Wealth Gap, Agitated Populace, 2nd Amendment a Volatile Mix

The last time we faced massive government spending that helped pull us out of an economic dive this deep was when WWII pulled us out of the Great Depression. We paid for that by increasing top tax rates to over 90 percent. It was a time when we took fiscal responsibility seriously (which coincided with our greatest period of middle class economic might and global respect). It will be interesting to see how we proceed this time once the need for stimulus has passed. I would not expect similar tax rates, but I do believe our current tax structure and faith in the myth that tax cuts pay for themselves will need to come to an end.

On a related note, I was pondering the oft-repeated claim that  prior to onset of COVID-19 we were in the greatest economic period in our nation's history. On a GDP and unemployment basis, there is some merit to that claim, but how does it stack up by other measures such as income inequality and overall measures of economic security of the middle class, including number of bankruptcies due to medical bills, ability to pay for a 4-year degree without incurring significant debt on a middle class income, retirement security? I've done some preliminary research and it is not quite as rosy as it's been portrayed, which should surprise few.

That such struggles were increasing, as are federal deficits, while the economy was humming on all cylinders should be a matter of concern for all regardless their income level. Sadly, I fear the IBGYBG (I'll be gone, you'll be gone) attitude that lured so many to dismiss the threat of the looming mortgage crisis a decade ago because they figured they'd cash out before the bill came due, has now become an IGMYGY attitude (I got mine, you'll get yours). It's a kind of Gadsden flag, don't tread on me approach to economics. However, history has rarely been kind to societies with vast wealth gaps.

The last time the US faced such inequality was during the Gilded Age of the late 19th century, which eventually saw the rise of the American Communist Party as a valid political player. Its appeal grew even greater with the onset of the Great Depression, which increased the calls for wealth distribution and overthrow of the old economic system. Ironically, Franklin Roosevelt saved capitalism by fighting fire with fire, implementing a vast array of socialist-style works programs, as well as Social Security, as part of his New Deal. They alleviated the pain of the Great Depression and quieted the most extreme calls for action, but it was only WWII (as noted at the opening of this post), which finally put an end to the economic hardship. Oddly, the real savior of capitalism may have been the man who started that war. We can only guess at how prolonged economic hardship would have played out had the war not intervened.

All this is to say that those who look the other way as income inequality grows without considering the long-term consequences risk fomenting a rebellion that the support of Bernie Sanders-style socialism only hints at. A return to the gilded age puts all at risk of becoming victims to the adage that hungry people gripe, starving people revolt. In a nation founded in rebellion, with a populace prone to agitation backed by Second Amendment rights, it will only take a skilled demagogue with the wrong message at the right time to light a fuse we may wish we had doused long before.

Beware Attempts to Politicize the Voice of America

The president made a point of referencing the need to replace the head of the Voice of America during yesterday's coronavirus briefing. I happened to attend a talk at the VOA museum here in West Chester, OH last fall by Elez Biberaj, the VOA's Eurasia director, where he made it clear the mission of the VOA is to provide truthful reporting rather than propaganda because gaining the trust of those in nations without a free and open press is critical to US influence in those countries (the accompanying photo shows the level of that trust in select countries). He went on to say the VOA has taken pride and comfort in the fact that their mission has never been politicized, allowing them to freely broadcast the good, the bad and the ugly, which is what underpins those high levels of trust abroad.

The president's comment yesterday that the current director is allowing "horrible things" to be broadcast almost certainly was driven by that "good, bad and ugly" aspect of the VOA's factual reporting. In fact, it was directly related to their reporting on the coronavirus pandemic, which he apparently feels has not been critical enough of China. If he succeeds in placing a director more intent on propaganda than truth, global trust in the VOA will crater, its effectiveness will plummet and any influence the US garners from our shining example of press freedom will be forever lost.

This is just one small but significant example of the many ways this administration is not just damaging our global influence, but more dangerously, undermining the very principles countless Americans have fought and died to gain and protect. It may seem insignificant, but it is an attack on the very concept of what America is.

The President's Underwhelming Performance

Supporters of President Trump often argue that his detractors ignore his successes and thus, their opinions are based upon intangible emotions. A look at those alleged accomplishments may help quell that argument. This review will put the coronavirus impact and response aside, looking only at the performance through December 31 of last year, the date China first revealed it was dealing with a new infectious disease. It will also focus exclusively on policy, refraining from touching on rhetoric, personality and other apsects of the president's behavior, save for how those might influence policy. Suffice it to say, this is by no means an exhaustive review of presidential shortcomings as viewed by his detractors.

First, the economy. Despite the president’s boasts, it has been every bit as sluggish/robust as it was under his predecessor (one must choose which adjective to use, since the numbers are nearly identical). In Obama’s last eleven quarters (the number for which data exists under Trump), annual growth was 2.3 percent. Under Trump it has been barely a quarter point higher at 2.56 percent. Comparing the most recent five quarters for both makes for a statistical dead heat, with both coming in at 2.1%, well below the 3% considered robust and even further shy of the 4% or more the president had promised.

The president may actually be fortunate that the economy has been hammered by the coronavirus, because the global economy had been sliding into a recession and early warning signs, including a significant drop in truck capacity utilization nationwide, suggested the US economy was beginning to teeter on the brink of a downturn (see Fig 1). That will now be more than masked by what has transpired in the past few months. 

Fig. 1: Logistics Manager’s Index of Transportation Utilization

The other thing the president proudly boasts of is the stock market. There, too, it is not all it’s cracked up to be. Given that the president’s signature economic achievement - his tax cuts - did not take effect until January 1, 2018, it is instructive to look at the markets performance in their wake. Ironically, the market quickly peaked on the first anniversary of his inauguration (I typically begin assigning credit to a president for the economy beginning on that date), then remained essentially flat or underwater for the next twenty-one months. Only in the last quarter of last year did we see any improvement in stock prices, and even then, from his one year anniversary to the peak during his term on February 12 of this year, the Dow grew at a substandard 6% annual rate, significantly below the historic return of 7.75% return that excludes dividends. (see Fig 2)


Fig 2: Dow Jones closing prices January 3, 2017 - March 18, 2020

Under virtually any comparison, President Trump’s performance versus Obama’s is substandard.  During the first three full years (12 quarters), President Trump’s market lags Obama’s in every one except the first, which is typically a quarter a new president inherits rather than can take credit for the market. (see Fig 3)



Fig 3: Comparison of Cumulative Change in Dow Jones 

The most troubling aspect is the price we’ve paid for an economy and a market that has barely budged versus their performance under his predecessor. Deficits were already crossing the $1 trillion mark before the recent COVID outbreak (see Fig 4). These tax cuts predictably fueled deficits normally seen during economic downturns, leaving little in the tank when true need arose, as we are now experiencing. Furthermore, the regulation rollbacks the president boasts of put the health and well-being of workers and communities at risk with virtually no payoff. One of the most ironic - some would say, hypocritical - regulatory rollbacks involved auto emissions and fuel economy, where the Trump administration has gone to court to overturn California’s strict rules. Given how this administration seeks to argue for state’s rights to oversee health regulations and a host of other policy measures, one can only question the motives behind such moves.



Fig 4: Federal Deficits 2009 - 2019

Bottom line, the president has virtually nothing to show for putting our physical and fiscal health in peril. Therefore, this can arguably be called a net failure in terms of governance and economic policy. And we have come nowhere close to paying the full bill for those policies.

So much for economics. On healthcare, the president has offered nothing in terms of a plan. He promised one during his first campaign, referring regularly to “repeal and replace,” but he offered nothing but repeal. No replacement plan was offered. Now, he again promises a “beautiful” plan after his reelection, but refuses to say what that might be. Volumes could be written regarding the perils of repealing the ACA without a replacement, but the one thing that has been floated - allowing insurance companies to offer tiered pricing for preexisting conditions - is a cynical attempt to have their cake and eat it, too. In this case, they would get to take credit for protecting those with preexisting conditions, while avoiding the inconvenient fact that such tiered pricing will effectively make coverage for those conditions prohibitively expensive. For people not covered by large group plans, including small businesses, contract workers, freelancers and gig workers, it would make insurance affordable for those who don’t need it and unaffordable for those who do,effectively making insurance pointless. That is the strategic vision of this administration’s health policy, which means there is neither a strategy nor a vision. We can only hope this plan never comes to fruition.

Regarding immigration it is difficult to separate the policy and the rhetoric, but much can be questioned simply on a policy basis. Beyond the cruel aspects of family separation and denial of asylum, there are real economic costs to our growing aversion to immigration. But first, let's clear up the common misconception often made by the president's supporters that the family separation policy began with Obama. There is a vast difference between the two in that federal law prohibits the jailing of minors when their parents have been arrested. Thus, children were only separated from their families when their parents or guardians had been arrested for felonies that included drug and human trafficking, in accordance with the law. The Trump administration's separation policy went well beyond that and forced families apart even when parents had a perfectly legal basis for requesting asylum. This is where the outrage arose, and rightfully so.

This obscures the far more troubling aspects of our immigration policy. Influenced by Stephen Miller, our immigration policy is geared not only to stop illegal immigration, but to limit and reduce legal immigration as well. This is foolhardy at a time when we face an aging population, a demographic trend that economists are virtually unanimous in citing as the precursor to a stagnant economy. We have seen this at work in Japan for nearly two decades, where birthrates and limited immigration have hamstrung every effort - including sub-zero interest rates - to kickstart their economy. We are headed down a similar path under our current administration. Furthermore, the immigrants we are discouraging are now remaining in their homelands, where they will compete against us rather than contribute for us. Imagine how much weaker the NBA, NHL or MLB would be vis-s-vis the rest of the world without immigrants. The same holds true for our businesses. Yet we are foolishly turning talent and dedicated workers away, while stigmatizing them at the same time. It cannot even be justified as short-term thinking. It will hurt us today and tomorrow, as worker shortages translate into higher prices due to shortages of products, services and most critically, innovation. The price we pay in the next couple of decades will thus be paid in both dollars and influence as our economy sags further in relation to the rest of the world.

Internationally, the president has achieved virtually nothing. His supporters often argue that his two signature achievements - moving the U.S. embassy to Jerusalem and meeting with North Korea’s Kim Jong Un - were successes, measured by the fact that the worst case scenarios failed to materialize in their wake. This, however, fails to take into account that our reticence to pursue either of those initiatives was not fear of repercussions, but the unwillingness to give them up as bargaining chips. With regard to the embassy, we saw the move as something we could use to entice Israel to make concessions to the Palestineans as part of a long-term peace solution. Likewise, we refused to give Kim Jong Un the legitimacy he sought unless he permitted real and lasting concession regarding inspections and cessation of nuclear weapons and missile development. In both cases, we gave up our biggest bargaining chips for nothing in return. To classify those as not just failures, but monumental missteps with historic implications would not be hyperbole.

Those are just two of the most glaring foreign policy blunders, but the loss of U.S. prestige and influence on the global stage is both pernicious and likely permanent. We earned that position of leadership through the blood and sacrifice in two World Wars and the aftermath that saw us as the most magnanimous victor in human history. We have simply given that away. We should hope it doesn’t require a similar price to regain it.

An argument can be made that changes in the global balance of power were inevitable, as was a concurrent loss in U.S. influence. And some will argue that Barack Obama sped that along. However, the Obama approach was one that sought more to manage that shift, whereas the Trump approach is to, quite honestly, it is nearly impossible to know what it might be. That is to be expected from someone who has never revealed the slightest hint of strategic thinking, save for bluster (that is less a dig than it appears - it does seem that bluster is a Trump strategy). There is no Trump doctrine, however, beyond "America First," whatever that means (it is standard operating procedure for Trump to use catch phrases that allow others to assign their own meaning, which is one reason so many believe he thinks as they do. What those supporters fail to realize is that they are only thinking as they, themselves, do. Whether the president thinks alike is no certainty).

These are just a handful of the areas where even this president’s alleged successes are really no such thing. And this does not touch on the corrosive nature of his personality or politics. All the evidence points to the truth that this man is poorly informed, incapable of anything but the shortest of short term thinking and incredibly sensitive to his own ego,which far too often takes precedence over the demands of his office. In time, history will view him as every bit as unqualified as so many of us have argued from the start.

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Here is a link to a story citing our need to manage America's relative loss of influence as other nations inevitably rise:

https://www.nytimes.com/2023/09/04/opinion/america-rome-empire.html