EssaysVolume2
Economic Issues
Richard A. Stanford
Furman University
Greenville, SC 29613
Copyright 2024 by Richard A. Stanford
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CONTENTS
NOTE: You may click on the symbol <> at the end of any section to return to the CONTENTS.
1. Authoritarian Capitalism, Also Known As . . .
2. The Automation Challenge
3. The Bond Market Rout
4. The Borrowing Gap
5. Capitalism, Socialism, or Fascism
6. No More Crowding Out?
7. Deleveraging and Investment
8. The Able-Bodied Men "Drop-Out" Issue
9. Price Gouging in Gasoline Markets
10. Grexit?
11. Obsessing About Economic Growth
12. Economic Injustice
13. Medicare for All
14. Minimum Wage Dynamics
15. The Minimum Wage as Welfare Program
16. Negative Yields and the Demand for Government Bonds
17. Occupational Licensing
18. The Obama Overtime Rule
19. Poverty, Income Distribution, and Jobs
20. Old and New Modes of Poverty Relief
21. The President and the Economy
22. The Productivity-Growth Catch 22
23. Public Debt Concerns
24. Redistribution or Growth?
25. To Socialize or to Entrepreneurialize?
26. Stock Prices and Bond Yields Moving in the Same Direction
27. The 2020 Supply Shock
28. Does Trickle-Down Economics Work?
29. The Infrastructure Tax Credit Proposal
30. The Wall
31. Uncertainty and the Presidential Election
32. A Universal Basic Income
33. The Working-Income-Eating Nexus
34. Externalities and COVID-19
35. Automation and the Growing Wage Gap
36. Automation Displacement
37. Moral Hazard of Anti-Vax and Anti-Mask
38. Rethinking Industrial Policy
39. Inflation and Price Levels
40. Price Discrimination at Wendy's
41. Biden's Tariffs
42. Trump's Proposed Immigration Policy
43. Agricultural Production in Greenville County
44. Bureaucratic Bloat in the University
45. Democracy's Liberalism Flaw
46. Pricing to Historic Cost
47. Abundance
48. Refunding the National Debt
49. The National Debt in the Long Run
50. The Lull
<Blog Post Essays> <This Computer Essays>
1. Authoritarian Capitalism, Also Known As . . .
Robert P. George, professor of jurisprudence at Princeton University, writing in The Wall Street Journal, October 13, 2016, says,
Further on in the same essay, George says,
The idea that secular progressivism has become a religion practiced by the political left is intriguing. What are the tenets of this incipient religion? The following outline of progressive thought dating from the Progressive Era (post-Civil War to around 1920) is abstracted from a 2007 paper by Thomas West:
- justice means distributional fairness;
- there are no natural rights, only rights conferred by government;
- views of right and wrong are tied to particular times and specific circumstances;
- freedom is not a gift of God or nature, but of the state.
- the role of the state is not to protect individuals and their property, but to fulfill human capacities by creating individuality in a social and moral sense;
- consent of the governed and social contract are supplanted by the sovereignty of the state;
- the state is divine, the private sector is the realm of selfishness and oppression.
- trust should be placed in unlimited political authority;
- government should manage the corporate sphere to avert victimization of the poor by the wealthy;
- government should exercise control over the details of commerce and production by dictating prices, methods of manufacture, and practices of the banking system;
- government should protect the environment through conservation of resources;
- government should provide "spiritual uplift" through subsidy and promotion of the arts and culture.
- scientifically educated leaders of advanced nations should rule less advanced peoples to bring them into the modern world (an advocacy of colonialism);
- scientifically and politically advanced nations should pursue international expansionism to foster law, order, righteousness, and peace (justifications for imperialism);
- only wise leaders educated in the social and natural sciences at the top universities should govern;
- private sphere productive activity should be managed by government agencies staffed by experts trained in advanced science.
In his Wall Street Journal essay, George finds in the WikiLeaks-published emails expressions by self-identified progressives of appall that some conservatives raise their children as Catholics, that one had his children baptized in the Jordan where Jesus was baptized by John, that many are attracted to systematic thought, that most exhibit "severely backward gender relations," and that some subscribe to the idea of subsidiarity (i.e., that political decisions should be taken at a local level if possible, rather than by a central authority).
Progressivism often is expressed with the evangelical fervor usually associated with true organized religions. The intensity of these expressions and the tenets of progressivism identified by West would seem to confirm George's contention that progressivism may indeed be emerging as a secular religion of the left.
Why is this important to economy? Since this secular religion appears to underlie both the Obama administration and the candidacy of Mrs. Clinton, her election to succeed Mr. Obama bodes ill for not only real organized religions, but also for freedom of expression, enterprise, contract, occupation, and education.
The American economy may be described as "mixed market capitalism," i.e., a mixture of private ownership of means of production and democratically-elected government that imposes limited constraints on freedom of enterprise, occupation, and market participation. The election of another progressive to the White House portends a continuing slow drift of the American economy away from mixed market capitalism as it functioned in the twentieth and earlier centuries, and toward authoritarian capitalism, i.e., centralized and dictatorial economic decision making superimposed over private ownership of the means of production.
During the middle of the twentieth century, authoritarian capitalism was better known as . . . fascism. Whatever the non-economic aspects of Hitler's, Mussolini's, and Franco's twentieth century variants of fascism, the form of economic organization underlying all of them was authoritarian capitalism.
A frog put into a pot of cold water that is gradually heated dies peacefully without ever becoming aware of what is happening to it. Like the frog, the American economy is being gradually "cooked" in a slow drift from mixed market capitalism toward authoritarian capitalism without most Americans even being aware of it or concerned about it. Each successive generation becomes conditioned to slightly more authoritarian regulation and control. The secular religion of progressivism indoctrinates American society both to accept and even to demand ever more governmental regulation and control of economic activity.
And progressivism is moving economic fascism from its twentieth century venue on the extreme right to a twenty-first century venue on the left. Rather than a straight-line continuum between two extremes, the left-right political spectrum appears to be more like a circle where left and right meet and cross on the far side.
An editorial comment in the October 17, 2016, issue of The Wall Street Journal:
Kimberley A. Strassel, writing in The Wall Street Journal, November 17, 2016, says
George F. Will, writing in The Washington Post, December 7, 2016, says that
Will thinks that industrial policy "involves the essence of socialism — capital allocation, whereby government overrides market signals about the efficient allocation of scarce resources." Rather than socialism, under which the state owns the stock of capital, the Republican Party's emerging industrial policy sounds to me more like the essence of fascism under which capital is privately owned but government overrides market signals by dictating the allocation of capital.
2. The Automation Challenge
Shayndi Raice, writing in The Wall Street Journal, January 13, 2017, notes the results of a study by the McKinsey Global Institute:
Over the next 40 years, we should expect automation by technological advance to far outstrip "the technology that we have today." Automation that accompanies and facilitates existing jobs will not be threatening, but if as much as half of today's work tasks might be automated by 2055, it is inevitable that the number of jobs available to the U.S. work force will be reduced. This process is likely to be one of the greatest challenges to the U.S. economy over the next half century.
Since great social transformations are rarely completed within a generation, many of the current generation who are less capable, less well-educated, and either unable or unwilling to retrain will become victims of the rush to automation. It is the next generation, and the ones following that, which will face the challenge to prepare for occupations commensurate with the increasing automation.
Automation that increases productivity can promote economic growth. But as the McKinsey Global Institute authors note, economic growth depends upon human-kind's ability to learn to work with the newly automated technology:
The U.S. labor forces of the future may indeed contract as population growth slows, as immigration decreases, or as the labor force participation rate declines, but it is possible that automation will decrease the number of available jobs at an even faster pace. A job reduction process will diminish the potential to earn incomes sufficient to pay for food, housing, and health care. Only those who can equip themselves by education and training to capture the declining number of jobs involving robotized production and health-care processes will be able to sustain themselves and their dependents by earning income sufficient to pay for food, housing, and heath care.
If this were to happen, society would need to rethink what to do to enable survival of those who are unable to gain employment or to earn sufficient incomes in the jobs that they can obtain. Some means may be needed to provide sufficient income to the less capable, less educated, and unemployable members of society so that they can sustain themselves and their dependents. Continually expanding existing social safety net programs will be both cumbersome and potentially disastrous for government budgets.
As noted in another comment, another possibility is to replace existing social safety net programs with a universal annual income provided by government. But this won't resolve the government budget problem if there is popular pressure to increase the amounts of the income distributions. If some guaranteed income is good, more is always better.
Financing ever-increasing income distributions may imply the need for ever-rising tax rates on the incomes of the declining number of those who are employed. Taken to a logical extreme, the endpoint of this process is tax-rates approaching 100 percent of earned income so that all who are employed essentially are working for the government. A negative of ever-rising income tax rates is eventual impairment of incentives for those who are employed to continue to work to earn taxable income that can be used to support the non-employed.
Although it may be unthinkable at this stage, the extreme solution to advancing automation may involve government socialization of production (i.e., government taking over production processes) to capture profit, and then using the captured profit revenue to finance guaranteed annual income distributions. However, socialism (i.e., state ownership and management of production processes together with centralized distribution of product) has never been shown to be an efficient means of organizing production and distribution.
A lower-level consideration, but one that may be no less vexing, is how to occupy (or entertain) the growing number of unemployed and underemployed who find themselves with too much time on their hands. We have all heard the old saw, "Idleness is the Devil's workshop." Playing digital games or attending public spectacles (e.g., sports attractions, theatrical and film productions, musical performances, etc.) may serve this end to some extent, but eventually even these possibilities may become tiresome to the idle as the Romans discovered a couple of millennia ago. Beyond the requisite to feed the unemployable, an even worse thing that a government can face is increasing numbers of people standing around on street corners grumbling about the lack of jobs and fomenting revolution against the government. "Let them eat cake" won't suffice.
Automation can both enhance and threaten the well-being of U.S. labor forces of the future. The challenge is to capture the benefits of increasing productivity while providing rewarding employment opportunities to those who want to work, and satisfying non-working activities to those who choose not to work or are otherwise unable to work.
3. The Bond Market Rout
Sam Goldfarb, Matt Wirtz, and Aaron Kuriloff, writing in The Wall Street Journal, December 2, 2016, say that
. . . .
The surge since July has pushed the 10-year yield up by more than 1 percentage point, only the fourth time it has risen so much so fast since 2009. Rising rates can reflect optimism about economic prospects, yet over time they can also slow growth by making borrowing more expensive for consumers and businesses.
. . . .
Expectations of higher growth and inflation have sent the Dow Jones Industrial Average to repeated records since Mr. Trump's election Nov. 8, while fueling gains in the U.S. dollar. On Thursday, the Dow industrials rose 68.35 points, or 0.4%, to 19191.93, its 18th record close this year. (http://www.wsj.com/articles/bond-market-slide-intensifies-1480636894?mod=djem10point)
The sell-off of bonds in the U.S. increases the supply of bonds relative to demand for them on U.S. bond markets, depressing bond prices and increasing yield rates. The shift of American investors from bonds into equities, which is indicated by the rising stock market indexes, affirms the optimism of investors in the future prospects for U.S. economic growth.
Goldfarb, Wirtz, and Kuriloff also note impacts in emerging markets:
Bond sell-offs in emerging markets indicate rising fear of asset value loss there. The sell-offs there have depressed their bond prices and increased their yield rates by more than in the U.S. bond markets as former holders of emerging market bonds shift their asset holdings toward the U.S. financial markets in search of greater security. The increasing foreign demand for dollars needed to buy U.S. securities contributes to further appreciation of the dollar (i.e., depreciation of the emerging market currencies).
4. The Borrowing Gap
Ian Talley, writing in The Wall Street Journal, March 31, 2017, says that
. . . .
The U.S. is borrowing to finance America's trade deficit, pushing the country deeper into the red.
. . . .
Foreign ownership of U.S. debt such as Treasury and corporate bonds outpaced American claims on foreigners by $8.4 trillion in the last quarter of the year, new data posted this week by the Bureau of Economic Analysis shows. That's a deficit worth 45% of America's gross domestic product. (https://blogs.wsj.com/economics/2017/03/31/americans-owe-other-countries-far-more-than-they-owe-us-and-its-getting-serious/)
Because U.S. holdings of foreign bonds decreased by more than foreign holdings of U.S. bonds decreased during 2016 Q4, the net international investment position of the U.S. deteriorated. The fact that foreign holdings of U.S. bonds decreased may suggest increasing foreign concerns about the stability of the U.S. economy and the U.S. presidency. Whether it also provides some increase in the U.S. capacity for further international borrowing depends upon the magnitude of the risk premiums that foreigners append to yield rates on U.S. government-issued bonds.
The U.S. trade deficit is the difference over a period of time (usually a calendar year or quarter) between the flows of exports and imports (merchandise and services). The borrowing gap is only partially attributable to the trade deficit which is the largest part of the Current Account in the U.S. Balance of Payments. The trade deficit component of the 2016 Q4 Current Account deficit of $112.4 billion (https://www.bea.gov/newsreleases/international/transactions/transnewsrelease.htm) is about a third of the $302.3 billion 2016 Q4 deterioration of the U.S. net international investment position, the rest of which occurred in the Capital Account with asset transactions that are autonomous of the trade gap.
With respect to the autonomous asset transactions, a more meaningful comparison would be how the supply of loans by Americans to foreigners is changing relative to the foreign demand for U.S. loans. The complementary comparison would be how the supply of loans by foreigners is changing relative to the American demand for foreign loans. While neither loan demand nor loan supply is directly observable, bond demand and supply changes may be inferred by observing how interest rates change on international financial markets.
American businesses borrow from foreigners by borrowing from foreign banks and by issuing bonds that are purchased by foreigners. Decreases of the prices of American-issued bonds (and corresponding increases of their yield rates) imply either that the supply of American-issued bonds is increasing relative to the foreign demand for them, or that the foreign bond demand is decreasing relative to the American supply. The changing yield rates on American-issued bonds feed through to the interest rates on bank loans by the process of interest rate arbitrage (unless subverted by Federal Reserve monetary policy).
It may appear that Americans are borrowing too much from foreigners when the supply of American-issued bonds increases, causing their prices fall and their yield rates rise above the yield rates on comparable foreign-issued bonds. Or it may appear that Americans may be buying too many foreign-issued bonds (i.e., lending too much to foreigners) when foreign bond prices rise and their yield rates fall below American-issued bond rates. Either case will become apparent in diverging yield rates on international bond markets.
Diverging yield rates don't necessarily require a policy response because they should set in motion a self-correcting market mechanism to bring the yield rates back into alignment. For example, if the prices of American-issued bonds are falling and their yield rates are rising relative to prices and yields on comparable foreign-issued bonds, foreign investors will have incentive to sell some of their bond holdings and buy more American-issued bonds (i.e., to engage in international interest rate arbitrage), thus driving the U.S.-issued bond prices higher and their yield rates lower. This incentive will last until prices and yield rates again are in more normal relationships. But the self-correction process may not happen or be completed if foreign investors become concerned about U.S. government policy or the strength of the U.S. economy. Such concerns may cause them to regard the interest-rate differential as a de facto risk premium on American bonds. Yield rate differentials may persist as long as foreigners continue to suffer such concerns.
As of April 18, 2017, the 10-year U.S. government bond yield (2.18%) was significantly higher than yields of comparable bonds issued by governments in U.K., Japan, and Germany. The U.S. government bond yield is higher (by 0.39%) than a year ago, but yields on bonds issued by governments of these other countries have fallen (U.K.) or remained roughly stable over the past year. Thus, the yield rates on comparable bonds have been diverging. The table also shows that, during the most recent week and month, yields of bonds issued by the governments of these countries have been falling, although they have not been diverging by significant amounts.
The divergence between U.S. government bond yield rates and comparable foreign government bonds yield rates over the past year suggests that the supply of U.S. government bonds to the international bond markets has been increasing relative to demand, likely due to financing the 2016 U.S. government budget deficit. Or it may indicate that the international demand for U.S. government-issued bonds has been declining relative to supply. In either case (or some combination of the two), U.S. bond prices have been pushed down and yield rates up over the past year.
The recent weekly and monthly U.S. government bond yield rate decreases (and corresponding bond price increases) may suggest that a reversal is ensuing. The supply of U.S. government bonds to the international bond markets may be decreasing, or, more likely, the foreign demand for U.S. government bonds is beginning to increase as foreigners seek higher returns or safety by holding more U.S. government bonds in their portfolios. But this has little to do with the need to borrow from foreigners to finance the U.S. trade deficit.
The year-on-year 10Y yield rate differences between the government bonds issued by the U.S. and its major trading partners confirms that American borrowing from foreigners has been increasing faster than foreign borrowing from Americans, but it does not necessarily imply an alarming situation or that the U.S. is approaching a limit to its ability to borrow from foreigners. International financial markets will signal that the U.S. borrowing capacity is becoming more constrained when international demand for U.S.-issued bonds decreases relative to the increasing supply, depressing U.S. bond prices and pushing yield rates ever higher, resulting in risk premiums on U.S.-issued bonds that are not overcome by international interest rate arbitrage. It appears that India, Brazil, Greece, and Mexico, all of whose 10Y government bond yield rates exceed 6 percent, have higher risk premiums and may be closer to their borrowing limits.
5. Capitalism, Socialism, or Fascism
Much invective has been flung during the 2020 presidential campaign about the "radical left" and the "extreme right," the former portending socialism and the latter leading to fascism. Capitalism per se is not being mentioned.
Pure or "libertarian" capitalism is the production and distribution of goods and services with capital that has been invested for profit with no governmental involvement. Market economy is the principal vehicle for determining the product mix and its distribution to the society. Fascism is authoritarian capitalism in which the means of production and distribution are privately owned, but the state plays a determining role in the product mix. Pure socialism is the ownership by the state of the means of production and distribution, with the state playing a dominating role in determining the product mix and how it is distributed to the society.
Twentieth-century "western" societies have preferred a combination of democracy and market economy. Some form of democracy, whether pure or representative, enables a modicum of participation by the governed in their governance, thereby permitting some degree of personal liberty among the governed. Market economy exhibits an aspect of democracy in the sense that those members of society who earn sufficient income or possess adequate wealth may "vote" their purchasing power by buying goods and services in markets. But it has become ever clearer as time has passed that market capitalism has flaws and faults, either that society must correct or constrain or society must dismiss in favor of fascism or socialism.
It is clear from 19th and 20th century experience that unbridled capitalism results in expropriative accumulation of wealth and control by a few so-called "robber barons," and the emergence of extreme inequality in the distribution of income and wealth. During the 20th century some governments flirted with wholesale shifts from capitalism to socialism, but most chose a more moderate approach of imposing constraints on the functioning of their market economies.
Constrained market economy is preferable to both fascism and socialism. But given the current political environment, authoritarian fascism appears to be a much greater threat than either the management of the market economy by government, or even some form of so-called democratic socialism as practiced in many European economies.
Until 2016 U.S. presidents of both major political parties worked with international partners to foster global economic integration and minimize trade and immigration constraints among nations. Beginning in 2016 the Trump administration pursued a so-called "America First" policy to withdraw the U.S. from international entanglements.
Mr. Trump cancelled U.S. participation in the Paris Climate Agreement and insisted that NAFTA be terminated and replaced with a trade agreement among the U.S., Canada, and Mexico that his administration authored. The successor U.S.-Mexico-Canada agreement implements new policies on labor and environmental standards, intellectual property protections, and some digital trade provisions, but otherwise it differs little from NAFTA.
In violation of the new trade agreement, Mr. Trump limited immigration between the U.S. and several Central American nations. He withdrew both membership and funding of the World Health Organization. The Trump administration undermined the World Trade Organization’s dispute resolution body, thereby undoing decades of rules-based economic cooperation. Mr. Trump alienated the governments of numerous trading partners in Europe, and he launched a trade war with China. He severely criticized North Atlantic Treaty Organization member nations for not contributing enough to its funding.
These various actions resulted in international economic and political chaos. The standing of the U.S. among the nations of the world was impaired, and many U.S. trading partners no longer felt that they could trust the U.S. government to live up to its agreements and obligations. These actions by the Trump administration diminished the international potential for specialization by comparative advantage and trade to promote global economic growth and enhance welfare.
During his presidency, Mr. Trump moved toward far-right libertarianism by removing regulations in the economy, but he also subtly moved the American economy toward authoritarian fascism by issuing executive orders on the assumption that the presidency allows him to do whatever he wants to do.
Mr. Trump blamed emerging social unrest and protest violence on what he called the "radical left" Antifa movement that is pro-socialism and appears to advocate anarchy. In his campaign speeches, Mr. Trump railed against his opponent, Democratic candidate Joseph Biden, for accommodating the "radical left," and he asserted that if Biden were elected to the presidency he would take the economy into socialism.
How could Mr. Biden pursue socialism, i.e., state ownership of the means of production and distribution? By nationalizing industries into ownership by the government, or by having the government to take sufficient equity positions in businesses to place government officials on their boards of directors. How would Trump further implement fascism? By issuing executive orders, manipulating government budgets, and using the "bully pulpit" of the presidency to strong-arm industrial and commercial decision makers to acquiesce in his demands.
President Biden has not yet done so, and I would be very surprised for him to propose legislation to nationalize American industry or for the government to acquire ownership interests in private sector enterprises. But Mr. Trump continued his efforts for the government to influence American industrial and commercial decision makers. It appears that Mr. Biden's most likely course of action is to impose (or reimpose) needed constraints on the authoritarian capitalism (i.e., fascism) that Mr. Trump had been implementing.
In a Washington Post opinion piece dated September 11, 2020, Rutgars University historian Mark Bray identified five myths about Antifa: (1) it is a single organization; (2) it masterminds violence at Black Lives Matter protests; (3) it is affiliated with the Democratic Party; (4) it is funded by liberal financiers; and (5) Antifascists are the "real fascists."
Bray says that
The fascism that Mr. Trump implemented and would continue to build in a second presidential term poses a much greater threat to both American democracy and market economy than would any effort on Mr. Biden's part to constrain and manage the American market economy. American democracy and capitalism survived in spite of Trump; they continue to survive and flourish under Biden.
6. No More Crowding Out?
Richard Rubin and Nick Timiraos, writing in The Wall Street Journal, October 20, 2016, say that
This is not well expressed. When a government runs a budgetary deficit, it must issue enough in bonds to finance the deficit at whatever market bond price and corresponding interest rate it has to pay. This suggests that the government's bond supply is not responsive to bond price or interest rate changes (i.e., government bond supply is perfectly inelastic with respect to bond prices).
The issuance of new government bonds increases the supply of bonds in the financial markets relative to bond demand. If the demand for bonds is normally responsive to price changes (i.e., bond demand is not perfectly elastic), the increasing supply pushes bond prices down and their corresponding yield rates (i.e., their interest rates) up. The increasing interest rates may induce some prospective corporate borrowers to delay or cancel planned bond issues. This is the sense in which private sector borrowers might be crowded out of the bond market by government finance of its deficit.*
Rubin and Timiraos go on to note that
It is true that, due to political uncertainty and skepticism about their ability to generate enough revenue from sales of the product that new investment might enable, many companies have been hoarding "cash" rather than implementing investment plans. But this does not mean that they are just "sitting on" idle cash in their vaults. While they are waiting for resolution of the uncertainties, they acquire and hold interest-earning financial instruments, even if the yield rates are quite low. So, as they accumulate cash (e.g., by retaining earnings), they increase their demands for yield-bearing financial instruments (e.g., bonds issued by governments or by other corporations), helping to absorb some of the newly-issued government bonds.
When government is increasing bond supply by issuing new bonds, it is possible that bond demand might increase to just match the pace of the changing bond supply so as to leave bond prices and their corresponding yield rates unchanged. However, in dynamic markets for financial instruments, this precise matching of the pace of bond demand to that of bond supply is highly unlikely.
The Federal Reserve lowered its discount rate and it worked to decrease market-determined interest rates, but the lower market interest rates motivated very little new investment spending. And, the U.S. Treasury was able to finance deficits by floating new bond offerings at the low market rates with little or no change in bond prices and their corresponding yield rates. This suggests that even though government bond supply may not be responsive to bond price changes, bond demand must be quite responsive to bond price changes (i.e., bond demand is highly elastic). What might render bond demand to be so highly responsive to bond price changes even though government bond supply is unresponsive to bond price changes?
The most obvious answer is that during this period of global uncertainty, foreigners flocked to the U.S. bond market seeking safety or higher returns than could be had elsewhere, thereby adding the foreign demand to whatever domestic demand there was for bonds. And companies were sufficiently pessimistic about the global economy that they were unlikely to issue new bonds to finance investment no matter how low the interest rates. Landon Thomas, Jr., writing in The New York Times, October 24, 2016, says that
. . . .
According to Mr. Setser's figures [Brad W. Setser, an expert in global financial flows who worked at the United States Treasury from 2011 to 2015], about $750 billion of private money has poured into the United States in the last two years alone. About $500 billion, he calculates, reflects European and Asian investors buying United States Treasury securities, bonds issued by Fannie Mae and debt issued by American companies. (http://www.nytimes.com/2016/10/25/business/dealbook/as-europe-and-asia-hoard-cash-economists-see-echoes-of-crisis.html?em_pos=large&emc=edit_nn_20161026&nl=morning-briefing&nlid=74240569&ref=business)
Rubin and Timiraos say that
Market-determined interest rates may have been artificially low (i.e., likely below the true or "scarcity" interest rate" that is the return to real capital) because the Fed implemented open market operations to induce them to fall, but the Fed contemplated raising its discount rate and the Federal Funds target rate range as the economy approached full employment and prices began to rise in some quarters. Real growth in the U.S. was sustained at annual rates in the vicinity of 2 percent per annum for several years.
Once the uncertainty surrounding the presidential election passed, companies began to unload bonds from their portfolios and launch new corporate bond issues in order to finance more investment spending. And with diminishing global uncertainty, the foreign demand for U.S. Treasury bonds slacked off.
____________
*It is possible (though perhaps unlikely) that a government with a revenue inflow exceeding expenditure requirements might retire (pay down) some of its accumulated public debt. In such a case, the supply of bonds decreases relative to bond demand, and if bond demand is normally responsive to price (i.e., not perfectly elastic), bond prices can be expected to rise and their corresponding interest rates to fall. The falling interest rates may induce some companies to take advantage of cheaper financing to increase investment or even to initiate new investment plans. This situation may aptly be termed "crowding in" since the lower interest rates induce companies to launch bond issues to finance the new investment.
**Landon Thomas, Jr., writing in The New York Times, October 24, 2016, notes that there is disagreement about what has caused the 2008 disruptions to the global economy:
. . . .
Not everyone subscribes to the savings glut theory, of course, especially not those nations that are sitting atop these piles of cash and facing pressure to take action, as Germany is. Their opposing view holds that it has been the reckless money-printing ways of the global central banks (jump-started by Mr. Bernanke himself) that pose a threat to the global economy.
The "global savings glut" is a Keynesian concept. The global central bank "reckless money-printing" idea is a Monetarist assessment. There may be elements of truth in both views.
7. Deleveraging and Investment
Greg Ip, writing in The Wall Street Journal, January 11, 2017, notes that
In a recent report, Goldman Sachs Group Inc.'s private wealth investment advisory arm noted that households and financial institutions typically take on leverage—that is, add more debt relative to income—during an expansion. By contrast, they deleveraged throughout this one, building up precautionary cash for fear of another crisis. That drained money from investment. Even today, housing, consumer spending on durables and business investment are just 24% of GDP, compared with 28% or more at previous economic peaks, according to Goldman. This lack of investment has both held back growth and worker productivity—or output per hour worked—which in turn has held back wages. (http://www.wsj.com/articles/as-crisis-that-vexed-obama-fades-trump-will-benefit-1484158961)
So, Goldman thinks that deleveraging "drained money from investment." Three episodes of so-called "Quantitative Easing" (QE) by the Federal Reserve have swollen the Fed's balance sheet and pushed interest rates toward zero:
The LSAPs [large scale asset purchases] have collectively expanded the Fed balance sheet by close to $3 trillion from December 2007 to November 2013. (https://www.stlouisfed.org/publications/regional-economist/january-2014/the-rise-and-eventual-fall-in-the-feds-balance-sheet)
The QE purchases of government Agency debt, U.S. Treasury bonds, and mortgage-backed securities by the Federal Reserve added nearly $3 trillion to the sellers' bank accounts and the reserves of commercial banks. With so much liquidity "sloshing about" the U.S. economy during the recovery from the Great Recession of 2008, it was hard to see how household and financial institution deleveraging caused decreasing investment.
What did Goldman think caused the deleveraging? There have to be other explanations for low-level investment, slow productivity growth, and constrained wage increases. My candidates are excessive business regulation, high corporate income taxation, pessimism about the prospects for recovery, and anxiety about the outcome of the forthcoming presidential election.
8. The Able-Bodied Men "Dropout" Issue
Robert J. Samuelson, writing in The Washington Post, November 27, 2016, notes a number of explanations cited in scholarly studies and political debate for the increasing "dropout" of able-bodied men, ages 25-54 (about 1 in 8 in 2016, up from 1 in 29 in 1960), from the labor force ( https://www.washingtonpost.com/opinions/jobless-by-choice--or-pain/2016/11/27/7075c720-b189-11e6-840f-e3ebab6bcdd3_story.html?utm_term=.8f17a9f91b87). These are men who neither have a job nor are looking for a job, hence are not in the labor force and thus are not identified as unemployed.
The reasons noted in political debate or being studied by scholars include:
- the impact of the Great Recession;
- more men going to college;
- an increase in early retirement;
- declining wages for low-skilled workers;
- shrinking low-wage employment due to technology, automation, and globalization;
- the large number of incarcerated men;
- government welfare programs providing an alternate income source; and
- disabilities that prevent working a full-time job.
- U.S.-born workers do not want low-skill, low-wage, physically-demanding jobs typically held by immigrants;
- cash-only participation in the "underground economy"; and
- criminal activity.
Annual inflows of undocumented immigrants from Mexico have slowed to about 100,000 a year since 2009, from about 350,000 a year in the mid-2000s and more than half a million in the late 1990s and early 2000s, estimates the Pew Research Center.
. . . .
About six in 10 undocumented immigrants hold service, construction and production jobs, twice the share of U.S.-born workers, according to Pew Research Center. Employers say U.S.-born workers don't want those jobs.
. . . .
An estimated 100,000 Mexicans still cross the border annually. But many also return to Mexico.
(http://www.wsj.com/articles/small-businesses-lament-there-are-too-few-mexicans-in-u-s-not-too-many-1480005020)
Holman Jenkins, writing in The Wall Street Journal, November 29, 2016, says that
Nearly one-fifth of males between the ages of 21 and 30 who haven't completed college aren't working today and aren't in school—an increase of 125% since 2000. Yet many of these young men are satisfied with their situation because it frees up time to play videogames, according to research by the University of Chicago's Erik Hurst and colleagues. (http://www.wsj.com/articles/trump-rally-vs-bannonomics-1480464660)
President Trump charged that illegal immigrants from Mexico and other Central American countries were flooding the nation and stealing American jobs. But the inflow of labor from Central America diminished and more Mexicans returned to Mexico, leaving labor shortages in U.S. service and construction industries, and in agriculture. So even as the economy approached full employment, low-skill, low-wage, physically-demanding jobs were available, but apparently many U.S.-born citizens who have dropped out of the labor force were not attracted to rejoin the labor force and work in those occupations.
Some unknown proportion of the 1 in 8 who nominally dropped out of the labor force were actually earning income in cash-only (unmeasured) but not-illegal activity (e.g., handyman repairs, yard or tree work), and another proportion of the 1 in 8 were capturing income by engaging in criminal activity (e.g., drug dealing). Both types of such activity are non-trivial, but the measurement problem is that there is no way to force people to report such income to be taxed.
9. Price Gouging in Gasoline Markets
There's been some ugly commentary in the news media lately about "price gouging" when gasoline distributors and retail gasoline stations have raised prices. The language of "gouging" is highly value-laden and implies wrong-doing by sellers who would take advantage of their customers.
The recent occasion for the so-called gouging has been a gasoline pipeline break in Shelby County, Alabama (May 2021), which interrupted the delivery of gasoline to distribution points in the Carolinas. The interrupted gasoline flow resulted in a shortage of gasoline in local markets, price increases in the 20-30 cent per gallon range (10 to 15 percent), followed by the usual charges of price gouging.
With the arrival of hurricane Matthew along the southeastern U.S. coast, drivers are rushing to retail gasoline stations to top-off their vehicle tanks before evacuating and fill any external gasoline cans they have in order to hoard gasoline. This only precipitates immediate shortages until gasoline tanker trucks can arrive after the storm passes to refill retail gasoline station underground tanks. This time the price increases are due to increasing demand relative to existing supply.
As happened twenty-seven years ago when hurricane Hugo hit the South Carolina coast, gasoline prices again can be expected to rise in the coastal areas, with almost certain charges of gouging to follow.
The economic sense of what happens is that when the supply of something (anything) decreases relative to the demand for it at the going price, a shortage emerges. A similar shortage situation results when demand increases relative to an existing supply.
The natural market response to a shortage is for the price of the thing to rise. The rising price has the dual effect of choking off excess demand and stimulating the provision of greater supply. And, yes, those who consume the product suffer the discomfort of having to pay a higher price. Although this discomfort often spawns the language of price gouging, the rising price is the market's way of addressing the short-supply or excess-demand problem. But the language of gouging stirs up public disapprobation for the market response. It personifies the market response by charging the sellers with price gouging, and thus implies moral misconduct on the parts of the sellers.
Pricing behavior during a shortage is, in a sense, self-policing in a competitive market. If any one seller sets price too low, he will soon stock out of product and be "out of business" in that product until resupplied. If he raises price too high, prospective customers will seek other outlets charging lower prices and he won't sell any more of the product. Buyer-seller interaction in a competitive market acts to set price "just right" to ration the short supply to the highest-valued uses of the product as determined by those willing to pay a higher price.
Pricing behavior in a monopolized market is not so self-policing because there are no other sellers of the product. The single seller is free to raise price has high as he wishes, subject only to the willingness (and ability) of buyers to pay the higher price. A price gouging complaint about a large price increase in a monopolized market may be a more reasonable charge.
Although the retail gasoline market is characterized by small number of major-company brands, it is relatively competitive since independent station owners and franchisees may have some discretion to set prices independently of other sellers. Rising public ire about the increasing gasoline prices may elicit news media efforts to shame those sellers who raise their prices. It may also induce a public policy response by the state governor or local officials to impose price caps and penalties upon any sellers who raise price above the stipulated price cap. Such a response only eliminates the possibility of a market solution and perpetuates the short-supply problem.
There's no criterion for judging whether the magnitude of a price increase is unreasonable enough to warrant a charge of gouging. The higher that retail gasoline sellers raise their prices in the wake of a disaster, the more likely they are to attract price-gouging charges.
Even so, the quickest way to resolve a short-supply or excess-demand problem in the wake of a disaster is to let the increasing-price market response play out until additional supplies of gasoline can be delivered to coastal retail gasoline stations.
One might reasonably ask the difference between moderate price increases in the retail gasoline market when a disaster occurs, and the EpiPen price increase controversy a month or so ago. EpiPen is a de facto monopolist of the trade-marked and patent-protected product that it produces and sells. No disaster occurred to spark the EpiPen price increase, and the makers of Epi-Pen arbitrarily increased the price six-fold from its recent price with no apparent basis in increasing cost of production.
Moderate increases of price in the wake of a disaster likely are market responses. A sudden, unexpected, many-fold price increase in a monopolized market that is not apparently warranted by a production cost increase may more appropriately be labeled "price gouging."
10. Grexit?
Simon Nixon, writing in The Wall Street Journal, February 9, 2017, comments on the continuing Greek debt crisis, identifying the German and IMF perspectives. He first notes the German perspective:
Berlin believes Athens can't be trusted to stick to any fiscal or reform commitments except under strong external pressure; it follows that if Greece is to remain in the eurozone, it needs to be kept on a short leash. Berlin will keep funding Athens, but it wants to maintain leverage over the country's economic decision-making to protect German taxpayers. (https://www.wsj.com/articles/greeces-never-ending-fiscal-drama-1486589512?mod=djemalertEuropenews)
Nixon then identifies the IMF perspective:
The IMF's credibility has already been battered by one failed Greek program and is determined not to be sucked into another. For the IMF, therefore, this Greek program must be the last--and given its extreme low confidence in the Greek political class, a program is unlikely to be successful without very substantial debt relief. The IMF's position has been clear for two years, but many Europeans assumed it was bluffing.
Nixon describes three possible paths that might be followed:
One option is that Greece capitulates
to what many in Europe consider to be the IMF's unreasonable austerity demands.
But could any Greek government of any stripe deliver austerity measures
worth an additional 2% of GDP? Another option is that Germany capitulates
on the deficit targets. But could Berlin execute such a humiliating U-turn,
committing to writing off more than €100 million ($107 million) of Greek
debt just months before an election? Another option would be for the IMF
to walk away from Greece altogether, leaving the eurozone to sort out its
own mess. But how could it do this without pulling the rug from under German
and Dutch participation too, making Greece's plight far worse?
An alternative (not currently considered an option) that
may be more effective for the Greek case: if a government succeeds both
in fixing its currency values on foreign exchange markets and employing
macropolicy to stabilize domestic prices and incomes, budget deficits may
persist indefinitely, with consequent increases of international indebtedness.
Use of the common currency in the Eurozone imposes an implicit 1:1 fixed
exchange rate among the member states so that payments imbalances and debt
problems cannot be alleviated by exchange rate changes. And since governments
of the constituent nations of the Eurozone often implement macropolicy in
efforts to stabilize incomes and employment, payments imbalances and debt
accumulations among the members of the Eurozone may persist indefinitely.
Exchange rate depreciation would serve as a shock absorber to insulate the
Greek economy from the vagaries of international trade and the international
effects of the inability of the Greek political class to impose fiscal discipline.
The Brexit vote in U.K. may provide incentive to political decision makers
in Greece and other E.U. nations that are suffering trade deficits, budget
deficits, and debt accumulations to contemplate leaving the Eurozone and
(re-)establishing their own currencies. Those currencies could then depreciate
or appreciate as needed in response to external disturbances, or they could
allow national macroeconomic policy makers to be unconcerned about international
effects of needed domestic macroeconomic adjustments.
Although recently the Greek economy has begun to grow slowly, it seems
unable to recover from its burden of external debt as long as it continues
to use the euro, as long as it is subject to the European Central Bank's one-size-fits-all interest rate policy, and while the German, Dutch, and IMF lenders continue to impose various austerity measures as conditions for refinancing or increasing loans.
Since the IMF and the Germans are unlikely to back off from their positions,
"Grexit," i.e., the exit of Greece from the European Union (including the
Eurozone) and reestablishment of the Greek drachma, may be the only viable
alternative. With flexible drachma exchange rates vis a vis the euro and
other currencies, the Greek central bank could reduce its lending rate and
increase the drachma money supply, and the Greek government could implement
fiscal policies to stimulate economic activity.
Although the Greek population might prefer that any increased government
spending be devoted to social welfare programs (e.g., unemployment compensation, poverty relief, health care, etc.), additional government spending should focus upon productive activity and infrastructure construction that might
increase employment and income generation.
Substantial domestic inflation likely would ensue, but appropriately-focused
macroeconomic stimulation could increase output and employment to accelerate
the Greek rate of economic growth. The domestic inflation would be accompanied
by drachma depreciation that would decrease imports and increase exports,
thereby adding to aggregate demand in the Greek economy. With rapid enough
economic growth, tax revenue collections could increase, thereby providing
the where-with-all to pay down the Greek external debt.
Nixon, writing in The Wall Street Journal, February 12, 2017,
notes that
Some European governments have said they won't give any
more money to Greece unless the IMF gives it money too. But the IMF is sticking
to its mantra that it won't participate in any new Greek bailout unless
it is satisfied the numbers add up. As things stand, it is far from satisfied.
Meanwhile the clock is ticking toward two major bond redemptions in July
that Greece is unlikely to be able to meet without aid.
(href="https://www.wsj.com/articles/imfs-stand-on-greek-bailout-unnerves-europe-1486929283)
Greece might not be the only EU member state that could benefiting by
exiting the eurozone. Simon Nixon, writes in The Wall Street Journal,
February 15, 2017, about the possibility of "Frexit":
The [French political party] National Front points to a
recent International Monetary Fund study that suggested the euro is up to
15% undervalued in Germany and 6% overvalued in France as proof that France
is at a competitive disadvantage. It argues that the only way France can
remain a member of what one party official calls the "fixed eurozone exchange-rate regime" is to pursue an internal devaluation by cutting back on social protections and driving down wages. The alternative is to quit the eurozone.
Mr. Macron [Emmanuel Macron, 39-year-old former economy minister who quit
François Hollande's government to stand as an independent] . . . wants France
to stay in the euro and is campaigning for changes to the country's public
sector, welfare system and labor rules, which he says are needed to restore
the country's competitiveness.
. . . .
Ms. Le Pen [Marine Le Pen, leader of the right-wing National Front], on
the other hand, believes there is no appetite for cuts to welfare, which the
National Front says provides an important economic as well as social safety
net, helping to maintain household consumption. It argues that the only way
to preserve the welfare system is to quit the eurozone and devalue the currency.
(https://www.wsj.com/articles/french-election-puts-possibility-of-frexit-on-the-agenda-1487183427)
If the IMF is indeed right that the euro is overvalued by 6% in France and undervalued by 15% in Germany, one way to correct for this imbalance would be for France to devalue internally by diminishing its safety net and suffering economic contraction that would lower wages and prices. Or it could exit the eurozone,(re-)establish its own currency, and allow it to depreciate on forex markets. Alternately, Germany could accomplish the rebalancing by internal appreciation if it were to stimulate its economy to grow faster and allow rising wages and domestic price inflation. Otherwise, Germany could exit the eurozone ("Gerexit") and (re-)establish its own currency, then allow it to appreciate on forex markets. The latter alternative might serve the interests of other EU member states as well (e.g., Greece, Italy, Portugal).
11. Obsessing About Economic Growth
Josh Zumbrun, writing in The Wall Street Journal, October 13, 2016, notes that
Except for recession years 1991 and 2001-2002, U.S. real economic growth rates (abstracting from inflation) between 1990 and 2005 were in the 3.5 to 4.5 percent range. Real growth began to decrease in 2006 and reached -2.8 percent in 2009, now called the "Great Recession." Since 2009, U.S. real economic growth rates have hovered around 2 percent per annum. (https://www.statista.com/statistics/188165/annual-gdp-growth-of-the-united-states-since-1990/)
Judy Shelton, writing in The Wall Street Journal, October 11, 2016, notes that
(http://www.wsj.com/articles/a-trans-atlantic-revolt-against-central-bankers-1476228642)
In the same essay, Shelton notes official disappointment with the recent slow growth of the world economy.
In both cases, as IMF chief economist Maurice Obstfeld recently told the press, the problem has to do with the political consequences of sluggish economic performance. In short, growth has been too low for too long, he said, and in many countries its benefits have reached too few, with political repercussions that are likely to depress global growth further. No one would disagree that disappointing economic results since the 2008 financial meltdown have spawned political agitation.
When did on-going and fast-enough economic growth become a phenomenon to be desired, expected, and even demanded? Until the nineteenth century, most people could only hope to sustain well-being at the level experienced by their parents. Few expected well-being improvement from generation to generation, and most hoped only to avoid famine, war, disease, and other causes of decreasing well-being.
Economic growth, in the sense of improvement in the lives and well-beings of populations, was not an active phenomenon, and did not even begin to be expected until at least the nineteenth century. But here in the twenty-first century we have become so spoiled to on-going improvement in the well-being of populations almost everywhere in the world that people become anxious if they don't get an adequate boost of well-being right on time every year.
John Kenneth Galbraith, in his 1958 book, The Affluent Society, noted that poverty had been the normal lot of humankind through the ages. In the first century of the common era, Jesus, apparently unaware of the possibility of economic growth, advocated voluntary wealth redistribution (giving to the poor) as the vehicle for poverty relief.
Since the turn of the nineteenth century, economic growth has become the principal alleviator of poverty, far outpacing both voluntary redistribution (giving between individuals and groups) and involuntary redistribution via progressive taxation and government safety net programs. But global growth has slowed in the wake of the 2008 Great Recession and governmental efforts to revive growth processes have had minimal effects to date.
Political anxiety about this seeming low-growth in the wake of the Great Recession has motivated U.S. government authorities at both the Treasury and the Federal Reserve to try to accelerate the U.S. rate of growth, but to little avail. However, the six-year period of recovery after the Great Recession is fairly long compared to earlier recoveries from economic downturns. Zumbrun says that
The policies that have been targeted by the Obama administration upon recovery and faster growth have focused primarily upon the social safety net. Robert J. Barro, writing in The Wall Street Journal on September 20, 2016, explains the cause of the slower pace of growth since the 2008 Great Recession,
(http://www.wsj.com/articles/the-reasons-behind-the-obama-non-recovery-1474412963)
It might be possible to accelerate the pace of U.S. economic growth with better-targeted policies. Barro identifies what might have accelerated growth sooner:
What could have promoted a faster recovery by enhancing productivity growth? Variables that encourage economic growth include strong rule of law and property rights, free trade, rolling back inefficient regulations and other constraints on market activity, public infrastructure such as highways and airports, strong institutions for education and health, fiscal discipline (including a moderate ratio of public debt to GDP), efficient taxation, and sound monetary policy as reflected in low and stable inflation.
(http://www.wsj.com/articles/why-the-economy-doesnt-roar-anymore-1476458742)
If a president were to focus macropolicy primarily upon the social safety net in order to reduce the degree of inequality in the U.S. distribution of income, economic growth likely would suffer. But there may be a trade-off between reduced inequality and faster growth. Perhaps we should quit obsessing about accelerating the pace of real economic growth, recognize that low but steady economic growth actually is a good thing, and hope for its continuation.
12. Economic Injustice
Procedural justice is about meeting the letter of the law; it is about inputs into a decision process with no thought to outcomes. Distributive justice is about outcomes of a process, even if specified procedures (rules, regulations, laws) are not met. Jesus appeared to criticize the administration of Old Testament Mosaic law by the religious authorities of his time in that they insisted that every jot and tittle of the law had to be observed and obeyed, irrespective of the outcomes. Jesus appears to have advocated distributive justice which focused on the fairness of the outcomes of a process, even if the letter of the law was not met.
It is debatable whether the terms "economic justice" and "economic injustice" have meaning. People often use the term "economic justice" without recognizing that a market economy (a.k.a. "capitalism") contains within itself no mechanism to pursue or achieve an equitable distribution of the economic output. Here, "equitable" means fair, however judged and by whom. Apart from influencing the moral orientations of economic decision makers, there appears to be no way to build into the structure of a market economy a mechanism to pursue equitable outcomes.
A market economy does contain mechanisms to pursue efficiency, not least of which are the profit motive and the desires of workers to increase their incomes. These same mechanisms may act to worsen distributional inequality. But often there is a trade-off between efficiency and equity, i.e., something that improves efficiency may impair equity, and vice versa, something that serves equity may impair efficiency. Efficiency is an objective concept that usually can be measured by some ratio of output per unit of input. Equity is a highly subjective concept, specific to judgments by different parties, and hence is not universally measurable and comparable across parties. This also implies that efficiency (objective) and equity (subjective) are not easily compared.
An economy is a constituent part of a larger social system that also entails social, political, religious, and family institutions. It is these other elements of a social system which contain and necessarily implement morality and arouse ethical concerns and constraints. Even though an economy contains no equity-pursuing mechanism, it occasionally is judged to behave badly from a social perspective, i.e., to yield "economic injustice." When this occurs, it implies a failure of the academy (the educational system), the clergy (the religious establishment), the polity (the law and political institutions), and the family to adequately infuse a sense of morality into economic decision makers and to constrain economic behavior. This is not to excuse the economy for perceptions of unjust outcomes, but it is to point to where a problem of perceived economic injustice has to be addressed.
The term "economic injustice" may have meaning for another reason. Failures to achieve equitable (economically just) outcomes may be attributable to flaws in the economic system, including monopoly power that enables exploitation of human resources, exploitation of consumer ignorance, false advertising or specification of product characteristics or abilities, etc. Any of these flaws may cause or aggravate the degree of inequality in the distribution of income, which on a subjective basis can be judged to be socially unjust, i.e., to cause "economic injustice."
So, bottom line, "economic efficiency" is an object of pursuit by a market economy, but "economic equity" (or "economic justice") is not. It is the business of the social, political, religious, and family institutions to constrain and infuse a sense of morality into economic decision makers (and everyone else in society) so that equitable (economically just) outcomes in a social sense may obtain. This is a matter of achieving distributive justice of outcomes, and it may require commensurate procedural justice constraints implemented through the law-making and regulatory systems.
13. Medicare for All
Writing in The Washington Post, columnist Fareed Zakaria describes the improvement in the well-being of the world's masses by the early 21st century:
In almost all pre-20th century societies, healthcare was a personal and household responsibility. It had rarely (never before?) been asserted or guaranteed by anyone (person or government), i.e., it had not been "socialized." Some 2020 Democratic presidential candidates are asserting that healthcare is an American "right" rather than a privilege. A society must be sufficiently affluent to even contemplate universal healthcare as a human right for its population. It wouldn't have been possible (or even imaginable) prior to the late 20th century in America, and it can't be a serious consideration today for most of the low-income (third-world) countries of Africa, Latin America, and Asia. In a sense, it is a luxury enabled by affluence to even contemplate universal healthcare for a population.
A society's right to universal healthcare might be asserted as a moral imperative, much in the way that the United Nations has issued its "Universal Declaration of Human Rights" (https://www.un.org/en/universal-declaration-human-rights/). But simply asserting a right does not make it effective. The enunciation of a "right" to anything presupposes that some one or some organization is prepared to guarantee the right and assume the cost of enforcing the guarantee. The assertion of a right to healthcare for all American residents (including undocumented immigrants?) is based upon the premise that the U.S. government would be the guarantor, and it implies that the U.S. financial "well" is infinitely deep. This means that U.S. taxpayers would become the ultimate guarantors and inevitably must pay the bill, no matter how high it becomes. But why limit the right only to American residents? Why not assert a global right to adequate healthcare that the U.S. government must guarantee and American tax payers must pay for?
"Medicare For Anyone" who wants it has been proposed as an alternative to a Progressive advocacy of "Medicare For All." (https://www.washingtonpost.com/opinions/2019/07/23/medicare-all-faces-its-moment-truth/?utm_term=.1f3b2352c740) Medicare for anyone who wants it would be a "public option," i.e., a government agency that provides healthcare insurance in competition with private healthcare insurance providers. A public option may seem to be an attractive centrist alternative between the present Affordable Care Act (ACA) system and a far-left Medicare For All proposal.
A public option that entails lower healthcare insurance premiums than private insurance premiums is likely to induce insurees to shift from private insurance to the public option, in the long run ending up with a "single payer" insurance system. This may be the intent of those who advocate a public option. Writing in The Washington Post, columnists Chelsea Janes and Michael Scherer say that
But a government-run single-payer insurance system that lacks competitive pressures likely would be subject to bureaucratic inefficiencies and political machinations. It would also be unlikely to initiate or accommodate innovation.
Any insurance program is a vehicle for managing and sharing the risks of suffering unexpected expenses. Insurance as a means of "socializing" risks was an innovation that emerged in the 19th century. The alternative to sharing risk by buying insurance is to be self-insured, i.e., to be prepared to bear the full burden of unexpected expenses. Prior to the 19th century, most risks (healthcare and other) were individually borne, i.e., there was little possibility of socializing risk. In mid-20th century, Florida law required the purchase of automobile liability insurance policies unless one could demonstrate financial ability to absorb liability expense of at least $50,000, i.e., to be self-insured. Today, every U.S. state government and governments of most other countries require the purchase of automobile liability insurance as a condition for licensing the use of automobiles on public roadways.
In the 20th century, healthcare insurance became a popular option for those who could afford the premiums, but healthcare self-insurance remained a possibility and was the norm for lower-income persons and households who gambled that they would not incur traumatic medical expenses. Healthcare of the "indigent" was implicitly socialized as doctors and hospitals absorbed the expense of treating the indigent and shifted it by charging higher prices and rates to paying clients and their insurance policies. The intent of the 21st century ACA program in the U.S. was to mandate (i.e., to force) every U.S. resident to purchase healthcare insurance, else pay an income tax penalty.
A Medicare for All program would socialize healthcare directly by establishing the automatic coverage of every person while paying for the program in the U.S. government's general budget. It would thereby avoid the appearance of forcing compliance with a law requiring the purchase of healthcare insurance. The force dimension of the healthcare socialization process would thus lie in the requirement to pay income taxes by the segment of society with incomes high enough not to be exempt from paying income taxes. (More than 44% of American residents paid no income taxes in 2018, https://www.marketwatch.com/story/81-million-americans-wont-pay-any-federal-income-taxes-this-year-heres-why-2018-04-16.)
Medicare For All may eliminate private insurance policies (and some insurance companies), but it would not eliminate private insurance for those who wish to purchase "supplemental insurance" policies unless the government also prohibits the private purchase of supplemental insurance. (Could/would the U.S. government do that?) Supplemental insurance policies would be paid for by those with incomes high enough to afford them, and thus would create an elite tier of health care that doctors and hospitals would prefer. Unless mandated by law to treat all comers, some doctors and hospitals might decline clients with only Medicare For All coverage, i.e., restrict clientele to those who have purchased supplemental insurance policies in addition to Medicare For All coverage.
Economists are fond of asserting that there is no such thing as a free lunch, but they acknowledge that individual members of society can have free lunches if others (friends or the larger society) pay for the lunch. Medicare For All would foster the delusion that individuals may enjoy free healthcare even though the larger society must pay for it. Economists also find that people tend to consume more of anything when its price is reduced. Medicare For All would make healthcare appear to be not just cheaper, but actually free to the individual. Nominally "free" healthcare inevitably would result in increased consumption of healthcare services, thereby increasing the cost to society.
Medicare For All may reduce administrative overhead costs and enable negotiation down of prescription prices, but there is no guarantee that either or both will reduce healthcare costs by enough to cover increased consumption of healthcare services, coverage of additional persons who are not now insured, and any expanded benefits (e.g., vision, hearing).
A government agency negotiating healthcare and drug prices amounts to price fixing, which is designated by the Federal Trade Commission Act of 1914 as an "unfair trade practice" for private sector competitors. Prices set (or negotiated or fixed) by government agencies often result in surpluses (prices set too high for equilibrium) or shortages (prices set too low). A government agency negotiating healthcare service and drug prices down under a Medicare For All system likely would lead to shortages of drugs and increased wait times for services.
If reduced administrative overhead and negotiated lower prescription prices fail to cover increased healthcare expenses (how likely is this?), Medicare For All would require increasing taxes or increasing public debt to cover those not presently insured and any expanded benefits (e.g., vision, hearing).
While Medicare For All would eliminate private insurance premiums (except for options to purchase "supplemental insurance" policies), there is no guarantee that the resulting decrease of household expenses would be sufficient to cover an increase of income taxes to cover a Medicare For All program. If insurance premium reductions are insufficient to cover the increase of personal income taxes, Medicare For All will have an impoverishing effect on received income (after-tax income) and dissipate recent wage gains.
If any part of the increased cost of Medicare For All is paid by increasing public debt, that part of the cost of healthcare for each generation is simply shifted to future generations, ad infinitum. Financing increased healthcare expense by incurring bigger annual budget deficits requires issuing ever more government bonds. But the global appetite for U.S. government bonds is not likely to be infinite. And a vulnerability is that certain authoritarian governments that hold huge quantities of U.S. government bonds (e.g., China, Saudi Arabia) could at any time decide "to dump" their holdings on the global bond markets.
Increasing the supply of U.S. government bonds relative to demand for them on global bond markets would cause U.S. government bond prices to fall and yield rates on them to rise relative to bond prices and yield rates on bonds issued by other governments. This would cause ever-increasing interest expense in the government's budget that would either push out other categories of government spending (e.g., military, infrastructure, climate control) or increase annual deficits even further.
Faced with ever increasing healthcare costs, a failure of the U.S. Congress to approve an increase of the debt limit might cause the U.S. government to default on bond interest payments and principal redemptions. In this event, dollar exchange rate would plummet on foreign exchange markets and the U.S. government's debt ratings would crash. If this were to happen, foreigners would become more resistant to buying U.S. government bonds, and thus less willing to help Americans to finance their increasing debt attributable to ever-increasing healthcare costs.
Medicare For All would lack competitive pressures and thus would diminish the government administrative agency's motivation to innovate or to cover recent medical technology advances. A Medicare For All bureaucracy that barely covers expenses or operates at a loss would have no "retained earnings" cushion to devote to research and innovation. (https://www.washingtonpost.com/opinions/medicare-for-all-is-political-suicide-for-democrats/2019/06/06/8c41f14c-87d1-11e9-a491-25df61c78dc4_story.html?utm_term=.8f9e365f862e).
Pharmaceutical providers are indeed profit-driven (as are all private-sector businesses except the intentional "not-for-profits"), and they assert that substantial profits are necessary to finance research and innovation. If Medicare For All succeeds in negotiating drug prices down too far, private sector pharmaceutical profits will decline and reduce "retained earnings" that can finance research and innovation.
The fact that American drug prices typically are higher than prices of the same or comparable drugs in other countries may indicate that American drug consumers are subsidizing drug research and development that benefits drug consumers in other countries who import American drugs or who make drugs locally under license by American drug producers. This may be justifiable as "humanitarian work" on behalf of lower-income (third-world) countries, but not so much for high-income countries in North America (Canada) and Europe where drug prices often are lower than in the U.S. It may also indicate that foreign drug producers have emulated (reverse-engineered) or pirated drug formulas that American drug producers have paid to research and develop.
Whether pharmaceutical profits are excessive is a personal and social perception that can be assessed by observing pharmaceutical salaries, dividend distributions, and how their share prices are changing on stock markets compared to salaries, dividends, and share prices in other industries. An alternative to the perception of "excessive profits" captured by private-sector U.S. drug manufacturers is for the government to nationalize them, i.e., to bring ownership and management of them into the public sector. In theory nationalization could reduce prices to eliminate profits, but it would also eliminate the retention of earnings to finance research and innovation. Historical experience with nationalization of private enterprises has not be encouraging with respect to managerial efficiency or to innovation.
As national healthcare systems in other countries have shown, universal healthcare often leads to longer wait times for appointments and elective surgeries. This may induce sufficiently-affluent citizens to seek healthcare services abroad (medical tourism) where they may pay to have them sooner and at lower costs, and thereby to create an elite tier of healthcare. (https://www.nytimes.com/2019/08/09/business/medical-tourism-mexico.html?em_pos=small&ref=headline&nl_art=4&te=1&nl=upshot&emc=edit_up_20190815?campaign_id=29&instance_id=11659&segment_id=16188&user_id=86b0d837dd357b2a6e0e749321f6ed7f®i_id=74240569emc=edit_up_20190815)
Medicare For All is a far-left proposal with which a majority of Democrats may not be comfortable. A more "centrist" alternative than either Medicare For All or a public option may enhance the electability of a Democratic candidate. A more palatable approach might be to advocate incrementally improving the existing ACA healthcare system by plugging coverage gaps and expanding benefits while giving sufficient attention to financing increasing healthcare expenses.
14. Minimum Wage Dynamics
Eric Morath, writing in The Wall Street Journal, December 30, 2016, notes that
It may be worse than simply providing less incentive to add to payrolls. An increase of the minimum wage rate that precipitates automation investment, even if accompanied by an increase of productivity, may result in unemployment. Morath points out that
The Editorial Board of The New York Times, writing on January 2, 2017, says that
Of course, this is also true of those foreign sites where American companies are off-shoring production, but the U.S. government has no standing or authority to impose a federal minimum wage on actual or potential off-shored sites.
If the goal is to decrease poverty, the most effective way to do so is to promote economic growth by encouraging investment that raises wage rates by increasing productivity, not by imposing or raising the minimum wage rate.
The Editorial Board of The New York Times appears to lack understanding of the dynamics of imposing or raising a minimum wage. The imposition of a federal minimum wage (or, for that matter, a state-imposed minimum wage) is likely to cause the mandated wage rate to be higher than justified by productivity in many existing employments in the state. To the extent that this happens, it will hasten the process of substituting capital for labor as it has done in other states with mandated minimum wage rates. New capital investment will almost certainly entail automation that will disemploy lower-skilled workers to seek jobs in other, lower-productivity employments if they can find them.
Some of the disemployed workers may choose to retire and live on Social Security distributions and incomes from any savings that they have accumulated. Others, not finding jobs commensurate with their work experiences and training, may become discouraged and drop from the labor force to live on welfare distributions (food stamps, housing supplements, etc.). Some workers may be able to retrain to undertake advanced-technology employments. The smaller-number of still-employed workers who are capable of filling advanced-technology jobs may enjoy higher wages even above the mandated minimum wage rates.
If newly-mandated minimum wage rates precipitate automation investment, it is possible that the average wage rates and gross state incomes (GSI) will decrease. If this happens, poverty will not only be perpetuated, it may even be deeper and more widespread.
15. The Minimum Wage as Welfare Program
The 1938 Fair Labor Standards Act that "ensures a minimum standard of living necessary for heath, efficiency, and general well being of workers" was based upon an unspoken premise that may not be sustainable for the future, i.e., that the well-being of a person and his or her dependents is determined by the income earned by working.
It is not at all certain that in the future (50 or more years on), with on-going technological advances and continuing automation, enough jobs can be provided by the economy (or the government) to ensure adequate earned incomes. This was the burning issue in the mind of Wassily Leontief when he spoke at Furman University in the 1980s, i.e., how is society going to feed and entertain all of its members once automation rendered work obsolete.
In the future, it may be necessary to rethink the working-income-eating nexus, with a shift from thinking about minimum-wage adequacy to thinking about minimum-income adequacy that is not based on working. There already are in place various income-floor programs that are not premised upon working, so maybe the burden of income adequacy should be placed upon those programs, and not upon the minimum wage at all.
Historically, private sector companies were understood to be productive organs, not welfare programs per se, but minimum wage laws have converted them into implicit welfare programs. Repeated calls are made in the media, by presidential candidates, and by workers themselves for legally-imposed minimum wages to be increased by enough to provide a "living wage" for the worker and his or her dependents. The amount of a living wage is of course subject to dispute.
An economic truism is that employment in the private sector is offered only if it is justified by productivity. If a wage job won't pay for itself, it will not be offered, or it will be replaced by machines. Moderate increases of the minimum wage may not have employment decreasing effects if employers are increasing wages at a faster pace commensurate with increasing labor productivity. But employers are rational to substitute capital for labor if the cost of labor increases faster than the cost of capital. An enforced increase of a minimum wage will precipitate efforts by managers to displace labor by automation if the higher wage is not justified by productivity gains. And labor organizations demanding wage increases in excess of productivity gains "shoot themselves in the foot" by inducing contraction of employment in their industries.
Recently expressed anxiety about the loss of manufacturing jobs in the U.S. may be attributable as much to automation precipitated by increasing wage demands and minimum wage increases as to so-called "offshoring" of production and jobs to foreign sites. The offshoring process may be attributable to a variety of causes, including both tax advantages and minimum wage increases in excess of productivity gains.
In this day and age, increasing labor productivity is almost certainly the result of employers providing more and better capital with which the laborers work, rather than the laborers actually working harder. In fact, with labor-augmenting machinery enabled by technological advances and capital investment, laborers probably are working less hard than in earlier times, and the work week in the U.S. has progressively decreased from nearly a hundred hours at the turn of the twentieth century to around 34.5 hours today. So, to whom should the labor productivity gains flow, to the workers or to the investors in the capital? And is it then immoral for the owners of capital to try to capture the productivity gains resulting from their capital investments?
Here's a story from my teenage working experience in the late 1950s and early 1960s. I worked summers as a warehouseman in the wholesale hardware company for which my father worked. The company employed a couple of old African Americans (not what they were called back then) as "porters," the functions of which were to sweep floors and load merchandise into the customers' trucks or cars. That was alright as long as the minimum wage was only $1.00 per hour, but when it was increased to $1.25 per hour, and then to $1.50 per hour, the job of porter was eliminated when the porters retired, left, or died. Guess who loaded merchandise into the customers' cars after that. Right, the customers themselves. And guess who swept floors in the warehouse after that. Right, the warehousemen in addition to stocking shelves and pulling orders. The company management judged that it was not worth $1.50 an hour to have people around just to sweep floors and load merchandise into cars. And this demonstrated another economic principle, that one way to increase labor productivity is to have the same amount of work done by fewer workers than previously.
Maybe the future need will be to skip the work-income linkage altogether and go directly to ensuring minimum well-being, irrespective of income earned from working or received from non-working sources. Once we (or our great grandchildren) get to this point, the issue of an adequate minimum wage will be moot, to be replaced with the issue of what will non-working society do with all of that leisure time? (Are idle hands indeed the Devil's workshop?)
Andy Kessler, writing in the August 22, 2016, issue of The Wall Street Journal, proclaims good news about technological advance and automation:
Anna Louie Sussman, writing in The Wall Street Journal, September 1, 2016, reports recent evidence seconding Kessler's assertion that technology always creates more jobs than it destroys:
But what if Kessler is wrong and technological advance fails to keep on creating more jobs than it destroys? If this indeed comes about, the link between eating and working may have to be broken. Then what is to be the mechanism that motivates employment by the smaller but essential number of humans required to produce the output needed to sustain society, and which can also handle the distribution of the output to the society? If most people can eat without working, then why should anyone at all work?
16. Negative Yields and the Demand for Government Bonds
The Federal Reserve along with the European Central Bank and several other national central banks have progressively lowered their lending (or discount) rates toward zero in efforts to stimulate their economies to grow faster. James Freeman, writing in The Wall Street Journal, August 31, 2016, notes that central banks in a number of countries have even taken their discount rates into negative territory:
What accounts for the willingness of investors to continue to buy and hold government-issued bonds when they are effectively taxed for lending to their governments? Another way to ask this is, "Why does the demand for government bonds hold up and continue to increase relative to their supply even as buyers pay for the privilege of lending to their governments?"
Christopher Whittall, writing in The Wall Street Journal, September 6, 2016, explains that when bond yield rates are low or negative, investors may buy bonds in hope of gains by appreciation rather than yield:
The phenomena which apparently overcome rationality are uncertainty and fear. The world at mid-2016 suffers a great deal of uncertainty which spokes fear of asset value loss. Uncertainty and fear derive from a number of current circumstances, including wars in the Mid-East and Africa, strife between Palestinians and Israelis, contention between Sunni and Shiite Muslims, the international reach of terrorism conducted by ISIL, nuclear aspirations of the Iranians, the expansionary intentions of the Kremlin in Syria and Ukraine, saber rattling by the Chinese in the South China Sea, missile and nuclear testing by the North Koreans, political transition in Brazil, concern among U.S. trading partners about the willingness of U.S. administrations to confront and contain geopolitical threats, the mission of NATO in the future, confusion about the policy orientations of the U.S. presidential candidates, the unknown outcome of the U.S. presidential election campaign, and last, but probably not least, when will the Fed act and what might it do.
This is quite a daunting list of investor concerns. In a climate of such multiple uncertainties, investors seem to want to hold the safest assets possible, such things as treasury notes and bonds issued by the governments of the U.S., the U.K., Germany, and a few other nations, even if yields are negligible.
But when yields go negative, investors may turn to precious metals like gold or cryptocurrencies, but gold is not as convenient to hold or as liquid as cash and cryptocurrencies are expensive to transact. Ulrike Dauer, writing in The Wall Street Journal, August 28, 2016, says that Germans are holding more cash and acquiring safes to keep it at home. Even German financial institutions are joining the cash hoarding culture:
Uncertainty and fear breed what under more normal circumstances would seem to be irrational. But when fear and uncertainty trump negative returns, increasing demands for government bonds, gold, and cash become the new rationality. And the more that potential investors hold their liquid assets outside of the banking system, the less effective that monetary policy can be.
17. Occupational Licensing
Economists charge that occupational licensing has the effect of stifling competition and protecting those who are licensed by making it more difficult for potential competitors to join the market. It is usually the lower-income members of society who are most adversely affected.
On the macroeconomic level, occupational licensing has a dampening effect on the employment level and economic growth.
Historically, apprenticeships, guild memberships, employer training, and unions served artisans, employees, and providers of services. Licensing has only socialized these functions by making them responsibilities of the state rather than the private sector.
A reference to an "unlicensed trade" has the same effect as using the term "unregulated industry." Both imply that the activity should be regulated by the state.
Some occupations are heavily knowledge- or skill-based. Economists concede in such cases the benefit of occupational licensing which protects consumers and users of licensed services from inadequately prepared or knowledgeable service providers in occupations which affect the public welfare, such as healthcare and legal services. Of course, any who favor occupational licensing can claim this argument for their own occupations once they have gained a foothold in the occupations. Ph.D. requirements for university tenure and teacher certification in public schools are implicit forms of occupational licensing.
But occupational licensing perhaps has gone too far into the less technical or minimal knowledge-based occupations. For example, should wait staff in restaurants or counter workers in service stations be licensed? How about garbage truck personnel? Bank tellers are trained by their employers, but should they be licensed by the state?
Once the occupational licensing process becomes extended to ever more occupations, the question is where should it end?
18. The Obama Overtime Rule
Matt O'Brien, writing in The Washington Post, November 28, 2016, says
Rep. Byrne misses a third possibility: some (how many?) employers will simply cut back on overtime work. To the extent that they do so, workers with incomes between $23,660 and $47,476 and who would have worked more than 40 hours per week at their regular wage rate will find their incomes constrained to 40 hours per week at their regular wage rate. If this happens, there is a possibility that Gross National Income could actually decrease if the Obama rule is put into effect. The Obama overtime rule may not "give a raise to [nearly] as many as 4 million workers."
19. Poverty, Income Distribution, and Jobs
As noted in an item in The Wall Street Journal, the U.S. Census Bureau delivered good news on both household income and poverty level on September 13, 2016:
Paul Krugman, writing in The New York Times, September 15, 2016, was quick to claim credit for the Obama Administration:
An opposing view is that the good news has occurred despite the Obama Administration policies. In its slow recovery from the 2008 "Great Recession," the economy has finally begun to overcome high income and corporate tax rates, onerous business regulation, and multiple sources of uncertainty that have constrained investment and prevented increasing employment. And the recovery may have advanced sooner had those matters been addressed in timely fashion.
An editorial in The New York Times, September 13, 2016, hailed the good news about poverty reduction and asked whether yet more should be done to diminish poverty:
An excerpt from the same editorial indicates the poverty levels that would have occurred in the absence of federal programs designed to address poverty:
Poverty resides at the lower end of the income distribution spectrum. Because of continuing economic growth over the past couple of centuries, most people have become materially better-off than their predecessor generations. And those who live in the societies that have enjoyed the fastest rates of economic growth may “live like kings” relative to people in societies that have experienced little or no growth. As economic historian Deirdre McCloskey, writing in The New York Times, September 4, 2016, puts it,
The existence of poverty in the twenty-first century does not mean that something bad has happened, e.g., failure of the economic system. The alleviation of poverty means that something good has happened, i.e., economic growth.
There are two ways to look at poverty: absolute poverty and relative poverty. Economic growth and good government enable absolute poverty relief. Redistribution of wealth and income may relieve absolute poverty at the cost of impairing incentives to work and engage in entrepreneurial ventures, but redistribution of outputs is less effective than entrepreneurialization of inputs (resources) to diminish poverty. There will always be relative poverty because there will always be some who remain at the lower end of the income distribution.
Bad government forestalls growth and poverty relief. Poverty relief is a long-term process; crisis relief is a short term palliative. Economic growth is the best prescription for alleviating poverty, but it won't guarantee a more equitable distribution of income.
20. Old and New Modes of Poverty Relief
Jesus' sayings about the poor imply a voluntary redistribution mode of poverty relief, i.e., give to the poor out of your own wealth. The Catholic Church's social teaching has centered on "a preferential option for the poor." Around the beginning of the 19th century, another mode of poverty relief began to emerge, but it didn't get into full swing until the second half of the twentieth century.
Nicholas Kristof, writing in The New York Times, September 22, 2016, says,
Here is some recent good news about poverty in the U.S. As noted in an item in The Wall Street Journal, the U.S. Census Bureau delivered good news on both household income and poverty level on September 13, 2016:
Assuming that taxes are required by government to be paid (i.e., they are not voluntary contributions), social safety net programs are involuntary redistributions from tax payers to benefit recipients. An excerpt from the same editorial indicates the poverty levels that would have occurred in the absence of federal safety net programs designed to address poverty:
In 2014, the U.S. poverty threshold for a family of four was set at $24,230; the official national poverty rate was 14.8 percent; and there were 46.7 million people in poverty. The Census Bureau reported in September 2014 that U.S. median household income was $51,939, of which sixty percent was $31,163. This is nearly 30 percent greater than $24,230, the reported U.S. poverty threshold. Compared to the EU standard for measuring poverty, the U.S. poverty rate is understated and probably is close to those of European countries.
Social scientists have a tendency to regard the existence of poverty as evidence of some traumatic failure of the economic system. Since poverty has been the normal lot of humankind through the ages (John Kenneth Galbraith, The Affluent Society, 1958), the existence of poverty today does not imply that something bad has happened or that some systemic failure has occurred. The fact that poverty is abating worldwide implies that something good is happening. The good that is happening is economic growth, measured as rising income per capita.
There are two ways to look at poverty: absolute poverty and relative poverty. Absolute poverty is inability to enjoy a specified minimum level of well-being, usually measured as an arbitrary minimum amount of income. Relative poverty refers to the lower end of the income distribution. Economic growth has enabled absolute poverty relief. There will always be relative poverty because there will always be some who remain at the lower end of the income distribution.
So what should we do about poverty, redistribute wealth or encourage growth? Or both? Jesus' pronunciations about "the poor" suggest that the solution is redistribution, i.e., transferring some of our wealth to the poor. Economic growth was essentially unknown during the first century of the common era, and we don't know whether Jesus might have advocated it had it been an active phenomenon during his lifetime. Economists have reservations about redistribution of wealth as a mode of poverty relief because of the potential for impairing incentives to work and to engage in entrepreneurial ventures. Economic growth in the last half century has been a more potent reliever of poverty than has wealth redistribution over the past twenty centuries.
One of the most important things that can be done for the poor is to provide income-earning jobs. I am reminded of a saying that I first encountered on a demonstration farm operated by the Methodist Church in Pakistan:
Teach me to fish, and I eat for a lifetime.
Perhaps the second line should begin with "Invest in my ability to fish, . . . ."
But economic growth won't guarantee a more equitable distribution of income. Even in an "affluent society" like ours, there persist segments and pockets and regions of poverty still to be alleviated.
One of the most serious economic problems that is likely to confront us in the twenty-first century is job loss due to automation. Charles Murray, writing in The Wall Street Journal, September 3, 2016, has proposed a universal basic income (UBI) to counter the negative income effect of job loss due to automation, to eliminate poverty, and implicitly to reduce inequality in the distribution of income. His proposal is a redistribution mode that would replace all current social safety net programs, including Social Security, Medicare, Medicaid, earned-income tax credits, child-care support, and food stamps.
Murray insists that even though a $10,000 annual income is guaranteed, able-bodied adults would have incentive to seek employment to supplement the UBI income, and no adult could claim to be impoverished in an absolute sense. The greatest danger in a UBI poverty relief program is that the UBI will be continually enriched at the behest of recipients, adding to annual government budget deficits and continually increasing the size of the U.S. public debt.
Poor relief remains a central focus of current Christian churches. What does on-going economic growth portend for the future roles of the church and its clergy as extreme or absolute poverty continues to abate? Of course, relative poverty will never end (as Jesus indicated) since there will always be some at the lower end of the income distribution spectrum.
George Will, writing in The Washington Post, October 6, 2016, in citing Nicholas Eberstadt's monograph, "Men Without Work: America's Invisible Crisis," says,
This statistic betrays three phenomena: (1) a nation affluent enough to afford to have 32 percent of its adult male population voluntarily not working and being supported by other members of society; (2) the likelihood that on-going automation has eliminated some of the jobs in which these adult males might have worked; and (3) an unemployment rate (currently 5 percent) that is lower than it would be if these voluntarily non-working adult males were in the labor force, either holding jobs or looking for jobs. However, official income and labor force statistics miss the fact that some of the "non-working" adult males are capturing unearned income from criminal activity or earning income in not-illegal "underground" economic activity (i.e., productive activity that is compensated in cash so that it is not taxed, and hence is not measured in either employment or earned-income statistics).
21. The President and the Economy
Neil Irwin, writing in The New York Times, January 17, 2017, is right when he says that
In his opinion piece, Irwin walks the reader through these aspects of the presidency to show how indeed any president has limited ability to determine economic outcomes. Irwin does acknowledge the areas where a president may have real influence:
Irwin focuses mostly on the possibilities (or lack thereof) for a president to positively affect the economy. My sense of a president's influence over the economy is that he (or she) may have greater potential to harm or constrain the economy than to affect it in positive ways.
In this sense, Mr. Obama's administration was not particularly friendly to the business sector of the U.S. economy, it constrained American business competitiveness internationally by imposing one of the highest profits tax rates among our trading partners, and it fostered costly increases of regulation that discouraged new business starts and accompanying job creation. This may have prevented the economy from recovering as quickly from the so-called "Great Recession" of 2008 as it might have done with less regulation and lower profits tax rates.
22. The Productivity-Growth Catch 22
During the first half of 2016, non-farm business productivity has been decreasing, restrained by weak business investment in new equipment and software. The declining productivity has restrained the economy's ability to grow fast enough to generate higher incomes without stoking inflation. Wage growth, which is enabled by increasing labor productivity, also has been curbed.
There are two basic ways to increase labor productivity: (1) give workers more and better equipment with which to work; and (2) use fewer workers to do the same work formerly done by a larger work force using the existing equipment. Labor productivity may also increase if the equipment stock increases faster than the number of workers increases.
Conversely, decreases of labor productivity may be attributable to: 1) continuing real depreciation of the equipment that workers use without replacement; and 2) employing more workers to use the existing equipment. In fact, both phenomena have been occurring recently in the U.S. economy: managements have been reluctant to replace depreciating equipment until demand increases with faster economic growth, and employment has been increasing as more people enter (or return) to the labor force.
Wage growth in the U.S. economy has been stagnant recently because the supply of labor has been increasing faster (with continuing population growth and the return of "discouraged workers" to the labor force) than the demand for labor has been increasing. The demand for labor has been depressed by the slow growth of the economy. But the economy won't be able to grow faster without faster productivity increases, a veritable Catch 22. And increasing labor productivity is dependent upon additional capital investment which also is depressed by slow economic growth prospects, i.e., a double Catch 22.
Anna Louie Sussman, writing in The Wall Street Journal, September 1, 2016, suggests reasons for the constrained productivity growth and slow economic growth:
Why has economic growth recently been so slow? Three reasons: uncertainty about the political scene, excessive governmental regulation of business, and high corporate income and capital gains tax rates. These matters should be addressed by the political process to apply appropriate fiscal and regulatory policies, but our political institutions have avoided this course of action and looked to the central bank to resolve the problems with monetary policy.
In attempting to address the slow-growth phenomenon, the Federal Reserve "shot its wad" with respect to monetary policy by continually reducing interest rates toward zero and engaging in "quantitative easing" (a.k.a. open market operations) by purchasing government debt from banks and the government itself. But in the same sense that "You can lead a horse to water, but you can't make it drink," the Fed can provide additional liquidity to commercial banks, but it can't force commercial bankers to lend or business managers to borrow.
The additional liquidity provided to banks so far has resulted in little additional lending to businesses since the slow growth has left both the demand for industrial output and investment in new capital stock depressed. But the additional liquidity "sloshing about" in the world economy threatens to cause price bubbles in the housing, commodities, and financial markets, and eventually it may cause across-the-board general inflation. Most recently the quantitative easing and negative interest rates have resulted in a bond bubble. James Freeman, writing in The Wall Street Journal, August 31, 2016, says that
Why has this additional liquidity not already manifested itself in inflation? The additional liquidity has resulted in what some economists refer to as a "liquidity trap" described by John Maynard Keynes in his 1936 book, The General Theory of Employment, Interest, and Money. In order to break out of an incipient liquidity trap, the Bank of England and the European Central Bank are contemplating bypassing commercial banks by purchasing corporate bonds as a means of getting liquidity directly into the hands of prospective business investors. Even so, the additional liquidity in corporate hands may not stimulate additional investment if demand for what they can produce with it is perceived to be inadequate.
Fed officials seem unable to see through the fog of global economic and political complexity to find the necessary solutions. Jon Hilsenrath, writing in the August 25, 2016, edition of The Wall Street Journal, says,
As noted in a New York Times item on August 28, 2016, economist Christopher Sims, speaking at the Fed's 2016 annual conference in Jackson Hole, emphasized the need for fiscal policy actions rather than monetary policy to address the slow-growth problem:
Others are beginning to recognize that growth and productivity are problems that the Fed can't solve by itself with monetary policy alone. A warning to this effect comes from Raghuram G. Rajan in a New York Times interview on September 5, 2016, as he steps down from a three-year term as governor of the Reserve Bank of India:
The steps that must be taken to solve the problems of slow economic growth, stagnant productivity, and restrained wage growth require actions beyond the capabilities of the central bank: settle the political environment with election of a president who is reliable, predictable, and principled, and who has knowledge of how the economy actually works; eliminate the most onerous and costly regulation of the business sector; lower U.S. corporate income and capital gains tax rates to globally-competitive levels, and increase government spending on national infrastructure. Once these matters are settled, perhaps monetary policy can be returned to a state of effectiveness and relevance.
Robert J. Barro, writing in The Wall Street Journal on September 20, 2016, explains that the slow recovery from the 2008 Great Recession is not consistent with historical experiences, and he identifies the cause of the slow growth:
In the same piece, Barro also indicates what might have facilitated faster growth sooner:
23. Public Debt Concerns
But there is no guarantee that foreign holders of U.S. public debt won't become satiated with it, or that they won't become nervous about whether the U.S. government will continue to redeem it as it comes due, or that some holder of large amounts of U.S. public debt (like China) won't decide to unload its holdings (or even a part of them) on global finance markets for political reasons. Any of these possibilities would increase the supply of debt relative to demand on financial markets, driving bond prices down and yield rates (interest rates) up.
But bond prices are not falling and yield rates are not rising at present because the Federal Reserve (the U.S. central bank) is implementing a deliberate policy to keep interest rates low (toward zero) by purchasing bonds from the financial markets at a rate fast enough to drive market interest rates toward its near-zero target. On analogy, it's like a bath tub where the Fed is draining water (buying old bonds) at one end while the Treasury is refilling the tub (issuing new bonds) at the other end. As long as the Fed can drain water (buy bonds) fast enough as the Treasury refills the tub (with newly-issued bonds), the water level in the tub (interest rates) can remain low.
So, the U.S. government can keep on running deficits financed by issuing ever more public debt as long as the global demand for U.S. government bonds holds up and the Fed continues to buy enough bonds, or until interest rates on debt rise to uncomfortable levels. If interest rates were to rise and continue to do so, the debt service (interest payments) would increase and absorb an ever-larger proportion of the government's budget, displacing social, infrastructure, military, and other categories of spending.
But, of course, here is where Modern Monetary Theory purports to solve the problem. According to MMT advocates, the government can continue to run deficits and monetize ever more public debt until the inflation rate becomes unacceptably high. The inflation rate is the canary in the mine.
Will this mounting public debt become an ever-increasing burden to future generations who must pay it off? To pay off the public debt (or even to pay it down), the government would have to run sufficient budgetary surpluses. this would be a significant burden on those who have to pay increased taxes, but it would be a political unlikelihood for the foreseeable future.
The U.S. public debt will never have to be repaid as long as the global demand for it (including Fed purchases) sustains. It is much more likely that the load of U.S. public debt will diminish by default (i.e., failure to redeem bonds as they come due) once the world demand for U.S. public debt becomes satiated. In this sense, the mounting public debt will not be a burden on subsequent generations, but it may precipitate instability in global financial markets.
Recently, U.S. stock markets have continued to increase as traders have piled on to capture appreciating stock prices, and this is good for our personal financial portfolios as long as it continues. But the average PE (price-earnings) ratio has become much higher than its historical average, possibly portending a near future "adjustment," maybe even a "crash." If this happens, as stock prices fall financial asset holders will shift from equities to debt, driving debt prices up and interest rates down. A stock market crash also may precipitate a real-economy downturn with rising unemployment and falling incomes even worse than already experienced due to the pandemic.
Of course, the Fed can try to offset a stock market crash or an increasing supply of U.S. public debt on global financial markets by buying ever more U.S. government bonds for its own portfolio, thereby monetizing the debt and adding to the amount of money in circulation. This may not have adverse effects as long as the economy is operating below full employment, but as full employment is approached, further increases of the money supply likely will precipitate inflation that will become ever worse the more debt that is monetized as the Fed buys bonds.
The Fed's mission is to stabilize the economy by maintaining an adequate level of employment and averting inflation and deflation. Stabilizing financial markets is not within the Fed's remit. However, in the midst of a stock market crash or when faced with excessive foreign sales of U.S. government bonds, it may be difficult for Fed officials to keep in mind that neither the stock market nor the bond market is the real economy.
The policy needs of the economy may coincide with what is needed to stabilize a financial market, but not always. For example, a stock market crash while inflation is low and unemployment is high and rising (as during the present pandemic) may be well served by a stimulative monetary policy, but a stimulative monetary policy to address a stock market crash would not be suitable if the economy were near full employment and experiencing inflationary pressures.
Any such gyrations in the wake of the pandemic will make personal economic and financial decisions about the future uncertain.
24. Redistribution or Growth?
Patricia Cohen, writing in The New York Times, December 6, 2016, reviews a study recently published by Thomas Piketty, Emanual Saez, and Gabriel Zucman.
Jeremy Ashkenas, writing in The New York Times, December 16, 2016, notes an important conclusion of the Piketty study:
Ashkenas also notes the Piketty et al recommendations about how to reduce the degree of inequality in the future:
The Piketty et al conclusion indicates that governmentally-implemented redistribution has been an ineffective means of redressing the income distribution imbalance, but the suggested vehicles for ameliorating the income distribution inequality are yet more actions for government to undertake. As such, they fall well within the liberal-progressive arena, and many of them are already underway. Unspecified is any means by which the distribution of human and financial capital is to be equalized without some form of redistribution or quota allocation of opportunity.
Omitted is any suggestion that private sector investment in productive capital or infrastructure facilities should be undertaken to promote economic growth. I have argued in another comment that economic growth has been the principal alleviator of global poverty during the past couple of centuries. It could also be argued that economic growth might serve as a vehicle for diminishing income distribution inequality if some way can be found to cause the entrepreneurial profits to be shared more evenly with the working class.
However, growth has turned out to be the main culprit in worsening the distribution of income due to the fact that entrepreneurial success in the private sector is rewarded by profit which propels successful entrepreneurs into the upper-income echelons. More steeply progressive taxation would curb the accumulation of wealth from entrepreneurial success, but capture of a substantial portion of entrepreneurial profit by progressive taxation may also "kill the goose that laid the golden egg." And it is not clear how the fruits of entrepreneurial success captured by progressive taxation can help the lower-half of the income distribution without redistribution.
25. To Socialize or to Entrepreneurialize?
"Development" is understood to mean change in the structure of society. The various dimensions of social structure include economic, social, political, moral, religious, and environmental. Development is both a requisite of growth and a consequence of growth--they are inseparable.
A serious problem is that development is typically disruptive of social structures, and thus entails costs. While by definition growth yields only benefits, development seems to involve mostly costs. A rational judgment of whether a process of development cum growth is desirable should be based on the relationship between the benefits of growth against the costs of development, i.e., Bg/Cd. If the value of the ratio of Bg/Cd is greater than 1, the growth-development process is desirable. It is undesirable if the value of the Bg/Cd ratio is less than 1.
Economists make the case that the most effective poverty-alleviating vehicle over the past couple of centuries has been economic growth, and that market economies are more favorable to growth than are authoritarian economies. A modern economist is led to the suspicion that the suffering of the poor may be less amenable to relief by sharing the existing wealth than by a process of economic development that increases the society's stock of capital (which is part of its physical wealth). The poor are helped via increasing employment and income generation. They are also helped by a growing volume of lower-priced consumables that are more affordable to the poor. Economic historian Deirdre McCloskey, writing The New York Times, September 2, 2016, affirms this contention:
There is a good bit of evidence in the literature of economic development that with continuing growth of the global economy, income per capita has risen. Even the poor at the lower end of the income spectrum usually enjoy welfare gains, although the gap between their incomes and those of the wealthy (successful entrepreneurs) may widen.
This is not to deny that some elements of any society may become worse-off as economic development ensues, but the same probably would be happening in a stagnant economy. Even so, I am compelled to the conclusion that there is likely to be greater potential for relief of poverty in entrepreneuralizing the world's scarce resources than in socializing them. The most likely outcome of the latter is to ensure the perpetuation of poverty.
Because of continuing economic growth over the past couple of centuries, most people have become materially better-off than their predecessor generations. And those who live in the societies that have enjoyed the fastest rates of economic growth may “live like kings” relative to people in societies that have experienced little or no growth. As McCloskey puts it,
An international "demonstration effect” occurs when people in low-income societies become aware of higher living standards in societies that have enjoyed faster rates of economic growth. International demonstration effects have motivated people in low-income countries with authoritarian political regimes to try to achieve the benefits of faster economic growth by replacing their regimes with democratic polities coupled to market economies.
It is a rough and imperfect analogy that "A rising tide floats all boats." Economic growth makes a society on average better-off, but some become better-off faster than others, and some may actually become worse-off, thereby worsening both local and global distributions of income and wealth. Even if those toward the lower end of an income or wealth distribution have become materially better-off, a widening distribution tends to breed resentful envy among those at the lower end of the distribution toward those closer to the top.
Resentful envy may spill over into social dissatisfaction and political unrest. Possible outcomes might be parliamentary efforts to curb the income earning or wealth accumulation abilities of those toward the upper end of the distribution, or to redistribute income and wealth from those at the upper end of the distribution to those at the lower end. A more extreme outcome might be a movement (parliamentary or revolutionary) to replace market capitalism with some form of socialism.
In the early twenty-first century, we see low-income societies with authoritarian regimes attempting to achieve the growth benefits of successful market economies with democratic polities. It is ironic that at the same time we find in higher-income market economies with democratic polities efforts to achieve distributional equity by socializing the distributions of income and wealth.
In the September 22, 2016, issue of The New York Times, more good news on poverty, but the writer, Nicholas Kristof, doesn't even mention the principal cause: on-going economic growth.
26. Stock Prices and Bond Yields Moving in the Same Direction?
But Mackintosh calls attention to the fact that in 19 of the last 30 days (during August, 2016), stock prices and bond yields have been moving in opposite directions in the U.S. markets, and that this may portend unsettled market conditions as they have done in several past instances.
This is far from unprecedented. But since Lehman Brothers failed in 2008, such a swing in the relationship has been unusual and suggests prices are being driven by something other than the balance of hope and fear about the economy. It has tended to coincide with times of deep discontent in markets . . .
Indeed, a market disruption event followed soon after the August-September 2016 opposite-direction run of stock prices and bond yields. Adam Shell, writing in USA Today, September 10, 2016, describes the single-day event that appears to confirm the contention that a market disruption is likely to follow such a run:
Christopher Whittall and Mike Bird, writing in The Wall Street Journal, September 12, 2016, indicate that the disruption continued into the new week:
Businesses have four options for financing new capital investments: using internally accumulated funds, borrowing from banks, issuing claims against themselves (bonds), and issuing shares of ownership in themselves (equities). The key to understanding why share prices and bond yields usually move in opposite directions is to recognize that stocks and bonds are substitutes for each other from the perspectives of both the issuers and the demanders.*
So what might cause stock prices and bond yields to move in the same direction? Since stocks and bonds are substitutes, when investors choose to rebalance their portfolios between stocks and bonds, their prices will move in opposite directions, and the yield on bonds will move in the same direction as bond prices. For example, given the supplies of stocks and bonds coming onto financial markets, an increasing demand for stock shares will tend to cause stock market prices to rise, but the decreasing demand for bonds will cause bond prices to fall** and bond yields to rise, so share prices and bond yields move in the same direction.
Under what circumstances might stock prices and bond yields move in opposite directions? For this to occur, bond and share prices must move in the same direction. By early September, 2016, many central banks had lowered their discount rates toward zero, and some have even taken their lending rates into the negative range. Mackintosh describes a circumstance in which both bond and stock market prices are rising due to falling discount rates:
The simplest explanation is that expectations of interest rates being lower for longer—some central bankers have suggested lower forever—pushes the price of everything up, and yields down. When the focus is on the discount rate used to value all assets, bond and stock prices rise and fall together, creating the inverse relationship between bond yields and shares.
There is an even more direct explanation for stock and bond prices to be simultaneously increasing. The growth of the U.S. economy has been gradually improving, and stock market prices have been increasing and nearing all-time highs. At the same time, even as the U.S. government runs budgetary deficits that increase the supply of bonds coming onto the bond market, the demand for bonds by international as well as domestic investors seeking safety is increasing at an even faster pace, thereby pulling bond prices upward. So both bond and stock prices have been rising simultaneously, causing stock prices and bond yields to move in opposite directions.
But there is also a possible explanation for share prices and bond yields to move in opposite directions when demands for both shares and bonds are decreasing. When bond yields go negative and asset values and returns are uncertain, investors may turn away from financial markets and toward markets for precious metals like gold. But gold is not as convenient to hold or as liquid as cash. Ulrike Dauer, writing in The Wall Street Journal, August 28, 2016, says that Germans are holding more cash and acquiring safes to keep it at home. Even German financial institutions are joining the cash hoarding culture:
This scenario results when the demands for both stock shares and bonds are decreasing. This is a time of great uncertainty in economic and political environments globally. If the uncertainties begin to overpower the buoyancy of stock markets, the demand for stocks may become soft or even decrease. This combination of events may motivate investors to seek more safety by shifting their asset portfolios away from both the bond and stock markets and toward holding more of their asset value in the forms of cash, gold, or other high-valued commodities. Simultaneous decreases of the demands for both stocks and bonds may cause the prices of both to fall. And, as bond prices fall, their yield rates rise. Voila, share prices and bond yields move in the opposite directions when demands for both are decreasing.
U.S. stock markets have been buoyant even as the Fed's discount rate has approached zero. This suggests that an explanation for simultaneous increase of both stock and bond prices may apply at present to share prices and yield rates in the U.S. economy, but this relationship may soon change.
Sub-zero lending rates and the recent shift in Germany and other countries toward holding more asset value in the forms of precious metals and cash would invoke the decreasing bond and stock demand explanation. This explanation may become applicable to U.S. financial markets in the future if a major disruption affects U.S. financial markets and/or the Fed's discount rate remains low or is taken below zero.
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*Businesses wanting to finance new investments may choose whether to increase company liabilities by borrowing from banks or issuing new bonds, or by diluting company share ownership by issuing more shares. A significant criterion in this choice is the company's ratio of debt to equity in its balance sheet. A low ratio will facilitate bank borrowing or bond issuance while a higher ratio will militate in favor of share issuance. Bonds and stocks are also substitutes for each other from the perspective of demanders (i.e., investors). Important demand criteria are expectations of dividend declarations and future share price changes compared to bond yields over the lives of any bonds that may be issued. However, a significant difference is that while bond yields are contractual and thus guaranteed upon maturity of the bond (unless defaulted), there are no guarantees in regard to dividend declarations and stock price changes. Shares thus are inherently risky while bonds offer a modicum of safety.
**Following normal demand-supply relationships, both stock and bond prices vary directly with changes of demand and inversely with changes of supply. For example, the supply of shares coming onto the markets increases when business decision makers are optimistic and enjoy confidence that their investments will pay for themselves, and are thus willing to issue new shares. Given the demand for stock shares, the increasing supply will tend to push share prices downward. The supply of new shares will begin to decrease when business decision makers become more risk averse and fearful that prospective investments financed by new stock issues may not "pay for" themselves. Given the demand for stock shares, the decreasing supply will tend to nudge share prices downward. This paragraph could be repeated substituting "bond" for "stock" or "share," and "yields" for "returns."
27. The 2020 Supply Shock
- The U.S. population growth rate had fallen from 0.946% per annum in 2008 to 0.351% in 2020 (https://data.worldbank.org/indicator/SP.POP.GROW?locations=US).
- The labor force growth rate was projected to fall below 0.5% per annum (https://www.bls.gov/opub/mlr/2015/article/labor-force-projections-to-2024.htm).
- The labor force participation rate fell to 60.2 percent in April 2020 (https://fred.stlouisfed.org/series/CIVPART).
- The unemployment rate jumped to more that 14 percent in April 2020 before gradually subsiding to 4.5 percent by October 2021 (https://www.bls.gov/news.release/pdf/empsit.pdf).
- The CPI inflation rate increased from 1.4% per annum in January, 2021, to 5.4% in June where it remained until October when it jumped to 6.2% (https://tradingeconomics.com/united-states/inflation-cpi).
- U.S. manufacturing and trade inventories averaged around 1.4% of sales from 2016 through 2019, then spiked to 1.7% (a 22 percent increase) early in 2020 before falling to 1.25% by late 2021 (a 26 percent decrease) (https://www.census.gov/mtis/www/data/pdf/mtis_current.pdf).
28. Does Trickle-Down Economics Work?
As economist Steven Horvitz has so aptly argued, there is no such economic theory as "trickle-down," and no economist that he knows advocates such a theory:
But Horvitz says that economic theory does entertain the notion that whatever enables and stimulates new capital investment can be expected to require additional labor and generate incomes in paying the workers who provide the labor:
A large proportion of new job creation in a market economy is accomplished by small business entrepreneurs who invest their time, energy, and personal resources in starting their businesses. Since their newly-hired workers are paid wages or salaries, the incomes so generated descend to the rest of society when the employees spend their incomes on goods and services. In this sense, then, entrepreneurial investment may be thought of as having a "trickle-down" effect. But this trickle-down effect derives not from providing subsidies to high-income elites or granting them tax advantages in expectation that they will increase investment spending, but rather from the small business entrepreneurial activity and the consequent employment process.
The trickle-down concept has been dated to William Jennings Bryan's 1896 "Cross of Gold" speech:
Will Rogers used the term "trickle down" during the Great Depression when he said that "money was all appropriated for the top in hopes that it would trickle down to the needy." After the end of his presidential term, Lyndon B. Johnson used the term to criticize Republican management of the economy. The term came into public parlance in conjunction with Ronald Reagan's presidency, but a search of his own public remarks reveals that he never used the term. Reagan's budget director, David Stockman, at first supported Reagan's tax-cutting proposal, but he later became critical of it and is reputed to have used the term to describe "supply-side economics." The term became popularized by liberals, particularly Democrats, who wished to discredit the effort by the Republican administration of George W. Bush to reduce the progressivity of the U.S. income tax system. The intent was to stimulate the economy to keep on growing and continue to create jobs and generate income. Unfortunately, the economy "tanked" just at the end of the Bush administration and went into the so-called "Great Recession" during the first Obama administration (2009-2013).
It would be perhaps impolitic to remind the critics of the "trickle-down" theory that while it "did not work," not much else that the Obama administration tried worked either. The first Obama administration increased the progressivity of the income tax structure and oversaw a huge increase of government spending, primarily for social safety net purposes. Limited by Republican obstruction in Congress, far too little of the increased spending went for physical infrastructure investment that might have had job-creation and income-generation capabilities. As Robert Barro, writing in The Wall Street Journal, September 25, 2016, put it,
Barro identifies what might have accelerated growth sooner:
Keynesian theory would suggest that the massive government spending should of itself have stimulated the economy to grow faster. But the U.S. growth rate has remained stubbornly low, around 2 percent per annum, since 2009. The huge increases of government spending, primarily on transfer payments, increased the annual federal budget deficits which then had to be financed by the issuance of new bonds by the Treasury Department. This had the effect of increasing the supply of bonds coming onto the bond markets relative to the demand for bonds, depressing bond prices and increasing bond yield rates (their interest rates). The increasing bond interest rates spread through all financial markets by the process of interest-rate arbitrage. The increasing interest rates had the effect of stifling new capital investment that might have generated new jobs and incomes.
But the story didn't end there. Fiscal authorities in effect defaulted the effort to revive the recessed economy to the Federal Reserve. The Fed, in the effort to stimulate new capital investment, progressively lowered its discount rate toward zero and launched three phases of "quantitative easing" to drive market interest rates to follow the decreasing discount rate. The falling interest rates had little effect to stimulate investment because of uncertainty and investment decision-maker pessimism about the ability to recover enough revenue from selling products to amortize the additional debt that would have to be incurred by bank borrowing or bond issuance. Neither monetary nor fiscal policy worked any better than "trickle-down" from decreasing income tax progressivity.
So, was either Mr. Trump or Mrs. Clinton right in their presidential debate assertions? Mr. Trump never used the term "trickle-down economics," but his statements about lowering taxes by simplifying and decreasing the progressivity of the income tax system in order to encourage entrepreneurship and capital investment that would provide more jobs and generate income increases must have sounded to Mrs. Clinton like "trickle-down." In response, Mrs. Clinton invoked a non-economic "theory" in her effort to discredit Mr. Trump's proposed program to stimulate the economy.
Mr. Trump proposed an economic stimulation program to encourage capital investment that would increase productivity, add jobs, and generate incomes. Mrs. Clinton's economic stimulation program would have involved massive increases of transfer payments along with some increased spending on physical infrastructure. Robert Barro noted that transfer payments do not increase productivity. However, the growth of the bureaucracies that must administer the increasing transfer payment and infrastructure spending programs would provide some more jobs and generate some more incomes. But they would not otherwise stimulate real economic growth except possibly through a Keynesian spending multiplier process that might "trickle down" through the economy. In this sense, Mrs. Clinton's proposed program exhibited no less of a possible "trickle-down" effect than did that of Mr. Trump. Either stimulative program would increase annual federal government deficits and push the U.S. public debt above its present level of around $20 trillion.
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April, 2023:
Even though economists dismiss the trickle-down idea, it has remained a favorite tenet of Republican advocacy during the 2024 election cycle. The policy advocacy is that reducing marginal tax rates on incomes and wealth will leave more purchasing power in the hands of the rich to invest, and that the additional investment will create jobs and generate incomes that trickle-down to lower-income workers.
A flaw in this non-theory is that much of the purchasing power released by lowering marginal tax rates gets siphoned off into non-investment consumption expenditures, e.g., superyachts. Economist Paul Krugman describes this process in his New York Times newsletter dated April 11, 2023:
....
Owning and operating a really big yacht is, however, as clear an example as you’re likely to find of Thorstein Veblen’s theory of conspicuous consumption — spending intended to demonstrate one’s wealth and status, rather than for the direct satisfaction it yields. Indeed, the New Yorker article [July 18, 2022, https://www.newyorker.com/magazine/2022/07/25/the-haves-and-the-have-yachts?campaign_id=116&emc=edit_pk_20230411&instance_id=89944&nl=paul-krugman®i_id=74240569&segment_id=130144&te=1&user_id=86b0d837dd357b2a6e0e749321f6ed7f] suggests that demand for superyachts really took off once owning your own plane stopped being an effective status symbol: “Once it seemed that every plutocrat had a plane, the thrill was gone.”
....
In a way, it’s quite sad: Rarely in the course of modern history has so much wealth been concentrated in the hands of so few, yet much of that wealth is being expended on zero-sum games of one-upsmanship.
Expenditures by the wealthy on such shiny baubles not only divert spending from productive investments; they contribute to maintaining the plutocracy and aggravating inequality in the distributions of wealth and incomes.
March 2024:
Jennifer Rubin, writing in The Washington Post on March 12, 2024, says,
Trickle-down economics is a scam. Renewing tax cuts for the rich that are due to expire at the end of 2025 would do about as much for you as a degree from Trump University.
29. The Infrastructure Tax Credit Proposal
There are several problems and questions to be raised in regard to this statement.
First, checks are not paid when tax credits are provided. A tax credit only reduces the tax liability if revenue from the venture is sufficient to yield net taxable income.
Second, the number $800 billion surely should be $800 million, else the numbers don't add up [this was corrected in a later edition].
Third, where does the consortium borrow the $800 million, from the financial markets or from the government? If from the financial markets, presumably by issuing bonds, is Mr. Krugman assuming that the bonds won't have to be redeemed when they mature?
Fourth, Mr. Krugman's conclusion that the "future revenue from tolls would go to the people who put up that $36 million" depends on an assumption that the toll revenue flow will exceed full amortization requirements. In a private sector venture like this, there is never a guarantee of a profitable outcome. The I-185 "Southern Connector" toll road in Greenville County, South Carolina, has fallen behind schedule in generating toll revenue sufficient to fully amortize the debt incurred to finance construction of the toll road.*
And fifth, Mr. Krugman concludes that "the people acquiring those assets will have paid just 18 cents on the dollar, with taxpayers picking up the rest of the tab." He apparently has forgotten about the borrowed $800 million. If the government is the lender, taxpayers would indeed pick up the tab if the government cancels the loan or renegotiates the loan principal downward. Otherwise, if the funds are borrowed from the financial markets and are fully amortized by the toll revenue flow, it would appear that 83.6 cents will have been paid on the dollar (i.e., ($800 million + $36 million) / $1,000 million)), not just 18 cents on the dollar (i.e., only $36 million after the 82 percent tax credit on their $200 million equity investment).
Mr. Krugman's example and implied indictment of the tax credit proposal needs a good bit of cleaning up. And if relevant and likely conditions are taken into account, the tax credit proposal appears a bit more credible. But Krugman is right that the tax credit approach to infrastructure investment won't work in the cases of infrastructure needs that don't generate revenue to amortize the debt incurred to finance them.
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*Amy Burns, writing on GreenvilleOnLine.com, November 11, 2015, says
30. The Wall
This problem could have been solved by taking a page from Winston Churchill's playbook when he spoke at Westminster College in Fulton, Missouri, in March of 1946, saying, “From Stettin in the Baltic to Trieste in the Adriatic, an iron curtain has descended across the continent.” Although the word "virtual" had not been brought into common use by 1946 to describe such phenomena, he didn't mean that an actual "iron curtain" had descended, but rather that a virtual one had been put in place.
The President could have acquitted himself well by acknowledging Mr. Churchill as one of the great orators of the twentieth century. Then, he could have asserted that like the "iron curtain" to which Mr. Churchill referred, a virtual wall has been put in place along the U.S.-Mexico border, and that his Administration would strengthen it and plug the holes in it with more effective vetting and other border control techniques. No further plans for building a physical wall would have been needed, and Mr. Trump could have regarded himself as outshining even Mr. Churchill.
31. Uncertainty and the Presidential Election
The world at mid-2016 suffered a great deal of uncertainty which spoked fears of asset value loss. Uncertainty and fear continue derive from a number of current circumstances, including wars in the Mid-East and Africa, strife between Palestinians and Israelis, contention between Sunni and Shiite Muslims, the international reach of terrorism conducted by ISIL, nuclear aspirations of the Iranians, the expansionary intentions of the Kremlin in Syria and Ukraine, saber rattling by the Chinese in the South China Sea, missile and nuclear testing by the North Koreans, political transition in Brazil, concern among U.S. trading partners about the willingness of U.S. administrations to confront and contain geopolitical threats, the mission of NATO in the future, confusion about the policy orientations of the U.S. presidential candidates, the outcome of the U.S. presidential election campaign, and last, but probably not least, when will the Fed act and what might it do.
As a general rule, economists would eschew information about what is happening in any market over a short period of a few days. But the extraordinary events surrounding the election of Donald J. Trump warrant considering whether some early clues lie in what is happening in financial and currency markets in the immediate wake of the election.
Neil Irwin, writing in The New York Times, November 12, 2016, notes that
We can draw a couple of inferences from the information noted by Mr. Irwin:
1. Within the U.S., the shift by investors out of bonds and into equities suggests that Mr. Trump's promises to lower taxes and reduce regulation may have diminished uncertainty and increased optimism in the U.S. markets.
2. In contrast, the depreciation of the Mexican peso (and some other currencies) vis a vis the U.S. dollar implied that Mr. Trump's threats to renegotiate trade agreements, increase tariffs, and deport illegals may have increased uncertainty and fear in the outside world.
But Irwin notes the precariousness of relying on such short-term data:
Even so, a possible manifestation of Mexican uncertainty about the trading relationship with the U.S. and American fear of losing asset value in holding Mexican assets is revealed in the recent change in the peso-dollar exchange rate. The Mexican peso has been gradually depreciating against the U.S. dollar since early 2015 as the U.S. presidential campaigns ensued (https://www.google.com/search?q=dollar+exchange+rates&ie=utf-8&oe=utf-8#q=1%20USD%20to%20MXN). But the post-election spike in the peso-dollar exchange rate suggests either that American holders of peso-denominated securities, fearful of asset value loss, are selling them and converting pesos to dollars (i.e., demanding dollars) on the forex markets, or that Mexicans are seeking asset value security by supplying pesos to the forex markets to buy U.S. dollar-denominated securities.
Other things remaining the same, the increased supply of peso-denominated bonds to the bond markets should have depressed peso bond prices and increased their yield rates, while the increased demand for dollar-denominated bonds should have increased the dollar bond prices and depressed their yield rates. But of course, we couldn't count on other things to remain the same.
The divergences of prices and yield rates between dollar- and peso-denominated securities set in motion market forces to bring them back into alignment with each other as uncertainties and fears ameliorate.
32. A Universal Basic Income
More jobs ("brought back to America" from overseas) might serve to occupy low-skilled members of society with inadequate education, and thereby to alleviate poverty at the lower end of the income distribution spectrum. But more low-skilled jobs won't help if there is little willingness to work and to accept those jobs, and their availability certainly won't help if the social safety net or prospects from criminal activity provide enough income to enable them to "get by" without working. Better (higher wage) jobs require education and skills and would deliver higher incomes to relieve inequality, but to get those jobs people have to be willing to devote (invest in) the time, energy, and effort to acquire the needed education and training. Public policy might be addressed to conditioning future generations to this necessity, but it is less likely to help adults of ages beyond the early thirties who are engaged in occupations and perceive themselves to have life-time rights to the jobs that they currently occupy.
Reward for successful entrepreneurship will make the income distribution more unequal. Curbing such reward with more steeply progressive income taxation may discourage some entrepreneurial activity, and with it growth potential. Even if it were possible to make incomes perfectly equal one time, they wouldn't stay that way because of differences in entrepreneurial perceptions and willingness to assume risk. And, drive, determination, and "sticktivity" differ among people.
Poverty, income distribution, and job loss due to automation are likely to be difficult economic challenges facing the U.S. during the twenty-first century. Charles Murray, writing in The Wall Street Journal, September 3, 2016, has proposed a universal basic income (UBI) to eliminate poverty, to counter the negative income effect of job loss due to automation, and implicitly to reduce inequality in the distribution of income. Murray says that the system that he proposes will work only if it replaces all other transfer payments and the bureaucracies that administer them. He describes his version as follows:
Would a guaranteed universal basic income be workable? Murray estimates that the system he proposes would cost about $200 billion less than the current U.S. safety net. It is not clear how retirement income from savings would be treated. Would "earned income" exclude annual retirement income distributions? Even if retirement income distributions are treated as "disposable income" under the Murray plan, the annual UBI distribution of $10,000 likely would be less than the amounts of many retirees' Social Security distributions, thereby impoverishing those retirees who rely on Social Security to supplement distributions from their accumulated savings. Also, if UBI is to replace Medicare which many retirees designate as their primary health care insurance, the retirees' supplemental health insurance policies will have to be reconfigured as their primary health insurance policies with consequent increases of premiums that may not be covered by the $3000 that would be allowed for health insurance. These objections to Murray's proposal can be dealt with by enriching the UBI distribution amounts, but such enrichment might increase budget requirements beyond the current safety net cost.
This last concern poses the biggest potential problem with the UBI proposal. It should be no surprise that the public debt of a society that prefers democratic polity becomes a serious political issue. The prospect was noted nearly two centuries ago by a Frenchman visiting in America. In 1835, after traveling for two years in the United States, Alexis de Tocqueville wrote De la Démocratie en Amerique (Democracy in America). In his chapter on “Government of the Democracy of the United States,” Tocqueville noted that when universal suffrage provided legislative empowerment to the poor and propertyless, society would soon discover that it could vote itself benefits quite apart from any ability of government to finance the provision of them. If some benefits are good, then more (and ever more) benefits must be better. Voila! The basis for out-of-control public debt in American democratic polity was noted as early as 1835 by a French visitor to the United States. The wonder is that it took nearly two more centuries for the problem to materialize.
If government can select some arbitrary basic income for universal distribution, a larger basic distribution always would be better and always will be sought (like demands for an ever-higher minimum wage). Such demands likely would increase budget requirements well beyond the current safety net cost. And the richer the UBI distributions, the greater the incentive to take the distributions and not work at all.
Even so, I have argued in another comment that something like the Murray UBI is likely to be needed in the future as technological advance continues its drive to automate physical functions and thereby eliminate job opportunities for all but the best educated and trained. Nonetheless, some form of UBI may be the best, and possibly only feasible, vehicle for addressing distributional inequality, poverty, and job loss due to automation in the twenty-first century.
George Will, writing in The Washington Post, October 6, 2016, in citing Nicholas Eberstadt's monograph, "Men Without Work: America's Invisible Crisis," says,
This statistic betrays three phenomena: 1) a nation affluent enough to afford to have 32 percent of its adult male population voluntarily not working and being supported by other members of society; 2) the likelihood that on-going automation has eliminated some of the jobs in which these adult males might have worked; and 3) an unemployment rate (currently 5 percent) that is lower than it would be if these voluntarily non-working adult males were in the labor force, either holding jobs or looking for jobs. However, official income and labor force statistics miss the fact that some of the "non-working" adult males are capturing unearned income from criminal activity or earning income in not-illegal "underground" economic activity (i.e., productive activity that is compensated in cash so that it is not taxed, and hence is not measured in either employment or earned-income statistics).
33. The Working-Income-Eating Nexus
I have speculated in another comment about the possible future need to rethink the working-income-eating nexus that dominates current employment and welfare policy. It is not at all certain that in the future (20 or more years on), with on-going technological advances and continuing automation, enough jobs can be provided by the economy (or the government) to ensure adequate earned incomes.
Tangel and McGroarty also note that although the number of open manufacturing jobs is at a 15-year high, many of the available positions are for workers who are highly-trained in technologically advanced applications. Former factory workers with lesser technical skills are "frozen out of the increasingly high tech sector no matter how fast the economy grows."
The process of automation to replace low-skilled labor with machines is likely to be encouraged under Donald Trump's selection to serve as Secretary of Labor, Andy Pudzer, chief executive of the company that franchises the fast-food outlets Hardee's and Carl's Jr. Noam Scheiber, writing in The New York Times, December 8, 2016, notes Pudzer's openness to automation:
As noted by Claire Cain Miller, writing in The New York Times, December 21, 2016,
A higher minimum wage and stronger unions pushing for ever higher wages are likely to encourage employers to substitute capital for labor, thereby disemploying workers. A bigger earned-income tax credit will help only those workers who are still employed and earning income against which the tax credit can apply. It will not help unemployed workers who have been displaced by automation and cannot find jobs suitable to their work experience and job skills. Training and technical certifications in technology-specific occupations will be more helpful than simply more (undifferentiated) college degrees.
More public sector jobs certainly can absorb workers displaced by automation. But how far might this transition have to go as automation displaces ever more workers? Eventually, the U.S. economy would begin to resemble the Soviet economy prior to 1989 with the majority of the labor force working for the government, and doing what?
The historical presumption that the well-being of a person and his or her dependents is determined by the income earned by working may be becoming obsolete. I have argued in another comment that as technology continues to advance and the robotization of manufacturing processes ensues, a universal basic income that is not based on working may serve not only to address job inadequacy, but also to alleviate both poverty and income inequality.
34. Externalities and COVID-19
35. Automation and the Growing Wage Gap
The application of Friedman's tax idea to Acemoglu's recommendation is that we get more technological capital investment because the tax rate on it approaches zero, and we get less human labor offered in the labor markets because of the high payroll and income tax rates applied to it.
The unfair tax treatment of labor and capital together with on-going technological advance will enable ever more replacement of labor with capital, leaving a growing portion of the less educated labor force unemployed. If the wage gap between the less and the more educated continues to widen and a fairer tax treatment of labor and capital is not forthcoming, government may need to consider means of transferring income from capital to labor, e.g., a universal minimum income for labor financed out of increased taxes on capital.
___________
*Jon Marcus, in a Washington Post item dated January 22, 2022, notes,
....
The reasons for the drop in college-going have been widely discussed — declining birthrates, the widespread immediate availability of jobs, greater public skpeticism of the need for higher education — but the potential long-term effects of it have gotten less attention.
People without education past high school earn significantly less than those who go on to earn bachelor’s degrees, and are more likely to live in poverty and less likely to be employed. They’re more prone to depression, live shorter lives, need more government assistance, pay less in taxes, divorce more frequently, and vote and volunteer less often.
36. Automation Displacement
Peter Coy, in a New York Times opinion column dated January 24, 2022, asks, "Will Robots Really Destroy the Future of Work?" Coy interviewed David Autor, a labor economist at the Massachusetts Institute of Technology, who with two co-authors is publishing a new book, The Work of the Future: Building Better Jobs in an Age of Intelligent Machines (MIT Press).
Autor argues that the technology will be highly useful — and inevitable. “We need the technology,” he told Coy in the interview. “We can’t avoid the technology. There are many, many ways it will make our lives better.” (https://www.nytimes.com/2022/01/24/opinion/unions-jobs-robots-ai.html?campaign_id=39&emc=edit_ty_20220125&instance_id=51214&nl=opinion-today®i_id=74240569&segment_id=80663&te=1&user_id=86b0d837dd357b2a6e0e749321f6ed7f)
Autor says that "Automation will destroy some jobs but also make workers who aren’t displaced more productive, raise overall incomes and create new kinds of jobs." Without doubt this is true, but Autor slides over the plight of workers who are displaced by automation and lose their jobs. Autor attributes the problem not only to automation, but also to free trade with China and the decline of labor unions. He doubts that the market will solve this problem, noting that it has not done so for the last four decades.
Autor stresses the importance of labor unions which "could help ensure that the gains from automation don’t accrue only to the wealthy and that the new jobs workers move into are good and well-paying jobs." Yes, it would be nice if all displaced workers could be emotionally conditioned and physically retrained to move into good and well-paying jobs.
I suspect that there are people "out there" who currently are productively employed in lower-wage occupations using "last-century" technologies, but who are resistant to or incapable of mastering more advanced technologies that would enable them to move into better-paying jobs.
Great social transformations often are not completed within a generation. It appears to me that automation displacement may be a problem that can be solved only with the passing of a technologically ignorant or resistant generation whose successor generation is better equipped by mental conditioning, more education, and better training in newer technologies. This generational succession process of course will be repeated time and again as technology continues to advance.
But in the meanwhile, how can society provide for its technologically less-capable or resistant citizens to enable them a satisfactory standard of living with a modicum of dignity? It may become necessary to break or at least loosen the nexus between working and eating.
One way to do this is for government to enact legislation providing for a universal basic income that is financed by increased taxation on capital earnings. Charles Murray, writing in The Wall Street Journal on September 3, 2016, proposed a universal basic income that might initially provide $1000 per person per month, irrespective of the person's employment situation. (http://www.wsj.com/articles/a-guaranteed-income-for-every-american-1464969586) The monthly amount could be tied to a price index to address the effects of on-going inflation.
Such a solution might find support on the political left, but it is likely to be opposed on the political right. But what are other alternatives? One of the worst things that a democratic government must deal with is a growing mass of unemployed and impoverished people standing around on street corners plotting revolution to establish an authoritarian or a socialist regime. A universal basic income may be the least problematic alternative.
38. Rethinking Industrial Policy
In a Washington Post opinion column on July 25, 2023, Catherine Rampell noted that
Republicans have traditionally decried Democrats’ inclination to “pick winners and losers” rather than letting markets decide who succeeds; DeSantis has turned the strategy into an art form and, in so doing, distorted the free flow of ideas, goods and investment. (https://www.washingtonpost.com/opinions/2023/07/25/desantis-bud-light-florida-shareholder-investigation/?utm_campaign=wp_follow_catherine_rampell&utm_medium=email&utm_source=newsletter&wpisrc=nl_catherinerampell)
This is not just an historic Republican opposition to what is more generally called "industrial policy." A standard premise underlying the teaching of economic theory in "the West" is that markets are superior structures of economic organization for revealing and serving the preferences of populations. It is reputed to be superior for this purpose to fascism, communism, theocracy, imperial monarchy, and any other form of authoritarian governance that has been tried.
The historic Republican opposition to industrial policy seems to have undergone a recent transformation to embracing the approach historically associated with Democrats, at least at the state level. Rampell points out that industrial policy has become an "art form" in the State of Florida whose current governor is a Republican. Industrial policy to attract the construction of plants is standard procedure implemented by state and local governments, irrespective of political affiliations of governors, mayors, and county administrators in the United States in attempts to attract industry to their regions.
One of the tenets that follows from the economic premise is that governments should leave to market forces to discover comparative advantages and accordingly develop industrial and commercial activity across regions. A complementary tenet is that global welfare will be maximized and populations that specialize in their comparative advantages discovered by markets can enjoy each others' fruits by trade with one another.
A corollary conclusion is that political authorities (i.e., governments) should keep "hands off" of such specialization and trade processes. This means that they should not practice "industrial policy" to pick winners and suppress losers that do not correspond to comparative advantages. Interregional trade theory posits that failure to allow comparative advantage specialization will diminish the economic welfares of prospective trading partners.
The comparative advantage principle is best understood with respect to what might be called the "natural" characteristics of a region, e.g., soil, terrain, location, labor, etc. It is not so clear that the principle applies to the fluidity of technological and industrial abilities that can be established by research and investment. Two justifications for government intervention in regard to technological and industrial capabilities are to establish an advantage where none of the type previously existed, and to defend or preserve such an advantage in the face of foreign efforts to establish or pirate a similar advantage. Both the aggressive intent to establish a technological or industrial advantage and the defensive effort to prevent loss of such an advantage become matters of industrial policy.
Jeff Stein, in a Washington Post opinion column on July 23, 2023, writes that
Rather than pursue a carbon tax administered by the federal government or other policies some on the left have pushed, the [Democratic] Biden administration is seeding the money for a new renewable energy sector that would make cleaner options a better bet financially than burning fossil fuels, regardless of one’s position on climate change. The hope was that government subsidies would unleash a tidal wave of investment to shatter local opposition and break the nation’s dependence on fossil fuel energy, particularly as the cost of renewable energy plumets.
. . . .
At a meeting the next night in Walnut [Township, Ohio], Bill Yates, one of the town’s trustees, told a representative for EDF Renewables that the plan [wind farms] was only moving forward because it was receiving federal subsidies from Biden’s plan. “If you were doing this with your own money, you would not be doing it,” Yates said. “You’re doing it with taxpayer money.”
(https://www.washingtonpost.com/business/2023/07/23/biden-green-energy-local-republicans/?utm_campaign=wp_todays_headlines&utm_medium=email&utm_source=newsletter&wpisrc=nl_headlines)
Doing something only with "taxpayer money" violates the principle of comparative advantage. If Yates is right, this taxpayer money will distort "the free flow of ideas, goods and investment" as described by Rampell, but this distortion would serve a means to an end that may be desirable from a climate-change perspective. Subsidies to promote energy security may be a means to an end that outweighs economic welfare.
Several exceptions to the admonition to specialize by comparative advantage are acknowledged in international trade textbooks, including the possibility that international political circumstances may override economic preferences. This has been the case in the twenty-first century as trading nations have imposed trade restraints and pursued their own policies to subsidize the local development of industries.
An international example of industrial policy accompanied by industrial espionage is that the Chinese government has sponsored the pirating of American technologies in order to enable the development of indigenous industries employing those technologies. China also threatens the technologies implemented in Tiawan to produce and export advanced silicon chips. This has led the Biden administration to promote and subsidize the expansion of the domestic silicon chip industry. The Editorial Board of The Washington Post, writing on August 10, 2023, describes Biden administration industrial policies that counter the economic principle of comparative advantage:
A year ago, President Biden signed sweeping legislation to invest more than $50 billion in producing semiconductors in the United States, a policy that even many free-traders grudgingly accepted on the premise that China must not be allowed to control the U.S. supply of components critical to the modern economy. .... In addition to his push on semiconductor manufacturing, Mr. Biden also seeks to improve the nation’s infrastructure and invest in green energy all at once. (https://www.washingtonpost.com/opinions/2023/08/10/biden-industrial-policy-workers-chips-manufacturing/?utm_campaign=wp_todays_headlines&utm_medium=email&utm_source=newsletter&wpisrc=nl_headlines)
Subsidized investment to promote development of an industry in one country may have the effect of altering what otherwise may have been natural comparative advantages between that country and its trading partners. A potential loss of comparative advantage to a trading partner that has implemented technological espionage and investment to capture the comparative advantage may be sufficient non-economic reason to implement a countering industrial policy. Such industrial policy in one country may be seen to justify an opposing industrial policy in another country in the effort to preserve its comparative advantage or neutralize an emerging foreign comparative advantage.
The point is that, comparative advantage to the contrary not-withstanding, a failure to implement industrial policy at critical junctures may result in loss of comparative advantage that leaves the nation with diminished employment, income generation, and production of goods deemed essential to national security.
<>39. Inflation and Price Levels
Paul Krugman notes in a recent newsletter (December 5, 2023) that the rate of inflation now is approaching the Fed's goal:
Over the past six months, the personal consumption expenditure deflator excluding food and energy ... has risen at an annual rate of only 2.5 percent, down from 5.7 percent in March 2022. The Fed’s inflation target is 2 percent, so we’re not quite there yet. (https://messaging-custom-newsletters.nytimes.com/dynamic/render?campaign_id=116&emc=edit_pk_20231205&first_send=0&instance_id=109377&nl=paul-krugman&paid_regi=1&productCode=PK®i_id=74240569&segment_id=151785&te=1&uri=nyt%3A%2F%2Fnewsletter%2F71ffa2ad-6dfc-5bd1-aac3-63d1f40f3126&user_id=86b0d837dd357b2a6e0e749321f6ed7f)
Krugman also notes that journalists are deflected from saying anything positive about the slowing rate of inflation, and some Americans still insist that inflation is running wild. This opinion of course contributes to a public perception that the Biden administration has managed inflation poorly.
There has been much speculation among pundits as to why the decreasing inflation has not been recognized by the general public as a positive phenomenon. I think that a contributing factor is that people are conditioned to think in terms of comparative levels rather than rates of change between levels.
The current price of an article is an amount that is spent on it. The current price can be compared to the amount that was spent on the same (or similar) article at an earlier time. Both the current price and the previous price are levels. But inflation is a rate of change between two points in time, i.e., between levels.
These relationships can be illustrated with the following symbols:
(2) P2 = the current price of an item
(3) ΔP = (P2 - P1) = the change from the previous price to the current price
(4) %ΔP = [(P2 - P1) / P1] = the percentage rate of change from the previous to the current price, i.e., the rate of price inflation
People seem to be less aware of a percentage change of prices over time than they are of prices between points in time. While shopping in grocery stores and buying at gas pumps, they make comparisons of current prices to remembered earlier prices which were not as high. This leads them to conclude that inflation still is a problem, even though prices recently have been rising more slowly. Deceleration, a decreasing percentage rate of increase, is an even more complex concept.
But if most people are hoping for prices to come back down to previous levels, that would require deflation, i.e., a negative rate of change of prices, (P3 < P2) so that [(P3 - P2) / P2)] < 0. Deflation would portend another set of problems that likely would include economic contraction with rising unemployment and falling wage rates.
Unfortunately, the general public's obsession with temporal comparisons of prices rather than rates of change of prices seem to militate against the Biden administration.
40. Price Discrimination at Wendy's
Price discrimination occurs when a seller charges different prices to different customers or at different times.
Economists identify three so-called "degrees" of price discrimination:
1st degree, charging different prices to different customers;
2nd degree, charging different prices for different quantities or “blocks” of the same good (e.g., electricity or gas); and
3rd degree, charging different prices to different customers with separate demand conditions (e.g., categorizing customers as eligible for wholesale or retail pricing).
Section 2 of the Clayton Act (1914) prohibits price discrimination "between different purchasers if such a discrimination substantially lessens competition or tends to create a monopoly in any line of commerce." The Robinson-Patman Act of 1936 extends Section 2 of the Clayton Act by specifying a number of prohibited practices: giving preferential services or allowance to one customer over another; charging different prices for the same product in different geographic areas; and discounts or incentives not to engage in transactions with a competitor.
In February of 2024, Wendy’s President and CEO Kirk Tanner spoke about the company’s acquisition of digital menu boards that would enable enhanced features like dynamic pricing. Dynamic pricing is generally understood to mean that prices could vary based on time of day or strength of consumer demand. Technically, dynamic pricing would apppear to fall under the preferential treatment prohibition of the Robinson-Patman Act, but price discounts to seniors and students, and price discounts during certain times of the day by theaters are "blinked at" in law enforcement.
Although Wendy's as yet has not conducted any form of dynamic pricing, customers immediately condemned the prospect of subjecting Wendy's burgers to “surge pricing.” Wendy’s responded that dynamic pricing will enable offering discounted prices during the slower times of day so that things will be cheaper when demand is low to draw in more customers when there is idle capacity.
Catherine Rampell, writing in The Washington Post on February 29, 2024, pointed out that,
Cutting prices during slower hours of the day is arithmetically identical to raising prices during busier periods. But for whatever reason, consumers seem more willing to stomach a “discounted” low-demand price rather than a “surged” high-demand price. They also get mad about some consumers being charged more, but they seem fine with price discrimination when framed as some consumers being charged less (senior discounts, student prices, etc.), as long as there’s some predictability to what prices will be for whom and when. (https://www.washingtonpost.com/opinions/2024/02/29/wendys-dynamic-pricing-elizabeth-warren/)
So how do such blatant examples of price discrimination escape being addressed by law enforcement? The Robinson-Patman Act has been interpreted to apply to goods "of like grade and quality" (but not to services) that are traded in interstate commerce (i.e., across a state line). The procedure for addressing a possible Robinson-Patman Act violation requires that a competitor lodge a complaint alleging harm to competition (actually, to the competitor) with the Federal Trade Commission. The FTC then would place the complaint in its queue for investigation which may take months or even years to initiate and to complete. If the FTC investigation finds significant harm to competition, it can issue cease-and-desist orders that apply to the offender, its competitors, and henceforth to all such instances of the discriminatory behavior in any line of commerce. If such an order is ignored by the offenders, the FTC can recommend the case to the Department of Justice for further action. This is a complex, costly, and time-consuming process that has resulted in uneven enforcement of the Act over the years*
There are numerous points in the previous paragraphs that serve to exclude price discounts and surges from treatment under the law. It can be argued that theater tickets that are discounted to seniors and students are for services rather than goods. It is unlikely that competitors will complain about Wendy's pricing policies because many of them engage in similar pricing policies. Also, although hamburgers are "goods" (not services), it would be difficult to demonstrate that they pass into interstate commerce, even though Wendy's has shops in many states.
An incidental point is that many anticompetitive behaviors go unattended by law enforcement simply because they require triggers by competitors to lodge complaints, and the process of investigation by the FTC is complex and costly. Anticompetitive behavior can continue until someone complains about it and the FTC takes up the case for investigation.
__________
*Early enforcement of the Robinson–Patman Act was difficult, and even today, it continues to be widely unenforced. That was in part because of its complexity, which limited consumers' ability to understand it. .... In the late 1960s, in response to industry pressure, federal enforcement of the Robinson–Patman Act ceased for several years. .... In the mid-1970s, there was an unsuccessful attempt to repeal the Act. The Federal Trade Commission revived its use of the Act in the late 1980s, ... but enforcement has declined again since the 1990s. (https://en.wikipedia.org/wiki/Robinson%E2%80%93Patman_Act)
[Has anyone noticed that universities use the FAFSA form as a vehicle to implement 1st-degree price discrimination by offering a different net price to each applicant? Or that universities have practiced 3rd-degree price discrimination by compartmentalizing applicants into legacy, ethnic, racial, test score (SAT, ACT), state residence, and other groups for offering admission and financial aid?]
<>
41. Biden's Tariffs
In an opinion piece dated May 16, 2024, the Editorial Board of The Washington Post makes the case that President Biden's recently announced new tariffs will have negligent immediate impact affecting only $18 billion of imports. (https://www.washingtonpost.com/opinions/2024/05/16/china-tariffs-climate-evs-energy/?utm_campaign=wp_todays_headlines&utm_medium=email&utm_source=newsletter&wpisrc=nl_headlines&carta-url=https%3A%2F%2Fs2.washingtonpost.com%2Fcar-ln-tr%2F3dbe70f%2F66472ac4f121ba062b22a6e4%2F596c29ff9bbc0f208654282b%2F31%2F63%2F66472ac4f121ba062b22a6e4)
One reason is that at present there are very few Chinese-made electric vehicles sold in the U.S. The Biden administration's justification for the increased tariffs is to offset Chinese subsidies to those industries and protect American industries producing competing products. But the new tariffs make transition to a carbon-free future more difficult because any additional profit realized by companies like Tesla entails no guarantee of increased investment in cutting-edge green technology.
The Board notes that eighty percent of the world’s solar cells and sixty percent of its wind turbines, EVs, and batteries are made in China. The Chinese subsidized production has helped slash the U.S. cost of solar power by nearly 90 percent, drop the price of offshore wind power by 73 percent, and reduce the price of batteries by 80 percent over the past decade. But if Americans cannot buy cheaper Chinese electric vehicles, it will be more difficult to achieve President Biden's goal of reducing automotive pollution to half of 2005 levels by 2030. Also, the down-stream costs of installing solar panels and wind turbines likely will increase.
The Editorial Board advocates U.S. subsidies to domestic producers rather than tariffs on the imported items. But someone would have to pay for the subsidies, namely American tax payers and domestic consumers who will pay higher prices for electric vehicles and energy captured by solar panels and generated by wind turbines.
In China the subsidies create artificial comparative advantages that may sustain employment, but it's not just the government that finances the subsidies; the Chinese population finances the subsidies by paying higher prices for non-subsidized domestic consumables that provide the profit to the government that finances the subsidies on goods produced for export. Also, Chinese citizens likely pay higher taxes than would be needed without the subsidies. It can be argued that if the Chinese want to subsidize production of goods for American consumers, we should be happy to pay lower prices and enjoy a higher standard of living.
The artificial Chinese comparative advantages created by subsidies may offset or neutralize what had been natural comparative advantages in the U.S., thereby disemploying American workers from industries exploiting those advantages. This has negative short-term and local effects. Single-industry regions may become depressed and experience depopulation until they discover new advantages that enable them to recover. Disemployed workers who thought that they had rights to life-time jobs in the contracting industries may seek employments in other industries for which they have less training and experience. Those who are unwilling or unable to retrain may seek unemployment and disability benefits until they reach retirement age or die. In the long run and across the nation, it is their children and grandchildren who will find employment in newly-realized comparative advantaged industries. (Example: Greenville, South Carolina, which in the twentieth century touted itself as "The Textile Capital of the World," lost its textile comparative advantages to Asia and Africa, but subsequently it discovered new comparative advantages in producing automobiles, transmissions, tires, and other goods and services.)
All of which is to say that some will suffer locally and in the short run, but in the long run things will work out, and in the meanwhile Americans should enjoy a higher standard of living enabled by consumption of subsidized goods produced for them by Chinese people.
<>
42. Trump's Proposed Immigration Policy
As reported in a New York Times opinion column dated September 18, 2023, demographers have noted that birthrates globally are falling. Most people now live in countries where two or fewer children are born for every two adults. The main reason that birthrates are low is that people today want smaller families than people did in the past. Demographers have predicted that, due to higher living standards and falling birth rates, the global population of the earth, currently around 8 billion, likely will peak around 10 billion in the 2080s, and then decline.
If all people in the United States today lived through their reproductive years and had babies at an average pace, then it would add up to about 1.66 births per woman. In Europe, that number is 1.5; in East Asia, 1.2; in Latin America, 1.9. Any worldwide average of fewer than two children per two adults means our population shrinks and in the long run each new generation is smaller than the one before. If the world’s fertility rate were the same as in the United States today, then the global population would fall from a peak of around 10 billion to less than two billion about 300 years later, over perhaps 10 generations." (https://www.nytimes.com/interactive/2023/09/18/opinion/human-population-global-growth.html?campaign_id=39&emc=edit_ty_20230919&instance_id=103103&nl=opinion-today®i_id=74240569&segment_id=145128&te=1&user_id=86b0d837dd357b2a6e0e749321f6ed7f)
Nationalistic concerns over which countries might manage slower population declines are playing out in the political issue of immigration. In the interest of encouraging domestic employment or preserving national identity, many nations now restrict immigration. But economic growth has ensued most rapidly in countries whose populations continue to grow due to immigration and despite falling birth rates.
Along with industrialization and technological advance, immigration has been an engine of growth in the United States throughout its entire history. But the Biden administration currently (November 2023) suffers criticism by Republicans for pursuing what they call an "open borders" immigration policy. New York Times columnist David Leonhardt, in "The Morning" newsletter on November 6, 2023, describes Biden's immigration policy:
Undocumented migration to the U.S. surged after Biden took office, partly in response to his welcoming campaign rhetoric, and many Americans are unhappy about the surge. Although Biden has since taken steps to reduce the surge, he rarely emphasizes these popular steps. (https://messaging-custom-newsletters.nytimes.com/template/oakv2?campaign_id=9&emc=edit_nn_20231106&instance_id=107032&nl=the-morning&productCode=NN®i_id=74240569&segment_id=149290&te=1&uri=nyt%3A%2F%2Fnewsletter%2F0b00acd6-c606-5652-818d-aa0415b664f1&user_id=86b0d837dd357b2a6e0e749321f6ed7f)
In a New York Times column dated November 11, 2023, Charlie Savage, Maggie Haberman, and Jonathan Swan detail Donald Trump's proposed immigration policy if he is reelected in 2024:
Former President Donald J. Trump is planning an extreme expansion of his first-term crackdown on immigration if he returns to power in 2025 — including preparing to round up undocumented people already in the United States on a vast scale and detain them in sprawling camps while they wait to be expelled.
....
The constellation of Mr. Trump’s 2025 plans amounts to an assault on immigration on a scale unseen in modern American history. Millions of undocumented immigrants would be barred from the country or uprooted from it years or even decades after settling here. (https://www.nytimes.com/2023/11/11/us/politics/trump-2025-immigration-agenda.html?campaign_id=9&emc=edit_nn_20231112&instance_id=107544&nl=the-morning®i_id=74240569&segment_id=149815&te=1&user_id=86b0d837dd357b2a6e0e749321f6ed7f)
An expected recession thus far has been averted, inflation has abated, and the U.S. economy continues to grow under the Biden administration's immigration policies.
As the U.S. birth rate continues to decline, the population will age with ever fewer young people to support and serve the increasing elderly cohort. The irony of Trump's proposed policies to stop immigration is that immigration could offset the declining birth rate to increase the younger population in support of the elderly.
It is the young and capable members of any society who are driven to seek better lives for themselves by emigrating. Immigration may enable continuing growth and welfare enhancement of the U.S. economy during the run-up to the global population peak late in the 21st century and beyond.
Immigration may benefit the United States as global depopulation ensues in the twenty-second century, but those nations from which people emigrate to the United States likely will suffer ever slower economic growth and faster demographic decline.
43. Agricultural Production in Greenville County
The state of South Carolina was primarily an agrarian region until late in the 19th century when the textile manufacturing industry began to move from New England to the South of the United States in search of cheaper labor. By mid-20th century, a banner on the side of a building in Greenville proudly proclaimed it to be "The Textile Capital of the World." But by late-20th century, the footloose textile industry was moving on to even cheaper labor in East and South Asia.
In the wake of the departing textile industry, the "Upstate" of South Carolina suffered increasing unemployment. But recovery began as technologically advancing industries moved into the Upstate along the I-85 corridor between Atlanta and Charlotte to take advantage of the former textile labor force. By the early 21st century, the Upstate of South Carolina, including Greenville County, had become a hub for the manufacture of automobiles (BMW), tires (Michelin), turbines (G.E.), aerospace equipment (Lockheed Martin), and numerous other technologically advancing industries. But agriculture has persisted as one of South Carolina's main "industries" even as it has declined in the Upstate in the face of emerging manufacturing industries. (https://agriculture.sc.gov/about/; https://www.nass.usda.gov/Statistics_by_State/South_Carolina/)
I am reminded of a song written toward the end of World War I by Joe Young and Sam M. Lewis expressing a concern that soldiers might not want to return to their family farms after experiencing the European city life and culture of Paris during the war.
The iconic line in the lyrics is "How ya gonna keep 'em down on the farm after they've seen Paree?" (https://www.bing.com/videos/riverview/relatedvideo?q=Down+on+the+farm+after+they%27ve+seen+paree&mid=8D771FC7DF3FDF094A208D771FC7DF3FDF094A20&FORM=VIRE)
So, "how ya gonna keep 'em down on the farm" after they've discovered higher-wage employment opportunities along I-85 through the Upstate?
Patrick Haddon has the opposite problem: he doesn't want to leave his family farm. Mr. Haddon, a member of the South Carolina House of Representatives, is a candidate for reelection in November 2024 to the seat for District 19 that represents Berea and Western Greenville County. Haddon's interview on the Greenville County Simple Civics website reveals his focus on preserving small-scale farming in Greenville County, including his own legacy family farm. He says,
I have a small farm right there in the district. I’m a seventh-generation farmer. And so ag is typically my focus, . . . . for me, the focus that I have in the state is those children and school nutrition and also the agricultural community of South Carolina, because a state that can’t feed itself is in trouble. And so it worries me that we are losing so much farmland. Now, take away, you know, obviously, Greenville County is different because the northern part and southern part of Greenville County has a lot of ag. It’s going away quick. But we have got to be able to save that land, save that farmland. And so I’m a big proponent of conservation. And so I would I would say my priorities, if I go back, will continue to be what I’ve what I’ve been doing is fight for children and better health and education, physical education, and also trying to protect as much ground agriculture land as we can to protect our food sustainability going forward. (https://simplecivicsgreenvillecounty.org/district-19-meet-your-candidates-for-south-carolina-house-of-representatives/)
Great social transformations rarely are completed within a generation. People born to 19th and early-20th century farms in the U.S. did not want to leave them, even as agricultural technology advanced at a rapid pace. They stayed and died on their farms, but it was their children who walked off of the farms to take up other occupations. Their family farms could not keep either my father or my father-in-law, both of whom went on to other occupations. The same happened with early-20th century textile workers who thought that they had lifetime rights to their mill jobs. They continued to work in the mills until they died or the mills closed, but their children took up different occupations.
Inter-generational occupation turn-over is inevitable, especially in an age of rapid technological advance that increases agricultural production scale. This process may diminish the availability of local produce, but the fact that a state doesn't produce all needed for consumption by its citizens does not mean that the state is in trouble or that it can't feed itself. The economic principle of comparative advantage advocates that each region should specialize in producing what it can at least opportunity cost, and then trade those things for other things produced at lower opportunity costs by trading partners. There's no shame in exporting locally-produced cars, tires, and turbines to pay for imports of food-stuffs to supplement local production. And trade enables greater diversity in consumption than possible with only local production.
The South Carolina Farm Bureau (https://www.scfb.org/) was established to help maintain active agricultural land and enable farmers to continue farming. The South Carolina Conservation Bank (https://www.sccbank.sc.gov/) established a Working Agriculture Land Preservation Fund (https://www.scstatehouse.gov/sess125_2023-2024/bills/3951.htm) to help famers who get at least 50% of their income from farming their land. Subsidies paid to farmers in Greenville County may contravene an apparent shift of comparative advantage away from agriculture and toward manufacturing industry in the Upstate of South Carolina. During this transition, subsidies to farmers in the Upstate may enable them to continue farming until they retire or die. Such subsidies serve the desires of local farmers, a small portion of the Greenville County population, at the expense of the larger population whose taxes finance the subsidies. The subsidies may assuage an elitist desire to preserve a romanticized agricultural lifestyle, though one that may not be sustainable in the Upstate beyond a few more generations.
Greenville County's Historic and Natural Resources Trust (https://www.gchnrt.org/) recently received a grant intended to help farmers of color to maintain their agricultural land and production. While the grant surely is well-intentioned, it implicitly promotes a racial divide between farmers of color and the largely-white public that purchases their produce at local farmers markets. The grant enables subsidizing the persistance of a racially identifiable class.*
__________
*A panel on the U.S. Court of Appeals for the 11th Circuit ruled Monday [June 3, 2024] that an Atlanta-based venture capital firm should be temporarily blocked from issuing grants reserved for businesses owned by Black women, saying that doing so would probably discriminate against business owners of other races. (https://www.washingtonpost.com/business/2024/06/03/fearless-fund-grants-blocked/?utm_campaign=wp_todays_headlines&utm_medium=email&utm_source=newsletter&wpisrc=nl_headlines&carta-url=https%3A%2F%2Fs2.washingtonpost.com%2Fcar-ln-tr%2F3de878f%2F665ee5b4d8dbdc1a349505db%2F596c29ff9bbc0f208654282b%2F10%2F57%2F665ee5b4d8dbdc1a349505db)
44. Bureaucratic Bloat in the University
When I was a freshman at Furman University in 1961, Furman's comprehensive tuition, room, and board (TRB) was about $1300 for the 61-62 academic year.
The average annual U.S. inflation rate over the period 1961-2023 has been 5.14%. 1/ The calculator.net website indicates that Furman's TRB would be around $29,078 if it had increased by 5.14% per annum between 1961 and 2023. 2/
Furman’s website indicates that Furman's 2023-2024 tuition and fees is $58,312, and room and board is $16,504. 3/ The TRB for 2023-2024 academic year is $58,312 + $16,504 = $74,816. The calculator.net website indicates that the actual rate of increase of Furman's TRB total averaged around 6.75% per year over the 62-year period.
Conclusion: Furman's comprehensive TRB has increased at an average rate of 6.75%, faster than the 5.14% rate of inflation, to more than double over the 62-year period.
How does Furman's TRB total compare to selected near-neighborhood private universities' and colleges' TRB totals for 2023-2024:
I have long suspected that Furman has increased its TRB total to accommodate an ever-increasing administration size, i.e., "bureaucratic bloat." The count totals presented below include information made available by the University to the general public on the University's website (https://www.furman.edu/offices-services/) as of August 1, 2024. The count totals include all ranks of respective officers (i.e., full, associate, and assistant).
That Furman, with no more than 2440 students, has 3 provosts and at least 13 vice presidents, 11 deans, 89 directors, and 11 managers of programs and activities seems excessive.
The apparent bureaucratic bloat may be attributed in part to
1. ever-increasing regulatory requirements,
2. attempts to meet ever-increasing student and parent expectations,
3. empire building as implied in several sections of Furman's website, and
4. other unspecified or unknown causes.
Since there are multiple possible causes of an increase in the size of an administration, a definitive conclusion about the cause of bureaucratic bloat cannot be drawn.
Whatever the cause, Furman appears to be top-heavy with administrative personnel. Successive presidential administrations appear to have created administrative positions by dividing responsibilities of existing officers and adding new positions, often making up new job titles. The process of empire-building also appears to have descended into a number of vice-presidential offices.
Table 1 was compiled to enable further examination of this matter. The institutions included in Table 1 are those attended by my grandchildren whose parents (my adult children) did not feel that they could commit to Furman's higher fees net of average financial aid.
Some observations: Among these institutions,
- Only Clemson has a lower acceptance rate than Furman, column (5).
- Furman has the lowest student/faculty ratio, 7.9 students per faculty member, column (7).
- Furman has the lowest student/employee ratio, 1.9 students per employee, column (10).
- Furman has the lowest student/administrative staff ratio, 8.3 students per administrator, column (12).
- Furman's average faculty salary is roughly in line with those of other institutions (except for St. Andrews), column (13).
- Furman's average administrative salary is roughly in line with those of other institutions (except for St. Andrews), column (14).
- Public universities offer lower undergraduate fees to in-state residents due to
a. higher student/faculty ratios, column (7),
b. higher ratios of students to total employees, column (10), and
c. higher ratios of students to administrative employees, column (12).
That Clemson's acceptance rate is substantially lower than Furman's acceptance rate implies a greater demand for admission to Clemson's 28,466 student body with annual net average T&F outlay of $3341 than the demand for admission to Furman's 2440 student body with annual net average T&F outlay of $22,712. (Reported average SAT scores among students admitted at Furman, 1352; Wofford, 1270; Samford, 1160; Clemson, 1310; University of South Carolina, 1275; University of Alabama, 1225).
Observations (3) and (4) imply that Furman incurs a high administrative overhead (or infrastructure) to support its academic mission. Table 2 is a modification of Table 1 to delete columns (1) through (3) and add columns (15) through (19) that focus on salary totals as proportions of total operating expenses.
More observations:
8. Furman's administrative salary total as percentage of its total operating expenses, column (17), is among the higher ones in the table.
9. Furman's faculty salary total as percentage of its total operating expenses, column (19), is generally in line with those of other included institutions.
Conclusion: Whatever the cause, Furman appears to be top-heavy with administration. The statistics presented in Tables 1 and 2 suggest that successive Furman administrations may have indulged in empire building over the past 62 years. This phenomenon manifests itself in student fees continually increasing faster than the rate of inflation and intensifying contribution appeals to cover the increasing administrative salary bills.
Solutions:
- Attrition: do not automatically replace retiring, dying, or departing staff members.
- Consolidation: combine functions and responsibilities where possible.
- Zero budgeting: during every budget cycle, reset budget totals and line items to zero, and require budget heads to justify each requested amount.
- Inflation: resist approving expenditure increases that would exceed the recent rate of inflation.
- Hiring: when hiring new chief (president) and departmental (vice president) officers, avoid prospective candidates who are accustomed to administrating large bureaucracies.
Web links:
1/ https://www.bing.com/search?q=inflation+1961+to+2023&form=ANNTH1&refig=b5d6c63d70be43e58c0f86443144c3ad&pc=EDGEDB&pq=inflation+1961+to+2024&pqlth=22&assgl=22&sgcn=inflation+1961+to+2023&qs=SC&smvpcn=0&swbcn=10&sc=10-22&sp=2&ghc=0&cvid=b5d6c63d70be43e58c0f86443144c3ad&clckatsg=1&hsmssg=0
2/ https://www.calculator.net/investment-calculator.html?ctype=endamount&ctargetamountv=1%2C000%2C000&cstartingprinciplev=1%2C300&cyearsv=62&cinterestratev=5.14&ccompound=annually&ccontributeamountv=0&cadditionat1=end&ciadditionat1=monthly&printit=0&x=Calculate#calresult
3/ https://www.bing.com/search?q=furman+university+tuition+2023&qs=HS&pq=furman+university+tuition+&sc=10-26&cvid=782F621EEE82453BAF880E211573FF91&FORM=QBRE&sp=1&ghc=1&lq=0
Addendum:
"Empire Building" refers to the effort by an officer of an organization to add to the activities, departments, and personnel under their authority and control. I think that a lot of this is seen in universities, churches, and corporations. It may be the main cause of bureaucratic expansion in an organization.
The title "dean" historically was intended to be an academic office whereas "vice president" was an administrative title, but these titles occasionally are confused and interchanged. It may depend on the whim of the superior officer who hires or appoints a subsidiary officer as to whether to call him/her a dean or a v.p. and what rank to confer.
Provosts and deans usually are expected to hold academic credentials; vice presidents also may but need not hold academic credentials. Administrative officers at universities may have done graduate study of university administration and may have been awarded graduate administrative degrees, but typically they have no classroom experience in any academic disciplines. Administrative officers often enjoy higher salaries than comparable-rank academic officers.
People try to get jobs at Furman to take advantage of free tuition for dependents. One of my colleagues was married to a Clemson professor, but Clemson does not provide that benefit, so her children went tuition-free to Furman. Tuition-free benefits for employees diminishes funds available for financial aid and increases the compulsion to raise TRB to non-employee applicants.
Furman’s TRB total has increased faster than the rate of inflation to support the growing administrative bureaucracy, the upper echelons of which may receive salaries that are higher than those received by most full professors and academic department heads.
The stated intent of recent campaigns has been to raise contributions that increase funds and endowments for student financial aid. Such funding campaigns may have enabled expanding the administrative bureaucracy. An alternate means to increase funding of student financial aid would have been to curb bureaucratic bloat by consolidation of administrative offices.
Furman can continue to get away with bureaucratic bloat as long as it can keep on increasing student fees and solicit contributions to pay for it. Furman not only has to attract applications from students with strong academic capabilities, but also whose parents can afford to pay the tab and are willing to do so. The national pool of prospective college attendees is contracting. Furman's acceptance rate may increase as its applicant pool shrinks, and Furman may find it more difficult to continue to increase its TRB.
This raises a question of whether a Furman education is "worth it" compared to Clemson and Carolina educations. An old joke in Furman circles was the question, “What does a Clemson graduate call a Furman graduate?” Answer: “Boss.” But this joke no longer retains currency. In the marketplace today, a Clemson or Carolina degree may be no less well regarded than a Furman degree.
45. Democracy's Liberalism Flaw
Modern day liberalism is rooted in a flaw of democracy first noted by Alexis de Tocqueville in 1835. After traveling for two years in the United States, de Tocqueville wrote his book, De la Démocratie en Amerique (Democracy in America).
In his chapter on “Government of the Democracy of the United States” de Tocqueville wrote (in English paraphrase) that when universal suffrage provided legislative empowerment to the poor and propertyless, society would soon discover that it could vote itself benefits quite apart from any ability of government to finance the provision of them. If some benefits are good, then more (and ever more) benefits must be better.
Voila! The potential for out-of-control spending and ever-increasing public debt in American democratic polity was noted as early as 1835 by a French visitor to the United States. The wonder is that it took nearly two more centuries to become a problem.
In the twenty-first century, this democracy flaw maniests itself in the form of political Liberalism. In a New York Times column dated August 18, 2024, Ezra Klein distinguishes between the two major American political parties, but his distinction could also be applied to extreme liberal and libertarian positions. In the following excerpts, I have inserted the matter in the brackets.
Democrats are united in their belief that the government can, and should, act on behalf of the public. To be on the party’s far left [the liberal , a.k.a. "Progressive," extreme] is to believe the government should do much more. To be among its moderates is to believe it should do somewhat more. But all of the people elected as Democrats, from Representative Alexandria Ocasio-Cortez to Senator Joe Manchin, are there for the same reason: to use the power of the government to pursue their vision of the good. The divides are real and often bitter. But there is always room for negotiation because there is a fundamental commonality of purpose.
The modern Republican Party, by contrast, is built upon a loathing of the government. Some of its members want to see the government shrunk and hamstrung [at the libertarian extreme, government should do no more than function as an umpire]. This is the old ethos, best described by Grover Norquist, the anti-tax activist who famously said: “I don’t want to abolish government. I simply want to reduce it to the size where I can drag it into the bathroom and drown it in the bathtub.”
https://www.nytimes.com/2024/08/18/opinion/pelosi-trump-biden-harris.html?campaign_id=39&emc=edit_ty_20240819&instance_id=132071&nl=opinion-today®i_id=74240569&segment_id=175510&te=1&user_id=86b0d837dd357b2a6e0e749321f6ed7f
Twenty-first century libertarianism is akin to the eighteenth century concept of "liberalism" espoused by Adam Smith in his book, An Inquiry into the Nature and Causes of the Wealth of Nations. In arguing for liberal policy with respect to trade and payments, Smith identified minimal but essential roles for government to undertake.
In the twenty-first century political arena, self-dealing enabled by universal-suffrage shows up in the ever-increasing desire by Liberals for more "vision of the good" public spending. Increased spending by both Democratic and Republican administrations has caused the U.S. public debt to baloon. This has not yet been a serious problem because the global demand to hold U.S. public debt has increased as fast as (or even faster than) the supply coming from new deficit spending.
The self-dealing flaw in universal-suffrage democracy will become a problem if the supply of U.S. public debt begins to increase faster than the global demand for it. This will cause U.S. bond prices to fall and yield rates (interest rates) on U.S. bonds to rise to levels that choke off borrowing to finance real investment spending on physical and intellectual capital. Interest on the increasing U.S. public debt eventually will absorb ever more of the government's budget, leaving ever less room for other government spending (social programs, military, infrastructure repair and maintenance, etc.).
Balooning public debt can be averted only by curbing spending, increasing taxes, or some combination (the classic Conservative solutions). A legislated solution would require that every spending bill be accompanied by a revenue-increasing provision to pay for the increased spending, but neither major U.S. political party has been supportive of such a requirement. Repudiation of the U.S. public debt, an unthinkable alternative, likely would collapse the global economy.
Democracy's self-dealing spending flaw is aggravated by deficit spending that becomes monetized. Deficit spending requires the government to issue new bonds that add to the public debt. The increasing supply of bonds coming onto bond markets relative to bond demand will tend to depress bond prices and increase interest rates.
The Federal Reserve is prohibited by law from purchasing directly from the governyment any more than a small amount of newly-issued bonds. In an effort to avert interest rate increases, the Fed may purchase "old" (previously-issued) bonds from the financial markets, paying for them with new money created by accounting entries. The new money is added to the bond sellers' bank accounts, thereby increasing the nominal money supply. But the quantity of money in circulation is a numeric abstraction of no consequence as long as there is enough money in circulation to serve market needs in enabling transactions and avert deflation. This abstraction will become a real problem if increases of the global money supply exceed global market needs and precipitate global inflation.
What is the antidote to democracy's self-dealing flaw? Conservatives and libertarian extremists may attempt to use the authoritarian power of the state to achieve reversal by eliminating government departments and curbing government functions. But such efforts to address the democracy flaw has the potential to crash markets and precipitate global recession that eventually becomes depression. Is this the catharsis that the world needs to alleviate the Liberal's problem of wanting the government to do ever more?
46. Pricing to Historic Cost
Ana Swanson, writing in The New York Times, May 1, 2025:
Gabriel Wildau, a managing director at Teneo, who advises companies on doing business with China, said that the Chinese goods that U.S. retailers had stockpiled in the first three months of the year would give stores some time before they would need to raise prices. But if the situation is not changed quickly, American consumers will feel the impact of trade changes unfold over the next three to six months, he said.
(https://www.nytimes.com/2025/05/01/business/economy/trump-trade-economy.html?campaign_id=190&emc=edit_ufn_20250501&instance_id=153703&nl=from-the-times®i_id=74240569&segment_id=197129&user_id=86b0d837dd357b2a6e0e749321f6ed7f)
We can't know what proportion of retail sellers are holding back on raising prices until imported merchandise reaches their shelves, but apparently the practice is fairly widespread. But is it a wise practice? Should a retailer price yet-unsold inventory to the historic cost of the inventory prior to the imposition or increase of a tariff, or to its replacement cost after the tariff is imposed or increased?
Economic theory of the business firm suggets that if retailers are motivated to try to maximize profits, they should set retail prices of yet unsold inventory with respect to replacement cost, not witih respect to the historic cost of inventory still in warehouse or on the shelves. The principle can be illustrated with graphic models.
Average total cost (ATC) is not shown in Figure 1 because fixed costs are not relevant to short-run decision making. All that a manager should attempt to discern in the short run is whether, after the fact of the decision, the AVC operating costs are covered. An appropriate long-run consideration is whether revenues also cover the overhead costs and make a contribution to profit, hence the term "contribution margin."
What do these graphic analyses tell us? Sellers should price to replacement cost in order to maximize contribution margins, whether cost has increased or decreased. Businesses that are delaying price increases until newly-tariffed imports reach their shelves are missing profit opportunities.
We cannot know why retail price decision makers delay price changes until newly-tariffed imported merchandise reaches shelves, so we can only speculate as to what motivates price decision makers to price to historic costs rather than to replacement costs:
- Ignorance: price decision makers are unaware of the underlying economic principles.
- Information: price decision makers have not accumulated relevant information upon which to base marginal pricing analyses.
- Complexity: retailers may have to deal with too many items to engage in marginal decision making for each one, so they simply mark-up prices from historic costs on all items that they sell.
- Inertia: price decision makers are happy to continue current policy until forced to change by emerging losses.
- Volume: price decision makers are motivated to maximize sales volume rather than profit.
- Expense: it may cost more to change prices (e.g., change and apply new product price stickers or alter shelf-edge prices, revise web pages, reprint and distribute catalog pages) than the contribution margin after the price changes.
- Demand: uncertainty about future demand once prices are changed (i.e., price changes may elicit adverse shifts of the D and MR curves).
In lieu of sufficient information, resources, or time to conduct a marginal pricing analysis for every item in inventory, a retailer who sells a large number of items may resort to a standard mark-up applied to the cost of every item. Suppose that the retailer has been applying a mark-up of 40% added to the $60 per unit cost from the supplier, the price based on historic cost would be $60 + $24 = $84 per unit of the item.
If the cost of the item from the supplier increases from $60 to $70 per unit, the retailer should price item units of previous shipments that are still in inventory at replacement cost of $70 + $28 = $98 per unit because it now will cost $70 (not $60) per unit to replace the inventory when it is sold. It doesn't matter whether the supplier is a domestic producer or an importer; nor does it matter whether the supplier's cost increase is due to a tariff or some other cause, e.g., inflation.
A similar conclusion follows from a decrease of cost per unit from a supplier: the decreased cost should be passed on to the customer in a lower retail price. If the cost of the item from the supplier decreases from $60 to $50 per unit, the retailer should price item units from previous shipments that are still in inventory at $50 + $20 = $70 per unit because it will cost only $50 (not $60) per unit to replace the sold inventory. Again, It doesn't matter whether the supplier is a domestic producer or an importer; nor does it matter whether the supplier's cost decrease is due to a tariff or some other cause.
Without being able to conduct marginal pricing analyses for every item in inventory, the seller cannot know whether a mark-up pricing strategy and the mark-up margin being used is maximizing the contribution margin or minimizing an operating loss. If competitors also employ mark-up pricing strategies, price differences on the same items imply that competitors are using different mark-up margins. At risk of losing sales or market share to competitors, a seller might experiment with higher or lower mark-up margins to see if its contribution margin increases or decreases (or whether an operating loss decreases or increases). Information about competitors' contribution margins may suggest whether a seller should increase or decrease its mark-up margin.
In any case, a mark-up pricing strategy is inferior to a true marginal pricing analysis. But just as with marginal pricing, a seller using a mark-up pricing strategy should price to replacement cost rather than to historic cost. A mark-up pricing strategy can only approximate the ability to conduct a true marginal pricing strategy, the results of which are likely to be unknowable.
47. Abundance
The essays in this collection were written mostly after my retirement from Furman University in 2008. They are intended to serve two objectives: first, so that my descendants can have a sense of their ancestor's interests and concerns; and second, to provide an archive of descriptions of the economic aspects and issues affecting the world of the early twenty-first century.
The economic world of the early twenty-first century was characterized by scarcity, limited resources, unlimited human demands on those resources, human work necessary to produce output and earn incomes to purchase things necessary for life sustenance, and product prices as arbiters of distribution via markets in which human participation was voluntary.
Scarcity is the key characteristic of what economists have called "the economic problem" of unlimited human wants confronting resource limitations. The essential characteristic of scarcity is any market price greater than zero. The economic problem began to afflict humans as soon as their populations began to grow large enough to fight with one another for limited resources. Over the course of millennia, humans devised mechanisms to address the four fundamental economizing questions: WHAT to produce, HOW to produce it, BY WHOM is it to be produced, and TO WHOM is it to be distributed.
During the earth's scarcity era, economic growth gradually raised per-capita incomes to diminish global poverty, but humans could only imagine a condition of general abundance for the global population. There was little hope that general abundance ever could be achieved. But if artificial intelligence (AI) progresses as rapidly as has been predicted by the AI 2027 Report (https://ai-2027.com/) that was published in early 2025, the world may have passed from scarcity to abundance by the time that anyone (or anything) encounters these essays. It has been suggested that the 21st century arrival of AI will be a digital "industrial revolution" with even greater impact than the iron and steam Industrial Revolution of the 17th and 18th centuries. We can know that a state of general abundance has been achieved when no market prices are greater than zero, i.e., all things are free.
The AI 2027 Report predicts that within a couple of years after 2025, advanced AI apps (applications) will code ever more capable successor AI agents.* Human programmers code (program) apps; apps become agents when they are able to function autonomously of human programmers. Superintelligent AI agents not only will code needed functions; they will decide what functions need coding. Their apps will enhance the efficiency of production activity to yield a veritable cornucopia of abundance.
Should I take the AI 2027 Report seriously? It was written by insiders who had become disillusioned by the direction that AI research seemed to be going at a prominent AI research firm (Daniel Kokotajlo**, Scott Alexander, Thomas Larsen, Eli Lifland, and Romeo Dean, all former OpenAI employees). They are in communication with other AI researchers who are engaged with or are employees of AI research companies. They are intimately familiar with the current state of AI research and where it appears to be going. They write with authority, but they acknowledge a great deal of uncertainty about their forecasts. In spite of their uncertainty, I must take the AI 2027 Report predictions seriously.
The AI 2027 Report predicts that the world will become ever wealthier from efficient operation of fully automated production processes by superintelligent agents. Work by humans will have become passé, necessitating expansions of unemployment compensation and social security programs that eventually morph into universal basic incomes. Markets may become obsolete if output distribution is socialized by an authoritarian superintelligent agent that "knows" all human needs.
Emerging AI knowledge will change the mathematical production function models that have been central to the microeconomic theory of the firm. During the age of scarcity, economists perceived mathematical production functions as graphic 3-dimensional Q-K-L relationships as depicted in Figure 1. Such production functions exhibit increase in the output quantity, Q, dimension. The production function is concave downward because of diminishing returns to the capital, K, and labor, L, inputs.
James Pethokoukis, writing in The Washington Post, May 5, 2005, explains what is necessary to transfer mathematical production function models into real world production settings:
Currently, robots tend to be devoted to a singular task in a confined space, but most human environments are built for creatures with hands, legs and a sense of balance. To do the kinds of tasks we need AI to do in the real world, we need a robot that can replicate our dexterity, mobility and efficiency, not just a factory drone optimized for one purpose.
....
By making both mental and manual labor so scalable, humanoid robots complete the ultimate economic equation: transforming the economic production function from one constrained by human limitations to one constrained only by energy and materials.
(https://www.washingtonpost.com/opinions/2025/05/05/elon-musk-robots-optimus-ai/)
Battery power has been a major issue. The hardware required to make modern robots move like humans is extremely heavy and energy intensive. In most cases, even the most advanced units can only run for a couple of hours on battery power alone. That undermines their usefulness, especially if the goal was to supplant human laborers and serve as an alternative to stationary robots that are already commonplace on assembly lines.
....
The issue is further complicated when you consider that modern humanoid robots often cannot lift as much weight as the humans they’re trying to replace. This is actually the direct result of designing them to replicate our anatomy. Were they built with a lower range of motion and equipped with locking wheels (or stationary), they’d be stronger and more energy efficient.
....
Robots ultimately need to be told what to do, whereas humans have a natural curiosity and can automatically adapt to their environment. Coding a machine to handle a nearly infinite number of variables is a monumental task, even with help from today's large language models.
(https://www.msn.com/en-us/autos/news/how-close-are-humanoid-robots-to-replacing-auto-workers/ar-AA1Fe8Kc?ocid=msedgdhp&pc=U531&cvid=fa4ece3fd1534a759452a4e56c27d5d1&ei=48)
Due to increasing living standards and falling birth rates, demographers have predicted that the global population of the earth, currently around 8 billion, likely will peak at around 10 billion in the 2080s, and then decline. Population decline over the next three centuries (maybe 15 generations) will alleviate the economic problem by reducing the earth's population. (https://www.nytimes.com/interactive/2023/09/18/opinion/human-population-global-growth.html?campaign_id=39&emc=edit_ty_20230919&instance_id=103103&nl=opinion-today®i_id=74240569&segment_id=145128&te=1&user_id=86b0d837dd357b2a6e0e749321f6ed7f)
But long before that happens, superintelligence entities may have realized the non-essentiality of humans who are no longer needed for work but still have to be fed, housed, cared for, and entertained. The AI revolution may spell the end of humanity if superintelligence entities decide to "succeed humans" (dispose of them). An enabling condition is the perfecting and mass production of general purpose humanoid robots that can accomplish virtually any human action. In a Coldfusion column on the MSN website, May 26, 2025,
Agility Robotics is launching the world’s first humanoid robot factory, a revolutionary step in automation. Unlike traditional facilities, this factory will mass-produce humanoid robots like Digit—machines designed to move and work like humans. Rather than replacing jobs, Agility envisions a future where robots and humans collaborate in manufacturing, logistics, healthcare, and disaster relief. While this breakthrough could reshape global industries, it also raises ethical concerns about employment and AI safety.
....
Tesla’s Optimus robot just took a giant leap forward—literally. In a pair of newly released videos, Elon Musk reveals Optimus performing complex dance moves, now entirely untethered and autonomous. But this isn’t just a viral stunt. Trained entirely in simulation using advanced reinforcement learning, the Tesla Bot demonstrates the company’s cutting-edge progress in AI and robotics, capable of translating digital training into real-world action with no additional tuning. Elon hints this is only the start, with full production lines underway and thousands of bots planned by year’s end.
(https://www.msn.com/en-us/news/technology/scientists-create-world-s-first-living-robot-today/vi-AA1vVbiu?ocid=msedgdhp&pc=U531&cvid=45223c109135474cb9b4a0cfaccf5653&ei=41)
Will the AI 2027 forecast come to pass? I think that the emergence of superintelligence knowledge and its implementation by industry is inevitable, but the timing is uncertain. Incorporation of new AI knowledge into production processes may take longer than estimated in the AI 2027 Report. Unless the physical facilities are mostly already in place (they may well be) and awaiting the infusion of the new knowledge, the gestation periods for arranging necessary supply lines and building and equipping new production and distribution facilities may take several years. To finance an expanding universal basic incomes program, a means for tapping the wealth captured by companies implementing new AI knowledge would need to emerge in the political arena.
The pace of the AI revolution may slow if massive losses of jobs and the failures of smaller businesses provoke civil unrest that incurs strong-armed responses from governmental authorities. The Trump administration's tariff policy by itself likely would cause inflation and a slowdown of global economic growth. But the on-going emergence and implementation of artificial general intelligence (AGI) may offset the negative effects of the tariff policy to deliver unprecedented economic growth and progress toward achieving global abundance.*** An AGI growth spurt before 2028 would give Mr. Trump an excuse to claim that his administration's policies were responsible for it. If the Trump administration does not bungle it, an AGI growth spurt could militate in favor of a Republican presidential candidacy in the 2028 election, including for Trump himself if he should opt to seek a third term.
At 82 years of age in 2025, I may witness the early days of the AI revolution before I pass. Even if the AI 2027 Report predictions are off by a few years, my generation could experience the beginning of this new "industrial revolution," but my children's' and grandchildren's' generations will experience it first-hand and enjoy or suffer it for their lifetimes.
May 19, 2025
____________
*Julian Horsey, February 14, 2025 (https://www.geeky-gadgets.com/how-artificial-general-intelligence-will-reshape-society-by-2035/), paraphrased: Sam Altman, CEO of OpenAI, envisions AI emerging by 2027 to transform industries like healthcare, education, and climate crisis management. Altman says that artificial general intelligence (AGI), i.e., AI that matches or surpasses human capabilities, is poised to fundamentally reshape society by 2035 with unprecedented economic growth and profound societal shifts. Altman stresses the need for responsible development to prevent misuse.
Steven Levy, interview on December 4, 2024 (https://www.wired.com/story/big-interview-tim-cook-wants-apple-to-literally-save-your-life/), paraphrased: Tim Cooke, Apple CEO, acknowledged that OpenAI was the pioneer in AI development and is the current leader. Cook brokered a deal with OpenAI so that Apple users could have access to ChatGPT, but he says that "We've always believed that we should own the primary technologies that our products are built on. .... We’re very deeply considerate about things that we do and don’t do. I hope that others are as well. AGI itself is a ways away, at a minimum. We’ll sort out along the way what the guardrails need to be in such an environment."
Ina Fried, "Google leaders see AGI arriving around 2030" (https://www.msn.com/en-us/news/technology/google-leaders-see-agi-arriving-around-2030/ar-AA1FbMlb?ocid=msedgdhp&pc=U531&cvid=159e930c26d7442c9477fa8bddd2fcb6&ei=71), paraphrased: Appearing Google's I/O developer conference Tuesday [5/20/2025], Google co-founder Sergey Brin and Google DeepMind CEO Demis Hassabis predicted that AGI is likely to arrive sometime around 2030.
Boone Ashworth, "Everything Google Announced at I/O 2025" (https://www.wired.com/story/everything-google-announced-at-io-2025/), paraphrased: Google held its I/O developer and product announcement event today [5/20/2025]. Google continued to go all in on AI. Google’s enhancements to its creative tools will either make your job easier and more productive, or it will render you obsolete. Gemini Live combines input from your phone’s camera, voice commands, and an agent-like ability to search the web, make phone calls, and collate information for you. Jules is an “asynchronous coding agent” that lets you take a rough design scribbled on a napkin and turn it into a full-fledged illustration or code. A new version of Google’s AI image generator, Imagen 4, can generate more detail in images. Google's new generative AI video tool, Flow, is made specifically for AI movie creation. Google's enhanced video generator, Veo 3, has a better understanding of material physics for smoother and more lifelike animations. Google's search AI Mode is more chatbot-oriented with ability to answer more complicated search queries that can factor in a variety of questions.
Jai Hamid, "Microsoft takes AI center stage as rivals rally around its platform," 05/26/2025 05/26/2025 (https://www.msn.com/en-us/money/technologyinvesting/microsoft-takes-ai-center-stage-as-rivals-rally-around-its-platform/ar-AA1Fswym?ocid=msedgdhp&pc=U531&cvid=0bc65b2fa80e4b4eb53786c268567aac&ei=6), paraphrased: Microsoft used its annual Build conference in Seattle this week to fully cement its control over the AI battlefield, locking in heavyweight deals with OpenAI, Nvidia, and Elon Musk’s xAI. .... Satya Nadella, Microsoft’s CEO, stood on stage Monday [5/19/2025] and called the moment “not about any one tool, any one agent or any one form factor.” He told attendees that the company isn’t building toys, it’s building an AI platform, and everyone else is either helping or depending on it. .... Microsoft’s control over the enterprise AI stack isn’t just about hosting models — it’s about owning the interfaces customers use every day. The company introduced new coding “agents” this week that work off simple instructions, and a system to let businesses create and manage entire fleets of these AI assistants.
Brenda Goh, Eduardo Baptista and Qiaoyi Li, "China's AI-powered humanoid robots aim to transform manufacturing," May 13, 2025 (https://www.reuters.com/world/china/chinas-ai-powered-humanoid-robots-aim-transform-manufacturing-2025-05-13/) surveys the humanoid robot industry in China, paraphrased: The importance of humanoid robots to Beijing, as it looks for solutions to pressing issues including trade frictions with the U.S., population decline, and slowing growth, was underscored when Chinese President Xi Jinping inspected AgiBot's robots in Shanghai last month. .... As the U.S. negotiates with China over tariffs that President Donald Trump had imposed to help bring back U.S. manufacturing jobs, Beijing is aiming for a new industrial revolution where many factory tasks would be performed by humanoid robots. .... China's advances in artificial intelligence, partly driven by the success of homegrown firms like DeepSeek as well as abundant government support, are allowing humanoid developers to pair the robots' already impressive hardware with the software needed to make them economically valuable. .... A successful and widespread deployment of these robots in factory floors would enable China to keep driving economic growth and maintain its manufacturing superiority, making the field an area of competition with the U.S. .... Chinese authorities are handing out generous subsidies for humanoid firms. .... The average bill of materials for a humanoid will be about $35,000 by the end of this year but could fall to $17,000 by 2030 if most of it is sourced from China, said Ming Hsun Lee, head of Greater China automotive and industrial research at Bank of America Securities. .... The component cost for Tesla's Optimus robots, if all of their major parts are sourced from outside China, is currently $50,000 to $60,000, Lee added. "With its comprehensive supply chain, China has an edge in lowering the humanoid robot production cost significantly," Lee told Reuters, estimating that global humanoid robot annual sales could reach 1 million units in 2030.
**The transcription of an interview of the lead author of the AI 2027 Report, Daniel Kokotajlo, by New York Times columnist Ross Douthat describes the future with AI ( https://www.nytimes.com/2025/05/15/opinion/artifical-intelligence-2027.html?campaign_id=39&emc=edit_ty_20250516&instance_id=154655&nl=opinion-today®i_id=74240569&segment_id=198066&user_id=86b0d837dd357b2a6e0e749321f6ed7f).
***Inc. Arabia Team's report, AI Progress 2025, reviews the global adoption and implementation of AI technologies: https://www.msn.com/en-us/news/technology/ai-progress-2025/ar-AA1FrsnO?ocid=msedgdhp&pc=U531&cvid=dbf1eb22902c4903a554d67ead3ddfd2&ei=63.
48. Refunding the National Debt
... investors are worried that the Trump administration and the Republican Congress are engaged in set of actions that will both lower growth and raise interest rates, a toxic combination. The GOP ["Big Beautiful"] bill doesn’t just add unprecedented trillions to the debt; it takes health coverage and nutritional support from poor people to very partially offset big tax cuts for the wealthy. There’s nothing in there that would lead an objective person to think there’s anything pro-growth about it. Add the tariffs are expected to slow growth this year, perhaps from around 2% to around 1%, according to forecasts by Goldman Sachs. This combination of ever-increasing debt (which, to be fair, predated Trump; he’s just making it a lot worse), slower growth and the pervasive sense that neither the administration nor the congressional majority even know or care about these risks, is leading lenders to the U.S. government to insist on a higher return [lower price] for buying those IOUs known as Treasury bonds. The rate on a 30-year Treasury has climbed from about 4% last September to about 5% on Friday. That’s just 1 percentage point, but when you’re servicing about $30 trillion in debt, one more point on the interest rate [a 25% increase] translates into $300 billion more in debt service. Even in Washington, that’s real money. (MSN website, May 26, 2025, https://www.msnbc.com/opinion/msnbc-opinion/trump-republicans-bond-market-interest-rates-rcna208746)
U.S. debt ratings are determined by major credit rating agencies such as Standard & Poor's (S&P), Moody's, and Fitch Ratings. These ratings are critical for understanding how international and domestic investors perceive the U.S. government's ability to honor its financial commitments. Moody’s Ratings became the third and final credit rating to downgrade the U.S. government’s debt from its top rating by one notch from Aaa to Aa1 (Fitch and S&P slashed their AAA ratings for U.S. Treasury obligations years ago). According to a statement released on May 16 by Moody’s Ratings, the downgrade “reflects the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns.” (https://www.msn.com/en-us/money/savingandinvesting/what-moody-s-downgrade-of-the-us-credit-rating-means-for-investors/ar-AA1FZJwK?ocid=msedgdhp&pc=U531&cvid=afd8dbd4feeb44978d187cd3fb1b0b68&ei=148)
The roughly $29 trillion Treasury market was dealt another big blow on Monday as bond yields jumped after Moody’s decision on Friday to strip the United States of its last set of AAA credit ratings. .... Foreign demand for Treasurys has been waning since the November elections returned Donald Trump to the White House and gave Republicans control of Congress, fueling concerns of a potential increase in the U.S. deficit to help pay for lower taxes. .... “Global investors are thinking twice before buying Treasury securities,” Brian Rehling, head of global fixed-income strategy at the Wells Fargo Investment Institute, said in an interview Monday. “Thus rates have moved higher.” .... The 30-year Treasury yield briefly traded above 5% early Monday before easing back to 4.94%, while the 10-year yield was up about 4 basis points to 4.47%, according to FactSet. .... Longer-duration Treasurys have been hit particularly hard lately as investors rethink how safe these securities look from a long-term standpoint, as well as how much yield they need in order to operate as a long-term U.S. creditor. (https://www.marketwatch.com/story/bond-yields-jump-after-moodys-downgrade-of-u-s-credit-why-it-matters-for-consumers-and-congress-e5edd0f1)
Yield rates on 10-year U.S. Treasury bonds are especially significant because they serve as benchmarks against which lenders adjust their lending rates.*
Rising bond yields demand to be noticed because they have a range of negative consequences: Mortgage rates rise, economic activity can slow, stock markets tend to sputter and the cost of doing business steepens throughout the economy. When yields get high enough, a government that finances much of its activities through borrowing, as the United States does, may eventually find that it can’t function without imposing painful budget cuts, or raising taxes, or both — and outcomes like these will thwart any politician’s dreams. Moreover, because Treasuries and the dollar are the fulcrums for the global financial system, tremors in the U.S. Treasury market reverberate around the world. (https://www.nytimes.com/2025/05/30/business/bond-yields-deficit-trade-trump.html?utm_source=substack&utm_medium=email)
A little-appreciated conclusion to be drawn from examination of the Treasury funding and refunding processes is that without formalization of the refunding process, it would not have been possible for the U.S. public debt to have increased cumulatively. If at the end of any quarter the tax revenues were insufficient to redeem all maturing bonds, Treasury would have been forced to default on debt, and this would have destroyed the reputation of U.S. government obligations as the ultimate safe investments. In effect, the refunding process has enabled the Treasury to "kick the can down the road" by issuing replacement bonds that add to the cumulative debt rather than redeeming maturing bonds that would reduce the cumulative debt.**
Treasury debt management reports to Congress and the President are available from 1999 to 2023 (https://fiscal.treasury.gov/debt-management/resources/debt-management-reports-congress-president.html). I have been unable to locate historical information prior to 1999 about the Treasury's refunding process or its approval by Congress. Refunding the national debt is not a problem as long as government budgets are roughly in balance. My supposition, upon reviewing the charts in Figures 2 and 3, is that the Treasury may have formalized a refunding process at some time before 1980 when budget deficits ceased to be trivial and tax revenues were insufficient to redeem all maturing federal government obligations. In this context, "refunding" doesn't mean "giving back" maturing bonds to the Treasury; rather, it means that the Treasury issues new bonds to replace maturing bonds so that the total of the outstanding debt does not change. It is the process of refunding maturing debt that enables the cumulative increase of the public debt in subsequent years.
Once the amount needed to finance the current deficit is reached, the Treasury then refunds maturing debt at the newly-determined prices and yield rates with newly-issued bonds in the specified term category. Recently, to lower the cost of debt service the Treasury has employed the refunding procedure to shift debt funding from higher-yield longer-term debt that is maturing to lower-yield shorter-term debt (https://www.msn.com/en-us/money/markets/trump-sticks-with-biden-era-activist-treasury-issuance-despite-past-criticisms/ar-AA1G9ejn?ocid=msedgntp&pc=U531&cvid=ba67305c3951454096a897b47eafaecf&ei=141).
Federal Reserve officials may consult the results of a once-a-quarter Treasury auction process to get a sense of whether yield rates are rising or falling. But the bond prices and yield rates that are set in a quarterly auction process may last less than a day because following the auction process bond traders (including the Federal Reserve itself) may enter financial markets to buy or offer to sell bonds at prices and rates that differ from the auction prices and rates.
Yield rates appear to be administered rates set by a government authority (the Treasury), but they may be regarded as quasi-market-determined rates because of participation in bidding by bond market dealers. Yield rates vary inversely to bond prices, so a decrease of bond purchase bids means that bond demand is decreasing relative to bond supply, depressing bond prices and causing yield rates to rise (or to fall with an increase of bids).
Jared Burnstein, former chair of the Council of Economic Advisors (Biden administration), puts this in current context:
Joy Wiltermuth, writing on the MarketWatch wesite, May 19, 2025, says that
Jeff Sommer, writing in The New York Times, May 30, 2025, says
The cumulative increase of the U.S. public debt can be blamed on the Treasury's debt refunding process. This is a procedure that appears to have been formalized solely by the Treasury (a department of the executive branch of the U.S. government) with no evident authorization or approval by Congress (the legislative branch of the U.S. government).
The deficit and debt histories reviewed in this study invite several observations:
- The cumulation of the U.S. government's public debt has been enabled by the process of refunding the debt.
- The process of debt refunding has not been authorized or approved by Congress.
- The global market for U.S. obligations is becoming less comfortable with funding U.S. budget deficits.
- As global demand for U.S. obligations slows or decreases, bond prices will fall and yield rates will rise.
- Rising yield rates on U.S. obligations will increase the cost of servicing the debt, crowding out social program, insfrastructure, and military spending.
- Rising yield rates on U.S. obligations will increase interest rates on home mortgages, auto loans, and consumer loans.
- The alternative to refunding the public debt is default if tax revenues are insufficient to redeem maturing bonds.
- Failure to redeem maturing U.S. bonds would destroy the reputation of U.S. government obligations for safety and certainty.
*Writing on the CNN website, May 22, 2025, David Goldman:
The 20-year bond auction conducted by the US Treasury on Wednesday afternoon [May 21, 2025] was unusually weak: Demand for the bonds was the lowest since February, according to the Treasury Department. Investors who bought the bonds sought a higher-than-expected yield — effectively saying they wanted to be paid more for taking on the risk of lending to Uncle Sam.
(https://www.msn.com/en-us/money/other/why-the-bond-market-is-suddenly-freaking-out-over-the-big-beautiful-bill/ar-AA1FgiOl?ocid=BingNewsVerp)
Writing in Barron's on June 11, 2025, Karishma Vanjani:
An auction of 10-year Treasury debt encountered strong interest from buyers, marking a fourth consecutive robust offering and helping to allay concern that demand for U.S. assets is declining.
While it is routine for the Treasury Department to borrow to fund the government, recent auctions have come under increased scrutiny. Investors’ appetite for the nation’s debt has come into question given the trillions of dollars worth of bonds out there and fear that U.S. trade policies could scare foreign buyers away.
The Treasury sold $39 billion of 10-year notes in early afternoon. Investors accepted a yield of 4.421% on the 10-year note, about 0.6 basis points below the yield seen before the bidding deadline. That means investors bought all the notes on offer, even at a lower rate.
(https://www.msn.com/en-us/money/savingandinvesting/10-year-treasury-auction-was-strong-again-in-positive-sign-for-u-s-assets/ar-AA1GwND5?ocid=msedgntp&pc=U531&cvid=a69c30500e9646e08c4d61f10e68bb04&ei=126)
Writing in Barron's on June 12, 2025, Karishma Vanjani:
The U.S. Treasury Department’s auction of 30-year bonds saw solid, but not great, demand. Fewer foreign investors participated, but there were enough buyers to further quell concerns about investors shunning longer-term Treasuries.
The Treasury sold $22 billion worth of bonds maturing in 30 years on Thursday afternoon. Investors accepted a yield of 4.844%, about 1.5 basis points below the yield seen before the bidding deadline. That means investors bought all the bonds on offer without demanding a higher rate, a positive outcome for the Treasury because it will pay a lower rate on its debt.
(https://www.msn.com/en-us/money/markets/30-year-bonds-rally-auction-was-solid-but-not-great/ar-AA1GBdzJ?ocid=msedgntp&pc=U531&cvid=8c235e1e7aee433cb15de39f3a57cbab&ei=41)
**In an essay on The Hill website, June 22, 2025, Sylvan Lane describes how Mr. Trump is attempting to subvert the Fed's so-called "dual mandate" and shift the mandate to the fiscal function of funding deficits and refunding maturing debt:
During World War I and II, the Fed yielded to pressure from presidential administrations to keep interest rates low and ease the burden of the rising debt.
While that practice extended for nearly a decade after the bombing of Pearl Harbor, the Fed and Treasury eventually reached an agreement in 1951, setting the stage for the next seven decades of economic management.
“The purpose of the ‘accord’ was to make Treasury manage its debt, rather than expecting the Fed to ‘monetize’ it. In turn, the Fed asserted its control of monetary policy via the setting of interest rates to meet congressional mandates for price stability and maximizing employment,” said Sarah Binder, political science professor at George Washington University and co-author of “The Myth of Independence: How Congress Governs the Federal Reserve.”
The Fed has since avoided anything that could be considered financing the federal debt while sticking to its “dual mandate” of balancing unemployment and inflation. And while several presidents have verbally pressured the Fed to keep rates low since 1951, none has made a formal move to limit its legal authority over monetary policy.
“Based on most concepts of ‘independent’ monetary policy, the central bank shouldn’t be monetizing the debt. That is, it shouldn’t be taking the administration’s financing needs into account when it aims to meet its mandates,” Binder said.
“Those mandates are price stability and strong labor markets,” she added. “Congress has not given the Fed an additional mandate to make it easier for the Treasury to finance its debt.”
But Trump could be laying the groundwork for a shift toward a “fiscal dominance” regime, [David] Beckworth [research fellow and monetary policy director at the Mercatus Center] warned, in which the Fed would be forced to clean up the government’s fiscal mess and abandon the bank’s legal obligation to keep prices stable and unemployment low.
(https://www.msn.com/en-us/money/markets/trump-ropes-fed-into-debt-fight-as-gop-faces-fiscal-mess/ar-AA1Hczca?ocid=msedgdhp&pc=U531&cvid=c940f90e206c49389affd941dc0e0c8d&ei=243)
49. The National Debt in the Long Run
In a transcribed conversation among Benjy Sarlin, Jim Geraghty, and Catherine Rampell, "Will Democrats rescue the national debt?" The Washington Post, May 28, 2025, Rampell says:
In the long run, the deficit is a huge problem. Our debts will have to be paid back at some point, in the form of higher taxes and/or lower spending. We’ve been able to skate these consequences thus far because the rest of the world is still willing to lend us money in huge sums. But at some point the chickens will come home to roost. The challenge is we don’t know when that will happen, and it could be a long ways from now — which is why the public and politicians have been shrugging off warnings from the usual deficit worrywarts. (https://www.washingtonpost.com/opinions/interactive/2025/trump-house-bill-tax-cuts-national-debt-democrats/?utm_campaign=wp_todays_headlines&utm_medium=email&utm_source=newsletter&carta-url=https%3A%2F%2Fs2.washingtonpost.com%2Fcar-ln-tr%2F42caf7b%2F6838302574393667ca1b70c9%2F596c29ff9bbc0f208654282b%2F34%2F64%2F6838302574393667ca1b70c9)
The U.S. national debt has never been paid off out of tax revenue surpluses. The only period in which U.S. national debt has been paid off was during the presidency of Andrew Jackson (1829-1836) when he raised revenue from sale of government-owned land in the west and used the sale proceeds to pay off the accumulated Revolutionary War and 1812 War debts. Debt accumulated during the Civil War, but after the war it decreased as outstanding U.S. Treasury bonds were redeemed as they matured. New bonds were issued by the U.S. Treasury as needed to finance deficits, but there was no deliberate intent to "refund" the outstanding debt as it matured.
We don't have reliable data on the actual dollar amounts of the U.S. federal deficits prior to 1901, but Matt Phillips provides useful estimates of the U.S. public debt as percentage of GDP ("The Long Story of U.S. Debt, From 1790 to 2011, in 1 Little Chart," The Atlantic, November 13, 2012, (https://www.theatlantic.com/business/archive/2012/11/the-long-story-of-us-debt-from-1790-to-2011-in-1-little-chart/265185/). Phillips' graph of the U.S. public debt as percentage of GDP is shown in Figure 1.
As shown in Figure 2, the U.S. federal budget was roughly in balance during the 20th century until the 1973 recession when deficits ceased to be trivial. Deficits increased during the Reagan administration (1981-1989) due to tax cuts and social program spending. During the 1990s the deficit gradually diminished until it became a surplus from 1998 to 2001 during the Clinton administration (1993-2001). On October 28, 1999, the Clinton administration announced that the U.S. public debt has been paid down by $140 billion (a proverbial "drop in the bucket" against the debt of over $5 trillion). As shown in Figure 2, the federal government's budget has been in deficit since 2001, with spikes due to recessions in 2008-2010 and 2019-2020.
This review of the deficit and debt histories of the U.S. also tells us that the probability that "the chickens will come home to roost" is very low because of the seemingly insatiable global demand for U.S. debt obligations and the implementation of "refunding operations" by the U.S. Treasury.
The deficit and debt histories reviewed in this study invite several observations:
- The global market for U.S. obligations is nearly as large as the U.S. GDP.
- The U.S. government's public debt is nearly as large as the U.S. GDP.
- The cumulation of the U.S. government's public debt has been enabled by the process of refunding the debt.
- Failure to redeem maturing U.S. bonds would destroy the reputation of U.S. government obligations for safety and certainty.
- The public debt of the U.S. government has never been paid off out of federal tax revenues.
- The requisite to paying off the public debt is sufficient decrease of spending and/or increase of tax revenue collection.
- In the current poltical environment, neither requisite will be undertaken by a Congress dominated by either political party.
- The cumulative public debt of the U.S. government likely never will be paid off.
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50. The Lull
... the Fed’s latest Monetary Policy Report, released Friday ahead of Chair Jerome Powell’s testimony to Congress next week, .... follows the Fed’s June policy meeting, where officials held interest rates steady at 4.25% to 4.50% and maintained a cautious tone. .... For now, the Fed is in wait-and-see mode. Core inflation is moving lower, the labor market appears relatively balanced, and policymakers say they are “well positioned to wait.” .... Actual price increases have also begun to show up for some kinds of goods. The report points to a small pickup in inflation for appliances, electronics, and other durable goods affected by trade policy. Manufacturers are also reporting higher input costs, though the Fed was careful not to overstate the trend, saying it is “still early to assess” the full effects of recent tariff actions. So far, the Fed isn’t signaling alarm. Financial markets have remained orderly, lending conditions are tight but stable, and inflation expectations among forecasters and investors remain near target. The Fed has also slowed the pace of its balance-sheet runoff, another step toward normalization, and made clear it intends to maintain reserves at levels consistent with ample liquidity. (https://www.msn.com/en-us/money/markets/what-the-fed-s-latest-monetary-report-says-before-powell-heads-to-capitol-hill/ar-AA1H7qca?ocid=msedgntp&pc=U531&cvid=b87e0e7d8eda49b7b85152b00ad2fd61&ei=7)
At mid-2025, we are in the calm before the inflation storm because many manufacturers, wholesalers, and retailers are waiting to raise prices until tariffed items reach their businesses. The inflation storm likely will arrive late in 2025 when tariffed items reach sellers inventories and when stock-outs result in shortages that prompt sellers to raise prices.
Of the 40 products we tracked, 27 of them — roughly two-thirds of the group — didn’t change at all. Another three actually dropped in price. And 10 went up.
Of the 10 that had price increases, only three jumped in cost by 15% or more. The other seven increases were relatively modest. That doesn’t mean more prices won’t spike further in the future, or that tariffs haven’t had massive effects on the economy already. It simply means that on this curated selection of Wirecutter picks, the majority of prices didn’t budge much this spring. (https://www.nytimes.com/wirecutter/reviews/advice-wirecutter-tariff-pick-price-tracking/?campaign_id=190&emc=edit_ufn_20250628&instance_id=157448&nl=from-the-times®i_id=83309104&segment_id=200842&user_id=1398977032f2ddf1c3a22e6f974f9ecf)
It is June 20, 2025, the first day of summer this year, and we are under a "heat dome" that takes "feel-like" temperatures toward 100 degrees Farenheit. Economically, we are in a lull, a calm before the storm, actually the calm before several storms that are just over the horizon: inflation caused by President Trump's tariff policy; his threat to fire and replace Jerome Powell, Chair of the Federal Reserve Board of Governors; passage of Mr. Trump's "One Big Beautiful Bill" that will diminish medicare for lower-income people to pay for tax cuts for higher-income people.
Except for Mr. Trump's June 19 decision to bomb Iran's nuclear sites, things are amazingly calm at the moment: the CPI has edged upward from 2.7% to 2.8% annual rate; the unemployment rate remains around 4.7%; the U.S. stock market is a bit "jittery" but continues to climb slowly; the global bond market is a little nervous about the prospect of Mr. Trump replacing Powell at the Fed and concerns over whether the U.S. Treasury can continue to redeem maturing bonds as the national debt eclipses $34 trilion.
So, we wait. Any of these insipient storms can wreak havoc on the U.S. economy, and a convergence of multiple storms may occur at once.
Bill Pulte, the Trump-appointed director of the Federal Housing Finance Agency, writes that, “Because President Trump has crushed inflation, Fed Chairman Jerome Powell needs to lower interest rates today, and if not Chairman Powell needs to resign, immediately. Fannie Mae and Freddie Mac can help so many more Americans if Chair Powell will just do his job and lower rates.” (https://www.msn.com/en-us/news/politics/second-civil-war-breaks-out-in-trump-s-dysfunctional-administration/ar-AA1H3VSq?ocid=BingNewsSerp) But Mr. Trump hasn't "crushed inflation"; it simply hasn't hit the economy with much force yet because many manufacturers, wholesalers, and retailers are waiting to raise prices until tariffed items reach their businesses.
Nicole Goodkind, writing on Barron's website, June 20, 2025, describes the approaching tariff inflation storm:
So, a cautious Jerome Powell (and the other 11 members of the Federal Open Market Committee) wait and watch during the calm before the storm.
__________
Wirecutter, The New York Times, "We Tracked Prices on 40 Wirecutter Picks for 60 Days. Here’s What We Learned," June 28, 2025:
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