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Ballooning Debt & Deficits: How the Republicans are Making America “Great (in Debt)” Again

By Shlomo Maital

You, dear reader, are as tired of reading about the Republicans’ iniquities as I am of writing about them. Hopefully – this is the last blog on the subject for a very long time.

   The Trump Administration has made hypocrisy an essential element of everything they do, with unqualified support of Republicans, both in the House of Representatives and the Senate.

     The latest 2-year budget?   It calls for massive spending increases in defense and non-defense items, without showing how to pay for them. Add this to the unfunded tax cut.  The result?

* The ratio of debt to GDP will rise to 109% by 2027, and

*   the spending bill will add $1.2 trillion to the deficit by 2019.

   Under Obama, the Republicans rioted over Obama’s free-spending budgets. But it is a fact – deficits have risen far more under Republican presidents (remember Reagan’s tax cuts, unfunded?) than under Clinton and Obama. Clinton in fact balanced the budget!   Obama ran a small deficit.

     Make America great again?   Here is how Trump is doing that.

     Here is the list of countries with triple digit (over 100%) debt to GDP ratios:   Portugal, Italy, Eritrea, Belgium, Mozambique, Japan.

       You’ve done it Trump! You have managed in just one year to help America gain entry, very soon, to this unique club of great nations, with GRRRREAT debt to GDP ratios. America will soon drown in debt, on the Republicans’ watch.   Does this bring new meaning to the word “political hypocrisy”?  

     I predict this Trump Tweet:   GREAT world-leading debt ratio.  Historical. Fabulous.  Debt is great. I know — I did borrow and then bankrupt. Watch me bankrupt America too…piece of cake.  Make America broke.

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World Economy: Best in Years

By Shlomo Maital

The recent one-day dramatic drop in the US stock markets, about 6%, has brought panic to investors – especially to every-day ones who manage their 401K accounts. It embarrassed President Trump, who speaks daily of the booming stock market and the “$8 trillion in new wealth” that it has created.   He has ignored the drop, and his spokespersons revert to speaking about the strong economy.

   So here is the basic truth.   The global economy, for the first time in over a decade, since the onset of the global financial crisis of 2007-8,   is expanding everywhere – United States,   Europe, Asia.   This synchronous expansion is of course amplifying economic growth and employment and job creation in each of the three key regions.

   The graph above, from Ifo Munich, shows “actual” on the x-axis and “expectations” on the y-axis, for the EU region, which is about the same size as the US economy.   It indicates that the EU economy is squarely in the upswing upper right quadrant, after a very long time being remote from it.   The economy is growing, and people expect it to continue.

     I hope small investors do not panic and bail out of their stocks, giving unwarranted profits to the sharks, and that they take into account this global synchronous acceleration, which I think will continue for a while. I hope also nobody will attribute this to what politicians, including Trump, are doing or have done.   This is simply a cyclical pattern, as people and businesses expand their spending after years of belt tightening.   It will end some day — but hopefully not too soon.      

Why do we disagree? And how can we reglue society? 

By Shlomo Maital

     It does seem as if the world is falling apart.   Whole nations are coming part (Spain, perhaps Italy, Iraq, Syria). Within nations, divisive bitter arguments pit one family member against another.  

   But why? Why now?

   I think moral psychologist Jonathan Haidt (U. of Virginia) has a persuasive answer. *

     He was recently interviewed on US Public Radio (WBUR). He explained that he believes there are five core values, or moral principles, that are strongly believed in, in society. They are: Harm/care (avoid harming others, care when they hurt or suffer, be empathic); Fairness/reciprocity (be fair, give as you receive); In-group loyalty (be loyal and true to your specific ethnic/social group); authority/respect (honor and respect whoever is in charge); purity/sanctity (follow religious practice, hold certain things sacred).

     Politically: Those who are very liberal give very high importance to “care” and to “fair”.   (See graph above).   Those who are very conservative attach high importance to loyalty, authority and sanctity.

     What seems to be happening in the US is that the middle is emptying. The middle class is declining, as people sink in their income, or, in a few cases, grow wealthy. The middle in politics is also emptying. And underneath all this, the ‘middle’ in moral values is also emptying.

     Either we are liberal, and hold above all else the crucial importance of empathy and fairness (equal opportunity, equal wealth holding). Or we hold above all else the vital importance of loyalty, respect, sanctity.  

     If you wonder why very conservative Trump supporters continue to support him strongly despite his statements, falsehoods and incompetence, this graph explains it. Loyalty!  

       Are there inherent tradeoffs or conflicts among these key values? Or can we, by listening and explaining, integrate all these values into a coherent single whole, one that we can all live by,   liberal, moderate and conservative?  

       Barack Obama recently said, that if you get elected by dividing people, you won’t be able to govern them. That is true. America is essentially ungovernable, post-Trump.

     Can we find someone who gets elected by uniting people, around those five core values woven together?    

* Jonathan Haidt. “The new synthesis in moral psychology”. Science, May 18 2007, pp. 998-1000.

Who Best Predicts the Future?   Historians – Here’s Proof

By Shlomo Maital

Which discipline best equips people for predicting the future?

Economics? That’s a joke. Sociology? Psychology?

History! Precisely those who study, record and analyze our past history, are, I think, best equipped to predict our near-term future. And here is proof.

   Arthur Schlesinger Jr. was a primary speechwriter and adviser to the Democratic presidential nominee both times, Adlai Stevenson in the 1952 and 1956 presidential campaigns. Schlesinger served as special assistant and “court historian” to President Kennedy from 1961 to 1963. He was a Harvard history professor and wrote many wonderful books, following in the footsteps of his father, Arthur Schlesinger Sr., a decorated historian. He died in Feb. 2007, at 89.  

   In 1992 he published a short little book, The Disuniting of America: Reflections on a Multicultural Society. In it Schlesinger said this:

   “Instead of a transforming nation with an identity all its own, America increasingly sees itself in this new light as preservative of diverse alien identities. Instead of a nation composed of individuals making their own unhampered choices, America increasingly sees itself as composed of groups more or less ineradicable in their ethnic characteristics.

     Will the center hold? Or will the melting pot give way to the Tower of Babel? …the historical idea of a unifying American identity is now in peril in many arenas…”

The US Presidential election of Nov. 2016 provided the answer. It’s Tower of Babel, or as Senator Corker from Tennessee described it, the White House is a “day care center”.

   We are in the era of identity politics. My identity is determined not by the nation in which I live and sometimes serve, but by the specific ethnic, racial, social, economic, educational, and religious group to which I belong. The “we” of “me” has become very very narrow.   This is true not only in the US but all over the world – former Yugoslavia, Kurdistan, Catalonia….  

   With identity politics, nations split apart.  When the supreme value becomes the celebration of diversity, rather than the cohesive force of national pride and identity, nations fall apart. Electing a leader who leverages this split, like Trump, for political gain is inevitable. And it’s happening all over the world.

   Schlesinger called it. The unifying American identity is gone. He saw this coming  25 years ago, in 1992. But nobody listened.

“The genius of America,” Schlesinger concluded, “lies in its capacity to forge a single nation from peoples of remarkably diverse racial, religious and ethnic origins.”

That genius seems to be gone, mortally wounded by a learning-disabled attention-deficit President who is unable to read a half-page briefing document. The glue that once bonded a redneck gun-toting blue collar worker from Chattanooga to a Harvard-educated Wall St. bond dealer with a summer cottage in the Hamptons is gone.

Only when that glue disappeared do we realize how vital it was to America and to the world.

 

What Happened? Why Hillary Lost..My Take

 By Shlomo Maital

Hillary Clinton has now published her account of why she lost the presidential election: What Happened?   She admits to blame, but also blames many others, including the Russians and Comey.

     She also notes how she was unnerved at a crucial debate, when Trump lurked behind her, scowling. And a headline even praises her for ignoring Trump (see above).

   I disagree. Her is my take on an alternative scenario.

       Hillary:   turning and pointing at Trump.   “Is that the person the American people want to lead them?   Come out here, Mr. Trump, come out into the light where we can see you for what you are – a bully. You bully everyone, you bully women in particular – but Mr. Trump, you can’t bully me. I’m not afraid of you. A man who bullies, who hides in the shadows as you do in your shady business dealings, in your shady bankruptcies, in your hiding your income tax returns…   you are not worthy of the trust of the American people. We don’t like bullies. We don’t like liars. And we don’t like men who threaten women.   We are going to thump Trump on November 8! Thump Trump!”

     Hillary was the first female U.S. Presidential candidate. I recall that Israel had a woman Prime Minister, Golda Meir, who was widely believed to be a lot tougher than her male counterparts. Many criticized Hillary for her emails, her lack of human warmth, etc.   I think she would have won Ohio (and hence the election) if she had shown another quality – toughness. The irony is, Hillary is indeed tough. But the toughness was shown only in private, and rather hidden in public.   Alas!  

 

The Future Is Definitely Not What It Used to Be:

How Distraction Becomes Destruction

By Shlomo Maital

 

Productivity Growth in the US has Been Abysmal Since 2008

   “Americans aren’t saving money the way they used to. U.S. households scaled back their pace of savings to the lowest level in nine years at the end of 2016. At the same time, wage growth slowed, according to updated government figures. The personal savings rate was 3.6 percent in the fourth quarter of 2016, the lowest reading since a 2.8 percent rate in the final three months of 2007, just as the U.S. was entering a recession.”

             – Bloomberg Business Week

       What a week. TrumpCare goes down to defeat. Trump’s new communications director nicknamed “Mooch” spews profanity. The White House Chief of Staff is fired.   LGBT’s are banned from the US armed forces.

         These are all distractions. None have any real relation to core issues troubling America’s society and economy.   When distractions take center stage, distraction becomes destruction.   Replace just two letters in ‘distraction’, and you get destruction!

         So what ARE the core issues?   Americans’ consumer confidence is at a 16-year high! So Americans are spending and borrowing. Saving has fallen. That leaves fewer resources for capital formation. But America needs more saving, not more spending and more personal debt.

       According to Neil Irwin, writing in the New York Times, productivity growth has fallen from a long-term average of 3% to less than 1%. (see graph). That is because wages haven’t risen, so it no longer pays to invest in labor-saving technology, which raises productivity.

       America’s infrastructure is crumbling, it has been for years, but there is no money to pay for rebuilding it. Trump’s plan is to have the private sector rebuild it. How likely is that?    

         No Administration has been this dystopic, dysfunctional, perhaps in history. And it’s a doom loop. The more dysfunctional it is, the less good capable people are willing to join it. Who wants to board a sinking ship?

         Suppose America was a company whose shares were listed on the stock exchange. Would you sell them short?   Many people would.   The major worry is not the economy. It is this — in the coming year, it is highly likely that there will be a major, unanticipated Black Swan crisis. Could be North Korea, Iran….Mideast… who knows?  

     What are the chances that the Trump Administration will handle it coolly, professionally, with good judgment and wisdom, in a way that benefits not only America but the whole world?

       Read Barbara Tuchman’s March of Folly (1985). Here is the definition of folly: “Government decisions that are against its own interests”.   Can you see folly in the distractions of the Trump administration?   Can you see destruction?   And can we interpret the boom in consumer spending as a no-confidence vote in the future?

How to Explain Global Warming to Donald Trump

By Shlomo Maital

                              Ocean Temperature 1880-2017

Dear President Donald Trump,

       Donald, sir, I have a problem. How do I explain global warming and climate change to someone like yourself, with the attention span just a bit less than a goldfish ?   Who does not read anything, and gets information from Fox News? To someone with untreated attention deficit disorder from childhood ?

     Hmmm.

     Here is my best shot.

     Suppose this next sentence is a Tweet, Donald. Read it as such. I mean no disrespect.

         93 per cent of the added heat generated by global warming is absorbed by the oceans; only 7 per cent, by the air.

         That’s only 23 words.   Well within 140 characters.

         Don’t believe it? Please, look at the graph. OK?

         Why is warmer ocean temperature a problem?   Why do we care that up to 30% of the Great Barrier Reef has already disappeared, because the coral can’t stand the warmer temperatures?

         Well, Donald, let’s take your own body. Uh, rephrase that. YOU take your own body. Suppose you are running a temperature. Say, two degrees. Instead of 98.6 F., 100.6 F.?   Would you go to a doctor? Feel ill? Take medicine?

         Well, the ocean is like our human bodies. It is feeling unwell. And it has been running a fever for quite a while. And it is getting worse. Your decision to leave the Paris Agreement made the oceans feel sicker.

         So while we think global warming is about, say, heat waves, it is really about destroying the ecology of our oceans and melting the ice caps.   The oceans are huge heat sinks. And they just don’t like it all, nor do the creatures who live there.

     Oops.     286 words. Too long. I’ve lost your interest.

     Can anyone help? Maybe – the Russian spooks you seem to love?

 

Marshall Plan: 70 Years

By Shlomo Maital

   Almost 70 years ago, Gen. (retired) Herbert Marshall gave the commencement address at Harvard University, on June 5, 1947. No such address then or now has had a greater impact. In his talk Marshall, a retired five-star general, offered war-torn war-destroyed Europe generous financial aid, $11-$13 b. (in today’s dollars, about $130 b., or 1.5% of the US GDP then). It was offered to Russia and Eastern Europe, too.

     There was only one condition, Marshall said. Europe has to decide how to divide the money among the member countries. If America decides, there will endless bickering.

     Marshall’s talk was broadcast on the BBC.   British foreign secretary Ernest Bevan heard it, and at once called his French counterpart. A meeting was quickly convened in Paris, a committee was launched, and the wheels were set in motion. The aid soon flowed. The rest is history. Without those resources, European recovery would have taken far far longer, and the German economic miracle would not have happened.   Never in history has a winning nation paid money to the losing nation in war (compare with the Treaty of Versailles, when Britain and France stripped Germany bare, in war reparations for World War I, and directly led to World War II and the rise of the Nazis).

     There is a key lesson in the Marshall Plan, which stands in stark contrast to modern Trumpism.   Marshall Plan indeed put “America First” – but how? By perceiving that only if Europe achieved strong economic recovery, built on market economics but with a strong social component, would Europe remain friends with America. And that was America’s vital interest.   Do you help yourself, by screwing your friends, or by helping them? It’s that simple.

     Today, economists call the Marshall Plan “incentive compatible”. That is, it is a plan that built-in encourages those it intends to help, to engage in constructive appropriate behavior. In the case of Europe: Stop squabbling, and start cooperating. This led directly or indirectly to the European Union.

       We need more plans that are incentive-compatible. Sometimes, what seems like altruism – helping others – is actually exceedingly self-serving. That was the secret of the Marshall Plan.

       And Marshall? He was a five-star general, a genius at organization, deeply bitter and frustrated because President Roosevelt would not send him over to Europe to fight, but instead kept him home to organize the 8 million US troops sent to fight. I need you here, said FDR.   As Secretary of State, Marshall brought great wisdom and skill to the job. The Plan he initiated is his immense legacy, one that changed the world forever.

 

Understanding Trump: Dunning-Kruger Cognitive Bias

By Shlomo Maital

     Having trouble understanding President Trump?   Read thousands of words and columns, blasting Trump, but you still (like me) do not understand who IS this guy?

     Read David Brooks (Op Ed, New York Times, May 15)….   He has figured it out. Trump has a syndrome. Dunning Kruger Cognitive Bias.

       What is it?   Here is the definition: *

     Across 4 studies, the authors found that participants scoring in the bottom quartile on tests of humor, grammar, and logic grossly overestimated their test performance and ability. Although their test scores put them in the 12th percentile, they estimated themselves to be in the 62nd. Several analyses linked this miscalibration to deficits in metacognitive skill, or the capacity to distinguish accuracy from error.

     Meaning?   Incompetent people think they are more competent than they are, precisely because…they are incompetent. Trump highly overestimates his abilities (“best speech ever to Congress on healthcare”,   “how to fix America’s aircraft carriers”, etc.).

       People with Dunning-Kruger, who lead nations, are very very dangerous. Not knowing is one thing. Not knowing you don’t know is quite another. And when you lead the world’s most powerful, wealthy nation?   Disaster. Moreover, people around Trump cannot control him, and are fired abruptly when they oppose him, a corollary of Dunning-Kruger.  Trump is at the summit of Mount Stupid (see diagram), and since January 20, has proven to be there with blunders almost daily.

       What will happen?   Let’s see if America’s constitution and political institutions are capable and resilient enough to deal with this disastrous cognitive bias.

 

* Kruger, Justin; Dunning, David “Unskilled and unaware of it: How difficulties in recognizing one’s own incompetence lead to inflated self-assessments.” Journal of Personality and Social Psychology, Vol 77(6), Dec 1999, 1121-1134.

 

 

The World Economy: Upbeat

By Shlomo Maital

 “Ifo” is a German research institute that sends out regular questionnaires to experts, with two parts: the first, about global conditions, and the second, about local (country) conditions. I respond to the questionnaire regularly.

   Here is Ifo’s latest assessment:

       Munich, 11 May 2017 – The ifo World Economic Climate improved markedly in the second quarter, with the indicator rising from 2.6 points to 13.0 points. Experts’ assessments of the current economic situation were considerably more positive, making their sharpest increase since January 2013.

       Not only did the global economy improve, but so did expectations about the future:

   Economic expectations also improved. A further recovery was seen in the world economy in the second quarter. The ifo World Economic Climate improved in nearly all regions of the world. The main drivers remained the advanced economies, and especially the European Union. Both assessments of the current economic situation and expectations continued to follow an upwards trend in most countries.

   As usually happens, the upbeat outlook is not uniform. Latin America and Africa and the Mideast lag:

In Latin America assessments of the economic situation remained largely poor, but expectations brightened markedly. There was also a significant improvement in the developments and outlook for emerging and developing economies. Africa and the MiddleEast were the only regions in which the economic climate deteriorated. The outlook for Turkey also remained overcast.

     The common denominator? Politics. Politics in Turkey, the Mideast and Latin America are rather chaotic (checked out Venezuela lately?)   Politics in Europe seem more positive, with the voters rejecting the far right. In America, politics are chaotic but this is not new…

   So, despite Trump, and an anti-globalization anti-trade sentiment sweeping the world, the world economy seems resilient. A new China-US trade deal is in the offing.     One dark cloud on the horizon – Brexit. The EU seems in a vengeful mood, and some there want to teach Britain a lesson. This would be a huge mistake. Hopefully wiser heads will prevail.

Blog entries written by Prof. Shlomo Maital

Shlomo Maital
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