Part Three – Trump Economic Policy is Disjointed & Risky

Trump Economic Policy Looks to Shake Things Up, But Inadequate Compared to What’s Really Needed….

Before discussing specifics on the Trump economic policy, let’s jump right into the news articles.  I’ve posted the beginning to the article how-12-experts-would-end-inequality-if-they-ran-america.  When we read through the 12 suggestions to combat income inequality, quite frankly some are ridiculous.  Others have merit but are not the be all end all, so they should be studied as just a small part of a broader comprehensive plan.  It’s a serious discussion we need to have, yet way too many of our political leaders keep avoiding the problem as if it doesn’t exist.  I believe our nation needs to recognize widening income inequality is probably the biggest economic challenge of our time, while also realizing various redistribution policies don’t actually solve the problem.  Saving free market capitalism will demand transformative changes to the system itself, so opportunity & prosperity can be better shared among the broader population, & labor is not a slave to capital.  The prosperity from economic growth should not go disproportionately to the top 1%, which is undeniably what’s been happening.

Imagine you had complete control of the U.S. government: What one thing would you do to reduce the country’s staggering economic inequality? It’s no small task: The 400 richest Americans control more wealth than the poorest 80 million households, and as the richest citizens continue to capture the lion’s share of new wealth — the top 5 percent has captured 74 percent of the wealth created in this country since 1982 — the situation is only growing more extreme. But while there’s consensus that America is a wildly unequal country, there’s broad disagreement on what, if anything, should be done to address that. That’s certainly true in Congress, where disagreement and deadlock have consigned meaningful action on inequality to the realm of the hypothetical. That doesn’t mean we shouldn’t ask what could happen. And in that spirit, we asked experts from across the ideological spectrum what they would do to address inequality if they were king (or queen) for a day.

In the article wages-employers-workers-monopsony-growth-stagnation-inequality where they discuss uncompetitive labor markets & coin the term monopsony, read the whole thing to find out how they define that term.  It may help shed light on why the working class keeps getting screwed.  This excerpt is how the article begins:

Our current economic expansion has lasted almost nine years, yet wages have hardly budged, especially for less skilled workers. Inflation-adjusted wages for the average worker have risen only by 3 percent since the 1970s — and have actually declined for the bottom fifth. For a long time, the conventional wisdom was that wage growth had slowed because of rising competition from low-paid workers in foreign countries (globalization), as well as the replacement of workers with machinery, including robots (automation). But in recent years, economists have discovered another source: the growth of the labor market power of employers — namely, their power to dictate, and hence suppress, wages. 

This new wisdom has displaced a longstanding assumption among economists that labor markets are competitive. In a competitive labor market, employers must vie for workers; they try to lure workers from other firms by offering them more generous compensation. As employers bid for workers, wages and benefits rise. An employer gains by hiring a worker whenever the worker’s wage is less than the revenue the worker will generate for the employer; for this reason, the process of competition among employers for workers ought to result in workers receiving a substantial portion of the output they contribute to. 

And as the economy grows over time — which has historically been the case in the United States — this dynamic should naturally lead to a steady increase in compensation for workers. It turns out, however, that labor markets are often uncompetitive: Employers have the power to hold down wages by a host of methods and for numerous reasons. And new academic studies suggest the markets have been growing ever more uncompetitive over time.

In a related article, this comes from raw-data-blue-collar-wages:

This is prompted by nothing in particular, but I thought I’d put up a chart showing the real wage gains for blue-collar workers over the past few years. These are “production and nonsupervisory” workers, who make up about 70 percent of the labor force. The election of Donald Trump and a Republican Congress doesn’t seem to have done much for them. But at least the stock market is up, so there’s that.

Inside a-tale-of-three-wage-growth-regimes, these excerpts offer a fundamental change of perspective that could really shake up the uneven system we have now.  I’ve often said, for proper equilibrium, we need the pendulum to shift back towards rewarding labor over capital:

But what about wage growth? You hear about each jig and jag in the stock market every five minutes, but the vast majority of working-age families depend on their paychecks, not their stock holdings (more than 80 percent of the value of the stock market is held by the richest 10 percent of households). In sum, the tight labor market is certainly helping to boost wage growth, especially in places where it’s super tight. But, at least by the wage data out Friday, wage growth is slower than has typically been the case at such low unemployment. Over the past year, average hourly pay, before accounting for inflation, was up 2.7 percent. For middle-wage workers (see data note below), however, the increase was 2.4 percent (white-collar pay was up 3.2 percent). With inflation running around 2 percent, them’s some pretty measly real-wage gains for mid-wage workers.

 

But does that mean workers, especially these mid-wage earners, must resign themselves to wage stagnation relative to these other regimes? Anyone who reads this column knows my answer: of course not! True, economists don’t know how to pump up productivity, but that’s not the only path to faster wage growth. There’s also redistribution from the inflated profits share of national income to the labor share. By maintaining and even allowing further tightening of the job market (I’m talking to you, Federal Reserve), we can create the pressure for faster wage gains that shift income from profits to wages. I know, stock market investors will hate this even more than trade wars. But it is precisely the rebalancing that we should expect to occur in a truly full employment labor market. In fact, the absence of such an economically equalizing rebalancing is one signal that we’re not yet at full employment.

Here’s an article on an important component to the overall solution: retooling-apprenticeship-for-the-21st-century.  Another partial remedy to the ongoing problem of stagnant wages can be found in these excerpts from massive-minimum-wage-study-finds-significant-gains-for-low-income-workers-and-few-downsides.  It’s just a shame the massive corporate tax cuts weren’t done in conjunction with minimum wage hikes, helping to steer the additional revenues towards the workers who really need it.  Turns out, the results of that tax bill spike deficits without the corresponding benefits, as we see from the numerous articles below about the CBO’s report projecting $1 Trillion deficits:

A new study on the minimum wage confirms previous research that found the policy raises wages for low-income workers without reducing total employment. The paper may even finally start to convince conservative critics of the minimum wage to reconsider their views. Economist and blogger Tyler Cowen was one of the first to write about the study. As a libertarian, he’s long been critical of policies like the minimum wage, and the new study hasn’t made him a believer. But he does acknowledge that the new research is “thorough and detailed.” He writes:

“…[O]n the pro-minimum wage side, you should consider that those immediately affected by the wage hike do seem better off, and their higher income in the meantime may itself bring some efficiency-enhancing gains.”

 

“[R]aising the minimum wage increases earnings growth at the bottom of the distribution, and those effects persist and indeed grow in magnitude over several years,” the authors write. At the same time, there’s little indication that other people lose their jobs as a result of the minimum wage — the outcome conservatives always warn about. The authors go on to note that “a large increase in minimum wages would blunt the worst of the income losses during the Great Recession,” though it would not have completely reversed the crisis’s effects.

As I keep warning, if we don’t soon fix the inherent problems & inequalities that define modern-day capitalism, a frustrated public is about ready to scrap it & try something else.  Polling shows that young people, who will increasingly shape our politics going forward, are not at all enamored with capitalism.  As these excerpts from todays-youth-reject-capitalism-but-what-do-they-want-to-replace-it indicate, they’re not particularly sold on socialism either, but they certainly seem open towards reinventing the economic system to something fundamentally different than what we currently have.  And who can blame them, as we’ve evolved into a system where wealth & opportunity have become mainly isolated to only the privileged few.  It’s virtually undermining the long-held core American principle that hard work can get people ahead:

Their ire was most recently expressed when thousands of teenagers and others across the country marched on March 24 demanding more gun control, a little over a month after more than a dozen of their peers were shot and killed at a high school in Parkland, Florida. But there’s growing evidence that today’s young adults, ranging in age from 18 to 29 or so, are strongly dissatisfied with other fundamental aspects of our political and economic system. Specifically, growing numbers are rejecting capitalism. So we started by examining a troubling 2016 Harvard University survey that found that 51 percent of American youth aged 18 to 29 no longer support capitalism. Only 42 percent said they back it, while just 19 percent were willing to call themselves “capitalists.”heir views contrast markedly with their older peers, who consistently tell pollsters they prefer capitalism by wide margins — more so as their age climbs. Still, the share of the overall population that questions capitalism’s core precepts is around the highest in at least 80 years of polling on the topic. The data suggest that today’s young people are part of a vanguard of Americans losing faith in capitalism and ready to embrace something new.

 

A follow-up focus group to the Harvard study concluded that many of these young people feel that “capitalism was unfair and left people out despite their hard work.” A 2012 survey by the Pew Research Center found that 71 percent of those 18-34 years of age perceive strong conflicts between the rich and the poor in American society. A majority of young people said they believe that those with means got there because “they know the right people or were born into wealthy families.” These views on the inequality inherent in the American economic system command majorities of Republicans, Democrats, Independents, conservatives, moderates and liberals. To us, this suggests the critical reason young people have lost faith in capitalism is that it has lost its ability to be fair. But they don’t seem to think an alternate system such as socialism can fix the problem.

As for specifics on the effects of Trump economic policy, we’ll start with trade.  On CNN’s GPS, Zakaria explains in his monologue China is a trade cheat & it’s cost us lots of good-paying factory jobs: https://www.youtube.com/watch?v=Bbr7pPWscKo.  They’re also stealing our high tech intellectual property.  Trump’s tariffs are likely a ploy to get China to bargain in good faith.  His much ballyhooed negotiation & dealmaking skills will be put to the test, so like the coming talks with North Korea, we can only hope Trump does strike great deals to put these dire issues to bed.  Such accomplishments would literally make his presidency (although such successes would make him even more insufferable, which would require us more than ever to beat back on his worst instincts to trample on our cherished constitutional democracy).

Inside other links related to Trump economic policy, is his going after Amazon really meant to protect free markets against monopolistic practices, or is it out of spite against the Washington Post? (clinton-treasury-secretary-compares-trumps-attacks-on-amazon-to)  As for his border patrol gambit, let’s face it, that’s mostly a ploy to please his base: despite-lack-of-crisis-national-guard-being-deployed-to-border.  There’s also a group of links on health care, while the next group reports on some GOP congressman pulling a jackass move by whipping out a loaded gun at a campaign rally as he disparaged Gabby Giffords.  There are no adequate words, other than it’s apparent this guy is afflicted with a severe case of diarrhea of the mouth: a-republican-congressman-met-with-constituents-pulled-out-a-loaded-gun-and-then-said-he-wouldnt-be-a-gabby-giffords.

In the last group of links, we see Trump is governing from his own false universe & the GOP will be paying a huge price.  As Rubin points out in these excerpts from trump-has-nothing-more-to-deliver-for-the-gop-so-why-not-dump-him, the short-term gains conservatives have realized so far are indeed likely only temporary, since they’re about to face a backlash: