What Will Republicans Pay For Tax Reform?

This article provides a good answer to the price that Republicans will pay for tax reform.  There is no ceiling on the price they will pay.  They are willing to turn their party over to Trump/Bannon in order to pass a tax reform bill that is still undefined.  Cutting taxes for the rich is consistent with their ideology.  They also believe that they can continue to convince their base to exchange minor cuts, that some  of them will receive, for large cuts to the super rich.  They are also willing to reduce government tax revenue even if the loss of tax revenue produces large budget deficits.  They pretend to be the fiscally responsible party, but that only applies when Democrats are in office.  Deficits are fine when Republicans are in office.  Richard Nixon made that point many decades ago.  He said that "We are all Keynesian's now".  He understood that cutting taxes, and running budget deficits stimulated the economy just as Keynes had stated during the Great Depression.  He also knew that this was a good path to reelection.  Of course, that is why Republicans pretend to hate Keynesian economics when Democrats are in office.  They prefer to take away the Keynesian tool from Democrats even if it might reduce unemployment during a recession.

There is an even more important reason why Republicans want to pass a tax reform bill this year.  They need to show their base, and those that fund their campaigns, that they can get something done before the 2018 election.  This should be easy with control of the House and the Senate.  The only problem that they might have is with a small number of Republicans in Congress who actually believe in fiscal conservatism.  They can't afford to lose three votes in the Senate because of their slim majority.  They will not get any Democratic votes in the Senate for a tax bill that primarily benefits the super rich.  Democrats may be able to use the tax bill against Republicans in the 2018 election but that may not be easy.  Trump's base is almost totally concerned with social, cultural and religious issues. Moreover, the lies that Republicans use to defend their tax policies are not easy to overcome.  There are not many economically literate voters in any democracy, and Trump will criticize the media that provides an honest analysis of his tax bill as "fake news".  Unfortunately, this is the point at which we have arrived today in our nation.  There is no reason not to lie when the price of telling lies has fallen to an historically low level.

Transcript of Jeff Flake's Senate Speech

Jeff Flake, a Republican Senator from Arizona, told his Senate colleagues he could no longer be complicit in supporting the current administration.  He will not run for reelection in 2018.  The full transcript of Flake's speech is posted here.  His elegant and scholarly speech should make many of his colleagues wonder why they are being complicit with this abnormal administration.

Fox News Demonstrates Its Commitment To Fake News

Fox News interviewed a person who claimed to be a former Navy Seal who was wounded several times in action and had received two purple hearts.  During the interview he praised Donald Trump and said that he had created a glass figure that honored Trump.  Fox News was more than happy to run the interview without checking out the claims made by their interviewee who lied about his military background.  Fox News continued to run the story on its Facebook page for ten days after learning about their error.  It had received over a million hits before it was removed.  This is not the first time that something like this has happened on Fox News.  Its first goal is to maintain its leading share of the cable news market.  Its market share is derived primarily from conservative viewers who were targeted in their marketing strategy.

Why Low Skill Manufacturing Jobs Are Not Coming Back To The US

This article is about the largest producer of industrial robots in the world.  Fanuc, located in Japan, with annual sales of $50 billion has a secure position in this market.  It has 25% of the market but it also has a 50% share of the software that is used to control the robots.  This story is about Fanuc, but more importantly it tells us a lot about what is happening in manufacturing.  Between 1990 and 2007 each new robot purchased in the US replaced five low skill workers.  The ratio in Germany was only two workers for each robot because of union participation in management. 

Fanuc got a lot of help from a partnership with GM.  That partnership funded its research and development and GM was its largest customer.  However, GM did a poor job of managing its investment in robots.  It also produced unimaginative new cars which were over priced.  Its share of the US auto market fell from 46% to 33% under Roger Smith who established GM's partnership with Fanuc.  GM sold its share of the partnership back to Fanuc in 1993. 

Fanuc largest market is in China which purchases 30% of the robots sold globally.  Robots are used to provide routine tasks and some jobs are moving to lower wage countries such as Vietnam and Thailand.  Wages in China are increasing, however, because higher skill manufacturing and management jobs have been growing.

The use of robots in manufacturing will continue to grow for two reasons.  Robots are being used to produce robots.  That is driving down the price of robots.  Moreover, artificial intelligence is being used so that robots can learn from their performance and modify their own behavior.  That allows them to perform complex tasks that they were unable to perform in the past. 

The good news in this story is that the cost to manufacture many products will continue to fall.  Higher skill jobs will grow in response to market demand.  The bad news is that even small manufacturers are using robots to perform routine tasks.  Global competition for manufactured products is causing firms to reduce costs.  More routine jobs will done by robots and even some  complex jobs will be done by newer robots that are capable of learning from their experience. Robots are also capable of lifting heavy objects that once required the use of human labor.  The development and use of robots will continue to progress over time.  High wage, routine labor labor demand, will continue to decline.  Some jobs, that had been offshored  to low wage countries, will return but much of the routine work will be done by robots.  The golden age for high paid routine manufacturing jobs in the US is not coming back.  Technological development and  economic globalization will not be reversed.  The ability of national governments to deal with the consequences of events that happen outside of their national borders, many of which are determined by the decisions of firms that compete in a global market,  are being tested today and our political systems have slow to adapt to rapid economic change.  Demagogues will have more opportunities to take advantage of government failures by promising a return to a past that cannot be restored.  They will win unless our political systems show that they can adapt as fast as markets change.

What Do Political Scientists Think About The Rise Trump And Populism

Political scientists across the US have been alarmed by the election of Donald Trump in the US and the rise of populist parties in many European nations.  There have been several political science conferences where the rise of populism has been analyzed and discussed.  This article provides a good summary of the reasons for the rise of populist sentiment and the erosion of democratic institutions that are a real threat to democracy.  The movement from democracy to autocracy is well understood.  It has happened in Poland, Turkey and Hungary.  It begins with attacks on all of the institutions that contain executive power.  It begins with judicial system which preserves the rule of law.  It progresses from there to attacks on other institutions such as the free press.  It is not surprising to see Trump claiming that biased judges have ruled against some of his executive orders.  Nor is it surprising that he attacked his Attorney General for recusing himself in a legal dispute.  Trump expected his Attorney General to defend his interests even if he had to violate the laws which pledged to uphold.  Trump has also been somewhat successful in his attacks on the free press.  Almost half of our citizens believe that the media report false information about him and his policies.  Trump has no regard for the truth.  He lies repeatedly about almost everything and his base is indifferent to facts which disconfirm his falsehoods.  In other words, he has normalized dishonesty.  The erosion of social norms like telling the truth is a big step in the path the autocracy.

There are lots of social and economic reasons for the rise of populism in the US and in Europe.  Many of our citizens are distressed and they do not believe that governments have attending to their needs.  Trump capitalized on their discontent.  He ran against the Republican establishment in his primary campaign and he is still running his campaign.  He blames the Republican Congress when they fail to pass bills that he supports.  He cannot fail.  He always blames others when things go wrong.  He could make things right if he did not have to deal with Congress and other institutions which stand his way.  That is also a path to autocracy that has been successful in several European nations.  Trump will make the Republican Party his party or he will replace its leaders.  Single party rule is the norm in autocratic nations.  Elections are held but minority parties have little influence.

The democratic institutions are stronger in the US than they are elsewhere.  Our situation is not hopeless but as long as large segments of our population remain distressed they will lose faith in our democratic system and look elsewhere for solutions.  Ironically, the policies that Trump is promoting will make things worse for the populists who elected him.  They don't understand that but when government fails again to satisfy their needs they will be on the lookout for a new savior.

Trump Typically Selects A Fox To Manage The Chicken Coop

There are two staples of Republican ideology.  They all want to cut taxes, and they have such faith in the wisdom of the market that they hate most government efforts to regulate the economy.  Donald Trump takes that ideology to a much higher level.  This editorial is about his choice of regulators.  He has typically nominated people to head government regulatory agencies who have been opponents of the agency they are supposed to lead.  More often than not they often have relationships with industries that are supposed to regulate.  He recently selected a member of Congress to oversea the agency responsible for supervising the distribution of dangerous drugs who had sponsored a bill that made it more difficult for the government to manage the distribution of opioids. The drug industry supported his nomination, but Trump had to withdraw his nomination after the Washington Post released a report that damaged his credibility.

There is always a tug of war between government regulators and lobbyists for affected industries who try to shape the efforts of regulators to serve their industries.  This article reviews several of Trump's appointees and they seem to be a lot like the nominee that he had to withdraw after his relationship with the drug industry was revealed.  Trump has filled the swamp instead of emptying it.

Tom Friedman Shows How Trump's Chaos Theory Leads To Chaos And Damage To US Interests

Tom Friedman observes what many well informed Americans have observed.  Trump has no coherent foreign or domestic policies that guide his decisions.  He is still running his campaign rather than governing.  Almost everything he does, or tweets, is directed to the prejudices of the populist base that elected him.   His actions and tweets excite his base but they have consequences which Trump and his base do not understand.  We have a blind president pandering to the prejudices of a poorly informed base. That is not the kind of leadership that we need in a rapidly changing world.  What's good for Trump's ego is short sighted and dangerous to our national interest.  For example, Trump's base was taught to deny that carbon emissions are responsible for climate change.  Trump's decision to exit from the Paris accord pleased his base and some large contributors to his campaign.  The climate changes that we see today in the US and elsewhere have consequences.  The powerful  hurricanes that hit us this year, and the wild fires in California, were no accidents.  Moreover,  China's leadership is not pandering to a poorly informed base.  It is making strategic investments in technologies that will improve its environment and stimulate its economy.  Trump's decision to bolster the coal industry, in order to win the votes of coal miners,  takes us in the wrong direction and it will not produce the jobs that he promised.  Market forces are working against the coal industry.  Most of our large utilities are moving to natural gas in response to falling prices.

According to Friedman, Trump offers chaos instead of an an integrated strategy in several areas. HIs decisions were not informed by the resources that he has available him because he only thinks about how his base will respond to his tweets.  He has decided to unravel so many long standing policies and institutions at once, with little guidance, that it will be hard to put the pieces back together again.  No president has ever decided to transform our trade policies, our healthcare system, and our energy polices simultaneously.  Friedman illustrates the problems in Trump's trade and foreign policy decisions.  He does not say much about the mess he has created in healthcare, which accounts for 17% of the US economy,  or about his plan to make major changes in tax policy at the same time.  This will not change as long as his base is more interested what he promises than in how he will deliver on his promises.