DEMAND IS KING: What Trump Has Right About Trade

July 2, 2018

Trump understands what establishment policymakers don’t know or don’t want you to know. When it comes to trade; nations rich with consumer demand hold the real leverage.

A broad-based middle-class prosperity is only possible in societies where demand is balanced with the supplied labor. In human history, this balance between demand and the labor supply is only being achieved in a few nations and for short spans of time. Despite our deep-seated belief, that America has always been and always will be a middle-class society. A broad-based middle-class has only existed in the US for the three Decades after World War II.

The notion of a broad-based middle-class prosperity is the exception, not the rule, and many Americans feel it slipping away Their concern is justified because nothing can throw the delicate balance between consumer demand and labor supply out of whack faster than international trade. The world is awash with potential labor yet there is a finite supply of consumer demand.

President Obama has said that income inequality is the biggest issue facing our nation. He is right.  Even as the reason he puts forward for the causes of income inequality are muddled and that he seems to accept the notion that income inequality is caused by global market forces beyond the control of policymakers. Free trade is not inevitable, it is a conscious policy decision that has a real impact on working families.

Obama’s insistence on pursuing the TPP trade deal in the run-up to the 2016 election speaks volumes about his misreading of the electorate and his misunderstanding of the fundamental causes of income inequality. Despite promises from candidate Obama, the Obama administration never intended to renegotiate NAFTA.

There is no light between Obama, Hillary Clinton, the House, and Senate leadership of the Democratic Party and establishment Republicans on trade.  This is one reason Hillary Clinton lost the election. The genius of Donald Trump in the 2016 election was his understanding that the sense of angst in the Midwest great lakes electorate was in large part about how the US, a developed prosperous nation can integrate its economy with a world awash with excess labor.

The answer is that you can not integrate the economies of a rich nation with an impoverished developing nation without massive transfers of wealth. Any free trade agreement between the US and, say, Vietnam will devolve into wage arbitrage. But it’s not only wages; Vietnam businesses have a host of price advantages. The US private sector supports all matter of government and private spending. The US military and health care spending alone put US producers at a huge disadvantage with developing-nation trading partners. Even a service as basic as indoor plumbing has a cost that is passed along in the products we produce, so the question becomes how do you compete with countries that don’t provide even the most basic private and governmental services?

The US and a few other countries have something that is absent in the developing world, it is the very reason why they are impoverished.  We have consumer demand. Successful Nations of the future will find ways to match demand with a population desperate for gainful employment even if that means siphoning off demand by being low-cost producers from consumer nations. The idea that the United States or any developed nation can allow huge chunks of consumer demand to be absorbed by developing nations and maintain a current level of their own prosperity is a con job. As powerful as the American consumer is, we can’t be the employer to the world – the numbers just don’t work. Free trade does not grow the world economy fast enough to maintain the value of labor.

Denying access to imports is not the answer. The real issue is not how much a nation trades, it is the balance of trade that determines the transfer of wealth. A trade policy without reciprocity will continue to drain our economy of its vitality.

“Free Traders” insist that trade deficits are not a problem. So how do you explain the rise of China? China’s double-digit growth rate, budget surplus even as it expands it’s government (military) spending. China’s go-go economy is a direct result of a positive balance of trade. Trade does grow the world economy but not enough to make up the transfer of wealth from the US into China.

Proponents of free trade put forward the figure that in 2015, 5,967 jobs were linked to every billion dollars of exports. But wouldn’t the inverse also be true? For every billion dollars worth of imports, a similar amount of US jobs are lost.  What’s critical in this discussion that “Free Traders” never address is what is the net effect of our trade policies on the maintenance of wages and jobs growth in the US? There’s also no discussion of the devastating effects on workers incomes when companies use the potential to offshore jobs as leverage in labor negotiations.

Is a lot of money to be made by sourcing goods in low-cost, weak currency nations and selling them into developed nations with a higher standard of living and stronger currencies?  But do not blame China, they do not have the power to dictate US trade policy. Despite the fear-mongering about trade wars and China owning our T-bills, we have a donor-class trade policy set up to benefit multinational corporations. All the elitist rhetoric you will hear as President Trump tries to address the imbalance the US/world trading is designed to maintain the status quo.

Countries that understand consumer demand and jobs is a feedback loop that creates prosperity will be successful in the 21st century. If the US allows it’s consumer demand to be drained off for the short term benefit of multinational corporations in unsustainable trading relationships we will struggle to maintain a middle class and fail to have a stronger private economy with the resource to support their own infrastructure and institutions.

A Thirteen Year Old’s Take on Net Neutrality

July 13, 2017

My son Jack, wrote and sent this letter to his members of Congress.

Hello. I may be only 13 years old, but Net Neutrality is a major issue for all of us in Findlay, OH, and the millions of Ohioans who use the internet every day. We use the internet every day in our lives, and ending Net Neutrality would only cause prices to hike, bringing down important services (Google, Wikipedia, educational websites like Khan Academy) for many low and middle-class children. Not only that, but the amount of companies and people that rely on Net Neutrality to cost-effectively transmit information is beyond count. By raising internet prices, you are damaging the economy, not fixing it.

Please be aware that Net Neutrality is a major issue for us! Once I am old enough to vote, I am surely not voting for any representative or senator against Net Neutrality. And I am sure that in the “Internet Age”, the vast majority of my classmates that use websites to research, socialize, and connect with their peers will be none too happy with internet prices rising and censorship reigning in the new digital industry.

Not only that, but the absence Net Neutrality could easily lead to censorship. If a cable provider deems a website “against its cause”, and cable providers are famously some of the least trustworthy companies in America, they could simply raise the prices on that website. Creating bundles, like on television, would raise the bar extremely high for new startups, and as we all know internet startups are one of the most important and lucrative new industries. Abandoning them is a fool’s errand.

In short, repealing Net Neutrality will benefit no one aside from a few cable company CEOs, and would be by far the worst choice economically and societally. Not only that, but the vast majority of Americans are against this greedy act. We must do what we can to resist Chairman Pai and protect digital freedom.

The Business Argument for Legalization

April 20, 2017

Politicians are loathed to take on controversial issues even when the resulting upside could be game changing. But no one has the power to move policy makers off of a long standing bad idea like business.  Business has an outsized power over policy making (for good and bad).  Profit is a power motivator, add to that any policy that promotes job growth and what you have is a power engine for change.

In Ohio, a major roadblock in the path to legalize marijuana is the business community and the perceptive harm to business interests. But is the business community accounting for the upside of potentially legalizing marijuana and overstating the downside?

We have a real world allegory for the war on marijuana; prohibition.  If alcohol was illegal, hypothetically the cost and risk of alcohol in the workplace would be greatly reduced.  But we know how prohibition worked out, it was not enforceable and the cost to business was not mitigated.  The benefit to society and business simply did not outweigh the unintended consequences of enforcement.

It’s time for business to ask if the same is true for marijuana.

When you compare the impact of alcohol and marijuana use on society and individuals, the evidence clearly shows that alcohol use is far more damaging.

Marijuana as a gateway drug is overstated and may have more to do with the fact that recreational users buy their marijuana from the same dealers that provide other illegal drugs, like heroin.

The availability of heroin could be greatly reduced by the legalization of marijuana.  For the drug cartels, the illegal trade in marijuana is the bulk of their business and profits.  Legalization of marijuana would have a major negative impact on the viability of the illegal drug trade and disincentivize operations in Ohio.  Also, law enforcement could refocus their efforts on heroin and other highly dangerous and destructive drugs.

Is the war on marijuana a form of institutionalized racism and ageism?  For many younger people, marijuana is the drug of choice.  While the use of marijuana across racial lines is equal, minorities are far more likely to be arrested on marijuana charges.  The drug trade also creates an economic incentive for participation of the economically disadvantaged, further increasing minority arrests and incarceration.

This why decriminalization of marijuana is wrong headed half measure, it would leave the illegal drug trade wholly intact and only further the negative racial impact of the war on marijuana.

So let’s look at the direct benefits of legalization to business.  First the war on marijuana is very expensive; the cost of Ohio’s criminal justice system is spiraling upwards. If we could eliminate the money spent on marijuana enforcement, those resources could be better employed in an effort that would have positive impacts on business like, infrastructure spending, job training, education, the list goes on.

A legal marijuana market would mean increased tax revenue.  The money spent on marijuana grown in Ohio would be funneled back into the local economy, not to international drug cartels.

While you may not understand and even find it reprehensible that potential employees would prefer to use marijuana over joining your workforce, you might want to ask yourself; who is the prohibition on marijuana hurting the most?  I am not going to promise you that there is no downside to ending drug screens for recreational marijuana use on personal time.  I am not suggesting that drug use in the workplace should be tolerated.  I am asking; does a reconciliation with marijuana similar to our reconciliation with alcohol just make more economic sense?  There is a trade-off here that is worth thoughtful consideration.

The other factor to consider is your customers.  Denying economic opportunity to young people over a personal choice is undercuts your own customer base.  Diverting young people into the criminal justice system will have a lifelong negative economic impact.  The end result is a consumer base with less discretionary income to spend on the goods and services that business provides.

I am not asking business to endorse the use of marijuana anymore that I would ask business to endorse the use of alcohol.  I am asking business leaders to reexamine their bias and preconceived notion of what marijuana legalization would look like and rethink the effect on our communities and the business environment in Ohio.  The business community’s opinion on this issue could be the deciding factor on legalization in Ohio.

Can the Democratic Party Come Back?

January 12, 2017

A tectonic shift in the political landscape is taking place and the Democrats are in danger of being left out in the cold.  Just as the civil rights movement in the 60’s completely rearranged and upended what it meant to be a Democrat and Republican, a new alignment is taking place over America’s place in the global economy and in global affairs.

The two victories by Barack Obama obscured a party that was dying on the vine.  We all (now) know the numbers.  The oval office, both houses of congress, governorships, state legislators; the Democratic Party is in full retreat.  It is a party so desperately clinging to the past and past leadership that we need to ask if this party can right itself before it becomes irrelevant and obsolete.

The Democratic Party is psychologically wounded, lashing out at everyone and everything that they feel is to blame for the horrible injustice that has befallen Hillary Clinton, denying America the benefit of her obvious superior leadership, it was Trump the demigod, the GOP, sexism, racism, the media, the electoral college, the Comey letter, the Russians, the list goes on and on.  All of this thrashing about on the ground in a pile of tear-filled rage is pointless and ultimately harmful. We look like fools and sore losers, most importantly it makes us incapable of seeing our own faults that has led to this debacle.

Democratic vs. Republican has been usurped by globalization vs. populism. This realignment is occurring in the US and around the world.  Globalization has been uncovered as a cruel hoax.  Free trade, the global banking system, capital-friendly tax systems and mass immigration are doing real harm to the middle class.  The system is designed to drive down the cost of labor while exacting profits that flow to the 1%.  It is a system that is of course, unsustainable but the donor class is not interested in introspection on the society that is being created, or should we say being destroyed, and neither it seems is the leadership of the Democratic Party.

It is a bigger and much more dangerous mortgage lending crisis being played out over the course of decades.  When Bill Clinton took up the cause of NAFTA as a way to raise money for his presidential bid, the Democratic Party bought into free trade hook, line, and sinker.  Globalization became the defining economic policy of both parties right through to today.

Barack Obama missed this realignment, continued pressing forward with trade deals and wars when the voters were begging for relief.  This is the problem when you take your cues from the donor class whose interests are not in line with the voters.  The undercurrent of populism has been building for a long time but the donor class and the media manage to keep it from the light of day.  By playing to a system where it is verboten by the donor class to offer any alternative to globalization, the Democratic Party became a tool of the 1%.  Corporate Democrats may be more right on social issues but are really no different from corporate Republicans on the fundamental operating principles of our economy.

Obama/Clinton made no effort to address the concerns of the middle class.  They talked about the income inequality but refused to define a cause because that would have led to the only real conclusion; globalization is exactly the wrong policy to build broad-based middle-class prosperity in a developed nation.

The rise of Bernie and Trump was a direct result of the fact that they were operating outside the normal system of campaign finance and were free to tap the populist mood that lay dormant and unaddressed, the sleeping Giant of American policies.  The Democratic establishment just did a better job killing off the candidate of real change.  Whether Bernie could have won is missing the point, Bernie was the only Democratic alternative that broke through the donor class blockade. The Democrats are just as responsible, if not more responsible, for the Trump Presidency because we turned our back on the working families of America.

Democrats if you want to know why we lost it’s time to stop crying, passing the blame and look in the mirror.  Hillary lost because she was a product of the corporate establishment elitist globalist party system and Trump was not!!

The Democratic Party faces an existential crisis, can we break free from the clutches of the globalist donor class and if so where do we get the money to rebuild?  If the Democratic Party cannot come to terms with its failed and rejected policies and make real change in its’ policies and leadership, (and so far it seems wholly unwilling to do either), it is in danger of being a non-entity in American politics.  Without real substantive charge in the Democratic Party, the battle for power in American politics will be waged between the globalists and populists of the Republican Party.


Low Growth the Normal Normal

November 3, 2016

Why Trump’s and Clinton’s Economic Plans Will Fail

Economic growth showed some signs of life last quarter.  But since the great depression of 2008, GDP growth has been below what is considered normal despite historical low-interest rates and continued deficit spending.

Some have suggested that low GDP growth is the new normal.  But two recent well-received books by economics professors ask if low growth is not the new normal but the normal normal.

In Thomas Piketty book Capital in the Twenty-first Century, the French professor takes a long view of economic history, mining data from before the France Revolution.  Mr. Piketty concluded that the GDP over the long term rises at what we would consider the low rate of 1 percent per capita.

Mr. Piketty’s thesis is that the higher growth that we see is a result of GDP growth pumped by population growth that does not increase per capita standard of living, the effects of booms and bust in markets and the catch-up effect.  This catch-up effect occurs after a major disruption in the economy; like World War I and II.  Note the high rates of growth in the US, Germany, and France in the post-war years.

Japan’s high rate of growth in the 70’s was a function of taking a long time to recover from the war.  In China, we have recently seen astonishing rates of growth as it recovers from the Cultural Revolution and failed economic policies of the Maoists.  But once these disruptions are overcome and over the longer reach of time, the GDP settles in and holds steady at 1 percent of per capita.

Professor Robert J. Gordon’s book; The Rise and Fall of American Growth puts forward a different theory on why growth is slowing down. In its simplest form, he states that you literally cannot reinvent the light bulb.  Gordon believes that the major driver of growth and increases in our quality of life (not always captured in the economic date) are the innovations that have occurred in the time period beginning just before the civil war and accelerating though World War II.  Mr. Gordon suggests that this unprecedented run of human advancement slows down dramatically in the 70’s and will not be repeated.

While Professor Piketty and Professor Gordon have differing views on why growth is slowing down they are not mutually exclusive.  They could, in fact, both be right. If they are right and low growth is the normal normal, this would have broad implications for policy makers in government and business.

First and foremost, Jack Kemp’s assertion that you can outgrow the national debt is no longer operable.  Outrunning debt in government and business is a time-honored strategy.  But in a long-term low-growth scenario continued deficit spending  will increase the interest payment on the national debt consume more and more of revenue.

Second; effects to prime growth put forward by both Presidential candidates could make matters worse.  Both candidates believe that increasing growth is the magic elixir to an ailing economy. Traditional policies of cutting taxes put forth by Trump and increases in government programs/spending by Clinton may not increase growth enough to generate the taxes needed to offset the cost, only increasing the national debt.

Any stimulus package designed to jump-start the U. S. economy needs to have an impact that lasts long after the initial investment is spent.  Otherwise, you will have only increased the national debt making it just that more difficult to cope with a long-term low growth economy.

Coming Soon: Part 2, What is to be done in a low growth environment.

Loss Carried Forward and Phony Outrage of the Left Explained in Five Minutes

October 2, 2016

Loss Carried Forward is a long standing provision in the US (and other countries) tax code and is really quite easy to understand.

Let’s say you invest a hundred thousand dollars in a new business that you start on January 1.  In the first 90 days or first quarter of business you lose 10 thousand dollars.  New businesses often lose money at start up.  So, in the second quarter you manage to break even.  You have no loss but also no profit.  For the 3rd and 4th you make 5 thousand dollars in each quarter.  This would mean you finish the year with zero net profit or loss and your taxable income for your first year in business would be zero; simple right?

To understand Loss Carried Forward simply change the time frame in the above story from quarters to years.  In the first year you lose 10 grand, in the second year you break even and in the third and fourth years you make 5 thousand dollars each.   For the total four years you have been in business you have managed to break even.  Yet, without the Loss Carried Forward provision in the tax code you would have a taxable income in years 3 and year 4 of five thousand dollars for each year.

The Loss Carried Forward provision of the tax code insures that a business pays income tax on the total profits of a business regardless of what year those profits were earned.

This provision of the tax code is available to businesses both large and small, including farms.

If the New York Times or the Clinton campaign would back up their outrage with a policy statement that the Loss Carried Forward provision in the tax code should be removed that would at least be intellectually and morally honest.  But neither the New York Times nor the Clinton campaign are going to do that because they know that the outcry from the business community would be loud and clear.

I am not defending Mr. Trump or his application of tax law to his businesses.  But to suggest that the use of a Loss Carried Forward in and of itself is exploiting the tax code or is somehow immoral is a blatant misrepresentation of the facts.  The New York Times failed in their journalistic responsibility to put some context to this story, like listing all the other companies that have used this provision of the tax code.  And the Clinton campaign is exploiting the public’s basic misunderstanding of tax policy and fairness in the tax code for a cheap political gain.  It is this type of fundamental misunderstanding and misrepresentation of real world policy that makes me ashamed to say I am a Democrat.

Latinos, Immigration and the Race Card

May 6, 2016

“….promising to round up millions of immigrants”: Hillary Clinton’s New York Primary victory speech April 19, 2016

Not all Latinos are illegal immigrants and not all illegal immigrants are Latinos; that simple and undeniable fact seems to get lost in the discussion of immigration.  Just as illegal immigrants are lumped together with legal immigrants (see statement above), this mix and match of these important distinctions seems to be lost much of the time and it is no accident.

It is a rhetorical tool used to justify large scale disregard of immigration laws of the United States. The press, policy makers, civil rights leaders, immigration reform advocates, and even the President conflate and confuse the terminology surrounding immigrants in order to manipulate public opinion.

Lumping together legal and illegal immigration is simply an effort to legitimize the violation of our immigration laws.  Immigrants are entitled to decide when the conditions are so bad in their home country that they have the moral right to enter the US and once here to begin the path to citizenship.  Any stigma impeding this path is an insult to our immigration history.  Deferred enforcement, sanctuary cities, driver’s licenses, in-state tuition, are all an effort to make a “not yet documented” immigrant feel welcome and protected while they take it upon themselves to begin the process of becoming a legal resident.

Illegal immigration is just the other path to becoming an American.

Immigration reform groups and activists are all too willing to let you believe that all illegal immigrants are Latinos and that the vast majority of Latinos are “not yet documented” immigrants.

While the numbers are fuzzy, counting illegal immigrants is difficult and counting people by their race is a tricky business.  The numbers are not as stark as we are being led to believe. The percentage Latinos in the illegal immigrant population in the US may be as high as 85%, so it is true immigration enforcement would disproportionately affect Latinos, as they are disproportionately violating our immigration laws. But even 100% deportation of all the illegal immigrants (which I did not support) would not wipeout the Latino population in the US, only 10 to 15% of the total number of Latinos living in the US illegally.

Making race synonymous with the immigration issue shuts down many who might question the current levels of immigration. Playing the race card fires up the liberal base, including the black community.  The irony is that high rates of low-skilled immigration has disproportionately affected the economic prospects of the black community.

Immigration reform advocates know that accusations of racism make people shy away from the immigration discussion giving them an outsized voice in policy and attracts support from groups and individuals who might otherwise not be as sympathetic to people who have broken the law.

OP/ED Published in the Detroit News

April 26, 2016

My op/ed on immigration was pubished in the Detroit News Tuesday, April 26.  For more of my thoughts on immigration and other issues facing our nation please see the blod articles below.

The Immigration Reform American Workers Deserve

February 23, 2016

Democrats have wholeheartedly taken up the issue of income inequality and stagnant real wages of working class families.  Bernie Sanders has criticized our current trade policy; making it a centerpiece of his campaign. He does not support the purposed TPP (Trans-Pacific Partnership) trade agreement.

Here in Ohio, Sen. Sherrod Brown has been a longtime opponent of “free trade”.  Former Gov. Ted Strickland, who has a good chance of unsetting Sen. Rob Portland (r) in the upcoming election, is also campaigning against trade deals that put Ohio workers in direct competition with cheap foreign labor and sends Ohio jobs overseas.

What does it matter if we send American jobs overseas for foreign labor to fill or we bring foreign labor into the U.S.?  This is the disconnect of progressive economic labor policy.

In the relatively recent past, prominent liberals agreed that rapidly expanding the labor pool by bringing in millions of immigrants was not in the best interests of working Americans. Labor union leaders and civil rights luminaries, for a century right through President Bill Clinton, supported reducing the number of work permits for foreign laborers. They understood that such a move would spur wage growth and expand job opportunities for Americans.

A 1995 congressional commission, chaired by the charismatic civil rights leader and Democratic Texas congresswoman Barbara Jordan, recommended limiting immigration to 550,000 individuals a year. President Clinton praised the recommendation as a “balanced immigration policy that . . . protect[s] the American work force.”

There is no good reason to continue giving out one million new lifetime work permits every year, supporting guest worker programs and having a permissive attitude towards illegal immigration when over 15 million native and immigrant Americans already here are currently unable to find full-time jobs.

From 1924 to 1965, America sharply scaled back the number of immigrants it accepted. Without competition from a large pool of foreign-born laborers, American workers were better able to unionize and demand improved wages and benefits.

The share of income going to the wealthiest 1 percent of Americans dropped from 43 percent in 1924 — the year lower immigration quotas were implemented — to less than 32 percent in 1965 — the year the quotas were replaced with the current immigration system.

The post-1965 influx of workers helped freeze wages. In fact, inflation-adjusted wages have actually declined over the last forty years. The average worker in 1973 earned a higher real wage than the average worker does today.

Economists have concluded that high levels of immigration are partially responsible for wage stagnation. Harvard professor George Borjas, an immigrant himself, has shown that expanding the size of any working cohort — as defined by age or education — by 10 percent through immigration reduces the wages of all native-born folks in that group by 2.5 percent. The effect on native-born men is even greater — a decline in wages of 3.7 percent.

For Americans without a high school degree, the wage losses are even more pronounced — about $1,200 for the years between 1990 and 2010.

Immigrants themselves are not at fault. The overwhelming majority of immigrants are industrious people who work hard. It is just that in America, hard work often is not rewarded.  The strongest work ethic in the world cannot defeat the law of supply and demand. The more workers who need a job, the less employers have to pay to attract employees.

Our leaders have the power to stop this economic race to the bottom and boost wage growth. Scaling back the pace at which our nation admits new laborers from abroad would help disadvantaged immigrants who are already here. It would take job-market realities into account and give native and immigrant American workers the leverage to win back the wages and benefits they’ve lost over decades.

America has been and must continue to be a nation that does not discriminate on the basis of race, religion, or national origin, but there’s no need to bring in one million permanent immigrants every year, allow guest worker programs, on top of illegal immigration when current residents cannot find good-paying jobs.

If progressive candidates are serious about standing up for American workers, they must consider greatly reducing the number of foreign laborers who have access to the American labor market through trade policy and immigration policy.

The New York Times Supports Open Borders

December 11, 2015

Once again the NYT makes its same old tired argument for completely open borders to anyone unlucky enough to be born in a country where bad things happen. Do they understand they are talking about 2-3 billon people depending on where you draw the line?

All the moral dilemmas set forth in this article have their roots in the US government’s unwillingness to enforce our immigration laws.

The fact that this illegal immigrant went undetected in the US for 15 years is objective proof that our system of immigration enforcement is a joke. Yet the NYT is opposed to any practical and sensible enforcement measures like E-verify of employment status, but supports sanctuary cities, a policy that only makes sense if you stipulate to a large population of illegal immigrate living in that city. Again where is the enforcement?

The NYT put forward another compelling story of all the moral dilemmas and hardships that accumulate when we do not identify and deport illegal aliens in a timely manner.

I would love to see the NYT put forward a plan to effectively and legally enforce our immigration laws. Of course, if the NYT are not willing to deport anyone for any reason at any time, you have made it impossible to enforce our immigration laws, and that is their true moral dilemma.

Profile of an illegal immigrant from the New York Times:

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