Wednesday, May 30, 2018

Tom Friedman Does What Conservative Commentators Should Have Done

David Brooks, and many conservative opinion leaders, are not happy with Donald Trump in the White House.  Since they can't do their normal job of supporting a Republican president, they have turned to sociology or political philosophy in their opinion pieces.  This is not a time for abstract ruminations.  It is a time for action.  Tom Friedman knows what we should be doing.  Our only objective is to elect a Congress that will block Trump's efforts to destroy our democracy and perhaps the global economy.  His argument is compelling.  He is not a Democrat arguing for liberal policies; he is a citizen who understands the peril we face with Trump in the White House along with a Republican congress.

Tuesday, May 29, 2018

David Brooks Argues That The Professional Class Created Populism and Trump

This is the third article that I have read in the last week which attacks the upper middle class for the rise of populism and Trumpism.  Brooks, and other conservative commentators, are making a case for an enlightened aristocracy which has the proper values that are absent in our professional class that is based upon meritocracy.  That critique is the foundation of Trumpism.  He promised to drain the swamp of the educated elite and replace it with officials who care about the less educated class.  It turns out that he has populated his swamp with billionaires who cut their taxes which will be paid for by cutting social programs, and the public education system which produced the meritocracy.  The billionaire class in the Republican Party is also responsible for making our elected officials dependent upon their generosity.  The cost of running political campaigns has been rising dramatically since the Supreme Court opened the gate for unlimited contributions to political campaigns.  Its impossible to run for congress, or the presidency, without funding from the billionaire class.

I attended several protests this year which attacked Trumpism.  The bulk of the protesters came from the "educated elite" which Trump, and now conservatives like David Brooks,  are blaming for our problems.  The "educated elite" are also leading the defense of our institutions that protect our society from demagogues like Trump.  A social hierarchy based upon merit has its faults.  On the other hand, it has served us better than the aristocracy that preceded it.  There is probably no better example of a meritocracy than the graduating class from Harvard's school of Medicine and Dentistry.  The students selected to speak at the ceremony, as well as the deans,  focused their attention upon better serving a public that does not have sufficient access to healthcare.  The graduating class was heavily populated with women and minorities as well.  One speaker reminded the audience that the aristocrats that managed Harvard's medical school in its early years led a protest movement to reject a black student who had been admitted.  Several of the key speakers at the ceremony were black and many were from other nations that will benefit from the leadership in healthcare that will be provided by the Harvard graduates.  Most of the Harvard graduates will earn a good living.  Their children will also have advantages that will enable many of them to get a good education.  However, they will better serve our nation and the healthcare system that requires their leadership than the aristocracy that they have replaced.  Ever since the publication of Thomas Piketty's book, which focused our attention about the relationship between capitalism and inequality,  conservatives have stepped up their attack on the liberalism that they see in our education system.  They have joined Donald Trump in blaming our "educated elite" for the rise in inequality.

Sunday, May 27, 2018

Can The US Economy Grow At 3% Rate?

The Wall Street Journal editorial team invited four participants to debate whether the US economy can grow at 3%.  Two of the debaters were on the positive side and the other two were skeptical about reaching a 3% growth rate.  This video of the debate provides the details of the arguments that were made.  The audience, which was invited by the WSJ editorial team, gave a narrow margin of victory to the negative team.  That result is rather meaningless.  Its unlikely that members of the invited audience changed their minds as result of the debate.  That is because economic debates are generally influenced more by ideology than they are by facts.  I have provided an overview of the issues discussed in the debate by both sides.

The pro 3% growth team consisted of an economist who believes that the Trump tax cuts, which he advocated, will deliver a 3% growth rate.  He was joined by a member of the WSJ editorial staff who argued that the private sector could reach the 3% growth rate as long as the government let market forces work their magic.  She argued that government welfare programs give workers an opportunity to avoid work and that innovations in public education would do little to improve human capital.  Private industry could do a better job than government.  She also argued that government regulations discourage capital investment by private industry.

The other side of the debate was taken by an economist from Brookings and an economist who has been an economic advisor to Democratic presidents.  They argued that the economic growth rate is determined by a number of factors which are very difficult to alter.  Demographics are important because the number of workers in the workforce have a huge effect on the potential output of the economy.  Another important factor is the productivity growth rate because that affects the output per worker.  The demographics are not positive; the population growth rate is lower than in was during our periods of higher economic growth, and current policies will lower the number of immigrants entering the workforce.  The productivity growth rate has been stuck at a relatively low rate in recent years and it would be difficult to substantially alter that growth rate.  The labor force participation rate in the US has also been falling.  That is, a smaller portion of a shrinking labor force is entering the job market.  Fewer men are participating in the workforce, and the female participation rate which had promoted growth earlier, has begun to decline.  Both of the debaters on the negative side believe that government programs might improve the labor force participation rate as well as labor force productivity but they don't expect big changes on either of these important factors.

I think that most economists would share the views expressed by the negative team.  Their views are also shared by the bulk of the economic forecasting community.  In my opinion, the cheer leaders on the positive side either believe that tax cuts will perform magic, despite the demographics and stagnant productivity growth,  or that the market will perform miracles if we could get government out of the way.  That is also the typical position advocated by the liberatarian WSJ editorial staff.

Friday, May 25, 2018

What Should Be Done About Trump's World Which Is Looking More Like Turkey?

David Brooks has not figured out what to do about Trump.  He, and many of his Republican friends are frustrated by Trump.  They don't like him but he, and other Trump bashers, are like puppets on strings controlled by Trump.  He argues that Trumpism is celebrity consuming governance.  Commentators like Brooks have tried to refute Trump by pointing out discrepancies between Trump's claims and the facts.  That has not worked because Trump is a marketer who is skilled at creating images.  It is hard to refute images with facts.  Many choose to believe in his images.  Consequently, Trump wins the game because he monopolizes attention.  If one of the goals of fascism is to monopolize attention, Brooks and others are playing a losing game in which refutation by illustrating Trumpian fallacies  does not work.

Brooks is probably right about how Trumpism works.  He seems to have given up.  Perhaps he should focus more attention on Trump's enablers in his favorite political party.  The best way to end Trumpism is to encourage his friends in Congress to do their jobs.  They believe that they can win elections and retain their jobs by supporting Trump.  They don't seem to understand that they are turning themselves into puppets in the process.  Trump will humiliate them with tweets whenever they attempt to do what they are supposed to do.  Some of them might decide to do what they were elected to do if Brooks and others help them to resist being turned into Trump enablers.  There is no middle ground in that war.  The only answer is to focus on his enablers in Congress and in the alt-right media.  Turkey has enabled an autocrat.  Turkey is now facing an economic crisis and it will find it very difficult to correct its course.  Good governance is primarily important during a crisis.  We are not Turkey, but weak governance in the US may lead to a crises that requires good governance.

Tuesday, May 22, 2018

What's The Matter With Europe?

Paul Krugman provides his analysis of the economic and political problems in Europe.  The common currency, and the mistaken imposition of austerity by its leadership, were the primary economic problems.  It was held together, however, by a commitment to democracy by its elite.  That commitment is now withering away in Italy, Hungary and Poland.  Communism is no longer a threat to democracy in Europe but fascism may be its true passion.  Poland did not adopt the common currency and its economy escaped the damage created in many nations by common currency.  However, its democracy is being systematically replaced by an autocracy fueled by ethnocentrism.

The US economy has recovered from the financial crisis but Trump has been systematically attacking the institutions established by the Constitution to limit his power and authority.  He is being aided and abetted by the Republican Party which he has captured by assuming control over the far right base which is now the core of the radicalized party.  The radicalization of the Republican Party has been underway for decades.  The process was largely ignored by the central media which adopted a false equivalence policy towards our two major parties.  They are being rewarded now by Trump who has convinced his base that they provide "fake news".  They get their news from sources that might just as well be housed in the White House.  Krugman is not very positive about the outcome of this process.  The Republican Party has redefined conservatism.  It is closer to fascism than the form of conservatism that once defined the Republican Party.

Tuesday, May 15, 2018

The Elections In India Are Clouded By Fake News From Social Media

WhatsApp is owned by Facebook.  This article describes how it has become the vehicle for distributing fake news during the election cycle in India.  Some argue that the social media provide an outlet for information that enhances democracy.  It provides an inexpensive way to distribute information that reduces the influence of the "mainstream media" in elections.  That is true, but the mainstream media are constrained by journalistic standards and laws that make it much harder to distribute false and misleading information.  We have not figured out how to prevent fake news from the social media from totally distorting democratic elections.  

David Brooks Is Trying Hard To Be Positive About America

David Brooks is a conservative who had been comfortable as a Republican until The Donald captured the Republican Party.  In this article he describes himself as an old fashioned Whig which had an ideology similar to his own.  He claims that the Whig ideology is alive and well at the local level, and he provides several examples in which local communities have been revived by citizens with a community spirit.  He does not believe that localities, acting alone, can restore our nation in the Whig tradition.  He suggests that we can arrest the decay that has been underway for several years by nationalizing the efforts that are underway at the local level in many parts of our nation.  I would like to believe that Brooks can inspire the hopefulness that he finds at the local level to the national level.  However, that is more easily said than done.  Donald Trump's takeover of the Republican Party was not an accident.  He exploited the divisions in America that had become the foundation of the Republican Party.  There may be some Whigs left in the GOP but most have been silent as the Trump base has been organized into a position of power within the party.  Trump spends most of his time trying to retain control of his base and positioning himself as their powerful leader.  We will have to see whether the Democratic Party can deal with the divisions within its party and win enough seats in the mid term elections to loosen Trump's control of the national government.  There are no Whigs running for election in 2018.  The Republican Party must be thrown out of power in order to contain Donald Trump.  They have been too willing to give Trump what he wants in order to retain whatever power they think they might have in a Party controlled by Trump.

Saturday, May 12, 2018

Trump's "America First" Plan To Reduce Drug Costs Is Underwhelming

The Trumpster announced his plan to cut drug prices that brought cheers from drug companies which had been concerned that he might be serious about cutting drug prices and their profits.  Instead of doing what he promised on the campaign trail he bragged about changes that will have little impact on drug prices. Wall Street reacted to his announcement by bidding up drug industry stock prices by 2.7%.  Most importantly, he did not give Medicare the authority to use it use its purchasing power to negotiate directly with drug companies on drug prices as he had promised on the campaign trail.  Other nations typically do what Trump decided not to do.  They negotiate directly with drug companies to get lower prices than they charge US customers.  Trump's plan calls for a end to that practice.  He wants to raise the prices that they pay for the same drugs.  It is unlikely that they will oblige the Trumpster.

Saturday, May 5, 2018

Donald Trump Gives Thanks To God In Jest

Dana Milbank provides us with the prayer that Donald Trump might have given at the National Prayer Meeting.  He decided to recite several of his tweets instead of saying much about prayers.  Milbank could have had a career as a comedy writer if he had not decided to become a journalist.

Friday, May 4, 2018

Our Place In The Universe Is Not Very Special But It May Be Understood

I posted this article which has nothing to do with economics, politics or with the behavior of our government that has declared a war on objectivity, when facts do not confirm the falsehoods of our president and his followers, because it describes an effort to demonstrate that the universe is understandable.  We may not be able to understand institutions and systems created by flawed human beings but we might be able to understand the universe.  I welcomed this distraction.

One of the things that we have learned about the universe is the concept of "cosmic inflation".  That is, the universe is growing so fast that there are regions of light that will never reach observers on earth.  Moreover, there may be multiple universes.  If the number of universes is infinite it may spell the end of science as it is understood by physicists.  The implication is that there are phenomena which can never be tested or directly observed.  This article reviews a paper by Steven Hawking which suggests that the number of universes may not be infinite.  Moreover, our universe remains special and is discoverable by scientific method.  It would be nice to believe that even if we don't understand our universe completely,  it is knowable and subject to scientific discovery.

After reading the article I stepped back from the problem of infinite universes, and the end of science, and reflected on the universe which we think we understand.  Our earth is in a galaxy that contains billions of stars like our sun.  Each of these stars has planets in orbit around them and some of them might have the conditions that make life as we know it possible.  Moreover, there are billions of galaxies like the Milky Way which also contain billions of stars.  This means that our planet and the forms of life on it are not unique.  There must be life elsewhere in the universe.  Our planet, and the wars that we have endured during our brief history, have often been about the gods which we have invented to reserve a special place for humans who follow their favorite god, or their favorite version of history and the institutions that we have created.  We lack the humility which physicists and most scientists have about our ability to understand what we don't know.  This gives me some respite from spending too much of my time trying to figure out how we can preserve some of the institutions that have worked better than others over time.  They will prevail despite the attacks against them that we see in Washington and elsewhere.

Thursday, May 3, 2018

Corporate Net Profits Highest Since 2011

Corporate net profits expanded dramatically in the last quarter.  Net profits increased because of rising profits and a cut in the corporate tax rate from 35% to 21%.  Fifty percent of the increase in net income for 200 large corporations was due to the cut in the corporate tax rate.

The increase in net income led to a big increase in earnings per share (EPS).  Stock prices are directly related to EPS.  Consequently, shareholders became wealthier due to rising stock prices;  they also benefited from corporate stock buybacks which makes each share more valuable, and from an increase in corporate dividend payouts.  Dividends and capital gains on stock sales are also good for shareholders.  They are taxed at much lower rate than earned income.

Its very clear how shareholders benefited from Trump's tax plan.  Its less evident that middle class taxpayers did nearly as well as shareholders.  Of course, the tax bill was sold as a middle class tax plan by the huckster in the White House and his allies in congress.

Wednesday, May 2, 2018

Mike Pence Call's Sheriff Joe A Defender Of The Rule Of Law

Sheriff Joe was declared guilty of violating the rule of law for many of the illegal things he did to prisoners under his charge by a court in Arizona.  He also refused to obey a court which demanded that he cease and desist from illegal acts.  Donald Trump pardoned Sheriff Joe during a campaign event in Arizona.  Vice President Pence gave a speech in which he called Sheriff Joe a defender of the rule of law.  Apparently, Trump and Pence both believe that law enforcers who violate the rule of law deserve praise as long as their illegal acts are supported by Trump's base.  The top two officials in our government have no respect for the rule of law if the law does not serve their political and personal purposes. 

Apple Announces Plan To Buyback $100 Billion Of Its Stock

The Trump tax bill provided Apple with access to over $200 billion in profits that have been held tax free in Europe.  Apple announced that they will use $100 billion to buyback their own stock.  That will be great for shareholders since it will increase the value of their stock.  Like many Apple shareholders I will be a bit wealthier.  However,  I won't spend the money that Apple decided to return to me; nor will most Apple investors.  We will all be a bit wealthier, but the buyback will do nothing for the economy, or for most of the people that expected to benefit from Trump's tax bill. Moreover, the loss of tax revenue to the government from the tax bill will increase federal budget deficits.  That will put pressure on government social welfare programs that they depend upon for support.  That includes many who voted for Trump.  Some of them would rather lose their benefits as long as they will also be reduced for citizens who they don't like.

Tuesday, May 1, 2018

Paul Krugman Explains Why Tax Cuts Don't Raise Wages

The major thrust of the Republican tax bill was to cut taxes for US corporations.  Of course, that does not excite most voters who want something for themselves.  Republicans always promise their voters that tax cuts will produce more jobs and increase their wages.  They defended the corporate tax cuts by claiming that corporations would increase investment spending.  That would stimulate economic growth and raise their wages.  Paul Krugman describes how that process would work if indeed corporate executives increased business investment.  So far, however, corporations have not used the influx of cash to increase business investment.  Consequently, the tax cuts have not had much of an impact on job growth or wage increases.  Corporations have used most of their cash influx to buy back their own stock and to increase dividend payouts.  That has been good for shareholders and corporate executives, who are also large shareholders, but it has not done much for most Americans who are not large shareholders.

Most economists are not surprised by this result.  Corporations tend to make capital investments when the expected return on investment exceeds the interest rate.  Interest rates have been low and corporate profits have increased retained earnings which might also be used to fund investment. They were not waiting for extra cash from tax cuts to make capital investments. They could also fuel growth through mergers and acquisitions instead of making capital investments.