Tag: Economic Policy

Democrats Are Better For The Economy

The Daily Escape:

Sunset at Fonts Point, Anza-Borrego Desert SP, CA – March 2024 photo by Paulette Donnellon

“If you want to live like a Republican, vote for a Democrat.” – Harry S. Truman

Republicans always claim that they are the Party of prosperity. They pretend that their policies lift everyday workers and their families, what with tax cuts and all, and the public seems to buy it. In polls, the Republicans usually get better marks on the economy than Democrats, often by hefty margins.

But as John E. Schwarz notes in the Washington Monthly:

“What is truly startling is the astonishing degree to which American workers have fared better under Democratic than Republican presidents….Today, the economic data are unambiguous: Whether it’s real wage gains or job creation, average Americans have fared far better under Democratic than Republican presidents.”

From the economist Jeffery Frankel, Professor of Capital Formation and Growth at Harvard University, and formerly a member of the White House Council of Economic Advisers:

“Since World War II, Democrats have seen job creation average 1.7 % per year when in office, versus 1.0 % under the GOP.  US GDP has averaged a rate of growth of 4.23% during Democratic administrations, versus 2.36% under Republicans, a remarkable difference of 1.87 percentage points. This is postwar data, covering 19 presidential terms—from Truman through Biden. If one goes back further, to the Great Depression, to include Herbert Hoover and Franklin Roosevelt, the difference in growth rates is even larger.”

Frankel says that the results are similar whether one assigns responsibility for the first quarter of a president’s term to him or to his predecessor. He also makes the point that the average Democratic presidential term has been in recession for 1 of its 16 quarters, whereas the average for the Republican terms has been 5 quarters, a startlingly big difference.

Frankel asks whether these stark differences in outcomes are simply the result of random chance?  But he concludes they aren’t:

“The last five recessions all started while a Republican was in the White House (Reagan, G.H.W. Bush, G.W. Bush twice, and Trump)….The odds of getting that outcome by chance, if the true probability of a recession starting during a Democrat’s presidency were equal to that during a Republican’s presidency, would be (1/2)(1/2)(1/2)(1/2)(1/2), i.e., one out of 32 = 3.1%.  Very unlikely.”

I know, nobody said there’d be math in the column. Frankel says that the result is the same as the odds of getting “heads” on five out of five consecutive coin-flips. And it gets worse if we look back further in time:

“A remarkable 9 of the last 10 recessions have started when a Republican was president.  The odds that this outcome would have occurred just by chance are even more remote: one out of 100.  [That is, 10/210 = 0.0098.]”

More math, but you get the idea. If you look at job growth, the results are similar. More from John Schwarz:

“The significant contrast between each party’s record on wage and job growth has held true from the election of Ronald Reagan in 1980 through to the onset of the pandemic, just after 2019 ended, and after that, starting once again under Joe Biden.”

Here’s a chart from The Economist:

The Republican and Democratic Parties were in the White House for roughly equal amounts of time, 24 years each. During the Republican presidencies they created about 17 million jobs, whereas Democrats presided over the creation of about 60 million. That’s such a big gap that Americans can safely reject claims of stronger economic performance under Republicans.

Schwarz closes with this:

“Democrats have an amazing story to tell in 2024. They should tell it loud and clear.”

Absolutely!

Enough of the hard math. It’s time for our Saturday Soother, when we try to disconnect from Trump’s Bible sales and from the plan by Senate Republicans to introduce articles of impeachment of the Secretary of Homeland Security when there’s so much truly pressing business for them to consider.

Here on the Fields of Wrong, we’re attending to some spring yardwork in the precious time between passing rain and snow showers. We will also find the time this weekend to watch college basketball’s March Madness.

To help you focus on anything but politics on this Easter weekend, grab a seat by a south-facing window and listen to Gregorio Allegri’s “Miserere mei, Deus” (Have mercy on me, O God), performed here in 2018 by the Tenebrae Choir conducted by Nigel Short at St. Bartholomew the Great Church, in London.

Allegri composed this in the 1630s, during the papacy of Pope Urban VIII. The piece was written for use in the Tenebrae service on Holy Wednesday and Good Friday of Holy Week. Pope Urban loved the piece so much, that he forbid it to be performed elsewhere outside of the Sistine Chapel.

We all could use a little mercy now, and this is beautiful:

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Why People Say The Economy Is Terrible

The Daily Escape:

First snow, Doubling Point Lighthouse, Kennebec River, ME – December 2023 photo by Rick Berk Photography

Wrongo may have stumbled upon the reason why people say the economy is bad when so many economists say it isn’t. From a LendingClub report from last May: (emphasis by Wrongo)

“For some Americans, earning a six-figure income doesn’t guarantee a comfortable lifestyle….many Americans are struggling to make ends meet — with 61% of those surveyed saying they feel stretched too thin, and 49% of those earning $100,000 or more saying they’re living paycheck to paycheck.”

This ties together with other information, some of which comes from the issue, who reported this from the Aspen Institute: (emphasis by Wrongo)

“Though routinely positive cash flow is the starting point for financial stability, it remains largely out of reach for many Americans. Even before the fallout of the COVID-19 pandemic, nearly half (46.5%) of households reported that their income did not exceed their spending over the course of a year. For households with annual income of less than $30,000, this number increases to three in five (61.5%).”

Now there may be many reasons why people spend beyond their means. Some seem to be unable to defer gratification until there’s money in the bank, so they buy on credit. There was a $48.5 billion jump in spending from September to October 2023. For others who make less than a living wage, the problem isn’t one of choice, it’s existential.

The searing takeaway from the above is that negative personal cashflow was a problem even before the post-Covid inflation drove prices through the roof in America. The Aspen Institute provides this handy chart showing how individuals build financial security:

Financial security starts with having a routinely positive cashflow. But, nearly 50% of Americans today aren’t cash flow positive (see quote above), while 49% of people earning more than $100k are living paycheck to paycheck.

This dovetails with Wrongo’s Monday column which showed that “Nearly 3 in 10 Americans say they have had to forgo seeing a doctor in the past year due to costs.” If you’re one of the 7.5% of uninsured Americans, and have money in your checking account that isn’t going to necessities, you can definitely go to the doctor.

Aspen has another chart that shows the breakdown of who lives paycheck to paycheck by income levels:

Seventy-four percent of those making less than $50k are living paycheck to paycheck, and while the percentage gets smaller as annual income rises, it’s still 48.7% for people making more than $100k, in an economy where the median income is around $54K!  FYI, the percentage of Americans who make $50k or less is 37.8%.

More from LendingClub: (brackets and emphasis by Wrongo)

“The share of consumers in the US earning over $100,000 per year who live paycheck to paycheck increased 7 percentage points in April year over year. High-income consumers are particularly likely to live in urban areas, at 36%, and these tendencies toward higher incomes…[don’t] prevent almost 70% of urban dwellers from saying they live paycheck to paycheck.”

It’s hard not to conclude that the majority of Americans are currently experiencing dire financial conditions, including many who live with negative cashflow. When your cashflow is negative, you either cut back, borrow or sell assets. For most people selling assets isn’t a real choice. So while some cut back, the majority borrow to make ends meet. According to the issue, the:

“…highest risk, and most expensive forms of debt are now growing fastest. Payday loans, online insta-loans, and so forth. That means that people are exhausting the more mundane forms of debt—credit cards, bank loans, government loans, etcetera.”

This squares with a report by Achieve, a personal debt management firm, that shows:

“In the first nine months of 2023, the average monthly participation in debt resolution programs increased by 119% compared to 2020, even though the average earnings rose by approximately 37% during the same period.”

It gets worse:

“In 2023, the typical household income of individuals enrolled in debt resolution programs was $59,900, which is a notable increase from $43,598 three years prior.”

Americans are earning 37% more but are still struggling with debt. Not a pretty picture to take before the voters.

Meanwhile, Democrats still are touting how “strong” the economy is. The aggregate numbers hide terrible personal experiences that are happening out of sight of our politicians and surprisingly, our economists. However, it’s clear from the polls that few Americans are buying that message apart from the true believers, the media and pundits.

The disconnect between economic data and the lived experience of average people needs to be addressed by Biden and the Democrats. If nothing is done to at least acknowledge the actual problems of many Americans specifically, their negative personal cashflow, these angry folks will certainly tilt toward giving Trump another chance.

Let’s give the issue the last word:

“What is this? What do we call it when the majority of people can’t make ends meet, as in, they’re literally spending more than they make, because they don’t make enough to live a stable or secure life?

Today the averages are hiding a truth: that a near-majority of American citizens are financially underwater. These are big numbers. The Census Bureau says as of now, 258.3 million Americans are adults. And the Aspen Institute says that 46.5% of them can’t make ends meet. That’s 120 million of us that are going deeper in debt every month.

That can only happen when those at the very top are skimming off more than 100% of the growth in the economy. This suggests that Biden et al need to run on policy that will help the majority of voters, not simply the moneyed people who finance political campaigns.

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Monday Wake Up Call – September 12, 2022

The Daily Escape:

Harvest Moon, Cape Cod National Seashore, MA – September photo by Tom Baratz

With all of the media’s coverage of the comings and goings of the British monarchy, Wrongo’s certain that you missed the reviews of a new book, “Slouching Towards Utopia” by Brad DeLong, an economist from UC Berkeley. Dylan Matthews in Vox quotes DeLong from the book:

“The 140 years from 1870 to 2010 of the long twentieth century were, I strongly believe, the most consequential years of all humanity’s centuries.”

Matthews thinks it’s a bold claim. After all, homo sapiens has been around for at least 300,000 years; DeLong’s “long twentieth century” represents 0.05% of that history.

But DeLong says an incredible thing happened during that sliver of time that had eluded our species for the other 99.95% of our history: Before 1870, technological progress was glacial, but after 1870 it accelerated dramatically. More from Vox:

“DeLong reports that in 1870, an average unskilled male worker living in London could afford 5,000 calories for himself and his family on his daily wages. That was more than the 3,000 calories he could’ve afforded in 1600, a 66% increase….But by 2010, the same worker could afford 2.4 million calories a day, a nearly five hundred fold increase.”

DeLong is speaking of the nations of the rich north, not about all nations. He’s saying that food surplus was the key driver of progress. What’s implied is that the greatest difference between the wealthy and everyone else was that the poor were living on the verge of starvation. Those basic economic facts shifted once having enough to eat ceased being society’s most critical status distinction.

Another interesting statistic from the book:

“…the average number of years of a woman’s life spent either pregnant or breastfeeding…has gone down dramatically, from 20 years of a typical woman’s life in 1870 to four years today.”

Most historians present modern history as a long 19th century (from the French revolution in 1789) to the crisis of 1914. Which is then followed by a shorter 20th century ending with the fall of communism. DeLong, by contrast, argues that the period from 1870 to 2010 is best seen as a coherent whole: the first era, he argues, in which historical developments were overwhelmingly driven by economics.

From the Economist:

“…despite the Industrial Revolution…for millennia, technological improvements never yielded enough new production to outrun population growth. Incomes had stuck close to subsistence levels. Yet from around 1870, growth found a new gear, and incomes in leading economies rose to unprecedented levels, then kept climbing.”

DeLong says that economic policy in this period was a duel between the ideas of Friedrich von Hayek, who extolled the power of the free market, and Karl Polanyi, who warned that the market should serve man, not man serving the market.

Before WWI, markets generated rapid growth along with soaring inequality. People pushed back, demanding greater political rights, which they used to pursue regulation of the economy and improved social insurance.

After WWII, a mix of a market economy and a generous safety-net made for a happy marriage of Hayek and Polanyi, improved by Keynes, who said that governments should act to prevent economic recessions. This led to a three-decade post-war period of growth unmatched before or since. DeLong calls them the Thirty Glorious Years; from 1945 to 1975, as the US and Europe recovered from World War II.

But when growth sagged and inflation rose in the 1970s, voters supported politicians promising market-friendly, or “neoliberal”, economic growth reforms, like lower taxes and reduced regulation. But those reforms didn’t keep economic growth high. And they also led to even worse inequality. Still, the US and other rich countries pressed on with them, right up to the 2008 global financial crisis, which marks the end of DeLong’s 20th century.

According to a paper by Carter C. Price and Kathryn Edwards of the RAND Corporation, had the more equitable income distribution that America experienced in those thirty glorious years stayed constant, the aggregate annual income of Americans earning below the 90th percentile would have been $2.5 trillion higher in just the year 2018. That’s an amount equal to nearly 12% of GDP.

Price and Edwards say that the cumulative inequality cost for our 40-year experiment in government-supported income inequality added up to $47 trillion from 1975 through 2018. And probably equaled $50 trillion by 2020.

That’s $50 trillion that would have made the vast majority of Americans far more healthy, resilient, and financially secure.

So, the big unanswered question is: Can we again return to a period where we see both economic growth and equitable growth? It’s highly doubtful. As DeLong says in Time:

“Our current situation: in the rich countries there is enough by any reasonable standard, and yet we are all unhappy, all earnestly seeking to discover who the enemies are who have somehow stolen our rich birthright and fed us unappetizing lentil stew instead.”

The problem here is that our entire culture, economy and even our civilization is predicated around growth and people haven’t known anything else. Hope you’ve enjoyed the ride.

Time to wake up America! We need to reimagine capitalism, our taxation policies and our welfare scheme if we are to survive. Expect a rough adjustment.  To help you wake up, listen, and watch Bruce Springsteen perform “Darlington County” live in London in 2013:

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Monday Wake Up Call – July 11, 2022

The Daily Escape:

Penstemon and Paintbrush, with Mt. St. Helens in background – June 2022 photo by Edwin Buske Photography

There are two big economic issues that the media and pundits say will influence the 2022 mid-terms: inflation, and the possibility of a recession.

Let’s start with the scare of a looming recession. Most Americans have been told that a recession occurs when real GDP contracts for two consecutive quarters. Sounds easy to figure out, but this definition wasn’t met in two out of the last three recessions. Some facts: The 2020 downturn lasted just two months, not two quarters. And during the 2001 recession, real GDP didn’t contract for two quarters in a row either.

The difference is that recessions are determined not by pundits but by a group of economists at the National Bureau of Economics (NBER), and they use several measures beyond GDP to make it official. Here’s how they explain it:

“A recession is a significant decline in economic activity spread across the economy, normally visible in production, employment, and other indicators…”

They go on to say that:

“There is no fixed rule about what measures contribute information to the process or how they are weighted in our decisions.”

In recent decades, the two measures that have had the most weight are real personal income and non-farm payroll employment. So, despite what you’re hearing from pundits about GDP, it basically boils down to income and employment. If income and employment turn south, there’s a good chance economic output will be lower.

But after two quarters of 2022, while output is slowing, income and the labor market are both still solid. The WSJ quotes Robert Gordon a Northwestern University economics professor and member of the NBER’s committee that decides on recessions:

“We are going to have a very unusual conflict between the employment numbers and the output numbers for a while…”

The US economy added 1.6 million jobs in the first quarter, and another 1.1 million jobs in the second quarter. Those numbers certainly don’t look recessionary, despite what the media is trying to tell us. U6, which is a measure of underemployment declined -0.4% to 6.7%. This is a new all-time low for U6, which has been tracked since 1994.

It may seem like splitting hairs to talk about the definition of a recession. But we need to be prepared for the coming political scenario where some argue we’re in a recession while others will refute that idea vigorously.

In this mid-term season, things are going to get weird.

Let’s turn to the scourge of inflation. It is among the first stories on the local news every night, but you might not know that as Paul Krugman says:

“The wholesale price of gasoline has fallen about 80 cents a gallon since its peak a month ago. Only a little of this plunge has been passed on to consumers so far, but over the weeks ahead we’re likely to see a broad decline in prices at the pump….what are the odds that falling gas prices will get even a small fraction of the media coverage devoted to rising prices?”

That seems to point to profit taking by the petroleum corporate interests. Have you noticed how much profit they have made lately? ExxonMobil plans to buy back $30 billion of stock this year with the extra money that we all paid at the pump.

Last Friday, PBS talked about a looming wage-price spiral, a neoliberal concept that says rising wages drive prices. But the annualized rate of wage growth, comparing the last three months (April, May, June) with the prior three months (January, February, March), was 4.3%,down from a previous annualized rate of 6.1%.

This is big since the Fed’s plans for aggressive interest rate hikes is based on its concern about a 1970s-type wage-price spiral. It is impossible to have a wage-price spiral when wage growth is slowing. The current 4.3%  wage growth is less than one percent higher than the 3.4% rate in 2019 when inflation was comfortably below the Fed’s 2.0% target.

Retailers are now stuffed to the gills with merchandise. What happened was that all of the product that was stranded at sea has finally reached store shelves. They will hold massive sales this fall to get rid of it, and that will lower prices.

The lockdowns in China are mostly over, last year’s fiscal stimulus has worked its way through the economy, and the Fed has begun sharply raising interest rates.

Krugman feels that as the economy weakens, the prospect for sustained inflation is receding.

Time to wake up America, don’t get demagogued by the scary economic terms that the politicians will throw at you. To help you wake up, let’s listen to Barenaked Ladies – “If I Had a Million Dollars” Live in Michigan in 2007:

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Some Factors Affecting The Mid-Terms

The Daily Escape:

Before dawn, Kennebunkport, ME – June 2022 photo by Eric Storm Photo.

Even though the first public hearing about the Jan. 6 attempted coup happened last night, Wrongo doesn’t intend to write about them for a few days. The hot takes are all over the media, and it’s doubtful that we will know much about how the public is reacting for a few weeks. Once again Wrongo cautions that the media will cover this like a political contest when it isn’t. It really is about the health of our democracy.

And did you realize that only 21% of Americans over 18 read a newspaper every day? Cheryl Russell of Demo Memo has statistics from the General Social Survey showing how precipitously newspaper readership has fallen. She says that in 1972, 69% of the American public read a newspaper every day:

“Now, the share of adults who never read a newspaper (40%) is far greater than the share who read a newspaper daily. Fully 57% of the public reads a newspaper less than once a week…”

This also has implications for how broadly the findings of the Jan. 6 committee will be shared. As does the fact that FOX won’t be airing the hearings and plans to counter-program with GOP members of the House and Senate presenting real-time disinformation as the facts are aired.

Speaking of not knowing the facts,  YouGov reports on an economic survey showing that seven out of 10 Republicans think we’re currently in a recession. More than half of all independents and 43% of Democrats also think the same. They sampled about 1,500 US adults online between May 28 – 31, 2022, with a margin of error of ± 3%. Here are the results:

How can we be in a recession when our unemployment rate is at 3.6%? When wages are up 5.6% over the past year, and consumers still are spending money like crazy?

People may believe we’re in a recession, but the US economy added 1.2 million jobs in the past three months. Yes, inflation is the highest it’s been in 40 years, but higher gas and food prices don’t mean we’re in the midst of an economic slowdown. Maybe the survey was poorly worded, or maybe, since people really never read in depth about what’s really going on in America, they never learn what’s really happening. This will be very damaging to the Democrats’ mid-term chances.

Next, you may have heard that there was a “political earthquake” in the California primaries, that Dems did poorly because of the “crime” issue, and that will hurt Democrats all across the nation.

A recalled San Francisco District Attorney didn’t cause an earthquake, and neither did a Republican-turned-Democrat’s advancing in the LA Mayor race. Former Republican and billionaire Rick Caruso spent $40 million on his mayoral primary! His opponent, Karen Bass, spent $3 million on her campaign. He won the primary by 3 points, although she is the likely winner in November.

What WAS an earthquake was the anemic voter turnout. Only about 19% of California’s registered voters actually voted.

There was no sign of an anti-Democratic wave in CA. Candidates from both parties that were expected to make the general election did so. Probably the weakest performances by incumbents were posted by Republicans David Valadao and Young Kim, who struggled to defeat challengers running to their right. In particular, Valadao, who voted to impeach Trump, appears to have advanced to the general election.

And in CA-41, moderate Democrat Will Rollins advanced to the November election against Republican incumbent Ken Calvert, who voted to overturn the 2020 election results. Rollins has a decent chance to win in November in what is a 50-50 district.

Finally, Larry Sabato reports on the redistricting landscape now that most state redistricting is complete:

  • The total number of competitive districts has declined from 84 to 75.
  • The number of super-safe Republican districts (those where Biden won 40% or less) increased from 112 to 131.
  • The number of super-safe Democratic seats, 127, while similar to the Republican total, is down slightly.
  • There are 211 seats where Biden received 49% of the vote or less, and 202 seats where he won 53% or more.

Sabato’s Crystal Ball rates Republicans having 214 seats as safe, likely, or leaning Republican. That means that if they hold those seats, they are just four additional seats from controlling the House. They rate the Democrats as having 193 seats as safe, likely, or leaning Democratic.

That means if both Parties hold serve, there are just 28 seats in play in the 2022 mid-terms. For the Democrats to retain control of the House would require them to win 25 of those 28 seats.

If the Dems want to retain control of the House, what message should they be telling voters who: a) Don’t read newspapers; b) Think the economy is crashing; and c) Fail to turn out in Democratic and Independent-leaning Congressional Districts?

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Biden’s Economy is Booming

The Daily Escape:

Sunrise with moon, Utah Lake, UT – December 2021 photo by Karen Lund Larsen

Bloomberg reported on Monday that the US economy is outperforming the world by the biggest margin in the 21st century. Surprisingly, they say that there’s a good reason:

“America’s economy improved more in Joe Biden’s first 12 months than any president during the past 50 years…”

They say that the objective economic data are pretty convincing about the Biden Boom of 2021, notwithstanding the contrary media narrative that seems to be driving poor public opinion. Biden is either in first place compared to recent American presidents, or at number 2 on all the big economic indicators, says Bloomberg’s Matt Winkler:

“Exceptional returns…especially the S&P 500 Index in both absolute terms and relative to its global counterparts, can be attributed to record-low debt ratios enabling companies to reap the biggest profit margins since 1950. Corporate America is booming because the Biden administration’s Covid-19 vaccination programs and $1.9 trillion American Rescue Plan reduced the jobless rate to 4.2% in November from 6.2% in February, continuing an unprecedented rate of decline during the Covid-19 pandemic.”

Also, inflation-adjusted GDP surged at an average annual rate of 5.03% in each of the first three quarters of 2021 and is poised to hit 5.6% for the year based on the preliminary estimates of more than 80 economists surveyed by Bloomberg. If that forecast holds up, it would be more than 2.8 times the average performance between 2000 and 2019. And double the average since 1976.

More from Bloomberg:

“All of which makes Biden’s first year in the White House the standout among the seven previous presidents, based on ten market and economic indicators given equal weight. According to data compiled by Bloomberg, no one comes close to matching Biden’s combination of No. 1 and No. 2 rankings for each of the measures:

Gross domestic product (1)

Profit growth (1)

S&P 500 performance (2)

Consumer credit (1)

Non-farm payrolls (2)

Manufacturing jobs (2)

Business productivity (2)

Dollar appreciation (2)

S&P 500 relative performance (2)

Per capita disposable income, which rose 1.08% this year, is the only comparable weakness for Biden, trailing Donald Trump’s 2.17%, George W. Bush’s 2.01%, Jimmy Carter’s 1.80% and Ronald Reagan’s 1.42%.”

GDP growth in year one of each new administration during the past four decades had never exceeded 2.74% until 2021. Bloomberg goes on to say that Biden might surpass Carter (5.01%) as the GDP growth champion of presidents since 1976.

Much of the credit goes to The American Rescue Plan, which poured $66 billion into 36 million households. The child tax credit reduced the child poverty rate by 50%, helping the US recover faster from the pandemic than most other nations.

That’s the same child tax credit that just expired, and that Sen. Joe Manchin is vociferously against.

The downside to those record corporate profits is that they are not being shared with workers. We know that in 2021 economic inequality got considerably worse, even with Biden’s recovery act putting $ billions in the pockets of American families.

Like Jimmy Carter, Biden now faces the political fallout of accelerating inflation. The NYT’s Neil Irwin wrote about how high inflation and  the never-ending pandemic are depressing Americans’ attitudes about the economy. He adds that it’s easy to recall Carter’s inability to deal with inflation in the 1970s, until the Fed’s Paul Volcker threw the economy into a deep recession. Back then, Carter took the political fall for the Volcker policy. Reagan got full credit for the recovery.

Once again, fear of inflation is everywhere in the press, but as Wrongo wrote:

“Back in 1980, when then-Chair of the Federal Reserve Paul Volcker raised interest rates high enough to throw the US into a recession and end inflation, inflation had averaged 6.9% for the previous 11 years.”

And while inflation’s averaging 6.81% for this year, it isn’t comparable, because of the amazing growth in US GDP and corporate profits, along with the chronic product shortages due to supply chain issues.

But contrast today to December 1981, when Reagan had been president for 11 months, just as Biden is now. Conditions were substantially worse: The unemployment rate was 8.5% and would keep rising throughout 1982. Inflation was 8.9%, and consumer sentiment was in the tank.

People believe what they’re told by the press and pundits. That in part explains Biden’s low approval ratings, along with the GOP’s master class of blaming Biden for a disastrous economy that was really caused by Trump’s inaction on Covid.

Keep all this in mind. Overall, Biden’s doing a very good job with the economy.

Time for another Christmas season tune. Here’s a group of UK theater performers called Welsh of the West End performing the Mariah Carey classic, “All I Want for Christmas is You” on a zoom call. Perfectly appropriate for Christmas with Omicron:

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Can Biden Whip Inflation?

The Daily Escape:

Lone Rock, Lake Powell – November 11, 2021 photo by Ron Broad. This shows how dramatic the loss of water has been in the lake. One commenter said it was possible to boat completely around the Rock in July 2021!

The country is facing a series of problems that, if unresolved, point towards a bloodbath for Democrats in the 2022 mid-term election. An ABC poll, released this weekend should be a wake-up call. Here’s a chart showing early mid-term voting preferences by Party:

On a generic ballot, it shows that the Democrats and Republicans have swapped places since 2017. Today the Dems are supported by just 41% of those surveyed, down from 51% in 2017.

It’s true that relying on polls conducted of just 882 registered voters via landlines, as this poll was, isn’t the only thing Democrats should build their political strategy on. But ABC’s result is similar to others.

People are frustrated with the economy, because they see how everything is getting much more expensive, and they’re blaming the government and politicians. They’re not blaming the Federal Reserve’s expansive policies, because the polls never ask about the Fed, and because most people don’t understand how it works.

Consider this: 62% said the Democrats were out of touch with the concerns of most Americans. One dimly positive note was that Americans didn’t rate Republicans much better, with 58% considering them out of touch. The economy was among the key factors: 70% said the economy is in bad shape, up from 58% in the spring. About half blamed Biden for inflation. And his approval rating of handling the economy plunged to 39%, with 55% disapproving.

Biden doesn’t control prices, but try telling that to consumers. People who make a living by selling their labor have seen recent wage increases get eaten up by higher rents, home prices, food prices, gasoline prices and higher new and used-vehicle prices.

But you can always find an economist or a political writer who minimizes an impending political problem. That’s the kind of thing that Wrongo said yesterday was a bad strategy for Democrats. Here’s Dean Baker: (emphasis by Wrongo)

“The October Consumer Price Index data has gotten the inflation hawks into a frenzy. And, there is no doubt it is bad news. The overall index was up 0.9% in the month, while the core index, which excludes food and energy, rose by 0.6%. Over the last year, they are up 6.2% and 4.6%, respectively. This eats into purchasing power, leaving people able to buy less with their paychecks or Social Security benefits….While the stretch of high inflation has gone on much longer than many of us anticipated, there are still good reasons for thinking that inflation will slow sharply in the months ahead.”

Needless to say, if inflation continues at rates not seen since the 1970s until the 2022 election, no voter will see it as transitory and that won’t be good for Democrats.

Biden has signed his $1 trillion infrastructure bill, hoping that the legislation will help jump-start a Democratic political recovery. His infrastructure plan may not add to inflation, but inflation in the most important things that consumers either notice and care about – food, gasoline,  cars, and houses – doesn’t seem transient.

Biden has a few tools at his disposal. He’s doing what he should to address the microeconomic aspects of inflation: trying to increase capacity at ports, expanding microchip production and he’s considering a release of raw materials from the National Defense Stockpile. The biggest lever he hasn’t pulled is a tariff reduction, especially on goods from China.

Richard Nixon instituted price controls in 1971, They were the first and only peacetime wage and price controls in US history. After a 90-day freeze, increases would have to be approved by a “Pay Board” and a “Price Commission,” with an eye towards lifting controls, conveniently for Tricky Dick, after the 1972 election. His action led to greater inflation, not something any of us should want to see.

From Jason Furman in the WSJ:

“Ultimately inflation is a macroeconomic problem. It’s the Fed’s job to keep it under control….Policy makers at the Fed need to recognize that tools like asset purchases can’t solve the supply-side problems constraining US labor markets and output. They have a dual mandate. They have to take inflation into account even if the economy isn’t yet at maximum employment.”

Biden can pick a different Fed Chair, and there’s an additional vacant seat on the Fed’s board.

Biden can also be jawboning America’s CEOs about gas and food prices. Otherwise, he has no cards to play. All he can do is wait for supply and demand to turn back toward equilibrium, and hope that it happens in the next six months. If inflation turns around, Biden will get some credit.

If it doesn’t, you could see President Trump waddle back into the White House in 2024.

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Yellen Says Higher Interest Rates Are OK

The Daily Escape:

La Jolla, CA – photo by Russ Harris photography

Janet Yellen made news for a second time, announcing on Sunday, in an interview with Bloomberg, that higher interest rates would be a “plus” for America. She probably has a fairly good idea of how the Federal Reserve is thinking, since she was its Chair prior to becoming Treasury Secretary.

The issue in her interview was whether inflation would continue growing if Biden’s infrastructure bill is passed, and we spend an additional $4 trillion over the next 10 years. Yellen said that it wouldn’t create enough inflation to cause economic concern. She said that the current spurt in prices powered in part by the Covid stimulus, is just temporary, and would fade next year.

But Yellen also said that if current price increases turned out not to be temporary, and it triggered more persistent inflation, the concomitant higher interest rates wouldn’t be a bad thing:

“We’ve been fighting inflation that’s too low and interest rates that are too low now for a decade….We want them to go back to a normal interest rate environment, and if this helps a little bit to alleviate things then that’s not a bad thing – that’s a good thing.”

Current Fed Chair Jerome Powell must surely see this as political cover for any near-term rate hikes, but opinions differ today on whether we’re in for a new run of inflation. We have some data that’s worrisome. Economic theory explains why we probably should be worried. And yet, we have plausible-sounding explanations as to why things are actually okay.

The younger generations may have trouble believing how dark things seemed in 1979 when President Carter appointed Paul Volcker Fed chairman. Some of us remember inflation that hit 14% in 1980. Unemployment trended up to 9.7% in 1982. Oil prices had jumped off the charts.

Volcker took dramatic steps to rein in the runaway inflation by tightening the money supply, which drove the Prime Rate to 21%. His actions led to not one, but two recessions before prices finally stabilized.

Nobody wants to see that type of inflation recur now, but low interest rates have increased wealth inequality in the US. Soaring stock and housing prices are a direct consequence of interest rates that remain reliably low. When this happens, people can borrow money for less than they can make by investing, and newly printed dollars that continue to pour into the markets ensure that prices will continue to rise.

And this low-rate scenario benefits those who already have lots of stock and real estate.

How could Elon Musk make $142 billion in 2020 when total revenues (not profits) at Tesla and SpaceX were less than half that number? Share prices in both companies rose with demand from investors with too much cash in their pockets. The growth in Musk’s fortune is based on the inflated share prices of both firms.

Yellen’s underlying message is that if the Fed maintains its low interest rate policy, more cheap money will flow into the pockets of people who really don’t need it. She’s correct when she says rates have been too low for a decade. It’s created an asset bubble, particularly in stocks and real estate. Today’s prices are no longer grounded in reality.

As for how to unwind the bubble? Good luck: Very few people will be happy if the stock market drops, or if the value of their home drops, say, just before retirement.

And like all things, inflation is political. House Republicans are working to undermine Biden’s economic agenda by zeroing in on voters’ latent fear of inflation. They are circulating a memo with the subject line: “Tie Biden Agenda to Inflation.” It tells members to “explain to voters how inflation is Democrats’ hidden tax on the Middle Class.”

The GOP is attempting to stir up fear of an impending economic downturn just as businesses are beginning to reopen after a year of being impeded by Coronavirus restrictions. They’re also saying that taxpayer dollars being put toward Covid relief and unemployment benefits will tank the economy.

The GOP is also using a WaPo op-ed by Larry Summers. Summers was Clinton’s Treasury secretary, and he was a former director of the National Economic Council for Obama. The article warns of the risk of sharply rising inflation expectations.

Ultimately, we’ll see if the inflation scare-mongering by Larry Summers is real.

What should we believe about inflation and interest rates? It doesn’t matter what we believe. What matters is what the market thinks. And if the market suddenly stops believing the explanation as to why these inflationary pressures are temporary, we’ll see rates rise bigly.

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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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Capitalism Must Be Reformed

The Daily Escape:

Mt. Fuji, Japan at sunset – November, 2018 photo by miles360x

From the Economist:

In 2016, a survey found that more than half of young Americans no longer support capitalism.

One reason that young people have lost faith in capitalism is the exceptional market concentration that has taken place in the US in the past few years. US firms have gotten bigger, often by acquiring their competition. This is true across many markets. Vox reports that: (parenthesis by Wrongo)

Four companies…control 97% of the dry cat food sector: NestlĂ©, J.M. Smucker, Supermarket Brand, and Mars. According to the report, NestlĂ© has a 57% (share of)…the industry, owning brands such as Purina, Fancy Feast, Felix, and Friskies. Altria, Reynolds American, and Imperial have a 92% market share of the cigarette and tobacco manufacturing industry. Anheuser-Busch InBev, MillerCoors, and Constellation have a 75% share of the beer industry. Hillenbrand and Matthews have a 76% share of the coffin and casket manufacturing industry.

On November 26th, the Open Markets Institute, an anti-monopoly think tank, released a data set showing the market share of the largest companies in each industry. Pulling the data together was a challenge, because the FTC halted the collection and publication of industry concentration data in 1981, during the time of Ronald Regan. Now, David Leonhardt of the NYT has turned it into a table:

As you can see, big companies are much more dominant than they were just 15 years ago. More from Leonhardt:

The new corporate behemoths have been very good for their executives and largest shareholders — and bad for almost everyone else. Sooner or later, the companies tend to raise prices. They hold down wages, because where else are workers going to go? They use their resources to sway government policy. Many of our economic ills — like income stagnation and a decline in entrepreneurship — stem partly from corporate gigantism.

Sarah Miller, deputy director of the Open Markets Institute, told Vox: (brackets by Wrongo)

… [When] you go to the store, you see all of these brands, but guess what? They’re all being operated by the same companies…She called the system a scam economy where competition is an illusion, and choice is an illusion.

The primary issue with corporate concentration is its potential to drive up prices. The fewer sellers, the fewer choices consumers have for goods and services, and thus, there is less pressure for the big competitors to hold prices down.

Even if many consumers don’t immediately realize they are victims of concentration, it’s visible when millions of homes only have one internet provider. Or, when four cellphone providers control 98% percent of the market (Verizon, AT&T, T-Mobile, and Sprint). And if the T-Mobile and Sprint merger plan goes through, there will be just three.

Ultimately, monopolies aren’t just an economic problem. They are also a political one. Democrats believe that anti-monopolism can be a political winner. It’s a way to address voters’ anxiety over high drug prices, digital privacy, and low wages.

We have been at this rodeo before. At the start of the 20th century, we broke up monopolies in railways and energy. In 1984, we broke up AT&T, only to see the “Baby Bells” recombine in the 1990s. We’ve simply stopped enforcing our anti-trust laws over the past 40 years.

Meanwhile, the public has been manipulated to believe that ever larger companies are in their best interests. We celebrate the “right” of large corporations to operate in unfettered ways.

But, Econ 101 shows that the trajectory of a monopoly starts with economies of scale, and ends with economies of exploitation. And remember that six corporations own 90% of the media. We won’t hear much about wrongdoing at Amazon from the Washington Post.

The required anti-trust laws are already on the books, but interpretation of them has changed over the years under Republican administrations. Eventually, we will have to break up existing giants, like we did before. One obvious candidate is Amazon, a company that will soon dominate the supply chain and all logistics in the US.

Facebook, which has gobbled up Instagram and WhatsApp, may be another candidate.

America is very late in addressing the negative outcomes of free markets, so there’s no time like the present to begin to Make America Love Small Business Again.

Voters need to push for anti-trust enforcement, which can only be done by the federal government. We have to insist that the protection of citizens is more important than protecting the 1%.

Let’s close with this quote from Louis Brandeis: “We may have democracy, or we may have wealth concentrated in the hands of a few, but we can’t have both.”

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