Dr. Kahneman came to Westmont’s annual Breakfast Lecture series that packed the Santa Barbara Hilton’s largest ballroom. I’m sure many were there because they were looking for some insight into how our species may react to the current coronavirus scare that some are characterizing as a ‘Black Swan’ event (mostly economists), meaning a very serious event with no predictable outcome.

Dr. Kahneman emphasized that our decision-making propensities come from different parts of the brain that cause us to both ‘narrow frame’ (fast process) and ‘broad frame’ (slow process) the information we take in. And we need both parts to reach a rational decision that is in our best interests.

We have a tendency, or bias, to come to a conclusion or make a decision quickly, but Dr. Kahneman says not so fast! We need the slower-thinking side of us to see the larger picture. He said it can be just a matter of closing one’s eyes for a few minutes that slows down our thought process while allowing us to process what we’ve just taken in intuitively.

We should take the time to collect all the pertinent, ‘cognitive’ facts, in order to slow down our first reaction to what is right in front of us. He used several examples of narrow vs. broad frame thinking, such as forecasting future events, or diagnosing the high rate of skin cancer among farmers.

I was particularly interested in his take on how we make economic decisions. He is at the foundation of behavioral economics, or how humans make financial decisions that are not always in our best interest; particularly if we allow so-called free, unregulated financial markets to make choices for us.

There are now at least three Noble prizes that have been awarded for information biases in how we take in information and make decisions on how to intelligently invest. And they are mostly Keynesian, or neo-Keynesian economists that believe governments must take an active role in regulating markets to prevent excessive speculation, for instance, as happened with the Dot-com bubble in 2001, or housing bubble that resulted in the Great Recession.

Nobel economist Robert J Shiller described in his best-selling book, Irrational Exuberance how many investors and homebuyers relied on rumor, hearsay, or word of mouth, rather than serious research to buy a home, or invest in the financial markets and thereby drive up asset prices (such as housing) to unsustainable levels.

Economists and Psychologists call it herd behavior when investors flock to a particular investment because others are doing the same, rather than researching the history of the company or index to see if it is overvalued.

Dr. Kahneman and his partner, Amos Twersky, found that humans have an optimistic bias in forecasting favorable outcomes that we must be aware of, when making decisions based on those forecasts. We therefore need to look at the broader picture.

How will the lowering of interest rates, as the Fed is currently doing, affect both poor and wealthy consumers, for instance? Should we save more and spend less in the event of an economic slowdown or recession?

Stocks are overvalued in this 11^th year of the current recovery just by looking at the current price-to-earnings ratio of the S&P. Why? The record profits of those corporations cannot be sustained with slower population growth and labor productivity—the two main factors that determine economic growth. Their earnings, the denominator of the P/E ratio, will therefore shrink, causing the ratio to rise above historical levels, hence certain stock assets become overvalued and will eventually fall.

That is what happened during the 2001 Dot-com stock bubble and 2007-09 Great Recession. P/E ratios soared to levels last seen before the Great Depression, which means history does provide lessons, if heeded.

Here are two of behavioral economist and Nobel prize-winner Robert J Shiller’s most memorable statements in Irrational Exuberance: “ 'It amazes me how people are often more willing to act based on little or no data than to use data that is a challenge to assemble.”…'The ability to focus attention on important things is a defining characteristic of intelligence."

We know it’s best to slow down one’s thinking process before making an important decision. But how often do we?

Harlan Green © 2020

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

The Historical Decline in US Growth

The Mortgage Corner

@GregDaco

Nonfarm business sector labor productivity decreased 0.3 percent in the third quarter of 2019, first decline in 5 years, the U.S. Bureau of Labor Statistics reported, as output increased 2.1 percent and hours worked increased 2.4 percent…From the third quarter of 2018 to the third quarter of 2019, productivity increased 1.4 percent, reflecting a 2.3-percent increase in output and a 0.9-percent increase in hours worked.

This almost arcane statistic followed by professional economists is one of two major reasons US economic growth has slowed to a crawl, as seen in the graphs. Individual workers are no longer producing as much per worker as they did through 2000, even with a fully employed economy and the introduction of modern technologies that boost production.

Another reason is declining population growth, as American mothers no longer produce enough replacement babies. A main contributor to the falling population growth rate is the decreasing fertility rate. The fertility rate has fallen from 3.7 in the 1960s to 1.9 today, when 2.1 births per mother is the natural replacement rate, leading to a lower increase in the US population (excess of births over deaths).

In fact, the national birth rate (12/1,000) still remains higher than the national death rate (8/1,000), which means more people are being born in the U.S. each year than are passing away. Additionally, the arrival of immigrants with larger families, has kept the U.S. population steadily increasing, albeit slowly.

I suggest that lower fertility is just the tip of the melting economic iceberg, because populations also increase with new immigrants. So we shouldn’t be cutting back on immigration quotas as the current administration is doing—to some 700,000 last year from the 1.3-1.4 million per year in recent decades.

And combined policy missteps—such as spending less on capital investments that would increase labor productivity and not introducing policies that would enhance birth rates; also better health care, family leave, more liberal vacation and sick leave policies are a start—as European countries have been doing.

This has kept U.S. GDP growth averaging 2 percent since the Great Recession, but no higher. EU countries have declining birth rates, unfortunately, which has knocked down EU GDP growth rates to around one percent.

But they also have greater longevity and better healthcare outcomes than the U.S., which is ranked 37^th in health outcomes by the World Health Organization. As in example, French residents now live an average 4 years longer than Americans, says Nobel economist Paul Krugman in a recent NYTimes Op-ed. “Why? Universal healthcare and policies that mitigate extreme inequality are the most likely explanations.”

There is much more that can be done to boost economic growth and income equality, in other words. Fixing schools would boost educational levels, switching to alternative energy sources would inject $trillions into new technologies and bring down pollution costs, fixing our infrastructure would boost productivity immediately by cutting down on commute times and lost work hours, and better enforcement of environmental regulations would decrease healthcare expenses as well as job losses due to ill health.

The list goes on and on. Maybe we do need a Green New Deal to make all this happen?

Harlan Green © 2019

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

Nobel Prize in Economics Breaks New Ground

Popular Economics Weekly

STOCKHOLM (AP) — The 2019 Nobel Prize in Economic Sciences has been awarded Monday to Abhijit Banerjee, Esther Duflo and Michael Kremer “for their experimental approach to alleviating global poverty.”

It was ground-breaking for several reasons. Firstly, the Nobel committee is recognizing that the field of economics is finally becoming more science than social science by championing empirical field research, rather than purely academic research that was conducted mostly in ivory towers with mathematical formulas.

For instance, Prof George Akerlof, one of three that won the 2001 Nobel Prize, was the first of several so-called behavioral economists to win for his research on how individuals actually make financial decisions. He proved that humans don’t always act rationally in their best interests without institutional safeguards, such as Lemon Laws that prevent faulty used car sellers from putting new car dealers out of business.

Though the proof was done with mathematical formulas, it began the ongoing divorce from what was originally called Political Economics. What else to call it when one major branch of microeconomics was under the assumption that investors and wage earners actually acted in their own best interests in a level playing field without government oversight, yet never was validated with actual results?

The lines had been drawn between conservatives that advocated Adam Smith’s pronouncement that free, mostly unregulated markets with low taxation would remain healthy of their own accord and were the best way to maximize prosperity for all; with the Keynesian, New Deal economics of progressives that wanted governments to discipline capital markets for their excesses.

These opposing viewpoints on how human beings made financial decisions were based more on political choices than actual scientific research on financial behavior until research in other fields, such as psychology were brought into economics.

Hence this new approach is called ‘experimental’, because it prioritized actual field work using scientific methods to improve the lives of the poorest in developing countries. What did they discover?

“The Laureates’ research findings,” said the Nobel Prize announcement, “– and those of the researchers following in their footsteps – have dramatically improved our ability to fight poverty in practice. As a direct result of one of their studies, more than five million Indian children have benefitted from effective programmes of remedial tutoring in schools. Another example is the heavy subsidies for preventive healthcare that have been introduced in many countries,” (that made preventative healthcare accessible to the poor).

It looks like this is becoming a worldwide movement to alleviate poverty and income inequality in developed countries as well, such as the U.S. of A. that has been lagging other developed (and underdeveloped) countries in improving the lives of our poorest citizens—thanks in large part to Big Business’s proclivity to maximize profits over every other corporate goal.

One example of this trend: JP Morgan Chase CEO Jamie Dimond announced in August a Statement on the Purpose of a Corporation by the Business Roundtable, a group of almost 200 large businesses, in which they “share a fundamental commitment to all of our Stakeholders”.
“While each of our individual companies serves its own corporate purpose,” said Dimond, “we share a fundamental commitment to all of our stakeholders. We commit to:

• · Delivering value to our customers. We will further the tradition of American companies leading the way in meeting or exceeding customer expectations.
• · Investing in our employees. This starts with compensating them fairly and providing important benefits. It also includes supporting them through training and education that help develop new skills for a rapidly changing world. We foster diversity and inclusion, dignity and respect.
• · Dealing fairly and ethically with our suppliers. We are dedicated to serving as good partners to the other companies, large and small, that help us meet our missions.
• · Supporting the communities in which we work. We respect the people in our communities and protect the environment by embracing sustainable practices across our businesses.
• · Generating long-term value for shareholders, who provide the capital that allows companies to invest, grow and innovate. We are committed to transparency and effective engagement with shareholders.

It remains to be seen if corporate behavior--that is in large part responsible for the record income inequality we see with the globalization of market forces--actually changes. But this award shines a light on what can happen when the Economic Sciences begin to follow the rules of scientific discovery, rather than the Political Economic verities of old.

Harlan Green © 2019

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

Will 2019 Be Year U.S.Begins to Reunite?

Popular Economics Weekly

vox.com

Wonder of wonders, is New York Times conservative columnist David Brooks becoming a neo-Keynesian, New Deal economist? This is the term coined for those younger economists, such as Nobel economists Paul Krugman, Joe Stiglitz and George Akerlof, who have updated John Maynard Keynes’ New Deal theories that helped to bring us out of the Great Depression and created today’s developed economies.

Brooks isn’t a trained economist, but he has been looking for a new political center in his more recent columns—mostly in reaction to the Trump administrations betrayal of free trade and limited debt, mainstay ideas of the former Republican Party, but also its takeover by the Trump administration.

Brooks said in a recent NYTimes Op-ed, “The nations that have the freest markets also generally have the most generous welfare states. The two are not in opposition. In the real world they go together.”

“What generous welfare states?” Western national governments have stepped in wherever the private sector has proved unable or unwilling to support economic growth and general prosperity since World War II. And it was Roosevelt’s New Deal programs that created social security, unemployment insurance, enshrined workers’ rights, and the modern industrial economy that enabled us to win World War II.

So 2019 may be the year that the political parties and American electorate begin to come together, to show a willingness to compromise their ideals and their convictions in reaction to the “Make America First” doctrine of the Tea Party and white nationalist supporters of the Trump administration.

The newly elected Democratic House of Representatives may be the first concrete result of this trend towards more centrist policies in January 2019 with more than 200 women now in the 435 member House. Who better than women to make compromises in the name of getting things done, as they have done in their households since the beginning of time?

Another sign is the more centrist views of conservative writers that Brooks has cited, beginning with the Niskanen Center, an offshoot of the conservative Cato Institute, which released a comprehensive report called, “The Center Can Hold: Public Policy for an Age of Extremes,” written by Brink Lindsey, Steven Teles, Wilkinson and Hammond. The report is a manifesto for a new centrism based on what the authors call a “free-market welfare state model, says Brooks.

“They want government to protect citizens against the disruptions of global capitalism: “Without strong income supports that put a floor beneath displaced workers and systems that smooth the transition to new employment, political actors and the public tend to turn against the process of creative destruction itself.”

By creative destruction, Brooks means the tendency of capitalist economies to throw out the old to make room for new innovations and industries, regardless of the consequences to workers in the old industries—like manufacturing in the Midwestern rustbelt. The economic consequences have been devastating for those regions, needless to say.

What Brooks and his fellow conservative centrists don’t say, however, is that modern capitalists have become monopolists is almost every sense of the world. Just a few major corporations dominate the old manufacturing and energy sectors. And the new digital economy is dominated by the so-called Silicon Valley Big Five—Google, Microsoft, Facebook, Apple and Amazon—that have almost totally escaped oversight; until now.

This tendency towards ‘monopsony’ in under-regulated capitalist economies—the economic term for employers having excessive control over their labor market—is what led to “global capitalism” and too big to fail multinational corporations.

This is in fact earth shaking news emerging from the past of a Republican Party that created the U.S. Environmental Protection Agency and first proposed expanding government-subsidized health care in the 1970s. Let us hope America can return to the two-party system that enabled compromise, a more generous welfare state, and less destructive form of capitalism.

It would be a new beginning for the Re-United States of America.

Harlan Green © 2019

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

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Is Bernie’s Economic Platform Impossible?

Financial FAQs

It looks like Hillary Clinton’s nomination as the Democratic candidate is assured, but are Bernie Sander’s economic proposals impossible to achieve, as many mainstream economists maintain? Bernie wants to be able to introduce them into their platform at the Democratic convention.

He has some good ideas—such as tuition-free public universities, universal health care for all, a $15/hour national minimum wage, as well as achieve record economic growth, such as happened from 1950’s through the 1970’s.

“As President, I will invest $1 trillion to rebuild our crumbling infrastructure to put 13 million Americans to work in good jobs, says Bernie on his website, “invest $5.5 billion to employ 1 million young Americans and provide job-training to hundreds of thousands of others, and create a Clean-Energy Workforce of 10 million good jobs through a 100 percent clean energy system.”

Not possible, say economists like Nobelist Paul Krugman: “On health care: leave on one side the virtual impossibility of achieving single-payer. Beyond the politics, the Sanders “plan” isn’t just lacking in detail; as Ezra Klein notes, it both promises more comprehensive coverage than Medicare or for that matter single-payer systems in other countries, and assumes huge cost savings that are at best unlikely given that kind of generosity. This lets Sanders claim that he could make it work with much lower middle-class taxes than would probably be needed in practice.”

Actually, yes, Bernie’s goals are attainable, and have been achievable in the past. In fact, they mirror much of what was done in President Roosevelt’s New Deal, when conditions were worse (i.e., 25 percent unemployment), and government the employer of last resort. Bernie based his proposal on University of Massachusetts economist Gerald Friedman, a full-blown Keynesian economist who believes in government intervention to pull the U.S. out of its present economic malaise. Unfortunately Bernie is no FDR, able by himself to sell his program beyond union blue collar workers and our youngest, more educated generation that is looking for another new deal.

“While economists from different perspectives will differ on these fundamental issues,” says Professor Friedman in an initial response to mainstream economists that rejected his new deal plan almost outright (such as Krugman), “we have experience in the United States that demonstrates the lasting effect of government stimulus spending. Emerging from the depths of the Great Depression, New Deal stimulus spending (including monetary easing) nearly doubled the GDP growth rate from pre-1929 levels to 7 percent per year, 1933-40, and nearly 10 percent a year from 1933-44; between the 1929 peak and 1944, output grew to a level 25 percent higher than it would have been at the pre-1929 growth rate.”

Paul Krugman, a student of the New Deal, should know. He was one of the first economists to unmask conservatives’ attempt to unravel New Deal legislation—including their attempts to dismantle social security and Medicare—in his best-selling book, The Great Unraveling, yet he doesn’t seem to believe another New Deal is possible.

“The Republican candidates have been widely and rightly mocked for their escalating claims that they can achieve incredible economic growth,” said Krugman, “starting with Jeb Bush’s promise to double growth to 4 percent and heading up from there. But Mr. Friedman outdoes the G.O.P. by claiming that the Sanders plan would produce 5.3 percent growth a year over the next decade.”

However, Professor Friedman wasn’t talking about the Republican agenda to cut government programs—just the opposite. “Active Keynesian policy maintained faster growth rates for the next quarter century as well. From 1947-73, the unemployment rate averaged 4.7 percent and annual GDP growth averaged 4.0 percent; output in 1973 was 13 percent higher than it would have been at earlier growth rates."

Graph: Trading Economics

Much of that growth was due to massive infrastructure spending like our public freeway system, NASA’s moon landing, and other public works programs. It was massive government spending, in a word, that was possible with higher revenues from a maximum tax rate of 92 percent during the Eisenhower era, and an exploding baby boomer generation that gradually began to decline, until the ‘Reagan revolution’ cut the maximum tax rate to 40 percent.

Then we had the 1970s Arab oil embargo and skyrocketing inflation, due to the resultant gasoline shortage. Americans adopted conservative ways and began to believe government was the problem, at a time of greatest prosperity and a very low federal budget deficit.

It had also happened in 1937, when Roosevelt was convinced the Depression was over, and a Republican Congress called for a balanced budget and tax cuts. The result was a second depression that wasn’t over until WWII and government spending resulted in the full employment of women as well.

“Only when we abandoned Keynesian policies after 1973 did growth rates fall, says Friedman. “From 1973-2014, annual growth has averaged only 2.6 percent, almost a full percentage point below the pre-1929 rate, while unemployment has risen to 6.5 percent. Because of the slowing of growth rates after jettisoning Keynesian policies, output in 2007 was almost 30 percent less than it would have been at the growth rates of the 1947-73 period.”

Why the confusion over economic policy? The main disagreement seems to be the duration of government stimulus benefits. Krugman and other mainstream economists (some former Obama economic advisors) believe it is short term, only, whereas Friedman and some British Keynesians say history should be the final word. Spending on improving infrastructure, education, Research and Development (such as funded DARPA and the Internet), health care, not only improves lives, but also labor productivity, which stimulates more growth.

So it’s really a matter of history repeating itself, and its lessons being forgotten. Higher growth happened until the 1970s, and we don’t (yet) have another World War to bring US together, which is when we seem to realize the importance of government policies that boost growth.

Harlan Green © 2016

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

What Would Save the Euro?

Popular Economics Weekly

Now that Greece has voted NO on the latest European Commission-European Central Bank-IMF proposal (the so-called troika), will Greece stay in the Eurozone? If so, Greece may save the euro.

Why is this choice even necessary when most economists know the solution to their problems—something that would be a combination of easing the most draconian conditions that have really been imposed on all EU and Eurozone members, and a European version of our Marshall Plan that would reinvest in productive capacity to bring back growth to those countries suffering most from the worst recession since the Great Depression.

And isn’t just Greece. As Paul Krugman’s most recent Op-eds have asserted, countries from Finland to Spain to the Netherlands are also suffering from too much austerity—austerity in the sense of focusing too much on cutting spending and raising taxes to pay down the debt accumulated mostly from the Great Recession, when more spending is needed to speed up economic recovery—which is the only proven way to pay down debts.

Graph: Trading Economics

“The truth is that Europe’s self-styled technocrats are like medieval doctors who insisted on bleeding their patients — and when their treatment made the patients sicker, demanded even more bleeding. A “yes” vote in Greece would have condemned the country to years more of suffering under policies that haven’t worked and in fact, given the arithmetic, can’t work: austerity probably shrinks the economy faster than it reduces debt, so that all the suffering serves no purpose.”

It is a dilemma brought on mostly by the EU’s massive bureaucracy that rules almost every facet of EU life. One commentator said the regulations that must be satisfied to join the EU would rise to 5 feet if stacked vertically.

Included in those requirements are economic policies—such as budget deficits cannot exceed three percent. Another condition even more draconian is an inflation target of 2 percent. It is mainly a German condition from their past. It brings back the horror of economic collapse that led to Hitler and the Holocaust. Yet without a higher and more flexible inflation target, sustainable growth cannot happen. The recovery from GW Bush’s first recession only happened with massive deficit spending and a 5 percent inflation rate at one time.

The horror of hyperinflation is really no longer possible in a modern world so interlinked by trade and finance (and modern technology that produces anything required cheaply and quickly). We suffer from oversupply of goods and services, in other words, that makes deflation the most real danger.

In fact, Japanese-style deflation has been more the norm since the 1980s, since then Fed Chairman Volcker’s focus on austerity (in the form of sky-high interest rates) to bring down America’s sky-high inflation of the early 1980s.

Then why isn’t there more discussion among the ‘troika’ of debt relief, which seems to be Greece’s main problem? The austerity policies foisted on Greece by the troika has put Greece into a major depression, with 25 percent unemployment and a 25 percent reduction in its economic growth. And nothing but higher and sustained growth can ever pay down the huge mountain of debt—some $323 billion at last count—owed to its creditors. But to allow that to happen Greece’s debt load must be eased in some way.

Columbia University economist Jeffrey Sachs, a specialist in economic development, has lamented Germany’s insistence on adhering to agreed upon ‘rules’, rather than allowing more flexibility in Greece’s debt repayment terms.

“Sovereign debts have been restructured hundreds, perhaps thousands, of times – including for Germany. In fact, hardline demands by the country’s US government creditors after World War I contributed to deep financial instability in Germany and other parts of Europe, and indirectly to the rise of Adolf Hitler in 1933. After World War II, however, Germany was the recipient of vastly wiser concessions by the US government, culminating in consensual debt relief in 1953, an action that greatly benefitted Germany and the world. Yet Germany has failed to learn the lessons of its own history.”

And we know what happens when history repeats itself. Even Germany has to know. So saving Greece is important for a number of reasons--not just European unity. Foremost is the need to reform an unworkable system, to make it more flexible, with plans that would be already in place to aid countries that have suffered the most from the Great Recession--which lest we forget, was almost a repeat of the Great Depression.

Harlan Green © 2015

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

Dr. Robert Shiller--Why the Weak Recovery?

Popular Economics Weekly

Nobelist Robert Shiller, winner of the Nobel for his research in Behavioral Economics, or the psychology that drives economic behavior, has come up with the latest reason this economic recovery has been so weak to date. GDP growth has averaged just 2 percent since the end of the Great Recession.

It has to do with what Lord JM Keynes called ‘animal spirits”, or the psychological fact that fear breeds more fear, so that it can grip a whole country, as it did during our Great Depression, and perhaps is doing so again.

“The same could be said today, seven years after the 2008 global financial crisis, about the world economy’s many remaining weak spots,” said Dr. Shiller. “Fear causes individuals to restrain their spending and firms to withhold investments; as a result, the economy weakens, confirming their fear and leading them to restrain spending further. The downturn deepens, and a vicious circle of despair takes hold. Though the 2008 financial crisis has passed, we remain stuck in the emotional cycle that it set in motion.”

In fact, over the last two decades, like that of many other developed nations, US growth rates have been decreasing. In the 50’s and 60’s the average growth rate was above 4 percent, in the 70’s and 80’s dropped to around 3 percent. In the last ten years, the average rate has been below 2 percent. But it is much more due to the fact household incomes have declined for most Americans after inflation, and so now spend more than they save to even maintain their current standard of living.

Doctor Shiller’s answer is to restart our vision of going to the moon and beyond; that is, using public spending on national projects that both inspire our body politic and restore our leadership in the sciences.

“Government-funded space-exploration programs around the world have been profound inspirations,” says Dr. Shiller. “Of course, it was scientists, not government bureaucrats, who led the charge. But such programs, whether publicly funded or not, have been psychologically transforming. People see in them a vision for a greater future. And with inspiration comes a decline in fear, which now, as in Roosevelt’s time, is the main obstacle to economic progress.”

But he doesn’t go into what may be behind the fear—what economists now call consumer confidence or sentiment. We measure confidence in particular to gauge just how Main Streeters feel about their future economic prospects for jobs and financial security. And the main determinate of their current still low confidence level has to be the fact that most Americans have not seen any change in their financial conditions for decades.

The result is record economic inequality that is plaguing growth as it did in 1929, the real cause of the Great Depression. The result of that inequality is money not flowing to where it can be spent productively and so do the most good—to consumers or government that will spend and/or invest in productive enterprises, rather than put it into tax shelters for their heirs, as most of the wealthiest seem to be doing today.

Graph: Business Insider

This is evidenced by the personal savings rates of the different income brackets. For instance, the wealthiest 1 percent now save more than 50 percent of their income, whereas the poorest 20 percent save none.

What do they do with their savings? Mostly hoard it. According to the new Billionaire Census from Wealth-X and UBS, the world's billionaires are holding an average of $600 million in cash each—greater than the gross domestic product of Dominica. That marks a jump of $60 million from a year ago and translates into billionaires' holding an average of 19 percent of their net worth in cash.

"The apparent safety of cash, reinforced by the painful psychological experience of the 2008-09 global financial crisis and the subsequent troubles within the European Monetary Union, likely reinforces the tendency to favor this cautious allocation strategy," said Simon Smiles, chief investment officer for Ultra High Net Worth at UBS Wealth Management.

And House Republicans are once again proposing repeal of the inheritance tax, now for the $5million in inherited wealth and above set that still have to pay it. The Center for Budget Policies and Priorities tells us the effect of this loss in taxes:

· Cost $269 billion in reduced revenues over 2016 to 2025, according to the Joint Committee on Taxation (JCT), adding $320 billion to deficits when counting additional interest on the national debt.

· Do nothing for 99.8 percent of estates. Only the estates of the wealthiest 0.2 percent of Americans -- roughly 2 out of every 1,000 people who die -- owe any estate tax. This is because of the tax's high exemption amount, which has jumped from $650,000 in 2001 to $5.43 million per person (effectively $10.86 million for a couple) in 2015. Repeal would bestow a tax windfall averaging over $3 million apiece, or more than a typical college graduate earns in a lifetime, on the roughly 5,400 wealthy estates that will owe the tax in 2016.^[2] The 318 estates worth at least $50 million (some of which are worth hundreds of millions of dollars) would receive tax windfalls averaging more than $20 million each.

· Exacerbate wealth inequality, which has grown significantly in recent decades. In 2012, the wealthiest 1 percent of American families held about 42 percent of total wealth, new data show.^[3] Large inheritances play a significant role in the concentration of wealth; inheritances account for about 40 percent of all household wealth and are extremely concentrated at the top. Repealing the estate tax would exacerbate wealth inequality by benefiting only the heirs of the country's wealthiest estates, who also tend to have very high incomes.^[4]

It’s sad that we even need to have this argument on whether such inequality is a bad thing, given Dr. Shiller’s worries that we are re-experiencing what happened during the Great Depression.

Harlan Green © 2015

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

Baltimore and the Lessons of Inequality

Financial FAQs

David Brook’s most recent New York Times Oped talks about the dissolution of social bonds in Baltimore neighborhoods. “Even in poorest Baltimore, there once were informal rules of behavior governing how cops interacted with citizens,” he says in quoting The Wire Producer David Simon, an awarding winning TV series of life in a Baltimore ghetto: “…that’s happened across many social spheres…in schools, families and among neighbors. Individuals are left without the norms that middle-class people take for granted.”

The problem is there is no longer a majority of the middle class, which has been decimated most recently by the busted housing bubble, but over a much longer period by the loss of those jobs dominating the post WWII economy that migrated overseas and blighted cities and even suburbs as a consequence.

And without a substantial middle class, those middle class norms will no longer regulate social behavior. The result of no accepted social norms is social chaos, as we have been seeing in the riots, hence the bullying tactics of police against those most affected by the loss of jobs and educational opportunities in trying to restore a semblance of order, the poorest among us.

In fact, the Baltimore riots are the result of an economic system that can only be described as broken, where the bullies win, everyone else loses. We are living the result of economic and political policies that have created the greatest income inequality since 1929 and the Great Depression. Yet no one, including David Brooks, wants to face that fact.

Thomas Piketty’s Capital in the Twenty-First Century, described the result of such inequality in earlier centuries, such as Europe’s pre-WWI Belle Epoque era, where inherited wealth was the main path to upward mobility, and Oligarchies ruled.

The U.S. path to such inequality was the concerted push of Big Business and Wall Street to weaken labor laws and trade treaties that allowed American businesses to both automate the workplace and move many jobs overseas, well documented by Jacob S. Hacker and Paul Pierson’s Winner Take All Politics, How Washington Made the Rich Richer—and Turned Its Back on the Middle Class. Those jobs, the core of middle class incomes of the 1960s and 70s, went to foreign lands where costs were cheaper and labor laws nonexistent. The result since then has been stagnant or shrinking household incomes for everyone but the top income brackets that rely on capital gains and stock options, or gaming the financial system.

The epidemic of police killings of African American males is just the result. It is plain for all to see, whether in Ferguson, where the best blue collar jobs now belong to law enforcement with the closing of several auto factories, and the police force is more than 80 percent white, wherever poverty has become endemic. "It's a shortage of everything," said Shermale Humphrey, a 21-year-old who joined the protests in a recent LA Times article. "It's a shortage of jobs. Of African Americans on the police force and in government. Of people not being able to get a good education."

It is a bully mentality that has permeated our government, as well, where education spending has been cut drastically, which hurt the Ferguson school system, in particular. One reason why many families moved to these suburbs in the first place was a decent school system, better than in downtown St. Louis. However, two north county districts — including the one where Michael Brown graduated from high school in May — have lost their state accreditation in recent years. The district Ferguson shares with a neighboring town remains accredited but scores low on state tests.

Since 2000, the median household income in Ferguson has fallen by 30 percent when adjusted for inflation, to about $36,000, said the LA Times. In the census tract where Michael Brown lived, median income is less than $27,000. Just half of the adults work, yet benefits such as food stamps have been cut drastically.

All of these cutbacks in government spending in particular, and not just due to the Great Recession, has weakened our own economy considerably and delayed a full recovery from the Great Recession. Measures such as TARP and ARRA that saved many banks and stimulated economic growth until 2010, were terminated when anti-government conservatives took over Congress and did everything they could to lower taxes on the wealthiest, starving government programs of funding necessary to revive economic growth.

Ferguson and now the Baltimore riots exemplify what has happened to the lower economic classes. For U.S. economic growth has gradually declined since the 1980s, in particular, when maximum income tax brackets first declined from 70 to 40 percent, and the policies of those who intone ‘Government is the Problem’ have eroded the rights and wealth of the majority of Americans.

Whether it is instituting right to work laws in those states that have lowered incomes by blocking collective bargaining and discouraging union organizing, or unlimited campaign financing that enhances the power of corporations, or restricting Obamacare in those states that won’t set up their own exchanges for the poorest, these policies have weakened our own economic system, so much so that social chaos has resulted.

That is why such middle class values that are based in large part on financial stability are no longer the norm. The huge transfer of wealth that began in the 1980s, and the wholesale deregulation of industries that accompanied the transfer, has allowed U.S. corporations to hire and fire as they please, generating record profits, without passing on some of the benefits to their employees. It has destroyed the middle class and all it stood for.

Harlan Green © 2015

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

Germany’s Failed Austerity Policies

Financial FAQs

One would think by now the debate has been resolved on which economic model created the better recovery for this Great Recession or Lessor Depression, as P Krugman has called it. But no, Germany’s Finance Minister Wolfgang Schauble keeps pounding the drum for his, and the eurozone’s failed austerity policies.

And this is happening with a new Hitler looming on Europe’s border who is taking advantage of their weakness and threatening to repeat its history.

“The financial crisis broke out seven years ago and led many countries into an economic and debt crisis,” said Schauble recently. “A pervasive set of myths — that the European response to the crisis has been ineffective at best, or even counterproductive — is simply not accurate. There is strong evidence that Europe is indeed on the right track in addressing the impact, and, most importantly, the causes of the crisis.”

Really? One has only to compare Europe to U.S. economic growth since the Great Recession. The U.S. response by the Federal Reserve was to do everything possible to stimulate demand by keeping interest rates as low as possible, as long as possible, to pump more money into the system, rather than hoard it.

It is not even a matter of degree, but orders of magnitude. The U.S. has grown as much as 5 percent in a quarter, whereas Europe has grown no more than 0.3 percent since 2012. (Does Schauble even bother to look at economic data?)

One thinks that most economists should have learned from the 1930’s Great Depression, Roosevelt’s New Deal, etc., etc., that it takes a very active and proactive government to bring back the fallen ‘animal spirits’, as JM Keynes called the loss of confidence that kept consumers in the 1930s’ economy from completely recovering, until WWII government spending brought back fully employed economies.

But no, Schauble, has turned Keynes on his head in maintaining that it is the loss of investors’ confidence, not that of public consumers, which powers 70 percent of economic growth these days. He seems to have absolutely no concept of the meaning of aggregate demand, another Keynesian concept that spells out exactly what drives economic growth.

I.e. investors lose confidence in investing when the demand for their products and services declines, as it did drastically during the past two depressions. It is a basic misunderstanding of how economies work. Consumers ran out of money to spend, due in large part to the record income inequality that happened in 1929, and again in 2008.

Graph: Mother Jones

When almost all wealth flows to the top, the wealthiest enact policies to prevent it from being redistributed downward to those that spend it, where it would encourage and strengthen a recovery.

Then money is hoarded, rather than spent, as is still happening worldwide (particularly in Germany with the largest budget surplus in the developed world). That’s why economic growth has resumed in the U.S., but not in Europe, Which is currently teetering on the edge of its third recession since 2008.

But isn’t Putin’s Russia threatening war, even a nuclear war, if Europe doesn’t cave in to its demands? That is a wakeup call for Europeans to throw out their austerity policies, if they want to build the strength to oppose him. Europe is fractured because of their poorly functioning economies. Otherwise history is about to repeat itself. Only instead of a Hitler, we have a Putin.

Harlan Green © 2015

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

Governor Scott Walker vs. Education

Financial FAQs

It is hard to believe, but prospective presidential candidate Wisconsin Governor Scott Walker’s main platform seems to be his antipathy towards education, and higher education, in particular. He has obfuscated his near hatred of higher education to date by getting his Republican-Controlled Legislature to first ban public union collective bargaining, especially unions for teachers and public health nurses.

But the veil that has obscured his anti-education agenda is lifting. His latest salvo is directed at the University of Wisconsin. He proposes not only to cut its budget, but proposed downsizing its mission from that of higher education to supply workers, whoever they might be. Walker’s new budget proposal would slash $300 million from the University of Wisconsin system over the next two years. That’s a 13 percent reduction in state funding.

That might be explained by the poor performance of the Wisconsin economy since he took office—an economy now ranked below all other comparable Midwestern states.

A harbinger of what Walker might face came in an immediate uproar on social media this month after his staff proposed changing the university’s focus on the pursuit of truth, known as the “Wisconsin Idea,” to a grittier focus on “workforce needs.”

"Inherent in this broad mission are methods of instruction, research, extended training and public service designed to educate people and improve the human condition," is part of the University of Wisconsin's mission statement.

What is wrong with that mission, you ask? It speaks to a well-educated mind, is Walker’s problem, apparently. If Walker gets his way, that sentence, along with "Basic to every purpose of the system is the search for truth," would be entirely cut from the charter. Walker also seeks to cut statements reinforcing the university's commitment to working with out-of-state institutions and its prioritization of "programs with emphasis on state and national needs."

In its place, Walker proposes language stating Wisconsin only provides a state education because it is constitutionally required and among its top priorities are meeting "workforce needs." So the U. of Wisconsin should be down-sized to a trade school?

On reflection, Walker’s anti-education agenda fits right in with the current Republican Party’s prejudice against modern education in general, scientific knowledge and empirical facts in particular, such as the denial of global warming. Republicans have even proposed abolishing the Department of Education, a cabinet position, which helps to keep their supporters in the poorer red states literally ignorant of those facts that would better their lives.

It was in 2011 that Walker pushed through a law, Act 10, that slashed the power of public employee unions to bargain, and cut pay for most public sector workers.  As a special slap to teachers, Walker exempted the unions of police, firefighters and state troopers from the changes in collective bargaining rights but not educators. 

Teachers protested for a long time, closing schools for days, but the law passed, and the impact on teachers unions in Wisconsin has been dramatic: according to this piece by Washington Past columnist Robert Samuels. The state branch of the National Education Association, once 100,000 strong, has seen its membership drop by a third, and the American Federation of Teachers, which organized in the college system, has seen a 50 percent decline.

Graph: Wisconsin Budget Project

The effect on Wisconsin’s economy has been even more dramatic. The latest comprehensive state employment data from the U.S. Bureau of Labor Statistics and the Quarterly Census of Employment and Wages (QCEW) reveals that Wisconsin continues to lag both the national rate of job growth as well as the rates of employment gain in most other states. Between December 2012 and 2013, Wisconsin gained 26,816 jobs, posting an annual employment growth rate of 0.98 percent, significantly trailing the national job growth rate of 1.75 percent during the same period.

Thus, Wisconsin’s year-over-year job growth in fourth quarter of 2013 was just slightly over half the national rate – a level of underperformance that has been consistent since 2011. Overall, Wisconsin ranked 37th among the 50 states in the rate of total employment growth between December 2012-13. Wisconsin trailed every single neighboring Midwestern state (Illinois, Indiana, Iowa, Michigan, Minnesota, and Ohio) in year-over-year employment growth between December 2012-13.

Walker is destroying Wisconsin’s economy, in other words. Right now he is pushing to demolish union organizing once and for all with his proposal to make Wisconsin a Right to Work state, which will further depress its economy. And this man wants to run for President of all 50 states?

Harlan Green © 2015

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