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Tag Archives: Economic growth


Will Hate & Envy Determine Biden Administration Economic Policies?

By Peter RoffAmerican Action News

Gage Skidmore from Surprise, AZ, United States of America via Wikimedia Commons

Some people, even some very prominent economists like Nobel Prize winner Paul Krugman simply cannot get their heads around the idea that letting people keep more of what they earn is the best kind of economic stimulus there is. Instead, despite years of hard data proving otherwise, they still maintain more spending by the government is what greases the wheels and keeps the economy running. 

This is nonsense. The tax cuts of the 1920s, the 1960s, and the 1980s were all followed by periods of remarkable growth in the U.S. economy. The spending binges pushed by FDR, by Richard Nixon, and among others, Barack Obama did little to fuel the engine of productivity or raise living standards. 

The latest experiment, if it need be called that, was the Tax Cuts and Jobs Act proposed by a Republican-led Congress and signed into law three years ago by President Donald Trump. Progressives derided the legislation as “welfare for the rich” that would see the “poor get poorer.”

The progressives were wrong.  After the TCJA became law, optimism among Main Street business leaders reached an all-time high in the third quarter of 2018 while the unemployment rate reached a generational low. Before the implementation of lockdowns as a mostly Blue Strategy for combating the novel coronavirus, the economy added 5 million jobs while unemployment among women, people of color, and workers without high school degrees reached record lows. 

Thanks to the reworking of the tax code by the TCJA, American business started to put money into itself again. Core investments in equipment and other business necessities reversed its five-year downward Obama-era trend, shooting back up, adding to productivity, and raising workers’ wages. And, most distasteful of all to liberals whose economic policies are all about spending your money like it was theirs, federal revenues reached an all-time high because more Americans were working for bigger paychecks in businesses that were expanding.

This is what Joe Biden has promised America he’s going to undo. That’s the practical effect of his promise to “repeal the Trump tax cuts” which, in his mind only benefited the ultra-rich like him. He and his party win votes by exploiting the resentments that exist in America between those who are well off and who work hard and those who don’t. House Speaker Nancy Pelosi, D-Calif., may think the $600 per person being doled out in the latest COVID-19 relief bill will stimulate the economy – but that will be hard to do while other benefits provide a disincentive for people to go back to work in the places they can. Believe it or not, there was a hiring crisis in the Red States once their economies got moving again during the pandemic because some folks decided, rationally enough, they’d rather stay home and collect unemployment plus rather than go back to work. 

They – and Biden and his incoming team of economic advisers – don’t know what they missed. Figures released by the Federal Reserve show low- and middle-class families saw large gains in wealth growth in 2018 and 2019. Low-income families saw their net worth increase 37 percent while middle-class families saw their net worth increase 40 percent. 

Figures supplied by the House Ways and Means Committee show household income reached new highs as real median U.S. household income in 2019 rose nearly 50 percent more than during the eight years Barack Obama was president. Median household incomes increased 7.1 percent for Hispanics, 7.9 percent for Blacks, 10.6 percent for Asian Americans, and 8.5 percent for foreign-born workers while wages for minorities and women and young people grew at a faster pace than they did over Obama’s second term.

The Tax Cuts and Jobs Act worked, so well in fact it established the foundation for what should be – and looked like it was going to be a rapid recovery from the pandemic lockdowns. Instead, we have Joe Biden hinting that higher taxes, new taxes, carbon taxes, and other taxes are coming even if – as he unbelievably promises – families making less than $400,000 a year won’t pay a single dime more.

It’s sad really. With all the evidence showing Jack Kemp and Ronald Reagan were right, that a rising tide does lift all boats, Biden would rather pursue policies that play to the rhetoric of classically socialist class envy while ignoring the need to create an environment in which opportunities exist for those who most need them


California’s COVID Economic Recovery Task Force Provides Political Cover But Little Else

By Lee OhanianHoover Institution

After seven months, California’s one-hundred-plus-member economic recovery task force has finished its recovery recommendation report.  What could have been a game-changing opportunity to reduce the state’s high cost of living, increase efficiency in bureaucracies, and reform tax and regulatory policies never got off the ground.

Just 23 pages long, you will be hard-pressed to find substantive economic recommendations, much less any major new ideas, in a report that somehow took seven months to write. The COVID recovery task force was ingenious political theater to show that the state’s major business leaders, including Apple CEO Tim Cook and Disney CEO Bob Iger, were professing buy-in to Governor Gavin Newsom’s economic shutdown. This was never about reforming state economic policies that are among the worst in the country. It was about providing broad-based political cover.

With more than one hundred members appointed by Newsom, you knew that nothing important would ever be accomplished. Granted, the unique problems of COVID meant the task force would include representation from several economic sectors, but creating a committee of over one hundred could have been straight out of the CIA’s 1944 “Simple Sabotage Field Manual,”which recommends creating as large of a committee as possible to ensure that nothing happens.  

Labor unions garnered the most task force representation, with 14 members, including two from the politically important Service Employees International Union. And even though the pandemic is a public health problem, the task force included only a handful of members from the health care industry, broadly defined.

The report opens with a discussion of the importance of viral testing and the state’s new, expensive purchases of protective equipment and medical supplies. I wonder how task force member Arnold Schwarzenegger felt, as the substantial investments he made in these important supplies several years ago when he was governor—for just such a pandemic—were given away by the state because they were considered to be too expensive to maintain. Oh well.

After reading the report, you get the uneasy feeling that you were indeed snookered. It reads like a “what I did this summer” back-to-school report. There was much listening to others. Hand-wringing about the impact of COVID, but not too much, lest there be any hint that the report is at all critical of state policies. There are roughly 30 references to diversity, equity, and racism in the report, but only one reference to efficiency. There is much admiration for the governor’s leadership, and considerable self-congratulation, including advocating for the use of electronic signatures on government documents and refurbishing used school computers. Tim Cook and Bob Iger were needed for this?

Not surprisingly, you get the feeling that the task force members ultimately hit their breaking points as they tried to navigate what amounted to a ship without a sail. With California COVID cases rising rapidly, it is strange the task force would disband now, when presumably their input is more important than ever. But after seven months of accomplishing little, task force members probably were done in. Iger resigned even earlier, when the state would not come up with a plan for theme park reopenings.

If something important were to have been accomplished, then problems would first have to be identified and prioritized. But this was never going to happen, because Newsom appointed his chief of staff, Ann O’Leary, as one co-chair, who could be the de facto gatekeeper. The other co-chair was Tom Steyer, the former Democratic presidential candidate who spent $250 million to run for president earlier this year, and who failed to receive any delegates.  

Steyer previously made a fortune investing in coal, one of the dirtiest of energy sources. Now a born-again activist for climate and progressive causes, Steyer is willing to spend his and other people’s money to create a carbon-free California as soon as possible, even if the most optimistic assessments of its benefits do not come close to offsetting the costs.

Newsom got what he wanted in Steyer as a well-heeled partner who would support all climate initiatives, including Newsom’s executive order banning the sale of gasoline-powered cars by 2035.  Because California accounts for less than one percent of global carbon emissions, the state could probably move the climate needle more by paying China to stop using soft coal than by mandating that all new California homes require solar panels, extra insulation, and highly energy-efficient windows and appliances, all of which increase new home construction costs by $30,000 or more.

The O’Leary-Steyer task force report is about as different as it possibly could be from a recovery task force report written in 1992 for then governor Pete Wilson. Chaired by Peter Uberroth, a 17-person committee took just four months to write “California’s Jobs and Future.” This was produced when the California economy had lost 500,000 jobs, about four percent of the state’s employment.

The Uberroth report pulled no punches in identifying the state’s key economic policy shortcomings. In 128 densely written pages, the report described a “government that is no longer working” and a state on “its way to fiscal disaster.” The report describes unaffordable housing. An underperforming school system. A shift to low-wage service-sector jobs. Losing businesses to states and countries with lower costs. Inadequate entrepreneurship. Environmental restrictions that do not pass a sensible cost-benefit assessment. All of this written in 1992.

The report provided plenty of sensible solutions, built around the ideas of redesigning government so that it was no longer in an adversarial position with businesses and taxpayers, an overhaul of the workers’ compensation system to root out widespread fraud, incentivizing school performance, and streamlining regulations and implementing tax incentives for business investment.

For schools, recommendations included stricter cost accountability; a statewide open-enrollment plan, meaning school choice; an extra hour per school day and a two-hundred-day school year; English comprehension requirements for third graders; and expanded career training for 11th and 12th graders. This would have made a significant difference in the effectiveness of California schools, but little was implemented, largely for political reasons.

Perhaps the most striking difference between the two reports, written nearly 30 years apart, is the tenor of the conclusions. Steyer stated, “We will come back stronger and better than we have ever been.” In sharp contrast, the Uberroth report warned that the state was risking bankruptcy if their policy recommendations were not implemented. For the most part, the recommendations weren’t adopted, and bankruptcy has been averted only by a series of large tax increases that place California among the highest-taxing states in the country.

Viewed over the last 28 years, the Uberroth report has been chillingly accurate. Sadly, its prescience will continue. 


Under Trump, U.S. Economic Growth Sets Record

By Peter RoffAmerican Action News

The American economy is roaring back according to numbers released Thursday showing a record-breaking increase in U.S. gross domestic product of just over 33 percent on an annualized basis for the third quarter of 2020. The numbers are the highest ever recorded, more than double the previous record set back in 1950 while Harry Truman was president.

The surge, which is attributable to the end of lockdowns in the typically referred to “red states” is leading to what appears very much like the V-shaped recovery President Donald J. Trump promised would occur once businesses reopened and people were allowed to go back to work. 

The top Republicans on the House Ways and Means Committee, U.S. Rep. Kevin Brady of Texas, described the news as ratification of Trump and GOP economic policies. After Covid-19 devastated America’s strong economy almost overnight, the Trump economy did the impossible – it battled back with the largest single quarter of economic growth in America’s history. This smashes expectations, beating economists’ original growth estimates by a stunning 400 percent.”

The news is especially bright given that all the growth came in the private sector, with private spending increasing by 40 percent and private investment up by an astounding 83 percent. Growth in the government sector, meanwhile, was slightly down in the third quarter, suggesting the need for additional federal stimulus dollars may be abating. 

According to the Bureau of Economic Analysis, real GDP in the third quarter grew by 7.4 percent, a figure that considerably exceeds even the most favorable market expectations. This follows the sharpest single quarter economic contraction on record in the second quarter of 2020 due to pandemic-induced lockdowns.

The numbers should calm those who fear the economy is on the edge of a recession thanks to the considerable increase in the numbers of people testing positive for the COVID-19 virus. The United States has now, in a single quarter, recovered two-thirds of the economic output lost due to the pandemic-imposed lockdowns imposed by many of the nation’s governors from march onward. By comparison, it took four times as long to regain the same share of lost economic output during the anemic Obama recovery that followed the implosion of the U.S. housing market. 

Real consumer spending rose 8.9 percent — 40.7 percent at an annualized rate — in the third quarter, which is also the largest increase on record. Goods and services both experienced steep increases, suggesting consumer and business confidence is on the rebound and explaining, perhaps, the recent Gallup numbers showing 56 percent of Americans believe they are better off now than they were four years ago. Greater spending on recreation, food, and accommodation services – sectors acutely impacted by lockdowns – alone accounted for one-fifth of total GDP growth in the third quarter.

The government also reports residential investment rose by 12.3 percent – 59.3 percent at an annualized rate – with most of the increase due to real estate commissions generated by rebounding home sales.

The increase in residential investment, the largest since 1983, was echoed somewhat less rosily by an increase in business investment, which rose 4.7 percent — 20.3 percent at an annualized rate — with a steep increase in equipment more than offsetting declines in structures and intellectual property products.

In President Trump’s first three years in office, the economy grew by $310 billion more than what was expected before the 2016 election. In contrast, in Obama-Biden’s second term, the economy grew by $640 billion less than what was expected prior to the 2012 election. “We still have a way to go in our recovery,” Brady said, adding “there is no question Speaker Pelosi is working to sabotage America’s economy ahead of the election. But look at the contrast — the worst economic recovery in our lifetimes under Obama-Biden, the strongest labor market recovery from an economic crisis under President Trump.


Leaving Socialism Behind: A Lesson From Germany

Editor’s note: This is an excerpt from a fuller essay by Professor Berman, “Leaving Socialism Behind: A Lesson From German History,” that is published by the Hoover Institution as part of a new initiative, Socialism and Free-Market Capitalism: The Human Prosperity Project.

By Russell A. BermanThe Hoover Institution

The images of East Germans eagerly pouring into West Berlin on the night of November 9, 1989, have become symbols of the beginning of the end of the Cold War and, more specifically, evidence of the failure of communist rule in the German Democratic Republic (GDR, or East Germany) and its socialist economic system. Yet that historic moment was only the final dramatic high point in the long history of dissatisfaction with living conditions in the eastern territory of Germany, first occupied by the Red Army during the defeat of Nazi Germany in 1945 and, four years later, established as the GDR when, in Winston Churchill’s words, the Iron Curtain fell across the continent.

Between the formal political division of Germany in 1949 and the final hardening of the border with the construction of the Berlin Wall in 1961, a constant population flow from east to west took place, a movement away from Soviet-style socialism and toward Western capitalism. East Germans stopped voting with their feet only when the construction of the Wall in Berlin made it impossible to leave; outside the capital, prohibitive barriers already had stretched across the whole country. Nonetheless, many continued to try to escape, and hundreds lost their lives, shot by border guards in brave attempts to “flee the republic,” as the crime was cynically designated.

To state the obvious: there are no similar accounts of throngs of westerners clamoring to enter East Germany. Between 1950 and 1989, the GDR’s population decreased from 18.4 million to 16.4 million, while that of West Germany (the Federal Republic of Germany, or FRG) grew from 50 million to 62 million.This tally is an indisputable judgment on the failure of socialism. The GDR system was unable to persuade its population to remain willingly. Only the Wall and the rifles of the border guards prevented East Germans from departing.

Several distinct, if interrelated, factors contributed to the economic limitations of the GDR. As noted, it emerged from the Soviet Occupation Zone, and the Soviet Union’s treatment of its defeated wartime adversary was harsh. Extensive manufacturing capacity was systematically dismantled and moved to the Soviet Union, further undermining an industrial base already reduced through wartime destruction, although this phenomenon declined by the early 1950s. In contrast, West Germany was benefiting from the very different American occupation and the positive effects of the Marshall Plan. While the West German economy profited from access to the world economy, East German trade remained largely constrained to the Soviet bloc. In addition, from 1949 to 1961, the population flight to the west disproportionately involved middle-class and relatively wealthy East Germans, who took their skills and amplified capital flight. Each of these elements arguably put East German economic performance at a disadvantage.

Yet the primary difference between East German underperformance and the West German “economic miracle” involved the antithetical organization of the countries’ economic systems and the philosophical assumptions underpinning them. Jaap Sleifer writes:

The difference between the two systems may be characterized by the structure of ownership and the degree of centralization in decision-making. West Germany, as a capitalist country, mainly relies on private and individual ownership and control of the business enterprise, whereas in East Germany, as a socialist country, state enterprises were predominant. Regarding the degree of centralization, capitalism provides wide areas of discretion for freedom of individual choice, which leads to decentralization of economic decisions, whereas socialism shows a more centralized approach towards economic decisions.2

The comparative performance of the East and West German economies therefore provides a nearly textbook case of the difference between socialist and capitalist economic paradigms. To be sure, other factors played a role, such as the countries’ differing treatments by occupation forces and the ongoing migration from east to west. Yet each of these two potentially mitigating circumstances was also simultaneously symptomatic of the opposed economic systems: the East German economy was disadvantaged precisely because the Soviet Union imposed its model of socialist planning, while the brain drain (and capital drain) to the west was a function of and response to the effects of the socialist model. In contrast to the imposition of the Soviet model—a derivative of the Marxist ideological legacy—in the GDR, West Germany benefited from the free market vision of thinkers such as Walter Eucken and Ludwig Erhard, who steered it toward its successful model of a social market economy: i.e., a capitalist economy tempered by a social safety net and restrictions on monopolies.

As a result, the contrast between East and West German economic performance became a set piece in representations of the Cold War. In 1960, Bellikoth Raghunath Shenoy, a prominent classical economist from India, provided a journalistic account of his visit to Berlin, not yet divided by the Wall, which included these trenchant observations:

The main thoroughfares of West Berlin are nearly jammed with prosperous-looking automobile traffic, the German make of cars, big and small, being much in evidence. Buses and trams dominate the thoroughfares in East Berlin; other automobiles, generally old and small cars, are in much smaller numbers than in West Berlin. One notices cars parked in front of workers’ quarters in West Berlin. The phenomenon of workers owning cars, which West Berlin shares with the USA and many parts of Europe, is unknown in East Berlin. In contrast with what one sees in West Berlin, the buildings here are generally grey from neglect, the furnishings lack in brightness and quality, and the roads and pavements are shabby, somewhat as in our [Indian] cities.3

He goes beyond economic observations to remark on the culture he sees:

Visiting East Berlin gives the impression of visiting a prison camp. The people do not seem to feel free. In striking contrast with the cordiality of West Berliners, they show an unwillingness to talk to strangers, generally taking shelter behind the plea that they do not understand English. At frequent intervals one comes across on the pavements uniformed police and military strutting along. Apart from the white armed traffic police and the police in the routine patrol cars, uniformed men are rarely seen on West Berlin roads.4

Evidently more is at stake than contrasting consumer cultures or access to privately owned cars. East Berlin is, in Shenoy’s view, symptomatic of a repressive society in which the inhabitants fear authority and shy away from contact with outsiders lest they draw attention to themselves:

The main explanation lies in the divergent political systems. The people being the same, there is no difference in talent, technological skill, and aspirations of the residents of the two parts of the city. In West Berlin efforts are spontaneous and self-directed by free men, under the urge to go ahead. In East Berlin effort is centrally directed by Communist planners. . . . The contrast in prosperity is convincing proof of the superiority of the forces of freedom over centralized planning.

The Perils of Selective Memory

Today it is especially important to remember both objective economic differences between the two Germanies and these subjective experiences: i.e., the dynamic excitement Shenoy felt in the west as opposed to the timidity of the east. Preserving these insights is vital because of current attempts to idealize socialism retrospectively by pointing to allegedly positive aspects of the East German performance.

While socialist-era statistics are notoriously unreliable, it is likely that East German standards of living were in fact consistently the highest in the Eastern bloc: i.e., better than in the other satellite states and certainly superior to the Soviet Union. Yet that hardly proves the success of GDR socialism; Germany long had been wealthier than its eastern neighbors. GDR standards of living also reflected the political pressure on East German leadership to attempt to keep up with the standard of living in the west, of which the East German population was well aware. This constant comparison with the Federal Republic is one unique feature of East German socialism; Poland never had to compete with a West Poland, or Hungary with a West Hungary. Yet artificially propping up the standard of living in East Germany contributed to the indebtedness of the state and its ultimate fragility, and, in any case, the GDR’s living standards never came close to matching what West Germans grew to expect. East Germany’s per-capita GDP has been measured at only 56 percent of GDP in the west.5

Nonetheless, one can hear apologists for the GDR and its socialist system argue that the East German state provided social goods such as extensive child care, correlating to a relatively higher degree of participation by women in the workforce. In post-unification debates, such features are sometimes taken as evidence of the accomplishments of the GDR. Yet in fact they represent instances of making a virtue out of necessity: in light of migration to the west and the dwindling population, raising labor force participation through the inclusion of women became unavoidable.

Such retrospective considerations arise from rosy false memories in the context of post-unification reality. The past may look attractive to those who do not have to relive it. Yet there is in fact no evidence of any significant interest on the part of former GDR citizens in returning to the socialist regime. One can observe some dissatisfaction in the former East Germany with the character of the unification process for various reasons, including a perceived condescension on the part of West Germany. East Germans at times experience the western critique of the GDR as offensively triumphalist, and, worse, they believe that the western critique of the socialist system simultaneously belittles their own lives within the system. This dynamic can generate defensiveness on an individual level, but it rarely turns into a reactive identification with the former regime.

The abrupt transformation of life through the unification of 1990, the economic disruption as East German enterprises collapsed, and the GDR’s sudden integration into a West German and, more broadly, cosmopolitan world has produced the phenomenon of Ostalgie, a nostalgia for the east. Sometimes it is expressed merely as a yearning for the (few) consumer products of one’s childhood, and sometimes it is a more complex psychological orientation toward a remembered youth in an allegedly simpler past. In Ostalgie discourse, the repressive aspects—the role of the Stasi, the secret police, the extensive surveillance network, the lack of a free press—are minimized or absent. The psychological appeal of Ostalgie—of succumbing to the glow of a wrongly remembered past—can be used by left-of-center politicians to conjure the illusion of a better past in order to advocate for statist policies in the present.

The failure of East German socialism to establish its legitimacy by maintaining the loyalty of its population—who, given the chance, evidently would have largely decamped to the west—was a matter of economics, but not only of economics. At stake was instead the broad infringement on human freedom that made life in the GDR undesirable. It is not only in terms of material prosperity that socialism fails.

“We Are the People”

Two pieces of literary and historical evidence testify to the indigenous flaws in the mindset of the East European satellite countries and especially the GDR, where patterns of subordination, obsequiousness, and obedience worked against the disruptive capacities of individuality, creativity, and spontaneity that drive change and growth. The “really existing socialism,” as it was labeled, held a systemic bias against the recognition of any signals that might allow for autocorrection. Infallibility and determinism, hallmarks of socialist thought, systematically eliminate opportunities to undertake modifications on the basis of experience.

The first piece of evidence is the poem “Song of the Party” (Lied der Partei), which became the anthem of the ruling Communist Party of the East Germany. It was written by German-Czech Communist poet Louis Fürnberg in 1949, and remembered particularly for its repeated line that conveys the core message “the Party is always right.”

The Party, the Party, it is always right!

And Comrades, may it stay that way;

For whoever fights for the right

Is always in the right.6

It conveys an unironic insistence on absolute obedience to the organization, which in turn is regarded as all-defining for the existence of its members. Worse, the song propagates a radical consequentialism: if one is fighting for the right, one is necessarily in the right—the end justifies the means. No room remains for any ethical limitation on the instruments one uses to reach a goal. As a document of the psychology and values of GDR socialism, “Song of the Party” helps explain the widespread suppression of individuality. Fürnberg’s ethos also displays the desiccation of political life that radical revolutionary writer Rosa Luxemburg foresaw years earlier as a result of the essence of the Bolshevik program and the socialist enterprise.7

The second piece of literary evidence comes in the summer of 1953, after spontaneous worker protests erupt across East Germany, reaching a high point on June 17 with strikes in all major industrial areas. The Soviet occupation forces suppress the uprising quickly, as protestors are shot and executions follow. Poet and playwright Bertolt Brecht responded to the suppression with a poem that has been repeatedly cited to show the mismatch between statist governance and democratic legitimation. In “The Solution” (Die Lösung), he describes the head of the Communist writers’ organization handing out flyers criticizing the workers for disappointing the government. Brecht’s laconic suggestion: the government should “dissolve the people and elect another.”8

The poem captures the distortion of political life inherent in East Germany, corroborating the prediction in Luxemburg’s critique of the Bolsheviks: that the hollowing-out of democracy and the elimination of rights, consistent with Karl Marx and Friedrich Engels’s animosity to “civil society” and merely bourgeois liberty, produces dictatorship as the defining feature of socialism.

Such was Communist culture in the early years of the GDR. Later, just before the end of the socialist regime, matters had begun to change. There is evidence that servility and subordination were giving way to different personality types no longer consistent with authoritarian rule. “Sometimes this results in exaggerated anti-authoritarian behavioral patterns,” wrote Walter Friedrich, the director of the Youth Institute, in 1988. There also were expectations of greater freedom in personal lives and in relationships, such as “the demand for freedom in choosing a partner, and surely also the phenomenon of cohabitation and the high divorce rates here,” Friedrich wrote. “The greater demands by women, especially younger ones, for self-determination should also be regarded from this perspective—right up to feminist postulates.”9 He went on to report on how changes in personality characteristics were also leading to greater engagement in organizations such as church groups and the environmental movement. A protest potential was growing.

A year later, the East Germans were pushing their way into West Berlin. Even after the border opened, some continued to harbor illusions that the GDR might remain a separate state. Parts of the East German intelligentsia and cultural elite promoted this idea; after all, they had often benefited from relatively privileged positions. But in the voices of the demonstrators during the fall of 1989, especially in Leipzig, where a series of “Monday demonstrations” unfolded, and then in Berlin, an important transition took place. The crowds expressed aspirations to end not only the dictatorship but also eventually the division of Germany. Before the opening of the Wall, in October and early November, the demonstrators regularly chanted, “Wir sind das Volk” (We are the people), asserting the democratic claim on popular sovereignty against a regime that had never achieved legitimacy through a free election. “We are the people” was, in effect, a call for a realization of the democracy that had been consistently denied by the dictatorial character of GDR socialism, precisely as Luxemburg had predicted would develop out of Lenin’s pattern of suppressing of elections and civil rights. As in Russia, so too in Germany.

On October 3, 1990, East Germany—or, more precisely, the five Länder in the territory of East Germany—joined the Federal Republic, leading to the formation of a single German state and the end of the post–World War II division. Whether this unification was inevitable is a matter of academic speculation at best. What one can say with certainty is that the specifically socialist character of the GDR—its poor economic performance and its constitutively repressive character that precluded political processes of democratic legitimation—made the continuity of an independent state deeply unappealing.

In the end, East Germans chose to abandon socialism to pursue greater prosperity and political freedom through integration into the liberal democracy and social market economy of the Federal Republic. There are few regrets. 


California’s tax-the-rich folly

By JOSHUA RAUHThe Orange Country Register

The California Legislature is back from its summer recess and has frantically resumed its quest for new revenue sources.

One of the latest ideas is Assembly Bill 1253. This proposed legislation would add new income tax brackets for high earners on top of the existing ones.

Income between $1 million and $2 million would receive a one percentage point surcharge, bringing the marginal rate to 14.3 percent. Those earning between $2 million and $5 million would pay an additional three percentage points, and those earning over $5 million would pay an additional 3.5 percentage points, bringing their marginal rates to 16.3 percent and 16.8 percent respectively.

This plan constitutes a continuation of California’s soak-the-rich approach to raising revenues.

While some seem to believe that high earners can provide unlimited resources, the evidence from prior tax hikes suggests that the introduction of these tax rates is not even likely to raise revenue for the state. At the same time, it will hammer job creation.

The problem is that high earners do not simply sit there and take it when the state goes after their income.

In a detailed study of the 2012 California ballot measure that raised the top state rate to 13.3 percent, Ryan Shyu and I found that just two years later, the state was only collecting 40 cents of every dollar that it had hoped to raise from the tax increase.

The reason?

High income taxpayers affected by the 2012 tax increase suddenly began to flee the state at higher rates, especially to zero tax states like Nevada, Texas, and Florida.

Even more importantly for the state budget, those that stayed began declaring considerably less taxable income than they would have otherwise, apparently either scaling back their productive activities or engaging in tax avoidance.

The economist Arthur Laffer has famously argued that there is a tax rate beyond which a government’s revenue will decline if it raises taxes further, due to the disincentive effects of high taxes.

While the federal government may be helped by limits on what American citizens can do to escape federal taxation, state governments tread on much thinner ice when faced with the ability of taxpayers to move their residences and their earnings generation to other states.

In 2012, California was at least still at the point where raising top income tax rates led to some increase in near-term revenue, albeit with grave long-term consequences.

Today, however, the state is starting from a 13.3 percent tax rate that is the highest in the nation.

Furthermore, Congress has since moved to protect federal taxpayers against bloated state spending by placing a $10,000 cap on state and local tax deductions as part of the 2017 Tax Cut and Jobs Act.

So while the blow of a 3 percentage point tax increase in 2012 was strongly cushioned by deductibility against top-bracket federal rates, California taxpayers today would feel the full force of this proposed round of increases.

Once taxpayers have responded by voting with their feet, reducing their business activities, and re-upping with their tax attorneys, the state will likely lose revenue if it attempts to increase rates.

To make matters worse, Sacramento’s narrow focus on tax revenues ignores that fact that this tax avoidance behavior will lead to job losses. These rates also apply to business income to non-corporate entities (such as partnerships and LLCs) which account for over half of all employment in the US.

In another study, Xavier Giroud and I found that each percentage point increase in individual tax rates that the average state implements leads to losses of up to 0.4 percent of all non-corporate jobs in the state.

Starting from California’s already astronomical top rate, the impact would be expected to be even larger.

These job losses will negatively impact the well-being of Californians and further reduce state tax revenues.

California’s approach to relying on the taxation of top earners has sown the seeds of its own destruction. The top 0.5 percent of taxpayers pay over 40 percent of individual income taxes in the state.

Officials are blaming COVID-19 for the budgetary havoc, but this structure means that in any downturn, California revenues will tank due to the excessive reliance on both the ordinary income and capital gains of top earners.

If the Legislature is interested in promoting economic growth and prosperity in the California, and securing the state’s own fiscal future, it should reject further top income tax rate increases.

Instead, it should work towards putting the state back on a path towards being a competitive place for high-income individuals and businesses to locate their economic activity.


Will Stimulus Money Help Put Texas Central’s High-Speed Rail Back on Track?

Project chairman: 'We have certainly hit a snag with all the difficulties of the coronavirus.'

By SOFIA KRUSMARKD Magazine

Construction for a high-speed train that will zip between Dallas and Houston at more than 200 miles per hour is still in the works. But with costs estimating almost $20 billion more than initially planned, Texas Central might need the help of stimulus money.

In a recent letter to Texas State Sen. Robert Nichols, Texas Central’s Chairman (and an investor), Drayton McLane, Jr. said the project is seeking funds outside of private equity, saying, “we have certainly hit a snag with all the difficulties of the coronavirus.” The letter was obtained by the Dallas Business Journal.

The company laid off 28 employees in March, and the Global Financial Markets hit a low, too, leaving its upcoming recovery—or lack thereof— to determine the verdict: Will the train need a stimulus fund?

Aside from exploring funding from government loan vehicles—including Railroad Rehabilitation & Improvement Financing and Transportation Infrastructure Finance and Innovation Act—Texas Central may tap into government loans. According to Texas Central CEO Carlos Aguilar, the company has not applied for funding through the CARES Act.

“We feel that between Japanese government funding and the monies we hope to receive from President Trump’s infrastructure stimulus through the Department of Transportation, along with private equity that the project still has a great opportunity, is viable and can be construction-ready this year,” McLane added in his letter.

The project will create an estimated $36 billion in economic benefits statewide over the next 25 years, according to a news release. Texas Central anticipated it also would create 10,000 direct jobs per year during peak construction and 1,500 permanent jobs when fully operational.

The exterior of the Dallas station that would be located in the Cedars neighborhood on the southern edge of downtown.

Early on, Texas Central said the bullet train would be privately funded—an idea that has drawn skepticism since inception, along with its ability to be profitable.

In 2017, Peter Simek wrote a D Magazine article titled Has the Texas Central Bullet Train Gone Off the Rails? In it, he points to Travis Korson, a senior fellow with Frontiers of Freedom, a conservative Washington think tank, who didn’t believe then that the numbers made sense and that its growing budget and inflated ridership projects suggest the privately funded rail project may not be profitable. (Click here to read it)

At the time, proposed construction costs had ballooned from $10 billion to $16 billion. Currently, on Texas Central’s website, it says the system will cost more than $12 billion to construct.

In response to recent news about the potential need for stimulus money, State Representative Ben Leman, District 13, issued the following statement:

“We also were told the project would be privately financed, yet now it is revealed Texas Central is seeking taxpayer stimulus money to build it. To publicly promote to the media, to elected officials, and worst of all to the citizens of Texas the cost of the project as $20 billion when they know it to be more than $30 billion and that the project would be privately financed while they ‘hope to receive from President Trump’s infrastructure stimulus through the Department of Transportation’ to build it just reveals their true character and intentions about this project”

Aguilar told the DBJ that the $30 billion figure was “a conservative estimate of ‘all in’ numbers.”

The train’s still on the tracks toward its construction, though, as the company hit a breakthrough in an essential legal ruling just one month ago: The Thirteenth Court of Appeals ruled Texas Central and its subsidiary Integrated Texas Logistics as legal railroads.

The decision reversed a previous one made in the 87th district of Leon County. Designating the project as a legal railroad is almost as powerful as what happens next. All railroads have the right of eminent domain, which means that Texas Central can acquire all the land it needs. Project opponents are appealing the decision to the Texas Supreme Court.

In response, Aquilar said the “decision confirms our status as an operating railroad and allows us to continue moving forward with our permitting process and all of our other design, engineering, and land acquisition efforts.”


More than ever before, corporate governance matters

By Peter RoffHavasu News

The coronavirus crisis has likely changed American business forever, as politicians use the deadly pandemic to push for changes that will have a major impact on how corporations operate.

How business respond will determine the future of American commerce for years. Important business leaders like Black Rock’s Larry Fink are pushing companies to expand their mission beyond maximizing value for shareholders into things that are on progressives’ political wish list.

What Fink and others are advocating for drifts harmfully towards what progressives promote as they seek to control the business sector and move to a centrally planned economy.

If the American economy is to survive, let alone thrive, we need corporate leaders to step up in defense of the free market. They need to eschew the insider deals and crony capitalism that have caused many Americans, especially the young, to lose faith in what, as Churchill might have quipped, is the worst of all possible economic systems except for all the others.

There are heroes out there like Tesla’s Elon Musk, who recently stood up to Gov. Gavin Newsome and other officials who would not permit his California manufacturing plant to reopen and get people back to work. To Musk’s credit, even though his empire is built on questionable tax breaks, credits, and subsidies, he pushed back where other business leaders have sheepishly complied. He announced he’d be taking his company and the jobs he created to Texas or Nevada, where they would be welcomed. Faced with that, Newsome and company seem to have backed down.

For every hero, there are goats like Alan Armstrong, the CEO of Williams Co., an energy pipeline company. According to recent allegations made in a Delaware court, he secretly worked to undermine a 2016 board-approved merger between his firm and Energy Transfer, a Texas-based pipeline company, that would have paid shareholders a significant premium over the then-market value of their shares.

Nearly four years since it fell through, Williams continues to seek more than a billion dollars in breakup fees, despite Armstrong’s recently alleged involvement in the deal’s demise. According to court documents, he even worked behind the scenes with a former Williams senior vice president by using a personal account and leaking inside information to assist a lawsuit filed to block the proposed and ultimately unconsummated merger. As a result, half of his board of directors resigned days after the deal was called off, citing a lack of confidence in his ability to lead the company.

The reason he acted as he did, the court was told, was out of a desire to maintain his position as CEO even if his continued leadership of the company was detrimental to shareholder interests.

Actions like these in the corporate community have regular Americans – more and more of whom join the investor class every day through their 401Ks, Roth IRAs, and by trading stocks online – wondering if their money is safe, or if they’re just feeding corporate cats growing fat off their investments.

Warren Buffet, one of the country’s most respected financial leaders, argued in a recent interview that not enough attention is paid to corporate leadership and governance. “Almost all of the directors I have met over the years have been decent, likable and intelligent,” he said. “Nevertheless, many of these good souls are people whom I would never have chosen to handle money or business matters. It simply was not their game.”

If the CEOs and boards of America’s companies don’t step up to restore public confidence in who they are and what they do, then the politicians will – as House Speaker Nancy Pelosi tried to do in the first coronavirus relief bill. Other than the privileged few that would have been picked to serve on boards if her proposed amendment requiring diversity on corporate boards had been adopted, it would have been bad for business and everyone else.

The clock is running.


FACE IT: THE ECONOMY UNDER TRUMP IS GREAT | OPINION

By Peter RoffNewsweek

If no one ever said, “If people are talking about you, it means you’re important,” someone probably should have. It’s always been true in America, a place where hype is king. The mere fact that you’re mentioned in the columns makes you a player.

Some would argue that’s one of the reasons Donald Trump got to be president. But it’s also the way New York Representative Alexandria Ocasio-Cortez got to be the ideological leader of the Democratic Party. She has a lot to say, doesn’t shy away from the spotlight and has views that land far from the center of the bell curve.

Lately, while attempting to argue that the Democratic Party of Hillary Clinton and Barack Obama is centrist, she’s had a lot to say about how bad the American economy is under Trump.

If she wasn’t serious, it would be silly. But she is, and should be taken that way because, like it or not, someday she and her kind may win a national election and set policy for the entire nation. And, with the polls in Iowa and New Hampshire showing a late surge for Vermont Senator Bernie Sanders, a self-described democratic socialist independent who caucuses with the Democrats and agrees with Ocasio-Cortez’s assessment of the economy, that chance may come sooner than many people expect.

Here’s the reality. By most traditional measures, the economy is stronger than it’s been in over three decades, especially where job creation is concerned. Trump’s policy of tax relief and deregulation—the president likes to brag his administration has eliminated more than a dozen regulations for each new one it has imposed—has led to the creation of the three most important things in U.S. politics: jobs, jobs and more jobs.

“On a scale of 1 to 10,” economist Steve Moore recently wrote of the job market, “it’s an 11.”

Moore has it right. The unemployment rate soared above 9 percent during President Barack Obama’s early years in office. Obama promised it would soon plateau at a manageable level if Congress would only approve his stimulus package to kick-start the public works projects we were all told were “shovel-ready.” It did, but they weren’t. And although unemployment began falling after 2010, as Moore wrote, “from January 2009 to December 2016, almost 10 million jobs were added, but amazingly, 1.6 million working-age people dropped out of the workforce.”

Under Trump, unemployment has continued to go down and the labor force participation rate is rising, contrary to what the Congressional Budget Office predicted would be the continuing trend just as he came into office.

More people are working, and because real wages are rising, they have the “hope,” finally, that Obama promised but found so hard to deliver. We’re as close to full employment as economists in the 1970s and 1980s said we’d ever be.

The reason Ocasio-Cortez and others who subscribe to her agenda regard this as a bad economy is precisely because it demonstrates people do not need the government as a mediating institution to succeed. Market capitalism, even in the hybrid form in which it exists in the United States, is enough to, as the late Jack Kemp used to say, create “a rising tide that lifts all boats.”

When that happens, the folks who want to use the government to plan the economy and redistribute the rewards of hard work, creativity and invention (not to mention luck) among the masses have no arguments to make. Their model doesn’t come from Adam Smith so much as it comes from Karl Marx. The people they claim to represent apparently can get ahead without their intervention or their interference. Ocasio-Cortez and her allies want the government to control the means of production, the allocation of resources, individual employment tracks and every important macro- and micro-economic lever. They believe they are necessary when the current economic realities show they are, at best, superfluous.

People should realize she’s serious. She’s not exaggerating or trying to score political points. She believes this, and not just because the numbers show income inequality is increasing. Even if some are better off than others, most everyone is better off now than they were four years ago. To Ocasio-Cortez and her kind in the Democratic Party, that’s unacceptable.

It’s as if, as Margaret Thatcher put it on the floor of the House of Commons in the waning days of her prime ministry, those who promote socialism—even the American kind, which is supposedly kinder and gentler than the East German version—would rather “the poor were poorer provided the rich were less rich.”


Three issues the Dems own: Wealth Gap, Health Care, and Climate Change

There are free market solutions for these issues waiting for GOP support

By Dr. Larry Fedewadrlarryonline.com

On most of the issues highlighting the 2020 campaign, the Republicans have a great story, especially the economy, law enforcement, foreign policy (including trade), national security, energy, and job creation. The Democrats have concentrated on three critical issues, however, which are nearly ignored by most Republicans: the wealth gap, health care, and climate change

These issues are currently owned by the Democrat candidates; they have not even been addressed directly by the Republicans. This silence is a tragic mistake because current polls show that these three issues are of critical importance to significant numbers of the American electorate. If Republican candidates continue to ignore these two issues, they will suffer in the only polls that really count – the votes in November.

Today’s topic is the wealth gap, with discussions of health care and climate change to follow in succeeding columns. I use the term, “wealth gap” in preference to “wage gap” and “income inequality” because “wealth” includes assets which are relatively long range as opposed to “wages” or “income” which may fluctuate from time to time.

The Republican response to the wealth gap is the “trickle-down” economic theory: prosperity for the wealthy means incremental income to the entire workforce because the wealthy will of necessity invest in an expanding economy thus benefiting the workers who actually produce new goods and services by which the economy is actually expanded. This is the argument prominently featured by President Trump in his famous rallies.

And, measured by present and past metrics, it is true. A flourishing economy does indeed raise wages and job opportunities. When applied to a stagnant employment environment, the chief beneficiaries on a percentage basis are the lower wage workers – i.e. when a person goes from unemployed to employed, the percentage of improvement is 100%. This is, of course, a valuable trend.

The next step, however, poses an altogether different problem: in a tight labor market – which America is rapidly approaching – how does an employer retain an experienced worker? And an ancillary problem: how does the country avoid a steady inflation, as wages rise, and senior employees can seek and find ever higher wages?

There are free market solutions to both these questions. My answer may be considered by traditional economics a radical solution, namely profit-sharing. There are various ways to implement the concept of profit-sharing – e.g. stock grants or options, profit-based bonuses, or employee stock option plans (ESOP), among others.

The basic hedge against inflation is the fact that increases in income to the workers comes from profits rather than expenses, so prices do not have to increase. The operational result is that workers who have a stake in the performance of the company tend to work harder and more efficiently, and greater income leads to higher job satisfaction and loyalty.

There are other reasons to advocate profit-sharing, namely, redressing the imbalance in asset ownership in America, which currently shows that at least 80% of America’s wealth is controlled by 1% of the population. This is a frightening situation for a democracy which is founded on a prosperous middle class. Oligarchs are waiting to rule the nation (e.g. already three billionaires are running for president).

There is also a moral reason for profit-sharing which can be summarized as follows:

1) The increase in national wealth over the past 200 years is due primarily to increases in productivity, which in turn is due to new technologies.

2) The implementation of technological innovations involves a number of stakeholders – inventors, investors, managers, implementers and buyers.

3) The benefits of the new technologies are currently heavily weighted toward all the stakeholders expect the implementers – the workers who bring into actual being the ideas of the inventor – i.e. they design and build the machinery which produces the product, fabricate it, market and sell it, repair it and teach users. Without the implementors, there would be no technology – only ideas on paper.

4) All of the stakeholders should be rewarded when the product is sold; it is only fair, therefore, that each be rewarded in proportion to the value of their contribution to the success (or failure) of the product. This is called “profit-sharing”.

This idea is not as novel nor as radical as it may seem to traditionalists. In the first place, the entire history of free-market capitalism shows it ever evolving towards more and more recognition of the value of labor in the forward march of progress.

It is also true that the chief proponents of this march have historically been the organized labor movement – at least until the 1970’s. Since then American unions have shifted from ever advancing workers’ rights in the marketplace to attempting to achieve progress through government intervention, which has meant in practice an alliance with the Democrat Party and a slippery slope toward socialism.

The results have not been encouraging. We have seen the denuding of America’s manufacturing base, the disheartening imbalance of income between management and labor, and the gradual slipping of much of America’s middle class into poverty and desperation. The bureaucracy of American Labor has failed miserably in protecting and advancing the cause of America’s workers.

The most impressive advocacy for profit-sharing in today’s marketplace is called “Conscious Capitalism”. This is a rapidly growing group of companies who represent a new generation of free market businesses. It is both a movement and an organization.

As an organization, Conscious Capitalism, Inc. now numbers thousands of companies, millions of employees, with chapters in 41 countries, and a number of large firms including Federal Express, Southwest Airlines and Costco among others. (For more information, see www.ConsciousCapitalism.org). 

As a movement, it counts Amazon as one of its colleagues along with many other companies, both large and small. While this group is not particularly fond of organized labor, I believe there is a place for Labor in this movement, unions which work with and not against management and represent workers who are both employees and recipients of prorated profits from their work.

The time for advancing workers’ rights is now – in the 2020 election campaign. To win back the workers of America, the GOP must move “Onward and Upward!”


Wages Soar Fastest among Those with the Least

A bipartisan plan to erase barriers to equity ownership would be productive and beautiful.

By DEROY MURDOCKNational Review

It’s an article of liberal faith: Thanks to President Donald Trump’s $1.5 trillion Tax Cuts and Jobs Act, the prosecco is popping on Wall Street, while the unsold Pepsi gathers dust on Main Street, where Americans are too poor to buy soft drinks.

“Workers are delivering more, and they’re getting a lot less,” former vice president Joe Biden told the Brookings Institution last summer. “There’s no correlation now between productivity and wages.”

Americans “are sick and tired of the income and wealth inequality that sees the rich getting much richer,” Senator Bernie Sanders (I., Vt.) told CapitalAndMain.com last month.

Wages have largely stagnated,” the campaign website of Senator Elizabeth Warren (D., Mass.) complains, while “fundamental changes in our economy have left millions of working families hanging on by their fingernails.”

These grim, lachrymose myths cannot mask this incredibly upbeat fact: The sparkling wine is flowing on Wall and Main streets, and it’s running more rapidly on Main, where take-home pay is expanding the most among those with the least.

Never mind the liberal lies. Hard data reveal this reality. The Atlanta Federal Reserve Bank’s monthly Wage Growth Tracker shows that Americans are making more money, particularly those who have been forgotten for decades.

Between November 2018 and November 2019, overall median wage growth climbed 3.6 percent, a healthy pace that should lift spirits, too. Those in the bottom 25 percent saw wages advance 4.5 percent, while the top 25 percent lagged, with pay rising just 2.9 percent. This is the 180-degree exact opposite of what Democrats relentlessly bellow. They have equal access to the Atlanta Fed’s website. This confirms their rank dishonesty.

  • When it comes to race, wage growth for whites was a tick behind, at 3.5 percent, while non-whites charged ahead at 4.3 percent.
  • In terms of age, the young and the restless rule. Those ages 16 to 24 saw wages climb 8.4 percent. Americans 25 to 54 enjoyed 3.9 percent higher paychecks. And the typically higher-income 55-plus crowd was behind the curve, with 2.5 percent wage growth.
  • Bachelor’s degrees generated 3.7 percent wage boosts for those who held them. But those who went no further than high-school graduation also savored 3.7 percent higher pay. Those with associate degrees saw their checks grow just 3.2 percent.
  • While those in finance and business services scored 4.1 percent higher salaries, workers in manufacturing, construction, and mining were in a photo finish with them at 4.0 percent.
  • While job stayers earned 3.2 percent more money, job switchers scored an extra 4.3 percent.
  • Interestingly enough, those with low, medium, and high skills all shared 3.6 percent wage increases, matching the nationwide bonus.

For further sanguine results of Trumponomics, see Sentier Research’s analysis of the Census Bureau’s Current Population Survey. Sentier clocked U.S. median household income last November at $66,043 — $5,070 higher than this key metric’s position when President Trump was inaugurated on January 20, 2017: $60,973. This 8.3 percent increase in middle-class income in less than three years crushes the two-term, eight-year performances of Obama ($1,043, up 1.7 percent) and G. W. Bush (an emaciated $401, or a paltry 0.7 percent boost).

Today’s Employment Situation also is encouraging. As the Bureau of Labor Statistics reported at 8:30 a.m., the unemployment rate remains steady at 3.5 percent, maintaining the lowest joblessness level since 1969 — Richard Nixon’s first year in office. Employers created 145,000 new jobs last month, a healthy, if not breathtaking, number. And 2.9 percent wage growth, from December 2018 to December 2019, lags the Atlanta Fed’s figures but still approximates the 3 percent mark that seems to trigger warmth and toastiness. Scarlett O’Hara’s words should soothe any naysayers here: “Tomorrow is another day.”

Democrats should stop loathing Trump long enough to show some love for the poor people they claim to represent. Democrats should stop lying to themselves and the country about low-income wages lagging those of the affluent. This is not happening. Democrats should acknowledge the wonders that Trump and Republicans have done via tax reduction, regulatory relief, and a pro-business tone in Washington.

Then, Democrats should make this challenge to Republicans. The 55 percent of Americans who are in the stock markets, per Gallup, are seeing their portfolios soar, as the S&P 500, Dow Jones Industrial Average, and Nasdaq break records. Since Trump’s victory, these markets have rocketed 53 percent, 58 percent, and 77 percent, respectively, as of Thursday’s highest-ever closing bells.

But the 45 percent of Americans who own no stocks — directly or as part of 401(k)s or IRA accounts — are missing this bonanza.

Democrats should ask Republicans to work with them to make it as easy as possible for those not invested in the stock market to buy in. A bipartisan plan to erase barriers to equity ownership would be productive and beautiful.

Conversely, Democrats can keep weeping among themselves as their have-not base actually grows richer more swiftly than the haves the Democrats love to hate.


The Best Economic News No One Wants to Talk About

Something’s happening to wages that neither Democrats nor Republicans care to acknowledge.

By Derek ThompsonThe Atlantic

Stop me if this sounds familiar: For most American workers, real wages have barely budged in decades. Inequality has skyrocketed. The richest workers are making all the money. Earnings for low-income workers have been pathetic this entire century.

These claims help drive the interpretation of breaking economic news. For example, the Labor Department yesterday reported that the unemployment rate fell to a 50-year low, while wage growth stalled. “The wage numbers here are INSANE,” the MSNBC host Chris Hayes tweeted. “The tightest labor market in decades and decades and ordinary working people are barely seeing gains.”

So, let’s play a game of wish-casting.

  • Imagine a world where wage growth was truly stagnant only for workers in high-wage industries, such as medicine and consulting.
  • Imagine a labor market where earnings growth for low-wage workers, such as those who work in retail and restaurants, had doubled in the past five years.
  • Imagine an economy where wages for the poorest Americans were rising twice as fast as hourly earnings for high-wage earners.

It turns out that all three of those things are happening right now.

According to analysis by Nick Bunker, an economist with the jobs site Indeed, wage growth is currently strongest for workers in low-wage industries, such as clothing stores, supermarkets, amusement parks, and casinos. And earnings are growing most slowly in higher-wage industries, such as medical labs, law firms, and broadcasting and telecom companies.

Bunker’s analysis is not an outlier. A Goldman Sachs look at data from the Bureau of Labor Statistics found growth for the bottom half of earners at its highest rate of the cycle. And even among that bottom half, the biggest gains are going to workers earning the least. A New York Times analysis of data from the Federal Reserve Bank of Atlanta found that wage growth among the lowest 25 percent of earners had exceeded the growth in every other quartile.

In fact, according to Bunker’s research, wages for low-income workers may be growing at their highest rate in 20 years.

What’s happening here? Donald Trump hasn’t sprinkled MAGA pixie dust over the U.S. economy. In fact, his trade war has clearly diminished employment growth in industries, that are sensitive to foreign markets, such as manufacturing. Rather, a tight labor market and state-by-state minimum wage hikes have combined to push up wage growth for the poorest workers. The sluggishness of overall wage growth is concealing the fact that the labor market has done wonderful things for wages at the low end.

One reason you haven’t heard this economic narrative may be that it’s inconvenient for members of both political parties to talk about, especially at a time when economic analysis has, like everything else, become a proxy for political orientation. For Democrats, the idea that low-income workers could be benefiting from a 2019 economy feels dangerously close to giving the president credit for something. This isn’t just poor motivated reasoning; it also attributes way too much power to the American president, who exerts very little control over the domestic economy. Meanwhile, corporate-friendly outlets, such as The Wall Street Journal’s editorial pages, have reported on this phenomenon. But they’ve used it as an opportunity to take a shot at “the slow-growth Obama years” rather than a way to argue for the extraordinary benefits of tight labor markets for the poor, much less for the virtues of minimum-wage laws.

Democrats don’t want to talk about low-income wage growth, because it feels too close to saying, “Good things can happen while Trump is president”; and Republicans don’t want to talk about the reason behind it, because it’s dangerously close to saying, “Our singular fixation with corporate-tax rates is foolish and Keynes was right.”

But good things can happen while Trump is president, and Keynes was right. “Tighter labor markets sure are good for workers who work in low-wage industries,” Bunker told me. “This recovery has not been spectacular. But if we let the labor market get stronger for a long time, you will see these results.”


WITH AN ECONOMY THIS STRONG, NO DEMOCRAT CAN DEFEAT TRUMP—BUT THE TRADE WAR WITH CHINA MIGHT | OPINION

By PETER ROFFNewsweek

President Donald Trump planned on seeking a second term based largely on the strength of the economy. Unemployment is down to a 50-year low. The Bureau of Labor Statistics reports the creation of nearly 6 million new jobs since he came into office. Wages and profits and revenues to the federal Treasury are up. The stock market is generally surging, and economic growth is once again the order of the day.

It’s an enviable economic record, especially when compared with his two most recent predecessors. Things are going so well, some of the president’s bitterest foes predict it’s strong enough to carry him across the 2020 finish line first.

The naysayers—those who’ve never liked Trump—point to a few statistics to suggest the fundamentals of the economy are softer than they appear. The inverted yield curve that appeared this week, now that the yield on 10-year U.S. government bonds is lower than that for two-year notes, has some people saying a recession sometime in the next two years is possible.

The U.S. economy is the world’s strongest right now but, says the president, would be even stronger had the Federal Reserve not raised interest rates too high too fast. Others say if things head south, it will be because of the ongoing trade war with China.

“I think we’re going to have a very long period of wealth and success,” Trump told reporters on Thursday. “Other countries are doing very poorly, as you know. China is doing very, very poorly. The tariffs have really bitten into China. They haven’t bitten into us at all.”

In response to the U.S. imposition of tariffs on its exports, Beijing weakened the yuan, effectively blunting their effect. Trump countered by delaying until December the next round of tariffs, mostly on consumer goods, scheduled to take effect on September 1 until mid-December.

That’s right in the middle of U.S. retailers’ most profitable period and could cause trouble at home. These and other moves have caused dramatic fluctuations in the stock market. The U.S. Trade Representative says everything’s just “next steps” in the process of getting China to do a deal.

Whether that’s true is a subject for debate. Capital Alpha Partners’ James Lucier counseled investors to view the delay of the tariff imposition as being as advertised and not as “backtracking in policy or a ‘blink’ by the U.S.” and “a case of the White House and President Trump, in particular, getting ahead of his own administrative machinery.”

If the economics are sound, the politics are shaky. A second Trump term depends on Midwestern farmers and industrial workers and others whom the tariffs potentially affect adversely in critical states like Florida, Michigan, and Ohio.

These are places where the economy is always issue No. 1, where the three things voters care about most are jobs, jobs and more jobs. And, as of now, the tariffs are not working to the president’s advantage. As much as the China-bashing rhetoric may excite his base, it’s not helping them make ends meet.

Florida’s exports to China total about $1.6 billion annually. That includes $533 million in gold because Miami is now the leading hub for refiners and processors who then sell to China for use in manufacturing. Civil aircraft parts, the state’s second-biggest export, brings in $126 million now and more in the future as China becomes, over the next 20 years, the world’s largest single market for civilian aircraft sales.

The Miami Customs District alone did $7 billion worth of business with China in 2017. In South Florida, manufacturers are suffering because of the steel and aluminum tariffs.

Michigan has a $3.6 billion export relationship with China, with $1.2 billion comprising car parts. The Wolverine State contains 75 percent of North America’s auto R&D, and China is, by volume, the world’s largest automaker. The Alliance of Automobile Manufacturers says higher-priced cars resulting from the tariffs could potentially lead to the loss of 700,000 American jobs.

It’s not just cars. Over half of all U.S. soybeans are exported, with 60 percent of them going to China and $700 million coming from Michigan. “The noose is getting tighter,” Jim Byrum, president of the Michigan Agri-Business Association, told the Detroit Free Press in May. “We have lost market opportunities. We’re not shipping soybeans around the world like we normally would. We’re not shipping them to China. China was our biggest soybean consumer, and they’re not moving.”

Ohio’s exports to China total $3.9 billion, with more than $691 million worth of soybeans—the state’s top agricultural export—shipped to China in 2017. “This will be tough to take. China takes one out of every three rows [of soybeans],” Bret Davis, a Delaware County farmer and governing board member of the American Soybean Association of China, told The Columbus Dispatch about proposed tariffs in 2018. An Ohio Manufacturing Extension Partnership survey of 457 Ohio manufacturers conducted in January found that 14 companies were hurt by tariffs for each it helped.

The Trump tariffs have already impacted negatively states that were key to him winning the presidency in 2016 and will be just as important in 2020. If the president wants to continue his record of economic success, he should focus on ending the trade war before Florida, Michigan and Ohio swing in the other direction.


When Normality Became Abnormal

By Victor Davis HansonAmerican Greatness

Donald Trump is many things. But one thing he is not is a defender of the 2009-2016 status quo and accepted progressive convention. Since 2017, everything has been in flux. Lots of past conventional assumptions of the Obama-Clinton-Romney-Bush generation were as unquestioned as they were suspect. No longer.

Everyone knew the Iran deal was a way for the mullahs to buy time and hoard their oil profits, to purchase or steal nuclear technology, to feign moderation, and to trade some hostages for millions in terrorist-seeding cash, and then in a few years spring an announcement that it had the bomb.

No one wished to say that. Trump did. He canceled the flawed deal without a second thought.

Iran is furious, but in a far weaker—and eroding—strategic position with no serious means of escaping devastating sanctions, general impoverishment, and social unrest. So a desperate Tehran knows that it must make some show of defiance. Yet it accepts that if it were to launch a missile at a U.S. ship, hijack an American boat, or shoot down an American plane, the ensuing tit-for-tat retaliation might target the point of Iranian origin (the port that launched the ship, the airbase from which the plane took off, the silo from which the missile was launched) rather than the mere point of contact—and signal a serial stand-off 10-1 disproportionate response to every Iranian attack without ever causing a Persian Gulf war.

Everyone realized the Paris Climate Accord was a way for elites to virtue signal their green bona fides while making no adjustments in their global managerial lifestyles—at best. At worst, it was a shake-down both to transfer assets from the industrialized West to the “developing world” and to dull Western competitiveness with ascending rivals like India and China. Not now. Trump withdrew from the agreement, met or exceeded the carbon emissions reductions of the deal anyway, and has never looked back at the flawed convention. The remaining signatories have little response to the U.S. departure, and none at all to de facto American compliance to their own targeted goals.

Rich NATO allies either could not or would not pay their promised defense commitments to the alliance. To embarrass them into doing so was seen as heretical. No more.

Trump jawboned and ranted about the asymmetries. And more nations are increasing rather than decreasing their defense budgets. The private consensus is that the NATO allies knew all along that they were exactly what Barack Obama once called “free riders” and justified that subsidization by ankle-biting the foreign policies of the United States—as if an uncouth America was lucky to underwrite such principled members. Again, no more fantasies.

China was fated to rule the world. Period. Whining about its systematic commercial cheating was supposedly merely delaying the inevitable or would have bad repercussions later on. Progressives knew the Communists put tens of thousands of people in camps, rounded up Muslims, and destroyed civil liberties, and yet in “woke” fashion tip-toed around criticizing the Other. Trump then destroyed the mirage of China as a Westernizing aspirant to the family of nations. In a protracted tariff struggle, there are lots of countries in Asia that could produce cheap goods as readily as China, but far fewer countries like the United States that have money to be siphoned off in mercantilist trade deals, or the technology to steal, or the preferred homes and universities in which to invest.

The Palestinians were canonized as permanent refugees. The U.S. embassy could never safely move to the Israeli capital in Jerusalem. The Golan Heights were Syrian. Only a two-state solution requiring Israel to give back all the strategic border land it inherited when its defeated enemies sought to destroy it in five prior losing wars would bring peace. Not now.

The Palestinians for the last 50 years were always about as much refugees as the East Prussian Germans or the Egyptian Jews and Greeks that were cleansed from their ancestral homelands in the Middle East in the same period of turbulence as the birth of Israel. “Occupied” land more likely conjures up Tibet and Cyprus not the West Bank, and persecuted Muslims are not found in Israel, but in China.

Suddenly Redeemable
An aging population, the veritable end to U.S. manufacturing and heavy industry, and an opioid epidemic meant that America needed to get used to stagnant 1 percent growth, a declining standard of living, a permanent large pool of the unemployed, an annual increasing labor non-participation rate, and a lasting rust belt of deplorables, irredeemables, clingers and “crazies” who needed to be analyzed by Barack Obama and Hillary Clinton. At best, a middle-aged deplorable was supposed to learn to code or relocate to the Texas fracking fields. Perhaps not now.

In the last 30 months, the question of the Rust Belt has been reframed to why, with a great workforce, cheap energy, good administrative talent, and a business-friendly administration, cannot the United States make more of what it needs? Why, if trade deficits are irrelevant, do Germany, China, Japan, and Mexico find them so unpleasant? If unfettered trade is so essential, why do so many of our enemies and friends insist that we almost alone trade “fairly,” while they trade freely and unfairly? Why do not Germany and China argue that their vast global account surpluses are largely irrelevant?

Representative Alexandria Ocasio-Cortez (D-N.Y.) assured us that the world would be suffocating under greenhouse gases within 12 years. Doom-and-gloom prophecies of “peak” oil warned us that our oil reserves would dry up by the early 21st century. Former Vice President Al Gore warned us that our port cities would soon be underwater. Economists claimed Saudi Arabia or Russia would one day control the world by opening and closing their oil spigots. Not now.

Three million more barrels of American oil are being produced per day just since Trump took office. New pipelines will ensure that the United States is not just the world’s greatest producer of natural gas but perhaps its largest exporter as well.

Trump blew up those prognostications and replaced them with an optimistic agenda that the working- and middle classes deserve affordable energy, that the United States could produce fossil fuels more cleanly, wisely, and efficiently than the Middle East, and that ensuring increased energy could revive places in the United States that were supposedly fossilized and irrelevant. Normal is utilizing to the fullest extent a resource that can discourage military adventurism in the Middle East, provide jobs to the unemployed, and reduce the cost of living for the middle class; abnormal is listening to the progressive elite for whom spiking gasoline and power bills were a very minor nuisance.

Changing Roles
Open borders were our unspoken future. The best of the Chamber of Commerce Republicans felt that millions of illegal aliens might eventually break faith with the progressive party of entitlements; the worst of the open borders lot argued that cheap labor was more important than sovereignty and certainly more in their interests than any worry over the poor working classes of their own country. And so Republicans for the last 40 years joined progressives in ensuring that illegal immigration was mostly not measured, meritocratic, diverse, or lawful, but instead a means to serve a number of political agendas.

Most Americans demurred, but kept silent given the barrage of “racist,” “xenophobe,” and “nativist” cries that met any measured objection. Not so much now. Few any longer claim that the southern border is not being overrun, much less that allowing a non-diverse million illegal aliens in six months to flood into the United States without audit is proof that “diversity is our strength.”

The Republican Party’s prior role was to slow down the inevitable trajectory to European socialism, the end of American exceptionalism, and homogenized globalized culture. Losing nobly in national elections was one way of keeping one’s dignity, weepy wounded-fawn style, while the progressive historical arc kept bending to our collective future. Rolling one’s eyes on Sunday talk shows as a progressive outlined the next unhinged agenda was proof of tough resistance.

Like it or not, now lines are drawn. Trump so unhinged the Left that it finally tore off its occasional veneer of moderation, and showed us what progressives had in store for America.

On one side in 2020 is socialism, “Medicare for All,” wealth taxes, top income tax rates of 70 or 80 or 90 percent, a desire for a Supreme Court of full of “wise Latinas” like Sonia Sotomayor, insidious curtailment of the First and Second Amendments, open borders, blanket amnesties, reparations, judges as progressive legislators, permissible infanticide, abolition of student debt, elimination of the Immigration and Customs Enforcement bureau and the Electoral College, voting rights for 16-year-olds and felons, and free college tuition.

On the other side is free-market capitalism but within a framework of fair rather than unfettered international trade, a smaller administrative state, less taxation and regulation, constitutionalist  judges, more gas and oil, record low unemployment, 3-4 percent economic growth, and pressure on colleges to honor the Bill of Rights.

The New, New Normal
The choices are at least starker now. The strategy is not, as in 2008 and 2012, to offer a moderate slow-down of progressivism, but rather a complete repudiation of it.

One way is to see this as a collision between Trump, the proverbial bull, and the administrative state as a targeted precious china shop—with all the inevitable nihilistic mix-up of horns, hooves, and flying porcelain shards. But quite another is to conclude that what we recently used to think was abjectly abnormal twenty years ago had become not just “normal,” but so orthodoxly normal that even suggesting it was not was judged to be heretical and deserving of censure and worse.

The current normal correctives were denounced as abnormal—as if living in a sovereign state with secure borders, assuming that the law was enforced equally among all Americans, demanding that citizenship was something more than mere residence, and remembering that successful Americans, not their government, built their own businesses and lives is now somehow aberrant or perverse.

Trump’s political problem, then, may be that the accelerating aberration of 2009-2016 was of such magnitude that normalcy is now seen as sacrilege.

Weaponizing the IRS, unleashing the FBI to spy on political enemies and to plot the removal of an elected president, politicizing the CIA to help to warp U.S. politics, allying the Justice Department with the Democratic National Committee, and reducing FISA courts to rubber stamps for pursuing administration enemies became the new normal. Calling all that a near coup was abnormal.

Let us hope that most Americans still prefer the abnormal remedy to the normal pathology.


3,453 Days And Counting: The Bull That Wouldn’t Die

By Investor’s Business Daily

Bull Market: Amid all the political noise in Washington, a milestone was passed Wednesday, one you may not have noticed. The bull market for stocks has now become the longest since World War II. Can it continue? That depends on federal policies.

We’re grateful to CNBC for actually counting the days: 3,453, starting on March 9, 2009. That’s a long time — 9.46 years to be exact.

Yes, it’s been a bull for the record books. Even so, we would note that the bull hasn’t been without tests to its longevity. And some might even deny it’s been a bull market all this time.

One common definition of a bear market is a decline of a major stock index by 20% or more from its previous all-time high, or 52-week high. Well, way back in 2011, the market was actually off more than 20% from its previous high, but on an intraday basis. So, technically, some think the bull ended. But it snapped back by the end of the day’s trading, so others say no.

But however you look at it, the fact is that the market has been on a long-term tear. The bull run began Continue reading


Surprise! Despite Media Trash Talk, Nation’s Mood Brightens

By Investors Business Daily

Change: A just-released IBD/TIPP Poll shows big gains in key sentiment indicators. Given the pervasive negativity in the media these days, you might doubt these positive polling numbers. If so, have you looked at the economy lately?

When it comes to President Trump and the national mood, something seems to have happened in recent weeks, as shown by our IBD/TIPP Poll of 900 people taken from July 26 to August 2. Keep in mind that anything over 50 is optimistic; under 50, pessimistic.

Start with our Presidential Leadership Index, which jumped 3.2% in August to 45.7, the highest level since President Trump’s first full month in office.

Equally important, the Direction of the Country Index, which gauges how Americans feel about our nation’s current course, surged 13% to 50.1 in August. That’s the highest level since 2005.

Continue reading


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