Relevant and even prescient commentary on news, politics and the economy.

Trading Social Security for Student Debt

Rep. Tom Garrett is a Republican representing Virginia’s 5th Congressional District. He is a member of the Committees on Education and the Workforce, Homeland Security, and Foreign Affairs. He  presents a problem:

We can’t afford to lose the energy, ideas, and vision of young people who give up their dreams of going to college because it is unaffordable. And we shouldn’t saddle young people who graduate with enormous debt, forcing them to postpone marriage, becoming parents, buying homes, starting a business, and many other activities that enhance their lives and strengthen our economy.
The student debt crisis is a huge threat to the long-term economic prosperity of our country. If we fail to take positive measures to address the looming economic challenges brought on by student loan debt, nothing less than the long-term prosperity of our country hangs in the balance.

>
And offers a solution for some:

For every $550 in student loan forgiveness – or roughly the average cost for one credit hour at a public university – a Student Security participant would agree to raise his or her full-retirement age for Social Security benefits by one month. A student could get a maximum of $40,150 in debt relief. To get that, the person would delay the starting age for collecting Social Security benefits by 6 years and 1 month

Leaves me flabbergasted.

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Protests in Iran

This is well outside anything I can claim to know much about, so I can’t vouch for it other than that it sounds right to me. From an Al Arabiya article entitled All you need to know about the Iran protests in 20 points:

1 On Tuesday, December 19, the Iranian government announced a new austerity plan.

2 The plan imposed a 50% increase in the price of fuel.

3 The government decided to cancel the monetary support of more than 34 million people.

6 In this same austerity plan, the government decided to increase the budget for military armament.

7 Most of the military armament budget goes to the Iranian Revolutionary Guard Corps (IRGC).

8 The IRGC operates on foreign lands, supporting the Houthi militia in Yemen, Hezbollah in Lebanon, the Popular Mobilization Unit in Iraq and supporting the Assad regime in Syria.

9 The number of poverty-stricken individuals under the lifting of subsidies rose from 20 million to 54 million.

10 On Wednesday, December 27, citizens went out on a limited demonstration to demand that the government backtrack on the austerity plans.

And… its grown from there.

My limited understanding of Iran is that the religious authorities have kept a grip on power -despite being disliked by the urban intelligentsia – by maintaining support among the poor. That makes choosing guns over butter particularly stupid.

Update 12/31/2017, 9:43 AM PST:   Here is another piece on the protests in Iran from the same website.

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Please excuse the site problems….

12/30 The side bar ‘broke’ and I cannot access the code to fix it.  If you click on the title you want it seems to offer the correct format for individual posts.  I will work on it but am not a tech person.  I have notified MEV tech people, but it is the New Year weekend so am not sure when it will be fixed.   Sorry for the inconvenience.

12/31  Kelly at MEV has e-mailed me this morning and is checking….thank you Kelly.

Update….well. I figured it out! But cannot be replicated 🙂

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The Upcoming Liberation of Mexico (and Parts of Africa)

As many academics and community activists – in fact, anyone woke – will tell you, the US is a racist society steeped in the white supremacy of its majority population. White people are haters who keep ruining things. Which is why reading this story in the LA Times about people from Africa trying to cross from Tijuana into San Diego is so hearbreaking.

The article describes African refugees who have fled their homeland for safety, who have braved all sorts of hazardous conditions just to get where they are, and who are desperately trying to get out of Mexico even if it means ending up in the US.    But we all know the US is going to be awful for them.  The US is  a country where even the Justice system is built to humiliate and oppress black men as described in the headline to this article. It is a country where police kill black males with impunity as documented in this article. And then there are a myriad of other forms of aggression both large and micro.  So imagine how bad Mexico must be for these for refugees from Africa. A hint, a shadow, a crumb of that iceberg appears in the LA Times piece:

He doesn’t care where he lives in the U.S. as long as he is allowed in.

“I want safe. I want peaceful,” Tesfaldet said.

Some of the migrants from African countries expressed frustration that they were the ones left outside after Mexican officials intervened.

“We are human beings,” said another man from Eritrea. “They don’t respect. I’m feeling racism here, a big discrimination here. We don’t want to be here in Mexico. Our target, our way is U.S.A.”

But the reality is, it isn’t just Africans who are suffering in Mexico. It must be pretty bad for Mexicans too. Estimates vary wildly, but somewhere in the neighborhood of a tenth of Mexico’s population is in the US, some legally and some not. Additionally, over a million Mexicans have filled out paperwork to come to the US legally. Who knows how many would go through the effort if the odds seemed less daunting?

To put those numbers in context, there are no signs that anywhere close to 10% of the North Korean population is trying to make its way to South Korea, and yet, North Koreans who manage to do so are welcomed with open arms to a country with the same language and same cultural traditions.  Plus the weather is better in South Korea. On the other hand, so many Mexicans are trying to get to a country where they are discriminated against, and where their contributions are at best ignored. And then there’s the weather. I’ve met immigrants from Mexico (and from African countries) living in Illinois, Ohio and Wisconsin; that can’t be easy for someone who grew up in a warmer, more comfortable climate.

All of this, taken together, suggests that Mexico is an awful place for Mexican and non-Mexican people alike.  And yet, the land has so much promise.  Plus great weather.  The humane and socially aware solution is obvious: the government of Mexico must be overthrown. Ideally, it would be replaced by indigenous, peaceful, inclusive, tolerant, non-racist, intersectional, organic and home-grown Mexicanx policies and traditions. Obviously, in Mexico, that would be a social structure derived from Aztec culture.  That would be the ideal outcome.  However, given the conditions people in Mexico are willing to tolerate to get to and live in the US, the bar is very, very low. That means the odds of making things worse are infinitesimally small.

So for this operation, the  likelihood of success is large, the probability of failure is tiny, and the benefits are huge.  What’s not to like about regime change in Mexico?  Furthermore, the benefits of this regime change wouldn’t accrue just to Mexicans and African refugees who are currently trapped in Mexico. Even white supremacists – who because they are in the majority in the US would bear the bulk of the cost in blood and treasure – would have a benefit: penance. The karmic load they carry would diminish slightly, and they might even develop some empathy. Some white supremacists might stop and think about how the world could have turned out but for their accident of birth. With a different history, America’s white supremacists would have all ended up in Mexico. Conversely, the Mexican population (together with America’s minority population and the few white Americans who are racially aware) might have ended up living in the US, perhaps even a US operating along pre-Columbian Mexican norms.

Now, this opportunity for racist white people to achieve some small measure of redemption doesn’t have to stop with Mexico. In fact, it shouldn’t stop with Mexico. From the LA Times article, it is clear there are people in countries in Africa who could be spared having to flee their homeland if the white supremacists in the US would develop a small measure of humanity and overthrow their governments too. Now I know what you’re thinking… we heard a similar “we will be greeted as liberators” line about a decade and a half ago. But it was different then. The motives were selfish. Our leaders thought they were acting to make Americans safer, and to make matters worse, they didn’t even bother to differentiate between the safety of the racist majority who should just die already and those who are worthy of such safety.

The most important difference between then and now, though, is this: how many Afghans and Iraqis had fled their respective countries in 2001 and 2003 before we invaded? The answer is: a small fraction relative to those who have fled since. Which leads to another obvious conclusion: we invaded Afghanistan and Iraq too early. The time to liberate those countries and to knock off their governments is now!

And if the time to do good is now, the converse is also true. Any delay, and anybody urging delay, is a racist. Let’s get started.

Update:  If it isn’t obvious, and apparently to some reader it is not, this post is not meant to be taken seriously.  I do not advocate for an overthrow of the government of Mexico or any other country.

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Income distribution and GDP, it matters

I should title this: Yeah, it is just like 1929 you freak’n see, hear, and speak no inequality monkeys.

I have this pile of income data sorted out from Saez’s work (the GDP is BEA). My thoughts regarding our economy is that income inequality (or equality) matters. It matters so much, that it is the all defining focus of government in a democracy. Every policy made should be judged against this goal of ever greater equality as we use the tool called “economy” for the betterment of our lives.

For most (even the tippy-top earners), the biggest share of income is not earned from money, but from labor, whether physical or cognitive. Because of this, there must be effort as reflected in our policy toward regulation and initiatives that continually work to equalize the share of income. I am confident, that just as Cactus showed there is a low and high to top marginal rates correlating with GDP growth rates, the same is true for share of income. That’s my thoughts.

I sorted out the share of income in dollars and percentages in the past and have posted them. This time I look at per capita income and compare them to GDP.

Starting at the low point for both groups in 1933, we see $6142/person (16.46% of the total personal income) for the top 1% and $315/person for the rest. The following chart shows the years of income and GDP doubling along with the top’s percentage share. I took the starting income and kept doubling it to find the year closest. A + or – means the actual income is before or after the year (between 2 years).

Income, GDP doubling chart

For the top, the number of years to double are: 9,19, 12, 7, 5, 11, 9
For the bottom 99 the number of years to double are: 8, 7, 17, 9, 7, 15,
For GDP the number of years to double are: 8, 5, 11, 11, 8, 7, 12, 13
The bold number is the last doubling before 1976.

If we look at 2005 incomes, it is clear the trend for years to income doubling was increasing for the 99%. For this group, 9 years past the last doubling, there has only been a 34.5% increase where as the top has doubled. It appears that the best income percentage for both the top and the rest is around 10 to 12%. Based on my prior posting, I will say with confidence that once the 1%’ers increase their share to 16% of the income we are screwed. That is because, it was as the 1%’ers passed through the 16% mark as their share declined (the income low point in 1933) that the post 1929 economy started its turn upward. On the other end of this time span, it was 1996 that the 1%’ers passed through the 16% point as their share increased. 1996is the year that the 99%ers income fell below the personal consumption line and has stayed there since. Can you say deficit spending? Another funny thing about the 30’s, the second recession, the top 1% hit 19.26% of the income in 1936. The WW2 turn around? The top 1%’ers share finally went below 16% in 1941 and never turned back.

However, here is the meat. Using 1976 as the center point of the range because it is the low point of the share of income for the top 1%, there are 5 times that GDP doubled for an average of 8.6 years per doubling. This during the time that income share was becoming more equal. As income became less equal over the next 32 years, there are only 3 doublings of GDP or once every 10.6 years. Also, the time between doubling is increasing to more than during the prior 43 years.

Now, for the class war aspect. In the first 43 years, the top 1% saw their income double only 3 times (1 every 14.3 yrs) compared to the bottom 99% seeing theirs double 4 times (1 every 10.75 yrs). During the next 32 years, the top 1% has experienced 4 doublings, one every 8 years compared to the 99% experiencing this only twice, one every 11 years.

Here is the graph that illustrates the relationship of shifting income share and GDP growth. Following Spencer’s past suggestion, the graph is a logarithmic scale.

Income per capita vs GDP graph 12-28-08

Basically, increasing of income was more equal and the economy grew more as the top was losing share. The post 1976 economic policy we have been following has quite frankly been killing our economy. Yeah, it sure benefited the top 1%, they got their’s. But, it could not last because, you can not have one group taking more out of the economic growth faster than it can grow. That, boy’s and girls is the lesson of the first 43 year compared to the last 32 years. For the first 43 years, GDP doubling was always ahead of the income. For the next 32 years, GDP growth was always behind the income which was do to the top 1%’s share. Their’s is the only income that increased faster than the economy. In chart form it looks like this:

First 43 years doubling: GDP 8.6 yrs,  99%’ers 10.75 yrs,  1%’ers 14.3 yrs.
Next 32 years doubling: GDP 10.6 yrs,  99%’ers 11 yrs,  1%’ers 8 yrs.

You know what else this is? It is the difference between reducing debt or increasing debt: Saving or spending tomorrow’s money. Unified budget (illegal) or general budget.

So, what should economic policy in a democracy strive to do? Promote more equality in the nation’s income which everyone helps to produce thus giving everybody a more equitable rise in their standard of living or promote the top 1%’s growth and the hell with all the rest? The rest being 99% of the population, the overall economic growth, the deficit, quality of life (retirement, health care, free time, better life for future generations) and just plain happier people who don’t find a need to fight with everyone else on the planet.

Personally, between this info and my post titled “It’s the big one honey, I know it…”, I think it’s rather clear exactly what needs to be promoted with policy. In case it’s not clear, there is this post “In the Beginning there was Income”.

Such policy if implemented will also act as the stop gap for this current downward trend better than anything proposed so far because it will be returning to the true purpose of an economy in a democracy like ours. Or, we can keep talking in quintiles hiding the truth and pretending that it’s just a housing bubble, and people spending to much, and a credit freeze and bad regulation and oil and lack of stimulus spending and it is not really like 1929 and…

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The end game is privatization…vouchers are one step

Jennifer Berkshire pointed Peter Greene to:

The election of Donald J. Trump as president offers the best opportunity in decades to shrink the size and power of government and increase individual liberty. 

So writes the Heartland Institute, a libertarian thinky tank, on a page devoted to all the Trumpian actions they approve of. This outfit was founded in 1984 by David H. Padden, a Chicago investor who had also been a director of the CATO Institute. They’ve advocated for fracking, stood up for tobacco companies, and advocate tireless for global warming denial. Plenty of related industries have been generous in supporting them, though they like to keep their money dark So, yeah– they’re Those Guys.

So it will come as no surprise that fifteen years ago they were laying out the program by which vouchers could be used to privatize education. Hat tip to Jennifer Berkshire, who turned up this article from Heartland’s website for February of 2002. As always, it’s interesting to see what some reformsters used to say back when they were just spitballing and not trying to spin.

Bast believed that we were at a tipping point, with vast support for vouchers poised to make them reality. As it turns out, his enthusiasm was overstated, a fact that he came to understand himself. Here he is quoted on the subject in a New York Times piece from just one year ago:

Complete privatization of schooling might be desirable, but this objective is politically impossible for the time being. Vouchers are a type of reform that is possible now…

And the NYT actually cut that quote short– the rest of the sentence is:

and would put us on the path to further privatization.

That quote goes back almost a decadeThe folks at Heartland are patient, and they have something now that they haven’t had for fifteen years– a Secretary of Education who has supported their group financially, and who is deeply in tune with their goals.

If you take nothing else from this piece, remember this– for many of the most ardent voucher supporters, school vouchers are not a destination, but just a stop-gap, something that will have to do until they can finally move on their real goal– the complete dismantling of public education in this country, replaced with a loose system of unaccountable, unregulated private schools. That fully privatized system, not a voucher system, is the goal. Keep your eye on the ball.

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Five graphs for 2017:final update

Five graphs for 2017:final update

At the beginning of the year, I identified 5 trends that bore particular watching, primarily as potentially setting the stage for a recession in 2018. Now that the year is ending, how did they turn out?

#5 Gas Prices

One potential pressure point on the economy was gas prices, which appear to have made a long- bottom in January of 2016. As they began to rise, consumer inflation has increased from non-existent to almost 3%. So the issue was, will they rise even further and drive inflation even higher?

Typically it has taken a 40% YoY increase in gas prices to shock the consumer.  Gas price increases did briefly approach that point early in the year, but then, with the exception of a brief spike after the Texas hurricane, they retreated. They are only a little higher YoY now:

There’s no pressure on customer’s wallets at all from gas prices.

#4 The US$

Another potential pressure point on the economy in 2015 was a big increase in the relative value of the US$, which was part of the shallow industrial recession of 2015.  The $ started to rise again after the November election.  Here too the data has calmed down again, and indeed gone the other way:

#3 Residential construction spending vs. mortgage rates

Another data point which rose sharply after the November election was interest rates.  Generally speaking, home building changes in the opposite direction of interest rates.  So would the increase in interest rates (e.g., mortgages) cause new residential construction to back off?

The slowdown duly appeared after the first couple of months of 2017, and continued through September. In the last two months, housing has increased strongly.  This hasn’t quite filtered through to residential construction spending:

Residential contruction spending is a very smooth, un-noisy series, but it does lag permits and starts by a few months,. Note that typically it has taken a big change in mortgage rates about 9 to 12 months to feed through into residential contructioni spending. so we are probably at about peak impact now.  This isn’t going to roll over either.

#2 The Fed Funds  rate vs. consumer inflation

If consumer inflation rose past the magic 2% Fed target, would the Fed chase it?  Apparently it didn’t matter. Inflation briefly did spike close to 3% YoY due to the increase in gas prices early this year, and the Fed duly hiked.  But it hiked again even after consumer inflation fell back down under 2%, which increasingly looks like a real ceiling in the Fed’s calculations:

The yield curve has begun to compress, but it is still positive. Still, it will be difficult to avoid an inversion in interest rates should the Fed stay on its current course with several more hikes.

#1 Real retail sales vs. real average hourly earnings

The final graph came  from my “alternate” recession forecasting model which turns on consumers running out of options to to continue increasing purchases (i.e., no interest rate financing, no wage real wage increases, and no increasing assets to cash in). The long term relationship has been that sales lead jobs, and jobs lead nominal wage increases, but real sales vs. wages are somewhat more nuanced. In the inflationary era, through the early 1990s, YoY wareal wage growth actually slightly led sales. In the deflationary era that dates from the alter 1990s, if anything the two are a mirror image, but in every case but 2001 (where real wage growth just decelerated rather than declined), both have been negative going into recessions. The below graph shows the last 20 years::

I would expect to see both sales and wages stall out before the onset of the next recession. Wage growth has weakened in recent months, and wage growth is now barely above zero. Meanwhile consumer spending has increased YoY, as the personal savings rate has decreased by about 1% in the past year.  While consumers are incresingly vulnerable to any inflationary shock, none has happened yet.

This  has been “the little expansion that could,” dodging bullet after bullet in the 8 1/2 years since it started.  If it continues another 15 months or so, it will become the longest expansion in history. None of the potential concerns from 12 months ago have come to fruition.

Next week we’ll start looking at five noteworthy graphs for 2018.

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Attention Republicans/Blue Dog Democrats: Tax cuts as stimulus work against your goal

 

(Dan B. here…I think it is still appropriate as it is a lesson yet to be learned.)

by Divorced one like Bush (2009)

I think it’s time to reread the World Bank report on what creates wealth because it seems that the arguments against the stimulus are from a mind-set of very narrow thinking about what creates wealth. They all seem focused on what the World Bank report calls “Produced Capital”. Unfortunately, focusing on just that aspect of capital reduces our nation to growth based on 18% of our economic power. And, as far as I have understood the arguments for tax cuts, they are based on effecting this small aspect of what produces wealth in a developed economy like ours.

“The rest of the story is intangible capital. That encompasses raw labor; human capital, which includes the sum of a population’s knowledge and skills; and the level of trust in a society and the quality of its formal and informal institutions. Worldwide, the study finds, “natural capital accounts for 5 percent of total wealth, produced capital for 18 percent, and intangible capital 77 percent.”

You know what that is? Democratic traditional spending priorities.

“Rich countries are largely rich because of the skills of their populations and the quality of the institutions supporting economic activity,” the study concludes. According to Hamilton’s figures, the rule of law explains 57 percent of countries’ intangible capital. Education accounts for 36 percent.”

Get that? It means tax cuts are just stupid policy if the goal is to stimulate a developed economy as strongly as possible such that the stimulus creates lasting wealth. Is that not the complaint by the republicans and blue dogs, the lack of lasting wealth which means jobs as the stimulus is written? What the World Bank report means is, if you want the biggest bang for your greenback, you have to weigh the heavy side of the stimulus to invest in “human capital, which includes the sum of a population’s knowledge and skills; and the level of trust in a society and the quality of its formal and informal institutions.”

You have to load the stimulus to the 77% side and not the 23% side (natural 5% and produced capital 18%). That is 3.4 human capital to 1 natural/produced capital. That means education (all forms and subjects), support for the economically disadvantaged (welfare, medicaid), health care (medicare, national health payment reform, system IT), risk prevention and recovery (law, fire/rescue, FEMA), science (greening energy, environment) and the arts (art districts, museums) to suggest a few.

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