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

Small Town Support for Trump and “The Working Class”

Small Town Support for Trump and “The Working Class”

Much has been written about voters, sometimes labeled the “white working class”, who live in small towns, have low incomes and supported Trump in 2016.  There are various hypotheses—not, despite the rhetoric, mutually exclusive—that have been proposed to explain this: never-ending latent racism galvanized by the experience of having a black president, a vote of despair in the face of economic decline, paranoia fueled by fictitious narratives of immigrant crowding and crime.  I just finished reading a post-mortem on the recent British election that, by analogy, suggests two more hypotheses about Trumpism:

1) With decades-long declines in deindustrializing areas, there has been a steady outflow of mostly younger residents.  This has a tendency to shift the politics of those who remain to the right based on age considerations alone, but the outflow is likely selective in other respects as well.  Those who light out to the cities are probably better educated and more tuned in to trends in metropolitan culture, taking their blue votes to jurisdictions that already pile up big majorities for Democrats.

2) What do people do when they lose their long-term jobs in manufacturing and the relatively well-paid services that cluster around manufacturing nodes?  If they don’t emigrate, what’s left?  Many look for bits of opportunity where they can find them, combinations of self-employment, gig work, off-the-books service work, etc.  Those who scrounge for income in these ways are the same people as the workers who were laid off during deindustrialization, but their class position has changed.  They no longer look to unions or government regulation to protect their interest against employers, quite the opposite.  Union work now competes with them, and regulation just makes it harder to cut the corners their livelihood depends on cutting.  In other words, their income has gone down but they are less “working class” than before.

Just to be clear, I’m not pushing these explanations.  They are just hypotheses, and it isn’t obvious to me what kind of evidence would adjudicate them.

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The chart of the decade

The chart of the decade

Today doesn’t just mark the end of 2019, but the end of the 2010’s as well. So it’s only suitable that I post the one chart that I think most explains the economy over the past 10 years.

In terms of public policy, that chart would be of the continual explosion of income and wealth inequality, particularly at the very top 0.1% or 0.01% of the distribution.

But in terms of explaining why the economy has chugged along at roughly 2% GDP growth every year for 10 years, with no recession, the below graph, that was part of my year-end review last week, sums it up nicely. Here it is again, the YoY changes in the Fed funds rate and the YoY% change in the price of gas:

What generally kills economic growth is either a sharp change in the cost of financing and/or a sharp increase in the costs of inputs. In the 2010’s we never had either. In 2018 we came close, particularly in a YoY change in gas prices, but it was an increase from a very low level, and it didn’t last that long.

This very long moderation in both interest rates and important commodity prices is the most basic explanation for the fact that the expansion that started in 2009 is still going on as we begin 2020.

See you on the other side. In the meantime, Happy New Year!

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Thiessen Balances His Policy Defense Of Trump

Thiessen Balances His Policy Defense Of Trump

Several days ago I posted on Marc A. Thiessen’s defense of 10 policies by Trump in WaPo.  I must now credit him with today on New Year’s Eve in the same venue publishing a column “The 10 worst things Trump did in 2019.”  Good for him, some balance after all.  I agree these are all bad things, although I disagree with some of his analysis of them, with a few caveats especially on a couple of the foreign policy items.  However, I shall just list them with Thiessen’s conclusion.

10. He ridiculously claimed “Our country is FULL”

9. He used anti-Semitic tropes to attack his enemies.

8. He said the Soviet Union was right to invade Afghanistan and congratulated China on the 70th anniversary of the Communist takeover.

7. He lost a needless government shutdown.

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A response to Kevin Drum: for wages and inflation, it’s all about the price of gas

A response to Kevin Drum: for wages and inflation, it’s all about the price of gas

Last week Kevin Drum had the following inquiry:

[H]ow is it that wages can go up but overall inflation remains so subdued? That seems to be the real disconnect here. During the dotcom boom, wages went up but inflation remained around 3 percent. During the housing bubble, wages didn’t go up and inflation remained around 3-4 percent. Right now, wages are going up but inflation has remained around 2 percent. Wages no longer seem to have much correlation with overall inflation.

I haven’t seen anyone address this specific issue, but I’d be interested in hearing more about it…. What’s the deal?

The answer here, I believe, is quite simply that in the modern era since 1983, consumer inflation more than anything else is about the price of gas. Let me show you why.

First, here’s the relationship that is the subject of Drum’s query: wages for non-supervisory workers (blue) vs. consumer inflation (red) YoY:

Overall inflation has been more variable than Drum’s summary indicates, but it is fair to say that during the 90’s and 00’s it averaged roughly between 1.5%-4% regardless of wage growth. During the present expansion,


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The Unreasonableness Of The Policy Defense Of Trump

The Unreasonableness Of The Policy Defense Of Trump

In today’s (12/27/19) Washington Post, regular Trump defender, Mark A. Thiessen published a column, “The 10 best things Trump did in 2019”  This turns out to be mostly things either not worth defending or Thiessen, who simply never criticizes Trump, misrepresenting situations.  Here they are.

10. “He continued to deliver for the forgotten Americans.”  This amounts to unemployment continuing to decline, wages beginning to rise, and supposedly 57 percent of Americans saying they are better off since he became president.  Yes, this by and large happened, but amounts to Trump managing to having avoided derailing the expansion he inherited from Obama.  The problem is that he enacted many policies that have hurt the poor and redistributed money to the rich.  They would have been even better off without his policies.

9. “He implemented tighter work requirements for food stamps.”  Yikes, more of his helping “forgotten Americans.”  This was the amazingly Scroogeish policy of dumping people from getting food stamps just as the holiday season arrived, probably part of the “War on Christmas.”  This supposedly to help the “dignity and pride” of the poor.  Sure, Scrooge himself could not put it better.

8. “He has gotten NATO allies to cough up more money for our collective security.”  I guess the outcome here is not a bad thing, per se, although the amounts of  money involved are not all that big.  But this has been the only thing he has done regarding NATO, managing to alienate most of the leading nations in NATO, with him raising serious doubts regarding whether he would actually defend a nation that might be attacked by Russia.  Their attitude is best seen by the bunch of leaders mocking him on tape at the last NATO meeting.  They hate his guts and disrespect him.

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Trump Brags About Record Defense Spending

Trump Brags About Record Defense Spending

Niv Elis covers the latest in the Trump fiscal fiasco:

President Trump on Friday signed two spending packages totaling $1.4 trillion, averting a government shutdown at midnight. The bills included all 12 annual appropriations bills for the 2020 fiscal year that started Oct. 1. They also included a slew of tax cuts, extending expiring and expired tax breaks and eliminating other taxes that amount to an additional $426 billion in lost revenue, bringing the total cost of the bill to more than $1.8 trillion.

Reagan used to complain about “tax&tax and spend&spend” so he replaced it with spend&spend and borrow&borrow. Trump is doing the same but there’s more:

Trump’s signature brings to a close a fraught year for spending. At the same time last year, his refusal to sign a stopgap measure over funding his proposed border wall led to a 35-day shutdown, the longest in the nation’s history. The Democratic majority in the House, which was seated in the midst of the shutdown, left Trump with little to show for the shutdown by way of wall funding. After finally striking a deal to reopen the government in February, Trump proceeded to declare a state of emergency along the Southern border to allow him to reprogram other funds. Not long after, Trump released his annual budget proposal that would have hyper-charged military spending while dramatically cutting domestic spending, slashing more than 20 percent of funds from the EPA, State Department, and Transportation Department, and abolishing funding for popular programs such as the National Endowment for the Arts, the Corporation for Public Broadcasting and the Special Olympics. Congress summarily dismissed the request and ultimately agreed to a deal that would increase spending on both defense and non-defense significantly for both 2020 and 2021. Congressional leaders would need two stopgap measures spanning nearly three months to work out spending allocations, find compromises on controversial issues such as the wall and agree on additional legislation to include in the package.

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Review: Secondhand

by David Zetland (originally published at One-handed Economist)

Review: Secondhand

I read this 2019 book at record speed due to its breezy (“magazine”) tone and discussion of one of my favorite passions: reusing old stuff.

A few years ago Adam Minter wrote Junkyard Planet about the trash trade, but many readers told him about how they reused stuff rather than about their trash. Their passion led to this book (subtitle: Travels in the New Global Garage Sale) on the second-hand goods that are exported by businesses and non-profits in the US and Japan, via processors in India, to various Asian and African countries.

Perhaps the most important fact I learned is how little we know about the secondhand-world. Data is missing due to the “used” nature of the goods, their missing objective value (“one mans trash is another man’s treasure”), and the informal trade of “worthless” things among some very poor people.

That’s the summary. Now I will list my notes and highlights to summarize what I learned and why you might want to read it.

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The endowment effect and the taxation of wealth

The endowment effect and the taxation of wealth

As you may recall, I am reading the histories of a number of past Republics which have had various levels of success. Without getting too far ahead of myself, it appears that one constant is that, once plutocratic oligarchies are entrenched, they will refuse to yield power or money, even to the point of destroying democratic or republican institutions.  In other words, David Frum‘s observation that “If conservatives become convinced that they can not win democratically, they will not abandon conservatism. They will reject democracy” is true not just at the present, but across history.

I raise this in the context of Elizabeth Warren’s proposal for a “wealth tax.” Leaving aside its practicality or even Constitutionality, the above historical observation is probably at the root of the apoplexy with which plutocrats have reacted against it.

A further context to consider this issue is what psychologists and behavioral economists call “the endowment effect.” The endowment effect describes the consistent result that people would rather retain something that they have acquired – even if by charity, chance, or gift – than earn the  same thing when they do not own it. Put another way, people’s maximum willingness to pay to acquire something is typically lower than the least amount they are willing to accept to give it up, even when there is no cause for attachment, or even if the item was only obtained minutes ago, and was not in any way “earned.”

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How Long Will US Foreign Net Income Dark Matter Continue?

How Long Will US Foreign Net Income Dark Matter Continue?

The United States became a net foreign debtor in 1985. With current account deficits every year since then, net foreign indebtedness has steadily increased since and reached a reported total of -$10.56 trillion as of Sept. 30 this year, a substantial total.

However, while many have long predicted that this mounting net foreign indebtedness would eventually lead to the US also having a net negative capital income flow, it has not happened. In 1985 when the US initially went into net indebtedness, the US had a net surplus on capital income of about $30 billion. Rather than shrinking, that surplus apparently increased somewhat in the subsequent 34 years. As of the second quarter of this year, it appears that the annual surplus of capital income was running in the neighborhood of $100 billion.

While there are serious sources of uncertainty and noise in much of this data, it certainly seems that US-owned assets abroad are earning far higher rates of return than what foreigners are earning from their assets in the US. This has for quite a long time been labeled the “dark matter” phenomenon.

The question arises: how long can this odd situation continue?

Barkley Rosser

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What’s behind the subprime consumer loan implosion

Via Naked Capitalism  comes an explanation of what income inequality looks like in the US.  It stands in contrast to the Bloomberg article pointed to by Yves in her introduction.  I pulled the quotes with a non-economic person in mind.

THE WOLF STREET REPORT    transcript of podcast by Wolf Richter.

Subprime doesn’t mean poor or uneducated. Subprime means having a credit score below 620…
(Dan here) For example:
Aggressive subprime lending went into overdrive starting in 2014, and private equity firms piled into it, and smaller banks went after it, and it’s now coming home to roost  . . .
This includes healthcare costs, and it includes food costs, and apartment rentals, and cars have gotten a lot more expensive, and the like. But cars and apartments and cellphones have gotten a lot better too, and these quality improvements are added to the price. Think of the move over the years from a four-speed automatic transmission to an eight-speed automatic, or from two airbags to 10 airbags, or from a basic cellphone to a smartphone . . .
But for figuring the inflation measure of the Consumer Price Index, the costs of these quality improvements are removed from the index. This is the principle of hedonic quality adjustments . . .

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