Shutdown vs. “S***hole” Countries?

Popular Economics Weekly

The just ended government shutdown has little to do with 9 million children’s health insurance under the CHIP plan, or extending the Dreamers protection under DACA. It really has to do with President Trump’s insistence on shutting down immigration from non-white countries, as was evident from Trump’s “S***hole” comments that he wanted to limit immigration from African and other non-white countries.

What is so shocking about Trump’s comments is they repeat those of one who he claims not to admire. Adolf Hitler in 1928 openly admired America’s racist policies of that time that excluded non-whites and Jews from immigrating to the U.S.:

“The American Union feels itself to be a Nordic-German state and by no means an international porridge of peoples. This is revealed by its immigration quotas … Scandinavians … then Englishmen and finally Germans have been accorded the largest contingent,” said Hitler even before the Nazi’s took power.

Specifically, Hitler admired the US Immigration Act of 1924 – also known as the Johnson-Reed Act – “which had erected openly racist barriers to immigration on the basis of a “national quota” system,” according to Yale Law Professor James Whitman.

“It was not until the 1965 US Immigration and Nationality Act that the US began to separate itself from the worst aspects of its racist past. And, as Trump’s presidency makes clear, that past has yet to be permanently overcome,” said Professor Whitman in a Project Syndicate article.

There is a reason why US immigration laws became more open. The US has always suffered from a labor shortage, so that it has been newly arrived immigrants that have filled the labor deficiency.

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PEW Research states that More than 41 million immigrants lived in the U.S. as of 2013, more than four times as many as was the case in 1960 and 1970. By comparison, the U.S.-born population is only about 1.6 times the size it was in 1960. Immigrant population growth alone has accounted for 29 percent of U.S. population growth since 2000.

That is the most glaring sign that new workers are needed to maintain economic growth. US population growth cannot keep up with our demand for new workers. There is no other way to fill the 6 million job openings reported each month in the Labor Department’s JOLTS report.

Debate on the current House bill that doesn’t include an extension of the Dreamers’ protections was continued for 3 weeks, in the hopes that a bi-partisan bill keeping open the door for immigrants from what President Trump considers to be “S***hole”, non-white countries will be passed.

So this is important for economic reasons; as well as recognizing that America has always been a land of immigrants; that we keep a flow of qualified immigrants and their families coming from countries that can provide the workforce that America has always needed to grow.

Harlan Green © 2018

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Immigration and Trump’s “S***Hole” Comment

Popular Economics Weekly

How should we remember Martin Luther King, Jr. on his holiday? That greater equality creates greater prosperity for all; as well as greater peace.

President Trump’s S***Hole comments were meant as a signal to his neo-nazi supporters that he wanted to exclude as many non-whites from immigrating to America as he could, and encourage more from European countries like Norway.

This means he isn’t interested in stronger economic growth over the longer term, since much of the economic growth today can be attributed to non-whites and women, according to an excellent column by the Conversable Economist, Tim Taylor, commemorating MLK Jr.’s holiday.

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Graph: Conversible Economist

Non-whites and women have been contributing a larger share to our economic growth than White men since at least 1960 in high-skill occupations. Before then, many labored in the lower-skilled, unnoticed occupations that weren’t always included in growth statistics.

Professor Taylor quotes a policy brief from the Stanford Institute for Economic Policy Research cited by Peter Klenow. The percentage of White men in the high-skilled occupations of Doctors, Lawyers and Managers, “defined as lawyers, doctors, engineers, scientists, architects, mathematicians, executives/managers,” has fallen substantially, while that of Black men, White and Black women has soared. The number of White women entering these professions has tripled, Black men quadrupled, and Black women grown eight times from 1960 to 2008.

The result? Klenow estimates that economic growth increased by 15-20 percent due to these minorities entering the higher-skilled occupation, just from the fact that their numbers increased as a share of the overall profession, while the percentage of White men has fallen by approximately one-third.

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It also highlights another important fact. Economic growth depends on population growth plus labor productivity. And annual labor productivity has declined approximately 50 percent since 2007, as has U.S. population growth. So the only way to boost economic growth from its current 2 percent range is to increase the working age population via immigration.

The lesson therefore is that we need greater diversity in our workforce, not less as President Trump and his racist supporters want, since our birth rates are declining; a valuable lesson to remember on Martin Luther King, Jr. Day.

Harlan Green © 2018

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Why Raise Interest Rates Now?

Financial FAQs

The Federal Reserve is warning about the consequences of the just passed tax reform bill, which includes adding some $1.5 trillion to the federal debt in ten years. New York Fed President William Dudley says it will put too much money into the economy (via drop in corporate tax rate to 21 percent, and maximum personal rate to 37 percent), which will boost inflation to unacceptable levels. Dudley said the U.S. central bank may have to “press harder on the brakes” at some point over the next few years, increasing the risk of a hard landing for the economy, because of the new tax bill.

So once again, we are seeing what the Fed might do to stop this economic expansion, just as Fed Chair Greenspan did in 2007 by raising the Fed’s rates 16 times to stop the GW Bush expansion (and housing bubble) that led to the Great Recession.

Greenspan’s actions raised interest rates too fast on all the so-called liar loans with negative amortization, and put house payments out of range for the less qualified; many of whom had never owned a home, or had to admit their real incomes; which led to the busted housing bubble.

The Fed could make the same mistake in the current growth cycle with retail sales booming and very little inflation. The Fed has been too occupied with inflation since the wild inflation years of 1970, when they should be more concerned about maintaining adequate economic growth, which has been averaging just 2.1 percent since the end of the Great Recession.

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Graph: Econoday

Retail sales rose 4.2 percent in 2017, with very little inflation even on the horizon. Retail sales rise 5 to 6 percent when the economy is growing for everyone, but inflation rates are also higher—in the 3 to 5 percent range historically. This is because the Fed is most sensitive to rising wages and salaries that make up two-thirds of product costs as an indicator of future inflation, as it did in the seventies.

So by wanting to hold inflation to a 2 percent target, the Fed since the 1970s has been more concerned with tamping down household incomes, which is not the way to enable households to better themselves financially and move up the socio-economic ladder, as was possible prior to the 1970s.

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Graph: Econoday

The Consumer Price Index, our best measure of retail prices, is still holding at 2 percent as it has for several years. But the core CPI index without food and energy prices plunged to 0 percent inflation in 2015 as the graph shows, and been slow to return to the 2 percent range. That’s hardly a sign of incipient inflation, but rather a sign of insufficient demand for goods and services, which in turn means household incomes are not rising fast enough to stay ahead of inflation, since consumers support two-thirds of all economic activity in the U.S. economy.

One can say the Federal Reserve has been too much in league with Big Business and multi-national corporations since the 1970s; which has kept production costs low and corporate profits at their highest levels in history as a percentage on national income.

This means we have to ‘modernize’ the Fed’s attitude about inflation, if we want to aid household incomes. Fed Governors should allow more inflation before raising interest rates further. Now is the time to be more concerned about the financial health of employees over corporate profits.

Harlan Green © 2018

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Aren’t Tax Cuts Wonderful?

Popular Economics Weekly

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

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

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

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Graph: Calculated Risk

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

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

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Graph: Calculated Risk

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

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

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

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

Now it seems that budget deficits are no longer a problem for Republicans, and President Trump is counting on those 10 million new jobs to justify the tax cuts. He’s not off to a good start, in part because this is the ninth year of this recovery cycle, and the post- World War II record is ten years that included President Clinton’s term.

Harlan Green © 2018

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What Happens in 2018?

Popular Economics Weekly

The New Year will make some people very wealthy—mainly stockholders, corporate execs, and real estate moguls. And as minimum wages begin to rise this year in many cities and states (but not all), those at the lower income end will also get a boost. But the middle class? They will be hit hardest by the limit to property tax and mortgage deductions in the new tax bill. And don’t forget the spending cuts to the social programs that will lower incomes of those dependent on Medicare and Medicaid.

However, this is a column about the prospects for higher paying jobs and economic growth. And it looks like upcoming statistics will show the ninth year of solid growth. But that is only if Congress finally enacts an infrastructure bill that would not only boost higher paying jobs, but productivity as well. The hurricane devastations and winter ‘bomb’ cyclones make that an obvious priority.

Just 148,000 new nonfarm payroll jobs were added to payrolls in December, according to the U.S. Bureau Labor Statistics, down from the prior two months’ 232,000 average. But economists believe it was partly due to the extreme winter weather that has essentially snowbound the northern half of the U.S.

Everyone needs to see The Day After Tomorrow, a harrowing movie about extreme climate change that brings in a new Ice Age, to understand what can happen if such extreme weather conditions continue.

All else was strong with the unemployment rate holding at 4.1 percent. Job gains were led by the health care, construction and manufacturing sectors. Other industries had smaller gains. The only significant weakness was in the hard-hit retail sector, which shed more than 20,000 jobs.

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Graph: Marketwatch

The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) was essentially unchanged at 4.9 million in December but was down by 639,000 over the year. These individuals, who would have preferred full-time employment, were working part time because their hours had been cut back or because they were unable to find a full-time job.

So this economy is putting people back to work, and could equal the Clinton recovery from 1991 to 2001 before GW Bush cut taxes and swelled the federal deficit once more; that had actually been in surplus for the last 4 years of the Clinton administration.

The lesson we learned then was Clinton had to raise taxes and cut back military spending, the largest portion of the federal budget. But Republicans once again are adding to the deficit and overall debt with their tax cuts.

So the real silliness in 2018 will be one party believing that cutting taxes and social programs will keep the federal debt from growing even larger. Not possible, because over the long term the monstrous federal debt will take even more money out of the economy and growth to pay the interest required to service said debt that could grow to $25 trillion in ten years, according to some projections.

And the Fed will keep raising interest rates at the same time to prepare us for the next recession.

Harlan Green © 2018

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2017—A Nightmare Year

Popular Economics Weekly

“For what does it profit a man to gain the whole world and forfeit his soul?” Jesus was to have said to his disciples. This should be the proverb that describes 2017, a year of lost souls.

What does it say about a country that elects a President who shows no sign of having a soul, but only wants profits for himself and his cronies?

Most Americans in 2017 have seen rock-bottom American values such as equality, justice, and tolerance assaulted to bring back a gilded age that profits a few. Instead of draining the DC swamp, President Trump has filled it with a record number of lobbyists; either writing the bills Republicans are pushing through congress, or installing lobbyists in the very government agencies they are tasked to regulate.

The 2017 nightmare began on the election of Donald Trump that will forever be tainted by Russia’s well-documented attempts to tilt the election to Trump and the Republican Party.

George Will, the conservative pundit, gave the best description of Trump’s inabilities 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 the result of intellectual sloth but of an untrained mind bereft of information and married to stratospheric self-confidence.”

Practicing and academic psychotherapists have said more; that Trump is mentally ill, or has an untreatable Narcissistic Personality Disorder, but either way, he lives in a fantastical world of his own making the almost completely ignores the reality that most Americans live.

The nightmare grew when we learned Russia may have been behind many of the dirty tricks, and anti-Hillary chants of “Lock Her Up” made by Trump campaign advisers such as General Flynn. We now know the FBI began its counter-intelligence operation of the Trump campaign in the summer of 2016, when it learned that the Russians had hacked both Republican and Democratic Party emails.

But Russia only weaponized the Democrats’ hacked emails via WikiLeaks, Facebook, and Twitter, not those of the Republicans. Therefore the suspicion has to be that Russia could blackmail one or more Trump campaign operatives into spying for them because Russia didn’t publicize the Republicans’ emails—maybe even President Trump and his family? That is precisely what the FBI’s counter-intelligence investigation wants to determine.

But 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 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 equality. They found that the periods of greatest inequality were just before a major recession, such the as the Great Recession, and the Great Depression itself.

Both were the result of record income inequality. The greatest prosperity was post-WWII, when the modern American middle class was formed due to rapid economic growth and unionization of the workforce.

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Graph: CPBB

When will the 2017 nightmare end? Maybe in 2018, if a majority of Americans realize the fantasy world the current administration and congress has created is not theirs; but Americans see a world in which life, liberty and the pursuit of happiness is available to all.

Harlan Green © 2017

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Whither Go 2018 Interest Rates?

Financial FAQs

The 10-year benchmark Treasury yield dropped 5.12 points yesterday, the biggest drop in 5 months, according to Marketwatch. It is hovering just above a 2.4 percent yield—which is why one can still obtain a 30-year fixed rate conforming mortgage rate for 3.50 percent, and why the housing market is booming.

But this is ridiculously low, and signals something is very wrong with our economy. The 10-year T yield during normal times of prosperity is usually 1 percent higher, in the 3 to 4 percent range, as are mortgage rates. Why have interest rates and inflation remained so low for so long—since 2009 and the end of the Great Recession?

So little inflation over such a long period shows the sad state of financial affairs for most Americans. We have a record income inequality—the worst in the developed world—that has meant consumers that power most of the demand for goods and services have become financially strapped.

And consumer spending is the main driver of economic growth. It is why GDP growth has averaged just 2.1 percent since the Great Recession that threw so many people out of work.

We rank just above Jamaica, Peru and other small developing countries in income inequality. And that is the major reason for the political polarization and dysfunction of government that can’t provide basic social services to most Americans; which would mitigate some of the income inequality.

The new Republican tax bill takes another $1.5 trillion away from Medicare and Medicaid benefits over the next ten years, according to most analyses, that will further exacerbate their poverty.

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

Why does all this matter? Because it means America’s middle class has been gutted, and it is our middle class that has provided the political stability between the two parties, and enabled compromise.

Because our middle class has shrunk, our politics have drifted to the right and another gilded age, where the wealthiest control most of the wealth and power, as happened at the beginning of the 20th century in the age of President William McKinley.

The current example of Republicans’ tax reform is the best example of our rightward drift. Democrats weren’t allowed any amendments or hearings, and consequently not a single Democrat in both legislative houses voted for the bill.

This drift towards Oligarchy that last happened more than 100 years ago is also the reason for our growing isolation from the rest of the world, and the loss of democratic values Americans are currently experiencing—such as fairness and equal justice for all races and economic classes.

So, as much as everyone hates inflation and loves low interest rates, these rates have to rise to levels that prevailed before the Great Recession to enable greater prosperity for all, not just the top one percent of income earners. And that won’t happen when one political party can enact a ‘tax reform’ bill that shifts more Americans’ wealth away from the majority of Americans.

Harlan Green © 2017

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