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The Wrongologist

Geopolitics, Power and Political Economy

It’s the Economy Stupid. Or Is It?

The Daily Escape:

On Tuesday, Trump was in the Rose Garden for a “virtual town hall” on Fox News. The Boston Globe reported that he wants the country “open and raring to go” by Easter, which is less than three weeks away. “I think it’s possible, why not?” he said with a shrug.

Watching Trump do a press conference is like watching the kid who didn’t read the book give his book report.

The top health professionals have called ending social distancing by Easter far too quick. But, Trump compared the potential for Coronavirus fatalities to our annual flu casualties and, to automobile accidents. That led Charlie Pierce to say:

“I can speak with some authority on this. On December 9, I got hit by a car. It has been three months now. Nobody I came into contact with in the aftermath has been hit by a car.”

It’s important to remember that Trump is saying this while we still have no idea how many Americans have, or have had, the virus. It seems safe to say the number is vastly higher than the number of people who have tested positive (nearly 50,000). Here’s a terrifying tweet:

(James Gallagher is the BBC’s Health and science correspondent)

Trump’s “let’s get America back to work” plea comes at a time when we have no idea about the extent of the virus’s impact, or how large the tsunami of cases will be. Trump is sounding a bit like General Buck Turgidson in 1964’s “Dr. Strangelove“:

“I’m not saying we wouldn’t get our hair mussed. But I do say no more than ten to twenty million killed, tops.”

There are operational issues involved in conducting a safe economic restart while the virus remains rampant in the country: It would require testing all who enter the workplace, every time they come to work. Where do those test kits come from when we can’t get enough for America’s hospitals? Who will read the tests and get the data back to the individual and the business? Can social distancing really be practiced at work? In offices?

Obviously there are conflicting opinions about how long to use severe Coronavirus mitigation and suppression measures when the economic consequences of that mitigation could be disastrous. The medical experts can tell us what the consequences of various courses of action are most likely to be in terms of illness and fatalities.

But the willingness to endure the likely costs of a particular course of action is a political, and possibly an ethical question. Last week, Wrongo asked:

“Is restoring our economy, and putting Americans back to work worth a million lives lost? Is it worth 300,000?”

Trump is right both to wrestle with this question, and to be concerned that Coronavirus could end his presidency. Here’s a chart that shows how long prior stock market crashes took to return to the pre-crash level:

This compares three prior crashes and the time it took to recover. Only the 1987 crash was a sharp “V” recovery, and that recovery took nearly two years. Both of the others took four years.

This most likely means Trump can’t run as a peace and prosperity president. He’ll simply be running as another Republican who ran up the debt with the crucial difference that Americans died on the home front on his watch, after trying to go back to work prematurely.

A few words about the attempted bailout. As Wrongo writes this, it’s likely that there may be a “deal” sometime late on Tuesday . The stock market has already closed up more than 2,000 points, or 11% on the hope of a deal.

The bailout deal should absolutely be as big as possible, but Mitch, Trump and the GOP have it wrong. We should be pointing our water hoses where the immediate fire is: Low – moderate income households and small businesses that have a week or two of cash reserves, and little access to credit markets.

While this is an emergency, it’s no excuse for another GOP round of opportunistic, potentially wasteful spending with little oversight. We have more important things to do than setting up a $500 billion Republican slush fund in an election year.

Trump will no doubt make an announcement that “America is again open for business”. But, that’s not really within his power. The economy is not usually like a faucet you can turn off and on.

It also means that Trump’s replacement will have a major job starting in 2021 trying to restore the stock market and the employment level to where they were pre-Coronavirus.

It is the highest duty of the US President to keep the country safe, and protect its people. Trump’s downplaying of what his science and security advisers have told him is doing exactly the opposite.

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We’re In Uncharted Territory

The Daily Escape:

Sunset, Factory Butte, UT – photo by goat_chop56

Blog reader David K. emailed:

“Now, what do we common folk do?  Start our “victory gardens” and shelter in place?  Volunteer to help our local farmers raise food? Hoard?  Wish I had a great idea, because I agree that our leaders don’t have a clue how to respond.”

That gave Wrongo pause. What do those of us who aren’t part of the “smart money” crowd supposed to do, particularly if what we’re facing is a worldwide depression? John Pavlovitz frames the existential issues quite clearly:

What happens if the stores run out of essentials for good?
What if you run out of money to stockpile them?
What if your neighbors stop sharing with you?
What if the government won’t help you?
What might you do then?

Politicians say we’re at war, but as Kunstler says: “At least in wartime, the bars stay open. That’s how you know this is a different thing altogether from whatever else you’ve seen in your lifetime.”

We’re attacked by a novel virus that’s created a completely novel social and economic situation. By definition, we aren’t prepared for an abrupt crash of both our social fabric, and our economic well-being.

Our politicians have no answers, despite most of them having been around for the 2007-2008 Great Recession. The Fed hasn’t done us any favors since then, either.

Last Saturday, Wrongo said that we’re crossing a threshold between what we know and an unseen future. Our traditional systems are no longer capable of keeping society and the economy on an even keel. Nobody really knows how deep and how harsh this will get, but the situation presents two questions:

  • How much disorder will we have to endure?
  • What does the world look like when this thing is over?

All this is happening in an election year, when the entire government and the political parties’ power structures are vulnerable, and could change. We are facing a new reality, for which no one has any answers.

Politics being what it is, the White House and the Congress are trying to work together to come up with solutions. On Monday, Trump gave another press conference on COVID-19. During his talk, the stock market dropped nearly 3,000 points. It was the market’s worst day since Black Monday in 1987.

The smart money was behind Trump in order to get its corporate tax cuts, but now, they’ve voted with their money. And Trump’s starting to look a little bit like Herbert Hoover.

Sen. Mitt Romney (R-UT) floated Democrat Andrew Yang’s idea of giving every American $1,000. He was joined in principle by Sen. Tom Cotton (R-AK). We’ll see if this is just more Republican grandstanding, or if they actually back a real plan of support for working people.

With Trump, you can expect to see bailouts for several industries, including banks, airlines, casinos and cruise lines. Imagine: Casinos are asking for help from the guy who only knows how to bankrupt casinos.

Reuters reports that the US airline industry said that it needs $50 billion in grants and loans to survive the dramatic falloff in travel demand from the COVID-19 outbreak. This is just more socialism for America’s corporations.

Two thoughts: First, $50 billion is higher than the book value of all the airlines combined. Why should they have any of our money? Either Republicans are for free market capitalism, or they should just shut up. Most of these airlines have implemented stock buyback programs when they should have been building contingency funds instead.

Second, this $50 billion should be added to whatever Congress spends on small businesses that are forced to close due to quarantine, or on parents forced to stay home to take care of kids who aren’t going to school anymore. They’re the ones who are really hurting.

We’ve lived through a time of unprecedented affluence. We’ve told ourselves we deserved it all, that we were entitled to all that our country has provided.

But that’s most likely over, and it might not return in Wrongo’s lifetime.

We have to think about what must change if we are to have a functioning society and economy in the decades to come.

The list of all the things that we need to change is far too long to enumerate here. At a minimum, we need to reform capitalism, make health insurance universal and strengthen worker’s rights.

We have to do a better job of sharing the wealth. It we don’t do that voluntarily, our children’s children’s generation will come and fight us for what we have.

To protect our families and their future, we need to become even more active politically in order to make these and other changes happen.

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Biden’s Win and Trump’s Economic Stimulus

The Daily Escape:

This week’s Supermoon over Three Fingers, WA – March 2020 photo by Alpackie

Today we’ll talk superficially about two topics. First, a quick take on Tuesday’s Democratic primary, and second, about whatever it is Trump is cooking up with Republicans as an “economic stimulus” in this time of Coronavirus and stock market volatility.

Here’s Jameson Quinn with a pithy summary of the primary:

“Right now, the best-case scenario is that Joe Biden will be the next president of the USA; the worst-case is that Trump is the last one. That is to say, we will have a choice between a guy whose primary campaigns twice flamed out from self-inflicted errors and who, the day he takes office, will be the oldest president the country has ever had; and a narcissistic, mobbed-up reality television star whose platform is focused on his core base of racists, trolls, and racist trolls.”

But how do you really feel?

That said, Wrongo was always for Elizabeth Warren, but now, that door has closed. Wrongo like many others, overestimated the importance of competency and policy. Most people don’t read policy papers, and they knew that Biden had been Obama’s VP. That was enough to get them to vote for Biden.

People make their voting decisions based on things like personality, perceived connection to their tribe, perceived electability and an “X” factor, vague trust in a candidate’s judgment. Would Biden be a good president? Who really knows?

Moving on to Trump’s economic stimulus: It isn’t surprising that Trump promises some more corporate socialism and the stock market likes it. And it isn’t surprising that no one in the media notices that the Party of Obama Derangement Syndrome had zero concerns about debt/deficits once Orange became the new black.

But, rather than proposing tax cuts, good policy starts with identifying the problems:

  1. Sick people: They require costly medical care. Many can’t afford it, even if it’s available, and even if they have insurance.
  2. Unemployment: Unemployment will rise. Sick people without sick leave will lose their jobs. Businesses will have less revenue.
  3. Goods shortages: Much of our goods come from China, including medical supplies and drugs. Trade has already been disrupted, and it will get worse. Italy finds it needs thousands of ventilators, and China is supplying them.
  4. Childcare: Schools and daycare centers are closing, and working parents are in a jam. Worse, parents will be hospitalized with no care arranged for their kids.

Tax cuts won’t address these problems. Most sick people don’t have much income, so tax cuts won’t matter to them. Unemployed people won’t have income either. The idea that the government can wall off the economic impacts of a virus-caused recession is correct. Once the economic slowdown spreads, the right kinds of government programs could soften the blow.

Here’s Wrongo’s prescription for Trump and Congress:

  • No bailouts for any industry
  • Targeted financial help for hospitals and the health care sector
  • General financial relief paid directly to workers and families

America’s businesses and capitalists had a fantastic decade. Let them and their rich executives weather this economic downturn on their own.

Trump’s people floated the idea of a push back of the April 15 Tax Filing Deadline. This does nothing for people, and shows just how little the administration is prepared to do.

Trump’s suggestion of a payroll tax cut is also misplaced. It’s been tried in the past, including by Obama. But tax cuts are less effective than simply providing lump-sum payments to families below a certain income threshold.

Also, payroll taxes are the primary source of funding for Social Security and Medicare. So this opens the door to another GOP stealth attack on Social Security. Trump has already said he plans to cut Social Security if reelected.

Jason Furman, Obama’s head of the Council of Economic Advisers, proposed an immediate, one-time payment of $1,000 to every adult, plus $500 for every child. Such payments would help cover rent, food and other costs, without a large administrative burden of trying to determine who got sick, or who lost work due to the Coronavirus.

Furman’s proposal would add up to $350 billion. The right wing will say no financial stimuli for Joe Sixpack. Those things must be paid for.

But Trump thought it was fine to dig a $ trillion hole in the budget for an unnecessary tax cut during good economic times.

What we need now is urgent. It requires smart, humane, and energetic action.

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The Health Crisis Now Coincides With a Financial Crisis

The Daily Escape:

Sunrise, St. Augustine Beach, FL – March 2020 photo by Carl Gill

The WaPo reported that a Coronavirus-sparked oil war sent crude prices down on Sunday by 32.3%. That triggered a forced temporary halt of stock trading on Monday, when the S&P 500 index sank 7% shortly after the market’s opening.

This occurred on the 11thanniversary of the current bull market. But, as Greg McBride, chief financial analyst at Bankrate.com, wrote:

“The uncertain economic impact of coronavirus continues to grip markets, with stocks, commodities and interest rates all dropping sharply. Markets hate uncertainty and there is a ton of it currently in play.”

There is no question that there will be more angry Americans now that a health crisis coincides with a financial crisis. Who they focus their anger on remains to be seen. Trump took credit for each rise in the stock market, so will he take ownership now that it’s tanking?

He’s not a broadly popular president, and this will make him less popular, so fewer people will believe him when he tries to lay the blame on others.

The oil price plunge was triggered when Russia announced on Friday that it would no longer stay within the OPEC+ quotas after April 1st. Saudi Arabia then said it would slash prices for its customers in April. In addition, they hinted at increasing production from the current level of 9.7 million barrels per day to 10 million barrels per day.

This is the start of an oil price war between Saudi Arabia and Russia over market share. But the real target for both may just be the US shale oil sector. US banks and other investors have been fueling the shale oil sector’s growth with hundreds of billions of dollars of loans over the years. And the shale oil producers keep ramping up production, despite it being largely unprofitable. They continue to burn through cash.

Brian Sullivan at CNBC warns us: The US oil industry valued its oil reserves, as collateral for its loans, at $60 a barrel. Today’s price is now about $30/barrel.

By sending some of these shale-oil companies into bankruptcy, Saudi Arabia and Russia are hoping that new money will refuse to support the US shale oil sector. Then production in the US will decline and take some oversupply out of the oil market.

Their timing is impeccable. Oil demand is down due in part to the Coronavirus. Chinese manufacturers are producing less and airlines in particular have less need for jet fuel. If OPEC and Russia increase production, and assuming US production still increases while demand globally is in steep decline, then global markets will be awash in oil.

And what does an oil glut do for Iran, already fighting a severe Coronavirus outbreak, and needing higher oil prices for their own economy?

But no worries! We can count on the competent leadership in the White House. And if that doesn’t make you comfortable, you might ask yourself, “Is this 1929 all over again?”

Maybe not, but if it is, who will be our FDR? In the 1930s and 1940s, FDR spent money on America’s democratic infrastructure. That money gave jobs to people. He created a social safety net, and allowed industry to again flourish.

But in the past 30 years, all the money has gone to our industrial infrastructure and to the rich, through tax cuts and subsidies. The easy money party has helped to pump up both stock prices and asset prices, giving us an ever-growing income and wealth gap.

What happens to the health of the people and to the health of economy between now and November is going to be a huge political concern. There’s always a tension between the best health policy, and the best economic policy.

Trump wants economic policy to win out, but the primary beneficiary of that is industry and the rich.

We should remember that when leaders are seen to be incompetent and/or ARE truly incompetent, they try to divert the voters’ attention. What Trump attempts to do in order to divert our attention, is worthy of discussion.

As of today, the fuse is lit. It’s an election year, and we know that Trump won’t go away quietly.

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Saturday Soother – Acquittal Edition

The Daily Escape:

View from the top of Mt. Baden Powell in the Los Angeles National Forest – February 2020 photo by David Dodd

(Sunday cartoons will appear on Monday)

Is the game of investigating Trump over? What are the arguments for continuing to pick at this wound? This is a political calculation only. It no longer matters who said what in Ukraine, regardless of the damage caused by Trump. That ship has sailed.

It’s time to focus on the 2020 election, particularly on the House and Senate races. Focusing on winning those elections, and particularly on holding the House while winning a majority in the Senate, requires that the Democratic Party deal with its current schism. The Party is messily divided between social liberals who are for reform of capitalism along with Medicare for All, and free college, and moderates who wish to tack back towards the middle of the road.

The question that Democrats have to deal with is which of these two poles can make it a majoritarian party in 2020 and beyond?

This dilemma faced the Republicans only a short time ago, when the Tea Party threatened to split the GOP in two. Those cracks remained evident until Trump came along and united them in a way that today makes them seem more like a cult than a political party.

In some ways, Democrats are like the American Whig party was in the early 1850’s, when it could no longer bridge the gap between the Whigs of the northern industrial states and the Whigs of the southern farming/slavery states. It was an irreconcilable dilemma, and in short order, the party simply ceased to exist, only to re-emerge as the Republican Party in 1856.

The Democrats have been trending this way since LBJ forced southern Democrats to vote for/against the Civil Rights Act in 1964 and the Voting Rights Act of 1965. Later, the formation of the Democratic Leadership Council in 1985, founded in part by Bill Clinton, pushed the Democrats rightward.

The “Left Party” that is trying to emerge from the current shambles of the Democratic Party could be more properly defined as a reactionary movement. An attempt to return to the days of the New Deal and the rise of the middle class.

In that sense, Wrongo is a New Deal Reactionary. The New Deal was a good deal for most of us. We should want our New Deal back again.

The question on the table is: Which half of the divided Democratic Party should New Deal Reactionaries support? Is it the Sanders/Warren half, or the Biden/Bloomberg/Buttigieg half of the Party? If it’s Sanders, can we get a New Deal Revival, but no Recreational Socialism to go along with that?

Can the moderate/ConservaDems realistically be counted on to bring back the New Deal? We see that ConservaDems are willing to strap on their running shoes and do 3 miles in the morning, because “no pain no gain”. But somehow, once at work in the House or Senate, they claim that the hardship doesn’t make sense economically, so why even try?

The answers to these twin questions: Whether the Party can be re-united similar to the way Trump united the GOP, and which half of the Party should attempt that unification in November 2020, will determine the arc of our democracy for decades to come.

It was a terrible week, and now we need a break from “all acquittal, all the time”. That means it’s time for our Saturday Soother, a brief window when we can forget about the outside world and concentrate on breathing slowly and relaxing mind and body.

Let’s start by brewing up a vente cup of El Salvador Finca el Cerro Natural ($22.99/12oz.). The roaster, Virginia’s Red Rooster Coffee says it tastes of strawberry and tangerine zest with a viscous mouthfeel.

Now, grab a seat by the fire and listen to Anna Netrebko perform “Solveig’s Song” from Peer Gynt’s Suite No.2, live with the Prague Philharmonia conducted by Emmanuel Villaume in 2008:

Those who read the Wrongologist in email can view the video here.

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More About The Virtue of Exciting Candidates

The Daily Escape:

Mt. Assiniboine, Provincial Park, BC, CN – 2019 photo by Talhanazeer. Assiniboine is the pyramid-shaped mountain on the left.

When Wrongo thinks about the Democratic primary candidates, he feels a bit like when he was a breeder of Havanese dogs: “Don’t get too attached to any one of them–we’re only keeping one.”

At the end of the day, we’ll only have one candidate. The question is which is the keeper?

Yesterday we asked: which candidate excited you? Judging by crowd sizes in Iowa, Sanders, Warren and Buttigieg have generated excitement, while Biden has not:

“Mr. Biden has a lot to prove here. I’ve attended some of his town halls and rallies, and they’ve been lackluster, his speeches dull and meandering, and his crowds comparatively small. I’ve been to memorial services that are more exciting. I certainly hope mine is.”

That quote is from Robert Leonard, the news director for the Iowa radio stations KNIA and KRLS. More from Leonard:

“Who is going to get an enthusiastic turnout caucus night? Bernie Sanders will. His support is strong. We’ll see if he can increase it….

Elizabeth Warren has fallen in the polls, but she will have a big turnout caucus night. Her on-the-ground organizing is terrific and her supporters unwavering…..

Pete Buttigieg will also have a big turnout. Watching his several-blocks-long parade of supporters file into the Liberty and Justice Dinner last fall in Des Moines gave me goose bumps…..”

Leonard finishes with this:

“On caucus night, given the soft support I see, if the weather is bad Mr. Biden’s supporters might not come out. It might also depend on what’s on TV….For the other candidates, if their supporters walked outside, slipped on the ice and broke a leg, they still would crawl through snow and ice to caucus.”

He’s alluding to the x-factor, the charisma, the excitement that a candidate creates in voters, and claims that in Iowa at least, Sanders, Warren, and Mayor Pete are showing some of that.

The first thing that most of us want is relief from the Trump assault. In the general election, that starts with telling people the damage assessment, and a plan of repair. The nominee has to say that our government and democracy are in tatters and need to be stitched back together. Constitutional checks and balances have been nearly destroyed by the Republicans.

Maybe we need Medicare for all, free college tuition, and the rest of the progressive agenda, but first, we need to triage our democracy.

To win the presidency, we need to take back Pennsylvania, Michigan and Wisconsin. Are the voters in those three critical swing states ready to sign on to rebuild our social safety net, reform health insurance, and raise taxes on the rich and corporations? Hell yes.

Trump’s 2020 plan is to pump up the Dow while keeping unemployment at historic lows. He’s done that with a $1.5 trillion tax cut without any plan to pay for it. He’ll tout his new “trade deal” with China. He’ll mock and belittle the Democrats and their nominee. Meanwhile, Trump has no health plan at all!

Mitch McConnell’s plan is to make sure Trump is acquitted at all costs, to continue packing the courts, and blocking any meaningful legislation coming out of the House.

What’s the Democratic Party’s 2020 plan? The proposals by the progressive Democratic candidates have merit. Their goals are the right ones for the country and the planet. But, those plans will take several administrations to fully implement. Few voters fully understand the details of how to pay for Medicare for all. Moreover, they absolutely are worried about having their private health insurance taken away. That’s what most Americans have, so that has to be a big concern for Democrats in 2020.

Which of the current flock of Democratic candidates have what it takes to unite and lead the Party to a 2020 victory? Which nominee will have coattails to swing the Senate, hold the House and add to the Party’s roster of statehouses?

The 2020 election will turn on whether individual voters see the Democratic Party’s nominee as a heroic savior of the country, or less of a leader than the execrable Trump.

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College Enrollment is Down, Student Debt is Way Up

The Daily Escape:

Cathedral Rock at sunset, Sedona AZ – 2019 photo by microadventures

The Student Clearing House reports that the college student headcount of undergraduate and graduate students combined fell by 1.3% in the fall semester of 2019 over the same semester last year. That equals 231,000 fewer students compared to 2018.

This is the continuation of a long decline. The peak year was the fall semester of 2011, when 20.14 million students were enrolled. Since then, enrollment has dropped by 10.8%, or by 2.17 million students. Here’s a helpful graph by Wolf Richter:

The report covers 97% of enrollments at degree-granting post secondary institutions that are eligible to receive federal financial aid. It does not include international students, who account for just under 5% of total student enrollment in the US.

Women by far outnumbered men in total enrollment in the fall semester of 2019 with 10.63 million women enrolled, compared to 7.61 million men, meaning that overall there are now 40% more women in college than men.

Inside Higher Ed reports that community college enrollments declined by 3.4%. Four-year public institutions saw a drop of 0.9%. Four-year private institutions bucked the trend with an increase of 3.2%. However, the Student Clearing House said most of this increase was due to the conversion of large for-profit institutions to nonprofit status. Grand Canyon University, for example, successfully made the transition last year.

Wolf Richter says that the 10.8% decline in enrollment since 2011 comes even as student loan balances have surged 74% over the same period, from $940 billion to $1.64 trillion:

Looking at the two charts, it’s clear that over the last eight years, enrollment has declined in a straight line at about 1.35% per year. And over the same eight years, student loan debt has increased in a straight line at nearly $90 billion per year!

We’re seeing three trends: First, the decline in enrollments. Second the decline in men attending college. Third, the soaring costs of college leading to soaring student debt.

No one has the answers to all three, but the decline in enrollments may have a demographic element. We are approaching the tail end of the college-aged millennial generation. Higher education has been facing demographic headwinds for a decade. The post-millennial generation is simply smaller than the previous generation.

Meanwhile, a big part of the enrollment peak spike in 2009-2012 period was due to people choosing education to avoid unemployment during the Great Recession. And 25% of the enrollment decline is due to the for-profit diploma mills losing their government support after years of robbing their “students” blind.

The rapidly increasing costs of college are a burden that can also drive down enrollments. The numbers do not favor investing in a college degree as much as they used to. Back in the day, a good entry level job’s salary was about 4 times the annual tuition. Now it’s under 2 times. If you check out some of the terrible numbers for 20-year net Return on Investment (ROI) on payscale.com, it’s clear that many colleges and universities have negative or relatively small ROIs.

OTOH, there’s still a massive income gap between people with a college degree and those without one. And outside of a few small business owners, there’s no way around it. College is the only reliable way to get into the middle class, and stay there.

The college industrial complex knows that it has a stranglehold on your future, and it will try to suck as much money out of you as possible.

The solutions involve some of the things that Sanders, Warren and others are talking about. Wrongo is for making college free for all. He isn’t for debt forgiveness, but for granting interest-free loans to students. Those loans should be carried only by the federal government.

Cost containment is the biggest issue. Online education is now readily available, and saves on both tuition and room and board. The economy is stronger, so on-the-job training is returning, and a lot of specific how-to knowledge is now available online.

Except for the male-female imbalance, much of this is solvable.

Finally, higher education serves many purposes in our society. As a people, we need it for its practical value, but also for sharpening our ideals, nurturing our growth, advancing our knowledge, and our arts.

Despite a popular subculture of anti-intellectualism and doubt, we should still know that a people without ideals are lost.

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America Is OK With a Wealth Tax

The Daily Escape:

Navajo Trail, Bryce Canyon NP, UT – November 2019 photo by biochemistry_unicorn

Over the past year, progressives have made a wealth tax a central part of the policy discussions in the Democratic primary. Both Sens. Bernie Sanders and Elizabeth Warren have proposals to tax the wealth of billionaires to help pay for improvements to the social safety net and infrastructure.

Currently, the US mostly taxes individuals on the income earned from their jobs and investments. The wealth tax is different since it would tax assets like stocks, yachts, artworks, and vacation homes.

Critics of the wealth tax have made a variety of arguments against them. The most prominent that the US government couldn’t enforce them effectively. Consider this from Business Insider:

“Usually, progressives cast Europe as a model for the cradle-to-grave social benefits that nations like Norway provide because of steeper tax rates on richer citizens. But most…countries have ditched them [wealth taxes] over the last few decades.”

Twelve European countries had a wealth tax in 1990, but the number now stands at four: Spain, Switzerland, Norway, and Belgium, which just introduced a limited wealth tax of its own.

Emmanuel Saez, economist at the University of California, Berkeley, who has analyzed the Warren and Sanders wealth tax proposals, says the European wealth taxes failed because governments created many exemptions that undercut their ability to draw revenue:

“The wealth taxes in Europe have failed by and large….they didn’t raise that much revenue because of big exemptions for asset classes….”

Others argue that the super-rich already donate big amounts to charity. One of Saez’s co-authors, Gabriel Zucman, says that the annual giving of Bill Gates and Warren Buffett equates to ~3%–4% of their wealth, while the other top 20 billionaires’ giving equals ~0.3% of their wealth. Like a really tiny wealth tax. Here’s his chart:

Annual charitable giving of the top 20 richest Americans: $8.7 billion, equaling just three tenths of one percent of their wealth. For the top 400 richest Americans, their taxes paid = 1.5% of their wealth, while their charitable giving = 0.4% of their wealth.

But, the average American paid taxes equal to 5.5% of their wealth, while their charitable giving = 0.3% of their wealth. Joe Six-pack gave the same amount of his assets to charity as did the top 20 billionaires.

If Warren’s 6% wealth tax was enforced on the top 20 richest Americans above, they would pay $60 billion to support the social safety net.

Moreover, despite the nay-saying by the rich, surveys show that Warren’s 2% tax is broadly popular:

(This was an online survey of 2,672 adults conducted by the polling firm SurveyMonkey from Nov. 4 to Nov. 11)

The survey by the NYT and Survey Monkey shows that 75% of Democrats and more than half of Republicans say they approve of the idea of a 2% tax on wealth above $50 million. The proposal receives majority support among every major racial, educational and income group.

The majority of college-educated Republican men disapproved, with only 41.5% approving of it.

The NYT reports that the proposed wealth tax is even more popular than the Trump tax-cut enacted in 2017. Only 45% of Americans said the tax cut was a good move:

“The movement against the Trump tax cuts since then has been powered, oddly enough, by Republicans. They largely still back the law — by 76% over all, compared with 20% of Democrats — but that support has dropped six percentage points since April.”

The shift on the tax cut is highest among high-earning Republicans: Americans earning more than $150,000 a year are far more likely to favor a tax increase on the very wealthy than the Trump tax cuts.

America’s tax code is designed to allow massive fortunes to grow ever larger. Wealth is concentrating in a tiny segment of the population, as the middle class shrinks.

We see that even the most high-minded billionaires can’t even give money away faster than their piles of dough are growing. And when Democrats like Warren and Sanders suggest a way towards tax reform, the GOP and the conservative think-tanks condemn them as socialists who want to punish success.

Most Americans are fed up with a government and an economy that overwhelmingly benefit corporations and the rich at the expense of everyone else. A wealth tax can work if Congress doesn’t get rolled by lobbyists that demand loopholes for their clients.

Wrongo will have no trouble backing a candidate who supports a wealth tax. But, increasing the taxes on corporations and a financial transactions tax should come first.

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Monday Wake Up Call – November 25, 2019

The Daily Escape:

Delicate Arch, Arches NP, Moab UT – 2019 photo by rallymachine

Wrongo learned last week that the GOP thinks he’s just another agent of Soros, like most other non-Republicans. Sadly, the mailbox didn’t contain his weekly globalist payoff check, so we’re still stuck writing this blog.

We should be framing the debate about 2020 not in terms of policies, but by asking the question Ronald Regan asked: “Are you better off today than you were four years ago?” For the Evangelicals who wished for a right-wing Supreme Court, the answer is “yes”. For the 1%, and corporations who were awarded a gigantic tax cut, their answer is a strong “yes”.

But for most Americans, after four years, the answer isn’t yes, it’s a hard “no”.

Yes, the unemployment rate in the US is the lowest it’s been in 50 years. More Americans have jobs than ever before. Wages are climbing, but people tell a different story: Of long job hunts, trouble finding work with decent pay, or predictable hours.

How do we square the record-long economic expansion and robust labor market with the anecdotal stories we all hear? Quartz reports on a new jobs index that shows a way to make sense of both stories. Researchers at Cornell, the University of Missouri, Kansas City, the Coalition for a Prosperous America and the Global Institute for Sustainable Prosperity, working together:

“…..unveiled the US Private Sector Job Quality Index (or JQI for short), a new monthly indicator that aims to track the quality of jobs instead of just the quantity. The JQI measures the ratio of what the researchers call “high-quality” versus “low-quality” jobs….”

They developed a ratio of higher-wage/higher-hour jobs versus lower-wage/lower-hour jobs, and tracked it back in time using federal data. The Index reveals that job quality in the US has deteriorated substantially since 1990, and even more so since 2006.

Overall, the JQI found a shift from US high-wage/high-hour jobs to low-wage/low-hour positions. Since 1990, the US has been creating an overabundance of lower-quality service jobs. The JQI reveals that 63% of the production and non-supervisory jobs created over the past 30 years have been in low-wage and low-hour positions. That’s a marked change from the early 1990s, when nearly half of these jobs (47%) were high-wage.

Since 1990, America has cumulatively added some 20 million low-quality jobs, versus around 12 million high-quality ones. We now create more bad jobs than good. This helps explain why our GDP growth isn’t nearly what economists say we should expect from a full-employment economy.

Also, the poor jobs come with fewer hours worked. People in low-quality jobs clock 30 hours a week. Compare that to an average 38 hours a week for high-quality jobs. That seven-hour gap doesn’t sound like a lot, but it adds up to about 480 million hours per year.

Those unworked hours represents the equivalent of about 12 million jobs forgone each year. A key reason is that employers limit worker’s hours to keep from having to pay benefits.

Overall, the growing total of jobs that offer lower-than-average incomes means that job growth, as reflected by a super-low unemployment rate, provides less spending power than in the past. The economy is getting a lot less bang for its buck.

Maybe the Democrats’ presidential candidates should base the campaign on asking the Ronald Regan question again in 2020.

Time to wake up America! Look behind the headlines. Ask the candidates what they plan to do about the fact that our economy isn’t providing quality jobs. The $15/hour wage, although useful, isn’t enough to grow the economy.

To help you wake up, listen to Tones and I, a 19 year-old Australian singer-songwriter who has the number one global hit “Dance Monkey”. Today we’re featuring her song called “The Kids are Coming”. This song is sending an important message and portrays the reality of our time, that young people believe we’ve been poor stewards of their futures:

Those who read the Wrongologist in email can view the video here.

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Auto Loan Delinquencies Are Rising

The Daily Escape:

Tetons twilight from Snake River overlook, WY – November 2019 photo by timtamtoosh. Ansel Adams once shot a picture from this spot.

From Wolf Richter:

“Serious auto-loan delinquencies – auto loans that are 90 days or more past due – in the third quarter of 2019, after an amazing trajectory, reached a historic high of $62 billion, according to data from the New York Fed today….”

Total outstanding balances of auto loans and leases in Q3, according to the New York Fed, rose to $1.32 trillion. That $62 billion of seriously delinquent loan balances are what auto lenders, particularly those who specialize in subprime auto loans, are now attempting to either get to current status, or to repossess. If they cannot cure the delinquency, they’re hiring specialized companies to repossess the vehicles, which will then be sold at auction. And the repo business is booming!

The difference between the loan balance and the proceeds from the auction, plus all of the costs involved, are what a lender stands to lose on each delinquent loan.

Worse, lenders are still making new subprime loans, and a portion of those loans will also become delinquent, and a smaller portion of them will default. Wolf helpfully adds a chart that shows today’s level of delinquencies as a percentage of the auto loan portfolio is the same as it was in 2009, when we were in the middle of the Great Recession:

It’s useful to remember that in 2009 and 2010, the US was confronting the worst unemployment crisis since the Great Depression. People were defaulting on their auto loans because they’d lost their jobs. That isn’t the case today, we’re near full employment.

Let’s differentiate “Prime” auto loans and leases from “Subprime”. Prime auto loans have minuscule default rates. Of the total of $1.3 billion in auto loans and leases outstanding, according to Fitch, Prime auto loans currently have a 60-day delinquency rate hovering at a historically low 0.28%.

That means that most of the delinquencies are in the subprime category. In fact Wolf says: (emphasis by Wrongo)

“Of the $1.32 trillion in auto loans outstanding, about 22% are subprime, so about $300 billion. Of them roughly, $62 billion are seriously delinquent…around 20% of all subprime loans outstanding.

We know that the subprime delinquencies are not caused by an employment crisis or, by the brutal recession we endured during the 2008 financial crisis. Employment is still growing, and unemployment claims are near historic lows. But subprime auto loans are defaulting at very high rates.

What’s going on? It’s car dealers’ greed. They’re striving to sell more cars. Customers with a subprime credit rating have already been turned down when they try to buy things on credit. But, when they walk on a car lot, their bad credit rating is magically no longer an issue.

The dealers know they’re sitting ducks, who won’t negotiate. They accept the price, the monthly payment, and the trade-in value. They’re just happy to be in a new car. When they drive off the lot, they have a high monthly payment, which, since they already have trouble making ends meet, will soon be late, or in default.

The subprime car buyers really have little choice if they need a car to get to work. Poor people are smart about doing what it takes to survive: If you don’t have a down payment or a good credit rating, and need a car to keep your job, it means a bad deal is better than no deal.

They take the bad deal because if things get worse, they probably will only lose the car.

The kicker is that auto loans aren’t the loan category with the highest delinquencies. Student loans have even higher delinquencies:

  • Outstanding student debt stood at $1.50 trillion in the third quarter of 2019, an increase of $20 billion from Q2 2019
  • 9% of aggregate student debt was 90+ days delinquent or in default in Q3 2019

The student loans total of about $1.5 trillion, is higher than the $1.32 trillion of auto loans.

The system is broken. Someday soon, the job market will deteriorate. We’ll be back listening to why we should bail out lenders and investors who lend, securitize, and sell these loans to investors who are chasing yeild.

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