You are currently browsing the tag archive for the ‘Trump’ tag.

 Kids Sue Elders: Is This What We’ve Come To??

By   Shlomo Maital

   I recently wrote a column in the fortnightly magazine Jerusalem Report, titled “Waging War on our Children”. The title was a direct quote from Professor Larry Kotlikoff, Boston University. Kotlikoff pioneered economic studies of “intergenerational equity” – how one generation passes on a better (or a worse) economy and society to the younger generation.

   Today, Kotlikoff’s meticulous studies show, it is …worse! Much much worse. Because, when you take the present value of US spending obligations (education, health, pensions), and the present value of US tax revenues, there is an enormous fiscal gap of $200 trillion, or 10 times US GDP.   This is the debt burden the US is dumping on its young people. And this is true of other countries too, including my own, Israel.  (see Kotlikoff.net)

       In the latest issue of NATURE magazine (Nov. 8), I spotted this amazing short article.   American ‘kids’ (young people) are suing the government (older generation), for ruining the climate and leaving them with a bloody mess.

       This is a serious suit. Of course the Trump administration seeks to have it dismissed. But the Supreme Court will debate it seriously.

       Is this where we’re at? Is this how low we’ve sunk? Our kids have to sue us, to get us to do something about the god-awful mess we’ve left them?  

       Hey kids. It’s not just the climate. It’s the toxic volatile divisive angry political situation, the hollowed-out economy (industry sent abroad), the spend-and-borrow society, the crummy schools, and much more.   Broaden your suit. Sue us for the mess in general, not just climate change.   Maybe that will wake us up?!

Advertisements

 Peak America? The Numbers Say, Yes!

By   Shlomo Maital

 

   Writing in the Washington Post, (and on his GPS program on CNN), Fareed Zakharia cites Morgan Stanley expert Ruchir Sharma, who argues that America may at this moment be at its peak of economic and financial power – and heading downward.

   “As Morgan Stanley’s Ruchir Sharma has pointed out, the global economy looks as if it’s at “peak America.” U.S. stocks have outperformed the rest of the world this decade, and that sort of trend rarely lasts. The current recovery is now the second-longest in history, and it is due for a downturn. Interest rates are rising, corporate profit growth is slowing, and budget deficits are surging. Even President Trump seems aware of the likelihood of a dip, which is why he has been preparing the ground for it, blaming the Federal Reserve for raising interest rates.”

   Sharma notes this striking fact: US stock markets have tripled in value since 2010, while all other stock markets in the world have risen by only an average of 50%.

   The last time such an imbalance happened? 1999 (just before the dot.com bubble burst). And before that?   1929.

   Zakharia notes:   “Anywhere one goes in the world these days, leaders talk about the United States’ retreat from the world stage. They note that it began before Trump. Most date it to the aftermath of the Iraq War, spanning the administrations of George W. Bush, Barack Obama and now Trump. And while the Trump administration is bellicose in its policies, especially on trade, they are all in service of a Fortress America mentality that seeks less engagement with the world, politically and economically.”

   And he continues: “Foreign leaders also note that the United States is likely to be increasingly constrained by its mounting budget woes. The Financial Times’s Gillian Tett points out that the U.S. government now spends $1.4 billion a day on its debt, 10 times more than the next major industrialized country does. As interest rates rise and more Americans reach the age of collecting Social Security and Medicare, the federal government will be unable to fund much else. Ezra Klein has quipped that the American government is “an insurance conglomerate protected by a large, standing army,” and that is becoming truer every day.”

   Many in the US and abroad loathe President Trump. They should not, however, gloat when he makes America decline (again)   (MAD).   A world with a declining America will be chaotic, violent and troubled.

     Zakharia: “American retreat will not produce a better world. It will be messier and uglier. To get a glimpse of it, look at the Middle East today. As the United States has withdrawn from its traditional role as the region’s power-broker — maintaining relations with all sides and striving to achieve some degree of stability — Iran, Turkey and Saudi Arabia are all jockeying for influence. The United States has simply subcontracted its policy to Riyadh, encouraging the Saudis’ reckless behavior and resulting in the world’s gravest humanitarian crisis, the war in Yemen, where 12 million people are on the verge of famine.”

 

   

 

 

 

State & City Budgets:

Dangerous Hot Potato

By   Shlomo Maital

      US State and Local Budget Deficit/Surplus, 1960-2016

     Amazon has just announced it will split its new headquarters buildings between Long Island City, Queen’s, and Northern Virginia, and a smaller center in Nashville.   According to CNBC: “The company said it will receive up to $2.2 billion in performance-based incentives from the three areas: $1.5 billion associated with its investment in Long Island City, $573 million in Arlington and up to $102 million in Nashville. The incentives take the form of cash grants and tax credits, and some take effect over time.”

     The announcement highlights an interesting fact. As MIT Dean Lester Thurow noted once, companies once paid taxes to cities, and now cities pay taxes to companies (like the huge grants Amazon received). True, Amazon will invest substantially – but giving over $2 billion to a company whose stock is worth $800 billion? That made $3 billion in profit in 2017?   From city budgets that are already strapped? Amazon’s Jeff Bezos, of course, cleverly strategized by creating a competition among cities over who would give him the best deal.  

   And there is a much deeper problem, too.

   The U.S. federal government recorded a $100.5 billion budget deficit in October, an increase of about 60 percent from a year earlier. That is the gap between what the federal government spent and what it earned in taxes, in just one month!. On a yearly basis, the federal deficit is headed for a record 1 trillion dollars, or over 5 % of US GDP. The cause? Mainly, the massive Trump tax cut passed in 2017. Most of it went to businesses, and they in turn spent it on buying back their shares and on dividends. Very little went to capital investment.

     How will this deficit affect ordinary Americans? The press focuses on the massive $20 trillion US public debt that future generations will have to pay, as the federal government borrows tons of money to pay its bills. But there are deeper reasons for concern.

     Many experts predict an imminent slowdown in the US economy – perhaps, a recession. What happened in the last recession that followed the 2008 financial crash?

     According to Tracy Gordon, Brookings Institute, Washington, “More than in past economic downturns, state and local governments were a prominent casualty of the recent recession. States in particular saw their revenues plunge. Although state taxes have been rebounding, local property taxes have dipped, consistent with a two- to three-year lag between home prices and property tax rolls. These reductions coincide with state cutbacks in local aid, further squeezing local budgets.

       [See Figure: State & Local Government Deficit/Surplus 1960-2016]

   Why is this a potential serious problem? Gordon continues,    

     “These are critical issues because states and localities perform most of the activities we commonly associate with government. They undertake most direct spending on public goods and services (including their expenditures from federal funds), and they bear primary responsibility for investments in education, social services, and infrastructure that directly affect our national economy and quality of life. States and localities are also key economic players, comprising 12 percent of Gross Domestic Product (GDP) and employing 1 out of 7 workers – more than any other industry, including health care, retail sales, and manufacturing.”

   In other words, state, local and city governments supply the things that underpin quality of life – health care, education, transportation, infrastructure. They generate one dollar in every 8 dollars of GDP and employ one worker out of every seven.

     So, here is a scenario that is a cause for worry. The US economy goes into recession in late 2019. The trillion dollar federal budget deficit swells dangerously. The federal government slashes spending where it can – cutting financial aid to state governments. State governments (many are constrained by law to balanced budgets) in turn slash their grants to municipal, local and city governments.

     And these, in turn, slash spending on the things that make life pleasant, or bearable, for most Americans. Potholes? Traffic jams? Dangerous roads?   No money available to fix them.

     This is a dangerous game of ‘hot potato’.   And it’s not a pipe dream. It happened in 2010.   Deficit hot potato passes from the federal government to the state government, which in turn tosses it on to local and city government. The buck stops there, and that hot potato burns our fingers. It happened before – it will happen again.

     On a recent trip to the US, my wife and I made frequent use of WAZE. WAZE kindly told us about every pothole. And there were a whole lot of them.   I don’t recall that feature in other countries.

       Even in good times, city budgets are strained. Seeking re-election, mayors spend their money on the short-term, while costly long-term capital spending is neglected. (Why spend money to help some future mayor, maybe a rival, get elected?).  

       There is a solution. Let state legislatures require cities to build five-year capital expenditure budgets, to accompany the one-year operating budgets. Let the federal government help the states and cities pay for interest costs on debt that finances capital spending. Protect those five-year budgets zealously from ‘theft’ (shifting spending from long-term to short-term).  

       Conservatives will scream, socialism!   Five-year plans are used, for instance, in China. OK – ever looked at China’s infrastructure? Fast trains, brand new airports?

       Hot potato crises for city budgets make no sense. It’s time for a change.

        Half the world’s population now lives in cities. By 2050 that will rise to 75%.   How cities spend their money and raise their revenues will have a huge impact on the wellbeing of the people who live in them. And there is a ‘hot potato’ problem. It’s time to fix it.

Blue Collars Lose Ground – Don’t Blame Trade

By Shlomo Maital

 

     Led by the Trump Administration in the US, worldwide there is a counter-revolution against globalization. Right wing governments are being elected in Hungary, Italy, Austria, partly in Germany, and elsewhere, reacting against the ravages of globalization – particularly, the claim that blue collar workers are being scalped by it – by migrants (free flow of labor) and by trade (free flow of goods).

     America, which invented this amazing system that made many emerging economies wealthy (East Asia, primarily) now leads the charge against it.

     And this whole counter-revolution is based on a falsehood. Don’t blame trade. Blue collar woes have another primary cause, according to Harvard University Professor Elhanan Helpman, in his new book Globalization and Inequality. It was not primarily free trade (globalization) that caused the large gap between blue collar and white collar wages.

     Earlier, in 2016, Helpman published an NBER working paper * showing this (typically understated, as academic researchers are wont to do):

       Trade played an appreciable role in increasing wage inequality, but its cumulative effect has      

       been modest, …globalization does not explain the preponderance of the rise in wage inequality

            within countries.

   What, then, does explain it? Technology and productivity.

     Studies show that the premium for a college education (i.e. skilled workers) was 63%.   The blue collar/white collar wage gap results from basic supply and demand factors, “…the dominant cause was an increase in the relative demand for skilled workers”.

   OK – so who is to blame?   American political leadership, for failing to find ways to upgrade the skills of blue-collar workers, especially in America’s failing and failed educational system.   And, as New York Times op-ed columnist David Brooks has noted – the educated elite simply ignored the plight of the non-educated elite – and the price they pay is the election of Donald Trump.

* Elhanan Helpman. “Globalization and wage inequality”.   NBER working paper 22944, Dec. 2016.

 Infrastructure:  Europe, China – and America
By Shlomo  Maital 
 
    In Economics, there are not many principles we can cite with absolute certainty.  Here are two of them:
   1.  The rate of return on investment in Research and Development is in many cases astronomical.  In 1958 Prof. Zvi Griliches found that investing in research in hybrid corn “paid a return of at least 700 per cent”.   Few other social investments can rival this. Yet countries continue to underinvest in R&D.
   2.  The rate of return on investment in infrastructure (roads, transportation, communication, education) is equally astronomical.  Yet in the West countries continue to undersave and underinvest in infrastructure.
   The contrast between Europe, China – and the US under Trump is stark.
    The EU, not noted for bold innovation, is undertaking a huge infrastructure project that will link Malmo, a Scandinavian port, with Palermo, a port in Italy.  This project will help reduce the large gap between the wealthy Northern EU and the relatively poor Southern EU.  It will do much to knit the fractured EU together, in the wake of Brexit. 
     China has a bold vastly expensive program to build a new Silk Road, linking China with Europe, the Mideast and Africa.   The One Belt One Road initiative, now changed to “Belt and Road Initiative”   is, according to Wikipedia “one of the largest infrastructure and investment mega-projects in history, covering more than 68 countries, equivalent to 65% of the world’s population and 40% of the global GDP as of 2017.”
     And the US?   Well,  on a recent visit there, I used Waze (an application developed originally in Israel, now owned by Google) to navigate.  In the US,  Waze informs the driver of potholes. And, trust me – I heard about a LOT of potholes from Waze while driving in the eastern United states.  Some of them were big enough to swallow Trump’s ego.
      President Trump speaks often about infrastructure.  He has plans to fix it, including thousands of crumbling bridges. But here’s the catch.  The latest Trump tax cut put a huge hole in the government budget and added $1.5 trillion to the deficit.   So there is no money left for infrastructure investment.  The solution?  Trump thinks he can get private industry to finance it, using tax credits.
       This is science fiction.  Basic economics shows, the return on infrastructure investment is largely “social”,  that is,  not captured by private investors, but accruing in a diffuse manner to all of us.  So why would private money invest in it? 
         China, EU – and the US.  Another instance of how the US has become a Third World nation, and China, in the Third World, is becoming First World. 

 3 Decades in 364 Words:
A Guide for the Perplexed
By Shlomo  Maital   
  
     The world has become a chaotic, complex system, hard to understand, impossible to predict.  Here in 300 words is a vestpocket history since 1989 –hope it will help.
      On Nov. 9 1989 the Berlin Wall fell.  This led to the rapid unification of the two Germany’s (note: this can also happen to the 2 Korea’s, equally fast), which accelerated the European Union, and marks the onset of true globalization – free movement of ideas, capital, labor, goods, services and information across borders. 
       Globalization created massive wealth for a handful smart enough to take advantage.  It created unprecedented growth for China and other Asian nations; for Germany to some extent; for India, and some poor countries.  But most poor nations were left out, especially those in Africa. 
        Capitalism broke down.  Great wealth bought political influence, and corruption became rampant, in Russia,  and elsewhere.   The huge canyon between rich and poor led desperate people in corrupt nations (Mideast, Africa, some Central and Latin American countries) to migrate, at risk of life and limb, toward the wealth.  Meanwhile, in many countries democracy regressed.  The EU pushed union too far, seeking to unify politically, leading to widespread pushback and Britain’s exit.  The flood of migrants to Europe threatened the foundations of European unity. 
      In the ongoing historical cycle, the wave of democracy that swept the world after WWII,  and during globalization,  began to retreat, as corruption, influence of money and wealth disparities led democracy to break down in many places that tried it.  The Arab Spring became the Mideast winter.  Russia, China and other nations seemed to entrench leaders permanently.   Globalization receded.
       Even America, a bastion of democracy,  regressed under Trump, embracing the backlash of the white minority against migrants.  Trump’s “trade wars are good” reflects abysmal ignorance of the last Great Trade War, 1933, that brought a world depression.  Italy’s election tomorrow will focus not on key issues (economy, jobs) but on Italy’s 650,000 migrants.   In my country Israel, a right-wing government seeks to illegally expel African migrants, against their will.
      This cycle will play itself out.  We will eventually return to democracy and globalization will again grow and spread.  We will find ways to include poor nations left out of the global system.  Racist ignorant leaders will be deposed.  We are seeing signs everywhere of an uprising, of young people taking responsibility.  Take a long view of history and remain hopeful.

= = = = = =
A brief p.s.     In May, if sufficient numbers register,  I will offer a one-week course on How to Change the World With Ideas, at a beautiful spot in northern Greece.  If this interests you, check out:   http://unboundprometheus.com/program-one/

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.

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.

 

Blog entries written by Prof. Shlomo Maital

Shlomo Maital
January 2019
M T W T F S S
« Dec    
 123456
78910111213
14151617181920
21222324252627
28293031  

Pages

Archives

Advertisements