Category Archives: Global Economics

Guggenheim investment chief sees a recession and a 40% plunge in stocks ahead

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My Comments: We can argue ‘till we’re blue in the face about when this is going to happen and none of us will be right. Just know it will happen.

There’s a reference in Scott Minerd’s comments below about the Fed raising interest rates. Here is a chart I found some time ago that shows interest rate trends since 1790. 225 years and there have been only FOUR points that define the end of a downward interest rate trend. The last one is where we are today.

The last uptrend ran from 1946 through 1981. What this tells me is that for the rest of my life, interest rates are going to trend upward, and with that trend we’ll see all kinds of consequences. Like before, some will be good and some will be bad. Good luck.

Scott Minerd, Guggenheim Partners, April 6, 2018

Guggenheim’s head of investing sees a tough road ahead for the market and economy, with a sharp recession and a 40 percent decline in stocks looming.
Scott Minerd, who warned clients in a recent note that the market is on a “collision course with disaster,” expects the worst of the damage to start in late 2019 and into 2020.

Along with the decline in equities, a rise in corporate bond defaults is likely as the Federal Reserve raises interest rates and companies struggle to pay off record debt levels.

“For the next year … equities will probably continue to go up as we have all these stock buybacks and free cash flow,” Minerd told CNBC’s Brian Sullivan in a “Worldwide Exchange” interview. “Ultimately, when the chickens come home to roost and we have a recession, we’re going to see a lot of pressure on equities especially as defaults rise, and I think once we reach a peak that we’ll probably see a 40 percent retracement in equities.”

One of the main problems is that Congress and President Donald Trump have pushed through aggressive fiscal policies at a time when the Fed is looking to control growth with higher interest rates and less accommodative monetary policy.

Corporate debt currently stands at a record $8.83 trillion, according to Securities Industry and Financial Markets Association data. Higher rates will make it harder for companies to refinance and will put pressure on them once the stimulative effects of tax cuts wear off, Minerd said.

Once short-term rates hit 3 percent, that will be enough to drive up defaults and cause a recession, he added.

“As interest rates keep ratcheting higher, with record levels of corporate debt it’s going to be harder and harder to service,” Minerd said. “At some point, as the economy starts to mature and as cash flows start to stabilize and decline, it’s going to be difficult for everybody to pay this interest.”

“Defaults are going to be concentrated in corporate America, where in the past downturn they were basically focused in areas of consumer activity,” he added.

From there, Minerd figures the Fed will get involved, going back to the quantitative easing policies that helped pull the economy out of the last recession and pushed a surge in stock market prices but also coincided with lackluster economic growth.

“All that will do is defer the problem into the future and allow excesses to continue to build and the collision course that we’re on will just come later and probably be worse,” he said.

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Can the Country Survive Without a Strong Middle Class?

My Comments: Most of the recent talk about the Constitution comes in the wake of the tragedy in Parkland, Florida, for obvious reasons. The attention is well deserved but I’d have you think about more than just the 2nd Amendment.

At the national level, if not across the globe, society is re-evaluating itself. Are the values we hold dearly still valid? Are the roles played by the various participants serving our best interests? Are you willing to let the so called ‘elite’ change the economic and social landscape that most of us enjoy without allowing us to express our thoughts? Have we given them so much power that it now makes no difference?

If you’ve followed me for long, you’ve heard me talk about income inequality and the subtle effects it has on not just our society, but in virtually every society on the planet. I hope you will read this, regardless of your political leanings, as it will influence every aspect of the lives of your children and grandchildren. And the clowns in Washington, DC are not helping matters.

Rebecca J. Rosen / Mar 21, 2017

In a powerful new book, the legal scholar Ganesh Sitaraman argues that America’s government will fall apart as inequality deepens.

The U.S. Constitution, it is fair to say, is normally thought of as a political document. It lays out the American system of government and the relationships among the various institutions.

But in a powerful new book The Crisis of the Middle-Class Constitution, the Vanderbilt legal scholar Ganesh Sitaraman argues that the Constitution doesn’t merely require a particular political system but also a particular economic one, one characterized by a strong middle class and relatively mild inequality. A strong middle class, Sitaraman writes, inspires a sense of shared purpose and shared fate, without which the system of government will fall apart.

I spoke with Sitaraman about his book last week at The Atlantic’s offices in Washington, D.C. A transcript of our conversation, edited for clarity, follows.

Rebecca J. Rosen: Your new book, The Crisis of the Middle-Class Constitution, is premised on the idea that the American Constitution is what you call a middle-class constitution. What does that mean?

Ganesh Sitaraman: The idea of the middle-class constitution is that it’s a constitutional system that requires and is conditioned on the assumption that there is a large middle class, and no big differences between rich and poor in a society.

Prior to the American Constitution, most countries and most people who thought about designing governments were very concerned about the problem of inequality, and the fear was that, in a society that was deeply unequal, the rich would oppress the poor and the poor would revolt and confiscate the wealth of the rich.

The answer to this problem, the way to create stability out of what would have been revolution and strife, was to build economic class right into the structure of government. In England, you have the House of Lords for the wealthy, the House of Commons for everyone else. Our Constitution isn’t like that. We don’t have a House of Lords, we don’t have a House of Commons, we don’t have a tribune of the plebs like they had in ancient Rome.

At the time, people debated having a wealth requirement for entry into the Senate, but that didn’t happen. That would have been a common thing in the generations and centuries prior to the creation of the U.S. Constitution. So there’s actually a radical change in our Constitution that we don’t build economic class directly into these institutions. The purpose of the Senate, with its longer terms, is to allow representatives to deliberate in the longer-term interest of the republic, and that’s the goal of the Senate.

What we have is a constitutional system that doesn’t build class in at all, and the reason why is that America was shockingly equal at the time in ways that seem really surprising to us today.

Rosen: Of course, the point here isn’t only that class is ignored, or left out of the Constitution, but that the Constitution actually relies on a kind of equal society in order to function. Could you explain the premise there?

Sitaraman: That’s exactly right. The idea is that the Constitution relies on a relatively equal society for it to work. In societies that are deeply unequal, the way you prevent strife between rich and poor is you build class right into the structure of government—the House of Lords, House of Commons idea. Everyone has a share in government, but they also have a check on each other.

In a country that doesn’t have a lot of inequality by wealth, you don’t need that kind of check. There’s no extreme wealth, there’s no extreme poverty, so you don’t expect there to be strife, to be instability based on wealth. And so there’s no need to put in some sort of check like that into the Constitution.

That’s how our Constitution works. The reason why it works this way is that when the founders looked around, they thought America was uniquely equal in the history of the world. And I know that seems crazy to say, but when you think about it, it makes sense. If you imagine in the late 18th century, America is a sparsely populated area, just on the coast of the Atlantic, with some small towns and cities, and lots of agrarian lands, and it’s really at the edge of the world, because the center is western Europe. It’s London, it’s Paris, and when Americans look across the ocean at those countries, what they see is how different it is. They see that there’s a hereditary aristocracy, something that doesn’t exist in America. There’s feudalism, which doesn’t exist in America. There’s extreme wealth, there’s extreme poverty, neither of which really exists in America. As a result they don’t need to design a House of Lords and a House of Commons, they don’t need a tribune of the plebs in order to make their constitution work.

“The assumption of our original Constitution was that society would be relatively equal.”

Rosen: Of course, there was slavery at the time—and it was built directly into the Constitution.

Why Britain needs the immigrants it doesn’t want

My Comments: As someone born on British soil, I am more than casually interested as Britain comes to terms with it’s choice to leave the European Union. Immigration is but one of several areas with huge economic implications for Britain in the coming years.

There are parallels between what is expressed in this article by Ivana Kottasova and what the United States is moving toward in terms of immigration. The immigration fault lines in this country and the efforts of the current administration to curtail immigration will significantly influence the economic well being of your children and grandchildren in the years to come.

by Ivana Kottasová / Oct 18, 2017

Britain has a problem: It wants fewer immigrants, but its economy desperately needs more.

The British government is seeking to slash the number of immigrants from the European Union following its departure from the bloc in March 2019.

It’s planning tougher controls despite warnings that more EU workers are needed to harvest the country’s crops, build homes for its citizens and build its next startup.

The risks are especially pronounced in health care.

The National Health Service says there are over 11,000 open nursing jobs in England, and another 6,000 vacant positions across Scotland, Wales and Northern Ireland.

The overburdened system, described by the British Red Cross as facing a “humanitarian crisis,” already relies on 33,000 nurses from the EU.

“We would describe the NHS as being at the tipping point. There are huge staffing problems,” said Josie Irwin, head of employment at the Royal College of Nursing. “Brexit makes the situation worse.”

Jason Filinras, a 29-year old from Greece, was recruited last year to work as a front line nurse at a hospital just north of London.

Filinras joined the hospital’s acute admissions unit, where he runs tests and determines how to treat patients after they have been stabilized in the emergency room.

“If you have a patient who is not able to take care of themselves, you have to do all the basic things for them — from helping them with washes, helping them with toilet, feeding them,” he said.

Heis just one of 250 nurses recruited from the EU by the West Hertfordshire Hospitals Trust over the past two years to work in its three hospitals. EU citizens now make up 22% of its nursing staff.

The trust didn’t have a choice. The unemployment rate is at its lowest level in four decades, and there simply aren’t enough British nurses.

The shortage of workers cuts across sectors — from agriculture to education — and across skill levels. There aren’t enough fruit pickers and there aren’t enough doctors.

The political impetus to reduce immigration from the EU can be traced to 2004, when Britain opened its borders to workers from eight eastern European countries that had joined the bloc.

Government officials expected 5,000 to 13,000 people from the countries to come to Britain each year. Instead, 177,000 came in just the first year.

Critics say that increased immigration has changed the fabric of local communities, and undercut the wages of British workers.

It’s an argument that has currency with voters. Immigration was the most important issue for voters ahead of the Brexit referendum in June 2016, according to an Ipsos Mori poll.

Theresa May, who became prime minister in the wake of the EU referendum, has promised to bring annual net migration below 100,000. The figure was 248,000 in 2016.

It had been difficult to meet the target because EU rules allow citizens to move freely around the bloc. May says that Brexit will mean an end to free movement.

“The government is putting politics above economics, which is quite a dangerous game,” said Heather Rolfe, a researcher at the National Institute of Economic and Social Research.

Labor economists say that a radical decline in immigration would hurt the British economy.

The Office for Budget Responsibility, the government’s fiscal watchdog, said that 80,000 fewer immigrants a year would reduce annual economic growth by 0.2 percentage points.

“To lose these people would be pretty tough and it would mean that some sectors might find it very difficult to survive,” said Christian Dustmann, professor of economics at University College London.

Some EU workers, upset over political rhetoric and a lack of clarity about their legal status, are already leaving Britain. Net migration from the EU fell to 133,000 last year from 184,000 in 2015, according to the Office for National Statistics.

The impact is already being felt: The Nursing and Midwifery Council said that roughly 6,400 EU nurses registered to work in the U.K. in the year ended March, a 32% drop from the previous year. Another 3,000 EU nurses stopped working in the U.K.

“It’s all this uncertainty that will make us leave,” said Filintras. “I can’t say that I am 100% sure that I won’t think about leaving.” If he does move home, he will be hard to replace.

Irwin said the British government has made it less attractive for new British nurses to enter the profession by scrapping college scholarship programs and capping salaries. Applications for nursing courses are down 20% as a result.

Nurses make an average of £26,000 ($34,600), while German supermarket chain Aldi offers college graduates a £44,000 ($58,500) starting salary and a flashy company car.

Trouble also looms in other sectors.

A third of permanent workers supplying Britain with food are from the EU, according to the Food and Drink Federation.

The British Hospitality Association, which represents 46,000 hotels, restaurants and clubs, has warned that the sector faces a shortfall of 60,000 workers a year if the number of EU workers is sharply curtailed.

KPMG estimates that 75% of waiters and waitresses and 37% of housekeeping staff in Britain are from the EU. British farms are heavily dependent on seasonal workers from the bloc.

“If you cannot harvest your strawberries anymore … then supermarkets might buy the strawberries directly from Poland,” said Dustmann.

Business groups and labor unions have repeatedly called on the government to moderate its negotiating position. But May has shown no signs of backing down.

“The government is interpreting the vote to leave the EU as a vote against immigration … and to some extent that is true,” said Rolfe.

Boston, a town on the east coast of England, shows why: According to census data, the town’s foreign-born population grew by 467% in the decade to 2011. In 2016, the town had the highest proportion of voters choosing to leave the EU.

The Consequences of the U.S. Baby Bust

My Comments: We’re in the middle of a national re-assessment of who we are as a nation, what we value, and how we want our lives to play out going forward. It’s a stressful time for a lot of reasons.

Our nation today is very, very different from the one found by father and his two siblings when they immigrated to the US. They arrived in Santa Barbara, CA in 1921, from England via New Zealand. Chances are the United States in 2071 is going to be very, very different from the one you and I know today.

One of the forces at work is our attitude toward immigrants. That, coupled with a declining birth rate in this country, is going to have a profound influence. You can like Trump or you can hate him, but he’s an expression of a natural inclination in response to societal pressures. Young people today, and they will soon represent a majority of voters, have markedly different priorities than those of us who have already fought the wars.

By Justin Fox on September 20, 2017

As people in other wealthy countries fretted in the 1990s and 2000s over what falling birthrates would mean for economic growth and retirement-program finances, the U.S. seemed to have far less to worry about. Fertility here remained at or near the replacement rate of 2.1 births per woman over her lifetime, and the country’s long-honed ability to attract immigrants and quickly integrate them into the workforce provided a further economic boost.

Times have changed. Immigration has been a contentious topic lately, and illegal immigration has gone into reverse since 2007. Still, legal immigrants are still arriving and contributing to population growth.

Babies are another matter. Over the past decade, the U.S. has joined the ranks of wealthy countries not producing enough of them to keep the population from falling, in the absence of immigration.

This data from the Organization for Economic Cooperation and Development only goes through 2015, but the Centers for Disease Control and Prevention has released provisional numbers for 2016 that show births to be down another 1 percent in the U.S. from the year before. The 3.94 million births last year were the fewest since 1995. As a share of population, the birthrate was the lowest ever.

The decline since 2008 is new enough that experts are still debating whether it’s a blip or a trend. Maybe it’s another of those millennial quirks — like putting off buying a car or moving to the suburbs — that will normalize as the economy continues to improve. The sharpest birthrate declines have been among teenagers, which seems like a positive development. Also, one could argue that population growth and economic growth aren’t so great anyway and we’d be better off with a steady-state economy.

I’m going to stick with the conventional assumptions, though, that economic growth is helpful in resolving societal conflicts, paying for social insurance programs, and generally making people’s lives better, and that population growth is a major driver of economic growth. In that case, the fact that U.S. births have fallen below the replacement rate is significant even if we can’t be sure they’ll stay so low, and worthy of more attention and consideration than it has gotten so far.

For one thing, it adds some useful context to the immigration debate. As I showed in a column last month (and economist Lyman Stone documented in far more detail a few days later), current immigration flows into the U.S. aren’t high by historical standards. But the foreign-born share of the population isn’t far from the peaks of the late 1800s and early 1900s. Why’s that? Mainly because the birthrate is so much lower now than it was then.

So does the recent fall in the birthrate mean that the U.S. needs more immigration, to keep economic growth from slowing even further, or less immigration, to keep the foreign-born share of the population from getting so high that integration is endangered? My natural tendency is to lean toward the former, but I can understand if you disagree. This is a political question, and it seems like the falling birthrate mainly just makes it an even more contentious one.

Getting the birthrate back up, then, might actually help in resolving some of our political debates over immigration. 2 But that’s a lot easier said than done! What got me thinking about this topic was an article by Bloomberg’s Raine Tiessalo about Finland, where fewer babies were born in 2016 than in any year since 1868 — the final year of a great famine that killed 15 percent of the country’s people. Yet Finland does almost everything conceivable to encourage its citizens to have kids. It is the second-best place in the world to be a mother, according to one ranking. It has great schools, ample daycare, generous parental leave, free universities and cheap health care. To top it off, all new mothers get a swell baby box. Writes Tiessalo:
Introduced in 1937, containers full of baby clothes and care products are delivered to expectant mothers, with the cardboard boxes doubling up as a makeshift cot. The idea behind the maternity packages was prompted by concerns over high infant mortality rates in low-income families. The starter kits were eventually extended to all families.

Despite these enticements, the Finns produced just 9.6 babies per 1,000 people in 2016, compared with a rate of 12.2 in the U.S., the 33rd-best place in the world to be a mother. In August, the head of the Finnish Social Democratic Party tried urging women to have more babies as a patriotic duty, and caught flak for that. Designing child-friendly policies is one thing. 3 Changing how people live and think in a free society is a lot harder.

Our Aging Workforce Needs Foreigners

I’m part of our aging workforce. I’m semi-retired, spending less money every month than I used to, and knowing that I have far fewer years to live than those in my children’s generation.

To have the same successful retirement that I’m hoping for, they will be fighting the same battles I’ve fought, but likely for more years.

This is because the United States is undergoing both a demographic and an economic shift.

My middle class life was sustained during years of economic growth driven by a demand for more and more of everything. A new car, a bigger house, longer vacations, etc., and that drove the growth of companies created to supply stuff to satisfy the demand. Those employed to provide the supply to satisfy the demand were largely home grown, supplemented by people from across the planet who filled the gaps created by those of us who by this time were further up the economic ladder.

Today, what’s left of the middle class are having fewer children, and having them later in life. Technology in the form of robots are now more economical in terms of output than were people a few years ago. Even China is today beginning to shift toward robots building stuff to export the stuff we like to buy. College graduates in this country, burdened with staggering debt loads, not only are having trouble finding good paying jobs, but are also less inclined to buy a house, a new car, etc., because they simply don’t have the money.

A decrease in demand, coupled with a shrinkage in the supply of labor, means the economy will shrink. Baby boomers will still demand health care. The dilemma is who is going to pay for it. Printing more money will simply lead to inflation, a self-defeating reality.

People with no money do not buy much. So unless we are willing to simply let people die in the streets, we as a society must find a way to provide care. One of the engines of growth is a hungry population willing to work and spend money to support their cravings for bigger and better. Immigration will not guarantee growth, but without a supply of labor you can almost guarantee there will be no growth.

By Joseph Coughlin and Luke Yoquinto 22 Aug 2017

Earlier this summer, Rep. David Schweikert, a Republican congressman from Arizona, delivered some hard truths to a session of the House of Representatives. “We have a math problem, and it is based on demographics,” Schweikert said on June 28. “I am a baby boomer. There are 76 million of us who are baby boomers, who are heading towards retirement. That demographic curve is changing the cost structure of government.”

This was back during that precarious period when Obamacare repeal-and-replace efforts had succeeded in the House but hadn’t yet floundered in the Senate, and Schweikert was lending voice to an aspect of the legislative push that had gone more or less unsaid, at least in public. To austerity-minded policymakers, the Better Care Reconciliation Act represented an exceedingly rare opportunity—“once in a lifetime,” wrote Grover Norquist—to rein in Medicaid spending before the U.S. population grew significantly older and more reliant on public funds. “It is time for almost revolutionary thoughts,” Schweikert said. “We need to look at the budget holistically.”

Between Schweikert’s take on the future solvency of Medicaid, Medicare, and Social Security and the ongoing efforts of President Trump and congressional Republicans to push the BCRA into law, Republican policymakers have demonstrated real concern about the economic dependency of the old and sick on the young and gainfully employed.
Which is, from a certain point of view, fair enough: The Republican Party, at least in its platonic form, exists to limit government’s reach, and our aging population, it could be argued, may force that reach to extend. It would be strange if no Republicans pushed back.

And perhaps that was why it was so peculiar when, a little more than a month after Schweikert’s demographics lesson, President Trump announced he would embrace the RAISE Act, a legislative one-two punch co-sponsored by Sens. Tom Cotton of Arkansas and David Perdue of Georgia, also staunch supporters of the Republican health care effort. RAISE, if signed into law, would change the admissions criteria for legal immigrants and, more concerning from a demographics perspective, reduce their numbers by half within a decade. To the limited extent that the American working-age population continues to grow, immigrants are responsible. And so, for leaders of a party with clear apprehensions regarding the ongoing ability of the country’s workers to support its older adults, slashing legal immigration would seem, to put it gently, inconsistent.

President Trump has weathered charges of inconsistency before, but this time may be different. His campaign promise to make America great is in a category of its own—the ur-promise from which all his other promises descend. And the passage of RAISE will likely violate it in a very tangible way.

It’s not just that the legislation’s legal-immigration cuts would damage the economy, a fact most economists affirm. It’s that RAISE would hurt the American economy relative to the economies of other countries. And for those who want America to be first in all things, that outcome may prove difficult to stomach.

The cuts entailed by RAISE aren’t extreme—at least, not by international standards. They would not put us in the hermetic company of Japan, which admits very few new permanent residents, or lump us in with Switzerland and Denmark, where new immigrants must pay a high ticket price for admission, sometimes out of future wages. Even under this new proposed policy, the U.S. would still accept more newcomers, in raw terms, than any other country except perhaps Germany. (On a per-capita basis, however, the U.S. is nowhere near the top of the list of immigration-friendly countries.)

But even if such a policy wouldn’t make the U.S. an immigration outlier, it would still be a spectacularly regrettable unforced error. In fact, it’s such a bad move precisely because it would put the U.S. on a level footing with more restrictive countries. As it stands, immigration is granting America an underappreciated edge that it would be a mistake to blunt.

Populations around the world are aging—in some cases, with alarming speed—for three reasons. Birthrates in the vast majority of the world’s nations have fallen since the middle of the 20th century. (In some countries, such as India, Mexico, and Brazil, birthrates have outright plummeted.) That means fewer younger people. At the same time, life expectancy has risen, and despite recent, well-publicized downticks in the U.S., the overall trend continues to point north. Finally, in some of the countries that were heavily involved in World War II, an enormous cohort of baby boomers is just now crossing into retirement age.

As a result, by 2030, more than 20 percent of the U.S. population will be age 65 or older, a demographic breakdown slightly older than that of today’s Florida. Germany, Greece, Italy, Portugal, Sweden, and many other wealthy countries have already achieved Floridian status, and Japan is ranging far ahead with a quarter of its population aged 65-plus. On the balance, societywide aging is a good thing—in our opinion, every extra year of life is a gift—but it still poses serious challenges beyond even the monumental-yet-crucial task of maintaining a safety net for older adults. One inevitable consequence of global aging is the shrinking of labor pools and even, in select countries, the waning of entire populations. China, Japan, Russia, much of Eastern Europe, and many other countries are now either experiencing population decline or will begin it soon.

The very real possibility of such trends manifesting in either the raw or working-age populations of the U.S. should alarm anyone who claims an interest in American greatness. Consider, for instance, yet another stated priority of President Trump: infrastructure construction. Baby boomer retirement is hitting the construction industry hard, and taking with it able bodies and institutional knowledge. Positions in the skilled trades, such as machinists, welders, electricians, and HVAC technicians, were ranked the hardest for employers to fill in 2016 according to a survey conducted by staffing company Manpower. Such shortages will only worsen in the coming years as retirements accrue. Adecco, another staffing company, estimates that retirements in the aforementioned fields as well as general construction; mechanical, electrical, and industrial engineering; plumbers and pipefitters; and others will mean that 31 million skilled-trade positions will be left unfilled by 2020, almost a tenth of the population of the United States. As a result, contractors will have to either turn down jobs, slowing growth, or else raise their wages and therefore their rates, an expense that would likely be passed along to taxpayers in the event of a major infrastructure push.

And that’s just the construction-related industries. Others facing mass retirement include the petrochemical, defense, transit, agriculture, financial advisory, and railroad industries. Air-traffic controllers, hired en masse after Ronald Reagan fired their predecessors in 1981, are now retiring en masse. The ranks of doctors and nurses—especially internists and, in an unfortunate twist, geriatricians—are also thinning. Even the Hoover Dam, perhaps the country’s most quintessentially American piece of infrastructure, is now running short of workers qualified to operate its machinery.

Despite ongoing, frenzied discussions of the potential for advanced automation to take American jobs, these crucial shortfalls continue to go overlooked. U.S. companies are already finding it difficult to entice the staff they need, as Slate’s Daniel Gross has written. Who, in the next two decades, will run our economy and grow our food? It’s not just a matter of retraining those currently unable to find work. The economy is already at or near full employment, and at a certain point, the U.S., like other aging nations, will simply need more warm bodies.

Japan is quietly addressing its labor shortage by admitting foreign workers as temporary “trainees.” Germany is attempting to stall an incipient population decline by increasing its acceptance of immigrants and refugees. (Both countries are also finding ways of keeping older workers happy in their longtime jobs, from adopting exotic exoskeletons to making workplace ergonomic adjustments—a strategy that would also benefit the U.S.) Meanwhile, China, poised to experience the largest demographic swing of any nation, is losing millions of people from its workforce every year. The resulting spike in wages is one possible explanation for why President Xi Jinping recently laid off 300,000 troops from the country’s armed forces.

In the United States, the birthrate is 1.9 children per woman, slightly below the replacement rate of roughly 2.1. Thanks only to the twin inputs of immigration and the relatively large size of new immigrant families, the U.S. population is still growing slowly and stably. Without immigration, however, the population would begin to fall as soon as 2040, according to unpublished data supplied to us by Jeffrey Passel, a senior demographer at the Pew Research Center. (The projection, originally made in 2015, assumes that immigration would have been cut off starting that year.)

Thanks to its current inflow of immigrants, the U.S. has, and will continue to have, one of the youngest populations among wealthy nations. That relative youth equates to a better-than-average (though still troubling) ratio of workers to nonworkers and, at least in theory, a good crop of workforce replacements for baby boomer retirees. Without immigrants, however, we would be staring cross-eyed down the barrel of a far more threatening demographic future, filled with economic malaise, higher taxes, and even disastrous cuts to Medicaid, Medicare, and Social Security.

Legal immigration has become a partisan issue, but it shouldn’t be. Economists might disagree about whether to adopt a system that prioritizes highly skilled immigrants, as the RAISE Act proposes. (It’s worth mentioning, however, that the RAISE Act’s salary rules would keep out home-health aides, which the aging United States will soon need in droves, as Vox’s Sarah Kliff recently pointed out.) But there is broad agreement that slashing the raw number of immigrants to the U.S. would be an economic mistake. Immigration has been shown to have little to no effect on wages for native-born workers, and has even been called an “economic boost” by the George W. Bush Foundation.

Congress understands the stakes involved in cutting off America’s youth supply. Schweikert even mentioned it in his June 28 speech: “You do understand, as a nation, we functionally have zero population growth without immigration?” Though population aging may not be news to our political leaders, the question of whether they will prioritize the economic competitiveness of the nation over nativism remains open. We get it: There are people in this country who just don’t like immigration. But presumably a lot of those same people would feel more comfortable living in a world where America, bolstered by a healthy economy and a workforce strengthened by legal immigration, retains its geopolitical clout. As it stands, the world at large is sending the United States a precious resource—young people—free of charge. You can want an America with far fewer of these immigrants, or you can want America to be great. In this era of population aging, however, you can’t have both.

Source Article HERE

Neoliberalism: the idea that swallowed the world

Wednesday = Global Economics

If you are anything like me, you’re uncomfortable with the forces at work across society that are creating tension, fear and animosity everywhere you look. When you add the ever present slurs and crude expletives, the message often gets lost. My definition of civility is way out of date. Instead of trying to understand what’s being said, I get caught up in the way the message is told, and ignore the message itself. Everything becomes a pain in the ass.

Do you know what the term ‘neoliberalism’ means? Before I read these comments by Stephen Metcalf, I thought it might be a good thing. Mindful that I’m essentially a liberal, left of center person, he says the term describes a right-wing wish list.

Metcalf suggests that for neoliberals, the the only legitimate organizing principal for humanity is competition. If mom delivers triplets, one baby is going to ultimately get pushed aside. There can only be winners and losers. By extension, if you were born in poverty, or your skin was the wrong color, or your parents were assholes, that’s too bad. If you turned out to be tall and athletic, you might make it to the NBA. It’s everyman for himself and if you come out with the short stick along the way, that’s too f***ing bad. Think Haiti, as an example.

While I personally acknowledge the presence of competition in the grand scheme of things, it’s never a guiding principal behind every outcome. This is a long article, so if you want all of it, you’ll have to click on the ‘read it here’ image.

By Stephen Metcalf August 18, 2017

Last summer, researchers at the International Monetary Fund settled a long and bitter debate over “neoliberalism”: they admitted it exists. Three senior economists at the IMF, an organisation not known for its incaution, published a paper questioning the benefits of neoliberalism. In so doing, they helped put to rest the idea that the word is nothing more than a political slur, or a term without any analytic power. The paper gently called out a “neoliberal agenda” for pushing deregulation on economies around the world, for forcing open national markets to trade and capital, and for demanding that governments shrink themselves via austerity or privatisation. The authors cited statistical evidence for the spread of neoliberal policies since 1980, and their correlation with anaemic growth, boom-and-bust cycles and inequality.

Neoliberalism is an old term, dating back to the 1930s, but it has been revived as a way of describing our current politics – or more precisely, the range of thought allowed by our politics. In the aftermath of the 2008 financial crisis, it was a way of assigning responsibility for the debacle, not to a political party per se, but to an establishment that had conceded its authority to the market. For the Democrats in the US and Labour in the UK, this concession was depicted as a grotesque betrayal of principle. Bill Clinton and Tony Blair, it was said, had abandoned the left’s traditional commitments, especially to workers, in favour of a global financial elite and the self-serving policies that enriched them; and in doing so, had enabled a sickening rise in inequality.

Over the past few years, as debates have turned uglier, the word has become a rhetorical weapon, a way for anyone left of centre to incriminate those even an inch to their right. (No wonder centrists say it’s a meaningless insult: they’re the ones most meaningfully insulted by it.) But “neoliberalism” is more than a gratifyingly righteous jibe. It is also, in its way, a pair of eyeglasses.

Peer through the lens of neoliberalism and you see more clearly how the political thinkers most admired by Thatcher and Reagan helped shape the ideal of society as a kind of universal market (and not, for example, a polis, a civil sphere or a kind of family) and of human beings as profit-and-loss calculators (and not bearers of grace, or of inalienable rights and duties). Of course the goal was to weaken the welfare state and any commitment to full employment, and – always – to cut taxes and deregulate. But “neoliberalism” indicates something more than a standard rightwing wish list. It was a way of reordering social reality, and of rethinking our status as individuals.

Still peering through the lens, you see how, no less than the welfare state, the free market is a human invention. You see how pervasively we are now urged to think of ourselves as proprietors of our own talents and initiative, how glibly we are told to compete and adapt. You see the extent to which a language formerly confined to chalkboard simplifications describing commodity markets (competition, perfect information, rational behaviour) has been applied to all of society, until it has invaded the grit of our personal lives, and how the attitude of the salesman has become enmeshed in all modes of self-expression.

In short, “neoliberalism” is not simply a name for pro-market policies, or for the compromises with finance capitalism made by failing social democratic parties. It is a name for a premise that, quietly, has come to regulate all we practise and believe: that competition is the only legitimate organising principle for human activity.

No sooner had neoliberalism been certified as real, and no sooner had it made clear the universal hypocrisy of the market, than the populists and authoritarians came to power. In the US, Hillary Clinton, the neoliberal arch-villain, lost – and to a man who knew just enough to pretend he hated free trade. So are the eyeglasses now useless? Can they do anything to help us understand what is broken about British and American politics? Against the forces of global integration, national identity is being reasserted, and in the crudest possible terms. What could the militant parochialism of Brexit Britain and Trumpist America have to do with neoliberal rationality? What possible connection is there between the president – a freewheeling boob – and the bloodless paragon of efficiency known as the free market?

It isn’t only that the free market produces a tiny cadre of winners and an enormous army of losers – and the losers, looking for revenge, have turned to Brexit and Trump. There was, from the beginning, an inevitable relationship between the utopian ideal of the free market and the dystopian present in which we find ourselves; between the market as unique discloser of value and guardian of liberty, and our current descent into post-truth and illiberalism.

Moving the stale debate about neoliberalism forward begins, I think, with taking seriously the measure of its cumulative effect on all of us, regardless of affiliation. And this requires returning to its origins, which have nothing to do with Bill or Hillary Clinton. There once was a group of people who did call themselves neoliberals, and did so proudly, and their ambition was a total revolution in thought. The most prominent among them, Friedrich Hayek, did not think he was staking out a position on the political spectrum, or making excuses for the fatuous rich, or tinkering along the edges of microeconomics.

He thought he was solving the problem of modernity: the problem of objective knowledge. For Hayek, the market didn’t just facilitate trade in goods and services; it revealed truth. How did his ambition collapse into its opposite – the mind-bending possibility that, thanks to our thoughtless veneration of the free market, truth might be driven from public life altogether?

Income Inequality and Local Politics

My Comments: As an economist, I’ve talked consistently about the threat to society posed by income inequality. My rantings make zero difference at the national level, where if this issue is not addressed, there will be rioting in the streets.

A friend and I talked this morning about the apparent collapse of societal norms he and I have used to navigate our lives for the past 60 years. Our hope now is that with the antics of 45 now a daily happening, the backlash from within the GOP and Democratic party, coupled with inevitable demographic changes, we’ll come out OK. Unfortunately, “hope” is rarely an effective management strategy.

Meanwhile, I’ve also become more engaged with elected people at the local level. And so while I can do little more than talk about it, I’m sharing this article with people I enjoy spending time with who might collectively be called progressives.

Thursday, Dec 29, 2016 \ Theo Anderson

In 1980, the top 1 percent earned 27 times more than workers in the bottom 50 percent. Now, they earn 81 times more

The income gap between the classes is growing at a startling rate in the United States. In 1980, the top 1 percent earned on average 27 times more than workers in the bottom 50 percent. Today, they earn 81 times more.

The widening gap is “due to a boom in capital income,” according to research by French economist Thomas Piketty. That means the rich are living off of their wealth rather than investing it in businesses that create jobs, as Republican, supply-side economics predicts they would do.

Piketty played a pivotal role in pushing income inequality to the center of public discussions in 2013 with his book, “Capital in the Twenty-First Century.” In a new working paper, he and his co-authors report that the average national income per adult grew by 61 percent in the United States between 1980 and 2014. But only the highest earners benefited from that growth.

For those in the top 1 percent, income rose 205 percent. Meanwhile, the average pre-tax income of the bottom 50 percent of workers was basically unchanged, stagnating “at about $16,000 per adult after adjusting for inflation,” the paper reads.

It notes that this trend has important political consequences: “An economy that fails to deliver growth for half of its people for an entire generation is bound to generate discontent with the status quo and a rejection of establishment politics.”

But the authors also note that the trend is not inevitable or irreversible. In France, for example, the bottom 50 percent of pre-tax income grew by about the same rate — 32 percent — as the overall national income per adult from 1980 to 2014.

The difference? In the United States, “the stagnation of bottom 50 percent of incomes and the upsurge in the top 1 percent coincided with drastically reduced progressive taxation, widespread deregulation of industries and services, particularly the financial services industry, weakened unions and an eroding minimum wage,” the paper reads.

Piketty and Portland

President-elect Donald Trump’s administration promises at least four years of policies that will expand the gap in earnings. But a few glimmers of hope are emerging at the local level.

The city council of Portland, Oregon, for example, recently approved a tax on public companies that pay executives more than 100 times the median pay of workers. The surtax will increase corporate income tax by 10 percent if executive pay is less than 250 times the median pay for workers, and by 25 percent if it’s 250 and over. The tax could potentially affect more than 500 companies and raise between $2.5 million and $3.5 million per year.

The council cited Piketty’s “Capital in the Twenty-First Century” in the ordinance creating the tax. Steve Novick, the city commissioner behind it, recently wrote that “the dramatic growth of inequality has been fueled by very high compensation of a few managers at big corporations, as illustrated by the fact that 60 to 70 percent of people in the top 0.1 percent of income in the United States are highly paid executives at large firms.”

Novick said that he liked the idea when he first heard about it because it’s “the closest thing I’d seen to a tax on inequality itself.” He also said that “extreme economic inequality is — next to global warming — the biggest problem we have in our society.”

Investing in children

There is also hopeful news in the educational realm. James Heckman, a Nobel Laureate in economics at the University of Chicago who has spent much of his career studying inequality and early childhood education, recently published a paper that lays out the results of a long-term study.

In “The Life-cycle Benefits of an Influential Early Childhood Program,” Heckman and others report that high-quality programs for children from birth to age 5 have long-term positive effects across a range of metrics, including health, IQ, participation in crime, quality of life and labor income.

Predictably, perhaps, the effects of the programs weren’t limited to children. High-quality early childhood education also allowed mothers “to enter the workforce and increase earnings while their children gained the foundational skills to make them more productive in the future workforce,” a summary of the paper reads.

“While the costs of comprehensive early childhood education are high, the rate of return of [high-quality programs] imply that these costs are good investments. Every dollar spent on high quality, birth-to-five programs for disadvantaged children delivers a 13 percent per annum return on investment.”

The research is important because early childhood education has bipartisan support. Over the summer, the Learning Policy Institute released a report that highlighted best practices from four states that have successful early childhood education programs. Two of them — Michigan and North Carolina — are swing states in national politics. The others are Washington and a solidly red state, West Virginia.

Although it isn’t a substitute for other policy tools to address inequality, like progressive taxes, early childhood education has strong bipartisan support because it produces measurable payoffs for both children and the economy. One study found, for example, that the economic benefit of closing the educational achievement gaps between children of different classes would be $70 billion each year.

Early childhood education fosters an “increasingly productive workforce that will boost economic growth, provide budgetary savings at the state and federal levels, and lead to reductions in future generations’ involvement with the criminal justice system,” the Economic Policy Institute recently noted. “These benefits will, of course, materialize only in coming decades when today’s children have grown up. But the research is clear that they will materialize — and when they do, they are permanent.”