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The Danger From Low-Skilled Immigrants: Not Having Them

My Comments: To Make America Great Again, the presumably well intentioned mantra for those leading the GOP these days, 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 large increase in the cost of labor to force more of 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 wanting to restrict immigration.

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.

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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.”

Wall Street is sending huge warning signs for stocks

My Comments: Sooner or later, the penny will drop.

Joe Ciolli \ Jul 30, 2017

To a growing chorus of strategists and investors across Wall Street, the stock market looks like it’s headed for a rude awakening.

Their mounting pessimism comes at a time when US equities are looking healthy, at least on the surface. Major indexes are hovering near record highs they reached this past week, while corporate earnings are growing at a blistering pace.

Yet some market experts think this apparent strength is just masking deeper problems brewing under the surface.

Count Marko Kolanovic, JPMorgan’s global head of quantitative and derivatives strategy, as one of those stressing caution. In a client note on Thursday, he said that record-low volatility should “give pause to equity managers.” Kolanovic even went as far as to compare the strategies that are suppressing price swings to the conditions leading up to the 1987 stock market crash.

“The fact that we had many volatility cycles since 1983, and are now at all-time lows in volatility, indicates that we may be very close to the turning point,” he said.

A sudden move down in US stocks on Thursday — including a notably outsized loss in tech — was widely attributed to Kolanovic’s note, highlighting just how seriously many investors have started taking such warnings.

His consternation extends into the hedge fund world, where investment managers are also crying foul about low volatility to anyone that will listen.

Baupost Group, a $30 billion fund, recently highlighted the lack of price swings as a harbinger of pain to come, calling it a possible “accelerant for the next financial crisis.” Meanwhile, Highfields Capital Management, which oversees $13 billion, said this past week that low volatility is giving people the false impression that the market is risk-free.

Going beyond the much-maligned low-volatility environment, Bank of America Merrill Lynch has its own reasons for expecting an upcoming rough patch in stocks — one it sees coming sometime this autumn.

Michael Hartnett, the chief investment strategist of BAML Global Research, points to how the S&P 500 has continued climbing to new highs, even as the size of the Federal Reserve’s balance sheet has stayed relatively unchanged. He says this divergence is a “classic euphoria signal.” Such overexuberance has historically been a sign that investment sentiment is overextended.

Legendary investor Byron Wien, who currently serves as vice chairman of Blackstone’s private wealth solutions group, agrees with BAML. He sees the stock market outpacing the Fed’s balance sheet as problematic and called the development “disturbing” in a July 26 client note.

BAML also points to record low private client cash levels as a sign that the stock market may be close to maxing out. With investors looking fully invested, there’s limited dry powder for them to put to work in the market, should they feel inclined to add to positions.

And, perhaps most importantly to BAML’s call for a market top this autumn, a proprietary indicator maintained by the firm sits on the brink of reaching a sell signal. It’s put together a list of things that need to happen for the market to peak in August:
• The dollar index falls to 90, coinciding with “unambiguous” US labor/consumer weakness (non-farm payrolls lower than 100,000) and a flatter yield curve
• The end of high-yield leadership, which “should be an early warning system”
• Fatigue in equity growth leadership, in areas like the Nasdaq Internet Index, emerging markets Internet, and semiconductors

But, amid the growing pessimism, there are still strategists on Wall Street who see the S&P 500 hanging in there, at least through the end of 2017. A survey of 20 chief equity strategists conducted by Bloomberg shows an average year-end forecast of 2,439, basically unchanged from Friday’s close.

So while it’s anyone’s guess what will transpire in the coming months, it’s good to at least be aware of the cracks forming in the market’s foundation. And don’t say you weren’t warned.

How Hitler Conquered Germany

My Comments: I find the parallels uncomfortable. There’s also the truism that includes the words “… are doomed to repeat the past”.

The new White House Communications Director, is, by definition, expressing the ideas of his employer. His message, to me, is very similar to those expressed by his counterparts in Germany in 1937, despite the passage of time, and presumed lessons from the past.

It is to convince us that we are doomed unless and until we eliminate some perceived threats to society. We’re not directly told what those threats actually are, but steps are being taken to remove them. The outcome could also be similar if we let it run and simply acquiesce to this intent.

There were valid reasons why the electorate in the US felt compelled to align itself with the messenger. That was also true in Germany in 1937. Today, like then, the message is designed to promote an agenda that could have dark consequences for all of us. The denial of health benefits for millions of Americans (TrumpCare), coupled with restrictions on their ability to vote (gerrymandering), leads to an outcome (dead people don’t vote) that the Koch brothers, among others, are willing to spend hundreds of millions of dollars to advance. They’re not spending all that money out of the goodness of their hearts; there is an economic and tribal agenda that is not consistent with our Constitution and democratic principles. The phrase Make America Great Again doesn’t include ‘for whom?’.

We cannot afford to go too far down this slippery slope. Yes, explore some alternatives, but never forget the past. The outcome could be more than painful.

By Nicholas O’Shaughnessy , March 2017

Historian Karl Dietrich Bracher argued that the success of Nazi ideology can only be understood via the role of propaganda in the Third Reich. The Nazis’ modern techniques of opinion-formation in order to create a “truly religio-psychological phenomenon” made the propaganda especially powerful.

This is not to deny the role of coercion in the Nazi regime; this was a totalitarian state after all. During the ballot campaign in the spring of 1936, for instance—an “election” for the Reichstag and referendum on the Rhine remilitarization—all Germans were instructed to listen to Hitler’s speech from the Krupp arms factory at Essen. A typical press announcement of the time read: “The district party headquarters has ordered that all factory owners, department stores, offices, shops, pubs, and blocks of flats put up loudspeakers before the broadcast of the Führer’s speech so that the whole workforce and all national comrades can participate fully in the broadcast.” The near 100 percent result was of course an entirely manipulated one.

Yet while external compliance can be commanded, internal belief is an assent freely given. Joseph Goebbels, the appointed minister of propaganda of Nazi Germany, once said: “There are two ways to make a revolution. You can blast your enemy with machine guns until he acknowledges the superiority of those holding the machine guns. That is one way. Or you can transform the nation through a revolution of the spirit …”

Propaganda was the operational method of the Third Reich, the idea that projected the ideology. Hitler’s chief architect, Albert Speer, told the Nuremberg Tribunal “that what distinguished the Third Reich from all previous dictatorships was its use of all the means of communication to sustain itself and to deprive its objects of the power of independent thought.” Hitler was a magician of illusion. The cultural historian Piers Brendon has described propaganda as the “gospel” of Nazism and notes that Goebbels “liked to say that Jesus Christ has been a master of propaganda and that the propagandist must be the man with the greatest knowledge of souls.”

Hitler enacted a theory of persuasion which he first promulgated in Mein Kampf. It is difficult to think of “great” historical leaders—dictators, war lords, kings, and their like—who theorized about the integuments of power or abstracted from this an idea of psychological process. A Caesar might write a De Bello Gallico, and though there are also various other memoirists, they offer little in the way of a theory of persuasion per se.

Hitler was different. Mein Kampf is an incontinent bulk crammed with reflections, ruminations, biographical extracts and frenzied speculations. But, within its seething mass, there is a complete manual of propaganda, one which is focused, concise, harsh and pragmatic. Hitler’s great insight, which makes him unique among historical actors, was the recognition that violence and propaganda could and should be an integrated phenomenon. War and its articulation should not be disentangled since they were interdependent. The Nazis claimed “we did not lose the war because artillery gave out but because the weapons of our minds did not fire.”

The Third Reich represents the evolution of a partnership between masses and demagogue, a co-production—for example, the invitation to believe the idea that the Jews had simply been removed to external work camps, and not murdered. What the Nazis were really saying was that their truth lay deeper than their lies and that their lies were merely a permissible methodology since the end always justified the means. In historian Aristotle Kallis’ view, the identification of propaganda with falsification is misleading: Propaganda is a form of truth “reshaped through the lens of regime intentions.” From the perspective of the Reich, the Nazis were selling German truth rather than British falsehood.

The idea of people willingly misled offends our notion of man as rational. A more accurate representation of the psychology of the Third Reich would be to conceive of a partnership in wishful thinking in which the masses were self-deluded as well as other-deluded. Persuasion in such cases offers an idea of solidarity and the target of that persuasion is more co-conspirator than victim, an invitation to share in the creation of a hyperbolic fiction. Successful persuasion in business, media, or government, does not make the error of asking for belief. It makes no pretense of objectivity. The notion of persuasion as “manipulative” evokes a passive recipient and a hypodermic or stimulus-response form; but a more sophisticated idea is that of an invocation to partnership.

Thus, the Third Reich was the emanation of a collective as well as an individual’s imagination. Submersible parts of the ideology, such as the antagonism to religion, the euthanasia campaign, the massacre of Jews, could all have been discovered by the determined enquirer. One theory advanced as an explanation of this is that of group narcissism, which is described by historian and psychologist Jay Y. Gonen as one of the most important sources of human aggression: “In a world that is seen through a narcissistic tunnel vision, only oneself or one’s group has any rights.”

The purpose of Nazi propaganda was not to brainwash ordinary Germans, and it was not intended to deceive the masses even though it did enable the movement to gain new recruits. The principal objective, according to historian Neil Gregor, was “to absorb the individual into a mass of like-minded people, and the purpose of the ‘suggestion’ was not to deceive but to articulate that which the crowd already believed.”

The essence of the Nazi propaganda method was repetition. Goebbels argued that the skill of British propagandists during the Great War resided in the fact that they used just a few powerful slogans and kept repeating them. Historian Baruch Gitlis has argued that: “Wherever the German turned, he met his most ‘dangerous enemy,’ the Jew,” and that “while he walked in the street he encountered posters and slogans against the Jews at every square, on every wall and billboard. Even graffiti greeted the German at the entrance to his dwelling: ‘Wake up Germany, Judah must rot!’”

The message penetrated the barriers of inattention through the massive insistence on its replication. Goebbels was a proponent of the “repeated exposure effect.” The mass mind was dull and sluggish, and for ideas to take root, they had to be constantly re-seeded: recognition, comprehension, retention, and conviction are different stages in the cognitive process, and repetition can facilitate them. It is important to remember, therefore, that what Nazi propaganda also offered was the dubious benefit of sensory exhaustion. The citizen was not a target to be persuaded so much as a victim to be conquered, ravished even. They wanted internal commitment, not just external compliance.

Another core part of Nazi grand theory was the dethronement of reason and the celebration of emotion. Nazism felt rather than thought, and therefore the nature of its propaganda appeal was also to feeling rather than thinking. The mobilization of emotion lay at the heart of everything the Nazis did; propaganda’s operational formula. For Goebbels, the role of the propagandist was to express in words what his audience felt in their hearts.

For this reason, propaganda had to be primitive, appealing to what Hitler described as man’s inner Schweinehund (“pig dog,” thereby a sort of deprecatory idiom for one’s inner self). Typically brutally “either- or,” the propaganda appealed to the audience’s primitive desire for simplification, thus: “There are … only two possibilities: either the victory of the Aryan side or its annihilation and the victory of the Jews.” The Nazis believed a formulaic propaganda methodology must be applied even at the cost of alienating the sophisticated. Nazi theorist and proponent of propaganda Walther Schulze-Wechsungen wrote:

“Many a one laughed at the propaganda of the NSDAP [National Socialist German Workers’ Party] in the past from a position of superiority. It is true that we had only one thing to say, and we yelled and screamed and propagandized it again and again with a stubbornness that drove the ‘wise’ to desperation. We proclaimed it with such simplicity that they thought it absurd and almost childish. They did not understand that repetition is the precursor to success and simplicity is the key to the emotional and mental world of the masses. We wanted to appeal to the intuitive world of the great masses, not the understanding of the intellectuals.”

According to Goebbels, what was distinctive about the Nazis was “the ability to see into the soul of the people and to speak the language of the man in the street.” The propagandist was an artist who “sensed the secret vibrations of the people.” What distinguished European fascism above all was its discovery of new ways, a methodology, of speaking to the working class. The fascists were not ashamed of mass media and marketing, understood the cultures of consumerism, and recognized the role these now played in the lives of the masses; media was a new language with which the masses were now familiar, including its styles, forms, and assumptions. Fascists were at ease in this exciting new world and recognized that it could be exploited for political purposes, both as a source of methods and as a new kind of culture with a different set of governing assumptions.

The propagandists did not have it all their own way and we are much mistaken if we imagine Nazi Germany to have been a nation only of fanatics. There were the convinced, the semi-convinced, and the doubters; one could in fact have been in all three categories through the lifetime of the Reich. The Nazis were the most electorally successful of all Europe’s fascist parties, yet they never garnered more than 37 percent of the vote.

They also recognized the limitations of propaganda in that it is predicated on political results. As Schulze-Wechsungen noted, “It is clear that even the best propaganda cannot conceal constant political failures.” Then there was the acknowledged tedium of much of the propaganda. Nazi Germany had inherited (perhaps) the most creative film industry in the world, and yet American journalist and wartime correspondent William Shirer, for example, remembered the hissing of German films. Eric Rentschler, an authority on Nazi cinema, asked, “But how was one to explain repeated instances of derisive laughter at melodramas and films that hardly set out to be funny?”; in Rentschler’s view, out of sync laughter is a potential terrorist in the dark, someone who refuses to let the film cast its spell.

Morale ultimately deteriorated when victories did not materialize into victory. Another criticism, well-articulated by Harold Nicolson MP, was that German propaganda brought short-term impact at the cost of long-term credibility:

“The German propaganda method is based upon seizing immediate advantages with complete disregard of the truth or of their credit. Our method is the slower and more long-term method of establishing confidence. For the moment, the Goebbels method is the more successful. In the end ours will prove decisive.”

Many were still with Hitler right until the end of the war (Germany had to be re-conquered, sometimes street by street), and even beyond the end—there were those guiltless of many war crimes who chose to follow him into the oblivion of suicide. All of this is merely to demonstrate that Nazi propaganda was not invincible and that the Reich could miscalculate because the ideology was, in the end, monstrous. As to whether all this persuasion was causal or merely decorative, I have advocated a perspective: Events are seldom inherently deterministic and they have to be “sold,” their meanings made vivid, via all the gathered powers of eloquence or pictography—whether by Marat in the French Revolution, Lenin in the Russian, or Churchill in 1940.

Hitler understood, as few others had ever done, the need for the serial creation of enemies. He was a political entrepreneur possessed of the truly devastating insight that all recent enemies could eventually merge into the one super-enemy, the Jews. Here was an intuitive understanding of how self-definition is achieved through other-rejection, that solidarity, identity, and community are in essence gained at the expense of others and appeals based on the brotherhood of man (as, in a sense, even Communism did) would always ultimately fail. His construction of tribal passion could arouse the emotions and therefore render people vulnerable to any kind of visionary persuasion or invocation to epic quest.

Nazism did not ask for belief but for surrender—not through coercion, primarily, but by assaulting consciousness. The essential aim was the extinction of independent thought via images that would now think for you.

Yet the seeming ease with which Germans “went along” with, or ostensibly ignored, the true frauds continues to astonish.

http://www.slate.com/articles/news_and_politics/fascism/2017/03/how_nazi_propaganda_encouraged_the_masses_to_co_produce_a_false_reality.html

The Business Case for Fighting Growing Inequality

My Comments: I consider income inequality the greatest existential threat to our democracy. It manifests itself as a shrinking middle class in these United States.

It has the potential to erode what we think of as rational and peaceful co-existence among nations globally. It’s what continues to drive the tensions and conflict in the Middle East where income inequality overwhelms the average young person and their hopes for the future.

This article explains why it’s also bad for business and how business would be well served to address this growing problem. It serves no purpose to build a business empire if what you sell is not affordable.

Guy Miller, Zurich Insurance, June 30, 2017

Despite the current recovery, the global economic outlook remains beset by structural issues as the fallout of the financial crisis continues to be felt a decade later. As policymakers search for solutions, social unrest and the resurgence in populism have focused attention on how economic gains are distributed. International institutions are urging governments to target more inclusive and sustainable growth.

Global concern about economic risks is underlined by the interconnections with other risks: unemployment increases pressure on state social protection systems, for example, while inequality feeds political polarization. Many economic problems undermine social cohesion. In doing so, they also contribute to conditions that are bad for future economic prospects. Business leaders should recognise that these are issues for them, as well as for politicians and economists. Spending power is squeezed, while wasted potential dampens productivity and innovation.

The UN Sustainable Development Goals include “decent work for all”. But the latest Economic Outlook of the Organisation for Economic Cooperation and Development (OECD) shows this remains a distant ambition. While global employment indicators are improving, productivity and wage growth “remain subdued”. The report upgrades the global growth forecast for 2017 from 3.3 percent to 3.5 percent but attributes this to modest cyclical expansion.

In January, the International Labour Organization’s (ILO) World Employment and Social Outlook forecast that 3.4 million more people would find themselves unemployed this year (a rise from 5.7 percent to 5.8 percent). With the rapid global growth in people looking for work, the number in vulnerable jobs is expected to rise by 11 million. Policymakers clearly have their work cut out. But as the private sector looks to mitigate economic risks, it should also play its part in creating inclusive 21st Century growth models.

Profit Sharing and Productivity

According to the OECD, the gap between rich and poor in OECD countries is the highest for 30 years and continues to grow. Changing this trend will require more equitable profit sharing. The OECD says labor’s share of income declined from 66 percent to under 62 percent in advanced economies between 1990 and 2009.

Guy Miller, Chief Market Strategist & Head of Macroeconomics, Zurich Insurance Group, said today’s high capital share may be linked to underinvestment in training and measures to improve productivity. Governments could use taxation initiatives or partnerships to encourage private investment in these areas that would also benefit the macro economy, he added.

The slowdown in productivity growth has spread to emerging markets after affecting 90 percent of OECD countries this century. Hopes that the Fourth Industrial Revolution will raise productivity have not been realised so far. Instead, technological change and the growing capture of rents by frontier firms are causing some regions in developed nations to be left behind. Christian Kastrop, Director of the Policy Studies Branch at the OECD Economics Department, said while automation will cause job losses, it could also create new jobs. “Reskilling or upskilling must become normal, so people feel included even if they lose their jobs,” he said. “Governments must take action with concrete interaction with civil society, and fostering good working relationships between business and trade unions is imperative.”

The Labor Force Learning Imperative

As growth is increasingly driven by automation and the knowledge economy, workforces will need to become more dynamic and flexible. Automation is now a threat not only to low-skilled workers but also to “mid-tier and even higher-tiered knowledge workers”, said Mr Miller. Economies need a new emphasis on life-long learning if they are to adjust.

Automation’s potential impact on unemployment, along with structural changes like the rise of the sharing economy, should focus policymakers’ minds. Employers must also recognise how funding training is likely to reap rewards in time. “A sense of learning how to learn must be more deeply embedded in our culture and throughout the career cycle,” said Steven Tobin, Team Leader of the ILO’s Labour Market Trends and Policy Evaluation Unit.

Skills mismatch is already a persistent problem in many countries. When workers lack the skills the market demands, it is a “lose-lose-lose” situation, said Steven Kapsos, Head of the ILO’s Data Production and Analysis Unit. “Workers are less productive, firms less profitable, and overall economic growth suffers,” he said. Policies that promote economic activity among women and older workers would stimulate growth in countries with ageing populations, he argued.

Closer collaboration between the public and private sectors on training and active labor market programs is vital, said Mr Tobin. “Far too often, public sector training and skills programs have been designed without consulting social partners, notably the private sector.”

The Cost of ‘Quarterly Capitalism’

Daryl Brewster is CEO of U.S.-based CECP, a CEO-led coalition of more than 200 major companies, founded “to create a better world through business”. Its members represent USD 7 trillion in revenues and USD 18.6 billion in societal investment. But Mr Brewster said 86 percent of the coalition’s CEOs feel they are too focused on what he calls “quarterly capitalism”. McKinsey Global Institute’s Corporate Horizon Index shows that companies with long-term approaches outperform peers. And CECP has launched its own initiative to enable CEOs to present long-term plans to long-term investors.

“We think it could help change the narrative from a slash and burn approach to one of building sustainable societies,” said Mr Brewster. “By taking a longer term horizon with regular updates, companies will attract better employees, enjoy more stable societal situations, and have more customers who can afford their products.”

Balancing Fiscal and Monetary Policy

A low interest rate, low yield environment has become the norm for many economies that have become reliant on central banks for economic stimulus. But mixed results have led to an increasing number of dissenting voices. The ILO argues that coordinated fiscal stimulus could “jump-start” the global economy. In doing so, it could cut unemployment and raise investment demand.

Zurich’s Mr Miller said monetary policy has disproportionately favoured the asset rich. Greater efforts are needed to show where fiscal spending is most likely to deliver high multiplier effects and long-term impact, he added. “It‘s important that when the next downturn emerges, a combination of both fiscal and monetary tools are used, ideally in a coordinated manner across regions,” Mr Miller said. He also suggested that “temporary fiscal transfers between debtor and creditor nations” should be considered in the Eurozone. Mr Kastrop said the Eurozone is an exception to the need to end reliance on monetary policy, since a change might favor Germany over weaker nations.

An Era of Equitable Growth?

The global economy may be experiencing a cyclical upturn. But the OECD says it is not “good enough to sustainably improve citizens’ well-being”. Achieving that will require concerted actions by policymakers, while Mr Brewster is also clear about the role business can play.

He said the recent socio-political climate should be a “wake-up call” for business, adding “Having more of the world participating in the economy rather than fighting against it is in companies’ best interests.”

This is true because it is often impossible to separate economic risks from social and political risks. If people feel the economy no longer offers them a fair chance, these feelings will soon come to the surface in other areas. Getting closer to the UN goal of decent work for all would surely lower the rising risk of political polarization. It would also favour international cooperation over a return to protectionism.

What is at stake goes far beyond stimulating short-term growth or meeting the next performance targets. The current recovery, combined with changes in corporate culture, offer a window of opportunity for reforms that could enable an era of more equitable growth. Both policymakers and business leaders must recognise that they have a clear interest in creating stronger economies for all.

Key takeaways

• While automation is nothing new, the pace and breadth of current change is striking. It is no longer just the low-skilled that are at risk from automation, but also many mid-tier and even high-tiered knowledge workers.

• Having a flexible workforce and one that is trained in the latest thinking and techniques can create a dynamic and proactive culture that is more suited to a changing competitive landscape. This means investing in people as well as in capital.

• Life-long learning will be vital in the digital age and the public sector must therefore consult more closely with the private sector, especially in relation to the skills companies want.

• Businesses that target long-term performance and help drive inclusive economic growth can boost their bottom line as well as social cohesion.

Everything Looks Like A Bubble

My Comments: The article below comes courtesy of a writer by the name of General Expert.

He/she/they write extensively and appear on an investment news feed I follow called Seeking Alpha. You’ll have to draw your own conclusions about the message but I, for one, find it interesting and informative.

Here’s a link to the news feed: https://seekingalpha.com/author/general-expert.xml

Jun. 5, 2017

Summary

Calling the top is in fashion as the market makes new highs.

I see nothing in the market that is indicating a bubble.

Consumers are taking on more debt, but debt is essential for growth.

Consumers and corporations have no problems servicing their debts.

I see no reason why the Fed can’t keep interest rates low if there is a need.

Everything looks like a bubble… if you are a hedge fund manager that wants to protect your reputation or if you are a fearmonger that is just relishes schadenfreude on the off chance that everyone suffers.

I am never a mindless optimist, but I believe that we are currently experiencing one of the best economic environments since the financial crisis. Major indices such as the S&P 500 (NYSEARCA:SPY) and the Dow (NYSEARCA:DIA) are making new highs every week, but so what?

I believe that this is a testament to the economic strength of the U.S. rather than a reflection of the irrational exuberance of market participants. Today I would like to address two of the major arguments that I see being repeated again and again by bears, and why they are of no concern.

Too Much Debt

Consumers have been taking on more debt as the economy grew:
But debt isn’t bad. In fact, I would go on to argue that debt is great. Debt is what fuels economic growth. Part of the reason why recovering from a financial crisis is so difficult is because credit market freezes up and no one can take on debt to spend or to invest. But are we taking on too much debt? I believe that the answer is a firm “no.” As I mentioned in my previous article, consumers’ ability to service their debts is nowhere near pre-crisis levels.

Of course, a bear would say that this is all a ponzi scheme perpetuated by the Fed, which is keeping interest rates artificially low.

The Fed

The Fed’s dual mandate is simple enough: lower unemployment and stabilize prices. If these two objectives are achieved, it is likely that the economy will do well. The Fed took drastic measures (i.e. near zero interest rates) to stimulate spending during the financial crisis, and because interest rates are still low right now, bears are saying that the Fed is prolonging the inevitable collapse of the economy as the Fed can’t print money forever (both through QE and low interest rates to encourage lending). But why? I see absolutely no reason why the Fed cannot simply keep interest rates low for the foreseeable future if the economy is truly dependent on low interest rates.

What is a bubble? A bubble is something that is unsustainable. I would really like to be educated as to why the current regime could collapse at any time. Low interest rates have not caused rampant inflation contrary to the opinion of many experts, nor has debt spiraled out of control, neither at the consumer level (see previous graph) nor at the corporate level (below).

As we can see, interest coverage has risen far above pre-crisis levels, meaning our corporations have become less susceptible to shocks than before.

If the Fed can keep rates low forever then why bother with rate hikes and why should it unwind its balance sheet? While the Fed could keep interest rates low forever, it needs to proactively prevent the formation of bubbles. Because consumer confidence has risen since the election, the logical thing to do would be to offset this increase by enforcing a tighter monetary policy. The expectation of higher interest rates should allow corporations and consumers to make more level headed decisions. In my opinion this does slow down growth, but higher interest rates should reduce the volatility of the business cycle. Note that there is no reason to believe that the current level of spending is excessive, as evidenced by the low debt servicing ratio graph shown earlier.

Conclusion

I believe that the economy is in very good shape right now and any talk of a bubble is ludicrous. Neither corporations nor consumers are having any trouble servicing their debts. The Fed’s act of “printing money” is not harmful and I fail to see why low interest rates have to go away. While the Fed is raising rates, this is being done with the intention of offsetting rising consumer confidence. Even though higher rates may hamper growth, the Fed must make the safe choice in order to prevent the formation of an actual bubble, as opposed to the fictitious one that is often discussed in the media today.

Trump Cannot Make America Govern Itself Again

My Comments: There is far more at stake here than making Trump become relevant again. Apart from my personal, visceral fear that we’ll find ourselves in another brutal and painful war, the standard of living across these United States is eroding.

Unfortunately, that erosion is like watching a car rust. It can sit in your driveway for months and you see nothing, but give it a few years, some rain, and holes will appear.

I have no magic bullet to solve our national dilemma. There probably isn’t one to be had. All I know to do is somehow keep pushing to support the values I hold dear, and maybe, just maybe, there’ll be enough of us to bring it around.

Edward Luce on July 19, 2017

Let us give Donald Trump a pass. The last time Congress enacted a serious law was more than seven years ago, which was well before he turned up. That was Barack Obama’s healthcare reform, which is turning into Mr Trump’s nightmare. He just cannot get that law off the books.

Congress is a sausage factory that has forgotten how to make sausages. Now Mr Trump wants it to make the largest sausage imaginable: a big tax reform package. But what does Mr Trump know about sausages?

The answer is little. Passing serious bills requires the clarity of Ronald Reagan, the grit of Lyndon Johnson and the patience of Job. Mr Trump lacks all three qualities. In contrast to his attacks on critics, such as what he describes as the Fake News media, Mr Trump’s promotional skills are limited.

It is hard to think of a memorable Trump tweet on tax reform. Mr Trump is better at tearing opponents down than building the case for change. The chances are that he will fail to pass tax reform, just as he has failed to repeal and replace Obamacare.

But the blame for this does not rest solely on the current president’s shoulders. His election followed Capitol Hill’s six most fallow years since the Reconstruction era after the civil war. Though it is America’s first branch of government, Congress has ceased to function in a serious way since 2010. The Republican party, which saw its role as stopping Mr Obama from passing anything, even if he had gone more than halfway to meet them, bears most of the responsibility. Failed initiatives include an immigration overhaul and fiscal reform.

Having acquired a habit of blocking, Republicans have forgotten how to score. But the one thing that unites Republicans of all kinds, Mr Trump included, is the strong desire to cut taxes. It does not matter much how they are cut, or which ones are targeted. The party’s sole ideological glue is a desire to lower them. Other pieties, such as balancing budgets, are easily dispensed with. It ought to be a simple matter, therefore, for Mr Trump to build momentum around a big tax cut and damn the consequences. Yet his chances of success are slim. There are two reasons for this.

The first is that Mr Trump has no appetite for the intricate horse-trading required to win. This is true even at the best of times. But these are the worst. Mr Trump is increasingly distracted by the Russia investigations, which absorb most of his bandwidth. According to aides, Mr Trump spends most of his evenings watching recordings of cable news shows just as obsessed with Russia as he is. He then calls around friends in New York, Florida and elsewhere to comment on how unfairly he is being treated. Mr Trump’s obsession with “Fake News” criticism is his first, second and third priority. Anyone who doubts that should analyse his tweets and the odd hours at which he sends them. Tax reform does not feature.

The second is that Republicans are no longer a governing party. To be fair, this holds only at the federal level. There are plenty of Republican mayors and governors who do a good job of solving practical concerns at the local level. But the national party knows only how to stop things from happening. In the past six years, Republicans voted dozens of times to repeal Obamacare in the safe knowledge Mr Obama would veto their bill. Not once did Republicans sit down and work out a plan of their own. Healthcare is a dull subject to anyone who lacks interest in policy. Republicans have no interest in policy.

Instead of a party of sausage makers, Republicans have become a party of vandals. Words such as “abolish”, “repeal”, “smash” and “erase” trip off the party’s tongue. That is what comes from a habit of shutting down government and taking the US to brink of debt default. Terms such as “build”, “consult”, “trade-off” and “draft” are rare indeed.

Even something as simple-sounding as cutting taxes requires coalition-building. Besides, Republicans have to increase the US debt ceiling before they can turn to tax cuts. Mr Trump, who would have most to lose from a sovereign default, is unclear how to do this. Steven Mnuchin, his Treasury secretary, wants a “clean bill” to increase the ceiling. But Mick Mulvaney, Mr Trump’s budget director, wants to attach spending cuts, which would ensure no Democratic votes. Mr Trump cannot even negotiate with himself.

Students of history could tell Mr Trump that Rome was not built in a day. Yet the vandals were able to demolish Rome pretty quickly. Is Mr Trump a Roman or a vandal? Sadly that question answers itself.