Two Worlds, One Nation

Ever since election night 2016, Frugal Ron has been in a state of depression. No election and very few events in his life have had the impact of Donald Trump winning the presidency. The world simply isn’t as bright as it used to be.

Over and over, this writer has tried to rationalize how anyone, let alone a nation, could vote for as reprehensible a person as Donald Trump. He’s cheated and humiliated all three of his wives, during his six bankruptcies he’s wiped out the savings of countless small investors that made the mistake of trusting him, he ridicules the disabled, he attacks Gold Star parents, he lies about his charitable giving and his charitable foundation broke laws by taking money donated by others to pay Trump’s legal expenses.

His statement that, “The concept of global warming was created by and for the Chinese in order to make U.S. manufacturing non-competitive,” makes one wonder,  just how stupid is this guy?  A compulsive and very poor liar, Trump continually denies his own statements. When the press comes up with video or audio of him saying these things, he vilifies reporters for their “vendetta” against him.  And yet millions of people voted for this person.

If things were going badly, this might be an explanation. However, the unemployment rate is 4.75%, wages are increasing at record rates, inflation is non-existent, the stock markets are at record levels and  the country is at peace. Millions more people are covered by health insurance and the government is finally out of determining who can marry who. Perhaps best of all, President Barack Obama did all this while increasing annual government spending at less than one-third the rate of his three Republican predecessors. The economy has only one direction to go under Trump. The question is, how bad will things get?

Even crazier, Trump and Republicans promise massive spending increases, huge tax cuts for the rich and financial deregulation; the same formula that gave us the George W. Bush Super Recession. Don’t be fooled by Republican promises of “change”. To a Republican, change means making things like they used to be.

So, is this column sour grapes from a sore loser? Absolutely. Whether we like it or not, Donald Trump is our president. When he mucks up the economy and sends markets spiraling downward, this doesn’t just affect those that voted for him, it affects all of us.

Two worlds, one nation

The 2016 election taught us how divided our nation is. People with college degrees voted overwhelmingly for Hillary Clinton. Voters without college degrees voted overwhelmingly for Donald Trump. Clinton voters get their news from mainstream sources, Over 60% of Trump voters don’t trust government generated data. They prefer Fox News and conservative talk show radio, neither known for accuracy and certainly not balance. Even worse are the alternative reality sites on the internet that simply make up the news that Trump voters desperately want to believe. For example, that Barack Obama is a Muslim.

The two worlds rarely meet. Urban people voted predominately for Clinton and the lower income rural areas went heavily for Trump.

You can chalk this up at least partly to globalization which increases the value,in rich countries of well-educated people and decreases the wages of less educated. Income differences based on education are at record levels. The average high school graduate makes $678 a week. The average college graduate makes $1,227 per week. The unemployment rate for high school graduates is 5.6% and for college graduates it is 2.5%. http://money.cnn.com/infographic/economy/college-degree-earnings/

From 1965 to 2013, the median wages of 25 to 32 year old college graduates working full time grew by $6,700 . During the same period, median wages of high school graduates in the same age group fell by almost $3,400 to $28,000. http://www.usnews.com/news/articles/2014/02/11/study-income-gap-between-young-college-and-high-school-grads-widens

For all of Trump’s promises, this isn’t going to change. The US job classification that the largest number of people belong to is “Truck driver”. This includes everything from semi drivers to delivery people. Yet, Amazon is testing drones for delivering packages while Google is testing driverless trucks. Politically we may be turning the clock back decades, but in the workplace, knowledge is power.

Lessons learned

In snatching defeat from the jaws of victory, Hillary Clinton delivered the presidency to the most uniquely unqualified candidate ever. Not only do we have a President Donald Trump, we have the most spend crazy, out of control big government liberals ever running the House and Senate. We aren’t going to change the election outcome, but there are some lessons to learn from it.

There is no such thing as a perfect candidate. However Democrats do very well when their presidential candidate is what I call a “charismatic genius”.  John Kennedy, Bill Clinton and Barack Obama all fit this category. They each had vision and more important, they could articulate their vision in a way ordinary people could relate to and buy into.  They inspired voters and voters genuinely liked them. Not to be ignored, all three were tall, handsome and looked like what people envisioned a president should look like.

Hillary Clinton lost the election because she couldn’t get the Obama voters to vote for her. Give part of the blame to vote suppression laws passed in Republican controlled states. Yet, the bigger picture is, Hillary Clinton didn’t inspire voters.  in fact, she was disliked so much, Democrats used surrogates to campaign for her.  Not a sign of charisma.

While Trump continually portrayed Clinton as crooked, she is far more honest than Trump and changed positions less often than most politicians. Her real problem is poor judgement. In her most important vote as a senator, she voted for the Iraq War. Poor judgement caused her to overrule any dissent from her advisors about using a private e-mail server while Secretary of State. People with professional positions have a work e-mail and a private e-mail and never shall the two get intermixed, Not a sign of genius to violate this axiom.

Democrats seem intent on breaking the glass ceiling and electing the first woman president. This is a wonderful goal, yet the more important goal is to nominate the most electable candidate.

What to expect from a Trump presidency

Barnum & Bailey are shutting down their circus, though it never was competition to the Donald Trump transition circus. Whether it is dismantling the Affordable Care Act before they have any idea what to replace it with or Melania Trump making cyber-bullying the focus of her time as First Lady. (One wonders if she could be so naïve that she doesn’t realize  her husband is the world’s most prolific cyber bully? Or, is she a lot smarter than we give her credit for and she is using this to get back at Trump for his philandering during their marriage that was revealed during the campaign?) At any rate, the Trump transition has been great entertainment. Unfortunately, once this clown act took office, the laughing stops.

Draining the swamp

Trump’s promise to end the influence of money in Washington took a detour. Betsy DeVoss, Trump’s nominee for Education Secretary, does not have an education degree and has no education experience. She has never attended public school, nor have any of her children. She supports public funding for Christian for profit schools over public ones. Not qualified you say? Well, she did give $9.5 million to Trump’s campaign.

Remember during the campaign when Trump was attacking Hillary Clinton for her close ties to Wall Street?  Trump has six Goldman Sachs executives in high places in his administration and his cabinet is the  wealthiest in history. Just think of how loud the wailing would have been if Clinton had won the election and installed these executives.

Trump’s inauguration committee sold packages for $1 million that included four tickets to what’s billed as an exclusive “leadership luncheon”. According to a document detailing the “58th Presidential Inaugural Committee Underwriter Benefits.” they will have a luncheon with “the ladies of the first families,” an “intimate dinner” with Vice President-elect Mike Pence and his wife and a “candlelight dinner” with “special appearances” by Trump and incoming First Lady Melania Trump as well as the Pences. If a woman put together a package like this, she’d be arrested for prostitution.

Trump, who is not known for doing anything unless it benefits him personally is true to form. The tax cut he is pushing most consistently is to end the estate tax. In 2015, you got to exempt the first $5.43 million of your estate before starting to pay any tax. Joe Sixpack,  if you ever expected to have a place at this table, you really are a fool.

International trade

Trump promises to bring manufacturing jobs back to the US by renegotiating trade agreements.  He won an election with this nonsense, but it will fail miserably in the real world. Here is the reason.

A  country’s trade balance has to equal its Net National Savings. If a country imports more than it exports, it can’t just create money to pay its bills. After running out of domestic lending sources, it has to borrow money from foreigners to pay for the extra imports. Or, if a country borrows from foreigners to pay its bills, the Terms of Trade (prices on exports and imports) are adjusted by the market  to make sure extra imports closely equal the Net National Savings deficit.

This is the scenario the US finds itself in. Because of our Net National Savings deficit, our exportable goods are more expensive than they otherwise would be and the things we import are cheaper.

The difference between exports and Imports is a country’s Current Account. This includes trade in goods, services, investment income, wages and anything else traded.

The US, consistently runs a Net National Savings deficit, so that is the driver in this equation. The Current Account will always match our Net National Savings. President Trump can negotiate artificial terms of trade (prices) with China, but at the end of the day, that pesky Current Account will still match our Net National Savings. We will simply wind up trading with other countries until the Current Account deficit matches the Net National Savings.  The Current Account in 2015 was -$478 billion. In this -$478 billion, we are sure to find many boatloads of manufactured goods.

What the Republicans (and Democrats for that matter) don’t want to talk about is: Net National Savings = Government Savings  + Private Savings. In 2015, Government Savings was a negative $782 billion. (The great majority of this was the federal government deficit of $569 billion.) Private Savings was $304 billion. Add -$782 billion to +$304 billion and the sum is -$478 billion. Source: Bureau of Economic Analysis, Table 5.1 Saving and Investment by Sector, Lines 35-41, January 2017. (Note Net National Savings are also called Net Lending or Net Borrowing, NIPAs and Capital Account.)

The important point is President Trump can negotiate all the trade agreements he wants, but until he and his Republican Congress get rid of the the $569 billion federal budget deficit, the US will continue having Current Account deficits, export jobs and mortgage our children’s future to foreigners.

The danger is that if Trump doesn’t get his way in the useless trade negotiations, he’ll start attaching the 35% tariffs he has threatened on our trade partners. This will allow domestic companies to jack up their prices and dramatically add to inflationary pressure. At the same time, other countries will return the favor to us and add similar tariffs to our exports. This will devastate sectors like agriculture that are export dependent. If Trump were to do something crazy in the name of America First and outlaw all foreign trade, the US goes bankrupt.

Again, the US Current Account deficit is our fault, not the Chinese or any other country’s fault.  We have a trade deficit because of our prolific government spending and more important, our inability to raise taxes to match our government expenditures. If voters want a positive trade balance, they made an enormous mistake in the last election.

The economy

Republicans love to spend outrageous amounts of money growing the size of government and they love to cut taxes. Consequently, they borrow money like drunken sailors. While Republicans Ronald Reagan and George W. Bush each raised annual government spending by around 80% during their terms in office, this looks like just a starting point for Trump and his Republican Congress. https://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=3&isuri=1&904=1980&903=87&906=a&905=2016&910=x&911=0

Trump has determined that we need to “hugely” increase defense spending. We have no idea how much “hugely” is, but no doubt with a Republican Congress egging him on, this is mega bucks.

Again, the Republicans are operating without any logic or common sense. According to the Stockholm International Peace Research Institute, which tracks military spending of 170 countries since 1988, the US spends more on defense than the next seven biggest spenders combined! We spend three times as much as China and seven times as much as Russia.

Trump has also called for another program, whose cost could soar to another $trillion, to expand and modernize our nuclear arsenal. Currently, we have 2,000 nukes deployed. According to a 2007 study by the International Physicians for the Prevention of Nuclear War, if only 300 of these warheads hit Russia, 90 million out of Russia’s population of 144 million would die in the first half hour. Those would be the lucky ones. Most of the rest would perish in the following months.

Trump also has a $trillion stimulus/infrastructure program and his tax cuts are expected to add somewhere in the range of another $trillion annually to the deficit. To update one of my favorite quotes from the late Republican Senator Everett Dirksen, “A trillion dollars here and a trillion dollars there and pretty soon you are talking real money.”

The size of the deficits resulting from Trump’s proposed spending increases and tax cuts are mind-boggling.  While Trump lives in his alternate reality that his tax cuts and spending increases will generate an economic boom that will more than cover their costs, history tells us otherwise. The Reagan/Bush tax cuts and 8% annual spending increases bought us the biggest budget deficits in history. The George W. Bush tax cuts combined with his almost 8% annual spending increases brought us even bigger deficits. While Barack Obama kept his spending increases modest, he was history’s biggest tax cutter by keeping Bush’s tax cuts and adding on his own in the form of FICA cuts. These resulted in over $trillion deficits throughout his first term.

The money to pay for these deficits will have to come from someplace. Figure 1 illustrates the source for financing much of past deficits, foreigners. Considering the size of Trump’s projected spending deficit and the possibility Trump might start a trade war with China, our second biggest lender, future availability of  foreign funds is not certain. If we have to rely on domestic sources to fund his deficits, it could lead to some of the highest interest and inflation rates this country has ever seen.

Figure 1

Source: Bureau of Economic Analysis, Table 5.1 Savings and Investment by Sector; Line 35, 1/22/2017
Source: Bureau of Economic Analysis, Table 5.1 Savings and Investment by Sector; Line 35, 1/22/2017
Wishful thinking

Perhaps you expect Congress to do the responsible thing and temper Trump’s fiscal policies? Republican members of the House Freedom Council (these are the Tea Partiers that led government shut-down efforts) say they are ready to vote for a budget that will raise the deficit by a $trillion by the end of the decade, all for the sake of repealing the Affordable Care Act. They’ll need to get used to far bigger deficits than that.

A little background, in 1980 when Ronald Reagan was elected president, the federal government’s spent $534 billion annually. In 2015, federal government spending reached $3.5 trillion. Over 70% of this increase took place while a Republican was president and controlled the budget veto.

Summing-up

The United States  has a long history of divisions. Not since the Civil War has the country been as divided as it is now. And, with Donald Trump, the most divisive president in our history, building walls, dividing families, taking away women’s reproductive rights and making health insurance unaffordable for a large segment of the population, only the most naïve will expect any improvement.

The only thing Trump and his Republican disciples in Congress have going for them are low expectations. If they can somehow avoid melting down the global economy and starting a nuclear war in the next four years, Frugal Ron will hail the Trump Administration as a success.

 


A Healthcare Crisis In the Making

Healthcare is getting more expensive for individual US citizens. Many of the biggest insurers are pulling out of certain markets because of large financial losses. Some consumers will see double-digit increases in their insurance in 2017 following some double-digit 2016 increases. This will hit rural areas having the least competition the hardest.

The healthcare cost culprit – not what you expected

Affordable Care Act (ACA) opponents will seize on health insurance premium increases as proof positive that they were right all along about Obamacare causing insurmountable healthcare costs. Unfortunately for their arguments, they are wrong.

Figure 1 compares health care costs as a percent of Gross Domestic Product (GDP). Health care costs include insurance premiums, deductibles and all other costs associated with health care in the US. Measuring this as a percent of GDP shows how costs are growing compared to the rest of the economy and takes inflation noise out of the picture.

President Obama signed the Affordable Care Actin 2010 following several years of high healthcare cost growth. Some of the ACA cost containments were implemented in 2010 with sign-ups beginning in October 2013.

Health care costs did go up in 2014 from 2013’s value of 17.3% of GDP to 17.4% of GDP. Unfortunately, the 2014 cost data is the latest available from the National Health Statistics Group.

Figure 1

image001
Source: National Health Statistics Group , Office of the Actuary and Bureau of Economic Analysis, Table 1.1.5, Gross Domestic Product

The Milliman Medical Index is another calculation of all healthcare costs that does have 2015 data. Their 2015 cost increase of 4.7% is the lowest in the 15 years they have calculated their index. This is in spite of an almost 10% increase in prescription drug costs in 2015. http://www.milliman.com/mmi/.

What’s going on here?

So, to any logical person, this should make no sense whatsoever! How do we get double digit increases in health insurance costs (along with ever-increasing deductibles) when total healthcare costs are just keeping pace with the economy or rising less than 5%? If you read why large health insurers are leaving certain markets, the mystery starts to make sense.

Over and over, insurers complain they aren’t getting enough healthy young adults enrolled. If they are stuck with older customers who run up 80% of their healthcare costs in the last few years of their lives, insurers are going to lose money. And, if the healthy young people going uninsured wind up having major medical bills they can’t or won’t pay, guess who pays them? Typically, about 70% goes to the private insurers one way or the other. Those costs are incorporated into even higher insurance rates next year.

U.S. medical care, not cheap.
U.S. healthcare, not cheap.

This is the same thing that would happen if the government didn’t require drivers to have car insurance. Safe drivers would logically decide to save money and not buy  insurance. Insurance companies would be stuck with bad drivers that have lots of accidents

So, how do all these people get by without buying insurance? The ACA has a mandate that requires all people to buy health insurance. If someone doesn’t buy insurance, the mandate requires they pay a fine on their federal tax return. They will pay the higher of 2.5% of household income or the total of $695 per adult and $347.50 per child under 18, up to a maximum of $2,075.

Why can't we just go back to the way it was?
Why can’t we just go back to the way it was?

However, it is even easier if they claim one of the 14 exemptions the ACA allows. One of them allows a person to claim they are or were the victim of domestic violence. They do not have to offer any documentation of the domestic violence.

Summing-up

Obamacare supporters stress they do not want health insurance to be a financial burden on anyone, hence their exemptions. Yet, their kindness is jeopardizing the health insurance industry and by extension, the healthcare industry. As sign ups for insurance continue their downward trend, this nullifies the goal of Obamacare, to spread costs out across a wider population. This needs fixing.

For those still foolishly calling for the end of Obamacare, what is happening now should be a wake-up call. A loose mandate is resulting in double-digit rate increases. Imagine if there was no mandate?


The Republican Miracle Man

Donald Trump is the Republican “Miracle Man”. He claims to be an outsider. Yet, as a politician, he has outsmarted all his competitors. This and his policies makes him the most dangerous man in the US.

Every day he says something incredibly foolish or outlandish. He calls Hillary Clinton “Crooked Hillary”, yet one of his speeches has more falsehoods in it than Ms. Clinton tells in a year.

Miracles for everyone!

Trump promises to wipe out the US’s debt while making huge increases in defense spending. If his poll numbers are down among women, he promises them government-funded maternity leave and day care. Silly us for questioning how he is going to pay for all this. It will all be funded by all the economic growth his policies will bring! In other words, a miracle.

Other presidential candidates like former Texas Governor Rick Perry in 2012 made a number of small mistakes and one Trump sized one in forgetting which federal agencies he was going to close. After that, he was finished. Wisconsin Governor Scott Walker said stupid things during his presidential run and just like Trump, simply makes stuff up. Walker topped the Republican polls for months. But after his Canadian border fence gaffe and removing any doubt about his lack of intelligence during the presidential debates, his star faded and he was finished. These are not Miracle Men.

Yet, Donald Trump somehow is managing to stay within a few percentage points of Hillary Clinton and could very well win this election. So, how does he get away with it? Here are a few random thoughts on his success.

  • Establish a bedrock super dedicated base with the least educated, gullible and most easily manipulated voters. For Trump, no matter how bad he does, he can count on his white non college educated base to provide continued support. Throw in rural Republicans who will vote a straight ticket regardless of who is on the ballot and you have a credible percentage.
  • Trump’s core voters want to believe him. Trump identified white men without college degrees as a group that believes they are disenfranchised. He promises them just what they want to hear, that he is going to bring their high paying manufacturing jobs back. He gets them to believe this whopper and anything else he says seems believable.
  • Sexism. A female large animal veterinarian breaking into a male dominated field in northern Wisconsin in the late 1980’s provides some unique perspectives that apply to politics. For a woman to gain acceptance, she can’t be as good as her male colleagues. Being better than them doesn’t cut it either.  She has to be perfect. Hillary Clinton is by no means perfect. Of course, there is a double standard here. But, that is the way it is and Trump and surrogates play it to perfection.
  • Consistent deflection. Donald Trump is a weak candidate. Yet, when he or his surrogates are pressed to explain his unexplainable policies, they use a rhetorical tool called deflection. They simply change the conversation to Hillary Clinton and typically, her e-mails. It is amazing how many supposedly high-powered interviewers let them get away with this.
  • If there isn’t an external threat to safety, make one up. Trump continually overstates the threat ISIS poses to the U.S. How credible is this?  In 2015 and so far in 2016, toddlers with guns killed  more U.S. citizens than Islamic terrorists have. http://www.snopes.com/toddlers-killed-americans-terrorists/ https://www.washingtonpost.com/news/wonk/wp/2016/05/01/toddlers-have-shot-at-least-23-people-this-year/
  • Irrational supporters. Trump supporters somehow justify their loyalty with illogic. One favorite: “Congress will step in and stop some of Trump’s craziest plans.” Yup, just like Congress stopped President George Bush’s invasion of Iraq, his tax cuts and his out of control spending and borrowing that brought on the Bush Recession.
  • A weak competitor. Democrats do extremely well when they have a charismatic genius as their candidate. Some examples are John Kennedy, who surrounded himself with the best and the brightest, Rhodes Scholar Bill Clinton and University of Chicago Law School Professor Barack Obama. Hillary Clinton is certainly not charismatic. I can’t imagine Bill letting her out of the house with those god-awful sunglasses. She may be intelligent, but one has a hard time believing it with some of her decision-making. People simply don’t like Hillary Clinton and she may very well be the biggest reason Trump could win this race.
The reality

The Miracle Man constantly promises to bring jobs back to the US by renegotiating trade deals.  The US’s Merchandise and Trade Balance is out of whack indicating a net export of jobs. However, some bellicose president trying to pressure his country’s biggest lender to change their legitimate trade policies isn’t a solution.

Unfortunately our trade deficit is our fault. It is not caused by some other country. We need to recognize the reality that every country’s Merchandise and Trade Balance equals that country’s Net National Savings. The way to end our country’s Net National Savings deficit is to eliminate our $500 billion federal government spending deficit. That requires a conservative president making the federal government live within its means, not some blundering ignoramus enacting tax cuts for the rich and huge spending increases for defense and whatever his daughter suggests.

Summary

While Frugal Ron recognizes Hillary Clinton’s faults, he remains convinced  a Donald Trump presidency will be an unparalleled disaster. However, considering people’s blind desire for change in light of today’s low unemployment rates, the record number of people working, the unprecedented rises in median income levels of late, the record high stock market levels, the low levels of chronically unemployed, the record low-level of inflation and the few U.S soldiers in harm’s way, maybe Donald Trump is what voters deserve.

The only call to action in this article is simple. Rational people must out vote the irrational. The stakes have never been higher.

 


A Donald Trump Presidency

Frugal Ron avoids doomsday scenarios and pessimism in general. Donald Trump’s nomination as the Republican presidential candidate changes all this. If elected, his presidency will be a disaster due to flawed policies, his character and his personal decision-making.

Predictions

Deporting many of our most productive citizens will hurt  our economy and raise unemployment. In the dairy industry, the exodus of Hispanic workers will shut down or dramatically reduce the productivity of many large dairies. This will cut what I call “white employment”. These are the nutritionists, veterinarians and people involved in the processing industry that will find themselves out of work. This scenario will repeat itself countless times in other industries.

Restricting  trade will bring back inflation. Old oligopolies (industries controlled by four or fewer players) will have more power to raise prices. Will GM, Ford and Chrysler build more factories and hire more workers? Not likely, much less risky to just raise the prices on the cars they sell.

And, what about bringing more jobs back to America? The rules don’t change. Our Trade Balance will equal our Net National Savings. If we borrow more from other countries, we’ll keep having a negative Trade Balance. If we restrict imports with high tariffs, you can bet our trading partners will reciprocate with higher tariffs on our exports. This will destroy many of our export focused industries.

More predictions

As we get within a month of the election and if poll numbers show Trump is winning, expect a sell off in the stock market.  Most stock market investors accurately perceive what a Trump presidency will bring.  Where will the money go? For those with most of their money in retirement accounts, they can’t pull the money out as cash without paying significant taxes or penalties. Most of this money will transfer into money market accounts. Investors with more liquid stocks may be converted to cash that can go in bank safe deposit boxes.

If Trump wins the presidency, it is logical to assume Republicans will maintain control of the House and Senate. Because of his electoral mandate, Congress will give him pretty much of what he demands.

Trump’s disaster

Donald Trump has promised a massive tax cut. None of the above will have near the  impact on our economy or the rest of the world’s as this cut in government revenue. According to the Citizens for Tax Justice, this plan will increase the federal debt by $12 trillion over the next decade. As if we haven’t already concentrated enough wealth,  the highest one percent of earners would get $4.4 trillion of the tax cuts.

http://ctj.org/ctjreports/2016/03/donald_trumps_tax_plan_would_cost_12_trillion.php#.V54hhJMrIQ8

Frayed, but still flying.
Not the only thing frayed in a Trump presidency.

Numerous other articles on this website find tax cuts related  to higher deficits and higher unemployment. The Reagan/Bush tax cuts eventually resulted in a recession and higher unemployment.  The Bush/Clinton tax increases and eventual balanced budgets coincided with the most widespread peacetime prosperity the US has ever known. The George W. Bush tax cuts and huge spending increases ended the party and eventually ushered in the worst economic recession in our lifetimes. Barack Obama’s tax cuts added on to Bush’s gave us the biggest deficits in our history with little unemployment decline. The dramatic improvement in the US economy came during Obama’s second term after he shrunk the tax cuts and consequently lowered the federal deficit. The lesson from all this is crystal clear. The Trump tax cut will bring us a recession. Unfortunately, this will be the least of our problems.

Trump’s quandary

From history, we know that the US economy’s private sector does not have the resources to finance  $trillion government spending deficits. According to the Congressional Research Service, in December 2015, total publicly held debt was over $15 trillion. Foreigners held over 40 percent of this debt with Mainland China owning over 20 percent and Japan owning over 18 percent.

http://www.fas.org/sgp/crs/misc/RS22331.pdf

In ordinary times, we can count on these usual lenders financing our Net National Savings deficit. However, a Trump presidency will not be ordinary. Trump pledges to “renegotiate unfair trade deals”. He has promised to tear up the North American Free trade Agreement (NAFTA).  Unfortunately, NAFTA never was a free trade agreement. It is hundreds of pages of trade restrictions.

Consequently, NAFTA never had much impact on the US economy and abandoning it will make little difference to the US. Mexico’s smaller economy will feel more impact. Much more important, is Trump’s promise of a 30 percent tariff on Chinese made goods if China fails to renegotiate their US trade pacts.

The insanity

If we take a moment to think this through, here is a country (US) that owes another country (China) $1.25 trillion telling their lender that they are going to put a 30 percent tariff on the lending country’s goods. And, by the way, we also want to borrow several times our current debt over the next decade!

We can expect the Chinese response will be something we can not print in a family publication. The net result is that most, if not all, of the foreign sources of debt financing will be closed to a Trump run United States.

Donald Trump certainly won’t admit to a mistake. So, with his federal government hemorrhaging $100 billion per month because of his tax cut and domestic lenders only able to finance about 60 percent of this, he has few choices.

According to the Center for Tax Justice, eliminating 94 percent of the federal government’s discretionary spending would cover the cost of the Trump tax cut. But, Trump needs to continue defense spending at a high level since he will need the military to carry out his round-up of 11 million illegal immigrants for deportation. He also needs to increase funding for his “second to none” domestic intelligence and the “universal high quality day care” promised at the Republican convention. Cost cutting doesn’t seem to be part of the plan.

A second option is to do nothing and let the markets take care of the problem. The market’s solution are much higher interest rates. Double digit interest rates will probably draw in enough private funding to cover his deficit. This will dry up funds for private investment and raise interest costs dramatically for home and business owners.

The third option is to have the Treasury Department simply print more money (lots more money) and then lend it to the federal government. This sounds like a logical Trump solution.

Trump’s inflation

While the second option listed above is highly inflationary, the third option is hyper inflationary. Inflation is the scourge of bad government and something we’ll have to accept with a Trump/Republican government.

Inflation changes the value of existing debt. Debt holders are very sensitive about this sort of thing. If annual inflation is at 15 percent, that means the value of their debt is dropping by 15 percent annually. Lenders aren’t going to tolerate this and they will unload their securities at a loss. When private and foreign government holders of $15 trillion in Treasury securities unload them in a hurry, this will cause a meltdown of the entire global financial system.

A summary or a doomsday?

There is typically a huge difference between realists and alarmists. A Trump presidency will result in close to identical projections from both.

If Trump and Republicans cut taxes an average of $1.2 trillion annually for the duration of his term in office and combine that with high tariffs, conventional sources of foreign capital will not be available. Without that source of cash, the federal government will drive up interest rates and or print outrageous amounts of cash to satisfy its need for money. The resulting panic in the global lending market will be catastrophic.

 

 


Abortion Industry and Republicans

The abortion “industry” and Planned Parenthood have to rank near the top of nonsensical issues today’s Republicans rail on. Merriam-Webster’s online dictionary defines industry “as a distinct group of productive or profit-making enterprises”. This is the antonym of anyone offering abortion services.

Following the Donald Trump fiasco about punishing women that get abortions, we are told that the real murderers are the abortion industry doctors that entice young women to kill their unborn babies for their doctor’s profit. While the reality is, abortion doctors are providing a low-cost service for women with few alternatives.

Yet, Republicans have to invent an “industry” to personify greed rather than admit that the real driving force for women getting abortions is that it is a last resort to end a pregnancy they don’t want. We might also add these women are in a better place to make their decisions than a large, intrusive liberal government is to make it for them.

And, about the doctors enticing women to kill their unborn babies for their own profit, according to salarygenius.com, the average yearly salary for an “Abortion Doctor” in Milwaukee, Wisconsin is $86,433. The average yearly salary for an “Ob Doctor” in Milwaukee, Wisconsin is $108,942.  An abortion doctor has the same degree and qualifications as an obstetrician, yet makes $22,500 less per year. These are the most poorly paid money grubbers in existence.

Aborted plans

The infamous Planned Parenthood videos Republicans love to hate capture Dr. Amna Dermish  affirming a $50-60 fetal specimen reimbursement charge to research laboratories.  Yet, Nasco, a highly respected Wisconsin company that has sold laboratory specimens to schools for decades, charges $89 for a (euthanized) 16-23 inch long skinned cat.

Why is this important?  Because David Daleiden, the organizer of the videotaping effort to prove Planned Parenthood broke the law, needed to prove the organization sold fetal tissue for a profit. A Texas grand jury disagreed and refused to charge Planned Parenthood.

Daleiden and an associate, posing as representatives of a fake tissue procurement company, made a big mistake using a fake ID to gain access to Planned Parenthood in Houston, Texas. In Texas, knowingly using a fake government document if  the intent is to defraud or harm another is a second degree felony punishable by up to 20 years in prison. Instead of charging Planned Parenthood, the grand jury charged Daleiden and his associate.

The point of all this is simply that here is another example of the fantasy world Republicans need to belong to if they are going to justify their agenda. Who cares if the facts show there is no such thing as an abortion industry? Even though Planned Parenthood was cleared of all charges and three Congressional investigations costing $hundreds of thousands found no evidence of the sale of fetal tissue for a profit, Congress and a number of Republican controlled states voted to cut off their funding.

Planned Parenthood's fancy digs.
Planned Parenthood’s fancy digs.
The real anti-abortion agenda

Republicans who say they want to end abortions and at the same time slash Planned Parenthood funding are illogical or have a hidden agenda. The non-profit Planned Parenthood provides low or no cost contraceptives for the women at highest risk of unwanted pregnancies. Published research over and over reaffirms that making contraceptives more available is the most effective way of reducing unwanted pregnancies and abortions.

If lowering abortion numbers is not the real driver of the anti-abortion Republicans, then what is?  Maybe their real goal is punishing women having sex for reasons other than procreation? Deprive them of legal and safe abortions and force them to have the child as a punishment?

Cutting off Planned Parenthood’s distribution of contraceptives fits in this pattern. The only people needing contraceptives are those not intending to produce children. In a misguided way, depriving them of contraceptives might stop them from having sex. Perhaps, there is more to the Republican abortion industry  than meets the eye.


What Bernie Sanders Doesn’t Understand

Senator Bernie Sanders’s  blames a lion’s share of the United States’s economic problems on Wall Street banks and trade deals. Given the opportunity, should he win the presidency, he would break-up the large banks and re-write the US’s international trade treaties. The net affect of all this would be zero jobs created.

The problem

Senator Sanders is correct in saying the US is exporting jobs. In fact, we are presently buying almost a half trillion dollars more goods and services annually than we are selling to other countries.

Figure 1 Source: Bureau of Economic Analysis, Table 4.1 Foreign Transactions in the National Income and Product Accounts, Revised March 25, 2016 http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=3&isuri=1&904=1980&903=128&906=a&905=1000&910=x&911=0

Bill Clinton was elected president in 1992 and was sworn in to office in January 1993. During his eight year term, he signed one major international trade agreement (GATT), a minor regional one (NAFTA) and granted China most favored nation trading status.  The U.S. Merchandise & Trade Balance in Figure 1 is the annual dollar total of all our exports minus all our imports. Exports and imports are all-encompassing and include goods, services, dividends, interest payments and everything else transacted.

As one can see, our trade balance has been negative every year in the chart (it was positive in 1991) and has gotten steadily worse since Clinton assumed office. If we stop this post right here, we can blame Bill Clinton for destroying our industrial sector and make this look clear-cut and simple, just like Senator Sanders does. Unfortunately, it isn’t simple and Clinton deserves our praise not our anger.

The rest of the story

Having a positive or negative trade balance is not dictated by trade agreements. Trade agreements impact the volume of trade, but not the direction. In 1992, our total exports were $781 billion and in 2015 they totaled $3.3 trillion.

Where this gets a bit more complicated is that each country’s annual Merchandise and Trade Balance must equal that country’s Net National Savings Rate. If the United States buys more than it sells, it must borrow money internationally to pay for the deficit. Equally, the accounts must balance if the driving force is US borrowing. Adding in employment data at first makes this more complicated, but also provides some answers.

Figure 2 illustrates how employment does not follow trends in the Merchandise and Trade Balance. In other words, a big trade deficit does not necessarily mean high unemployment. When Clinton took office, besides signing trade agreements, he passed a significant tax increase and balanced the budget. Following was one of the most sustained economic booms in our history. The blue line representing the Employment rate (100% – Unemployment rate) continued rising into the first year of the George W. Bush Administration.

image001
Figure 2 Source: Bureau of Economic Analysis, Table 4.1 Foreign Transactions in the National Income and Product Accounts, Revised March 25,2016 http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=3&isuri=1&904=1980&903=128&906=a&905=1000&910=x&911=0 and Department of Labor, Labor Force Statistics from the Current Population Survey, Unemployment Rate, 16 years and over

At the same time that US employment was reaching record high levels, our Merchandise and Trade Balance was dramatically dropping. What was happening in this period was demand for goods and services was outpacing our ability to produce more in a full employment economy.

In days gone by, this was a prescription for rampant inflation. Now, due to more open trade, the pressure was relieved by other countries meeting our demands. Hence we imported much more than we exported even with record high employment. Consumer purchases were financed by foreign lending. Consumers got home equity loans and ran up their credit cards. Few asked where the money was coming from.

Voters put an end to the good times by electing George W. Bush in 2000. Upon assuming office in 2001, he started cutting taxes and combined this with over 7% average annual spending increases. The Clinton budget surpluses disappeared and were replaced by huge deficits. These deficits were bigger than domestic lenders could cover. Consequently, we became the world’s biggest borrower. By 2006, we were borrowing over $800 billion annually from people and governments outside the US.

This massive borrowing preceded the Great Recession starting in 2008.  Just like in the Clinton Administration, the same rules of balancing international transactions stayed in place. During the Clinton years, consumer spending drove this. During the Bush years, borrowing drove the equation. So while in 2006, we borrowed over $800 billion from outside the US, we now wound up buying an extra $800 billion of goods and services to balance the transaction.

How does this happen? The Terms of Trade (which are currency values) change enough to make domestic producers unable to compete with foreign producers. This doesn’t mean they were inefficient, it was just currency values were killing these companies. While we were borrowing everything in sight, China practiced conservative government and had huge positive Net National Savings that they lent to us. Consequently, China boomed and we busted.

American as apple pie
American as apple pie and Bernie Sanders’ populism.

The simplified equation is Net National Savings = private savings + government savings. During the years after Clinton left office, the US has had moderate to high private savings. Unfortunately, these were dwarfed by government spending deficits leaving us with negative National Savings and therefore negative Balances of Trade. When other countries balance their private savings with prudent government spending and attain a positive Net National Savings, we call it “Currency Manipulation”. I call it conservative fiscal management.

What we and Bernie Sanders should have learned

This is extremely important.  The US economy didn’t tank because of trade agreements with China. Our economy crashed because we had huge negative Net National Savings Rates caused by irresponsible spending and tax cuts that caused massive government spending deficits that overwhelmed our private savings. China followed a much different path and accumulated high positive Net National Savings Rates. Renegotiate all our trade agreements and have the same Net National Savings Rate and we will still have the same equally large negative Merchandise & Trade Balance.

Unfortunately, when President Obama assumed the presidency in 2009,  he increased spending dramatically his first year in office and even worse, continued the Bush tax cuts and added some of his own. Being somewhat lucky, the impact of his continuing $trillion deficits government spending deficits were blunted on the international credit markets because US private savings increased. This reduced the amount of needed foreign borrowing.

Thankfully Obama eliminated his own and many of the Bush tax cuts in the 2012 Budget Reconciliation Act. After his first year in office, he also dramatically cut his spending increases and currently has an average annual spending increase of just over 2.5% for his term in office. Perhaps coincidentally, the federal budget deficit has shrunk into the $500 billion range, our Net National Savings and Merchandise and Trade Balances are in the $500 billion range and employment has expanded to high levels.

All is not cream and roses. The high employment rates we have include record numbers of part-time jobs. Many US workers are under used and under paid. Things could be better.

What should Sanders do?

It makes a simple speech that even Donald Trump supporters can understand when you externalize our economic problems and blame foreigners for them. If we can move beyond worthless talk and onto solutions, what we really need are truly conservative politicians (and voters) willing to pay the entire cost of government with increased taxes while making hard decisions about government’s real purpose and follow through with needed cuts.

If we want to eliminate our trade deficit (Merchandise & Trade Balance), we need to quit wasting time blaming trade agreements and successful people (otherwise categorized as “Wall Street”). We need to be true conservatives and balance our federal government’s spending.

The fine print

During this season, promises flow like lava from a volcano. It would be remiss to leave readers with the impression that simply balancing our Net National Savings will lead to a reindustrialization of the US. This simply isn’t going to happen. The good paying jobs where people stood in a line and did the same thing over and over again all day are gone and never returning. Automation has eliminated untold numbers of jobs that aren’t coming back.

Getting our act together, dramatically lowering the budget deficit and bringing our National Savings Rate close to zero will make more US jobs internationally competitive. However these positions will demand more education and higher skill levels. These are the jobs where the US has a competitive advantage.

Summing up…

A country’s Net National Savings Rate equals  private savings plus government savings. Today, private savings are fairly reasonable. If government savings could be brought to zero, that would virtually eliminate our Net National Savings deficit and consequently our Merchandise and Trade Balance. Maybe asking voters to be responsible doesn’t win elections.  Yet, if Bernie Sanders wants to show real integrity, that is the speech he needs to give.

 

 

 


Facts and Something Very Different

Facts and research driven policy making are hallmarks of Barack Obama’s presidency.  In contrast, Republicans develop a policy and then make up “facts” to support their proposals. This difference leads to legislative failures and more seriously, divides our country.

While Obama will go down in history as one of our most analytical and cautious presidents, today’s Republicans will be remembered as some of history’s most reckless and irresponsible. Adding fuel to the Republican misinformation juggernaut is Fox News. The Pulitzer winning Pundifact/Politifact rates 58 percent of the statements on Fox News as Mostly False, False or Pants On Fire False. (http://www.politifact.com/punditfact/tv/fox/ ) Even worse, Fox News is a beacon of accuracy compared to Republican entertainers like Rush Limbaugh.

An example of what happens when bad advice is invented and followed is Republican President George W. Bush’s  2003 Iraqi invasion. Bush and company ignored analysis from NATO allies and almost everyone else that Iraq did not have weapons of mass destruction (WMD). As United Nations weapons inspectors were getting ready to certify that Iraq had no WMD, Bush, with lock step, unquestioning support from almost every Republican in Congress, ordered an invasion because they knew they were right and everyone else was wrong. The resulting mayhem and civil war:

  • Killed a quarter million Iraqis and more than 4,000 US soldiers while destroying the lives of thousands more with  physical and psychological injuries.
  • Displaced hundreds of thousands of Iraqis who previously lived together peacefully before the destruction of the Saddam government.
  • Democratic elections put the majority Shiites in power in Iraq. The Shiite government established domestic security and military ties  with Shiite Iran, making Iraq a satellite of Iran and thereby upsetting the balance of power in the Mideast.
  • Put the Shiites in control of the Iraqi government, army, police and judicial system.
    • Consequently pushed Sunnis out of the jobs they held in the government, army, police and judicial system
    • Brought about the formation of ISIS by displaced Sunni army veterans with support from other now unemployed Sunnis.
  • Of course, weapons of mass destruction were never found.

In case after case, Republicans ignore research and simply go their own way. And then, when their policies explode in their faces, they refuse to acknowledge data that quantifies their failures.

Facts and a learning curve?

Most of us tend to learn from our mistakes. Not today’s Republicans. After being burned in Iraq, logically one would want to stay out of other wars we have no reason to get involved in. Yet Republicans would risk World War III to teach Russia a lesson about annexing parts of Ukraine and for some reason seem to think that we can solve the thousands of years old war in the Middle East between Sunnis and Shiites. The only thing  guaranteed is a large-scale ground operation against ISIS will  bringing home far too many body bags filled with U.S. soldiers.

In economics, it is mostly the same story. Republicans are fixated with cutting taxes. In the 1960’s Democrats cut taxes on the highest income bracket from 90 percent to 70 percent. Federal government tax receipts increased at the lower tax rate.

However, when President Ronald Reagan lowered the top rate into the mid 30 percent range, tax receipts went down. Every subsequent Republican tax cut has led to lowered tax receipts, bigger deficits and higher unemployment. What the rest of us can learn from this is that if tax rates are extremely high, cutting them will increase tax receipts. When tax rates paid by the highest income taxpayers are in a more moderate range as they have been over the last 40 years, cutting them only increases the budget deficit. Republicans can’t seem to grasp this reality.

Figure 1

Sources: Bureau of Economic Analysis, Table 1.1.5 Gross Domestic Product, http://www.bea.gov/iTable/iTableHtml.cfm?reqid=9&step=3&isuri=1&904=1980&903=5&906=a&905=2015&910=x&911=0, September 28, 2015; Department of Labor Statistics, Labor Force Statistics from the Current Population Survey, Seasonal Unemployment rate; Bureau of Economic Analysis, Table 3.2 Federal Government Current receipts and Expenditures, http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=3&isuri=1&904=1980&903=87&906=a&905=2015&910=x&911=0, September 28, 2015

As Figure 1 illustrates, when the federal government’s Spending balance as a percent of Gross Domestic Product (otherwise known as the budget deficit) gets more negative, the percent of the workforce that is employed drops. The trend is unmistakable. Tax cuts increase the budget deficit and employment drops. And yet, in the most recent budget

So why did Republicans push for (and get) an agreement to extend dozens of special tax breaks, totaling some $680 billion in lost revenue as part of the 2015 budget reconciliation? Again, Republicans just plain KNOW the tax cuts will generate much more revenue for the government.

Note: The Spending balance is the difference between the federal government’s receipts and expenses, otherwise known as the government deficit because it is so often negative. To negate the effects of inflation, the Spending balance is shown as a percent of Gross Domestic Product.

Republicans and their alternative reality

Over and over, on issue after issue, Republicans live in a fantasy land they have created. Ignoring research illustrating that access to contraceptives and education are keys to lowering abortion numbers, Republicans slog ahead attempting to outlaw the procedure. They choose to ignore research finding, “If effective contraceptive use is widespread, abortion rates can be very low even in countries where fertility is low and where the rate of sexual activity among unmarried women is high. The lowest documented abortion rates are in Belgium and the Netherlands, countries that rely on contraception to maintain low fertility. In both countries, abortion services are provided without charge to the woman, and abortion is legal under broad conditions.”  https://www.guttmacher.org/pubs/journals/25s3099.html

Few things offer more entertainment than white male Republican congressmen or senators trying to give some type of rationale for a policy that makes no sense whatsoever. Republican  2012 US Senate candidate Richard Mourdock tried to justify his stance of outlawing abortion even in cases of rape or incest by stating that a woman who gets pregnant by her rapist is carrying “a gift from God” and must have the child. Rape victims were not amused.

Fellow 2012 Republican senate candidate Todd Akin from Indiana didn’t help the Republican cause stating “legitimate rape” rarely causes pregnancy. Not exactly an outlier among Republicans, former Congressman Akin was elected by Republicans in Congress to serve on the House Science Committee before his ill-fated Senate bid.

While shorter lived and not nearly as controversial was the Republican reaction to the Ebola virus. Without doing any research, and assuming Ebola spread like influenza, many Republican presidential candidates got on the hysteria bandwagon and called for a total embargo on travel to and from affected areas in Africa.

President Obama calmly got the facts on how the disease spreads. Employing the U.S. military to help aid workers reach dangerous areas in Africa, the disease is in regression and never posed a threat to the U.S.

The press’s job is no winnow the truth from the chaff. Obviously, this puts them at odds with Republicans. Always the victims, Republicans demonize the “liberal press”, whose only sin is bringing out the facts Republicans chose to ignore.

Republicans, wrong again

Perhaps the best example of current Republican wrongheadedness is climate change. Determining if governments need to take action to slow the causes of climate change doesn’t need any advanced scientific degrees, just understanding  playing the odds and risk analysis.

Over the last twenty years, approximately 97 percent of climatologists that published research papers on climate change and offered an opinion on the cause agree our planet is warming and that the causes are man-made.  Only a fool would bet against those odds.

Glacier8X10
Glaciers, fewer and smaller – and those are the facts.

Risk analysis is even easier. If governments go ahead and regulate pollutants that contribute most dramatically to warming and the three percent of climatologists that claim human caused climate change is a hoax are right, we’ve misallocated some economic resources and contributed short-term to slower economic growth. However, if we take no action and the 97 percent of climatologists are right, we risk a global Armageddon.

CC-Grad_248
No oceans in the Midwest, yet.

It isn’t always that Republican actions are illogical. Prior to Obamacare, relatively young and healthy people were foregoing health insurance because of the high cost.  As they dropped out of the insurance pool, health insurance rates went up and more healthy young people took a risk on staying healthy and dropped their insurance. If you weren’t aware of this happening (and didn’t care about the uninsured), it is perfectly logical to oppose the Affordable Care Act and its mandates for all citizens to buy it. What is illogical is the efforts Republicans took to ignore this vicious cycle of increasing health care costs and declining enrollment among the most desired customers.

Almost as a rite of passage, Republicans try to portray the Obama Administration as incompetent socialists that are spending the country into bankruptcy while jeopardizing our safety by decimating our armed forces.

The reality is much different. During the Obama Administration, the US has a higher level of income inequality with wealthier rich and poorer poor than at anytime since the 1920’s. Hardly the desired results of socialists.

As far as defense spending, the US spends more on defense than the next eight biggest defense spending countries combined.  The U.S.’s unemployment rate is at record low levels. And for good measure, health care premiums as well as overall health care costs after the enactment of Obamacare are running far behind the annual increase levels of the previous ten years.

The problem and an unpleasant solution

The problem of misinformed Republicans is a real threat to our country. According to researchers, “Recently, a few political scientists have begun to discover a human tendency deeply discouraging to anyone with faith in the power of information. It’s this: Facts don’t necessarily have the power to change our minds. In fact, quite the opposite. In a series of studies in 2005 and 2006, researchers at the University of Michigan found that when misinformed people, particularly political partisans, were exposed to corrected facts in news stories, they rarely changed their minds. In fact, they often became even more strongly set in their beliefs. Facts, they found, were not curing misinformation. Like an underpowered antibiotic, facts could actually make misinformation even stronger. – See more at: http://archive.boston.com/bostonglobe/ideas/articles/2010/07/11/how_facts_backfire/#sthash.ilPM3t9X.dpuf

Republicans cannot be expected to do independent research and to ever question party dogma. If they do, they are no longer Republicans.

What this means to those of us who want to see our country continue moving ahead is very profound and important. Republicans, although misguided, actually vote. The solution is for a far more active voting participation rate among people with common sense.

Frayed, but still flying.
Frayed, but still flying.

Although the tendency is to focus on the foibles of a Donald Trump or a Ted Cruz, the real danger are the people voting for them. If people of good character and intelligence continue sitting on the sidelines and our country’s voter participation rate continues declining, we have only ourselves to blame for the consequences.

 

 

 


Fighting Terrorism – Follow the Money

The United States’ War on Terrorism is a failure. A decade ago, Afghanistan’s Taliban consisted of a few thousand hit and run soldiers.  According to Matt Waldman, a Fellow at Harvard’s Kennedy School and an Associate Fellow at Chatham House, in 2014, the core Taliban force was estimated at over 60,000.

http://www.voanews.com/content/despite-massive-taliban-death-toll-no-drop-in-insurgency/1866009.html

Estimates of the number of Taliban killed since 2001 range from 20,000 to 35,000

But that’s not all, a decade ago, the Islāmic State (IS) didn’t exist. According to Yevgeny Sysoyev, deputy head of the Russian Federal Security (FSB), “The number of IS  militants stood at some 80,000 in mid-2015, including 50,000 in Syria and 30,000 in Iraq, which can be compared with armies of some countries,” Sysoyev said at a security conference in Sochi. “Among them about 30,000 are foreign terrorists. Most of them come from the Middle East and North Africa,” he added. About 7,000 people from ex-Soviet countries, including Russia, have joined the group,” Sysoyev said. (November 10, 2015)

More:
http://tass.ru/en/world/835147

The U.S. claims its airstrikes killed 20,000 ISIS fighters.

So, despite killing tens of thousands of our enemies, how have they managed to achieve such growth in their fighting forces? Every time in movies like “American Sniper” when we cheer another “score” we forget  these “kills” have mothers, fathers and extended families that love them.  For every terrorist we kill, we radicalize brothers, uncles, cousins, nephews and friends to their dead martyr’s cause of protecting their religion and country from us. Forget about crediting these groups’ great social media for their recruitment success. The real reason for their recruitment success is us.

Keys for a successful terrorist insurgency

Successful insurgencies require the following. In no particular order, they are:

  • Hatred
  • Lots of money
  • A cause to fight for

Approximately a quarter million Iraqis died because of President George W. Bush’s invasion of Iraq. Along with our efforts to wipe out the Taliban, we have provided all the hatred needed for generations.

Follow the money

Inquiring minds, or at least this mind, might ask how one of the poorest countries in the world can field an insurgency of 60,000 troops for over 13 years? Not only that, but the Taliban aren’t lacking for weaponry.  They seem to have no problem shooting down US helicopters.

All this takes money, lots of money. We can assume the 60,000 Taliban soldiers aren’t doing this for free. They also need food, supplies and munitions. Not to mention a supply system to get all these things where needed. Another major cost, typically, suicide bomber’s families receive large cash payouts.

Supposedly, the Taliban fund their activities by supplying Europe with opium. Yet even the Mexican drug cartels involved far more in the distribution channel of drugs than the Taliban can’t afford a 60,000 strong army capable of fighting the US to a draw.

In the case of the Islāmic State, equally puzzling is how some unemployed former Iraqi Republican Guard soldiers could get the weaponry and equipment needed to conquer a good chunk of Syria and Iraq?

So, where is the money coming from? According to a December 2009 US government secret memo  from then Secretary of State Hillary Clinton, “Terrorist Finance: Action Request for Senior Level engagement On Terrorism Finance” obtained by Wikileaks, “Still, donors in Saudi Arabia constitute the most significant source of funding to Sunni terrorist groups worldwide.”

https://wikileaks.org/plusd/cables/09STATE131801_a.html

One of the problems in tracking this money is that much of the Saudi terrorist funding comes from private sources. Further complicating this, in the Saudi kingdom, royal family and government spending are often intertwined.

Terrorism's lifeblood
Terrorism’s lifeblood

According to the Washington Institute, “Today, Saudi citizens continue to represent a significant funding source for Sunni groups operating in Syria. Arab Gulf donors as a whole — of which Saudis are believed to be the most charitable — have funneled hundreds of millions of dollars to Syria in recent years, including to ISIS and other groups. There is support for ISIS in Saudi Arabia, and the group directly targets Saudis with fundraising campaigns, so Riyadh could do much more to limit private funding.”

https://www.washingtoninstitute.org/policy-analysis/view/saudi-funding-of-isis

The Saudis are not the only middle east dictatorships funding terrorism. Other US “friends” funding terror groups targeting the US and our allies are Kuwait, United Arab Emirates and Qatar.

Besides money, the Saudis and their allies also export a cause for these groups. Their goal is to set up Sunni caliphates (separate countries) ruled by a fundamentalist interpretation of Islam called Wahhabism. This brutal form of 1,500 year old justice calls for beheadings, cutting off limbs, offers no rights for women and death to those who question their religion. Besides the Taliban and ISIS, Boko Haram in Nigeria and many Sunni groups in southeast Asia ascribe to this form of justice. We can assume they are all receiving financial aid from the Saudis and other gulf states.

Reality check

Before going further, it is important to acknowledge that while a great many Middle Easterners hate us with a passion, the United States’ involvement in the region is just a sideshow to the main event. The real war that has gone on for centuries and is now fought in Iraq, Syria and Yemen is between Shiites and Sunnis. There is no logical reason for us being involved in this unwinnable war.

None of the participants in this war poses a threat to the United States, including ISIS. The greatest threat we face are people sympathetic to their cause living in the US taking advantage of our weak gun laws and creating mass shootings with legally purchased assault weapons.

Defeating terrorism

While we aren’t the main source of conflict in the Middle East, we can dramatically improve the survival odds for governments we set up in Afghanistan and Iraq, allowing us to gracefully exit those quagmires. We can do this by removing one of the necessary pillars for an insurgency – the money. We have given the Saudi government and the Gulf Emirates over fourteen years to cut off their terrorism funding. It is time to take matters into our own hands.

The most effective way to do this is by working with our allies and jointly slashing Saudi and the Gulf States’ incomes with an embargo on their oil.

Obviously, this extreme solution ends the happy days of gas below $2.00 gallon. But, it is the right and only thing to do if we want to effectively decrease worldwide terrorism.

Cutting off the cash would be the end of a 60,000 man Taliban army. Odds are, it will also put a real crimp in the cause they are fighting for. Who really wants the Wahhabism form of  justice if they the Saudis aren’t paying for it?

For ISIS, combined with destroying or Iraqi government recapturing their oil fields, cutting off Saudi and Gulf Emirate cash would make them much more vulnerable to their Shiite enemies. Defunding would completely change the complexion of the fight against Boko Haram and terror groups in southeast Asia. These groups get funding either through ISIS or directly from the Gulf Emirates.

Summing up

After fourteen years, we’ve learned how not to fight terrorism. What doesn’t work…

  • Killing as many terrorists as possible
  • Politely asking the Saudi Arabian government and other gulf kingdoms to stop funding terrorist groups

What has a high success probability is cutting off terrorist cash by implementing an oil embargo on countries funding terrorists. The short-term hardship experienced by the rise in fuel costs has side benefits unrelated to terrorism. The expected reduction in oil use will be good for our planet.  Countries participating in the embargo will experience economic growth as entrepreneurs  develop substitute ways to cope with less oil.

We need to come to grips with who our real enemies are in the Middle East and end the fantasy that  Saudi Arabia, Kuwait and the others that fund terrorism are our friends. Selling arms and providing military protection to dictatorships that bankroll our enemies ie just plain stupid and needs to stop.


Barack Obama, the Number One Anti-abortionist

Barack Obama is combining good policy with a little bit of luck. The result is  he may have started the process of virtually eliminating abortions in the US within the next ten years.

In 2008, the year before Barack Obama took office, there were 1,210,000 abortions in the US. In 2013, this number dropped to 984,000, a 23 percent fall. This is something we all ought to celebrate. It would be easy to stop here and give Obama credit for lowering the US abortion rate, but that wouldn’t be accurate and ignores many of the other dynamics taking place.

President Obama
President Obama

Abortions in the US have been dropping for decades. Yet, the rate of decrease is unmistakably accelerating. Also, the reasons for the decline are not well defined. Republicans want to take credit for the drop due to the 231 abortion restrictions passed in states from 2010 through 2014.

If the hundreds of Republican abortion restrictions had an impact on abortions, there would be an increase in the US birthrate in 2012 and 2013. This never happened.  In fact the U.S. birthrate hit an all time low in 2013.

The most ultra-liberal intrusion in privacy and example of government interference in the doctor/patient relationship is in Wisconsin. Big government Republicans passed a bill requiring women wanting an abortion to sit through an ultrasound narration by their doctor pointing out body parts and such. Easily outsmarting the Republican legislators and their foolish governor, women come to their appointments with mp3 players, headphones and magazines. Although the law requires them to show up, it doesn’t require them to actually pay attention.

This Republican futility is even more evident  when looking at spikes in abortion numbers in states like Louisiana and Michigan that are adjacent to Texas and Ohio that enacted the most onerous restrictions. These  suggest that women are quite willing to travel to terminate an unwanted pregnancy. Data indicates that once a woman decides to get an abortion, it is a done deal. Travelling extra distances and incurring more costs are impediments that don’t affect women’s ultimate reproductive decision making. What all this means is that Republican efforts to make getting an abortion more difficult have little if any impact on the number of abortions.

What does make a difference in the number of abortions is reducing unintended pregnancies. The most practical way to do that is to make birth control more available and make sure women have access to the most effective birth control possible.

The most effective birth control are Long  Acting Reversible Contraceptives (LARCs). They are 20 times less likely to fail than birth control pills or other methods of birth control.   Unfortunately, they have a high upfront cost (often greater than $500) that prevents many women from using them. Solving this problem is the Affordable Care Act’s (ACA)  free contraceptive mandate.  The mandate is modelled after a Washington University in St. Louis study (Peipert JF, Madden T, Allsworth JE, Secura GM. Preventing unintended pregnancies by providing no-cost contraception. Obstetrics & Gynecology. Online Oct. 4, 2012) http://www.ncbi.nlm.nih.gov/pmc/articles/PMC4000282/ that predicted providing birth control to women at no cost would cut abortion rates by 62 to 78 percent compared to the national rate.

However, the Affordable Care Act did not take effect until August 2012, so we can’t give that much credit for the reduction in abortions measured in 2013. There are other possible explanations for the recent dramatic drop in abortions.

Affluent women (who have the financial capability to purchase LARCs)  have the largest percentage drop in the number of abortions (2000 to 2008). It may be that the Long Lasting Reversible Contraceptives are a factor in the 23 percent drop in abortions from  2008 to 2013.

If we take the Washington University study’s midpoint estimate of a 70 percent drop in abortions due to the free contraceptive mandate and bend some mathematical rules and add the 23 percent drop in abortions during the last six years, it becomes conceivable that in the next decade, abortion numbers could drop to the point where they are a political non issue. More important, we can dramatically reduce  the heart wrenching decisions many women have to make.

We have the technology to virtually eliminate abortions. Barack Obama had the political leadership  and courage to make this technology almost universally available to women in the US. The next president will need to make adjustments in Medicaid coverage so that low income women (who are the last segment of the population that still have rapidly increasing abortion numbers) have access to LARCs and knowledge of their advantages.

One shouldn’t expect immediate dramatic drops in abortion numbers as the ACA takes effect. With any new technology and government program, there is a learning curve. More realistic, if the annual number of abortions dropped from the 2008-2013 five percent range to 8 percent over the next nine years, total annual abortions at the end of the eight year period would be down about 90 percent from present levels. Obviously, a Democrat needs to win the next election for the ACA Birth Control Mandate to stay in place.

Summing up

President Obama’s policy of fighting to make the free birth control mandate part of Obamacare was an important victory for all of us. However, the impact is greater because of the lucky part of all this, the development of Long Acting Reversible Contraceptives. The combination of new technology and bold policy achieving a greater good is simply smart government.

 

 

 


Barack Obama – Leadership Excellence

President Barack Obama’s economic record is roundly criticized by Republicans. Considering he has outperformed any Republican president elected in the last 35 years, they should instead be learning as much as possible from him .

President Obama’s Economic Record 

Reducing Unemployment

While President Obama made giant strides in reducing unemployment rates, Bill Clinton’s Administration is the Gold Standard in this area and all others. Obama has a little over a year left to match Clinton’s modern-day record unemployment rate drop.

Table 1

Unemployment Rate Changes During Various Administrations
Unemployment Rate (%)
President First month in office Last month in office Change in Unemployment rate during term
Ronald Reagan 7.5 5.4 -28%
George Bush 5.4 7.3 35%
Bill Clinton 7.3 4.2 -42%
George W. Bush 4.2 7.8 86%
Barack Obama* 7.8 5.1* -35%
Source: Bureau of Labor Statistics, Labor Force Statistics from the Current Population Survey. Unemployment Rate, 16 years old and over. September 2015
* President Obama’s term is not finished.

Refusing to acknowledge the great progress Obama made putting our country back to work, Republicans claim huge numbers of discouraged workers quit looking for work and are not included in the unemployment rate data.  According to them, this makes the above data useless.

These folks could use some remedial math. The  U.S. Bureau of Labor Statistics provides a plethora of data, including the monthly number of “Discouraged Workers”. In January, 2009 when Barack Obama assumed the presidency, the Bureau of Labor Statistics reported that 154,210,000 people made up the Civilian Labor Force. This includes people with full or part-time jobs and people looking for work. The bureau also reported for the same month that 142,152,000 had jobs. Using the equation 1-(142,152,000/154,210,000), the Unemployment Rate is 7.8 percent.

Republicans are correct that Discouraged Workers are not included in the Civilian Labor Force and are not included in the Unemployment Rate calculation. To get an idea of the Discouraged Worker’s impact on the Unemployment Rate, we can fix this and add their total number to the Civilian Labor Force and get an Adjusted Unemployment Rate. In January, 2009 there were 734,000 Discouraged Workers. Adding them to the Civilian Labor Force gives us a total of 154,944,000 people who are employed, looking for work or who gave up looking for work. Using this adjusted labor force number 1-(142,152,000/154,944,000), we find this does increase the unemployment rate and we have an Adjusted Unemployment Rate of 8.3 percent at the start of Obama’s term.

In the most recent month data is available, the Bureau of Labor Statistics reported 156,715,000 people in the Civilian Labor Force and 148,800,000 people working. This works out to the 5.1 percent Unemployment Rate in Table 1. However, there are now 635,000 Discouraged Workers. Repeating the math above and including the Discouraged Workers, we have an adjusted Unemployment Rate of 5.4 percent instead of the 5.1 percent in Table 1. The equation is 1-(148,800,000/(156,715,000+635,000))

To calculate how much our adjusted Unemployment Rate has changed during Obama’s term with the new numbers that take the Discouraged Workers into consideration, we use the equation ((0.054-0.083)/0.083). This is the adjusted ending Unemployment rate minus the adjusted beginning Unemployment Rate divided by the adjusted beginning Unemployment Rate.

This works out to a -35 percent change in the Unemployment Rate (a 35 percent drop) during Obama’s term to date, exactly what we have in Table 1 using published unemployment rate data. The Discouraged Worker numbers are so small compared to the Civilian Labor Force that they are inconsequential. They are just a foolish Republican ploy to detract attention from Obama’s employment renaissance.

While Obama’s record in this area so far comes up short compared to Bill Clinton’s, he has outpaced any Republican elected in the last 35 years.

Stock market gains

Another metric for measuring economic policy is changes in stock market indices. A broad-based index such as the S&P 500 measures investor faith in a wide swath of the economy.

Table 2

S&P 500 Monthly Average
President Start of term End of term Percent change during term Annual percent change
Ronald Reagan 129.55 297.47 130% 16%
George Bush 297.47 438.78 48% 12%
Bill Clinton 438.78 1386.01 216% 27%
George W. Bush 1386.01 825.88 -40% -5%
Barack Obama* 825.88 1888.62 129% 19%
* Term has not ended. End of term calculations are based on S&P 500 monthly average for September 2015.
Source:YAHOO Finance

Bill Clinton’s policies resulted in the greatest investor confidence. However, Barack Obama’s 19% annual increase beats out any Republican president in the last 35 years.

Gross Domestic Product

Gross Domestic Product (GDP) measures overall output of goods and services.

Table 3

Annual Percent Real Gross Domestic Product Change
President Average annual % change
Ronald Reagan 2.6
George Bush 2.3
Bill Clinton 3.9
George W. Bush 2.1
Barack Obama 1.2
Source: Bureau of Economic Analysis, Table 1.1.1 Percent change from preceding period in real gross domestic product. October 14, 2015 http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=3&isuri=1&904=1980&903=1&906=a&905=2015&910=x&911=0

While Obama has not performed to a high level here, much is due to a disastrous first term. In this writer’s opinion, the bulk of the problems for slow economic growth were Obama’s horrible decision to keep the George W. Bush tax cuts in place as well as adding some of his own. After Obama’s re-election in 2012, the Budget Reconciliation Act eliminated many of Bush’s tax cuts (and all of Obama’s).  The deficit dropped by almost 40 percent and GDP output improved. The most recent quarter saw a 3.9 percent increase in Real Gross Domestic Product.

Obama’s secret formula – Frugality

Elect a Republican to the White House and watch spending go out of control. Elect a Democrat and watch annual spending stay close to the estimated inflation rate. Unfortunately, today’s liberal, big government Republicans have not learned that government spending does not build real wealth in an economy.

Table 4

Average Change In Federal Government Spending During Presidential Term
President Beginning Spending ($billions) Ending Spending ($billions) Total Spending Change (%) Average Annual Spending Change (%) **
Ronald Reagan 645.0 1,171.1 81.6% 7.8%
George Bush 1,171.1 1,524.8 30.2% 6.8%
Bill Clinton 1,524.8 1,944.0 27.5% 3.1%
George W. Bush 1,944.0 3,388.4 74.3% 7.2%
Barack Obama* 3,388.4 3,965.4 17.0% 2.7%
* Term to date

** Calculated by averaging each year’s spending change.

Source:Bureau of Economic Analysis,Table 3.2 Federal Government Total Receipts and Expenditures-Annual, Line 42, September 28, 2015, http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=3&isuri=1&904=1980&903=87&906=a&905=2015&910=x&911=0

For true conservatives, Table 4 is the holy grail for measuring presidential performance. Small spending increases show a commitment to smart government. While hypocritical Republicans predicted Obamacare would bust the federal budget, the reality is it has had virtually no impact.

Budget Deficits

Because of inflation, it is inaccurate to simply compare government ending spending balances over a 35 year period. Instead, we can get a more accurate picture measuring what the federal government’s annual ending balance is compared to the economy’s annual output of goods and services, or GDP. Therefore the ending balance is a percent of that year’s GDP.

For those of us true conservatives, a negative balance as a percent of GDP is a bad thing. A large negative number indicates the government uses up available domestic lending capacity and has to borrow from foreign interests to cover debt. For comparison, since 1981, the average government spending balance as a percent of GDP is -3.5 percent.

Table 5

Federal Government Spending Balance as a Percent of GDP per Presidential Term
President Annual budget balance as a % of GDP prior year before taking office Annual budget balance as a % of GDP last year in office Average budget balance as a % of GDP
Ronald Reagan -3.0% -3.0% -4.2%
George Bush -4.2% -5.1% -3.8%
Bill Clinton -5.1% 1.5% -1.5%
George W. Bush 1.5% -4.3% -2.4%
Barack Obama* -4.3% -3.6% -6.6%
* Term not completed
Source:Bureau of Economic Analysis,Table 3.2 Federal Government Total Receipts and Expenditures-Annual, Line 42, September 28, 2015, http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=3&isuri=1&904=1980&903=87&906=a&905=2015&910=x&911=0: Bureau of Economic Analysis, Table 1.1.5 Gross Domestic Product-Annual, Line 36 September 28, 2015 , http://www.bea.gov/iTable/iTableHtml.cfm?reqid=9&step=3&isuri=1&904=1980&903=5&906=a&905=2015&910=x&911=0

President Clinton lost his congressional majorities in the next election after Democrats passed the major tax increase he asked for. However, the economy flourished like nothing seen before,  for all income groups. In contrast, President Obama experienced huge $multi-trillion deficits during his first term due to continuing the George W. Bush tax cuts and adding his own. Thankfully, he eliminated many of the tax cuts and the budget deficit is heading back down to historical levels

Table 6

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Table 6 should give every Republican that believes budget deficits don’t matter something to consider. Notice how the Employment Rate (1- Unemployment Rate) is almost a mirror image of the government spending balance as a percent of GDP. In other words, if the federal government’s spending deficit rises compared to that year’s GDP, a lower percent of people are employed. Conversely, during the Clinton years when we had government surpluses instead of deficits, the percent of people employed went up to record high levels.

Using a two tailed t-test, the relationship between the two data lines in Table 6 are highly significant (p<0.01). Although these numbers are closely related, the data here doesn’t tell us if one causes the other. This is investigated more thoroughly in http://www.frugalron.com/frugal-ron/tax-cuts-employment-and-economic-growth/.

Summing up

Evaluating any president’s performance invites the question, “Compared to what?” When we compare President Obama’s economic record to Republicans, he shines. When we compare him to Bill Clinton, some of the luster is gone.

For true conservatives, Table 6 tells it all. When liberal, big spending Republicans are in office combining huge spending increases and insane tax cuts for the rich, we have large government spending deficits and lower employment. In other words, the economy tanks. When a President Obama combines low spending increases with insane tax cuts, the economy is better but never really gets its footing until many of the tax cuts are eliminated and the budget deficit drops. It took Obama four years to figure this out. Slow learning Republicans still haven’t figured this out after 35 years of failure.

When you have a President Clinton that combines small spending increases and budget balancing tax increases that eventually result in government surpluses, the economy flourishes. Clinton got the government out of the credit markets and his small spending increases lowered the government’s impact on the overall marketplace. His resulting record of success speaks for itself. Again it would be wonderful if Republicans paid attention.

Conservatism isn’t about shafting the poor, old or sick. In a macroeconomic sense, it is all about knowing where capitalism falls short and identifying where government can create a greater good for the majority of its citizens. After making these decisions, conservatism is about keeping out-of-the-way of citizens and the marketplace.

 

 

 

 


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