Wh Needs a Tax Cut?

 Popular Economics Weekly

“A bill that cuts federal income taxes for middle-class families makes absolutely no sense, except as a sad way of camouflaging the real intent of the bill: Giving millions of dollars to the very wealthy, who happen to be the only people who are really benefiting from our uneven economic growth,” Rex Nutting

Huffington Post

I wrote this Huffington Post piece in 2017 during President Trump’s first term when he passed the Tax Cuts and Jobs Act (TCJA) that is set to expire but is being renewed if Republicans succeed in passing their new fiscal budget.

But in seeking to repeat Trump’s first term, Trump and his Republicans are regressing to an economic model that existed more than 100 years ago, and that is completely out of touch with the modern world.

His tax cut helped very few income earners, i.e., ordinary working folk. MarketWatch economist Rex Nutting calculated that those in the 60 percent middle-income brackets—from $32,000 to $140,000 per year—pay just an average 2.5 percent in income taxes. It’s only the richest 0.1 to 1 percent income earners that pay more and therefore want the huge tax cuts Congress and the Trump administration are proposing.

The TCJA renewal in 2025 will add at least $3 trillion to our federal debt in the next 10 years, according to the Congressional Budget Office, and raise our federal debt from 120 percent to as much as 130 to 150 percent of GDP because Republicans have no mechanism to pay for it, except higher import taxes from the tariffs and cuts to health care services such as Medicaid.

Hence the just announced sovereign debt downgrade of Moody’s AAA to Aaa, the last debt rating agency that held a AAA rating on U.S. Treasury debt, which will raise the cost of U.S, Treasury securities.

The tariff war that Trump illegally initiated with the dubious rationale that it will bring back a bygone era of manufacturing (Congress has the power to regulate tariffs during wartime emergencies but they have since allowed presidents to enact them during peacetime), will cause another period of stagflation as happened in the 1970s that took 10 years and double-digit interest rates to cure.

How soon voters and investors have forgotten what stagflation was like! The Federal Reserve under Chairman Paul Volcker raised its Fed Funds rate to 20 percent in the 1980s because inflation had risen to 14 percent rate and resulted in two back-to-back recessions under President Reagan.

“Top this off with another record for corporate profits, up 7.4 percent in a year, and there is no reason to be cutting their taxes,” I said in 2017. “They haven’t been using their profits for productive purposes, so what’s needed is for them to pay higher taxes so government can use that money to invest productively in the $2 trillion plus in outmoded infrastructure that badly needs replacement,”

And that’s precisely what the Biden administration did, pass bipartisan legislation that invested $2 trillion in the Infrastructure, CHIPs and Science, and Inflation Acts to modernize the U.S. economy.

Yet voters re-elected a man in Trump 2.0 that is returning the budget and tax cut debate to an earlier historical period. President Trump is now touting the need for another Gilded Age that prevailed in 1900 when tariffs protected fledgling industries.

Tariffs became less important with the introduction of income taxes in 1913 to support government services, and the trend since then has been downward to the very low rates that prevailed until now.

Then why have so many Americans re-elected someone who is only interested in reducing taxes to enrich himself and his Oligarchs; who has shown an almost total ignorance of basic economics (in maintaining a tariff isn’t an import tax) with a history of countless business failures, and that is causing investors to flee the US economy and impoverish the rest of us?

Will it take another recession to convince voters once again that One-man rule doesn’t work if Americans still want to live and prosper in a democracy?

Harlan Green © 2025

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

Was It a Good Employment Report??

 Popular Economics Weekly

Total nonfarm payroll employment rose by 143,000 in January, and the unemployment rate edged down to 4.0 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in health care, retail trade, and social assistance. Employment declined in the mining, quarrying, and oil and gas extraction industry.

FREDunemploymentrate

The economy added just 143,000 new jobs in January as massive California wildfires and a cold snap in much of the country acted as a drag on hiring. The details of the employment report point to a robust labor market that gained strength at the end of 2024. The economy averaged 233,000 new jobs from November to January, well above the 180,000

One economist determined that most of the new jobs were in the service sector, as I’ve been reporting, hence favored immigrants who tend to fill the lowest paying jobs that native Americans don’t want. 

But it’s not just more wildfires we will have to worry about this year as world temperatures rise, but more hurricanes and floods, such as hit the east coast.

So what does that mean for 2025? It depends on what tariffs are enacted, what the Federal Reserve does with interest rates, and how many immigrants are deported, for starters. Then we still must worry about the effects of continuing wars and more climate disasters.

It would be nice if consumers continued to shop, in spite of what’s happening, which means they remain somewhat optimistic about their future.

However, the latest University of Michigan sentiment survey was a downer. Its gauge of consumer sentiment fell to 67.8 in a preliminary February reading, down from 71.1 in the prior month and the lowest reading since July.

Inflation was still their biggest worry. Americans’ expectations for overall inflation over the next year jumped to 4.3% in February from 3.3% in the prior month, according to the survey. That’s the highest level since November 2023, and it is only the fifth time in 14 years that there has been a one-month gain of that size.

It’s really how American consumers react that determines economic growth and hence the job market. The Los Angeles fires were one reason the January nonfarm payroll total was low. The recent hurricanes also punched another hole in employment. Forbes Magazine reported last October that Hurricane Helene was expected to cause a reduction of 40,000 to 50,000 payroll jobs with Hurricane Milton adding to the total.

And I won’t even try to predict when the Gaza and Ukraine conflicts will be resolved, or what it might do to the world economy with energy prices soaring.

The bottom line seems to be that the U.S. economy is escaping much of the damage because the Fed has been proactive over the inflation danger, and has been saying it wants to lower interest rates further to support the job market.

President Biden’s massive new, New Deal investments with the infrastructure, CHIPS, climate change, and healthcare legislation will be benefiting U.S. economic growth for years to come.

Economists are also estimating that the 3 million new immigrants added to the workforce over the past two years has made such growth possible. Will that continue if our worker shortage worsens?

“The flood of fresh labor eased a worker shortage after the pandemic and allowed the economy to add more jobs without driving up wages and inflation. Normally, rapid job creation tends to exacerbate inflation,” says MarketWatch’s Jeffry Bartash.

Did the influx of new immigrants hurt American workers? Economist Wendy Edelberg, director of the Hamilton Project at the Brookings Institution, estimates the labor force is about 172.6 million strong, instead of a reported 169.6 million at the end of 2024. Edelberg said the newly revised figures should show employment for native-born workers also rose in 2024.

So what are consumers to do? It is really too early to know what the 2025 job market will look like.

Harlan Green © 2025

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

Why Does Bidenomics Work?

 Financial FAQs

FREDrealgdp

Elon Musk told a cheering crowd at Sunday’s MAGA rally in New York that if Donald Trump puts him in charge of government efficiency, as planned, he can cut “at least $2 trillion” from the current federal budget.

This would cause an almost immediate recession. Such is the blindness of the world’s richest Oligarch, who has made no bones about his dislike of government regulations and taxes in the way of his dream of reaching Mars.

MarketWatch’s Brent Arends tells us what would happen. “Either Donald Trump and Elon Musk are planning to cut 85% of all spending on highways, disaster relief, federal bank-deposit insurance and the departments of Agriculture, Homeland Security and Justice; close all U.S. embassies; and abolish the Environmental Protection Agency, the Small Business Administration, NASA and nearly all welfare, income-support, food-stamp and childhood-nutrition programs.”

“Or, they are planning on cutting Social Security and Medicare — despite Donald Trump’s protests to the contrary,” said Arends

That is what is behind Republicans’ dislike of Democrats economic policies since President Biden’s election that has created more than 15 million jobs and 3 percent economic growth as we recovered from the COVID-19 pandemic.

It takes government investments to spur private investments; not just in new technologies (the CHIPS Act) but healthcare and the environment (Inflation Reduction Act), and in modernizing our infrastructure (Infrastructure Act) so that Americans will feel more secure from hurricanes and illness and therefore produce more.

That is the real definition of efficiency, not cutting benefits so that Billionaires can keep more of their wealth.

President Obama was the first to turn the tide on President Reagan’s 40- years of trickle-down economic policies after the Great Recession (2008-09) that had transferred $50 trillion in wealth from working Americans to the owners of capital living off their corporate profits, according to a RAND Corporation working paper.

He did it by creating Obamacare (the Affordable Care Act) and making government the protector of people, not of profits, as President Reagan had done. This resulted in economic growth accelerating to 4 percent during the Obama years continuing into Trump’s years, even with a Republican-engineered shutdown. It was the longest economic recovery since World War Two, and the reason Trump could brag that growth has been so good just prior to COVID-19.

The economy unfortunately shrank -7.5 percent in 2020 as businesses shut down due to the pandemic. It roared back to life in the second quarter of 2021 as congress acted quickly to put money back into Americans’ pockets.

In fact, the U.S. economy will continue to provide most of the thrust for global growth through the balance of this year and in 2025, led by robust consumer spending “that has held up through a wrenching bout of inflation and the high interest rates used to tame it,” the International Monetary Fund said on Tuesday.

Such economic policies requiring government investments have worked before. It was Roosevelt’s New Deal that employed more than 8 million people, built 650,00 miles of roads, 120,000 bridges, created the minimum age, 8-hour workdays and started up social security.

Now more than half of the living US recipients of the Nobel Prize for economics signed a letter that called Vice President Kamala Harris’ economic agenda “vastly superior” to the plans laid out by former President Donald Trump.

“While each of us has different views on the particulars of various economic policies, we believe that, overall, Harris’ economic agenda will improve our nation’s health, investment, sustainability, resilience, employment opportunities, and fairness and be vastly superior to the counterproductive economic agenda of Donald Trump,” the economists write in the letter obtained by CNN.

Top this off consumers are now joining the Harris economic bandwagon. The Conference Board’s latest consumer confidence survey surged to 108.7 in October from a revised 99.2 reading in the prior month,the Conference Board said Tuesday.  This is highest level of confidence since January.

“Consumer confidence recorded the strongest monthly gain since March 2021, but still did not break free of the narrow range that has prevailed over the past two years,” said Dana M. Peterson, Chief Economist at The Conference Board. “In October’s reading, all five components of the Index improved. Consumers’ assessments of current business conditions turned positive. Views on the current availability of jobs rebounded after several months of weakness, potentially reflecting better labor market data.” 

Is Bidenomics finally catching on with ordinary Americans, not just economists?

Harlan Green © 2024

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

Full Speed Growth Ahead--Part II

 Popular Economics Weekly

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

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

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

FREDcpi

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

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

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

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

Williams predicted what more balanced growth would look like:

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

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

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

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

AtlantaFed

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

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

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

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

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

Harlan Green © 2024

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

Q3 Economic Growth to Double?

 Popular Economics Weekly

AtlantaFedGDPNow

We could have even higher third quarter economic growth, believe it or not, from the second quarter 2.4 percent (advance) growth estimate by the US Bureau of Economic Analysis.

The Atlanta Federal Reserve’s GDPNow model estimates a jump to 3.9 percent growth in Q3 (September to December 2023), a huge leap from its second quarter estimate that actually matched the BEA’s Q2 estimate. So, we should take it seriously, given all the good news about public spending on new infrastructure.

“The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2023 is 3.9 percent on August 1, up from 3.5 percent on July 28. After this morning’s construction spending release from the US Census Bureau and the Manufacturing ISM Report On Business from the Institute for Supply Management, the nowcasts of third-quarter real personal consumption expenditures growth and real gross private domestic investment growth increased from 3.1 percent and 4.7 percent, respectively, to 3.5 percent and 5.2 percent.”

Construction is surging because of the US Infrastructure Act and Inflation Reduction Act $trillions being spent to modernize the US economy.

As if to emphasize the increased optimism, orders at U.S. factories rose 2.3 percent in June, largely because of more contracts for Boeing planes. Bookings for durable goods climbed 4.6 percent that are mostly consumer goods meant to last at least several years. The overall manufacturing sector is still weak and future orders have been contracting for almost one year.

How can the Atlanta Fed be so optimistic about future growth when Fitch Ratings just downgraded US Sovereign Debt to AA+ from AAA?

Much of it may have something to do with the various programs congress enacted, now being called Bidenomics, because though bipartisan it happened under President Biden’s watch.

Major economists like Nobel Laureate Paul Krugman are jumping on the Bidenomics growth bandwagon.

“It’s hard to overstate how good the U.S. economic news has been lately. It was so good that it didn’t just raise hopes for the future; it led to widespread rethinking of the past. Basically, Bidenomics, widely reviled and ridiculed a year ago, looks a lot better in retrospect. It’s starting to look as if the administration got it mostly right, after all.”

Second quarter consumer spending (i.e., personal consumption expenditures) has held up, though down from its first quarter spike. And real gross private investment is increasing 5 percent annually, thanks to those $trillions government is spending to stimulate private investments that is modernizing almost every area of our economy, from roads and bridges, water treatment facilities, airports, energy grids, to rural Internet hookups.

And a higher percentage of Americans are working than before the pandemic, so why shouldn’t the US economy look even better in Q3?

Harlan Green © 2023

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

Inflation Not The Real Problem

 Financial FAQs

FREDcpiinflation

Inflation is falling again with national gas prices below $4 per gallon while food prices are also beginning to decline.

The NY Times’ Paul Krugman just pointed out that food prices should continue to decline per the UN’s Food and Agricultural Index.

“The FAO Food Price Index* (FFPI) averaged 140.9 points in July 2022, down 13.3 points (8.6 percent) from June,” said the FAO, “marking the fourth consecutive monthly decline. Nevertheless, it remained 16.4 points (13.1 percent) above its value in the corresponding month last year. The July decline was the steepest monthly fall in the value of the index since October 2008, led by significant drops in vegetable oil and cereal indices, while those of sugar, dairy and meat also fell but to a lesser extent.”

FAO.org

Therefore, the Fed should not be focusing on bringing it back to a 2 percent inflation rate with more draconian rate increases that have only prevailed since the Great Recession and busted housing bubble.

The above FRED graph dating from 1950 shows both the annual consumer price index at 8.5 percent and ‘sticky’ CPI price without food and energy at 5.6 percent in July, down slightly from June.

During our most prosperous times since 1980 it ranged between 2.5 to 5 percent, per the above FRED graph. That’s because profits rose in tandem with rising prices, thus encouraging businesses to hire more workers and expand further.

Since 1980 we have never had a prolonged supply problem, in other words, with retail inflation trending down ever since—until the current post-pandemic era of a Ukraine-Russia war and recovering supply chains, that is.

Why? Because there was never a shortage of supply due to modern technology’s ability to increase productivity that could flood markets with goods and services. Asia with China could produce things more quickly and cheaply that US.

Yes, all that money now raised from the government aid coursing through the economy is causing a temporary inflation problem, but much of it will be invested in future growth—like the infrastructure and inflation reduction act bills just passed.

President Biden’s $1.2 trillion infrastructure bill includes funding allocations of $89.9 billion to improve public transit, $65 billion toward better internet connectivity and access, and money for 500,000 electric vehicle charging stations, which could help address charging “deserts;” areas where it isn’t currently available.

“The infrastructure bill widely focuses on improving passenger and freight transportation, for instance, so steel and material suppliers, including companies that produce materials for buses, trains, bridges, rail, or related equipment, could see heavy activity. Makers of products supporting things like 5G infrastructure and EV stations, too, will see improved demand,” said a Forbes Magazine article on its effects.

And while there will be little inflation reduction in The Inflation Reduction Act bill just passed, the White House says the package will address inflation in two key ways: by lowering energy and health care costs for families and by helping to bring down the deficit.

"And that's why even Democrats and Republicans, former Treasury secretaries, economists across the board have said that this bill will make a positive impact on inflation while also tackling some of the biggest and long-standing issues facing our country, like prescription drugs and like tackling climate change," said Brian Deese, director of the National Economic Council, in an interview this week with NPR's Morning Edition.

As important in bringing down oil prices is that oil and gas drilling is at a 7-year high. U.S. crude oil prices have dipped below $90 per barrel of late, and who knows how much lower oil prices may decline as more alternative energy sources financed by those two bills come on line to replace the need for fossil fuels?

Harlan Green © 2022

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

U.S. Industrial Production Surging

 Financial FAQs

FREDindustrialproduction

U.S. industrial production is the highest since 2018, continuing its climb from the two-month 2020 recession (gray bar in graph). Automobile production highlighted the surge.

This is huge, folks, and a sign that GDP growth in the third quarter may be positive after the first two quarters of negative growth in 2022. Capacity utilization rebounded to 80.3 percent in July from 79.9 percent in the prior month. Output of the U.S. industrial sector was at an all-time high, above the level hit in 2018.

Why the manufacturing surge now? President Biden’s $1.2 trillion infrastructure bill includes funding allocations of $89.9 billion to improve public transit, $65 billion toward better internet connectivity and access, and money for 500,000 electric vehicle charging stations, which could help address charging “deserts;” areas where it isn’t currently available.

“All of that’s good news for manufacturers who are already experiencing high demand, which could “continue on for months, if not years, going forward,” David Zrostlik, president of Stellar Industries, recently said in the Wall Street Journal.

The bill will also improve workers’ productivity by modernizing our transportation networks.

“The infrastructure bill widely focuses on improving passenger and freight transportation, for instance, so steel and material suppliers, including companies that produce materials for buses, trains, bridges, rail, or related equipment, could see heavy activity. Makers of products supporting things like 5G infrastructure and EV stations, too, will see improved demand,” said a Forbes Magazine article on its effects.

Retail sales also surged, which could even boost revisions to Q2 GDP from a negative to possibly breakeven says Reuters’ Wrightson/ICAP.

“Core sales in July (excluding autos and gas) were up 0.7% versus our forecast of a sluggish 0.1% increase, and the May and June levels were revised up markedly.  By themselves, this morning’s numbers should contribute to an upward revision to Q2 GDP on the order of half a percentage point.”

U.S. Manufacturing rose 0.7 percent in July after falling in the prior two months. Motor vehicles and parts output rose 6.6 percent after a 1.3 percent fall on the prior month. Excluding autos, total industrial output increased 0.3 percent. Auto assemblies were the highest since August 2020. Utilities output fell 0.8 percent in July. Mining output, which includes oil and natural gas, rose 0.7 percent, the third straight solid gain.

As important in bringing down oil prices was that oil and gas drilling is at a 7-year high. U.S. crude oil prices have dipped below $90 per barrel of late, and who knows how much lower they may decline?

Prices could ease further if Iran agrees to a new draft nuclear agreement after it backed off from its demand that the Islamic Revolutionary Guards be removed from the U.S. terrorism list, reports the NY Times, opening a potential of at least one million more barrels a day of Iranian petroleum exports (which would make up for the loss from the end of U.S. Petroleum Reserve contribution in November).

Harlan Green © 2022

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

Does America Care Again?

 Financial FAQs

PEW Research

The American Rescue Plan, The Infrastructure Investment and Jobs Act, and the soon to pass Build Back Better Plan show that the American ‘can do’ spirit is alive, the innate generosity and optimism that is so much a part of the American spirit is returning.

Will a revival of that spirit last, in spite of the ongoing pandemic, red vs. blue state civil war, and still record joblessness?

The truest expressions of Americans’ character have come out during past catastrophes, such as the Great Depression and World War Two. And almost 10 years of unparalleled growth followed the horrors of World War One and the 1918 Spanish Flu pandemic. 

The coronavirus pandemic is bringing about a similar transformation of character and culture that was always there but sometimes hidden when times were good.

And record economic growth is following the coronavirus pandemic, with Q1 and Q2 2021 GDP up more than 6 percent, and the fourth quarter possibly growing at the same pace after the third quarter pause due to the Delta variant surge.

Americans are showing that they care for each other with these bills—that lifting children and the poorest out of poverty also lifts themselves. That renewing our roads, bridges, energy grids; and confronting the greatest threat to our future, climate change, will ensure a country that our children can be proud of and prosper in.

It’s obvious that the American Rescue Plan saved many lives and livelihoods, and the Infrastructure bill means caring for the planet as well as each other with its $billions spent on climate change and improving health and sanitation.

It’s less obvious what spending on social infrastructure does. Investing in children, improved healthcare, and paid family leave strengthens families, something both political parties should be for, but conservatives have opposed since FDR’s New Deal.

Who will get most of the good jobs in construction from rebuilding our physical infrastructure? Some 80 percent go to less-then-college-educated workers, says the White House in its initial announcement of the Infrastructure Investment and Jobs Act.

In part because of the recovery money already distributed during the pandemic, median household income has resumed its climb for the first time since 2000, as shown in the above PEW research graph. It had dropped from $70,800 in 2000 to $65,100 after the Great Recession.

In 2018, the median income of U.S. households stood at $74,600. This was 49 percent higher than its level in 1970, when the median income was $50,200. (Incomes are expressed in 2018 dollars.)

The pandemic is bringing about a whole transformation of America that will last because it is bringing Americans together again in common cause, and history shows this brings out the best in us.

Harlan Green © 2021

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

"It's the COVID Pandemic, Stupid!"

Financial FAQs

FREDcpi

Why the supply-chain bottlenecks and soaring inflation? “It’s the pandemic, stupid.” economists and industry leaders are saying.

President Biden’s $1.2 trillion Infrastructure Investment and Jobs Act (IIJA) was passed just in time to slow the inflation climb and make for a merrier Christmas.

Consumers and producers are worried because the consumer price index jumped 0.9% last month, the government said Wednesday. The pace of inflation over the past year marched to 6.2% in October from 5.4% in the prior month. That’s triple the Federal Reserve’s 2% target and is the highest rate since November 1990.

But even the latest price spike following last year’s pandemic-induced recession was barely higher than that following the 2007-9 recession (gray bar), per the above FRED graph of CPI inflation rates.

Economists such as Obama’s chief economic advisor, Austin Goolsby, are saying this is a one-of-a-kind slowdown caused by the pandemic. “The most important thing to watch if you want to understand the economy is, as has been the case for a year and a half now, the progress made against the virus,” said Goolsby in a recent NYTimes Op-ed.

Why will the new infrastructure bill create a merrier holiday season? Because it jump-starts a renewal of public investment in America’s future with the largest spending programs since Roosevelt’s New Deal.

The bill provides $110 billion to repair the nation's aging highways, bridges and roads. According to the White House, 173,000 total miles of America's highways and major roads and 45,000 bridges are in poor condition. And the almost $40 billion for bridges is the single largest dedicated bridge investment since the construction of the interstate highway system, according to the Biden administration.

“The bill is a significant down payment on the $2.5 trillion infrastructure investment gap that was identified in the 2021 Report Card and will benefit American businesses and families for years to come,” says the American Society of Civil Engineers (ASCE).

“The bill represents a historic, once-in-a-generation investment in our roads, bridges, water and wastewater networks, ports, electric grid, dams, and more. It increases funding, makes smart improvements to policy such as streamlining permitting, and it creates new programs targeted at almost all 17 categories in the 2021 Report Card for America’s Infrastructure, according to the ASCE.

Specifically, the IIJA includes a reauthorization of our surface transportation programs, the Drinking Water and Wastewater Infrastructure Act, as well as an additional $559 billion in new spending that is a combination of targeted funds for overdue state of good repair projects, but also forward-looking programs and policy to make our infrastructure more resilient, said ASCE.

These funds include:

• $110 billion for roads, bridges, and major projects;
• $66 billion for passenger and freight rail;
• $65 billion for broadband internet;
• $46 billion for resilience to help states and cities prepare for droughts, wildfires, climate change, and more;
• $39 billion for public transit; and
• $17 billion for ports and waterways.

This is just a down payment on what needs to be done to bring the American economy into the 21^st century, according to the Federal Reserve Chair Janet Yellen: “We are now engaged in the most important economic project in recent history: Repairing the broken foundations of our economy, and on top of them, building something stronger and fairer than what came before.”

Consumers will continue to worry about inflation as much as the pandemic in the coming months. But the inflation rate is tied to the infection rate. How? Supply-chain shortages are causing the price hikes. And when millions more return to work (such as truck drivers) once the pandemic subsides sufficiently, this should in turn loosen the supply-chain constrictions, bringing down prices.

So, instead of saying, “It’s the economy, stupid.” we can say, “It’s the pandemic, stupid” that’s holding up the recovery.

Harlan Green © 2021

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

 

Why So Much Inequality?

Answering Kennedy’s Call

FREDcpi

President Biden hopes to pass the largest piece of social legislation since the New Deal with his upcoming $3.5 trillion social infrastructure bill. But he is finding lots of opposition to such public spending.

The NY Times’ Jim Tankersley summarized President Biden’s bill.  It:

“… combines major initiatives on the economy, education, social welfare, climate change and foreign policy, funded in large part by an extensive rewrite of the tax code, which aims to bring in trillions from corporations and the rich.”

Tankersley maintains the legislation, which Democrats are trying to pass along party lines and without Republican support, contains the bulk of Mr. Biden’s vision to overhaul the rules of the economy, “…in hopes of reducing inequality and building a more vibrant middle class.”

Then why are conservative economists against programs that would help to mitigate such record inequality? Harvard Prof Greg Mankiw recently said “Americans should be wary of their plans —“… not only because of the sizable budgetary cost, but also because of the broader risks to economic prosperity,” in a recent NY times Op-ed.

Doesn’t he want to reduce our record income inequality, the worst in the developed and many underdeveloped countries? It is a major reason for the political polarization of Americans that have made us so vulnerable to the COVID-19 pandemic.

I don’t believe so, because he said Biden’s social infrastructure bill “…also raises larger questions about American values and aspirations, and about what kind of nation we want to be?”

He is in fact repeating conservative’s mantra since the 1980s that higher taxes and more government regulation discourage work. He maintains:

“Economists disagree about why European nations are less prosperous than the United States. But a leading hypothesis, advanced by Edward Prescott, a Nobel laureate, in 2003, is that Europeans work less than Americans because they face higher taxes to finance a more generous social safety net.”

Prescott and Mankiw couldn’t be more mistaken, especially in asserting that prosperity (in the form of higher GDP growth) should be the gold standard for determining whether a populous is happy or willing to work.

The above FRED graph cited by Nobel prize-winning economist Paul Krugman in fact debunks that claim. Europeans, including Denmark and France (red and blue lines in graph), have a higher percentage of working aged adults 25-44 than the US (green line). They also have higher minimum wages, universal health care, and take longer vacations than Americans.

So the natural inference must be that a higher percentage of adult Europeans than Americans work (even though for fewer hours) and enjoy a much more generous social safety net because of their higher tax rates!

This is while most Americans do not have that luxury. Americans work longer hours for less, have a poor social safety net and less leisure time to enjoy.

Even modern economic history refutes the claim that greater prosperity depends on lower taxes and less government. Our modern prosperity has depended mostly on what Government has done: built our modern infrastructure, sent us to the moon, created the Internet, and protected us from environmental harm.

So we should ask ourselves why do conservatives still maintain prosperity for the few and inequality for the many is the American way?

The Kennedy economist John Kenneth Galbraith provides one answer, in speaking of France’s Ancien Régime that preceded their Revolution: “The privileged feel (also) that their privileges, however egregious, they may seem to others, are a solemn, basic, God-given right.”

Harlan Green © 2021

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

 

Can We Make a Soft Landing?

 The Mortgage Corner

CBO

Fed Chair Alan Greenspan in early 2000 convinced GW Bush that he could finance GW’s war on terror without raising taxes by borrowing money at ultra-low interest rates. America’s sovereign debt had AAA credit rating at the time, and still does with two of the three major accreditation agencies. Greenspan maintained we could have a “soft landing” if the US economy overheated by tightening credit gradually without causing a recession.

Problem was the Fed under Greenspan held rates down too long with too easy credit as inflation began to rise and the economy overheated, resulting in too much irrational exuberance by banks and lenders that resulted in the Great Recession.

Does that sound familiar? Economists are beginning to wonder if the Fed under Jerome Powell to making the same mistake in financing our recovery from the COVID-19 pandemic.

However, the US economy is in a much better place now to tame economic activity—i.e., can create a soft landing without causing an ensuing recession—if the Biden administration and congress will pay for the investments we are making in our public improvements with the current infrastructure and family plan bills working through congress.

This is in addition to the already passed $trillions to pay for the pandemic. The new legislation will increase productivity by giving Americans earning wages and salaries better working conditions, and families a better education, including paid childcare and family leave that will lift many families with young children out of poverty.

The benefits of putting Americans back on a footing with other developed countries in the 38-member Organization of Economic Co-operation and Development (OECD) are almost incalculable, most of whose citizens work fewer hours for the same or better pay while producing the same amount of goods and services.

The bipartisan infrastructure deal reached by President Joe Biden and a group of senators would not only add to economic growth, but also lower the national debt, according to a new study from the University of Pennsylvania’s Wharton School.

“Over time, as the new spending declines, IRS enforcement continues, and revenue grows from higher output, the government debt declines relative to baseline by 0.4 percent and 0.9 percent in 2040 and 2050 respectively,” said Wharton team as cited by CNBC in June.

The problem has never been what policies would improve the lives on America’s Main Street, but how to pay for them, and it will take additional legislation under the budget reconciliation process to boost taxes. Over the past 40-odd years government-is-the-problem policies instigated in 1980 by conservative Democrats and Republicans had cut taxes and whittled down government programs that would benefit Main Street.

The solution is more progressive taxation enacted that would divert profits from corporations and investors not investing in America’s future to where it will do the most good—in our sadly neglected infrastructure and social safety net.

There are many more safeguards in place that should cushion a soft landing if inflation becomes worrisome because of safeguards put in place since the Great Recession; such as requiring banks and other lending institutions to maintain higher reserves.

The Biden administration wants to pay for future, more equitable economic growth by raising taxes on the wealthiest and corporations, rather than borrowing more that would increase the federal debt. The problem will be to refute the reigning economic orthodoxy that says higher taxes inhibit growth and investment.

However, the lower tax rates since 1980 have increased income inequality rather than boosted long term growth rates,

The best ways to deal with inflation and any possible overheating is to invest in the health and economic security of future generations rather than those of past generations that haven’t done enough to pay for the future.

Harlan Green © 2021

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

Second Quarter Economic Growth Explodes

 Financial FAQs

BEA.gov

The U.S. economy grew at a blistering pace in the spring and repaired most of the damage caused by the pandemic thanks to widespread coronavirus vaccinations and a nearly full reopening of the economy.

The Q2 GDP report verifies that the American economy is capable of easily accommodating the Biden administration’s proposed infrastructure and American Family plan spending of some $4 trillion in additional government investments, should they be passed in their present form.

“Real gross domestic product (GDP) increased at an annual rate of 6.5 percent in the second quarter of 2021, reflecting the continued economic recovery, reopening of establishments, and continued government response related to the COVID-19 pandemic,” according to the Bureau of Economic Analysis (BEA).

This is huge after the first quarter’s 6.3 percent growth and shows both consumers and businesses are spending enough to boost GDP growth past the pre-pandemic level.

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

Such growth should continue in the third quarter with agreement being reached on the $1 trillion national infrastructure plan after weeks of fits and starts, once the White House and a bipartisan group of senators agreed on major provisions of the package that’s key to President Joe Biden’s agenda.

The package includes $110 billion for highways, $65 billion for broadband and $73 billion to modernize the nation’s electric grid, according to a White House fact sheet. Additionally, there’s $25 billion for airports, $55 billion for waterworks and more than $50 billion to bolster infrastructure against cyber attacks and climate change. There’s also $7.5 billion for electric vehicle charging stations.

Government assistance payments in the form of loans to businesses and grants to state and local governments increased in Q2, while social benefits to households, such as the direct economic impact payments, declined. In the first quarter of 2021, real GDP increased 6.3 percent (revised), as I said.

“The $1.2 trillion Bipartisan Infrastructure Framework is a critical step in implementing President Biden’s Build Back Better vision,” said the White House fact sheet. “The Plan makes transformational and historic investments in clean transportation infrastructure, clean water infrastructure, universal broadband infrastructure, clean power infrastructure, remediation of legacy pollution, and resilience to the changing climate. Cumulatively across these areas, the Framework invests two-thirds of the resources that the President proposed in his American Jobs Plan.”

Inflation is running hot, as was expected from the sudden surge in demand that has GDP growth exceeding its pre-pandemic level. The PCE price index that the Fed prefers to measure inflation increased 6.4 percent, compared with an increase of 3.8 percent (revised). Excluding food and energy prices, the PCE price index increased 6.1 percent, compared with an increase of 2.7 percent (revised).

This level of inflation is worrisome if prolonged, but the Federal Reserve believes supply bottlenecks are causing the price rises that should subside once industry activity returns to normal and the 7 million workers still unemployed due to the pandemic return to work.

This is the biggest investment in America’s future since the Eisenhower and Kennedy days more than two generations ago when our tax monies were spent on real things; like our interstate highway system, moon landings, and development of the Internet.

These new government spending initiatives will find new ways to benefit workers in this new economy as other developed countries are doing—i.e., with governments working to pay it forward for future generations.

Harlan Green © 2021

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

Can We Fix the Housing Shortage?

 The Mortgage Corner

Calculated Risk

Existing-home sales of single-family, condos and apartments were down slightly from their recent highs for a number of reasons. This is while demand for housing is skyrocketing with home prices up 20 percent year-over-year, but there just isn’t enough inventory, especially at the low, affordable end where young adults can buy a home or condominium, and builders are scrambling to catch up.

The Calculated Risk graph shows that last year during the pandemic existing-home sales reached the highest sales rate since 2006 and the pre-Great Recession housing bubble. So the worry is how to fulfill the exploding housing needs of Americans after the pandemic has caused a record number of homeless and at least 10 million homeowners behind on their mortgage payment.

The National Association of Realtors reported in May:

“Total existing-home sales,¹ https://www.nar.realtor/existing-home-sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, dropped 0.9% from April to a seasonally-adjusted annual rate of 5.80 million in May. Sales in total climbed year-over-year, up 44.6% from a year ago (4.01 million in May 2020).

"Home sales fell moderately in May and are now approaching pre-pandemic activity," said Lawrence Yun, NAR's chief economist. "Lack of inventory continues to be the overwhelming factor holding back home sales, but falling affordability is simply squeezing some first-time buyers out of the market.”

So how will we provide enough homes to fill the rising demand for housing—not only to house those that can afford to buy, or rent, but for the homeless?

Housing economists predict that partly due to the pandemic, America is short some 5 million housing units, including rental housing.

Forbes Magazine summarizes a compendium of reports from WSJ and others that there would be 5.5 million more housing units today, if as many were built since 2000 as were built for baby boomers from 1968 to 2000.

“To make up the shortage, the NAR report says the U.S. would have to build 2.1 million homes each year for a decade—more than it built each year during the housing boom of the mid-2000s,” says Forbes.

That could be a problem with last month’s residential housing starts increasing 3.6 percent in May to a seasonally adjusted annual rate of (just) 1.57 million units off a downwardly revised April reading, according to a report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.

FREDsfrstarts

This is third highest, per the St. Louis Fed’s single-family starts since 1960, which shows the record for starts was 1.8 million in January 2006 at the beginning of the housing bubble, and the last time interest rates were lower than the inflation rate, as they are today with the Fed’s various quantitative easing purchases of treasury bonds and mortgage-backed securities.

The May reading of 1.57 million starts is the number of housing units builders would begin if development kept this pace for the next 12 months, says the National Association of Home Builders. Within this overall number, single-family starts increased 4.2 percent to a 1.10 million seasonally adjusted annual rate. The multifamily sector, which includes apartment buildings and condos, increased 2.4 percent to a 474,000 pace.

So how can we increase production? “[W]e’ll need to do something dramatic to close this gap,” said Yun in a press release. The association proposed increasing the housing supply by creating or expanding tax credits, loans or grants for builders who renovate or build new housing in low-income areas and who convert old malls and factories into homes. They also asked for incentives for cities to allow denser zoning, an approach that President Biden included in his infrastructure proposal, Reuters reported.

The White says the President’s infrastructure plan proposal invests $213 billion “to produce, preserve, and retrofit more than two million affordable and sustainable places to live. It pairs this investment with an innovative new approach to eliminate state and local exclusionary zoning laws, which drive up the cost of construction and keep families from moving to neighborhoods with more opportunities for them and their kids.”

So it's now up to the Senate to reach a final agreement on the bill, which will determine if we can even begin to cure the housing shortage.

Harlan Green © 2021

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

A Better Use of Economic Growth

 Popular Economics Weekly

AtlantaFed

The Atlanta Federal Reserve Bank puts out a GDP now forecast of upcoming monthly GDP growth, and its latest estimate puts growth at the highest level since the 1980s, as we recover from the COVID-19 pandemic.

“The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2021 is 8.3 percent on April 16, unchanged from April 15 after rounding,” said the Atlanta Fed. “After this morning's housing starts report (last week) from the U.S. Census Bureau, the nowcast of first-quarter real residential investment growth decreased from 10.6 percent to 10.2 percent."

However, new-home sales’ figures Friday showed even faster residential investment growth ahead, reports the US Census Bureau. 

Sales of new single-family houses in March 2021 were at a seasonally adjusted annual rate of 1,021,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 20.7 percent (±23.7 percent) above the revised February rate of 846,000 and is 66.8 percent (±36.7 percent) above the March 2020 estimate of 612,000.

The problem is not finding more ways to boost GDP growth, per se, but how it will be utilized. Since the 1980s, a growing percentage of the Gross National Income derived from GDP growth has gone to ‘rentiers’, i.e., people that receive  income from their assets rather than wages.

That is in part due to the huge decline in personal and corporate taxation of said wealth that has allowed rentiers to accumulate more private wealth, rather than investing in productive enterprises.

What creates GDP? The aggregate, or effective demand of all goods and services produced domestically. Economists have broken it into four components, of which consumer spending is the largest portion. The rest is made up of net exports, government expenditures, and investments.

Consumers spend on private consumer goods, so it is up to investment and government spending to build for future growth. That has not happened because corporations haven’t been maintaining a decent level of capital expenditures and government investments in infrastructure, education, R&D, and our social safety net that would keep workers healthy enough to be more productive has been cut sharply since the 1970s.

GDP growth has been paying too little for future generations since then, in other words, so taxing some of the wealth accumulated since 1980 is needed to pay it forward.

President Biden’s $2.3 trillion American Jobs Plan is meant to correct the underinvestment in the public good. He is calling for more than $1 trillion to be invested just in the various components of infrastructure, including better roads, bridges, public transportation, expanding broadband and electric grids, as well as electric vehicle use.

He is also calling for more spending on health care and the national housing shortage—some $213 billion to “build, preserve and retrofit more than 2 million homes and commercial buildings to address the affordable housing crisis,” $100 billion to modernize public schools and early learning facilities, and $180 billion in research and development of future technologies, and more.

This supports much more than infrastructure, as it fulfills every person’s basic need of food, shelter, and security.

The initial first quarter GDP estimate comes out Thursday, and consensus predictions are for 7 percent growth. Whatever it will be, it is important that it be used in productive ways, and the just-passed American Recovery Act and upcoming American Jobs Plan begin that process of utilizing America’s economic growth to support a better future for all Americans.

Harlan Green © 2021

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

Debt-Fueled Recovery Needed

 Popular Economics Weekly

To: Barron’s Letters

Published: April 19, 2021

Barron’s Lisa Beilfuss cites David Rosenberg’s worries about hyperinflation (because of the Federal Reserve’s inability to keep inflation within acceptable rates), as the reason to worry about a sustainable “debt-fueled” recovery.

But rather than compare the current economic recovery from the COVID-19 pandemic to the ‘roaring 20’s’ recovery from the Spanish flu pandemic, why not compare it to our recovery from World War Two?  Fighting that war required record debt-to-GDP levels that were brought down by record growth and consumer prosperity after the war, because there was agreement that high government and private spending geared to future growth was necessary with the building of American modern infrastructure and higher education system.

Our capitalist system has always required debt to leverage higher growth and the result has been accelerated growth to reduce said debt to the historical level.  Even the CBO in a recent report stated that “Between 1946 and 2019, the deficit as a share of GDP has been larger than that (3.0 %) only twice.”

A major goal of the Biden spending bills is to reverse the record income inequality that has reduced consumers’ ability to spend without higher debt levels since 1980.  The COVID-19 pandemic has cost more lives than World War Two and devastated economic growth worldwide.  So President Biden’s focus on not only rebuilding infrastructure, but improving our social safety net and reducing the record income inequality of working families will create a more sustainable recovery. 

Harlan Green © 2021

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

Strong Retail Sales Continue 2020's Recovery

 Financial FAQs

FREDretailsales

Sales at U.S. retailers rose 9.8 percent in March, the government said Thursday, in part because of the additional $1,400 stimulus checks for consumers from the federal government that is accelerating economic growth.

This confirms the 2020’s economic recovery has begun, as more businesses open and consumers grow confident that the worst of the pandemic is over. The sales gain was the second largest on record, exceeded only by an 18 percent spike last May when the U.S. lockdown was first lifted.

Stock market indexes also reached new highs, which does bring back hints of the original roaring 1920’s—excessive exuberance in the financial markets and eight years of prosperity—but then came the 1930s when outmoded economic verities (and few regulations) turned it into the Great Depression.

However, I would compare this recovery to that after World War Two, which necessitated programs enabling government to invest heavily in the future—in infrastructure, education, and housing, as is being proposed today.

We achieved much higher annual GDP growth rates post-WWII, as high as 14 percent (see below graph dating from 1948), which can happen again with the right public and private investments.

FREDgdpgrowth

Retail sales revved up 15 percent in March at car dealers even as automakers struggled to procure enough computer chips to maintain production, per MarketWatch’s Jeffry Bartash. Auto sales account for about 20 percent of all retail sales.

Sales at gas stations also rose nearly 11 percent, reflecting rising oil prices and more Americans taking to the road as government coronavirus restrictions are lifted. If autos and gas are set aside, retail sales still jumped 8.2 percent.

Almost every major retail group shared in the benefits of the federal aid payments. Receipts leaped 13.4 percent for bars and restaurants, 18 percent for clothing stores, 23.5 percent for sporting goods and other recreational items.

What about COVID-19 and future viruses that must be vanquished to continue this recovery? Better public health care spending is also needed and is contained in the just passed American Jobs Act. Hospitalization rates have plateaued at too high a level. The current 7-day average is 36,941, up from 36,257 reported yesterday, and well above the post-summer surge low of 23,000.

So we do need post-WWII-size investments in the future to create a real recovery.

Harlan Green © 2021

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

March Employment Augers Roaring 2020's

Popular Economics Weekly

MarketWatch.com

It may be difficult for the naysayers that believe too much aid is going into social programs to find fault with the March unemployment report that added 916,000 new nonfarm payroll jobs. It looks like March economic data augers a recovery that may lead to a decade of robust growth in the overall economy.

Companies are already hiring en masse, in spite of a winter that froze Texas and the record floods and tornadoes that have devastated much of the south.

Almost all business sectors are hiring, including a huge jump in the U.S. ISM’s Manufacturing Index to a 38-year high of 64.7, which means some 65 percent of manufacturing businesses surveyed were expanding.

Much of the hiring has come because happy consumers with an additional $1400 checks in their pockets are dining out and traveling more, but also because the housing market is booming—prompting 110,000 new construction hires in March.

The 916,000 new payroll jobs are just the beginning of this hiring boom that must bring back 10 million jobs to return to pre-pandemic levels. That is why Biden’s $3 trillion infrastructure spending will be needed as well.

So thank goodness for the $5 trillion in recovery aid already raised by congress that is encouraging even restaurants and other leisure servicers to hire 280,000 new workers, Education and Health 101,000, and Government 136,000 workers that is just the beginning of what is needed to make this decade this into a roaring 2020's decade.

The official unemployment rate, meanwhile, slipped to 6 percent from 6.2 percent, the Labor Department said Friday. Yet the official rate doesn’t capture nearly 4 million people who lost their jobs last year and weren’t counted in the numbers because they left the labor force.

It is also why Consumer confidence surged in March to a one-year high as more Americans were vaccinated and states began to open up for business. The index of consumer confidence shot up to 109.7 this month from a revised 90.4 in February, the Conference Board said Tuesday.

Confidence may be rising because some 3 million vaccines now administered per day may have 70 percent of American adults vaccinated by July, say the experts.

But new variants of COVID-19 are beginning to pop up, which has epidemiologists worried because it’s causing a plateauing of the infection rates at an unacceptably high level, according to the CDC.

According to the CDC, 153.6 million doses have been administered. 21.7 percent of the population over 18 is fully vaccinated, and 38.4 percent of the population over 18 has had at least one dose (99.6 million people have had at least one dose).

COVID.CDC.gov

Infection rates have plateaued because too many variants Of COVID-19 are popping up in some states. Winning the race between the spreading variants and administering enough vaccinations to stop their spread is the key to a robust recovery.

“I think a package that consists of investments in people, investments in infrastructure, will help to create good jobs in the American economy,” testified Treasury Secretary Janet Yellen in congressional hearings last week, “and changes in the tax structure will help to pay for those programs.”

Yellen and Fed Chair Jerome Powell said there was no problem with any inflationary bulges that might occur with so much spending because it was spending that would boost productivity as well as employment, generating even more growth.

Harlan Green © 2021

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

We Need A Green Infrastructure Plan

 Popular Economics Weekly

Washington Post

The Biden administration’s $3 trillion infrastructure plan is next on their agenda to boost economic growth. And it will need a tax raise to pay for it.

“I think a package that consists of investments in people, investments in infrastructure, will help to create good jobs in the American economy,” testified Treasury Secretary Janet Yellen in congressional hearings this week, “and changes in the tax structure will help to pay for those programs.”

Yellen and Fed Chair Jerome Powell said there was no problem with any inflationary bulges that might occur with so much spending because it was spending that would boost productivity as well as employment, generating even more growth.

“Our best view is that the effect on inflations will be neither particularly large nor persistent,” said Powell during the same hearings.

The circa $3 trillion infrastructure bill President Biden is proposing should really be treated as if we are fighting another world war, as we treated spending during world War Two. This war to overcome the coronavirus pandemic has killed more people than all prior world wars.

So why even worry about inflation or budget deficits? In fact, rising inflation during WWII created negative real interest rates at the time because the Fed kept rates low to finance the war, just as it is doing now, which really means it is interest-free money (That is, real interest rates less than zero as it was during WWII).

And the infrastructure bill must be a green, environmentally friendly bill because much of it has to mitigate the damage to infrastructure from global warming. Need we be reminded of the recent breakdowns in power grids that can leave millions without water and electricity for days, as demonstrated by the Texas power crisis this year?

The National Resources Defense Council (NRDC) in a 2008 report said, “New research shows that if present trends continue, the total cost of global warming will be as high as 3.6 percent of gross domestic product (GDP). Four global warming impacts alone—hurricane damage, real estate losses, energy costs, and water costs—will come with a price tag of 1.8 percent of U.S. GDP, or almost $1.9 trillion annually (in today’s dollars) by 2100.”

This means an 80 percent reduction in U.S. greenhouse gases alone to meet Paris Accord goals, phasing out most uses of fossil fuels and replacing them with electric energy sources such as wind and solar power.

“Mr. Biden’s infrastructure plan will deal with the meat-and-potato issues that Republicans and Democrats agree are an urgent need,” say NYTimes reporters Jim Tankersley and Anni Karney. “It seeks to rebuild roads, bridges, transit, rail and ports, while also improving power grids and increasing the number of electric vehicle charging stations.”

The plan also requires the development of universal broadband, such as 5G networks that China is already building on a grand scale, a major issue in rural communities. Documents suggest it will include nearly $1 trillion in spending on the construction of roads, bridges, rail lines, ports, electric vehicle charging stations, and improvements to the electric grid and other parts of the power sector, according to Tankersley

There is much more to Biden’s infrastructure plan that will be detailed as we get more particulars. Any delays in passing it will only increase the costs from damage caused by the increasing frequency of hurricanes, tornadoes, wildfires, power failures; so much so that even the U.S. Pentagon says climate change has become a national security threat.

Over the past decade, the Pentagon has consistently, repeatedly cited climate change as a serious threat to America’s national security in official public documents.

“Climate change is a threat in their eyes because it’s going to degrade their ability to deal with conventional military problems, said Michael Klare in an Vox interview about his new book about the Pentagon’s role in combatting global warming, titled All Hell Breaking Loose: The Pentagon’s Perspective on Climate Change. “It’s going to create chaos, violence, mass migrations, pandemics, and state collapse around the world, particularly in vulnerable areas like Africa and the Middle East.”

“It is difficult to put a price tag on many of the costs of climate change: loss of human lives and health, species extinction, loss of unique ecosystems, increased social conflict, and other impacts extend far beyond any monetary measure, says the NRDC report. “But by measuring the economic damage of global warming in the United States, we can begin to understand the magnitude of the challenges we will face if we continue to do nothing to push back against climate change.”

If we can protect ourselves from COVID-19, then we surely can protect ourselves from a warming planet.

Harlan Green © 2021

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

Retail Sales Start Roaring 2020's Boom

 Popular Economics Weekly

Calculated Risk

It looks like the 2020’s economy is beginning to roar as retail sales jumped 5.3 percent in January 2021, and 7.4 percent since last January. This is just as President Biden’s approximately $1.9 trillion American Rescue Plan is wending its way through congress.

Advance estimates of U.S. retail and food services sales for January 2021, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $568.2 billion, an increase of 5.3 percent from the previous month, and 7.4 percent above January 2020, said the US Census Bureau report.

Pundits and some economists worry that this is too much “untargeted” money sloshing around the economy, including an additional $1400 per person that will supplement the $600 payments made in January to those making less than $75,000 per person.

Nobel laureate Paul Krugman does not think so, he said in a recent Op-ed, because those that need it will spend it immediately, while the less needy will squirrel it away for another rainy day; a good thing given these uncertain times.

And there is little inflation now, as the Consumer Price Index (CPI) retail inflation measure did not increase at all last month and is up just one percent over the past year.

Sales were strong in every category. Department store chains, Internet retailers, electronic stores and home-furnishing outlets all recorded double digit gains in percentage terms.

Bars and restaurants also registered a nearly 7 percent increase in sales after receipts had fallen three months in a row. Cold weather and new business restrictions imposed after a record increase in coronavirus cases, slammed restaurants toward the end of 2020, but states started to lift restrictions early in the new year as the pandemic began to wane again, reports MarketWatch’s Jeffry Bartash.

“The increase in spending last month was fueled in part by $600 federal stimulus checks for millions of Americans and more generous unemployment benefits. What also helped were loosened state restrictions on business brought on by a sharp decline in coronavirus cases,” said Bartash.

FREDrealpersonalincome

Now is not the time to worry about inflation, in other words. Rising prices increase profits and wages, especially in the recovery stage of this recession. Slow real personal income growth portrayed in this FRED graph has been one reason for slow economic growth since the Great Recession ended some 11 years ago and kept US from spending more on upgrading our deteriorating infrastructure.

Personal income has fluctuated between 2 to 3 percent since then, which is not enough to boost household incomes above the long-term inflation rate. In fact, household income has not risen enough for most Americans to weather such natural disasters as this pandemic, and what is to come with global warming and future geopolitical uncertainty that accompanies a changing climate (droughts, immigration woes, increasing wildfires, hurricanes, etc.)

The Texas freezes and power outages from the current Polar Vortex episode that could last through this weekend are but one example. As reported in the LA Times by a Houston reporter, “Extreme weather events are becoming more frequent and more severe as the climate crisis worsens. And the U.S. power grid is not prepared to handle the hotter heat storms, more frigid cold snaps and stronger hurricanes of a changing planet.”

What better time is there to prepare for such future emergencies?

Harlan Green © 2021

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