Category Archives: Employment & Trade

Trump’s Speech To Congress

Published / by Stephen

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Long on rhetoric short on specifics. The speech was clearly scripted. Looking more “presidential” but just a few hours earlier signing an executive order to gut clean water rules.

I watched this on public television. The talking heads there, sans one, gave Trump a thumbs up for it being a good speech. They must have had a special hearing filter. It is revealing to watch the speech with the sound turned off. The body language is revealing. Another source of straight information is tweets by Nicholas Kristof, My Take on Trump’s Address to Congress.

The Trump agenda is a disaster. He is going to kill people with heath care changes, the economy is going to suffer with his trade war and anti-immigration policies, the budget deficit is going to explode, and his national security and diplomacy actions are truly scary.

The Republicans support of Trump shows just how little Republicans care about the economy and our democracy. Their statesmanship is nonexistent.

Krugman Links – Updated Feb 4

Published / by Stephen

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Donald the Menace Feb 3

Building a Wall of Ignorance Jan 31

Making The Rust Belt Rustier Jan 27

Border Tax Two-Step Jan 27

Reagan, Trump, and Manufacturing Jan 25

The Opposite of Carnage Jan 21

 

 

 

 

Trump’s Voodoo Economics

Published / by Stephen

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Lets see: reduce taxes at all levels and for corporations; increase defense and infrastructure spending. Where is the money going to come from? According to “The only way he can square higher infrastructure and defense spending with tax cuts is voodoo economics.”

Both Reagan and George W Bush tried tax cuts without reducing spending. Neither turned out well. Trickle down economics did not work. They both blew up the deficit.

Here are the facts.

  1. We have a progressive tax system where the upper class shares a large part of the federal tax burden. Reducing tax rates will reduce tax revenues.
  2. We have few degrees of freedom for reducing spending considering that over 70 percent of federal revenue goes to defense, benefits for federal employees and veterans, social security, and Medicare and Medicaid. Much of this 70+ percent is non-discretionary.
  3. In the current economic environment lowering taxes will have little positive impact on economic growth. Further because  of 1 and 2 it surely will increase the deficit.

Our Progressive Tax System

The Tax Policy Center (Urban Institute and Brookings) provides detailed statistics the on US tax burden. The average effective tax rates of the “Expanded Cash Income Group” is very progressive with an average rate of 20 Percent for all groups and the top 1% and 0.1% paying 33 and 35 percent respectively. The Individual Income tax and Corporate Income tax are also progressive. The Payroll tax is not.

Where the Tax Money Goes

The Tax Policy Center reported that “In fiscal year (FY) 2014, about 60 percent of federal spending paid for programs not subject to regular budget review, while just over a third covered discretionary programs for which Congress must regularly appropriate funds. Less than a tenth went for interest on government debt.”

Mandatory spending covers outlays that are controlled by laws other than appropriations acts. Almost all such spending is for “entitlements,”  Discretionary spending covers programs that require appropriations by Congress.  Defense accounts for 50 percent of discretionary spending and Domestic accounts for 46 percent.

The Center on Budget and Policy Priorities provides detailed statistics on where our federal tax dollars go. A picture is worth a thousand words.

 

Government Spending, Tax Rates and Economic Growth

Here the Trump policy folks need to learn some John Menard Keynes. There are times when increased government spending and reduced taxes are good. There are times when they are bad. See Krugman for a formal model and explanation. The Great Depression and 2008 were periods where government stimulus was badly needed (lots of unemployment and lack of demand where private firms were not increasing production in response to essentially zero cost of borrowing).

2017 is no such a period. We are now near full employment. Increased spending and lowering taxes will not be offset by increased growth. Resources are already nearly fully employed. In the near term it is likely that significant government fiscal expansion might provide needed infrastructure but at a cost of increased debt and perhaps inflation.

Longer term I do not see anything in the Trump plans that invest in domestic productivity. For that we need to grow human capital. Our history teaches us that immigration and education are keys to productivity and economic growth.

In Summary

The economic outlook is not great. The inmates are running the institution. They want quick fixes, instant gratification and lower taxes for their rich friends. They want to appear to be doing something positive when in fact their actions will be negative. The deficit is going to grow and  it is likely that prices are going to rise.

All of this is going to be made worse by Trump’s move away from globalization — closing our borders and imposing tariffs and the potential resulting trade wars with our neighbors, Canada and Mexico, with China and with Western Europe.

 

 

 

 

Trump and Manufacturing Employment

Published / by Stephen

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If you think that Trump’s actions, to keep manufacturing in the US, are going to have a significant impact on manufacturing employment, don’t hold your breath. If you think these actions will help the economy you are wrong.

The reasons are twofold:  structural change in manufacturing processes worldwide and the negative impacts of tariffs and the resulting trade wars.

Structural Change

Manufacturing employment is falling worldwide. This is due to robotics and automation. See Bloomberg: Why Factory Jobs Are Shrinking Everywhere. Also see Slate : Nothing Will Bring Back Manufacturing Employment.

So Trump keeps a few plants from moving offshore and saves a few domestic jobs. But, because these plants are mostly automated, employment is not affected very much. Further it is likely that their production is no more efficient and perhaps less efficient than than if the plants were moved overseas:

Costs are one of the main reason for moving a factory offshore. But if it is cheaper here owners keep it here. This is born-out by the Bloomberg article which reports that “the U.S. has become the second-most-competitive manufacturing location among the 25 largest manufacturing exporters worldwide.” This is good news but there is bad news. Since 1970 employees working in manufacturing have fallen from more than a quarter to one in 10 and these jobs are not coming back. Automation is not going away.

Tariffs & Trade Wars

In addition to structural change in manufacturing, imposing tariffs on foreign production in order to protect domestic industries and motivate companies to produce in the US has serious short and long run consequence: The tariffs potentially result in trade wars that according to Krugman disrupt the existing economic structure, which is built on elaborate international supply chains.

…In the long run, a new structure with shorter chains would be built. But in the meantime, some industries, some factories, would end up becoming sudden losers — in the US as well as in developing countries.

The Bottom Line

The Trump policies will have minimal effects on employment and will surely reduce economic growth. They are in fact Fake Policy. It would be far more productive to focus on how to retrain and reemploy the workers who have been moved out of manufacturing because of the automation that is occurring here and worldwide.

Trump’s Fake Employment Policy

Published / by Stephen

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My favorite Keynesian has another good piece on Trump and the media. In speaking to the Carrier deal and more broadly to employment in general  Krugman argues that these interventions are in fact fake policy that have little effect and are getting far too much attention in the news media:

…it may have sounded as if Mr. Trump was doing something substantive by intervening with Carrier, but he wasn’t. This was fake policy — a show intended to impress the rubes, not to achieve real results.

Trump and The Coming Trade Wars

Published / by Stephen

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A blog post by Paul Krugman suggests to me that Trump may know a lot about commercial real estate but not much about manufacturing.

What happens if the protectionist-in-chief goes ahead and does it, as I suspect he will? …But what would happen would be a global trade war, which would disrupt the existing economic structure, which is built on elaborate international supply chains.  …In the long run, a new structure with shorter chains would be built. But in the meantime, some industries, some factories, would end up becoming sudden losers — in the US as well as in developing countries.

The China Shock and the Trump Shock

Corporate Welfare

Published / by Stephen

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The Trump Carrier deal is about  800 workers, at most, in a nation of 145 million workers. It is hard to put big numbers in perspective. I struggle with this all the time. However to put 800 jobs in perspective consider the following:

  • 1% (or 1 in 100) is 1,450,000.
  • One in 1,000 is 145,000.
  • one in 10,000 is 14,500.
  • One in 100,000 is 1,450.

So saving 800 jobs is like saving something less than 1 in 100,000 jobs. Presidents usually focus on policies that move unemployment by 1% or 0.5% not in the range of .001% to .01%. Trump is indeed shooting small by a factor of 100 to 1000. And at what cost – could the money be better spent?