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The Wrongologist

Geopolitics, Power and Political Economy

Saturday Soother – February 10, 2018

The Daily Escape:

Lighting the Olympic torch – photo by Chang W. Lee

Did anybody see the bus that ran over Wrongo’s 401k?? It was a tough week on the retirement savings front for anyone who uses the capital markets to bolster their net worth. Retail investors are trapped – they can’t sell their holdings quickly, and there doesn’t seem to be a safe haven for their cash if they manage to get out of the markets only slightly bruised. Fear seems to be guiding Mr. Market.

Also, Washington finally passed a bi-partisan budget deal, but only after a brief shutdown. Sadly, it adds more than $1 Trillion to the national debt. It’s hard to square the Republicans’ deficit hawk ideology with their sudden willingness to spend whatever it takes to give the military whatever it wants.

During the recession, (Obamatime) the Republicans argued that responsible people tighten their belts when times are bad, just like people do with their household expenses. Now, we really shouldn’t use that argument for governments who can create their own currency. Despite that, if you really think the government should be run like a household, wouldn’t a responsible family increase their savings and pay down their debts when times are good? That would give them a “rainy day” fund that they could dip into when times were bad. Or, they could then go back into debt to get through the rough patch.

But today’s Republicans are saying: “Times are great! Let’s max out the credit card”. This will soon be followed by: “Oh shit, now I have to starve the kid so I can make the payments on my student loans”.

They won’t even follow their own dumb rules.

That was the week that was. A stomach-churning, no sleeping, hot steaming pile of anxiety. You need a real break.

To help you forget about your financial losses and your government’s foolishness, settle into a comfortable chair with a Vente cup of Volcanica Coffee’s Blue Mountain Peaberry coffee from the Clydesdale estate in Jamaica (only $89.88/lb.). You can’t afford it after what happened on Wall Street, but like Congress, you have a credit card. So go for it!

The Clydesdale coffee region is near the center of Jamaica’s Blue Mountain coffee area. The Clydesdale Estate was founded in the 1700’s.

Now, listen to a throwback to the 2012 Olympics in London. Here is the London Symphony Orchestra conducted by Sir Simon Rattle with a performance of “Chariots of Fire”. The performance includes physical comedy by Mr. Bean (the British comedian Rowan Atkinson):

This isn’t high art, but it is fun, and tangentially relevant to the Olympics.

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

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Trump Knows Budgeting

The Daily Escape:

(Iowa State Law Library)

Trump’s first budget proposal was released on Thursday, and it hews closely to both Trumpian and Republican orthodoxy:

Trump’s first budget…would increase defense spending by $54 billion and then offset that by stripping money from more than 18 other agencies. Some would be hit particularly hard, with reductions of more than 20% at the Agriculture, Labor and State departments and of more than 30% at the Environmental Protection Agency.

The White House blueprint does not address major safety net programs such as Social Security and Medicare, which the Overlord has promised to protect. While there are too many deep cuts to detail fully, here are a few from the WaPo:

It would also propose eliminating future federal support for the National Endowment for the Arts, the National Endowment for the Humanities and the Corporation for Public Broadcasting. Within EPA alone, 50 programs and 3,200 positions would be eliminated.

Trump’s budget will eliminate thousands of government jobs, and that is a serious problem for Washington, DC. Moody’s chief economist, Mark Zandi, estimates that Trump’s proposed cuts would impact the Washington area bigly. It will reduce employment in the region by 1.8%, slash personal income by 3.5% and lower home prices by 1.9%.

Zandi reasons that cuts in non-defense spending would fall disproportionately hard on the Washington region, while the increase in military spending would be spread across the nation. Good paying defense jobs in your district, mostly non-union, and a defense contractor who kicks back to your campaign fund while building weapons that kill the baddies. What’s not to like?

The budget chops funding for the NIH by $5.8 billion, or close to 20%, and low income Americans will also lose:

And the Trump administration proposed to eliminate a number of other programs… [Including] the Low-Income Home Energy Assistance Program, which disburses more than $3 billion annually to help heat homes in the winter. It also proposed abolishing the Community Development Block Grant program, which provides roughly $3 billion for targeted projects related to affordable housing, community development and homelessness programs, among other things.

Some of this represents Trump’s campaign agenda. Office of Management and Budget Director Mick Mulvaney explained on Wednesday:

In fact, we wrote it using the president’s own words. We went through his speeches. We went through articles that have been written about his policies…and we turned those policies into numbers.

You know, things like cuts to the State Department, because diplomacy is for wimps.

But most of Trump’s budget is just a Republican’s wet dream of a “drown the government in a bathtub” program. Having said that, Trump’s recent executive order to restructure the entire executive branch means the White House has broad latitude to make these huge cuts effective by simply shifting priorities of what to actually do with the money.

This budget represents fundamental change. Medicine, education and defense have received the lion’s share of government spending in the past. Any town with a hospital, a college, or a defense contractor had a stable income base upon which to grow their local economy.

Now, the Republican Party no longer believes the government has any role in the first two, so defense contractors will become the only Keynesian game in town.

This will be a terrible new baseline for Democrats to work from, assuming they ever get back into power. Trump means to end all of the New Deal era programs, and growing the tax base to support a return to higher levels of government spending will take decades.

Now, another Irish musical selection for St. Patrick’s Day. Calling modern Irish music “punk” sounds redundant, but there are quite a few punkish Irish bands. Black 47 is Wrongo’s favorite, but today we feature Thin Lizzy with “Whiskey in the Jar”, a traditional Irish song that they updated in 1972.

Phil Lynott was the front man for Thin Lizzy. He was once asked how it felt to be black and Irish, and he answered: “Like a pint of Guinness”. Lynott lived fast, and died at 36 from heart failure in 1986. Here is “Whiskey in the Jar”:

This makes Wrongo want a bottle of Bushmills 21 year old single malt. Oh wait, here’s one!

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

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February 23, 2018

The Daily Escape:

(Yukon Bear before hibernation)

From the WSJ:

The Trump administration has drafted preliminary economic growth forecasts for its federal budget planning that rely on assumptions that are far rosier than projections made by independent agencies and most private forecasters, according to several people familiar with the discussions.

Imagine. The Trump Team ordered government economists to cook up rosy economic forecasts upon which to base the latest Republican fantasy sales pitch about trickledown economics.

Trump’s “the economy will be great” promises made during the election are now turning into policy and legislation. The problem is that the future they are cooking up for us is most likely unobtainable. Consider that recent GDP growth has been around 2%, while Trump is telling us to expect growth of between 3.0% and 3.5% for the next 10 years. But the Trumpets have a plan:

Trump officials believe a regulatory rollback and a tax-code revamp will unleash growth that drives a recovery in productivity, sends business investment higher and draws idled workers back to the labor force. They also assume interest rates would remain low because the US would become a more attractive place to park money.

Most economists believe sustained growth at more than 3% will be difficult to achieve unless there is a sharp rebound in productivity growth, while the US labor force also grows. Few are projecting that both of those will happen. Worker productivity growth has slowed to 0.7% a year since 2010, a sharp slowdown from rates exceeding 3% in the late 1990s and early 2000s.

So the simultaneous equations to achieve growth include increased spending on military and infrastructure, tax reform, cuts in regulations, and not touching granny-starver Paul Ryan’s favorite target of cuts to Social Security and Medicare.

The WSJ says that the Trump team gave the Council of Economic Advisers (CEA) staff the growth targets that their budget should produce, and asked them to backfill other estimates to justify those numbers.

Business school logic says that could work if the baseline target is realistic. Matt Yglesias at Vox points out that under Trump’s budget, the deficit would be larger; but the economy would be 17% larger and therefore, the deficit as a percentage of GDP would be smaller (perhaps small enough for the GOP to again say “deficits don’t matter?”).

So, Trump has an overly optimistic budget based upon phenomenal growth which no one else believes will happen, and he will hand off this budget grenade to Congress. If Congress balks, or does not find a way to make Trump’s budget happen, accusations will be tweeted from The White House regarding how Congress can’t get anything done.

It will be everybody’s fault except the Donald’s.

This reminds Wrongo of his days in the Fortune 500. Corporate HQ orders an extremely aggressive budget number. The number is missed, and people are terminated. Things continue to slide, and a new CEO is hired, who gets another “stretch” budget that is again missed.

How many times do we need to watch this movie? Trump has declared bankruptcy six times.

Will this make seven?

Here is Alex Dezen with “A Little Less Like Hell”:

Lyric:

Tell me who I gotta talk to
Tell me who I gotta kill
Just to make this place
Feel a less like hell

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The Pant Suit vs. The Pant Load – Budget Edition

Now that both presidential conventions are history, the real discussion about the merits of the candidates and their programs begins. The first question to answer is: What are the costs of the promises made to America by Donald Trump and Hillary Clinton?

Both candidates have made political promises that, if implemented, have both costs and benefits to the nation. While the analysis of benefits may be difficult to assess, the costs are not.

The Committee for a Responsible Budget (CRB) has issued a report, “Promises and Price Tags: A Fiscal Guide to the 2016 Election” that estimates how our national debt would rise under the programs of both presidential aspirants. It shows that gross debt held by the public would rise from about $19 trillion today to $23.9 trillion by 2026 under Hillary Clinton’s plan and to $35.2 trillion under Donald Trump’s plan.

They based the estimates on the public positions taken by each campaign as of June 24, 2016. They also generated a low, central, and high cost estimate of the fiscal implications of Trump’s and Clinton’s proposals.

We need to stop and say that our gross debt will rise no matter who is elected, since under existing law, gross debt is projected to rise from about $19 trillion today to about $29.1 trillion by 2026, about a 50% increase. With that in mind, here is CRB’s summary of the impacts of both candidate’s plans on the national debt:

Debt Under Candidates Proposals

Donald Trump has expressed concern about the dangers of our current $19 trillion debt. Yet his plan would increase that number significantly. Under CRB’s central estimate of Trump’s plan, gross debt would more than double from $19 trillion today to $39.5 trillion by 2026.

The increase in gross debt under Clinton’s plan would be smaller but still significant. Under the central estimate of Clinton’s plan, gross debt would rise by more than 50%, from $19 trillion today to $29.6 trillion by 2026, in line with the current law. So, her promise to pay for new spending seems to be true.

Digging a little deeper, here is CRB’s breakdown of both candidates’ plans by revenue, costs and spending. Most of Hillary Clinton’s increased costs come from spending in non-health, non-retirement programs:

  • She would spend $350 billion more on college education, $300 billion more on infrastructure, another $300 billion on paid family leave, and nearly $500 billion on a variety of other initiatives.
  • Clinton would also make several health-related changes that would cost about $150 billion.
  • To offset these costs, Clinton proposes a variety of tax increases – mostly on higher earners and businesses – totaling $1.25 trillion.

The largest share of Trump’s deficit impact comes from his proposed individual and business tax reforms, which would reduce revenue by about $9.25 trillion:

  • His plan to reform the veteran’s affairs system and increase veterans’ access to private doctors would cost about $500 billion.
  • And his plans to repeal and replace the Affordable Care Act and reduce illegal immigration would cost about $50 billion each.

So, what happens to the total amount of our national debt?

Donald Trump wants to dramatically reduce taxes for most Americans while maintaining spending relatively near its current levels. As a result, under CRB’s central estimate, he would add $11.5 trillion to the debt through 2026.

Hillary Clinton wants to increase both spending and taxes, adding about $250 billion to the debt over 10 years under CRB’s central estimate. Under their low cost estimate, Clinton’s plan would reduce 10-year deficits by $150 billion.

Increases in debt are not always a bad thing, particularly in times of economic slack, if the debt accumulation is driven by stimulative fiscal policy. But a 40 percentage point of debt to GDP increase, from 87% of GDP to 127% of GDP, seems unlikely to give us a positive outcome.

But, if we elect The Pant Load, that’s what we will get. Trump said to the WaPo in May:

I am the king of debt. I do love debt. I love debt. I love playing with it.

This should worry you. Trump went on to say:

Look, I have borrowed, knowing that you can pay back with discounts. And I have done very well…I would borrow, knowing that if the economy crashed, you could make a deal, and if the economy was good, it was good, so, therefore, you can’t lose.

So, Trump would stiff the nation’s creditors. Haven’t we had enough of Republican mis-leadership on the nation’s finances?

Haven’t we had enough of Republican tax cuts for the most comfortable among us at a cost to the least comfortable among us?

Remember that it was the GOP-led Congress that threatened not to raise the debt ceiling in 2011. That led to the Standard & Poors rating agency’s lowering of the US credit rating.

Think carefully about what Trump’s glib plans imply for America.

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How Not to Cut the Deficit

Congress returned from the Independence Day break on Monday. They will leave again on Friday, and won’t return until after Labor Day. From The Hill:

Congress is poised to leave Washington…without passing funding to combat the Zika virus or completing work on spending bills to avoid a government shutdown.

One bill that might get passed is the re-authorization for Federal Aviation Administration programs that expire on Friday. Since Congress likes to fly, most think they will pass an extension that will last through September 2017.

If you’ve taken a flight this summer, you’ve likely been tied up in long TSA security lines. But you may not have focused on the real reason: Funding for the TSA has been sliced by 8.5% over the past five years, leading to a 5.5% drop in the number of screeners.

Yet, in the same period, the number of air travelers has increased by more than 15%. And those business wizards in Congress should be forced to tell the rest of us how a labor-intensive business can successfully process increasing numbers of customers with a smaller work force.

Steven Rattner in the NYT:

This year, discretionary spending — which encompasses airport security, infrastructure, education, research and development and much more — will be lower than it was in 2005. (Adjusted for inflation.

The discretionary portion of the federal budget, including education, research, infrastructure and other programs, has been falling, while spending on mandatory programs (including Social Security, Medicare and Medicaid) has been going up. Rattner reports that total government spending is up by 23% since 2005, while mandatory spending is up 45% in the same period, and discretionary spending is down 3%.

Here are some examples:

  • Since 2003, the National Institutes of Health (NIH), have seen their funding fall by 23%, forcing an 8% reduction in grants to researchers even as grant applications were rising by 50%.
  • In the past 10 years, spending on all education has fallen by 11% percent.
  • Since 2010, the IRS’s budget has been slashed by about 18%, even as the IRS was given new duties in connection with the passage of the Affordable Care Act. The result: The enforcement staff has shrunk by 23%, leading to a similar reduction in the number of audits. Fewer audits have meant additional uncollected taxes, estimated at $14 billion over the past two years. And almost a million pieces of unanswered correspondence from taxpayers need responses.
  • The EPA’s budget has been cut by an enormous 27% — about $3 billion since 2010. As a result, the agency had to eliminate more than 2,000 workers, bringing its staffing to the lowest level since 1989.

Last fall, a bi-partisan group added $80 billion in new discretionary spending over the next two years. Then, Congress doubled the cost of the deal by giving more money to the military and to Medicare, taking the deal to $154 billion while paying for about half the tab with legitimate savings.

A few months later, Congress retroactively extended a raft of expired tax provisions — without even a pretense of paying for them.

As a result of Congress’s fudging, the projected 2017 deficit rose to $561 billion, from the $416 billion that was estimated just six months earlier.

We shouldn’t expect that Congress will make any big decisions involving taxes or spending in an election year. But at the least Republicans need to stop using the appropriations tool to take aim at agencies such as the IRS and the EPA, whose missions they reject.

In the case of the TSA, Republicans want it privatized. Not because privatizing will save any money or make the TSA more effective, but to help a few of their corporate sponsors have another feed at the government trough. Republicans want to see schools, prisons, and the postal service privatized. The people who are employed by these private, profit-making companies will not be paid as well, and will not receive benefits they have today.

This is what you get when you believe that government should be “run like a business.” Certainly, we need a more efficient, better managed bureaucracy, but the deficit-cutting value of their fix is peanuts compared with the simple act of generating revenue.

You know, that would be raising taxes sufficient to pay for the critical tasks we require of the government.

The GOP would like you to think that Donald Trump represents a threat to Republican tax and deficit-cutting orthodoxy. To the extent Trump has revealed his thinking on tax policy, it looks consistent with the Republican Party. Trump’s grand accomplishment is to create an alliance between the true economic interests of the Republican Party and that segment of the American electorate largely marginalized and displaced by the actions of that same elite.

Welcome to the Republican paradise.

 

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The Republican “Free Stuff” Meme

At the last Republican presidential debate, Chris Christie (R-NJ) characterized the Democratic candidates’ debate as:

A parade of, ‘I’ll give you this for free; I’ll give you that for free’.

Senator Marco Rubio said: (brackets by the Wrongologist)

It [the first Democratic debate] was basically a…debate about who was going to give away the most free stuff: Free college education, free college education for people illegally in this country, free health care, free everything.

Jeb Bush says that black voters should back him, since his:

…message is one of hope and aspiration, not one of division and get in line and we’ll take care of you with free stuff…

For the record, Medicare, Medicaid, Social Security, and unemployment have dedicated tax revenue streams. If we back out those funded benefits, all other elements of the so-called social safety net “free stuff” adds up to ~$405 billion, a fraction of the $1.2 trillion in “unfunded” Federal entitlements, and most of the rest goes to top income earners.

So, what do Republicans mean when they say “Free Stuff”? From Jared Bernstein:

There are at least three definitions of “free stuff.” The broadest would simply include all government benefits. A narrower version might apply only when people receive more in benefits than they pay in taxes. A third might refer to any net gain relative to the status quo.

Under any of these definitions, the Republican claims are misleading: they attack help for people who need it, while implicitly condoning tax subsidies for the wealthy. What the Republicans want us to focus on are public education, Medicaid, and direct cash assistance to the poor, but the government provides other subsidies, some of which the GOP seems perfectly happy to keep in place.

For example, Rubio and Bush want to cut capital gains taxes below the current level (Rubio would completely abolish them). But today’s reduced cap gains rate already provides a significant benefit to people who invest in assets (i.e., the wealthy). Then there are things like regressive housing tax breaks, about 70% of which go to those in the top 20%. In addition, 68% of the tax benefits for retirement savings and 64% of subsidies for individual retirement accounts (IRAs) accrue to the top 20%.

Can it be that government benefits for poor people are “free stuff”, while benefits for the wealthy are not?

Maybe Christie, Rubio, and Bush subscribe to the second definition described above: It’s “free stuff” if you receive more in benefits than you pay in taxes, but not if you pay more in taxes than you receive in benefits.

The third way to think about “free stuff” mirrors the most accepted concept of “free”. Bernstein asks:

Suppose, for example, that you opened your email today to find an unexpected $100 Amazon gift card. No matter how much money you had spent or planned to spend at Amazon, you would call this “free” money. Or imagine that you go out to dinner at a restaurant and a waiter decides to “comp” your dessert. Regardless of the overall price of your meal, you would likely consider that dessert item to be “free.”

Under this definition, “free stuff” from the government would be new benefits or reduced taxes relative to one’s current situation. Since the Christie, Rubio, and Bush tax plans all contain massive tax cuts, they would give away huge amounts of foregone tax revenue as “free stuff,” and unlike the “free stuff” proposed by the Democratic candidates – the GOP “free stuff” would go to their very wealthy patrons.

From the carried interest loophole, to drug patent law, to defense industry markups, to sweetheart deals for the oil industry, the total “free stuff” for the 1% dwarfs that available to the rest of us. Yet, the nattering nabobs of trickledown continue to target removing the scraps doled out to the 99%.

Social stability is the reason the rich should not begrudge the support given to those that are less fortunate in our society. The rich have the most to lose should the vast majority decide they have suffered enough, and we see an “off with their heads” moment.

Extra money in the hands of the 1% or the .01% just creates bidding wars for penthouse apartments that the 2% can no longer afford.

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