Monday, August 13, 2018

Who Benefitted From Trump Tax Cuts?


Trump gave the Republican Party what it really wanted after he was elected.  The GOP's priority has always been tax cuts for their wealthy donors.  Trump gave it to them in spades.  Corporations got huge tax cuts that they mostly used to buyback their own stocks.  That was great for corporate executives and large stock investors because it led to higher stock prices.  However, it was sold to the public as a way to increase corporate capital investment.  That would expand the economy and raise wages for ordinary Americans who don't own large amounts of corporate stock.  That did not happen.  Real wages, corrected for price inflation, have not grown as promised despite a fully employed labor market.

Republicans have also sold their party to the public as the fiscally responsible party.  They claim that Democrats are fiscally irresponsible because they tend to raise taxes in order to provide expensive social welfare benefits to "the wrong kind of citizens".  That discourages them from working and it also forces the government to borrow money to pay for the expensive social welfare programs.  However, it turns out that the Trump tax cuts were fiscally irresponsible.  Trump increased spending, primarily on defense, as the corporate contribution to federal tax revenue plummeted.  Not surprisingly, government borrowing has skyrocketed and federal budget deficits have risen dramatically.  Trump has responded by claiming that "debt is good".  He became a billionaire by borrowing millions to fund his business investments.  His government, however, has not borrowed money to fund investments.  It has been forced to borrow money in order to fund tax cuts for its wealthy donors.

The Trump administration has also deviated from Republican ideology in another way.  It has always supported free trade.  Trump has turned this around by using tariffs as a weapon to reduce US trade deficits.  We are still waiting to see the impact that this will have on the US and the global economy. The role of the dollar in international transactions plays a powerful role. The dollar has been increasing in value relative the foreign currencies.  That will make US exports more expensive and imports less expensive. Trump even argued that the revenue that we receive from tariffs will help to pay for his tax cuts.  No serious economist believes that will happen.  But he understands that his base not does include many voters who understand economics.  

Thursday, August 9, 2018

How Trump Turns Defeat Into Victory

Dana Milbank provides an excellent list of losses that Trump reports as victories.  Its a good thing that Trump is not in charge of keeping score in sporting events.  His teams would never lose.  Milbank's article is informative for most readers of the Washington Post.  On the other hand, Trump will continue to win victories with his base as long as he tells them what they want to hear.  Unfortunately for Trump, and for his political party,  many Republicans, and most Independents, don't trust him to keep score.

Wednesday, August 8, 2018

Is Apple The Future Of Capitalism?

This article provides an excellent description of Apple's financial strategy.  It also explains why Apple is in a position to effectively deploy a financial strategy that is the envy of many corporations.  The implication is that Apple is not the future of capitalism.  Most corporations are not in a position to deploy its financial strategy.  On the other hand,  Apple may have deployed an ideal financial strategy that sets the gold standard for corporations.

One of the key ingredients of Apple's financial strategy is its focus on cash flow which is greater than its high profits.  It does not borrow money to finance its operations like most businesses.  It passes this burden onto its suppliers.  They carry the inventory for Apple's hardware products and Apple pays them after 100 days of the receipt of an invoice.  That helps to create a highly positive cash flow that other firms might envy.  Apple also receives cash quickly from sales through its retail stores and from its many subscription services. Apple does borrow money, but it is used to finance the return of capital to its shareholders.  Most of that that comes from share buybacks. 

A large number of corporations have borrowed money to buyback their stock and to pay dividends to their shareholders.  That may be good for executives who are compensated with stock options.  On the other hand, they may under invest in assets and R&D that may have a negative impact on their growth rate.




Tom Friedman Explains Why The International System Is At Risk

Tom Friedman reports from Italy where he has learned about the risks that we face in Europe and elsewhere.  He argues that Italy's new government came to power because of a very serious mistake by NATO.  A dictator was removed from Libya, but NATO did nothing to restore order in Lybia.  Consequently, there is no effective government in Libya. Instead it is run by a number of competing tribes.  As a result,  Italy has been overwhelmed by an unmanageable number of immigrants.  The second largest segment of Lybia's economy is moving immigrants to Europe via Italy.  Moreover, that situation has been made worse by the refusal of some governments to accept immigrants flowing into Europe via Italy.   Italians are unhappy with the flow of immigrants and they also blame the EU for not assuming more of the responsibility for accepting the immigrants.  Anti EU, and anti-immigration sentiments opened the door for the right wing coalition government in Italy.

Italy is only one of the problems that Friedman is concerned about.  Russia, of course has been active in supporting Brexit in the UK and it has fueled discontent with the EU by supporting nationalist political parties that have also taken advantage of popular concerns about the flow of immigrants and refugees from troubled nations outside of Europe.  Donald Trump's rise to power in the US has also been harmful.  He has been critical of the EU and NATO.  He imagines that he can create a new world order in which he negotiates better deals between thFriee US and individual nations. 

Friedman is also concerned about demographics.  The population of Africa, which is larger than the population of the EU, will double in size while the population of the EU is shrinking,  Unless governments in Africa become more able to deal with their economic and social problems there will be more pressure on developed nations to deal with the flow of immigrants and refugees from Africa. Friedman is also worried about the consequences of our inability to deal with global warming.  He did not have much to say in this article about global warming because he did not want to ruin you dinner, lunch and breakfast with bad news.  I suspect that his enjoyment of the great food in Italy has also been diminished by his concerns about our future.

Tuesday, August 7, 2018

Apple And Other Social Media Platforms Remove Alex Jones

Apple removed Alex Jones from several of its platforms; Facebook and others followed suit.  Its about time that the social media took some responsibility for providing a megaphone to conspiracy theorists like Alex Jones.  Apple justified its action by claiming that Jones violated its rule about distributing hate mail.  Conservatives reacted as one might expect.  They claimed that the social media violated Jones' right to free speech.  In other words, publishing fake conspiracy theories that have been harmful to others is protected by the Constitution.  That is utter nonsense.  Newspapers and  other media outlets are not required to provide a platform that liars like Jones can use to become rich.  Conservative media like Brietbart News and Fox News are obviously selective about whose views they make available to their  conservative market.  Moreover, only a small subset of conservatives follow Alex Jones.  It makes no sense to view the Jones decision as a battle between conservatives and liberals.  It should make most conservatives happy that they are not defined by predators like Alex Jones.

Saturday, August 4, 2018

Why Its Hard To Prevent Disinformation Programs On Social Media

Russian disinformation campaigns continue to make extensive use of the social media to divide our nation and to weaken democratic institutions in the US and elsewhere.  This article illustrates one the problems that make it hard to block Russian disinformation programs.  Twitter was aware of several Russian disinformation programs and they shut them down.  Many of those programs were also operating on Facebook but they were not blocked by Facebook.  That is because security personnel at Facebook claim that it is too difficult to precisely determine whether the Russian Twitter operators were  identical to similar operators on Facebook.  In other words, Facebook, and perhaps other social media firms, do not have the technical ability to do their job.  Security executives at Facebook also claim that that they have an obligation to promote free speech.  That concern seems to override the importance of protecting their users from disinformation campaigns. 

This will be an ongoing "arms race" between the social media platforms and the Russians in charge of the disinformation programs.  The Russians have demonstrated the ability disguise their operations faster than the social media can identify them.  The Russians may have a more powerful incentive to win that battle than the social media firms.  The payoff from their disinformation programs is large relative to the expense.  That is not true for the social media firms which have a very different incentive system.

Facebook and the other social media firms are actually in the advertising business.  Their revenue comes from advertisers.  Moreover, the price that they charge for ad placements is directly related to the size of their user base and the amount of activity within their user base.  Provocative placements get more attention than mundane placements.  Its also the case that providing security from disinformation operations is an added expense for the social media firms.  These are some of the reasons why Facebook suffered the largest stock market decrease on one day after they reported their quarterly results.  They reported a large decline in their user base and their profit margin declined as they added thousands of employees to their security force.  Facebook was a much more attractive investment before it became a vehicle for disinformation campaigns. Its defense of free speech is also spurious.  Newspapers make most of their money from advertising.  However, they don't permit everyone to publish unedited articles and they even monitor the comments on their opinion pages.  Protecting free speech on Facebook and other social media is less important than enabling disinformation programs that go well beyond meddling in our elections.  The more general goal of the Russian disinformation campaigns is to exploit cultural and racial issues that divide our society and weaken our democratic institutions.  That extends as well to the "world order" that we have created since WW ll.  They found the perfect tool in Donald Trump.

Thursday, July 26, 2018

Why Will The US Budget Deficit Hit $1 Trillion?

If a business suffers a steep decline in revenue it must find a way to increase its revenue or borrow money.  The US Treasury faces that problem today.  It made huge cuts to corporate taxes and it made other changes in corporate expense accounting which has been great for corporate profits and for shareholders.  However, the tax cuts have not produced the economic growth that was supposed to compensate for the corporate tax cuts as promised by the Trump administration.  Some in the administration still argue that the economic growth it promised is still coming.  On the other hand, several economic forecasters don't believe that will happen.  They expect US budget deficits will continue to grow in response to the huge drop in corporate tax payments.