Tag Archives: economic growth

Imaginary Numbers for Imaginary Growth

I’m sorry but it’s time to type out, yet once more, how we calculate the annual growth rate for the real GDP, and no, there’s no imaginary quarterly or annualized growth rate for the real GDP.  Now that we’ve reviewed, the financial inanity of the current administration is highlighted by policies which are in direct variance with the stated goal of increased economic growth of 3%.

There are two numbers we absolutely need in order to have economic growth: Labor force increases; and, Labor Productivity increases.  The labor force is obvious, how many people of working age are in the workforce. Productivity pertains to how much can be produced by those workers.  For more information see this article from the St. Louis FED.  Suffice it to say that if the labor force growth is 0.5% and the productivity growth rate is o.5% then the economic growth rate will be 1%.

There are a couple of bits of Reality we need to introduce at this point in time: (1) The baby boom is over. (2) We are poised to severely limit our immigration.

As of 2015, the number of baby boomers ranges from 74.9 million to 82.3 million, depending on whether the generation begins with the birth year 1943 or 1946.” [CNN] No matter which year one assumes for the beginning, it was over by 1964-65.  Growth in the labor force has not, and may rationally not, increase at levels seen when the Boomers hit the job market. And, now they are exiting.  Those born in 1965 are now 52, with about 13 years left before retirement; those born during or before 1952 are presumably retired already. So, what is happening now?

“The US fertility rate has been in a steady decline since the post-World War II baby boom. Back at its height in 1957, the fertility rate was 122.9 births per 1,000 women. The latest quarterly CDC data also indicate the larger pattern of women having babies later in life. As birth rates increased among women in their 30s and 40s, the rate among teenagers and women in their 20s dropped.” [CNN]
The current rate is 59.8. There are factors associated with lower birth rates; for example, in developed nations urbanization is a factor — children aren’t a major need for their work in agricultural pursuits.  Another factor is the cost of raising the children, it’s more expensive to raise children in a developed country where those children don’t enter the labor force until they are in their late teens or twenties.  Further, the urbanization trend continues apace in the US. [Census] [Slate] More urbanization, more education, and we can’t reasonable expect a repetition of the Boom in the foreseeable future.
So, if we aren’t increasing our labor force via the old birth-rate route, then the other way is immigration, and this warning from the Los Angeles Times:

“Trump in his first weeks in office has launched the most dramatic effort in decades to reduce the country’s foreign-born population and set in motion what could become a generational shift in the ethnic makeup of the U.S. Trump and top aides have become increasingly public about their underlying pursuit, pointing to Europe as an example of what they believe is a dangerous path that Western nations have taken. Trump believes European governments have foolishly allowed Muslims with extreme views to settle in their countries, sowing seeds for unrest and recruitment by terrorist groups.”

This seems a polite way to say that the Trump administration would like very much to limit immigration to white Western Europeans. If we don’t allow immigration from Mexico and Central American nations, and we severely limit immigration from predominantly Muslim nations, then what’s left?

And, in terms of increasing the labor force, here’s where the policy and the reality clash. If we want an increase in the birth rate in order to increase our labor force, then the women having those babies are more likely to be foreign born immigrants to the US. [Pew]  We don’t get to have it both ways — limiting immigration both limits the number of people available for immediate employment, and the number of little people who will grow up to be a portion of our labor force. Once more with feeling, if we limit immigration we necessarily limit our economic growth.

One of the amazing things about conservative/trumpism ideology is the notion that elements diametrically opposed to one another may somehow be massaged by empty rhetoric into actuality.  Somehow, we are supposed to believe that we can have 3% economic growth while limiting our immigration unrealistically, and while continuing the urbanization of the country. Only in the fever swamp of right wing ethnocentric white supremacist thinking is this going to “happen.” And, the happen part is in quotation marks because this is Neverland.

So, no — we don’t get the deficit reduced by cutting taxes on corporations, millionaires, and billionaires. No, we don’t get a balanced budget by cutting non-defense discretionary spending, and NO we don’t get 3% economic growth by unrealistically impeding immigration.  2 + 2 does not equal 7.

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Filed under Economy, Immigration, Politics, Republicans

Why Trickle Down Economics Doesn’t Work: Diagram

 

There are some features of our current economic situation which need some attention.

1. As the diagram indicates, the greater the pressure to reduce labor costs the less workers will be paid, and (obviously) the less they can spend.  Since they have less to spend, prices must be commensurate with aggregate demand.  The pressure to keep prices low puts the squeeze on suppliers and manufacturers to restraint wages for labor.  The pressure to reduce wages spirals down until the aggregate demand is so restricted that workers cannot afford to purchase anything other than the bare necessities.

2. The short term focus on quarterly earnings (to keep investors happy) magnifies the pressure to reduce production costs (wages + equipment) and contributes to the overall problem.

3. The economic system as currently practiced puts a premium on lower labor costs, but has fewer restraints on management.  If management can use bankruptcy to lay off workers with seniority, to reduce its pension obligations, and to liquidate corporate assets — while still collecting  their salaries and bonuses — then the merger/acquisitions game will be highly profitable for the investment advisers and executives; but, not for the employees.

4. Higher compensation for investors and executives combined with lower wages for employees creates the Income Inequality Gap.  The more the gap widens the less aggregate demand there will be for goods and services, and the greater the tendency to flirt with the economic death spiral.

5. Bankers worry about inflation; often about wage-push inflation.  When the primary downward pressure is on the employees’ side of the scale this fear is not realistic.

6.  Investors argue that “Gee Whiz, what are we worried about. This is a global economy, and if workers are willing to offer their skills at less cost over seas then what’s wrong with improving the quality of life in foreign lands?”  This is ultimately self defeating. Because…..

7. The widening gulf has a tendency to cause what one economist called a division of jobs into the “lovely” and the “lousy.”  [Reuters]  Highly skilled, highly educated, or highly placed individuals get the few “lovely” jobs while the downward spiral forces the majority into the “lousy” ones.  This serves only to further depress wages and hours, and push the spiral down harder.

This explanation ought to be simple enough for the low-information Crazy Uncle at any holiday gathering?

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Filed under Economy

Senator Rubio Comes To Nevada Bearing News From The Scarlett O’Hara School of Business Administration

Bill Clinton summarized the GOP theme for 2012: “We left him a total mess, he hasn’t cleaned it up fast enough, so fire him and put us back in.” [MST]  Now Sen. Marco Rubio (R-FL) is pushing the theme in Las Vegas:

Obama “doesn’t understand the free enterprise system,” Rubio said, arguing government is too big and is hurting small business and job growth with too many regulations and taxes.  [LVRJ]

Fact check time.  Actually in terms of the total number of regulations adopted, the Obama Administration is well behind the administration of President George W. Bush.  President Bush approved 931 regulations in his first three years, President Obama has approved 886.  [FC]  So, what would those “too many regulations” concern?

Investment Sector Regulations

The first, and most obvious source of Republican distress over regulations are those which seek to curtail the antics of the investment sector.  Implementation of the Dodd Frank Act means that financialists, eager to pick up where they left off before their pipe dreams of exploiting securitization in the housing market exploded like a pipe bomb, don’t care to have any restrictive oversight of their transactions in the derivatives market.   The MegaBanks would ever so much like to go back to the days before the Volcker Rule and be able to use insured deposits as a back stop for their proprietary trading.  And, the MegaBanks don’t want to write ‘living wills‘ in case their trading desks get out of hand (again) and bring the bank down into insolvency or illiquidity.

The banking sector is also feeling the heat from the Consumer Financial Protection Bureau — which is (to their horror) protecting consumers.   Most recently American Express felt the hammer come down on their illegal practices:

“The Consumer Financial Protection Bureau (CFPB) today announced an enforcement action with orders requiring three American Express subsidiaries to refund an estimated $85 million to approximately 250,000 customers for illegal card practices. This action is the result of a multi-part federal investigation which found that at every stage of the consumer experience, from marketing to enrollment to payment to debt collection, American Express violated consumer protection laws.” [CFPB]

Federal regulators also fined American Express $27.5 million for the illegal activities, and about 250,000 American Express customers will be getting refund checks.

Back in September 2012, the FDIC and CFPB ordered Discover to pay $200 million to 3.5 million card holders and fork over a $14 million civil penalty for deceptive practices. Discover also agreed to stop its deceptive marketing, to make restitution to customers who made purchases, provide refunds to customers without requiring more consumer actions, and to submit to an independent audit.  [CFPB]

Further, what may have the financial sector’s panties in a bunch are the proposed rules from the CFPB on home mortgages.  The CFPB explains:

Mortgage Terms: Under the proposed rule, creditors would have to make available to consumers a loan without discount points or origination points or fees, unless the consumers are unlikely to qualify for such a loan. These options would enable a consumer buying or refinancing a home to better compare competing offers from different creditors, better able to compare loan offers from a particular creditor, and decide whether they would receive an adequate reduction in monthly loan payments in exchange for the choice of making upfront payments.

Interest rates and points: Consumers can pay points, which are expressed as a percentage of the loan amount, and fees to covers costs associated with origination or prepaid interest charges. While these points and fees come in many different names and combinations, they all should function similarly to reduce the interest rate and thus a consumer’s monthly loan payments.

Qualifications for mortgage initiators: Under state law and the federal Secure and Fair Enforcement for Mortgage Licensing Act, loan originators currently have to meet different sets of standards, depending on whether they work for a bank, thrift, mortgage brokerage, or nonprofit organization. The CFPB is proposing rules to implement Dodd-Frank Act requirements that all loan originators be qualified. The proposal would help level the playing field for different types of loan originators so consumers could be confident that originators are ethical and knowledgeable.

Steering: In 2010, the Federal Reserve Board issued a rule that was designed to curtail the practice of loan originators directing consumers into higher priced loans based not on the consumer’s interest, but on the possibility that the loan originator could earn more money. The Dodd-Frank Act included a similar provision banning the practice of varying loan originator compensation based on interest rates or other loan terms. The CFPB’s rule would implement the Dodd-Frank Act provision and clarify certain issues in the existing rule that have created industry confusion.

Mandatory arbitration: The proposal implements Dodd-Frank Act provisions that, for both mortgage and home equity loans, prohibit including mandatory arbitration clauses in loan documents and increasing loan amounts to cover credit insurance premiums.

OK, now who wants to go back to a system in which mortgage terms were intentionally incomprehensible, when a homeowner could pay points and be essentially paying for nothing, when homeowners were steered into mortgage deals in the interest of the bankers, when there were no background checks of any kind on mortgage sellers and no required training, and when if serious problems arose there was no way for the “little guy”  homeowner to have his day in court?

Does anyone really want to go back to the “say anything” days of credit card marketing?  Money kept in the pockets of middle class working Americans by not allowing mortgage manipulation and credit card rip offs is money they could be saving or spending on their families — a far better way to grow this economy than by allowing the rip-off artists to game the system for their own benefit.

Health Care Regulations

Contrary to right wing radio talkers, there has been no government take over of health insurance in this country, and contrary to the hopes of the Single Payer advocates there is no government sponsored health care for anyone other than people over 65 who are enrolled in Medicare.

What we did get in the Affordable Care Act were requirements that health insurance corporations selling group or individual policies provide comprehensive health care insurance coverage.

Under the terms of the Affordable Care Act when the insurance corporation says it is selling you or your business a “comprehensive” or “basic” policy, the policy must include coverage of preventative health care services, inoculations, cancer screenings,  and between 80% and 85% of what they take in as premiums must be used to pay for HEALTH care — NOT executive compensation, advertising campaigns, or other non-medical administrative expenses.

So, would we like to go back to the bad old days of denial of coverage for pre-existing conditions (like being born with a food allergy, or having chicken pox), or for autism screening, for mental health care services, or when the insurance corporations could charge more for women’s policies just because they were women?

We could, for the sake of the MegaBanks and the large health insurance corporations, shave many of the Obama Administration’s new regulations, but the ultimate loser would be 99% of Americans who can’t afford to be ripped off, and shouldn’t be paying health insurance policy premiums for basic services they aren’t getting.

About Those Taxes

Let’s haul out this chart again, illustrating the point that the federal tax rates at their lowest rate at least since 1979.

The chart doesn’t conform to the received wisdom of some in the corporate media and many in the Republican Party — but that’s where we are.  There have also been some 18 tax breaks for American small businesses.  The President has also suggested a tax reform package which would cut taxes for those earning less than $200,000 per year.  [WH] The median income for a family in Nevada was $48,927 in 2011. [DoN]

So, where are all those regulations and taxes ‘hurting’ American small business owners?  The garage owners, the beauty shop operators, the small independent retailers, the lawn care services, the framing subcontractors, the dry cleaning companies, the small hardware store owners, the local lumber yard?

The Republicans need a cover story.  If a regulation impinges on the bottom line of Merger Mania Wealth Management LLC, then they decry all regulations as an impediment to economic growth.  If a regulation requires Bleedem Health Inc. to report a higher “medical loss ratio” then all regulations are detrimental to our economic growth rate.   It’s the old “de-regulation mythology” of the last three decades — and we saw where it got us in 2007-2008.

The Republicans need a narrative.  “Tax and spend” Democrats has served nicely.  No matter that the tax rates are the lowest since the Eisenhower Days, no matter that the rates can be graphed to illustrate the point.  The narrative remains because it serves the interests of large corporations and major banking operations.   Tax dollars appropriated to subsidize multi-national oil corporations are ‘beneficial,’ but tax dollars expended to train workers for 21st century jobs or veterans who seek college degrees ‘create a culture of dependency?’

We DO understand the free enterprise system, and we understand that it works best when there’s a level playing field, with rational controls to prevent exploitation, and consideration given to our entrepreneurs and our labor force of the future.   The short-term vision of the current GOP leadership mirrors the myopia of our current corporate titans — what works to increase the Quarterly Earnings Report is good.  Tomorrow we’ll leave for later.

This Scarlett O’Hara School of Business Administration combined with the  Mr. Magoo Department of Finance perspective is more destructive of American economic progress than the tepid regulations of the Dodd Frank Act and the implementation of the Affordable Care Act provisions combined.

Perhaps they just don’t understand the free enterprise system?

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Filed under 2012 election, banking, Economy, financial regulation, Health Care, health insurance