No Art of the Trade Deal

 Financial FAQs

“The point is that Trump doesn’t feel bound by trade deals America has made in the past. Why should anyone expect him to honor any new deals he makes, or claims to make, now?

Huffington Post

“Obviously this behavior isn’t unique to tariffs. Many domestic institutions, from law firms to universities, have discovered that attempting to appease Trump buys you at best a few weeks’ respite before he comes back for more.” Paul Krugman

Nobel Laureate Paul Krugman won his Nobel Prize for his research in International Trade, so his remarks on Donald Trump’s behavior in negotiating trade deals is a good way to understand what Donald Trump has done his whole life—bullied people and institutions—because that’s all he knows how to do.

And Krugman fears it will mean Trump will continue his tariff wars, regardless of the outcomes. This certainly means some level of stagflation; higher inflation with slower economic growth, according to most economists and even Wall Streeters. Maybe not on the level of the 1970s stagflation induced by the OPEC Arab Oil Embargo.

It’s Trump’s paranoid personality if you can call it that. It’s the reason he is the con man who has lied and obfuscated his whole life and could only negotiate with lawsuits. He doesn’t really know how to negotiate so that both parties win, and therefore it is a stable relationship between parties. He only wants to overpower a perceived enemy, much like Putin or Xi, real dictators who torture and kill and their own people to maintain power.

I have written about Trump’s poor negotiating skills in past Huffington Post articles and elsewhere. Author Tony Schwarz was the first to seriously write about Trump in Trump: The Art of the Deal, his biography that created the myth that Trump was a skilled wheeler-dealer.

But it wasn’t real, Schwartz said later to New Yorker Magazine’s Jane Mayer in a famous 2016 interview.

“I put lipstick on a pig,” he said. “I feel a deep sense of remorse that I contributed to presenting Trump in a way that brought him wider attention and made him more appealing than he is.” He went on, “I genuinely believe that if Trump wins and gets the nuclear codes there is an excellent possibility it will lead to the end of civilization.”

The just announced reciprocal tariffs on Japan and Korea area a good example, says Krugman. President Trump sent out tariff letters to U.S. trading partners on Monday as he had promised, starting with Japan and South Korea before targeting Malaysia, Indonesia and other countries.

He has labeled them “reciprocal” tariffs because of his perceived unfairness of their tariff policies, but Japan and South Korea charge little or no tariffs on U.S. imports because of long standing agreements, says Krugman, so have little to negotiate.

“How were the South Koreans supposed to end unfair trade practices that exist only in Trump’s imagination?” says Krugman?

Then why is Trump proposing tariffs on them anyway?

“The only possible out here would be a series of fake deals, in which countries pretend to have offered significant concessions and Trump claims to have won big victories. Some people still think that will happen — the new tariffs aren’t supposed to take effect until Aug. 1. But the tone of those letters and Trump’s clear obsession with tariffs make me doubt that he’ll call the tariffs off, in part because of my last observation: Attempts to mollify Trump always end up emboldening him to demand more.”

Then why does Trump do it and cause what will be more huge financial market dips with the loss of more $trillions in equities, many trade disruptions, and alienation of our allies?

Being ‘reciprocal’ has nothing to do with it. Trump will charge at least a 10 percent tariff on the imports from all countries because he needs the import taxes to pay down the huge budget deficit that’s been generated by his Big Beautiful Bill that Congress has just passed.

Therefore his real objective, rather than fairness, is to extract as many concessions as possible from every other country in the world that is dependent on imports to the U.S, regardless of the economic consequences.

Isn’t that what he really wants, to pay for more tax cuts for Trump and the Oligarchs, which will mean the wholesale disruption of world trade, regardless of the possible destruction of our own economy burdened with an unsustainable national debt?

Harlan Green © 2025

Follow Harlan on Twitter: https://twittter.com/HarlanGreen

Fed Rate Cuts Coming Soon?

 The Mortgage Corner

“Existing-home sales rose in May, according to the National Association of REALTORS®. Sales elevated in the Northeast, Midwest and South, but retreated in the West. Year-over-year, sales progressed in the Northeast and Midwest but contracted in the South and West.” NAR

CalculatedRisk

President Trump is now putting on a full court press to convince the Fed Governors to cut interest rates. There are some good reasons to lower interest rates, including the fact that home sales are at levels that last prevailed during the 2008-09 Great Recession (see above graph).

But his “Big Beautiful Bill” will add an additional $3 trillion to the federal debt that means almost $1 billion in annual interest payments. Trump has said he wants rates to be cut as much as one point (-1.0%) from the current 4.25% Fed Funds overnight rate that adjusts the Prime Rate controlling credit card and auto loan payments.

Any rate cuts would give a huge boost to financial markets as well that have been held back by the high borrowing costs for both consumers and businesses.

Fed President Powell speaks to congress this week and Trump wants congressional Republicans to grill him on why he hasn’t lowered interest rates further.

This is because Powell said at his recent press conference, “For the time being, we are well-positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance.”

Two of the Fed Governors appointed by President Trump are already leaning in his direction. Chris Waller and Michelle Bowman said after the bank stood pat last week that they would be open to a rate cut at the July 29-30 meeting, according to MarketWatch’s Jeffry Bartash.

And we mustn’t forget housing sales have been flat since January 2023 when the Fed began to raise their short-term rates. That’s why the National Association of Realtors have also been lobbying for lower interest rates.

"The relatively subdued sales are largely due to persistently high mortgage rates. Lower interest rates will attract more buyers and sellers to the housing market," said NAR Chief Economist Lawrence Yun. "Increasing participation in the housing market will increase the mobility of the workforce and drive economic growth. If mortgage rates decrease in the second half of this year, expect home sales across the country to increase due to strong income growth, healthy inventory, and a record-high number of jobs."

There’s also another reason why interest rates may fall further in July; fears that tariff wars may induce a recession. The Federal Reserve’s release of its minutes from the last FOMC meeting didn’t have much to say about the continuing tariff wars, because nothing has yet been negotiated—just some retaliatory pauses and a written understanding with the UK.

That puts the Fed in a very difficult position. We now know why President Trump has attempted to disguise the fact that it is an import tax. The Court of International Trade has ruled that Trump’s retaliatory tariffs (i.e., import taxes) are illegal.

Hence Chairman Powell’s concern that a recession may be on the horizon was mentioned in last week’s FOMC minutes. “The staff viewed the possibility that the economy would enter a recession to be almost as likely as the baseline forecast.”

We know from past history (i.e., Trump’s first term) that higher tariffs cause higher inflation, which Trump denies will happen again (because it was a campaign promise), and Powell, et.al., have worked hard to get inflation down to its current level.

We also now have reports that imports have declined almost 40 percent in the west coast, which handle most Chinese supplies. Long Beach and Los Angeles posted month-over-month drops of 31.6 percent and 29.9%, while Tacoma and Seattle fell over 40%.

So, there is a good case to be made that interest rates should be coming down, for both good and bad reasons. It does look like Republicans’ “Big Beautiful Bill” will pass, regardless of the consequences. And who doesn’t like lower interest rates?

But Republicans are playing with fire by endangering the “full faith and credit” of the U.S. in wanting to finance it with another $3 trillion in debt.

Harlan Green © 2025

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

Republicans Have Never Paid Their Bills

 Financial FAQs

“The new law will reduce federal revenues by significant amounts, even after allowing for the impact on economic growth. It will make the distribution of after-tax income more unequal. If it is not financed with concurrent spending cuts or other tax increases, TCJA (Tax Cuts and Jobs Act) will raise federal debt and impose burdens on future generations. If it is financed with spending cuts or other tax increases, TCJA will, under the most plausible scenarios, end up making most households worse off than if it had not been enacted.” Brookings

President Trump is justifying his trade war that could wreck the U.S. and maybe world economies because he wants to renew his 2018 Tax Cuts and Jobs Act (TCJA) that could raise the federal debt $2.8 trillion over the next 10 years.

If Republicans would ever pay their bills, rather than continue to lobby for tax cuts, we wouldn’t be in this situation. But they haven’t since Ronald Reagan and now are led by a complete phony who sues those that expose his lies making complete fools of those who support him.

Why are we in a huge financial mess today with a record federal budget deficit and falling value of the dollar President Trump is using to justify an illegal tariff war that is tearing apart the world’s financial order and alienating our closest allies?

Trump’s Republicans are twisting themselves into pretzels to justify the tariff wars Trump is waging on the whole world—all 180 countries—that could lead to product shortages last experienced during the COVID-19 pandemic.

Yet rather than destroy the U.S. and other world economies with unjustified DOGE job cuts and tariffs, if Trump Republicans were serious about reducing the federal debt, they should raise taxes on those that have benefited most from decades of tax cuts enacted by Republican administrations

It doesn’t have to be this way. The Clinton/Gore government downsizing of the 1990s created four years of budget surpluses, because they negotiated with congress to make the cuts that were in congressionally mandated programs.

“Unlike the current effort, the cutting didn’t start until they had gone through a six-month study process and developed a blueprint of how to best reinvent the federal government,” said a recent Newsweek article on the subject. “Government agencies were brought into the process to determine the best ways that efficiencies could be realized. In fact, the effort was led by some 250 federal employees that remained on their agency payrolls.”

The federal workforce was reduced by 440,000 employees between 1993 and 2000, or about 17 percent of the total. The cuts made the government the smallest it had been since the Eisenhower administration, according to the Newsweek report.

FREDdebtpercentageGDP

The St, Louis Fed (FRED) graph of federal debt as a percentage of GDP shows precisely when Republicans began to drastically cut taxes in 1980 under President Reagan—from a 75 percent maximum personal tax rate to below 40 percent, whereas the 90 percent corporate tax rate and 92 percent maximum personal tax rate of the Eisenhower era paid for the “new hires, new equipment, and product research which are deductible from taxable earnings.”

In other words, the higher tax rates made corporations use their profits to finance U.S. growth. Whereas today the tax cuts have mostly financed corporate stock buybacks.

How times have changed! President Eisenhower asked wouldn’t it be better to spend a majority of earnings on expanding the U.S. economy rather than to horde it?

Not any more, because Republicans don’t want to pay their bills rather than provide social services and environmental protection that would benefit all Americans. That’s their history since President Reagan declared that “government was the problem” and immediately fired the federal air traffic controllers who were striking for higher pay and better working conditions.

Will Americans realize and restore Republicans’ theft from American taxpayers via the tax cuts since 1980? It’s estimated some $1 trillion in wealth has been transferred from American workers to the owners of wealth since then that is causing the record income inequality we have today.

Make no mistake, if enough Americans don’t realize what fools they’ve been to support a President who says we’ve just won World War I, and appointed a Navy Secretary who held a ceremony honoring the 1941 Japanese attack on Pearl Harbor on June 6 instead of December 6, it will result in the wholesale destruction of our democracy and loss of the “good faith and credit” of the U.S. Government.

Harlan Green © 2025

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

Republicans Don't Pay Their Bills

 Financial FAQs

“The new law will reduce federal revenues by significant amounts, even after allowing for the impact on economic growth. It will make the distribution of after-tax income more unequal. If it is not financed with concurrent spending cuts or other tax increases, TCJA (Tax Cuts and Jobs Act) will raise federal debt and impose burdens on future generations. If it is financed with spending cuts or other tax increases, TCJA will, under the most plausible scenarios, end up making most households worse off than if it had not been enacted.” Brookings

How times have changed! Republicans during the Eisenhower era paid for the deficits their tax cuts caused. The Brookings Institution analysis of Donald Trump’s 2018 Tax Cut and Jobs Act has US households paying for it because it added some $4 trillion to our federal debt even “if it is financed with spending cuts or other tax increases.”

The 90 percent corporate tax rate and 92 percent maximum personal tax rate of the Eisenhower era paid for the “new hires, new equipment, and product research which are deductible from taxable earnings.”

In other words, the higher tax rates made corporations use their profits to finance their own growth, rather than pay Uncle Sam. Whereas today the TCJA tax cuts will mostly finance corporate stock buybacks.

And Trump wants to renew the TCJA when it expires this year, which the Congressional Budget Office says will add at least another $4 trillion to our national debt.

It doesn’t have to be this way. The Clinton/Gore government downsizing of the 1990s created four years of budget surpluses, because they negotiated with congress to make the cuts, because they were congressionally mandated programs.

“Unlike the current effort, the cutting didn't start until they had gone through a six-month study process and developed a blueprint of how to best reinvent the federal government,” said a recent Newsweek article on the subject. “Government agencies were brought into the process to determine the best ways that efficiencies could be realized. In fact, the effort was led by some 250 federal employees that remained on their agency payrolls.”

The federal workforce was reduced by close to 400,000 employees between 1993 and 2000, or about 17 percent of the total. The cuts made the government the smallest it had been since the Eisenhower administration, according to the Newsweek report.

Who do the Trump tax cuts benefit? Corporations and households in the top 5% — who earn more than $450,000 a year, roughly — are the “biggest winners.” They’d get over 45% of the benefits of extending the Tax Cuts and Jobs Act, according to a July 2024 analysis by the Urban-Brookings Tax Policy Center and would reduce federal tax revenues by $4.4 trillion by 2035.

So why would Republicans want to reduce federal revenues when we have a $36 trillion national budget deficit that is 120 percent of GDP?

It’s because Republicans don’t want to pay their bills rather than provide social services and environmental protection that would benefit all Americans. That’s their history from at least 1980 when President Reagan declared that “government was the problem” and immediately fired the federal air traffic controllers who were striking for higher pay and better working conditions.

We know how that turned out with the latest brouhaha over Musk’s slashing of the already understaffed FAA workforce that regulates airline travel.

President Eisenhower would have turned over in his grave, if he knew this would happen to the Republican Party.

Harlan Green © 2025

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

Inflation Is Back?

 Popular Economics Weekly

“Kentuckians can’t afford the high cost of Trump’s tariffs,” which could cost the average Kentucky resident $1,200 a year. “[P]reserving the long-term prosperity of American industry and workers requires working with our allies, not against them.” Senator Mitch McConnell

FREDconsumerpriceindex

Senator Mitch McConnell’s op-ed in the Louisville Courier Journal (thanks to Heather Cox Richardson) tells us why the former head of the Republican Senate voted against Pete Hegseth for Defense Secretary and Tulsi Gabbard for Director of National Intelligence. He considers their history of incompetence a threat to our national security.

And it looks like that will happen, if President Trump and his Oligarchs get their way with tariffs. But signs of higher inflation are beginning to appear in the New Year that may hinder their implementation of higher tariffs.

Senator McConnell had been the Democrat’s biggest thorn until now, including stonewalling Presidents Obama’s pick of Merrick Garland for the Supreme Court, but of late has been more concerned with the damage that President Trump may do to national security.

Most of the tariffs Trump has announced are targeting our closest allies, thereby weakening them economically. Our closest allies are also our largest trading partners, so they have the low-hanging fruit that Trump first wants to pick by collecting taxes on their exports.

This, of course, increases his wealth and that of his supporters, almost all billionaires in their own right. But a budget battle is looming in March over annual expenditures and the debt ceiling that must be raised to pay for the tax cuts they want, and little room to maneuver with Republicans’ thin House majority.

This also endangers just how Republicans have increased their wealth exponentially since the 1980s while chiseling away at the benefits (such as Medicaid) that increase the wellbeing of the less wealthy—many of whom live in the red states they control.

It is unfortunate that President Trump’s wave of tariff announcements have occurred at the same time as inflation is beginning to rise again. This is incredibly bad timing when he said that he would bring down inflation on ‘Day 1’ of his presidency.

For instance, the retail Consumer Price Index for prices that directly affect consumers is back up to 3 percent y/y after hitting its low point of 2.4 percent last September. The rise in prices was mostly due to soaring food prices (eggs/bird flu) and energy prices (gas and oil)—probably because of the very cold winter.

McConnell’s main worry seemed to be how the tariffs would weaken relationships with our closest allies that help to protect us from the likes of Putin’s Russia or China’s Xi. Trump is using tariffs as a blunt weapon to bring down the budget deficit, while disregarding national security concerns that tariffs are supposed to enhance, which should be to increase the sourcing of strategic raw materials, such as steel and aluminum.

But we don’t really have a problem with aluminum and steel sourcing because our current alliances already supply what we need. That’s why we know Trump’s real reason is not to enhance national security, but to enhance his own financial security enriching himself and the billionaire class by taxing more imports to bridge the huge budget deficit gap.

So how in fact can we reduce the current inflation surge? We must reduce the demand side of the equation, which the Fed is helping to do by keeping short term interest rates slightly higher (4.25% to 4.50%) than current inflation. It makes credit more expensive for investments as well as consumer spending.

Reducing government investments will also reduce demand, because it flows into the private sector where it’s spent by consumers and businesses. But the Oligarchs want only to reduce the size of government expenditures that don’t directly benefit them, such as healthcare, environmental protection, and consumer protection by reducing regulations they don’t like that also reduce their profit margins.

Why otherwise fire so many Inspector Generals who monitor financial misbehavior? Or, why fire so many FBI agents who protect our national security, which is a sign they care little about our national security.

The problem is how to make government more efficient, but that also benefits the less wealthy? Everyone agrees there’s a lot of waste, but also necessary public investments that improve infrastructure, protect the climate, and national Research and Development that the private sector won’t do.

But Oligarchs want only to cut the benefits of everyone else.

Harlan Green © 2025

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

Record Inequality = Record Debt

 Answering Kennedy’s Call

“Never spend money before you have earned it.” Thomas Jefferson

Thomas Jefferson may not be the best person to quote on the dangers of debt—His slaves weren’t freed upon his death because his estate owed too many debts. And my Italian economics history professor lectured on the cause of the fall of the Roman Empire. Its empire collapsed when it was bankrupted because its armies had run out of territories to invade and loot.

Might our American empire might end up in a similar situation? We have transferred as much of our national wealth as possible to the top 10 percent of American households by lowering their taxes. The other 90 percent of American households are tapped out, having accumulated massive debts as household incomes have stagnated since the 1970s.

FREDdebt/gdp

The FRED graph dating from 1980 shows when our debt-to-gdp ratio began to bulge—in 1980 from 31% to 51% of GDP creating the first $400 billion national debt total.

Our national debt has now ballooned to 121 percent of GDP since because we can’t agree on how to pay for it. We may soon lose our last Aaa rating from Moody’s Investors Services who has already warned it is in danger because “Continued political polarization within U.S. Congress raises the risk that successive governments will not be able to reach consensus on a fiscal plan to slow the decline in debt affordability,” as quoted by Barron’s Randall Forsyth.

Graph: Last Tech Age

But the real debt culprit is what the political polarization has led to—our record income inequality, worst in the developed world and many of the developing countries. It is mainly because majority Republican congresses have managed to push through successive tax cuts without the means to pay for them.

The U.S. was in 106th place of the 149 countries in income inequality as ranked by the CIA’s World Factbook with a Gini inequality index of developing countries like Peru and Cameroon when I first wrote about it. Whereas Finland and the Scandinavian countries are at the top of equality rankings, Germany and France are 12th and 20th, respectively. The higher the index, the greater the gap between wealthy and poorer citizens of a country’s population.

Is our bankruptcy immanent? It is becoming increasingly difficult to pay our bills with increasing deficits, since much of the deficit is funded by other countries investing in U.S. Treasuries because the US Dollar is a world currency. But it will become increasingly expensive as foreign investors in US Treasuries will demand higher bond yields for the increased risk of default, as Moody’s Investor Services has warned.

Defaults happened in 1932, when national markets collapsed causing the Great Depression. Americans had borrowed too much and in the words of Roosevelt’s Federal Reserve Chairman Marriner Eccles, “The United States economy is like a poker game where the chips have become concentrated in fewer and fewer hands, and where the other fellows can stay in the game only by borrowing. When their credit runs out the game will stop.”

Part of the solution would be to restore the tax rates for the highest income earners that prevailed before President Reagan cut them to downsize government and enrich his Big Business supporters. The first tax cut (Economic Recovery Tax Act of 1981), cut the highest personal income tax rate from 70% to 50% and in the second tax cut (Tax Reform Act of 1986) to 38.5% among other things, per Wikipedia.

But most of the taxes would have to be paid by those he enriched, maybe even a tax on the wealth they had accumulated, i.e., the wealthiest 10 percent that benefited from all those tax cuts since 1980. Is that possible when the incoming administration wants even more tax cuts?

Harlan Green © 2024

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

Trumponomics 2.0--What To Expect?

 Financial FAQs

George Will, the conservative pundit, gave the best description of Trump’s incoherence in a Washington Post Op-ed: “It is urgent for Americans to think and speak clearly about President Trump’s inability to do either. This seems to be not a mere disinclination but a disability. It is not merely result of intellectual sloth but of an untrained mind bereft of information and married to stratospheric self-confidence.”

This was a leading conservative writer’s prediction of what did happen in President Trump’s first term as President—chaos. Trump’s second term should be a rerun if he succeeds in getting most of his initial cabinet picks confirmed by (or rammed through) the U.S. Senate.

Huffington Post

Many have no qualifications for those jobs, just as in Trump’s first term when most were lobbyists with blatant conflicts of interest, which resulted in many having to resign when their corruption was uncovered. Such dysfunctional behavior was a reason President Trump lost the House of Representatives to Nancy Pelosi and the Democrats in 2018, and Trump lost to President Biden in 2020.

Sadly, the incoming all-Republican congress will probably give him the tax cuts, inflationary tariffs and the mass deportation of undocumented immigrants that will be a repeat of Trump’s first term. And many in the working class who voted for him will suffer again, and as they have throughout Trump’s working life.

A 2016 USA TODAY article catalogued more than 3,500 lawsuits filed by or against Donald Trump over his business career. Many were filed by small businesspeople and firms that Trump refused to pay for work done on his various real estate holdings.

“Donald Trump often portrays himself as a savior of the working class who will "protect your job." But the USA TODAY NETWORK analysis found he has been involved in more than 3,500 lawsuits over the past three decades -- and a large number of those involve ordinary Americans, like the Friels, who say Trump, or his companies have refused to pay them."

The Friel's family cabinetry business, founded in the 1940s by Edward's father, finished its work in 1984 and submitted its final bill to the general contractor for the Trump Organization, the resort's builder, said USA TODAY.

Edward's son, Paul, who was the firm's accountant, still remembers the amount of that bill more than 30 years later: $83,600. The reason: the money never came. "That began the demise of the Edward J. Friel Company... which has been around since my grandfather," he said.

I wrote then, “The greatest nightmare of 2017 may be the record income inequity that was exemplified in the just-passed tax cuts that are to be paid for with up to $3 trillion in added federal debt plus spending cuts to Medicare and Medicaid over the next ten years, which will impoverish the poorest among us.

Professors Thomas Piketty and Emmanuel Saez were the first to examine 100 years of income tax returns that highlighted the wide swings in income inequality. They found that income inequality rose substantially between 1979 and 2002 because the top 10 percent of the income distribution took 91 percent of the income growth during that period. As the real incomes of the top 10 percent soared, the incomes of the bottom 90 percent stagnated..

With nothing to replace the economic destruction that will follow Trump’s policies, other than the “Drill baby Drill” for more fossil fuels, we will be poorer with predictions for an additional $5 trillion added to the national debt. As in his first term, I do not foresee a happy two years ahead, at the least.

It turns out very few of us need a tax cut. 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 so want the huge tax cuts congress and the Trump administration are proposing.

“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,” said Nutting.

It was Trump and his family that profited most from his first term in retaining ownership of his assets rather than either divesting or putting them in a blind trust, blatantly ignoring the emoluments clause of the constitution that forbid profiting from foreign governments seeking his favor.

Donald Trump suffered no consequences for his lawless behavior as has former Brazilian President Jair Bolsonaro, who is banned from running again until 2030 for casting doubt on Brazil’s 2022 election outcome that voted him out of office.

The greatest chaos may come from his pick of Pam Bondi for Attorney General, who is replacing Matt Gaetz. She has sworn revenge for perceived weaponization of the Justice Department by weaponizing it even more to persecute his perceived enemies.

“When will the 2017 nightmare end?” I wrote in 2017. “Maybe in 2018, if most Americans realize the fantasy world the current administration and congress has created is not theirs. Americans desire a world in which life, liberty and the pursuit of happiness is available to all, not just the few.”

That is what happened in Trump’s first term. Must it get even worse before it gets better?

Harlan Green © 2024

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

Who Will Drain the Swamp?

 ANSWERING KENNEDY’S CALL

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

NICHOLAS KAMM/AFP/Getty Images

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

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

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

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

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

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

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

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

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

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

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

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

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

Is there any reason to doubt it will happen again?

Harlan Green © 2024

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

Make America More Equal Again!

 Answering Kennedy’s Call

Piketty-Saez

I have a suggestion for a campaign motto I first wrote about in a 2017 Huffington Post piece that could give a boost to VP Harris’s presidential campaign.

Instead of Trump’s slogan, “Make America Great Again.” let’s “Make America More Equal Again,” just as it was in the 1960’s and 70’s, when we had a thriving middle class in which children could hope to exceed their parents’ station in life.

It was our thriving middle class as portrayed in the above graph of pre-tax income that kept the more extreme elements of both political parties and persuasions at bay, so that Republicans and Democrats talked to each other. A middle class will only thrive where there is less income inequality, something that most well-meaning Americans support.

But that was then and we live now, when most children of the baby boomers retiring do not hope to exceed the economic status of their parents, as income inequality has worsened to levels last seen in the 1920s.  Household incomes have stagnated since the 1970s, and the top income earners since the Great Recession now have garnered almost all the increase.

The Great Recession was brought on by the deregulation boom of the Clinton and GW Bush presidencies and a greater inequality that peaked in 2012 per the Piketty-Saez graph. So why not create programs that Make America More Equal Again?

That is why two out of three Americans are dissatisfied with the way income and wealth are currently distributed in the U.S. This includes three-fourths of Democrats and 54 percent of Republicans, according to a Gallup poll.

Overall, the share of Americans living in middle-class households has declined from 61 percent in 1971 to 50 percent, reported a 2015 Pew Research study. The hollowing out of the middle class has been a source of consternation among many economists, politicians and the public at large, says those surveyed. They say as Americans move toward the economic extremes it is harder to find common ground, and a common sense of what it means to be an American.

Much of that inequality is in the Midwestern rust belt states that lost blue-collar manufacturing jobs during the globalization and multi-nationalization of US corporations that President Trump promised to bring back again.

President Trump was no dummy in recognizing this fact. Then how could Democrats become so blasé and oblivious to this fact among their former supporters? Everyone saw it coming; the disenfranchisement of whole segments of working-class voters that had descended into depression and drug use in those formerly blue and Democrat-voting states.

There were many suggestions of how to bring back higher-paying jobs during Trump’s term, but he only succeeded in enriching the top 1 percent of income earners with his tax cuts. He couldn’t pass an infrastructure bill, did slightly alter NAFTA by drastically raising import tariffs (even on Canadian lumber and dairy products, which raised their prices); built very little wall but imprisoned immigrants seeking asylum at the southern border in camps, and separated immigrant mothers from their children.

Trumps was also unsuccessful in recalling Obamacare that has benefited more than 20 million Americans.

VP Harris has a much better record to run on. For instance, Biden’s Inflation Reduction act is expected to fund $800 billion in green-energy projects, invest $50 billion to foster building computer chip factories, and $1 trillion to fund infrastructure projects that modernizes our public infrastructure; from roads and bridges to our energy grid and water and sanitation facilities.

There are many reasons for Democrats and even truly populist Republicans to support programs that increase income equality in the coming years. But they can’t be about building more walls. A robust and more politically temperate American middle class must include Americans of all nationalities and ethnicities.

A good start would be to bring back the Child Tax Credit that was first enacted in 1997. A better version recently passed the House with a huge majority but its renewal is now stalled in the Senate by Republicans.

The American Rescue Plan Act of 2021 temporarily expanded the child tax credit for the 2021 tax year to $3,600 per child younger than age 6 and $3,000 per child up to age 17. The expanded child tax credit reached over 61 million children in more than 36 million households, and funds were primarily used for child care, food, housing and other basic needs. In 2021 child poverty fell to its lowest level ever in America, but in 2022 Congress did not renew CTC expansion, and child poverty surged by 41%.

Bringing back the middle class is a slogan of the Harris campaign. A corollary can be, "Make America More Equal Again.” Renewal of the CTC that decreases child poverty is perhaps the best way to boost our middle class; by giving hope to our youngest that they might again be able to better their lives.

Harlan Green © 2024

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

America's Ongoing Civil War

 Popular Economics Weekly

Alex Garland’s just released movie, Civil War, about a modern American civil war to unseat a Trump-like authoritarian president in the name of restoring democracy, is portraying an armed uprising that won’t happen today. The possibility of such a military rebellion ended 159 years ago when General Lee surrendered the Confederate Army at the Appomattox Court House in 1865.

Garland misses the point that Americans are fighting a different kind of civil war today as ugly and brutal in many ways but has morphed into an ongoing political and economic competition waged between red and blue states. There are still many casualties, however.

I had been writing about an ongoing civil war since 2013 when a contributing writer for Huffington Post. It caught the attention of Al-Jazeera-America, who interviewed me at the time for an article on the ideological war between Democrats and Republicans during the Obama Presidency.

I said then “…It (the Civil War) was about such men attempting to preserve slavery and state rights. Today, it is about not giving more rights to minorities and the poor.”

The ruling elites of the red states are mostly Republicans wanting to preserve their wealth with lower taxes and less federal government intervention. They want little or nothing to do with expanding such government programs as Obamacare. And the ultra-conservative Tea Party was formed to lead their movement.

A NYTimes 2010 poll had found18 percent of Americans who identify themselves as Tea Party supporters tend to be Republican, white, male, married and older than 45.

It was easy to see why the Tea Party was powerful at the time. Obama’s election in 2008 had reawakened the racism of the old south that was part of an economic apartheid system between the Haves and Have-nots remaining after the abolishment of slavery.

"You're here because now is the single best time we have to defund Obamacare," declared Senator Cruz, one of the Tea Party leaders in 2013. "This is a fight we can win." It didn’t happen, of course, because of a Republican Senator from Arizona after more than 30 attempts by Republicans to defund it.

But it has been conservatives’ battle cry ever since that has caused a tremendous economic toll on the red states, whose poverty levels remain much higher than in the coastal blue states; a distant echo of the carnage that ended 159 years ago.

Why is there another movie about an actual civil war? Maybe it’s because a former president and his supporters keep threatening to wage a new civil war, which might have happened if said former president had succeeded in stopping the Electoral College vote on January 6, 2021.

A better take on today’s uncivil, civil war are films about protests happening today, like an antiwar movie by docu-drama filmmaker Peter Watkins. It was a 1971 movie made during the Vietnam War I happened to be involved in called Punishment Park.

Peter Watkins, an English film director already acclaimed for The War Game, a movie about the devastating effect of a nuclear bomb attack on London, used a dry lake in California as the movie setting for a concentration camp to house those arrested for protesting the Vietnam War, because regular prisons were already overflowing with anti-war protestors.

The movie posited that President Nixon had decreed a State of Emergency under a little-known internal security act from the 1950s to tamp down opposition to the Vietnam War.

A kangaroo court made up of local citizens was set up to try those arrested. The convicted are then given the choice—a chance to escape across the desert without being recaptured for three days without food and water while being pursued by the National Guard, after which they would be released if they survived.

And Watkins added a European news crew in the mix to film the events within the film, highlighting the hostilities and brutality on both sides of the protests.

It bombed at the box office. But I heard it was more popular in Europe, where Peter Watkins was better known.

Why the continuing civil war between red and blue states? There are so many reasons. One can start with the innate tension between states’ rights and the federal government’s role in preserving universal rights that was baked into the constitution.

The constitutional debate then was between northern Federalists led by John Adams that wanted a strong central government, and southern states righters led by Thomas Jefferson, who by some miracle were able to agree on our constitution.

The only casualty at the time was the death of Treasury Secretary Alexander Hamilton from a duel with Vice President Aaron Burr.

In the name of lower taxes for the wealthiest and fewer government benefits for the less wealthy, red states have the same issues today, including the racial apartheid of blacks and minorities who receive much less of the economic pie in those states.

What happened on January 6 was a close call, of course, and maybe Garland was right to visualize a possible military outcome had the former president succeeded in stopping the Electoral College vote.

But the center held, as the saying goes, there has not been another civil war, because of our legal system, the third leg of government that provided the needed checks and balances.

Maybe the best description of what has preserved our democracy was President Lincoln’s reputed quote in the Lincoln Douglas debates of 1858: “You can fool some of the people all of the time, and all of the people some of the time, but you cannot fool all of the people all of the time.”

It is the best description of why citizens of democratic countries have a voice. The upcoming presidential election will be a test of how many citizens can be fooled, and whether we remain a democracy.

Harlan Green © 2024

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

What is This Election Really About?

 Answering the Kennedys’ Call

#eisenhower

Now is the time to cure our record income and wealth inequality, since it’s not only adversely affecting the most vulnerable during this pandemic—including our mostly low-income essential health care and public safety workers—but overall economic growth, and hence any chance of a robust recovery from the current pandemic-induced recession.

According to the Center for Economic Policy and Research cited in an LA Times Op-ed, before the pandemic the U.S. counted 30 million workers in the categories we now consider essential: grocery clerks, nurses, cleaners, line cooks, warehouse workers, bus drivers and more. According to data from the Kaiser Family Foundation published in early May, 1 in 4 essential workers report having difficulties affording basic household expenses, and 1 in 7 are uninsured.

President Eisenhower’s admonition that corporations must pay their fair share to support economic growth is part of the solution to those problems.

I’ve written before about the growing income and wealth inequality that puts America’s distribution of family income ranking closer to Cameroon and Mozambique than the developed countries, according to the CIA World Factbook.

But the coronavirus pandemic has made returning to some degree of income equality that last prevailed in the 1970s more urgent than ever. Our record income and wealth inequality is a major reason for the growth in low-income workers.

U.S. economic growth has been anemic since the Great Recession—even with Republicans’ spectacular 2017 tax cut bill that mostly benefited Wall Street and corporations. The tax cuts were designed to benefit corporations, whose tax rate was cut to a rock bottom 21 percent from 36 percent, giving corporations a profit windfall.

So the upcoming presidential election is really about reversing the huge transfer of wealth (currently $1 trillion per year, per NY Times David Leonhardt) since 1980 when President Reagan’s so-called trickle-down economics program that advocated lower taxes and fewer government regulations took hold.

President Eisenhower’s simple explanation for the 90 percent maximum corporate tax rate that prevailed in the 1950s and 1960s was to encourage corporations to grow and develop “new locations, new hires, new equipment, new product research and development” that would grow the country, rather than “hoard it and pay Uncle Sam.”

But something happened in the 1970s to make taxes and big government unpopular, says Kurt Andersen in his new book, Evil Geniuses, The Unmaking of America (2020, Random House).

Higher marginal tax rates that squeezed growing middle class incomes was certainly part of it, but anti-government, anti-labor sentiments and policies enacted during the 1980s that lowered maximum tax rates put the finishing touches on any possibility of income equality for the 80 percent of salaried workers that no longer shared in the productivity gains from government-financed Research & Development (e.g., Internet, AI, space exploration).

Rutgers University economic historian James Livingston sounded the alarm in a well-known NY Times Op-ed: It’s Consumer Spending, Stupid, some years ago when he showed that corporations for the most part have been using their profits to speculate rather than invest in their future. With lower tax rates they no longer had the incentive to invest in the public good (and America’s future), in other words.

“Between 1900 and 2000, real gross domestic product per capita (the output of goods and services per person) grew more than 600 percent,” said Professor Livingston. “Meanwhile, net business investment declined 70 percent as a share of G.D.P...Since the Reagan revolution, these superfluous profits have fed corporate mergers and takeovers, driven the dot-com craze, financed the “shadow banking” system of hedge funds and securitized investment vehicles, fueled monetary meltdowns in every hemisphere and inflated the housing bubble.”

In other words, this election is not only about choosing a government that can vanquish COVID-19 with effective health care policies, it’s about improving the lives of most Americans. We know there are many programs that would improve income inequality—beginning with a higher minimum wage, enhanced public spending on a better social safety net.

Raising corporate taxes back to historical levels is a start that would enable government to finance some of those necessary changes; or corporations could again heed President Eisenhower’s admonition and spend their monies where it will do the most public good.

Harlan Green © 2020

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

Our Record Income Inequality Needs Fixing

Financial FAQs

FRED

In an earlier column I imagined what could have been accomplished if the $2 trillion given to corporations in the 2017 Tax Cuts and Jobs Act had been put into upgrading our infrastructure, instead of given to corporations and used to boost their stock prices and executive incomes. We might have avoided what will become another severe, maybe Great Recession lasting years,as I said.

This downturn could be as disastrous for the US economy with upwards of 30 million applicants filing initial unemployment claims, and an unemployment rate that approaches 20 percent, if the $ trillions just raised in support of a revival is not put to better use.

The COVID-19 pandemic offers a once is a lifetime opportunity to make drastic changes in American capitalism that would level the playing field for salaried workers most affected with the loss of jobs. Most of the $$ must be spent in the public sector for infrastructure, education, healthcare, R&D, and environmental protection, it the US is to recover from this any future pandemic.

The decline in public spending encapsulates why America still has record income inequality equaling that of the Great Depression. Most economists agree the starving of government programs that would benefit working folk is a major cause of most recessions, including the Great Depression and Great Recession that must be corrected if there is to be a robust recovery.

And we are dependent on those salaried working folk to generate 70 percent of U.S. economic activity, yet at least 80 percent are earning no more than in the 1970s with inflation factored in.

I say this because we have always been a fragmented country with a weak federal system, a system of red and blue states still fighting over the same issues that prevailed during the civil war, resulting in the least regulated capital and labor markets in the developed world with no universal health care.

The record decline of the American worker’s income and labor organizations that supported it since World War II is a long story, though I will attempt to condense its history without too much simplification.

First a fact. The most recognized measure of income inequality is the Gini inequality coefficient, that calculates the percentage of income earned by different segments of a country’s populace. The U.S. ranks 118^th in the list of 157 countries compiled by the CIA World Factbook, which is below every other developed country in the equal distribution of national income—between Peru and Cameroon.

We know about our record income inequality from countless stories of rising poverty levels, homelessness, and the Occupy Wall Street movement that first focused attention on the extreme wealth of the top one percent of income earners. French economist Thomas Piketty and UC Berkeley economist Emmanuel Saenz were the first to plough through 100 years of tax returns that measured income differences of the wealthy and poor.

The rise in income inequality and poverty levels was also due to the decline in progressive tax rates. The maximum income tax rate topped out at 92 percent during Eisenhower administration, uniting Republicans and Democrats to build our modern post-WWII public infrastructure, before declining to 36 percent today.

After the 1973 Arab oil embargo that boosted oil prices and inflation to unacceptable levels, a new kind of economics was born. Some called it trickle-down economics, others supply-side economics. The idea was to shift most profits to the side of business owners so they would produce more by cutting taxes and regulations.

They used an old French economic theory as the justification for such a shift in economic thinking—Says Law named after an earlier French economist. It said that producers should maximize their profits, and enough would trickle down to the workers that produced their increased profits. Everyone would then be happy, there would be enough to go around, a rising tide would lift all boats, etc., etc.

However, lowered taxes did not raise all boats, but it did create soaring federal debt. And labor had lost its clout as higher-paid manufacturing jobs went overseas, leaving the U.S. with lower-paying, service jobs at warehouses and transportation hubs.

The end result was that most industries were deregulated creating today’s dog-eat-dog capitalism that has starved government of public services and rules that would mitigate the predatory behavior of modern capitalism.

All public sector investment consequently declined—in education, Research and Development (that created the Internet and sent us to the moon), and modern infrastructure that would boost our declining labor productivity.

There is really no other choice but reform of the economic system Americans live with. A country that unites behind the support of its workers by giving them a greater of our national wealth—sich asbetter healthcare, education, while fixing our infrastructure—and raising taxes enough to keep social security and Medicare financially sound—will put US on the road to a better recovery.

Harlan Green © 2020

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

Christmas Isn't For Bullies

Popular Economics Weekly

Kyyouth.org

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

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

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

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

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

Such malevolence towards others shows in many ways and fits the definition of bully behavior. Psychology Today has posted a list of bullying behavior, a list that fits the Trump Party to a tea:

• – Uncontrolled anger and unpredictable irritability, frequently directed at the weakest people (‘safe targets’) or those perceived as a future threat
• – A sociopathic ability to control their own image – the selective ability to look like a different person to different audiences – for example, being aggressive to ‘subordinates’, while being charming and helpful to others
• – Having little status outside of work, bullies wield the power that their job gives them with vicious zeal
• – Running ‘witch-hunts’
• – Gratuitous domineering behaviour – sometimes physical
• – The ability to make the unreasonable seem reasonable, even to the victims
• --Projecting their own inadequacies onto others
• – Making irrational accusations
• – Publicly putting people down
• – Sadistic enjoyment in humiliating others

Americans love to celebrate the Christmas spirit. It is the time to give aid and comfort to those less fortunate, to treat all with empathy and love, rather than hateful cruelty. Celebrating brotherhood is also one of the best ways to stand up to bullies. Remember, bullies are really cowards who only dare to prey on the weakest.

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

Harlan Green © 2019

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

Q4 Economic Growth…Watch Out Below!

Popular Economics Weekly

We might have a problem with economic growth in the fourth quarter, thanks in part to Republicans’ 2017 tax cuts that were to stimulate longer term growth and jobs, believe it or not. The New York and Atlanta Federal Reserve estimate seasonally adjusted Q4 GDP growth to drop to just 0.3 to 0.4 percent, from Q3’s initial estimate of 1.9 percent growth, Merrill Lynch has a slightly more optimistic forecast of 1.5 percent.

This is a terrible number, if accurate. These are so-called early “nowcasts” based on very preliminary data, so much could change by Q4. But there has been a steady decline in growth from last year’s tax cut-fueled surge that is mirrored by the latest retail and industrial production figures.

Why were the tax cuts a bust? Fedex’s 2018 $1.6 billion tax “windfall” is a good example of what happened to that windfall, according to the New York Times. Fedex promised that the U.S. economy would see a “renaissance of capital investment” from the huge capital gains tax cut. But it never happened.

“If anything, the companies that received the biggest tax cuts increased their capital investments by less, on average,” said the Times article. The result was increased CEO salaries and massive stock buybacks, which benefited stockholders, but not their employees that received no salary boosts, or bonuses from the largesse.

“Fedex reaped big savings, bringing its effective tax rate to less than zero in fiscal year 2018 from 34 percent in fiscal year 2017,” continued the Times. The result was more financial engineering, rather than productive investments that would boost growth.

The Atlanta Fed nowcast said, “The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2019 is 0.3 percent on November 15, down from 1.0 percent on November 8. After this morning's retail trade releases from the U.S. Census Bureau, and this morning's industrial production report from the Federal Reserve Board of Governors, the nowcasts of fourth-quarter real personal consumption expenditures growth and fourth-quarter real gross private domestic investment growth decreased from 2.1 percent and -2.3 percent, respectively, to 1.7 percent and -4.4 percent, respectively.”

Calculated Risk

The steady decline in retail and food service sales ex-gasoline—a more reliable indicator of sales volume—is worrisome because it mirrors consumer behavior, which is the main driver of economic growth at present. Consumers have been saving more and spending less this year. Sales slowed to a 3.9 percent annual increase from what has historically been in the 5-6 percent range since 2011. This is even though consumers have remained optimistic about future prospects in the latest consumer sentiment surveys.

Calculated Risk

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

Small businesses that answer the National Federation of Small Business survey are still upbeat. “The small business optimism index showed modest but wide improvement in October, at 102.4 which is at the high end of expectations and up 6 tenths from what was an unexpectedly weak September. Eight of the index's 10 components improved in October led by plans to increase inventories and including increased plans to make capital outlays. Earnings trends, however, fell sharply and current job openings edged lower. And continued earnings decline is a problem."

Industrial production and consumer spending are really the two main components of growth.

Earnings have begun to decline, in a word, and who knows how much more earnings may fall with declining capital investment, which is the seed corn of future growth?

Harlan Green © 2019

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

Budget Deficits and the Laffer Curve

Financial FAQs

Wikipedia

There is an economic theory of sorts that helps us to understand why our political parties can’t agree on how to grow an economy that benefits most Americans. It’s called the Laffer Curve, reputedly first drawn on a napkin by doctoral student Arthur Laffer in a meeting with Dick Cheney, President Ford’s Chief-of-Staff in the 1970s.

Laffer basically claimed that raising taxes was harmful to economic growth, and his pretty picture convinced conservatives who didn’t like taxes of any kind. His ‘claim’ isn’t true, though it had always been behind conservatives’ call to shrink government spending by cutting taxes. It was the higher maximum tax rates of the 1950s and 60s that enabled the US to build our Interstate highway system and land on the moon, for starters.

But cutting taxes just to enrich certain income brackets, without cutting comparable spending has always resulted in burgeoning deficits, as conservatives certainly know, even if they won’t admit it.

For instance, it purportedly convinced Cheney as GW Bush V.P. that “deficits don’t matter”. Laffer’s claim gave Republicans the cover to lower taxes while increasing spending for President GW Bush’s War on Terror after 9/11, because Laffer asserted it would pay for itself with faster growth. Instead, the Bush tax cuts and increased spending has added a cumulative $4 trillion to the federal debt since then.

Washington Monthly

A short spurt of growth happened in 2018 after the 2017 Republican tax cut, but GDP growth is settling back to the 2 percent range that has prevailed since the end of the Great Recession. And there is another consequence—an upcoming $1 trillion budget deficit.

Growth had flagged since 2008 because so many Americans weren’t put back to work, as happened during the Great Depression. Spending was erratic amid continual budget wars between the two political parties impeded productive investments, such as in our badly outmoded infrastructure.

One example: more than one-third of America’s 600,000 plus bridges are badly in need of repair; our energy grid is more than 70 years old and subject to power failures; our drinking water systems are becoming health hazards—Flint, Mich and Newark, NJ are the latest examples; and we have a K-12 educational system that ranks near the bottom of developed countries.

The Laffer Curve has really done no one good, except to give conservatives talking points with which to maintain the low tax rates of today that have resulted in record federal debt levels.

“There is a strong correlation between cuts in top tax rates and increases in top 1 percent income shares since 1975,” said economists Thomas Piketty, Emmanuel Saez, and Stefanie Stantcheva in a 2011 NBER Working Paper. “But top income share increases have not translated into higher economic growth, consistent with the zero-sum bargaining model.”

The resulting record income inequality from the Laffer Curve inspired tax cuts has finally reached the same level that prevailed in 1928, and we all know what happened next—the Great Depression.

Harlan Green © 2019

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

Weaker Employment Report Due to Higher Tariffs?

Financial FAQs

MarketWatch.com

Total nonfarm payroll employment increased by 155,000 in November, and the unemployment rate remained unchanged at 3.7 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in health care, in manufacturing, and in transportation and warehousing.

The slightly weaker report showed little inflation that might keep the Fed from raising interest rates further in their December FOMC meeting. The Federal Reserve may not want to push rates higher because of the ongoing trade wars that threaten jobs and growth next year. This was brought out in the wild stock market gyrations of late. The DOW down plunged more than 1,000 points this week, erasing all its gains for the year, in part due to fears of upcoming layoffs due to the rising tariff costs.

Average hourly earnings increased just 0.2 percent, which was on the low side of expectations. The year-on-year rate for earnings held unchanged at 3.1 percent, again on the low side of expectations, which should keep the retail (CPI) inflation rate in the 2 percent range.

Another sign of moderation comes from average weekly hours which, at 34.4, are at the low end of expectations. Manufacturing hours and overtime are steady, which with the 27,000 jobs created show moderate results for the upcoming industrial production report.

Overall manufacturing activity as detailed in the November ISM Manufacturing Index was extremely strong with new orders, at 62.1, up 4.7 points, back over 60 in one of the longest runs in the long history of this report that it had held for a year-and-half. This may not continue if the steel and aluminum tariffs, however, are not eventually eased that are a large part of manufacturing costs.

The number of long-term unemployed (those jobless for 27 weeks or more) declined to 62.9 percent, and the employment-population by 120,000 to 1.3 million in November. These individuals accounted for 20.8 percent of the unemployed.

Both the labor force participation rate, at 62.9 percent, and the employment-population ratio, at 60.6 percent, were unchanged in November, said the BLS. The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers), at 4.8 million, changed little in November. These individuals, who would have preferred full-time employment, were working part time because their hours had been reduced or they were unable to find full-time jobs.

The report wasn’t strong enough to prevent expectations of further economic uncertainty amid the ongoing trade war with China, in particular, that has been given a 90-day reprieve at the G20 economic summit. The so-called reprieve did nothing for the existing tariffs in steel and aluminum initiated by Trump and agricultural tariffs enacted by China in response, which are boosting costs for both manufacturers and consumers.

Are we about to enter another recession, the sixth recession in two decades? Five have occurred since 1981, including the Great Recession. Two were during Ronald Reagan’s Presidency (1981, 1983), one under GHW Bush (1991), and two under GW Bush (2001, 2007). All have occurred under Republican administrations, in other words, administrations noted for cutting taxes, but not spending. Are we seeing a pattern?

The Trump administration is trying the opposite tack. It has cut taxes, but erected higher trade barriers. The results are already clear. General Motors just announced it is poised to end production at five plants in the U.S. and Canada, kill off several passenger cars – including the Chevrolet Impala – and slash 15 percent of its salaried workforce in a sweeping cost-cutting plan designed to boost profits and adjust to America's changing tastes in vehicles, as I mentioned last week.

The move — part of a sweeping cost-cutting plan unveiled Monday — comes as Americans are abandoning passenger cars in favor of crossovers, SUVs and pickups, said USA Today. But the underlying reason is that GM and Ford announced the 25 percent boost in steel tariffs, and 10 percent boost in aluminum tariffs enacted by the Trump administration will cost each an extra $1 billion in production costs next year.

Higher tariffs will not bring more jobs home—especially those higher-paying manufacturing jobs we were promised—if those tariffs aren’t eventually removed.

Harlan Green © 2018

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

Corporate Governance Reform—Women Make A Difference

ANSWERING THE KENNEDYS CALL

NYTimes.com

California State Senator Hannah-Beth Jackson’s upcoming Senate Bill SB826 on reforming corporate governance will make corporations more responsive to the needs of the societies in which they operate by requiring more women to serve on their boards.

This is heady stuff, as research has shown that women on a corporate board are more likely to “create a sustainable future” by, among other things, instituting strong governance structures with a high level of transparency.

A 2012 UC Berkeley Hass School of Business study entitled, Women Create a Sustainable Future, to list just a few of the benefits of adding more women to corporate boards, are more likely to be:

· Companies that proactively invest in renewable power generation and related services.
· Companies that proactively address the environmental risks embedded in their financing decisions.
· Companies that provide strong employment benefits and performance incentives and offer employee engagement and professional development programs.
· Companies that offer products with an improved nutritional or healthier profile and have sought credible verification for its healthier status.

“Women and sustainability are two sides of the same coin …. Corporations build better societies if they have balanced boards,” said Halla Tomadottir, executive chair and co-founder of Audur Capital in Iceland, interviewed in the study. Ms. Tomadottir was on the all-female board of the only Icelandic bank that didn’t go into bankruptcy in 2008 during the Great Recession.

Perhaps her most famous quote, made in the Michael Moore documentary, Where to Invade Next? was “One woman on a board is a token, two women a minority. It takes three women to make a difference.” (sic)

“Take for example, a company like Nestlé,” says the Hass study, “which has recently turned its focus toward creating shared value with its product offerings in three areas: nutrition, water, and rural development. Nestlé uses science-based solutions to improve the quality of life through food and diet. "This type of social initiative is well aligned with corporate sustainability for Nestlé. Our research findings to date suggest that having more women corporate directors is correlated with these types of strategies and outcomes. Nestlé’s Board of Directors has three women.”

Senator Jackson’s bill, “no later than the close of the 2019 calendar year, would require a domestic general corporation or foreign corporation that is a publicly held corporation, as defined, whose principal executive offices, according to the corporation’s SEC 10-K form, are located in California to have a minimum of one female, as defined, on its board of directors, as specified. No later than the close of the 2021 calendar year, the bill would increase that required minimum number to 2 female directors if the corporation has 5 directors or to 3 female directors if the corporation has 6 or more directors.”

The behavior of corporations and corporate boards has come under scrutiny particularly since the December 2017 massive corporate tax cuts that its supporters touted would repatriate some of the $3 trillion in overseas assets, as well as raise the incomes of its employees.

But that hasn’t happened to date, as the focus of corporations’ increased profits since then have been to return the windfall to investors and corporate CEOs—either by buying back more shares, going private, or indulging in Wall Street’s merger and acquisitions’ game, rather than creating sustainable programs that would profit society at large as well as themselves.

In a 1970 Times magazine article, the free market economist Milton Friedman argued that businesses' sole purpose is to generate profit for shareholders. Moreover, he maintained, companies that did adopt "responsible" attitudes would be faced with more binding constraints than companies that did not, rendering them less competitive.

“There is one and only one social responsibility of business — to use it resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.” -Milton Friedman, New York Times Magazine, September 1970.

How the world has changed since then! We now know that ignoring environmental and social issues can be bad for business. Companies that pollute their local communities risk poisoning their customers. Ignoring the state of the local school system can mean depleting the pool of qualified workers. Exploiting workers risks higher turnover and training costs, not to mention greater difficultly in attracting the most qualified candidates.

As part of its findings, SB826 provides some impressive supportive data about the benefits of board gender diversity, including the following:

“(1) A 2017 study by MSCI found that United States’ companies that began the five-year period from 2011 to 2016 with three or more female directors reported earnings per share that were 45 percent higher than those companies with no female directors at the beginning of the period.
(2) In 2014, Credit Suisse found that companies with at least one woman on the board had an average return on equity (ROE) of 12.2 percent, compared to 10.1 percent for companies with no female directors. Additionally, the price-to-book value of these firms was greater for those with women on their boards: 2.4 times the value in comparison to 1.8 times the value for zero-women boards.
(3) Credit Suisse conducted a six-year global research study from 2006 to 2012, with more than 2,000 companies worldwide, showing that women on boards improve business performance for key metrics, including stock performance. For companies with a market capitalization of more than $10 billion, those with women directors on boards outperformed shares of comparable businesses with all-male boards by 26 percent.”

The business world can no longer afford to ignore what it takes to create a sustainable future, a future in which our children can enjoy the fruits of our labor. How can we otherwise tolerate a world growing more populous with limited resources and a warming planet?

Harlan Green © 2018

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