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Life is going to turn very nasty if we can’t solve the growth puzzle

My Comments: I’ve written before about income inequality and the effect it will have on society if we do not find a solution.

The ever long crisis in the Middle East arises from vast segments of the population having very little compared to a small ruling class who have a lot. Using religion as a way to remedy their poverty is all they have left in a society where democracy is essentially a sham.

The US built it’s global leadership in the 20th Century on the backs of the middle class who had a realistic expectation of rising up the economic ladder toward prosperity. That is now disappearing. Think college students borrowing money to gain an education and being saddled by crippling debt until they reach middle age.

Prosperity permeated society. The upper class paid taxes to help the lower classes because it gave them more money with which to buy stuff. Our military was second to none across the planet. Today the middle class in the United States is shrinking. The number of working poor is rising. Birth rates are declining. The 1% are favored by our leaders with tax cuts. Add the effects of a con man in the White House and things are going to get nasty.

This is a long article, written for Britain specifically, but for any of you concerned about the world your children and grandchildren will inherit, you need to pay attention and vote accordingly. Assuming there are candidates who also understand this looming problem and are willing to fight to solve it.

by Andrew Rawnsley \ November 25, 2017

One of the earliest examples of the personal computer was the LGP-30. Created in 1956, it had a tiny fraction of the processing power contained in the slim phone that I carry in my pocket. This artefact from the Jurassic era of computing was also excruciatingly expensive. Its retail cost was $47,000. That’s more than $400,000 in today’s money.

This is one way of illustrating why productivity matters so much. It is by improving the efficiency of making things that more people can have better stuff at cheaper prices. Getting more from each hour worked allows wages to rise, lifts living standards and boosts the tax take to finance additional government spending on desirable services. It is this which ultimately underwrites political promises and makes us feel we are getting better off. Absent improvements in productivity, everything else goes to pieces. Including politics. Especially politics.

Which is why it wasn’t any of the big sounding numbers in the budget that counted. The figure that really mattered was a tiny one. That number was 1.2%, which is the revised amount by which the Office for Budget Responsibility thinks productivity will grow per year. From that alarmingly small number, it projects other frighteningly small numbers. The economy will grow by less than 2% in each of the next five years. That means protracted wage stagnation. This forecast, grim as it sounds, is based on one rosy assumption, which is that Brexit has a relatively benign effect on the economy. A bad Brexit would make things considerably worse.
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These small numbers have large consequences. The period since the Great Crash of 2008 is turning into the most stagnant era for living standards since records began. If Britain is now stuck in a low-growth rut, this will be massive. It will fundamentally reshape political argument and very likely blast apart existing parties. It already is. We will be taken in directions that will be highly challenging and to places that could be extremely unpleasant. For all of the life of every adult living in Britain, there have been economic ups and downs and governments have come and gone with the booms and busts. Yet the overall picture has seemed steady. It was the shared assumption of both politicians and voters that the economy would expand at a reasonable clip over time. It was the essential foundation of the expectation that most people would be better off than their parents. The parties argued about how to divide the cake, but they shared a belief that the size of the cake would carry on growing at a respectable rate. That made the dividing business a lot easier. If the cake ceases to grow – or increases at such a glacial pace that it feels like a stop to many folk – that is going to have vast implications.

Let’s start with the least important consequence, which is what this might mean for our current rulers. It has been a rough-and-ready rule that governments improve their chances of re-election if most people feel they are becoming better off. “You’ve never had it so good”, as Harold Macmillan didn’t quite say on his way to an election victory in 1959 as an incumbent presiding over a buoyant economy. Governments struggle to retain support if voters think living standards are stalling or falling.

This rule doesn’t explain everything about election results, but it is a significant component of most. Take our two most recent contests. In 2015, David Cameron was lucky that the timing of the election coincided with a brief period when real disposable incomes were rising. It helped him to justify the pain of austerity on the grounds that a pay-off was beginning to show up in people’s pockets. The Tories improved on their performance of five years earlier and won a narrow majority. Two years on, Theresa May chanced her arm with the electorate when real disposable incomes were once again being squeezed. She tried to change the subject by making the June election about other things, notably Brexit, but that didn’t really work. The stagnation of living standards gave traction to Jeremy Corbyn’s argument that the rules of the economy are rigged in favour of the rich. The Tories lost their narrow majority.

That was not the only difference between those two elections, but it was one of the important ones. If the Tories can stretch this parliament to its full length, they will next face the voters in 2022. You wouldn’t fancy their chances if most people are feeling no better off than they do now and some feel worse off than they were at the time of the Great Crash. Put another way, if Labour were not to win the next election in those circumstances, Labour would only have itself to blame. A low-growth future will be nightmarish for governments of any complexion. It will be much harder to fulfil their promises. Every budget will be difficult. To raise the funds to meet pressure for spending on public services, taxes will have to go up – and it won’t be just “the rich” and companies paying more. Or there will have to be a moderation in expectations of what the state can deliver.

The challenges of a low-growth era will be just as sharp for Labour as for the Tories. It may be more acute for Labour with its historical impulse to promise a New Jerusalem. John McDonnell can use the growth forecasts to attack the current management, but he’d best hope that they are not accurate if he ever ends up in the Treasury with responsibility for trying to find the money to make good on all of Labour’s spending promises. The solution won’t be found on an adviser’s iPad.

In a low-growth future, there might be more of an audience for the view that we over-emphasise economic goods. If there’s not much growth to be had anyway, the Greens and those of a similar inclination could win a wider hearing for the contention that there are more important things in life. My hunch is that it will take a long time to acclimatise most citizens to the idea that growth is no longer a given.

One likely effect on political argument is that it will become more ferociously polarised, an amplification of a trend that is already evident. Desperate times breed more extreme remedies. It is no coincidence, as the old Marxists liked to say, that Brexit, Trump and other populist eruptions have occurred during the long squeeze on living standards that has followed the financial crisis. Brave politicians may try to start an adult conversation with the electorate about the hard choices that follow from low growth. The cowardly, the desperadoes and the unscrupulous will take the national conversation in darker directions. If they can no longer plausibly promise to make people better off, some pursuers of power will seek to create dividing lines around identity and nationality. That ugly trend is already manifest at home and abroad.

A more beneficial use of political energy would be to find out why growth has become so anaemic and do something about it. Politicians have been slow to come to a subject that has been troubling economists for some time. All the advanced economies are struggling with “the productivity puzzle”. The syndrome does seem especially chronic in Britain, but it is not unique to us. This is unfortunate. If other countries had cracked the problem, economists would no longer call it a “puzzle” and we could copy the solutions.

The left contends that low wages, inequality and corporate hoarding are the principal villains. The right prefers to find the fault in regulation and tax. There is merit in various arguments, even if they always seem to suit the pre-existing prejudices of those advancing them. There are some obvious things that government can try to do, such as addressing skills shortages and deficient infrastructure. There are some obvious things that government ought not to do, such as disrupting the relationship with our most important trading partners. But the fact that the “puzzle” is afflicting a wide variety of countries with different political histories suggests that there is not one simple, catch-all cause or solution.

A politically neutral explanation for low productivity growth is that humanity is simply not coming up with enough breakthrough ideas. Ever since the first clever woman lit the first fire, human progress has been powered by discovery, from seasonal crop rotation, to the steam engine, to the computer chip. Ingenious members of our species are still coming up with smart innovations, but it is argued that none of them is significant enough to trigger a new wave of growth.

Are there any sources of optimism? Some. I’ve a hunch that “driverless cars” are not the miracle solution, and my scepticism is reinforced because so many politicians are trying to get into them, but humanity hasn’t lost its talent for invention. Another hope is that economists are wrong, which they often are. One reason they could be wrong about growth prospects is because it has got harder to accurately measure productivity. They may be too pessimistic about it.

If the future is low growth, our politics will change in ways which could be very nasty. Let’s hope that the economists are wrong. Or that someone out there has a very clever idea.

Source: https://www.theguardian.com/commentisfree/2017/nov/26/life-is-going-to-get-very-nasty-if-we-cannot-solve-the-growth-puzzle


3 Things That Affect When You Should Apply for Social Security

My Comments: As you approach your retirement and your 62nd birthday, this question becomes increasingly relevant.

Retirement is that point in your life when you essentially quit working for money and instead money starts working for you. The challenge is to make sure it’s working hard enough to keep you from running out of money before you run out of life.

Social Security benefits have become an absolute requirement for millions of Americans to maintain an existing standard of living as they age.

by Brian Stoffel \ April 17, 2017

You can choose to take Social Security as early as age 62 and as late as age 70. When to claim your benefits is a question many retirees take a long time to consider. To make the best decision, it’s important to look at how your monthly benefits change based on when you begin receiving them.

Currently, the average retirement benefit check from the program is $1,360, and the average retirement age is the earliest option, 62. But if recipients waited, these checks could get much bigger. Here’s what it would look like for those born in 1954 and earlier:

As you can see, those aren’t small differences. On the one hand, if you wait until age 70, your monthly benefit will be a whopping 76% higher than if you claim right away. On the other hand, if you do decide to delay your benefits that long, you’ll go almost a decade with no Social Security income coming in even though it was an option.

While there are tons of different variables that affect when you should apply for Social Security benefits, the following three questions often play an outsize role.

1. How do you feel when you get up and go to work in the morning?

This may seem like an odd place to start, but hear me out. Most people worry about having enough money to retire — that is an important concern, and we’ll get to it in a bit. But there’s one big blind spot to tackle first: hedonic adaptation.

You’ve likely heard hedonic adaptation being used in the context of getting used to lifestyle improvements, as in, “Even after buying the new car to keep up with the Joneses, Mark was still miserable — that’s hedonic adaptation for you.”

But in truth, it works both ways: We can have much less materially, and not be nearly as depressed about it as we’d expect.

If you want proof, I point you toward a Merrill Lynch/Age Wave survey that came out in 2015. When respondents of different ages were asked how often they felt happy, content, relaxed, and/or anxious, here’s how they responded:


And lest you think that this was just a survey of wealthy respondents, it was “nationally representative of age, gender, ethnicity, income, and geography.”

The bottom line is that if you hate your work and you can make ends meet on Social Security plus other sources of income, you shouldn’t wait to apply for benefits.

2. Can you make ends meet?

Of course, we can’t forget entirely about money. In the survey mentioned above, 7% of retirees said retirement was less fun and more stressful than pre-retirement years. The main culprit: financial concerns.

Almost all retirees report spending less in retirement than while they were working, and these expenses continue to fall as people age. Of course, everyone has heard about rising healthcare costs — and it’s true that healthcare expenses do jump. But there’s a host of other realities that keep costs down: less money spent on transportation costs commuting to and from work, a drop in food costs as you can make your own food more often, and a house finally being paid off in full, to name a few.

In general, you’ll need to calculate how much income you’ll get from three streams:

  • Social Security and/or pensions
  • Withdrawals from your own retirement accounts, using the 4% rule
  • Other forms of income

The “other” forms of income could come from rental properties you own or even part-time work.

The bottom line is that you should try living for six months on this income to ensure that it’s suitable.

3. Have you coordinated with your spouse?

Finally, we have to deal with the sobering reality that one partner often lives longer than another. In that situation, Social Security has a simple rule: The surviving spouse gets to either keep his or her current benefit, or assume the benefit of the deceased — whichever is larger.

It’s important to remember that, statistically speaking, wives will live longer than their husbands. And if husbands were the higher earners, they may want to consider waiting as long as possible to claim their benefit, as it maximizes what their wives will receive after they pass away.

In this respect, there are a dizzying number of variables to consider, and I suggest doing further reading to figure out which will be best for you and your partner.

In the end, if you can answer these three questions accurately, you’ve got a good grasp on the factors affecting when to claim Social Security benefits.

Source: https://www.fool.com/retirement/2017/04/17/3-things-that-affect-when-you-should-apply-for-soc.aspx

Forget the 4% Retirement Rule…

My Comments: With much of my time these days building a new business around retirement planning, the question of how long your money will last has huge implications.

The 4% rule evolved in years past using the assumption that it would keep you from running out of money before you died. That assumption is not longer valid, given the age to which many of us live, the increasing cost of health care, and the likelihood of a major market crash on the horizon.

So what to do? Whatever you decide, it’s a crap shoot. However, these thoughts from Dan Caplinger might be helpful.

by Dan Caplinger \ June 11, 2017

Whenever you’re striving toward a financial goal, it’s helpful to have a number in mind. That’s why the 4% retirement rule is so popular among retirement savers: It gives you a way of figuring out exactly how much money you should aim to save toward retirement. Yet there are several ways in which the 4% retirement rule falls short of working perfectly, and some investors feel more comfortable merely using the rule as a starting point and then looking to improve on it.

The appeal of the 4% retirement rule

People like the 4% rule because of its simplicity. To figure out how much you can afford to withdraw from your retirement savings, just multiply it by 4%. You can use the rule to reverse-engineer how much you need to save. If you expect to need $40,000 per year in retirement, then save $1 million, because 4% of $1 million is $40,000.

The 4% rule does have analytic origins, going back to research in the early 1990s that looked at the historical returns of various types of investments. The conclusion of the research was that with a balanced portfolio between stocks and bonds, you could start by taking 4% of your savings the first year, and then increasingly that amount by the rate of inflation every year after that. So as an example, if you saved $250,000 in your retirement account, then the first year, you’d withdraw $10,000. If inflation was 3%, then in year 2, you’d withdraw $10,300. Subsequent payments would grow with inflation, keeping your theoretical purchasing power constant. If you did that, according to the research, you would be able to make your money last at least 30 years into retirement.

Some problems with the 4% rule

The seeming simplicity of the 4% rule hides some flaws. The first is that it’s based entirely on backward-looking performance data. Admittedly, the analysis included some very tough market environments, including the Great Depression. However, there’s no guarantee that future markets might not be worse, and that could lead to the rule no longer working as intended. In particular, bad performance early in retirement has an especially adverse impact on the 4% rule, because the reduction in principal value increases the percentage of your entire portfolio that you withdraw each year. For instance, if you withdraw 4% the first year and then your portfolio loses 50% of its value, then the next year’s withdrawal under the rule will be around 8%.

In addition, there are reasons to believe that current market conditions differ from what have usually prevailed in periods in which the rule worked well. Most notably, interest rates are extremely low, and that has reduced the amount of income that the bond side of the investment portfolio can produce. This will therefore require sales of assets to finance the withdrawal amounts in retirement. Moreover, the risk of capital losses on bond investments is higher than normal because of the low rate environment.

On the flip side, the 4% rule is too conservative in certain circumstances. Because the rule is designed to deal with a worst-case scenario, it is usually far more cautious than it needs to be. That means you’ll have money left over at your death, and while that might be useful for your heirs, you might have missed out on a more secure retirement by not spending as much as you could have.

Can you improve on the 4% rule?

Researchers have looked at the question of how to get better results from the 4% rule. Some of the proposed changes include the following:

  • If you’re willing to allow for the potential of reduced withdrawals if the market performs badly, then it can dramatically extend how long a portfolio can last. Even if you only cut your withdrawal by 5% or 10%, it can nevertheless be enough to allow you to increase your withdrawal slightly without jeopardizing long-term viability.
  • If the market does exceedingly well early in retirement, then it can be viable to boost your withdrawal rate slightly.
  • Making personal adjustments for life expectancy can be useful. For instance, some retirees are living well into their late 90s, making a 30-year period too short and requiring a smaller withdrawal percentage. Yet for others, 30 years is longer than they have a legitimate right to expect, and so a larger percentage might make more sense. Just keep in mind that once you make a decision, it’s hard to go back and change it if it turns out you were too pessimistic in your assessment.

As a starting point, the 4% rule is a useful way to estimate how much you’ll need when you retire. By understanding its limitations, you can look at making refinements that will more accurately reflect your own personal retirement savings needs. That way, you’ll have a retirement strategy that will work best for you.

Source: https://www.fool.com/retirement/2017/06/11/forget-the-4-retirement-rule-heres-a-smarter-way-t.aspx

Maybe We Should Take Socialism Seriously

My Comments: To me, it’s both pathetic and amusing to hear political candidates rail against the idea of ‘socialism’ and declare it’s mankind’s greatest threat.

Like so many of the ‘…isms” applied to economic models of all stripes, socialism is no more a threat to the health and welfare of any society than is capitalism or communism. Well, maybe communism, but certainly not capitalism.

Unfettered capitalism, as some would have it today, is not far from the feudalism of long ago in that the masses would be under the thumb of a wealthy elite whose only motivation is the preservation of their power. Does any of that sound familiar to you?

by Noah Smith \ October 26, 2018

When President Donald Trump’s Council of Economic Advisers released a 55-page report called “The Opportunity Costs of Socialism,” many economists scoffed. But the report is important, because it shows that big, systemic economic issues are again being considered. And it provides an interesting jumping-off point for those important discussions.

Two decades ago, it seemed as if capitalism had decisively won the battle of ideas. The collapse of the Soviet Union and the grinding poverty of Mao’s China and communist Vietnam and North Korea clearly demonstrated that the most extreme versions of socialism were disastrous. But even in non-communist countries, attempts at regulation, nationalization and redistribution suffered big setbacks. The License Raj, a system of heavy-handed business regulations in India, was repealed, and the country’s growth leapt ahead. Privatizations and other market-oriented reforms in the U.K. helped the British economy make up ground it had lost. Sweden made its fiscal system much less progressive, and North European countries deeply reformed their labor market regulations.

But as inequality of income and wealth steadily rise in countries like the U.S., and as populism and political discontent roil nations across the globe, some are beginning to question the consensus that emerged at the end of the Cold War. Polls show an increasing number of young Americans responding favorably to the word “socialism”:
Openly socialist candidates are starting to win a few elections in the U.S., and calls to end capitalism are starting to appear in the mainstream news media with increasing frequency.

The CEA’s new report should be seen in this light. It’s an indication that both socialism’s proponents and its opponents have begun to take the idea seriously again. With the world troubled not just by inequality but also by productivity stagnation and the threat of climate change, it’s time to ask whether there are big systemic improvements that could be made.

The CEA report shows just how long it has been since such a discussion was held. A key explanation of socialism is taken from “Free to Choose,” a 1980 book by Milton and Rose Friedman. The economics profession has shifted decidedly to the left since those days, but most economists now concern themselves with highly specific topics rather than the grand sweep of political-economic systems. The people spending their time thinking about socialism, capitalism and other really big ideas are now more likely to be the writers of Teen Vogue or activists on Twitter. Let’s hope the CEA report will prod more economists, who tend to have more empirical knowledge and theoretical depth, to think bigger.

But although it’s an important conversation starter, the report doesn’t do a good job of comprehensively debunking socialism in all its forms. Some of the examples it invokes are particularly inapplicable to the modern day, and it overlooks much of the evidence in favor of an expanded role for government.

For instance, the report highlights collectivized agriculture as a prominent example of a socialist failure. Collectivized farming is indeed a disastrous policy, failing essentially everywhere it has been tried, and leading to widespread famine and death. But modern-day socialists in Western countries are — wisely — not calling for this. Instead, the industries they want to nationalize are health care and (possibly) finance.

Socialized health insurance exists in many countries — for example, France, Canada, and Japan. The costs and benefits of government health insurance systems don’t have to be assumed — they can be observed. The U.S., with its unique hybrid of public and private insurance, pays much more than other rich countries for the exact same medical services — and achieves similar health outcomes. Meanwhile, the U.S. biggest government health insurance system, Medicare, holds down prices much more effectively than its private counterparts:

A Glossary of Basic Investment Terms

My Comments: Financial literacy has to start somewhere.

If you are planning for an eventual retirement and want to grow your money between now and then, a degree of financial literacy is mandatory. Start here…

by Emma Johnson \ June 1, 2018

If you’ve ever scanned the business headlines, you’re probably familiar with terms like the S&P 500, ETFs and bull markets. But do you actually know what they mean, or how they compare to related investing lingo like the Dow, mutual funds and bear markets?

If you said no, you’ve got plenty of company. In one recent Bankrate survey, nearly half of those 25 and younger said a lack of knowledge about investing kept them from putting money in the market. And in a recent Harris Poll, 69% of adults 35 and younger said they found investing, and the accompanying jargon, complex and confusing.

So we’ve rounded up 19 common investing terms you’ve probably heard, but may not really understand, and given you the lowdown on all of them.

Bear vs. bull market

A bull market is when everything is just wonderful: Markets are on the rise and investors are confident that strong results will continue. Though the market can have “bullish” days, technically, a bull market is when the market increases in value at least 20%. Hint: Bull market means “up” because real-life bulls attack by driving their horns up in the air.

A bear market is the inverse: The market—and investor confidence—is declining. The job and housing markets may also be down. The upside, however is that bear markets are a bonanza for savvy investors, as prices have recovered historically (and then some) after every bear market. You can remember that it means “down” because bears attack their victims by swiping their paws downward.

Stock vs. bond
Stocks, or shares of a publicly traded company, are a fundamental element of most investment portfolios. The value goes up and down with the company’s financial well-being—and with shareholders’ perception of that company’s well-being. They’re risky, but potentially rewarding.

Bonds are essentially loans that you give to the issuer, which can be a corporation, municipality or the federal government. When you buy, you do so with the expectation of getting paid back, with interest, in a certain amount of time—criteria that render bonds a low-risk, if boring investment.

ETFs vs. mutual funds
An ETF is a stock, bond or commodity fund that usually tracks an index. Because they’re more passively run, they tend to charge lower fees. They’re also traded like common stocks at varying prices throughout the day.

A mutual fund—which pools your money with other investors to purchase stocks, bonds and other assets—is professionally managed and therefore tends to come with higher fees. Shares are priced once based on their net asset value (NAV) at the end of the trading day.

Money market vs. savings account
A money market account (MMA) is a bank account that typically pays a higher interest rate than checking and many savings accounts (for which the average interest rate is currently less than .50%). MMAs have check-writing abilities, as well as ATM or debit cards; and, like savings accounts, federal regulations restrict you to no more than six withdrawals a month. There’s usually a higher minimum balance requirement for MMAs compared with savings accounts.

Passive vs. active funds
Calling an investment fund “passive” or “active” refers to how it’s managed. Passive funds are run with a hands-off approach, and therefore generally come with lower fees. Index funds, for example, are set up to move in tandem with associated indexes, like the S&P 500, and mirror their returns.

Active funds, on the other hand, are handled by investment managers, who attempt to beat their benchmarks by making a wider variety of investments. You’ll pay more in fees in exchange for their expertise.

Growth vs. value stocks
Growth or value? Both, if you want a balanced investment portfolio.

Growth stocks have a recent history of above-average performance. While all signs suggest these investments (think: newer companies, especially ones in the tech sector) will continue growing, they’re risky because you’re solely relying on the company’s success for your investment to appreciate.

Value stocks are investments that trade at a lower price than their fundamentals, like high dividend payments and company earnings, might indicate. That effectively puts these stocks in the bargain bin, and savvy investors may be able to capitalize.

Investing vs. trading
Both investing and trading are means to the same goal: making money from the financial markets. Yet they represent different functions.

Investing typically refers to “buy and hold,” meaning investors create a balanced portfolio of stocks and bonds, and hold on to them for the long-term—gaining from the power of compound interest and weathering the natural up-and-down market cycles.

Trading, by contrast, is a much more active effort to profit, requiring a trader to frequently buy and sell investments with the aim of beating out buy-and-hold investors. It also comes with more risks.

401(k) vs. IRA
A 401(k) is an employer-sponsored retirement savings account, where you can contribute a maximum of $18,000 pretax ($24,000 if you’re over 50) in 2016. As an incentive to save, many employers match a portion of your contributions. (Free money!)

An IRA, which stands for individual retirement account, is accessible to anyone. This year, you can contribute up to $5,500 pretax (plus another $1,000 if you’re 50 or older) in a traditional IRA.

With a few notable exceptions, you’ll pay a 10% penalty for withdrawing funds from either of these retirement accounts before age 59½.

Roth IRAs are a bit different. Provided you don’t earn more than the income limits, you can contribute up to $5,500 ($1,000 more if you’re 50 or older) posttax dollars, but it grows tax-free. You’re allowed to withdraw funds you contribute—but not any gains—anytime without penalty.

S&P 500 vs. Dow vs. Nasdaq
The Dow Jones Industrial Average, DJIA, -0.43% a.k.a “the Dow,” is an index that tracks 30 large, established, U.S.-based companies across all sectors. Today, these include companies like 3M, MMM, +0.31% Coca-Cola, COKE, +0.76% Apple, AAPL, -6.63% Nike NKE, -0.27% and Walmart.
WMT, +0.76% As such, the state of the Dow often serves as a general pulse of the economy in the minds of the media, investors and general public.

When people refer to “The Nasdaq,” NDAQ, +0.00% they’re typically talking about the Nasdaq Composite—a price-weighted index of more than 3,000 companies listed on the exchange of the same name. Because it’s is so much bigger than the Dow, a glance at the day’s Nasdaq can give a broader view of the economy, though it’s skewed toward the tech sector.

The S&P 500 refers to the Standard & Poor’s 500 index, which includes, yes, 500 primarily large-cap stocks selected by a team of analysts and economists at Standard & Poor’s. It’s often used as a benchmark for the stock market because it includes a significant portion of the market’s total value.

My source: https://www.marketwatch.com/story/confused-about-these-investing-terms-youre-not-alone-2018-05-10

The Danger From Low-Skilled Immigrants: Not Having Them

My Comments: To Make America Great Again, the presumably well intended mantra for those leading the GOP these day, someone has to overcome ignorance of economics and start paying attention to reality.

A positive corporate bottom line is the driving force for a healthy US economy. To reach that goal, we need people willing to spend time in the trenches doing whatever grunt work is necessary. Despite machines that increasingly automate the grunt work, a supply of young people has to match the demand created until artificial intelligence takes over.

The supply of labor is not going to miraculously appear. A greater number of us are old and fragile, and fertility rates among young men are declining. Exactly who is going to look after all us old folks because we refuse to hurry up and die?

We should be encouraging immigration and refugees. Yes, there is a potential security threat, which implies applying resources to screen and maintain a reasonable level of security. And yes, someone is probably going to get killed or maimed or whatever when someone nefarious sneaks through.

The laws of supply and demand are well known. Right now we have an increasing demand for labor, which can only stabilize with either more people being allowed into the country, or a dramatic increase in the cost of labor to force more of us to get into the trenches. Either that or starve, in which case you die. Some would have that happen since dead people are less likely to vote against those on the right.

Eduardo Porter \ August 8, 2017

Let’s just say it plainly: The United States needs more low-skilled immigrants.

You might consider, for starters, the enormous demand for low-skilled workers, which could well go unmet as the baby boom generation ages out of the labor force, eroding the labor supply. Eight of the 15 occupations expected to experience the fastest growth between 2014 and 2024 — personal care and home health aides, food preparation workers, janitors and the like — require no schooling at all.

“Ten years from now, there are going to be lots of older people with relatively few low-skilled workers to change their bedpans,” said David Card, a professor of economics at the University of California, Berkeley. “That is going to be a huge problem.”

But the argument for low-skilled immigration is not just about filling an employment hole. The millions of immigrants of little skill who swept into the work force in the 25 years up to the onset of the Great Recession — the men washing dishes in the back of the restaurant, the women emptying the trash bins in office buildings — have largely improved the lives of Americans.

The politics of immigration are driven, to this day, by the proposition that immigrant laborers take the jobs and depress the wages of Americans competing with them in the work force. It is a mechanical statement of the law of supply and demand: More workers spilling in over the border will inevitably reduce the price of work.

This proposition underpins President Trump’s threat to get rid of the 11 million unauthorized immigrants living in the country. It is used to justify his plan to cut legal immigration into the country by half and create a point system to ensure that only immigrants with high skills are allowed entrance in the future.

But it is largely wrong. It misses many things: that less-skilled immigrants are also consumers of American-made goods and services; that their cheap labor raises economic output and also reduces prices. It misses the fact that their children tend to have substantially more skills. In fact, the children of immigrants contribute more to state fiscal coffers than do other native-born Americans, according to a report by the National Academies.

What is critical to understand, in light of the current political debate, is that contrary to conventional wisdom, less-skilled immigration does not just knock less-educated Americans out of their jobs. It often leads to the creation of new jobs — at better wages — for natives, too. Notably, it can help many Americans to move up the income ladder. And by stimulating investment and reallocating work, it increases productivity.

Immigration’s bad reputation is largely due to a subtle yet critical omission: It overlooks the fact that immigrants and natives are different in consistent ways. This difference shields even some of the least-skilled American-born workers from foreign competition.

It’s more intuitive than it seems. Even American high school dropouts have a critical advantage over the millions of immigrants of little skill who trudged over the border from Mexico and points south from the 1980s through the middle of the last decade: English.

Not speaking English, the newcomers might bump their American peers from manual jobs — say, washing dishes. But they couldn’t aspire to jobs that require communicating with consumers or suppliers. Those jobs are still reserved for the American-born. As employers invest more to take advantage of the new source of cheap labor, they will also open new communications-heavy job opportunities for the natives.

For instance, many servers and hosts in New York restaurants owe their jobs to the lower-paid immigrants washing the dishes and chopping the onions. There are many more restaurants in New York than, say, in Oslo because Norway’s high wages make eating out much more expensive for the average Norwegian.

Where Immigrants Do the Work

Immigrants take up a disproportionate share of many lower-skill occupations — such as farm or janitorial work — as well as some higher-skill ones, like computer science.

Similar dynamics operate in other industries. The strawberry crop on the California coast owes its existence to cheap immigrant pickers. They are, in a way, sustaining better-paid American workers in the strawberry patch-to-market chain who would have to find a job somewhere else if the United States imported the strawberries from Mexico instead.

One study found that when the Bracero Program that allowed farmers to import Mexican workers ended in 1964, the sudden stop in the supply of cheap foreign labor did nothing to raise the wages of American farmworkers. From the cotton crop to the beet crop and the tomato crop, farmers brought in machines rather than pay higher wages.

Another found that manufacturing plants in regions of the United States that received lots of low-skill immigrants in the 1980s and 1990s were much slower to mechanize than plants in low-immigration regions.

A critical insight of the new research into the impact of immigration is that employers are not the only ones to adapt to the arrival of cheap foreign workers by, say, investing in a new restaurant or a new strawberry-packing plant. American-born workers react, too, moving into occupations that are better shielded from the newcomers, and even upgrading their own skills.

“The benefits of immigration really come from occupational specialization,” said Ethan Lewis, an associate professor of economics at Dartmouth College. “Immigrants who are relatively concentrated in less interactive and more manual jobs free up natives to specialize in what they are relatively good at, which are communication-intensive jobs.”

Looking at data from 1940 through 2010, Jennifer Hunt, a professor of economics at Rutgers, concluded that raising the share of less-skilled immigrants in the population by one percentage point increases the high school completion rate of Americans by 0.8 percentage point, on average, and even more for minorities.

Two economists, Giovanni Peri of the University of California, Davis, and Chad Sparber of Colgate University, compared the labor markets of states that received lots of low-skilled immigrants between 1960 and 2000 and those that received few. In the states that received many such immigrants, less-educated American-born workers tended to shift out of lower-skilled jobs — like, say, fast-food cooks — and into work requiring more communications skills, like customer-service representatives.

Interestingly, the most vulnerable groups of American-born workers — men, the young, high school dropouts and African-Americans — experienced a greater shift than other groups. And the wages of communications-heavy jobs they moved into increased relative to those requiring only manual labor.

It is not crazy for American workers who feel their wages going nowhere, and their job opportunities stuck, to fear immigration as yet another threat to their livelihoods. And yet for all the alarm about the prospect of poor, uneducated immigrants flocking across the border, this immigration has been mostly benign.

Take the Congressional Budget Office’s analysis of the immigration reform bill submitted without success by a bipartisan group of eight senators in 2013. By 2033, it estimated, the plan would have increased average wages by 0.5 percent, and do next to nothing to the wages of the least skilled. It would have made the economy some 5 percent bigger, over the long term, mainly because there would be 16 million more people.

If there is anything to fear, it is not a horde of less-educated workers ready to jump over the border. The United States’ main immigration problem, looking into the future, is that too few low-skilled immigrants may be willing to come.

As the National Academies noted about its report, “The inflow of labor supply has helped the United States avoid the problems facing other economies that have stagnated as a result of unfavorable demographics, particularly the effects of an aging work force and reduced consumption by older residents.” There will be an employment hole to fill.

Source article: https://www.nytimes.com/2017/08/08/business/economy/immigrants-skills-economy-jobs.html

The Forgotten Architect of the American Social Security System

My Comments: I’ve never understood the fear that surfaces among some people when the term ‘socialism’ appears. What threat do they feel from this poorly understood word? Yes, I remember the McCarthy hearings and the red menace of Communism. It manifested itself in Russia and China, and was perceived as a global threat to capitalism. We are still bothered by the notion that Cuba has never officially renounced Communism as its mantra.

But socialism describes any civil action that communalizes behavior, such as the education of children, caring for the sick, or the elderly. It appears among chimpanzees and other advanced animals, humans being one of them. But suggest someone favors social behaviors in our society and they are immediately branded a heretic.

The following words talk about the architect of what we now call Social Security. Today, there are over 62M US citizens receiving benefits from the Social Security system. Put that in your pipe when you think about Congress talking about reducing benefits instead of finding ways to keep the system viable. And then all the effort to nullify the benefits of the Affordable Care Act that saw almost 12M people insured in 2018. Why do universal health insurance and Social Security come to be such a threat to so many people?

BTW, Medicare Open Enrollment started yesterday, October 29, 2018

by Stephanie Buck, June 8, 2017

In the early 1930s, homeless Americans were picking food scraps off the street and cooking over oil drums in shantytowns. At one point, the unemployment rate reached an all-time high of 25 percent. The country needed new leadership, a plan for healing. It elected President Franklin Delano Roosevelt, whose New Deal ushered in many successful programs, not the least being Social Security. That’s where Barbara Armstrong stepped in.

Her theories on economic security formed the backbone of one of America’s most successful social benefit programs. Social insurance, she felt, should be a universal right enjoyed by all — without an expiration date. Today, it’s one of the reasons Baby Boomers are off kiteboarding in Florida.

Before she became the first female law professor in the country and a drafter of the Social Security Act of 1935, Barbara Armstrong (nee Nachtrieb) was born in San Francisco in 1890. She grew up the third of four children. By 1913, she had earned her BA from the University of California at Berkeley, and her law degree two years later from the university’s Boalt Hall — one of two female graduates that year.

For two years, she split time taking on occasional cases and working as executive secretary for the California Social Insurance Commission. There, she studied worker’s compensation and other government-sponsored poverty solutions, which inspired her return to school for a Ph.D. in economics. In 1921, she earned her doctorate while at the same time working as the first tenure-track female faculty member at a law school approved by the American Bar Association.

Armstrong was beloved by students and faculty alike. She worked diligently as a lecturer and later as an assistant professor in both the law and economics departments at Berkeley. She was an ardent feminist whose early interests in social insurance preceded popular theory by years. Many of these ideas she had studied during academic travels to Europe between 1926 and 1927. When she returned home, Armstrong synthesized the social insurance applications of 34 different industrial countries into Insuring the Essentials: Minimum Wage Plus Social Insurance — A Living Wage Program in 1932. Not exactly a rollicking read, but an important work. In it, she concluded, “Except in the field of industrial accident provision, the United States is in the position of being the most backward of all the nations of commercial importance in insuring the essentials to its workers.” The book astounded Washington with its theories on unemployment, disability, health care, and retirement.

In 1928, Boalt Hall hired Armstrong as an associate professor full time. She was promoted to professor after seven years, longer than most of her male colleagues. She was also paid less. Her dean — who presumably wasn’t in charge of compensation — reportedly said no professor should earn so little.

In the throes of the Great Depression, Armstrong put forth progressive hypotheses about the obligations of industrialized nations to the economic well-being of their citizens. This drew the attention of FDR, who in 1934 invited Armstrong to work as Chief of Staff for Social Security Planning, on the Committee on Economic Security (CES). Suddenly, she moved from advocating radical reform to writing actual legislation.

Prior to Roosevelt, U.S. presidents were expected to steer clear of Wall Street interests. President Herbert Hoover had formed a conservative belief in small government that would define his approach to Depression Era economics, which offered no immediate or major federal intervention. Instead, he called upon states to regulate minimum wage and private charities to help solve the nation’s poverty.

Meanwhile, conditions around the country worsened. By 1931, the unemployment rate hit 15.8%. Homeless families scavenged in makeshift shantytowns (sardonically known as Hoovervilles). Still, Hoover refused to involve the government by fixing prices or controlling currency, which he feared would lead to socialism. Instead, he emphasized aid through private volunteerism and charitable works. He asked employers not to cut wages. He suggested neighbors help each other. He believed the economy relied chiefly on morale, and that it would self-correct.

When it didn’t, the country elected FDR, who believed an aggressive federal intervention was needed. He surrounded himself with people like Armstrong, who had studied social insurance for years.

Armstrong was attuned to politics. According to Nancy Altman, author and president of Social Security Works, she was an “infighter” whose outspokenness convinced the CES to propose a federal program that addressed old age insurance. With the help of Labor Secretary Frances Perkins, the first woman appointed to the U.S. Cabinet, the Social Security Act of 1935 passed. “There were a lot of very strong women who surrounded Roosevelt at the time,” says Altman.

Granted, the act had its flaws, one being that participants wouldn’t see the first monthly benefits until 1942. Republicans argued that building up reserves amounted to IOUs and warned people would have to start paying taxes. Many of the act’s original proposals, such as the inclusion of agricultural and domestic workers, were “temporarily” thrown out due to implementation difficulties. Armstrong supported excluding the groups for these reasons, though Altman insists critiques around gender and racial bias are unfounded. A series of reforms in 1939 expanded Social Security benefits to include family dependents, wives, and widows — but no benefits for dependent men, who were presumed to be in the workforce.

“The 1939 legislation changed the basic nature of the program from that of a retirement program for an individual worker, to a family-based social insurance system (based on the then-current model of the family, in which the man was the breadwinner with a nonworking wife who cared for the minor children),” according to the Social Security Administration today.

The first person to become a Social Security beneficiary was Ida May Fuller, who, upon retiring as a legal secretary in November of 1939 at age 65, received her first benefit on January 31, 1940 — a monthly check for $22.54 (an amount equal to $389 today).

In 1950, the Social Security Advisory Council demanded further expansion. Congress brought 10 million additional workers under coverage, mainly self-employed, domestic, and agricultural workers; disabled workers were added in 1957. The goal was universal old-age and disability security (and actually, was initially designed with universal health care in mind). Today, about 93 percent of working Americans pay taxes into the Social Security program. By June of 2016, one in six Americans was collecting, at an average of $1,350 per month.

Barbara Armstrong returned to Berkeley after the initial Social Security Act of 1935 passed, long before Social Security’s many additional reforms. She had clashed with a few cabinet members — she reportedly called CES executive director Ed Witte “half-Witte” behind his back. Alas, she had a professorship, a daughter, and new issues to tackle back home. She taught courses on family and labor law, and in 1940, she and others attempted to introduce universal health insurance in California, but failed. On campus, Armstrong was a respected, passionate, opinionated, and witty presence. She supported other female staff through the Women’s Faculty Club at a time when “most of the faculty thought of women as frankly inferior beings,” said Lucy Sprague Mitchell, the first dean of women at Berkeley.

In 1970, at age 79, Armstrong was still actively teaching at Boalt Hall. That year, she was attacked by three unknown men while walking in Berkeley. She spent the rest of her years in a wheelchair, and contributed studies in cooperative measures against crime. She died in her Oakland home on January 18, 1976.

Source article: https://timeline.com/barbara-armstrong-social-security-842a4d9308ac