I spent the past two weeks worrying aloud that I thought literally slamming the door on the US economic engine was nearsighted, silly and an idiotic move. Sadly, the economic news over the last 72 hours exceeded even my worst projections – along with those of almost every economist. Most figured the US economy would teeter at around 6 or 6.5% unemployment through April, with growth shrinking by about 10% for Q2 after zero growth in Q1. Instead, we now know that we’ve already bled almost 10 million jobs and the unemployment rate has already zoomed to 9.5 or 10%. We also know the economy contracted by about 0.8% in Q1. Along with those (now rosy) projections about how the economy was doing in March, we can also expect the similarly anticipated “V-shaped” recession is about as unattainable as the Ark of the Covenant.
I could sit here and angrily type my frustration that the government decided to shut everything down in the middle of the best economy I had experienced since I was in my mid-20s. (Trust me, I’m tempted!) But as my grandmother loved to say, “There’s no sense crying about the spilled milk. Better to get a mop and clean it up.” So how do we clean up the mess we created?
When I first started writing this yesterday, I planned on including lots of charts and tables, relying on data to drive my points home. But nothing seemed to grab my attention. Then I remembered something when I first started in sales all those decades ago. People rarely make decisions based on data. Oh, we all love to pretend we do. We convince ourselves that we are supremely rational beings. Reality is different: we are emotional creatures first and foremost. When confronted with a decision, even the most clear and concise arguments will get overwhelmed by our strongest emotions: love, hate and fear.
Last week, I wrote “How many people will end up dying from COVID-19 vs. how many people will die from starvation and other diseases of poverty if the economy slips into another massive depression?” That is still the question we should be focused on. People are afraid. They’re afraid of dying. They’re afraid of their parents dying, they’re afraid of their children dying, they’re afraid of their spouses dying. But the narrative spun by both the media and the punditry is that because of COVID-19, the deaths we fear are more immediate. They’ve taken everyone’s fear of death and added the element of immediacy, and then told us the only way to eliminate the immediacy is to wall ourselves off in our homes.
This is as much a political crisis as it is a medical and economic one. As much as the media is distrusted these days (and for good reason), it’s important to note that they are getting their cues from the political class. When the governor of New York is on television daily, declaring he needs tens of thousands of non-existent ventilators or else people are going to start dying in the streets, we sit up and take notice. When the governor of Pennsylvania takes to the airwaves to declare that this is the gravest crisis we have ever faced, people heed his words. When the President of the United States begins a daily briefing by reciting the litany of the dead, we are left with the impression that our lives are about to be snuffed out.
Now, imagine if our political leaders were to go back to the original premise of “which is worse: the deaths that will result from an economic depression plus COVID-19, or just the deaths from COVID-19?” Well, then we still understand the immediate effects of COVID-19, but we’re also asked to consider the long-term effects. Why? Because unless we’re completely irrational our psyche is now forced to realize this is a life-and-death decision no matter which way we decide. People, maybe even people we love, maybe even ourselves, will die. The only question then becomes how to balance the equation so that as few people die as possible.
It’s rare that a moral question can be summed up with an equation, but this one can:
Cnm ⸫ Cm+D
Where C stands for deaths from COVID-19, D for deaths from an economic depression, and m for mediation. What is the relation between those three factors? How do we mitigate the number of deaths in each scenario, and at what point does Cm+D cross to become less than Cnm?
(Sorry. The old data guy couldn’t resist throwing mathematics into the pot.)
We know our current approach is definitely going to result in D, and we also know the human toll of D – in famine, malnutrition, abuse, and exposure – will be dreadful. Here’s what else we’re finding out: countries that shut down even further than the US and then tried to “return to normal” – like China, South Korea and Singapore – have had recurrences of COVID-19 that are even worse than their initial outbreaks. So does that combination mean we’re just screwed? We can’t restart and try to to return to normal without killing more people, and we can’t stay in our current stance without killing more people?
No. Not at all.
The key is we can reopen our businesses, pray they return to solvency and that replacements for those that disappeared come alive quickly, but with a couple of caveats.
- First, we need to understand that normal has changed. Medical science has shown that coronaviruses are, in general, highly mutable: that is, they make up for the fact they are not difficult to destroy by mutating, often quickly, meaning most treatments are not terribly effective. It’s why the “flu shot” is rarely more than 50% effective, and why nobody has yet come up with a cure for the common cold. The mediation efforts we put in place now are likely to remain with us for a long, long time.
- Second, those most at risk from COVID-19 should be isolated from the rest of the population as much as practicable. If you have bad lungs or a compromised immune system, you should stay at home as much as possible. When they fall ill and require hospitalization, they should be moved to separate wards from the remainder of the population.
- Third, the nature of white-collar work should change. I understand many jobs require you to be onsite in order to perform your tasks. Most white-collar work does not. I never understood the resistance to telecommuting; I was doing it 15 years ago and hardly ever “went to the office” for the last 6 years of my career. I think most companies are now realizing that the phobias they had about telecommuting were not well founded and having already put in place the systems that allow remote work, will stick with the model going forward.
- Fourth, the nature of school should change. Just as white-collar workers don’t need to be in a cubicle to do their job, students needn’t be tied to a desk in a building to successfully learn. Yes, there are details that would need to be worked out so far as socialization goes. Yes, it might impose a secondary hardship on families that think both parents need to work. But in an era when school districts across the country are spending billions on trying to maintain crumbling school buildings, buildings often inadequate to meet current needs, continuing with teleschool only makes sense.
Finally, our society needs to accept that some portion of the population will contract the COVID-19 disease each year. It is the nature of the virus. Every time I hear a politician, doctor or commentator talk about “defeating coronavirus,” I cringe. It’s not that eradicating the virus isn’t a worthy goal. It is, however, ridiculous to set that condition as a benchmark for returning to living.
This will probably be the hardest adaptation for our society to make. After all the hype, the shutdowns, and the panic, the idea that this is a new reality – one with yet another dangerous disease – in our midst will be difficult for many to accept. We like to think man is invincible and master of his environment. The idea that nature sometimes refuses to be tamed is a concept that we haven’t truly dealt with for nearly a century.
But if we don’t, we will have destroyed the economy that powers modern civilization. And we will have forgotten that most important of American traits: liberty. A free people do not willingly chain themselves and they are not willingly chained. It’s time we remembered that which makes us strongest and unique, and put those principles into action.
Isn’t that a refreshing scene? There’s nothing quite so calming as a tropical island, with gentle surf caressing a sun swept beach while warm breezes sway the palm fronds in a relaxing rhythm. If you squint carefully, you can almost see the natives roasting a swordfish over a crackling fire and smell the heady aroma of fresh island vegetables.
The island also represents what the medical community wants for America. They want us all to hunker down in our homes in hopes of extinguishing the Wuhan Flu, much as we would be isolated and alone on a South Pacific isle. Numerous government leaders have taken them up on this advice. Sadly, they haven’t given each of us our own tropical paradise. While they aren’t actually calling it an enforced quarantine, the lack of the correct verbiage doesn’t make it any less so. If you think otherwise, try leaving your house after 8pm.
Of course, we’re just starting to deal with the fearmongering that resulted in mass panic, and nearly mass hysteria. The national economy is virtually shut down. The stock market almost collapsed,with losses not seen in nearly a half century. Nobody is certain of the damage done, but estimates range as high as perhaps a 40% reduction in GDP and 30% unemployment, numbers not seen since the Great Depression. Social structures have been irrevocably altered, in ways we cannot begin to understand. The very nature of work has been altered, with more white-collar employees working remotely than ever before. When we do get back to work, to school; when the centers of culture and learning do reopen, we have no idea how the changes that were suddenly thrust upon us will reverberate in the future.
The biggest problem with all of this is that the data about this disease is profoundly unreliable. It has been said there are lies, damned lies and statistics and no common experience drives home that truism more than the current situation. From the beginning, statisticians and epidemiologists were dealing with incomplete (and even falsified) data from China, India, Italy and South Korea. As a result, modeling – which government leaders relied on to predict how deadly the COVID-19 pandemic would be to the general population – has been terribly inaccurate. The noted epidemiologist John Ioannidis recently remarked that “the fatality rate could plausibly lie between one in 100 and one in 2,000 cases.” Mind you, he is merely referring to death rate for those who are infected. Nobody has yet put forward a reliable model for the infection rate, because the data simply doesn’t exist. This is a problem that was anticipated. On March 17, Ioannidis wrote, “we lack reliable evidence on how many people have been infected with SARS-CoV-2 or who continue to become infected. Better information is needed to guide decisions and actions of monumental significance and to monitor their impact.“
“But,” you say, “what about the rapid rise in cases in the United States I keep seeing on the evening news?” Ah, a fair question. Consider: since the United States started testing, it took us 17 days to administer the first 100,000 tests. It took another 11 days to administer the next 100,000. It has taken only 5 days to administer the last 320,000 tests. At current rates, the United States will be testing over 1 million people per week by mid-April. As the number of tests administered increases exponentially, the number of confirmed cases will also increase exponentially. The key evidence to look at is whether the number of positive cases is increasing at the same rate as the number of tests – and that answer is a resounding no. While tests have increased at a logarithmic rate, the increase in positive tests has followed a gentler curve, suggesting that the infection and lethality rates are lower than first anticipated.
One other note on testing: we have only been testing people showing symptoms. Yet the positive test rate is only about 15% of those tested for COVID-19. This is because what the media refers to as the “coronavirus” is actually a mutated form of the same virus that causes the common cold, multiple strains of influenza, SARS and MERS. Those are all corona viruses. As a result, the symptoms of COVID-19 fall into the same generalities as those other diseases: cough, fever, fatigue. That only feeds into the panic, especially as those are also symptoms of hay fever – and large swaths of the nation are entering spring allergy season.
For a doctor, the choice facing the nation is an easy one. They are worried about immediacy, and their immediate concern is to keep everyone alive and healthy. So recommending that everyone stay hunkered down in our houses and apartments is an easy choice. But for the rest of us, the choice is far from being simple. The president, and all 50 governors, have to weigh the importance of preserving lives now vs. the effects of leaving the economy in a downward spiral. How many people will end up dying from COVID-19 vs. how many people will die from starvation and other diseases of poverty if the economy slips into another massive depression? We can roughly extrapolate from available data that around 130,000 people will die from this disease. We cannot make even a haphazard guess about what the death toll from an economic depression that last months or even years might be, because while we know one is inevitable on our current course, we don’t know any of the particulars. We can’t. We’re not fortune tellers.
Without solid data, it is an impossible question to answer. Yet we’re all answering it, from the President to loudmouth Joey you normally meet at the corner tavern. The problem is, both of them – and everyone else – doesn’t really know, no matter what they tell you.
Will this virus be bad for the country? It already is. Will a deflated economy be bad for the country? It already is. But making everything worse is fear and panic. We can’t keep ourselves walled off forever, living in fear of everyone who sneezes. The federal government, between emergency fiscal expenditures and monetary expansion from the Federal Reserve, has already expanded national debt by nearly $8 trillion. That’s about 40% of last year’s GDP, and perhaps 65% of this year’s GDP. In short, that is an unsustainable degree of expenditure. We cannot afford to allow fear to panic us into cowardice, and we cannot afford to to allow fear to bankrupt the nation.
FDR once said “we have nothing to fear but fear itself.” It’s time for the panic to end, and for America to prove that FDR knew what he was talking about.
By now, you’re certainly aware President Trump raised the tariffs the US government charges on a wide range of Chinese goods. This came primarily as a result of Chinese recalcitrance in the most recent trade negotiation.
Certainly, you’re familiar with the free trade arguments against tariffs. Generally speaking, these arguments are correct. A tariff raises the cost of those goods for the importing distributor. Those increased coast are then passed on to the consumer. Not only that, but in states that charge sales tax, the increased price that comes from the tariff also results in a higher sales tax. So the net effect is not unlike a VAT, a tax that gets compounded at various stages and eventually adds up to much higher costs for the consumer.
Think of it this way: Maytag imports a $300 washing machine from China. The new 25% tariff increases that COG to $375. Maytag, in order to sustain it’s business, sells it to Lowe’s with a 10% mark-up, so Lowe’s cost for the washing machine is $412.50. Lowe’s the sells it the consumer with the standard 25% markup found on retail hard goods, so it costs you $515 to purchase it. Only that isn’t your final cost. The state charges 6.5% sales tax, so your final purchase price comes to $548.48 – of which $108.48 is taxes.
That’s a $69.23 increase in cost to you, of which $49.23 is in taxes. Or if you prefer, that 25% tariff actually resulted in a 83% increase in the amount of tax you paid on your brand new washing machine.
So, increasing tariffs is obviously increasing the burden to the consumer. It is even a more regressive form of taxation than an ordinary sales tax. Because it is charged at the point of import, there is a downstream effect of cumulative price increases, until the final price for the consumer is artificially increased to the point of near unaffordability. So, there can be no doubt that in a nation that relies on consumer spending for economic growth, increasing tariffs is going to result in a downturn in at least the rate of growth.
So why would we slide back into a mercantilist trade policy, when global prosperity has demonstrated that reducing trade barriers has lifted everyone’s standard of iving?
According to the President, it is a result of an ever expanding trade deficit with China. Frankly, that is hardly a problem. It is a result of the fact that Chinese workers earn less than their American counterparts, that property and building costs are lower and there are fewer regulatory hurdles to running a factory. Tariffs might reduce the trade deficit slightly, but they won’t send companies fleeing China for the beautiful environs of Akron. It might make a few move to someplace like Vietnam or Indonesia. So what then, do we raise tariffs on imports from those countries, too?
Our real trade problem as regards the People’s Republic of China is not a deficit of goods. Rather, it is their own mercantilist policies that require technology transfers and encourage software piracy. The question becomes, are tariffs the right weapon to deploy to combat those policies?
Probably not. For starters, the basic memory chip devised by the American company Intel is the gold standard in solid state memory, But the Qualcomm copy is nearly as good and about half the price. If you’re unfamiliar with these little pieces of silicon, they can be found in everything from your $9.99 alarm clock to your $65,000 Mercedes. Qualcomm exports those chips to companies all around the world. Trying to target Qualcomm RAM and ROM chips with punitive tariffs would, quite literally, mean raising tariffs on thousands of products coming from all around the world.
Add into that headache that Qualcomm doesn’t just build those chips in China. They also build them here, in a factory in San Diego, as well some 28 other countries. Trying to track where each chip was built, where it was sent, and whether that particular chip was then imported into the US is impossible. And this is just one product from one company.
So, tariffs are an ineffective tool when dealing with China’s policy of enforced technology theft. Are there any other tools at our disposal? Well, there is the WTO, but it has proven effectively useless in handling the problem. There is diplomacy, but gathering enough nations together willing to take on these policies has proven almost impossible. Even the TPP, championed by the Obama administration and thankfully scrapped by the Trump admin, ignored the problem outright.
So what’s left? As much as I hate to say it, it might be simply barring any American technology company from doing any business in China whatsoever. I’m certain that adopting that particular stance would draw howls from not only the tech companies but a host of other interests. Additionally, it’s naive to think China wouldn’t retaliate in some fashion, perhaps by doing something as extreme as charging an export fee on any goods headed to the US.
It would mark one hell of an escalation in what has been, to now, a pretty mild trade war. As much as I hate the idea of imposing such rigid barriers to trade, the reality is that China has for decades been getting away with a very mercantilist approach to technology. It might be time to fight fire with fire.
A recurring theme among our media betters is a disbelief that President Trump would treat the other members of the G-7 with so much more disdain than he treats Russia, China and North Korea. Their difficulty is because for all of their expertise and hubris, they can’t get past their navel gazing. If they simply opened their eyes and thought about it, the reason for this would be so obvious it would jump up and slap them in the face.
The reason is not that Trump is a bombastic crybaby, nor that he lacks empathy, nor that he misunderstands history. It isn’t that he disregards what are regarded as diplomatic and foreign policy norms. It has nothing to do with his narcissism or love of McDonald’s burgers.
Indeed, he gave us the biggest clue to the one driving theme of his foreign policy in the impromptu news conference prior to the start of the G-7 confab this past weekend. Mr. Trump said, “We have a world to run.” Was he talking about the assembled “world leaders” of the G-7? Or was he alluding to something else?
One of the most interesting things I constantly hear is that President Trump has no grasp of history, no concept of the United States role in shaping world affairs, or the post-WWII international order. I don’t think that’s the case whatsoever. If anything, he has demonstrated a more focused understanding of those things than the talking heads on TV, or the failed diplomats who clutter the airwaves with their talking points. They prattle incessantly about a world order that has never existed anywhere except in their minds. It was the relentless pursuit of this fiction that led to many of the disastrous American foreign policy actions over the last 25 years.
Trump regards the lesser members of the western alliance (what we usually refer to as “first world nations”) as nothing more than vassal states. For those of you who don’t understand the concept (Hi, cast members of Morning Joe!), a vassal state is one that has pledged loyalty to a larger state. It receives a promise of security from external threats and financial assistance, along with a pledge of limiting interference in internal politics. In exchange, the vassal provides some military forces and pays tribute to the dominant partner.
Vassal states have existed for as long as human civilization. The Egyptians and Hittites both had clients in the Middle East even before anyone invented writing. (We know this because the earliest written tablets known to us, from both Egypt and Anatolia, describe those civilizations relationships with everyone from the Ammorites to the Sumerians). And contrary to popular myth, they did not disappear with the end of the First World War.
If you stop to think about the post-WWII order, this is exactly the scenario the world found itself in. There were two dominant states (the USA & USSR), and each had a collection of vassals. For the US, those vassals were the members of NATO, Japan, Australia, and other various small countries. The Soviets had vassal clients in the Warsaw Pact, China, Cuba and most of the Arab world. The occasional squabbles between vassals on opposing sides led to conflagrations that would involve the sponsors (the Arab-Israeli wars of the 1950’s and 60’s, or Vietnam, or the Korean War). Presidents from Truman through Bush 41 might have smiled at their allies, but they never treated them as equals. If they had, Jimmy Carter never would have been able to strong-arm Menachem Begin into the concessions needed for the Camp David Accords. Bush never would have rounded up the international force to launch Desert Storm. And so on, and so forth.
Like it or not, this is the world view that the President has. He sees Russia reasserting its control over her vassals (Ukraine, most prominently). He sees China moving to gain an equal footing as the United States, without any actual vassals (but not for lack of effort). He sees North Korea as a vassal of China, but one that is recalcitrant and one that China refuses to hold tight enough rein on.
Within this framework, he sees the other members of the western post-war coalition as forgetting their rightful place. He won’t treat them as equals because in his world view, they are NOT equals. They are vassals, subservient and reliant on the United States for their very existence. Additionally, he sees the fecklessness of the three administrations immediately prior to his as largely responsible for the sad state of affairs between the US and our “clients.”
In the same vein, he treats Russia and China as equals because in his world view, they are our equals. Each is a dominant nation, like the United States. While the vassals, like bratty children kicking at our shins, complain about unfair treatment, Trump is staying focused on where he believes the real international political struggle begins and ends: the battle between the three superpowers for world supremacy. He sees an opportunity to, at worst, turn North Korea into an independent player (much like Marshall Tito’s Yugoslavia was) or at best, reunify the Korean Peninsula as a client state of the USA.
He may be right in his view of a modern realpolitik. The problem he runs into as that while the client/sponsor relationship was an unacknowledged fact for the late 20th century, the 21st is somewhat different. Yes, the client states are still dependent on the US for their international security. But whereas once their economies were independently reliant on the US, that is no longer the case. The last 25 years has seen the global economy changed from one of many clients subservient to one dominant economy, to a symbiotic economic relationship between nations. What’s more, the tangle of trade agreements and international corporations is such that any disruption anywhere in the flow of goods threatens the economic order of the planet., threatening a conflagration that would make the last two world wars pale by comparison.
This is the conundrum facing the American President. During the height of the Cold War, the US economy accounted for nearly half of all global economic activity. As of last year, we accounted for less than 18%. While we may hold all the cards militarily, we are now trying to draw to an inside straight economically. The notion of returning international trade to one where most economic activities is controlled by US companies is less an economic decision than a militarily strategic one. Heck, the President said as much when he imposed the latest tariffs. In the face of this situation, our nation is faced with two choices. We can attempt to rebuild the original postwar order, or we can remove ourselves from a position of global dominance, recalling and reducing our military strength.
When you look through the prism of vassal state relationships, you can see which option the President has opted for. This shouldn’t come as a surprise to anyone, it has been his stated world view for the better part of 40 years now. That nobody in the media seems capable of grasping this is the only surprising thing about it.
I often hear liberals saying, “a minimum wage should give the same earning power as when it was first introduced.”
Well, in the spirit of bipartisanship, I’m happy to announce I fully agree with this position. When the federal government instituted a national minimum wage in 1938, it was set at 25¢ an hour. Adjusted for inflation (after all, only an idiot thinks a quarter goes as far now as it did 80 years ago), that would be $4.28 an hour today.
And I’d like to thank my liberal friends for pointing out the inequity in our current minimum wage structure vis a vis as it was originally intended.
One of the things that’s driving me absolutely bonkers this election season is the focus all the candidates have on returning the USA to the economy of the 1950’s and 60’s. All of them, but especially Messers Trump and Sanders, seem to think that if we wall ourselves off from the rest of the world, we can return to those halcyon days.
It’s a pipe dream, and if you’re buying into it, you might be stuffing something other than tobacco in your pipe. I’m going to drop some knowledge on you that you might have heard whispers of, but never been forced to grasp. The “good ol’ days” are gone forever – and they’re never coming back. Labor-intensive work, requiring little to no skills that pays well, is a thing of your memories. Soon, many of the jobs that we kid ourselves about being in demand will have gone the way of the blacksmith, the cobbler and the typesetter.
It’s understandable that most of us do not want to hear this. We grew up being to ld that if we worked hard, kept out of trouble and were good citizens we could live the American dream. Then, one day we woke up to find that our jobs disappeared and they aren’t coming back. Nobody told us why, or what jobs would replace them. Then, we found out the jobs that did replace them required all kinds of skills that most of us lacked. It didn’t matter that we’d proven ourselves as good employees by every other measure: we simply didn’t qualify for these new jobs.
It would be wonderful if we could bring back those labor-intensive jobs that didn’t require much in the way of training or skills. But here’s the thing: anything that’s labor-intensive is now being done elsewhere, for much less than you would accept as a pay rate. No company in their right mind would bring those jobs back here. As an example, let’s take Apple Corporation’s outsourcing the manufacturing of iPhones to FoxConn, a Chinese company. What nobody told you (or apparently, Mr. Trump) is that FoxConn turns out those millions of units using fewer than 100 employees, and they’re mostly engaged in packaging and shipping. 85% of an iPhone’s manufacturing is automated: it’s built by robots. So, yes, I suppose you could force Apple to build a factory in the USA. But do you suppose they wouldn’t also build the doggone thing with robots? Of course they would.
This is the reality that the snake oil salesmen have avoided telling you this election season. What’s worse, they aren’t telling you that the move away from those jobs is accelerating. They aren’t telling you that by 2025, many of the jobs we currently take for granted will be gone, replaced by automation or cheaper competition from overseas. Think of it this way: the only place you find elevator operators today is in old movies. Fairly soon, anyone who drives for a living, works in the fast-food industry, works in a warehouse or does general office work will be looking for a new career. How can I say that with certainty? Because those jobs are already being slowly replaced. Amazon now has robots doing order picking. McDonald’s is rolling out ordering kiosks in their restaurants. Self-driving vehicles are already on the roads, and companies like Uber and UPS are already in partnerships with vehicle makers to implement driverless delivery systems.
In other words, you needn’t be prescient to realize that the jobs of today are disappearing and that the jobs of yesterday are not coming back. But rather than gird Americans for this reality, we get platitudes about “forcing” manufacturing jobs back to US shores. When future jobs are discussed at all, it’s usually with vague rejoinders about “getting the skills for the jobs of tomorrow.” The politicians are afraid to tell you the truth. It’s a truth I suspect most of you have already grasped, even if you haven’t acknowledged it.
This isn’t the first time we’ve undergone a dramatic shift in the workforce. Over a century ago, our great-grandparents were faced with the shift from an agrarian society to a manufacturing one. They didn’t handle it particularly well. Now it’s out turn, as we lurch from a manufacturing economy to a knowledge economy. But we can do one of two things: we can embrace it and lead the world once again. Or we can fight it and get left behind, becoming a second-rate power.
This morning, the Bureau of Labor Statistics released the latest job numbers. They aren’t good. But they’re also pretty much what anyone who doesn’t subscribe to Keynesian economics expected.
To put it succinctly, the economy sucks.
To explain why, you don’t have to look further than Adam Smith and basic supply-and-demand laws.
First, making sense of the data: according to BLS, the last two months have seen a net total of 278,000 jobs added to the economy with average wages actually declining by 0.1% over that time. The number of people who gave up looking for work outpaced those landing a job by a 4:1 margin. There are now over 94 million Americans not working, almost equaling the number of Americans who are working.
This is what the progressive version of economics has rendered: national debt now exceeds 100% of GDP, for the first time in our history. Yet despite all of that largess (which the Keynesian’s insist would boost the economy), wages continue to sag and new employment opportunities can’t keep pace with population growth. By the BLS’ own estimate, the economy needs to add 250,000 jobs per month just to match population growth; the most recent data indicates that we’ve added 222,000 too few jobs.
So how does this affect you? Well, the pressure is still on the employed, not the employer. As a result, wages either sink or stay put. If you ask for a raise, keep in mind there is somebody out there desperate enough to do your job for less than you’re earning now. Even if you’re unaware of that, your boss isn’t.
Add in the regulatory spree that progressivism claims is needed to protect you from yourself, and businesses that are already feeling the pinch of reduced demand are further squeezed. Profit margins are not some whimsical thing that can be created by government edict, as much as statists like to think so. They are very much the result of income after costs – and in a bad economy, adding more costs certainly isn’t going to improve employment, demand or prices.
So, to summarize, Mr. Obama has the economy he asked for. Oh, I know he didn’t ask for these results. But this is the real world, not some theoretical research paper written by left-winged professors, and these are the real-world results of putting those policies in action. Despite record debt (the cornerstone of the Keynesian model) the economy has seen negative aggregate demand. There are as many people without a job as have one. A large number of those people with a job aren’t getting paid enough to increase demand and thus increase employment opportunities, or wages.
In other words: the labor SUPPLY still outstrips the DEMAND for labor. Until that changes, the economy cannot be said to be in “recovery.” That is Mr. Obama’s economy.
On Friday, the latest “jobs report” was released by the Bureau of Labor Statistics.Naturally, the White House jumped on the headline numbers to show how wonderful Obamanomics is working. 223,000 more jobs! Unemployment down t0 5.3%!
Except…the numbers aren’t nearly that rosy. Even long-time supporters in the financial media are taking notice that something smells as rotten at the BLS as a fish left out in the summertime Washington sun. Consider these headlines:
FiveThirtyEight: “Don’t Let The Disappointing Jobs Report Distract From the Long-Term Trend”
MarketWatch: “A ‘Soft’ June Jobs Report on Balance, Economists say”
Huffington Post: “That 5.3 percent Unemployment Number Makes the Jobs Market Look Better Than It Is”
If you’re a liberal President hoping to convince the American people about the wonderfulness of your economic program and you can’t even fool the devout Keynesians at HuffPo, it’s time to admit defeat, I would think. But I digress.
So, how has it come to this point? How have the BLS’ headline numbers become essentially meaningless? The answer is those numbers have been filtered, altered and cranked so much over the past five years that they really don’t have any meaning any more. Unlike the past, that 5.3% unemployment figure doesn’t really track the number of Americans who need a job, nor does it represent the number of jobs Americans are actually getting.
The unemployment rate and employment numbers were once based on hard data, taken from a sampling of the F1000 and 150 selected smaller companies. Since 2011, it’s based on a phone survey: literally, the BLS calls 1,000 Americans and asks them if they’re working, when they were hired and what kind of job they have, and how much they get paid. No wonder the headline employment numbers and unemployment rate is revised more often than I go food shopping. In the latest report, for instance, the BLS revised the employment numbers down by some 60,000 jobs over previous reports (more on this in a moment). Quite frankly, the government’s main jobs accountability office doesn’t really know how many people are working, where they’re working, when they get hired and when they get fired. Their data doesn’t lie, but it is actually too volatile to be a predictable indicator of what’s happening.
Second, the unemployment rate was once a solid indicator of the number of Americans who were, well, unemployed. But in 2003, the BLS changed the definition of an unemployed person from somebody who wasn’t working, but eligible to work, to somebody who was out of work and actively seeking employment. Seems like a subtle difference, but in today’s job market it’s proving to be very consequential. Additionally, BLS never counted part-time employees as “fully employed” until 2011 (funny how that date keeps coming back, more on that later, too). In the current BLS reports, all part-time employees are counted as fully employed, even if the employee would rather work full-time but can’t because their employer isn’t offering them full hours. So, that %.3% looks pretty good. It is certainly within historical norms, until you recognize that the old methodology used to get that number was much more restrictive – and accurate – than the current one.
Now, regarding that revised employment number. First, to understand what even the original number means, you have to understand that every month the US adds more people to the work force. Yes, the “Baby Boom” generation is retiring, but what you rarely hear about is that the number of “Millenials” actually outnumbers the number of “boomers.” Left-of-center economists and commentators are doing their best to make it sound as if the percentage of working age Americans is shrinking. In reality, it’s a population growing at a rate not seen since the 1960s, around 215,000 more people get added to the workforce than leave through retirement each month. In order to maintain employment levels, that means that number of jobs needs to be added to the economy each month. Fall below it, unemployment should rise. Come in above it, unemployment should fall. A 223,000 jobs gain should have kept unemployment essentially flat. Losing 60,000 jobs should have made unemployment go up. And a newly revised job gain of 664,000 for the quarter vs. working population growth of 645,000 should mean that unemployment dropped by 0.05% for the quarter. Yet, it dropped by 0.2%. Eh, what?
This comes back to the magic of not counting everyone who’s unemployed as unemployed, Today, Barack Obama’s government either calls them “marginally attached” or ignores them completely. The “marginally attached” are those that would like a job, but have simply given up hope of ever finding one. By BLS own estimate, that’s 1.9 million people. In June, the Obama administration moved over 400,000 people from unemployed to “marginally attached,” based on a phone survey yhat probably ignored them altogether. And it lends itself to another number the boys at Obama’s Labor department haven’t figured out how to fudge yet: the labor participation rate. That’s the number of Americans of working age who are, in fact, working. It’s also been dropping for the past six years, even as the unemployment number keeps dropping. If that seems like a contradiction, that’s because it is. Obviously, if the working age population is growing but the percentage of people working is dropping, unemployment should be rising. And when the LPR is at a level not seen since the Great Depression (in June, according to BLS, it stands at a 72 year low of 62.6%. The last time the LPR was this low was in the late 1970s, when unemployment reached a staggering 13.5%). it stands to reason that the unemployment number should be in the double-digits. Look, there’s a little followed, “unofficial” unemployment number called the U-6. It actually counts the “marginally attached” as unemployed. And it currently stands at…12.1%.
The idea that more than a third of working age Americans are choosing not to work is ludicrous on it’s face. But the government tells us unemployment is falling. No wonder that smell from the doors of the Labor department keeps getting stronger.
As mentioned, the changes that have allowed employment numbers to be spun so dramatically were implemented in February 2011, shortly after Barack Obama’s policies were soundly rejected in the 2010 midterm elections. I mean, that could be a coincidence. I suspect, however, there was a conversation in the Oval Office that demanded better employment numbers, that couldn’t be easily refuted by economists and could be easily embraced by Keynesians and newspapers. He got what he wanted: a way to lie, to spin, and to let his Sunday morning spokespeople lie and spin, without actually lying.
That smell coming from the Oval Office is not dissimilar from the one coming from BLS, and the President may want to check his trousers. Obama may have reached the end of this propaganda cycle. The papers have begun to notice some things that all economists, whether left or right, know to be true: full employment should yield higher wages and more hours. But hours worked fell throughout the second quarter and wages remained flat. They also know their favorite boogeyman, the evil Wall Street CEO stealing workers wages, doesn’t really fly when the stock market has also remained essentially flat. In other words, with all that extra productivity from all of those new workers, there should be a lot more money entering the economy – but there isn’t. And it isn’t ending up in the mega-bank vault, either. It just doesn’t exist.
With the biggest lie ever told by a President finally being exposed (even bigger than, “If you like your plan…), all I can do is wonder what Obama is going to throw at us next.
There’s been much talking about how “unequal” things are for “ordinary” people. The President, and the President’s political party, started the kerfluffle during the 2012 elections. But recently, as the Affordable Care Act continues to prove it’s about anything but either affordability or health care and Mr. Obama’s foreign policy initiatives crater; as congressional democrats find themselves unable to find a positive message to coalesce around and as the economy continues it’s non-recovery recovery, the talk of “inequality” from both leftist politicians and the media has reached a new crescendo.
The left went agog with the election of Bill deBlasio in New York City, who campaigned on a theme of ending economic inequality in the nation’s largest city. Leftists, and their allies in the democrat party, believe that by highlighting the basic reality of capitalism they have a permanent winning issue. But other than Sen. Elizabeth Warren (D-MA), no democrat has attempted to lend any sort of intellectual credence to the argument that rich people want the rest of us to be poor. Not even the leading leftist economists, Paul Krugman and Robert Reich included, have been able to demonstrate how that works, exactly. As for Mrs. Warren, the reality is that once you dive into her work, you soon discover that she is perhaps the most crass political animal to come out of her party since Bill Clinton. While she mouths the platitudes, she actually doesn’t have a single policy idea to “make capitalism fairer for the typical American.”
Anyway, we already know that Mrs. Warren is more a symptom than an exemplar of her party’s cynical politics. While they’ve all seemingly abandoned the DLC positions embraced by the Clinton administration, the reality is most haven’t . That includes Mrs Warren, Mr. Krugman and Mr. Reich. But there is a very large, core group of true believers who unabashedly embrace the culture of class warfare. If you’re one of those, feel free to stop trolling now. Nothing I’m about to write will change your closed minds; feel free to re-read Das Kapital and ignore such trivial matters as world history and human nature. But if you are one of those people who gets queasy about the type of all-out class warfare that the President and his minions, in seeking electoral glory are pushing us towards, I recommend you read on.
This is not the first time in either modern or ancient history that the “ordinary” people (which is to say, those without extravagant wealth) have felt that the current political and economic system failed to adequately represent their interests. The watchword over all of these movements is typically “equality.” Translated into today’s political parlance, “equality” as applied by the left means that each of us should have no more, nor no less, than anyone else: either in terms of net financial worth, political influence or social standing. This has been the aim of those hard-core leftists for well over a century. A very succinct statement of their goal is found in John Lennon’s Imagine:
Imagine no possessions
I wonder if you can
No need for greed or hunger
A brotherhood of man
Imagine all the people sharing all the world
The simple beauty of the position is, quite frankly, you need to be a heartless bastard to be against the idea of ending hunger, homelessness, hopelessness, and all the other downsides to the human existence.
This is the trap that libertarians and conservatives alike have fallen into: by allowing liberals and progressives to dictate that they (and their discredited systems) are for ending those inequities, we’ve become the faction that cheers them. Ironic, really – we’re the group that decries repression, yet in popular mythology we’re responsible for oppression. This isn’t our generation’s fault – the shift in public attitudes began late in the 19th century – but it is up to those of us alive now to begin the return to understanding the difference between equality and inequity.
The time has never been more critical than now for those who know the difference to remind the world that there is no way to guarantee equal outcomes without destroying society. The world imagined by Orwell in 1984, Huxley in Brave New World or Rand in The Fountainhead is closer than we realize. We understand that such an outcome will mean the beginning of a new Dark Age – similar to the one that encroached the Western world after the fall of the Roman Empire and lasted for a millenium. A new Dark Age might not last for untold centuries. Although science and technology would stagnate, the weapons left behind by our civilization have nearly unimaginable destructive power. Unchecked by a societal desire to learn and advance, those weapons will be left under the control of despots – leaders who will have both the will and the means to use them.
These are serious matters and engaging the public in a way that leads them to understand that liberty does not necessarily mean personal gain is the lynchpin to preventing the general collapse of society. The modern liberal probably does not realize the grave danger they, and their political and economic philosophy, pose to civilization. Most sincerely believe that not only are all men created equal, but that must necessarily also mean all men are entitled equally. I won’t go into the reasons we know this is a fallacious argument: that while we may be born with equal rights, we aren’t all born with the same drive, determination, talents and skills. Or that success is defined in different ways by different people (which, on its very face would make defining equality impossible).
Rather, let’s focus on how we win back the conversation. To do so, we need to understand why there is a sort of magnetic pull for the liberal argument of a guaranteed outcome. Why claptrap like Piketty’s Capital in the 21st Century and former SCOTUS Justice Stevens’ Six Amendments are heralded as the intellectual tomes of our age. And why Marx’s Das Kapital is still revered on campuses.
The answer lies in the fundamental fact that libertarians were not forceful enough in the days after September 11, 2001 – and the conservatives, always the stronger political force on the right acquiesced too readily to the neo-conservative ideology. It began what has become a nearly two decade long descent into the twin hells of restricted liberty at home and hopeless intervention overseas. And still today, there is strong pull on the right that insists on doubling down on those failed policies – the entire failed concept of government it represents. It is not truly conservative in nature; it is a belief that government can hold the solutions to our problems, if only properly applied. The philosophy espoused by these devotees gave us the bloated federal government and 12+ years of continuous warfare we live with today. The drain on the treasury, the reapplication of resources away from private investment and the crush of new regulations directly led to the financial collapse of 2008 and the lessening of American influence. In the six years since, the application of liberal political theory by the current administration has had the exact effect anyone with a quarter-brain predicted: continued economic decline and lack of economic security for most of countrymen.
This is where we need to make our case to restore the American Dream. To many of our fellows, the American Dream is dead. Many of our youth do not see an America where they an achieve based on skills or merit, but only one where the determining factors to economic or professional success are cronyism and discrimination. It is in this environment that otherwise insane arguments such as punitive taxation and retributory discernment gain credence. Equally concerning is that the same social powers now see the entire notion of personal responsibility as a quaint relic of past centuries. After all, they tell us, your failures aren’t your failures – they are the result of a system that’s rigged against you.
I read and hear politicians and scribes on both sides of the political aisle lamenting the pessimistic attitude that permeates our civil life. Yet they fail to understand that the reason for that attitude lies not with the ineffectiveness of their treasured government programs, but rather with the very existence of those programs. You can’t tell a man that he’s deserving of everything that everyone else has, regardless of his means to pay for those things, maintain those things or even comprehend the value of those things without being able to deliver on the promise. That’s where every redistributive model falls flat: it is impossible to give everyone everything. That is the great inequity of the liberal equality argument – it leads people to believe in something that is non-existent. It holds the ultimate societal good, as that which is unattainable.
The results of this drivel can already be seen and felt in our political discourse, in the palpable anger being stoked by the leftists. As our President and his party continue to pit the factions (rich vs. poor, black vs. white, welfare recipient vs. working) against one another, the nation becomes further fractured.
The conservative movement forged by the likes of Buckley and Goldwater reached its zenith with the election of Ronald Reagan to the Presidency in 1980. Do not believe the liberal rewrite of history that is taking place now. Reagan did not win by dividing the nation into rival factions, by demonizing certain groups or by scaring the pajamas off the American people (that happens to be the “progressive” playbook, as written by Lenin, fine-tuned by Alinsky and run to perfection by Obama). Reagan, rather, was an affirmative candidate and President. “Morning in America” wasn’t just a campaign theme, it was the way he governed and the way he presented the idea of America, not only to Americans but to the world. He could do that, because the conservative movement he led was not led by the neo-cons who later come to dominate the right, but one founded on the idea that in order for a man to succeed (however he might define success), in order for him to have the best chance at utilizing his God-given equality of opportunity, was the same idea that founded the nation in the beginning. The idea that not only Christian Conservatives but Libertarians could unite behind.
That is the same message that conservatives and libertarians need to unite behind now, if we are to save our country and the principles it was founded upon. That a man cannot be equal to another without opportunity, and that opportunity does not come from government. Opportunity comes from freedom, from liberty and from our Creator. We need to forcefully, continuously and repeatedly deliver that message. We must remind the American people and the world that men are not slaves to their government, the government is their slave. Many of us remember the famous line from Reagan’s 1981 Inaugural Address, “government is not the solution to our problem; government is the problem.” But perhaps more important to our present circumstance is this passage from the same speech:
“America must win this war. Therefore I will work, I will save, I will sacrifice, I will endure, I will fight cheerfully and do my utmost, as if the issue of the whole struggle depended on me alone.”
Many of the same problems we faced at the dawn of the 1980’s we now face 35 years later, and for many of the same reasons. Let us dedicate ourselves now, my friends, as the conservatives a generation ago did. Let us be the shining beacon the the hill for both our Nation and the World.
If you spend any time on Twitter or Facebook, you’ve undoubtedly come across the “#Defund” hashtag. If you follow the news even cursorily (and odds are you follow it more closely than that, if you’re reading this) then you also know the House of Representatives voted yesterday to continue funding government operations until December. Everything, that is, except the Affordable Care Act – more popularly known as “Obamacare.”
The President’s reaction? He’s taking the CR personally, certain that the motivation behind it cannot be ideological in nature. “They’re not focused on you. They’re focused on politics. They’re focused on trying to mess with me. They’re not focused on you” he stated during yet another campaign speech yesterday. (As an aside, why is he campaigning? I thought the election was last November.) While my personal dislike for the the man in the Oval Office has grown considerably over the last five years, my disdain for Obamacare hearkens all the way back to its inception. Trust me on this one, Mr. President. My opposition is nothing personal – and neither is it for the people with whom I’ve conversed with on the subject.
I support the defund movement, because it is our last, best hope of getting rid of the “train wreck” (Max Baucus, the guy who helped write the ACA, called it that) and replacing it with something that actually addresses the rising costs and failed delivery of health care in the United States. I support the defund movement, because the economic impact of even a temporary federal shutdown would be far less than realized from your weapon of Mass Economic Destruction. Finally, I support the defund movement because the American people have had about all they can take of Obamacare.
Let’s start with that last point first. That you’ve always a had somewhat regal view of the Presidency is certain. Since early on, you’ve complained that you aren’t a dictator, or king, or emperor, or president of China. The actual concerns of the average American were hardly the thing that kept you awake at night; why else the dozens of “pivots to the economy” over your 5+ years in office? Over the past year, overwhelming evidence was exhumed that you consider yourself above the American people. From the failure in Benghazi, to the IRS crackdown on conservative and libertarian groups, through the revelation that the NSA is spying on everyone, to your recent attempt to force the nation into an ill-conceived war in Syria, said evidence is damning. You really did think for a while there that you are a de facto dictator.
Obamacare was our precursor. Yes, the American people wanted something done about health care. But what we wanted and what we eventually got are two very different things. Instead of reform that lowered costs and made delivery easier, we simply got told we had to go buy health insurance – or else. No matter, we were assured countless times since: once the law rolls out, you’ll love it! Why, didn’t Nancy Pelosi tell us that in order to find out all about the wonderful goodies in the ACA, Congress had to pass it first? The sycophant press quickly dubbed the new law “Obamacare” and you ‘begrudgingly’ accepted the name. FDR had the New Deal, LBJ had the Great Society, BHO had Obamacare.
Never mind that your signature piece of legislation has never been popular with the very people it is supposed to help. Polls show what support existed at passage has slowly slipped away. It’s your signature piece of legislation, by golly! So of course you’re right to be mad at Congress for attempting to undo the damage done, for seeing it as a personal attack and a personal affront. Never mind that the CR defunding Obamacare is actually more popular than the law and never mind that it enjoys popular support (and not just among the Tea Party). Never mind that it’s very passage is regarded is the single most important reason your party lost control of Congress in the 2010 mid-terms. If you refuse to sign that CR, then it’s the Republicans’ fault that the government runs out of operating cash on October 1. Not your own pigheadedness, not your own wanting to be a dictator – or failing that, being seen as the most “transformational” President since FDR.
About that threatened federal shutdown. We’ve been down that path a few times and quite frankly, they aren’t that scary to most Americans. There will be an inconveniences, of course. For instance, I won’t be able to track a flight on the NTSB’s website. I won’t be able to call the IRS with a question about my taxes (which, by the way, I’d probably sit on hold for 20 minutes and then be told to ask my tax professional). But we already know from past experience that essential government functions will continue: the Army won’t be disbanded, the FBI will keep hunting bank robbers, grandma will still get her social security check. Even progressive economists admit the actual economic impact would be minimal, resulting in a reduction of less than 1% of GDP.
But the economic impact of Obamacare is already being felt across the economy. Nobody has a full accounting thus far, but in the past week alone nearly 500,000 people have had their hours cut to 28 or fewer and their existing health coverage terminated. Another 35,000 have lost their jobs completely. Although you love to tout the million jobs created in 2013, you have yet to acknowledge the fact that 1.2 million of those jobs are part-time, without health coverage. Those are real economic impacts directly attributable to your signature legislation. Here’s another impact you may not want to acknowledge: those workers are not only facing a drop in income from reduced pay, they are now going to be hit with a new expense: mandated health coverage. Sure, there’s a subsidy headed their way (provided Obamacare is fully funded) – but those subsidies won’t cover the full cost for health insurance. A government shutdown might reduce GDP by 1%. But Obamacare is easily dropping GDP farther than that and will cause it to crash even further. All this was avoidable, but neither you nor your progressive friends apparently live in the real world, the one in which businesses aren’t going to spend a dime more than necessary. You were warned by everyone from the Chamber of Commerce to (gulp) Donald Trump, but still you refused to listen. The economic mess your signature legislation created is wholly owned by you, as well as the Senators and Congressmen you bought off.
Finally, there is the train wreck. I could list everything that has gone wrong so far with getting this mess in place, but I did that a while back. To that list I add three more fiascos: the doctor shortage, the uninsured and one I’ll keep you guessing about until the end.
The doctor shortage was known and supposedly addressed in the ACA. Simply put, there aren’t enough primary care doctors available to cover everyone. Getting an appointment to see your doctor is already hard enough (and let’s not forget the wait times once you’re in the waiting room). The AMA now anticipates that wait times are going up by about 6% – and nobody anticipates getting an appointment will get easier. Will we see British-type difficulties in getting an appointment, with waits as long as a month? Will they be more like typical waits in the VA system, where it can take up to 6 months to get an appointment? Nobody knows, but the alarm bells should be sounding: in the New York metro area, a recent study found that time to appointment was now ranging from 6 to 61 days, with an average of 24.
The uninsured? When Obamacare was trotted out to the public, we were told that all but a few, perhaps 3 million, of those without insurance wouldn’t be covered. In March, CBO blew that apart with a new estimate: 7.5 million. Last week, that get shattered again, when DHS announced that because of the rollbacks, waivers and deferments, that as many as 30 million people still would be uninsured come January 1, 2015. That would mean we went through all these gyrations over the last 36 months to insure an additional 2 million. Call me what you will, but that amounts to the second biggest load of crap ever handed the American people from Washington DC.
The biggest load of crap ever? Well, here’s the caboose of the Obamacare train wreck. Mr. President, you have promised us that “If you like your health plan, you can keep it.” You’ve pummeled the American people with that line for over four years, even though as far back as June, 2009 you admitted yourself that the statement WAS A LIE. Now millions of Americans are finding out what a monstrous pile of horse manure that line really is. Insurance companies, because of the regulatory morass that this demon child legislation created, are gutting health plans and informing their customers that come January 1, 2014 their current insurance will no longer be available.
In short, I’m supporting the #DEFUND movement because really, what other choice does our country have?
On Monday, MIchael D. Tanner and Charles Hughes of the Cato Institute published their white paper, The Work vs. Welfare Trade-Off: 2013. Even if you haven’t read the full 52 page report, odds are you have at least heard of it. In the last 48 hours, it’s been reported on by FOX News, Twitter has exploded with mentions of the report and the authors’ conclusions. It keeps popping up on Facebook.
Then again, you may not have heard about Cato’s latest. Despite the hew and cry the report has generated amongst the small government crowd, left wing outlets and publications have hardly made mention of it. Searches of Huffington Post, Salon, The New Republic, and The Nation will not yield any mentions of the authors or their paper. Nor has MSNBC deigned to give any coverage, although a search of their website does produce a a short, paragraph spot from WISE in Indiana. Even the “mainstream” networks (ABC, CBS, NBC, CNN) haven’t seen fit to give this story even a 1 second mention (although CNN does see fit to list articles about Dr. Phil and Jerry Springer among their “top stories”).
As the cliche notes, the silence from the liberals is deafening. It’s to be expected, I suppose. For over 90 years, the linchpin in liberal ideology is that government assistance is a requirement for good governance. It gave rise to the New Deal programs of the 1930’s and the Great Society / War on Poverty in the 1960’s. Ask a liberal why, despite these massive government assistance programs, poverty rates remain basically unchanged over the past 60 years and you will hear dozens of excuses. From latent racism to corporate greed, liberals have a smorgasbord of time-worn choices to use. Admitting that the welfare programs they cherish have a problem isn’t in that toxic stew. When faced with as well researched a report as the one produced by Tanner & Hughes, with irrefutable facts that demonstrate the sheer lunacy of the American welfare system, all a liberal can do is cover their ears and stomp around in denial.
The authors conclude that despite the much ballyhooed 1996 Welfare Reform Act, the typical welfare recipient receives more benefits for a longer time with less chance of actually working in 2013. The one achievement that Bill Clinton can point to in defending himself as as a moderate has turned out to be an even bigger failure than his handling of a nascent terror group calling itself Al-Qaeda.
I don’t disagree with the authors regarding their conclusion. If welfare is meant to be a bridge towards making the poor self-sufficient, the the government has completely failed. The authors report:
The current welfare system provides such a high level of benefits that it acts as a disincentive for work. Welfare currently pays more than a minimum-wage job in 35 states, even after accounting for the Earned Income Tax Credit, and in 13 states it pays more than $15 per hour.
This is where I have a small problem with Cato’s paper. While I agree that the system is a mess, I believe it is even more of a mess than Cato presents. Why? Two reasons. First, Cato used a 40 hour work week to determine the “equivalent wage” for a welfare recipient. This might have been acceptable when doing this report 17 years ago. However, the average hours worked per week has been steadily falling for the past 14 months (thanks, Obamacare!) and currently stands at 34.4 hours. Odds are since someone transitioning from welfare to work would be in an entry level position and said positions have seen even more drastic cuts to the workweek, the equivalent wage should be based on the 25.9 hours worked per week by chambermaids or the 31.4 hours worked by retail clerks. I’m fairly comfortable using 34.4 hours, since it closely replicates the original reports intent.
Second, the authors failed to account for the individual states minimum wage laws when computing their statistics. They deliver two pretty powerful snapshots:
- “Welfare currently pays more than a minimum wage job in 35 states, even after accounting for the Earned Income Tax Credit.”
“In fact, in 13 states, welfare pays more than $15 per hour.”
Yet, when accounting for the two factors I entered, I came up with even more grim results:
- Welfare currently pays more than a minimum wage job in 44 states, even after accounting for the EITC
- In fact, in 21 states, welfare pays more than $15 per hour
And I would add a third bullet point:
- Currently, welfare pays an equivalent wage more than $5 per hour greater than the minimum wage in 33 states
In fact, if the goal is to make welfare an unattractive option for the poor and we want to move them into working, it can be argued that the equivalent wage should be at least $1 less than the state minimum wage. Using that criteria, only one state – Idaho – is succeeding.
Yes, my friends. Bill Clinton promised to “end welfare as we know it.” He was right. Welfare has become a highly paid career choice.
Below is a chart showing the difference between the equivalent wage and the state minimum for all 50 states, plus the District of Columbia. Where does your state rank?
|Rank||Jurisdiction||Equivalent Wage Difference, State Minimum vs. Welfare|
|4||New York||$ 17.18|
|5||New Jersey||$ 17.04|
|7||Rhode Island||$ 16.47|
|9||New Hampshire||$ 14.97|
|16||North Dakota||$ 8.87|
|19||New Mexico||$ 8.10|
|20||South Dakota||$ 7.62|
|24||North Carolina||$ 7.15|
|28||West Virginia||$ 6.67|
|34||South Carolina||$ 5.00|
Yesterday, Senator Frank Lautenberg died. While I doubt there was anything politically speaking we agreed on, I still respected the man’s commitment to our home state (New Jersey) and country. When I posted those thoughts on Facebook, I was blasted by a sizable number of my friends for memorializing a liberal Democrat. The commentators disparaged him for everything from “spitting on his oath of office” and “attempting to overturn the Constitution” to being an “outright fraud” or “typically corrupt NJ politician.”
Those last two made me stop and think for a moment. Had Lautenberg ever been associated with any sort of corruption or abuse of of his office? The answer is no, and that is saying something for a New Jersey politician. The only association with scandal in his 30+ years of public service is that he replaced a Senator who was convicted for his role in Abscam. Was he a classic liberal? Yes. Corrupt. No.
But why the vilification of a man whose biography is the epitome of the classic American success story? Within the answer to that question lies the answer to much of what ails our political system today. And the answer is not a matter of liberal or conservative principles, but rather what defines those principles in the 2010’s. Undergirding those definitions is not racism (though it is always an undercurrent) or sexism, but ageism.
A little relevant history is probably in order here. I was born in 1965. This makes me either an old Gen X’er or young Baby Boomer, according to demographers. Frank Lautenberg was born in 1924, making him a member of the “Greatest Generation.” Now stop to consider what those demographic distinctions mean, politically speaking. Senator Lautenberg would have been in kindergarten at the start of the Great Depression. By the time he was entering his junior year in high school, Germany was invading Poland and World War II was underway. After a youth of watching New Deal programs like the WPA and CCC save his hometown from disappearing from the map, his young adulthood would be spent fighting the Nazi’s. He would spend the rest of his twenties attending college under the GI Bill. In his 30’s, government programs helped him found ADP – and government contracts helped him grow ADP into the world’s largest payroll processing company.
In contrast, my youth was dominated by the debacle of the Vietnam War and shame of Watergate. The economic stagflation of the Carter years ended with the ignominy of the Iranian Embassy. After my time in the Marines, there wasn’t a GI Bill – it had been replaced by the Veteran’s Education Assistance Program (VEAP), which paid for one semester of college. My first business wasn’t assisted by the government; rather I spent more time than I really had ensuring I wasn’t running afoul of some obscure regulation or another (something that still plagues entrepreneurs to this day.
In short, Frank Lautenberg witnessed an activist government that worked to improve lives, that won the most critical war of the pre-nuclear age and that literally saved the world. As Robert Samuelson points out in this op-ed, I grew up witnessing an activist government with rampant corruption, rife with incompetence, incapable of managing even a comparatively small crisis. Lautenberg’s political views were largely shaped by watching a government managed economy, that while imperfect, at least managed to make poverty tolerable. Mine are the result of watching a government managed economy that has eroded the earning and savings power of it’s citizens and thrown millions into poverty (see chart below).
This clash on the views of the efficacy of Big Government is at the heart of the the turmoil within the Republican party. Baby Boomers, such as John McCain, Mitch McConnell and John Boehner share the view that Big Government isn’t inherently bad – just that our current government is poorly managed. The Gen X’ers (Rand Paul, Ted Cruz, Mike Lee, Marco Rubio, etc) simply believe that government has grown too large and unwieldy – or as Samuelson put it, government has “bitten off more than it can chew.” Democrats have largely staved off this demographic upheaval because (a) the vast majority of their Congressional Leadership is comprised of people over 70 and (b) the current President is also an unabashed liberal. The clash of identities that marked the Clinton presidency (Clinton, while more liberal than his Republican counterparts, certainly isn’t as far to the left as the current president).
So how does this story end? It can only end one way, and that’s also a result of demographics. The old standard bearers will eventually die off, leaving the Gen X (and eventually, Millenials) in charge of the Republican brand. Although my friends on the left probably do not want to hear this, eventually the liberal wing of the Democrat party will also die off (liberals are a declining percentage of the population, as recently as last year’s elections only 24% of the electorate declared themselves as “liberal” or “progressive”). That will leave the more conservative DLC wing in command. Future arguments will focus entirely on what role is appropriate for the federal government in our republic, not the size or machinations of said government.
And that is a good thing.
You may be familiar with Mike Rowe from his show on the Discovery Channel, Dirty Jobs. Even if you’ve never seen the show (in which case I suggest you catch an episode), you’ve probably seen him shilling cars and trucks for Ford or paper towels for Viva. And if you watch ABC’s World News then you hear his voice every night – he’s the announcer during the opening and commercial breaks.
What you may not realize is that he is also a serious advocate for vocational training. His foundation, mikeroweWORKS, is dedicated to making education in skilled trades something other than a remedial course of study. He understands a point I made several weeks back, that a four-year degree is not the best path for every student. Or for our nation’s future.
Before you say that of course our nation still values the skilled trades as highly as a college education, ask yourself how you would react if your son or daughter announced their intention of becoming a truck driver after high school. Or a plumber, electrician, farmer, or welder. Even thought they are among both the highest paying and most consistently sought after trades by employers, I doubt it would be greeted with the same enthusiasm as an announcement they wanted to become an astrophysicist or surgeon.
Therein lies a major problem, both for the current economy and the economy of the future. Already the news is full of accounts of college graduates queuing up for job applications in the unskilled trades (think retail worker), simply because there isn’t demand for their skill set. At the same time, there is a desperate need for mechanics, welders, riggers, electricians, plumbers, HVAC techs – all you need to do is pick up the help wanted section of any metro newspaper.
Mr. Rowe understands this problem is a problem. To that end, he’s written an open letter to Mitt Romney. He wrote a similar one to Barack Obama during the least election cycle, but based on the President’s education initiatives it fell on deaf ears. You can read the full letter here, but I wanted to lift one line that I thought exemplified the problem:
“I always thought there something ill-fated about the promise of three million “shovel ready jobs” made to a society that no longer encourages people to pick up a shovel.“
In a nutshell, THAT is the biggest problem with getting our nation back to work today. Many of my conservative friends are adamant about making welfare and unemployment recipients work for their benefit checks. I don’t necessarily disagree with that sentiment. But in a nation that no longer values physical or skilled labor, how likely is a program akin to Roosevelt’s CCC or WPA to succeed?
I’m pretty sure everyone reading this has experienced a bad hangover after a night of too much partying. You wake up with an oversized cotton ball in your mouth, your head is ringing like a fire bell, you have strange cravings for McDonald’s French fries and you can’t seem to move faster than a poorly fed snail. You want to kick yourself. Yeah, the party was awesome (and you still can’t find that missing lamp shade), but man, the hangover is more price than you wanted to pay.
I get the feeling many on the left are feeling something like that today. First, after the euphoria of Bill Clinton’s speech Wednesday night, they had to deal with a less than impressive performance from Barack Obama last night. Either Obama’s speechwriting team needs a shake-up or the President is out of ideas; most of what we heard last night is best summed up as “Hey, I want a do-over!” Most media outlets, including admittedly left-leaning publications like the NY Times and Politico, panned the speech as not one of his best efforts.
Then, along came this morning’s jobs report from the Bureau of Labor Statistics. No wonder the president wants a do-over.
By now, you probably read all of the doom-and-gloom reporting about it. Make no mistake, this was a pretty lousy report. But worse than the numbers themselves is what it all means when you actually dig into them a little.
First, the headline numbers: the economy only created 96,000 new positions in August, but the unemployment rate dropped to 8.1%. This should be good news for the President, right? The unemployment rate is dropping (if somewhat unsteadily) and may actually get under the magic 8% mark most pundits think is needed if Mr. Obama is to have a real shot at reelection. And 96,000 new positions is better than no new positions, right?
Well, yes, sort of. For a better picture of why the jobs report is foreshadowing a major problem, see figure 1. This is the raw BLS data for the past year. Before your eyes begin to glaze over, there are three numbers to pay particularly close attention to.
The first number is the increase in the working age population over the past year. The second is the number positions created in the past year. That last one? That’s the number of working age Americans who simply gave up looking for a job in the past year. To put it another way, more of your friends, relatives and neighbors gave up the hope of even finding a job than actually found one. Nearly a million more, in fact. That’s one million American’s who are now dependent on some outside source just for survival, be it a friend, relative or the handout machine that’s become the US government.
Most economists say we need between 110,000 and 175,000 new jobs each month just to keep up with population growth. But when you look at the actual increase in working age population, the average number actually needed is around 330,000. This is very bad news for team Obama, otherwise he could point to the average of 150,000 jobs created over the past year and claim that his policies are working, albeit slowly. But the reality is that his policies are, at best, creating jobs at only half the rate needed to bring the US back to full employment.
This is particularly troubling, given that every other indicator says we should have been creating jobs at a much faster pace over the past 24 months. If you look at hourly wages, those increased by an average of 3 cents per month between March 2010 and June 2012. Although not at the level of increase seen during the Reagan, Clinton or Bush recoveries, it is still stronger than historic wage growth. Worker productivity across all sectors is also nearing an all-time high and produced solid gains during the same period. Taken together, high wage growth and productivity gains always produced significant jumps in employment before – but not now. What could possibly be holding back the “jobs engine”?
The BLS publishes an “Employee Cost Index” on a quarterly basis, and a large part of the answer can be found there. While wages and productivity show considerable growth, the ECI is also growing – in fact, it’s grown by nearly 11% since March 2010. Of that, change only 18% is represented by increased wages and a 12% drop in non-cash benefits (things like health coverage and gym memberships) counterbalances that number. So, where is the additional 10.3% in employee cost coming from? The answer is a combination of regulatory costs and taxes, the results of 3 years of this administration’s ceaseless efforts to tie nearly every industry into a Gordian knot of inefficiency. New regulations and business taxes now exceed the productivity gains made by our nation’s workforce by a 4:1 ratio, effectively wiping out the need to hire. Indeed, those costs are probably now the single biggest impediment to real employment growth our nation faces. After all, if you owned a business, you would need to be looking at explosive growth potential, not just modest growth, before bringing that much excess on board.
Many of my friends on the left insist that breakneck pace of regulations passed by the Obama administration are not having a negative effect on the economy. I submit they’re not only negatively impacting the economy, but giving business owners throughout all 57 50 states a hangover of our own.
So, here I was winding down my little vacation and getting ready to enjoy the weekend when I opened up my email and immediately got pummeled with the headlines about the June Jobs Report. Of all the ones I saw, though, this one about sums up the employment situation best:
- Wall Street
- Some combo of all the above
He’ll express some sentiment about how terrible all of this unemployment is and how, of course, he’s blameless. But hey, if I could tour closed and shuttered places of business from a tank-proof, taxpayer funded tour bus, shout out “This sucks!” to a few hundred folks and revel in the glory of being the Rock Star President – who’s to say I wouldn’t do the same?
Ok, well – back to my vaca. See you on Monday. After looking over these numbers, it looks like there’s a lot of you who’ll be able to join me for coffee without worrying you’ll be late for work. And yeah, that sucks…
You may recall that earlier this month I did a two-part series on the issue of college costs. Apparently, I’m not the only person who believes the underlying cause for skyrocketing tuition and housing costs is the sheer number of undergraduate students currently enrolled in two- and four-year programs.
I came across this article last night by Richard Vedder, Professor of Economics at Ohio University. Professor Vedder describes in much more detail than I allotted the cause-and-effect of increased enrollment, and also goes into quite a bit of detail about how the federal government’s subsidies only exacerbate the situation, not alleviate it. Given that word broke yesterday that the Senate did what everyone expected and came to an agreement about how to use creative accounting to extend the student loan program at current interest rates, I thought it made sense to revisit the topic. Feel free to hit the link and post your comments.
Yesterday, I dissected the underlying problem with higher education, as it currently exists. A college education costs far more than it is actually worth.
Today’s students pay far too much and receive far too little benefit to justify the expense. What’s more, in most cases they are strapping themselves with insane amounts of debt in the process. It is a debt that hampers their ability to fully function in modern society. The resulting lack of disposable income for the first decade or more after graduation results in a generation that is incapable of financially supporting themselves. If there is an economic downturn (like now), that lack of spending power means that upwards of 40% of the labor force is unable to do those things which define a middle class lifestyle: own a home, own a car, start a family. Instead of college leading to the middle class, college results in poorly educated people (who mistakenly believe they’re highly educated) reliant on the government or their extended families for support.
So, what’s the solution? We constantly hear that without college, young people have no hope of starting in a good career, that their prospects for future advancement are limited and they will be limited in their ability to fully participate in the American Dream. And so we end up focusing on ways to make college more affordable, without actually looking at the reasons for the high costs involved.
As I pointed out, the principle reason for the inflated cost of higher education boils down to the number of people enrolled. There are 3 times as many college students today as there were 30 years ago – are we really surprised that tuition and fees are also three times higher than 30 years ago? The real question is why we are funneling so many people into colleges. If it is to prepare them for post-academic life, then there can be little doubt that we’re failing in a big way.
I’ve always felt the primary purpose of education – whether primary, secondary or post-secondary – should be a dual mission: first, basic facts and skills (the “3 R’s”) and second, developing critical thinking skills. In American education, we’ve focused primary and secondary education on the former while nearly ignoring the latter. This trend is now extending into post-secondary education. A prime example is the dreaded research paper. I shudder at the memory of writing exhaustive, well-researched papers on a weekly basis while in college. The amount of time I spent developing a final paper for each class was measured in weeks, not days. Yet, today’s students often are tasked with only one paper at term’s end and drilled in preparing for weekly quizzes – an approach similar to the high school experience. The original purpose of higher education in the American system, developing one’s mind to sift through tons of data, determine which pieces are relevant and create a cohesive argument from them, is being lost. In other words, we’re graduating millions of kids prepared for an extended stay on “Jeopardy!” but not ready for the types of jobs that traditionally require a college degree.
This is also a result of herding high school students into college. I think the best way to tackle the costs associated with college stem from rethinking the way we handle primary and secondary education. Current elementary and secondary school curricula are leftovers from the days when the United States was principally an agricultural society, and recent reforms have done little to address that fundamental flaw. If anything, the recent and increasing emphasis on standardized testing and evaluation of student and teacher achievement is a step backward and fails to address the real world situations most young people face after graduating from high school. Because our education system now deemphasizes critical thinking skills in favor of rote memorization and socialization, most kids enter into adulthood knowing a set of facts that are essentially meaningless – unless preparing for life as a game show contestant.
The best course of action, I believe, is to reintroduce vocational training during high school and reemphasize critical thinking skills, beginning in primary school.
Vocational education programs, where they do exist, are often maligned, snubbed and underfunded. However, I see nothing wrong with providing basic education in critical skills developing courses (math, the sciences, history, English) while also providing 2-3 hours per day of vocational instruction to those students who prefer that track. This is a similar education structure to the German model, essentially – only instead of four tracks of study, I would streamline it to two and I wouldn’t begin the vocational track until the age of 13 or 14, not 10. Along with making vocational education an acceptable option, though, we need to reconsider the courses available. Traditional “vo-tech” professions such as auto mechanic and machinist should continue to be included, certainly. But many professions that currently require a bachelor’s degree only require it because it signifies the holder has developed basic critical thinking skills, along with the basic technical skills required. Professions like LPN or Network Engineer do not require the job holder to have in-depth conversations on the merits of St. Thomas Aquinas’ views of married clergy; there is no reason that learning how to create such a dissertation should be part of the education process to enter those fields.
As I said, the current emphasis on standardized testing results in less classroom time devoted to developing critical thinking skills. In extreme cases, it is turning our teachers into nothing more than room monitors and test graders. The practice grew from concerns that education standards in the US lagged other first-world nations in education achievement. While the goal was and remains laudable, the prescribed cure is making things worse. As a nation, we’ve fallen further behind in academic achievement. Somebody, somewhere decided that rather than measuring academic achievement in terms of how well students think, measuring how many arcane facts and figures they memorized was important. Don’t get me wrong, a basic knowledge set is important. But without the ability to turn those facts and figures into a thought, they are nothing more than bytes of data. We need to empower teachers to create thinking students and reward those students for developing their thought processes. The notion that those skills can wait until college to fully develop is proving wrong-headed.
Of course, there are challenges associated with this type of program. The biggest is probably changing the mindset we currently have regarding education. That requires buy-in from multiple stakeholders. Teachers unions, who’ve proven resistant to change in the past. School administrators, beholden as they are to current power structures. The federal government, still trying to figure out how “No Child Left Behind” left so many kids behind. Most importantly, it requires not only acceptance but a demand from parents, who likely will be confused by the changes.
The other option is to simply continue on the current course and leave another generation of kids ill-prepared for adulthood, in three phases of their development: their academic achievement, their career preparation and the amount of debt they’re saddled with before they ever earn a dime.
I’ve heard from some of you, insisting I MUST have my facts wrong. After all, government spending has gone down over the past 3 years – not up. You know this because the esteemed Paul Krugman drills on this in every other column he writes and blogs about it daily. Besides, The Annointed One of 1600 Pennsylvania Avenue would NEVER LIE!!!
Funny, but I think those of you following that line of thinking are either (a) hoodwinked by the President or (b) Obama sycophants. The chart below was compiled by the Federal Reserve, and like most FEBR data, excludes inflation. But you’ll note that the increase in government spending as a share of GDP (and therefore, the commensurate reduction in GNP) eerily match the curve I developed.
So…..phhhhbbt. Stop listening to the liar-in-chief and his apologists. Learn how to do a little basic research on your own, people.
There are many things that puzzle me. For instance, why is the cold water tap always on the right-hand side of the faucet? It’s as if the guy who invented indoor plumbing arbitrarily decided to that cold water should come from the right and everyone since has followed suit. There’s no real reason for it. We could just as easily have cold water coming from the left and nobody would be any wiser for it.
A similar thought process seems to have occurred in regards to including government spending as part of a nation’s economic health, currently expressed as GDP. Once upon a time, we didn’t calculate GDP. We calculated GNP; the gross national product. That figure didn’t include government spending – because economists were interested in determining the productivity of a country’s economy. Governments simply do not produce anything; no goods, no services. In fact, government spending used to be regarded as a negative economic indicator. After all, the more governments spent, the more they had to raise revenue by confiscation (and yes, taxation is still confiscation – just with a prettier name). That pulled capital from the real economy – which lowers a nation’s GNP.
GNP remained the way the government and most economists measured economic output until 1993. The Clinton administration, swept to power on the mantra of “It’s the economy, stupid” was looking for a way to juice up the headlines. By switching from GNP to GDP, they found their way to reinforce the perception that the economy was improving. It didn’t matter that actual economic output barely increased from 1992 to 1993. By including government spending in the measure of the nation’ economic health, it seemed as if the economy had rebounded.
The Obama administration is relying on similar hocus-pocus to fool the American public in 2012. Yes, GDP is growing – but only because government consumes more of the national economy than at any time in history. Yes, more than during the New Deal of the 1930’s, more than the war spending of the 1940’s and more than during the profligate 80’s. In 2011, the US Treasury spent in excess of $6 trillion dollars and accounted for 41% of all economic activity recorded in the US GDP. By comparison, at the peak of World War II spending in 1944, the Treasury only accounted for 28% of GDP. Even at the height of the last major recession in 1983, the Reagan treasury only accounted for 36% of GDP. Yet, during the Obama administration, we’ve jumped from 36% in 2008 to 40% in 2009 – and haven’t fallen below that mark since.
Of course, there’s a flip-side to this coin: if government spending is what is driving perceived economic expansion, the reality must be that the real economy is shrinking. And after adjusting for inflation, that’s exactly the case: in 2008, GNP totaled $9.1 trillion dollars (that represented a $31 billion drop from 2007). But economic activity has continued to decline under the current administration’s tutelage. In 2009, GNP totaled $8.9 trillion and it has continued to drop since, all the way to $8.4 trillion in 2011.
This is the principle reason why job growth remains a real negative. The Obama team loves to pat itself on the back for “creating 4 million jobs over the past 18 months.” The sad truth is that the economy should have produced about 4.3 million jobs over the past 18 months just to keep pace with population growth. But the jobs picture makes sense when you compare it to actual economic growth. As the economy continues to contract, the demand for workers continues to decline. The only difference between 2012 and 2008 is that businesses don’t need to lay off workers to accommodate the reduced demand. They just simply don’t hire new employees.
I can summarize this with a very simple statement: if it seems to you that the recovery we hear so much about hasn’t ended the Great Recession, that’s because it hasn’t. There hasn’t been a recovery, except for those with direct ties to government spending. That’s the one component of GDP that has increased: by over $1 trillion over the past three years.
So, the next time you see a GDP number that trumpets economic growth, remember to dig into the numbers a bit. And remember, this is White House that replaced managing economic growth with managing spin.
Face it, you just went to fill up your tank this morning and discovered that it cost you $2 more this week than last to put 12 gallons into the tank. Last week, it was $1.80 more than the week before. And so on, all the way back to the first week in January.
You complain. You gripe. Your neighbors are equally disgusted. One of your coworkers seems to bring up the topic of exploding gas prices every day. In the meantime, you noticed that your wife spent $30 more on groceries this week but brought home less food. She’s half-heartedly joking that at this rate, it will be PB&J for dinner by summertime.
Everyone seems to be talking about the way prices are skyrocketing, but nobody seems to be doing anything about it. And I’m going to let you in on a little secret: there isn’t anything anyone can do about it.
The reason prices are taking off is the dirtiest word in economics: inflation (okay, maybe the second dirtiest word after recession). Why? People automatically assume inflation means rising prices. But rising prices are the symptom, not the problem. Inflation occurs when the money supply outgrows the demand for that money. It is classical, John Smith economics at work in its most basic form: supply and demand. When supply outstrips demand, prices fall. That’s true of any product. Build more cars than the public wants and the price of cars drops. Grow more wheat than you can sell and you slash the price to where you’re virtually giving it away. In those cases, the fix is relatively simple but usually takes time to implement. Build fewer cars. Grow less wheat. Of course, you’ll need to wait a full manufacturing cycle for production to drop to a point where the supply of cars matches the demand. You need to wait an entire year before wheat prices correct.
But what happens when you print too much money? Well, basically the same thing: you shrink the availability of money. You raise interest rates on the purchase of new capital, to make it less palatable to prospective buyers. You restrict international trade of currency. You can also do things to tinker around the edges, like demand banks hold more cash in reserve and prevent corporations from dumping cash into the market. But the reality is all of these things take time to work – a lot of time. In the meantime, the hangover effect of inflation – raising prices – hits everyone hard.
And again, the reason is simple. Wages are tied to productivity, not the price of money. In fact, inflationary periods result in reduced wage pressure because as money sloshes around in the economy, productivity declines. Not because people are working less (they’re usually working more, and harder) but because the value of work is declining along with the value of the currency. The net result is you work harder to bring home the same amount of money you were before – but that money has reduced purchasing power.
Now here’s why nothing can be done about inflation in the near term: the inflationary bubble was created between 2008 and 2010 and we’re just now beginning to feel the effects. Picture the way a tsunami moves – if you’re out on the ocean, you’ll hardly notice a ripple. As you get closer to shore, the pressure builds. Enough of a wave will swamp everything for miles inland once it reaches shore. Inflation is similar in that the pressure is created much further away than when the effects are felt – and like a tsunami, there is no way to stop the momentum once it’s put into motion. We created the current inflationary bubble when we decided to print money in order to escape the Great Recession. Most Keynesian economists (guys like Paul Krugman and Robert Reich) cheered on the printing presses and have been vocal in their calls for cranking them up even faster. They’ve pointed to the short-term pain felt throughout economies that chose to choke down on the money supply while disregarding the damage to our economy rampant inflation will cause. In short, they’ve forgotten the lessons of the 1970’s in the US and the 1990’s in Japan.
Under ordinary circumstances, their calls for greater government borrowing would make sense – given the insanely low current interest rates. But they either ignore or fail to understand how that borrowing is financed. In ordinary times, governments issue bonds which guarantee a certain return on the initial investment. Private markets purchase those bonds and new money is generated (i.e., printed) to cover the interest earned on the bonds. So long as the increase in the money supply roughly matches real growth in the economy, inflation is kept minimal. But the current spending spree ignored those basic rules of supply and demand. First, The US Treasury dumped about $3 trillion of the $5 trillion borrowed over that time directly into the finance sector. Besides the bank bailouts in 2008 and 09, there wasn’t enough demand for US Treasuries to absorb all of the new bond that were floated. So the Federal Reserve purchased them and then resold them through two round of “quantitative easing.” That direct infusion of currency outpaced real GDP growth by 5.6% alone. It doesn’t factor in the interest owed on those bonds or the effects of the nearly $2 trillion in cash the Federal Reserve created on its own. When you add all of it up, the economy now has roughly $2.5 trillion more in cash than needed to meet demand. That equates to 17% inflation – 17% more money supply than demand would allow.
This isn’t to say that we’ll actually see 17% inflation before all is said and done – there are other things that could keep the number lower. For instance, if the world’s other major currencies remain weak then the dollar will retain a semblance of strength and that would mitigate the effects of inflation. At the same time, a country with a relatively weak currency that holds large reserves of dollars (say, China) could decide they need to strengthen their currency’s relative strength against the dollar and start dumping our currency.
But until then we can conserve, or drill, or do some combination. While it will have a short-term effect of mitigating the price at the pump, the end result will be the same: gas (along with everything else) will cost more this time next year than it does today. The problem with gas prices is not supply (we have more than at any time in the past 40 years) or demand (the world is using less gasoline than at any time in the past decade). In fact, the cost per gallon of gas has actually decreased, relative to actual dollar value, over the past 5 years. But because the cost hasn’t dropped as fast as inflation has risen, the price continues to move upwards.
THAT is the dirty little secret no politician in either party wants to tell you.
Last night President Obama delivered his constitutionally-mandated State of the Union address. It was, of course, little more than the official start of his re-election campaign. Still, the 65 minutes he spent in the House well delivered more than a few interesting tidbits. I thought we could have some fun digging into the speech‘s rhetoric and laying bare the facts.
Obama: “We have subsidized oil companies for a century. That’s long enough. It’s time to end the taxpayer giveaways to an industry that’s rarely been more profitable, and double-down on a clean energy industry that’s never been more promising.”
This is the third SOTU address in which he floated the idea of ending oil subsidies. It’s also going to be the third time this falls on deaf ears. He couldn’t get this passed in 2009, when his party controlled the House and had a filibuster-proof majority in the Senate – and that was with a specific legislation calling for $36.5 billion in energy taxes over ten years. The administration never followed up a similar proposal in last year’s SOTU with draft legislation. It seems equally doubtful that a candidate who received nearly $3 million in campaign donations from the oil industry (thus far) is in any rush to see this put into law. Further, we’ve seen the results of the investment in “green energy” companies like Solyndra. In blackjack, that’s the equivalent of “doubling-down” on a 9 when the dealer is showing an ace.
Obama: “Our health care law relies on a reformed private market, not a government program.”
Perhaps the President needs to go back and re-read that health care law. First of all, the reform relies primarily on an individual mandate, enforced through the IRS. If that enforcement doesn’t qualify as the biggest government program in history, then obviously I’m not as good a student of our nation’s history as I thought. And there are other, already existing programs that will be greatly expanded should the Supreme Court not throw the whole thing out this summer. For instance, Medicaid grows to cover anyone up to 138% of the official poverty line, which the CBO scored as requiring a funding increase of $434 billion per year. In and of itself, that would make Medicaid the single largest line item in the federal budget – and most state budgets, too.
Obama: “Take the money we’re no longer spending at war, use half of it to pay down our debt, and use the rest to do some nation-building right here at home.”
This is a wonderful assertion, except that it ignores the reality of the federal budget. The Iraq campaign was financed entirely on debt. Ending that war doesn’t actually result in any savings, except in the strange and convoluted world of Washington finance. It just means we’re able to borrow less money and keep everything else funded at the same levels. Of course, the President largely ignored the problem of the federal debt, so I suppose he thinks keeping deficits at staggeringly high levels in order to score a few rhetorical points is money well spent.
Obama: “Through the power of our diplomacy a world that was once divided about how to deal with Iran’s nuclear program now stands as one.”
I’m not sure which world he meant by this, but it obviously wasn’t this one. Yes, the European Union seems likely to join the US in applying stringent sanctions. But Russia and China have no intention of doing so, and both countries used their veto power in the UN to prevent that body from enforcing them. Besides, the sanctions will have limited effect on the Iranian economy, since the Iranians switched from accepting dollars and euros to rials or rubles. Just for good measure, Israel seems hell-bent on taking unilateral military action if they deem it necessary. It’s hardly the unified front the President presented.
Obama: “The Taliban’s momentum has been broken, and some troops in Afghanistan have begun to come home.”
Apparently, the President failed to read his latest NIE. In that document, the Taliban is expected to gain strength by using the ongoing talks to re-establish their legitimacy in the Afghani countryside while stalling until we pull out. This assertion is as hollow as LBJ’s that “the Government of South Vietnam has grown steadily stronger.” Of course, we all know well that turned out.
An overarching theme last night was the idea of economic “fairness.” As described by Mr. Obama, fairness is “an economy where everyone gets a fair shot, everyone does their fair share, and everyone plays by the same set of rules.” Yet, at no point did he actually outline how to make that a possibility. He suggested that millionaires aren’t paying their fair share of income taxes – yet according to the IRS the effective rate for those people is 26.5%. Only 10% of people making under $100,000 per year are paying a higher effective rate – and less than 5% of millionaires pay a lower rate. Thanks to that disparity, millionaires accounted for 36.5% of the federal government’s income. Unfair? You bet it is – but I doubt asking the 47% of Americans whose effective tax rate is negative to pony up is what the President had in mind when talking about “fairness.”
Finally, one thing was ominously missing from the speech: any discussion of individual freedom and liberty. The entire speech was a discussion of increasing the role and prominence of the federal government in our lives. “With or without this Congress, I will keep taking actions that help the economy grow,” declared the Mr. Obama. Quite frankly, I can’t think of a scarier statement by any President in our recent history. Putting aside the obvious constitutional questions raised by a President acting unilaterally, consider that some 13 million more Americans are looking for work since he assumed office and real GDP growth (accounting for inflation) is -7.3% over the same period, I don’t want this President touching the economy. Especially when he has demonstrated an incredible desire to amass power in the West Wing and during an election year.
Tonight, President Obama will deliver his (hopefully final) State of the Union address. Since I imagine you have better things to do, I thought I would give you the Cliff’s Notes version now.
1. The economy, despite Tea Party intransigence, is gaining momentum. Only 21 million of you are looking for a real job now, when 13 million were doing that when I gave my first State of the Union speech.
2. Under my leadership, we’ve finally got the national debt under control. You might remember I promised to that back in 2008. Well, this year we’re projecting the deficit will only be $980 billion! Imagine that – the first sub-trillion dollar deficit ever (on my watch).
3. Of course, the economy still needs work. It’s very, very unfair to expect that when so many of you now need food stamps, that the other half of the country doesn’t pay their fair share. Why, my good friends Warren Buffet and George Soros were complaining they don’t pay enough in taxes! So, I’m asking you to pay up. Pay up A LOT, in fact.
4. Were making big strides in those green jobs I promised. Why, we’ve given billions of dollars to companies like Solyndra in the past year, and look how it’s paying off.
5. On a related note, I also bailed out the auto companies. Okay, Chrysler got bought by Fiat and it’ll take decades before GM’s stock price gets back to what we paid for it. But, did you notice GM actually sold a couple of Volts last month?
6. There was a Democratic president who once said, “The buck stops here.” Well, I’m happy to report that I’m passing that buck right back to you. Remember, I pointed out last summer that you’re all a bunch of whining, lazy do-nothings. So, this mess is yours – just reelect me in November. I kind of dig the free house that comes with the job. Oh, and getting the chance to sing at the Apollo without the risk of getting booed off was pretty cool, too.
We now return you to your regularly scheduled lives.