Trump Did NOT Oversee A Better Economy Than Biden

 From Steve Rattner:

Donald Trump took to the stage in North Carolina Wednesday to outline his economic program. As usual, his 75-minute-long performance included a mix of a formal address and a semi-hysterical rant, which, also as usual, included a mix of fact and fiction. He claimed that during his presidency, we took in hundreds of billions of dollars from tariffs on Chinese imports (false: It was just $89 billion). He said mortgage rates are 10% to 11% (false: They are around 7%, depending on duration). He claimed we’ve never had inflation as high as in last three years (false: He should well remember the 1970s and early 1980s).

Perhaps his most audacious claim was that during his presidency, we had “the strongest economy in history.” Not only was the economy not the strongest in history; it wasn’t even as strong as it has been during Joe Biden’s presidency. Whether adjusted for Covid or not, economic growth was stronger under Biden than under Trump. Excluding the effects of Covid, the economy expanded at an average annual rate of 2.6% under Trump but at a 3.5% rate under Biden.

Unrestrained Growth Is Killing Our Planet

From Robert Reich on unrestrained economic growth:

A basic tenet of our system is that economic growth is always good. 

This, too, is utter bunk. Unconstrained economic growth is causing such grave harm to the climate that its costs are likely to be greater than the gains. 

Mainstream economists don’t measure the costs of growth. They talk about climate change as a so-called “externality,” as if it were just incidental to growth. 

But if you consider the deaths and injuries caused by chemical pollution, wildfires, and more intense hurricanes and storms, the costs of growth are huge.

It’s possible to shift from an economy organized around growth to one organized around sustainability. How? Dramatically reduce the use of fossil fuels. Limit what can be mined and extracted.

Treat the Earth the same way we treat any limited natural resource: We prevent overfishing by limiting the amounts of fish that can be taken out of the sea over a given period of time.

We should also limit the amount of gunk that can be put into the air, limit how much plastic can be produced, how much of our coastlines can be developed, and how much land can be owned and developed.

In other words, if we accept that the Earth is a finite resource, let’s also agree that infinite growth will destroy the Earth. It’s already on its way. 

The Economy Is Doing Great (But Not For Everyone)

 

How is the economy doing? If you just looked at the polls, you might think it's not doing well, because many people think President Biden is not doing well on economic matters. But that is simply not true. The truth is that the economy is doing great. The GDP for 2021 was the highest since 1984 (and far higher than at any time during Trump's tenure). And 6.4 million jobs were created in 2021 -- a record (and again, far higher than any year under Trump).

Here's how Steve Benen describes it at MSNBC.com: 

As a presidential candidate in 2016, Donald Trump made bold predictions about the kind of economic growth the United States would see if he were elected. Americans would celebrate, the Republican said, as annual GDP growth reached 4 percent for the first time in decades.

It was among the most jarring of Trump's broken promises. Even before the pandemic, GDP growth in Trump's first three years failed to reach 3 percent.

But as it turns out, the U.S. economy was able to reach growth rates unseen in a generation, but it happened under President Joe Biden. The Associated Press reported this morning:

The nation's gross domestic product — its total output of goods and services — expanded 5.7% in 2021. It was the strongest calendar-year growth since a 7.2% surge in 1984 after a previous recession. The economy ended the year by growing at an unexpectedly brisk 6.9% annual pace from October through December, the Commerce Department reported Thursday.

Not only is this the strongest annual growth in 37 years, it's also the second strongest since 1966.

By any fair measure, this is excellent news that exceeded expectations. In fact, a year ago, none of the major forecasters were projecting growth this strong in the United States. Domestic growth even outpaced China's economic growth in 2021 for the first time in decades.

All of this, of course, comes on the heels of related news that the economy also created 6.4 million jobs in Biden's first year in the White House — roughly in line with the number of jobs created over the first three years of Trump's presidency combined.

The economy is obviously doing very well. So, why doesn't the general public know that? 

The answer is that our economic system is not equal in its distribution of the wealth created by a good economy. When the economy is bad, everyone suffers. But when the economy is doing good, the rich and corporations are benefitted while most Americans are not.

This is because of the "trickle-down" economics that was instituted by the Republicans in the 1980's. They sold the country on the notion that when the rich and corporations do well, everyone does well -- because the rich and corporations will trickle that added wealth down to ordinary Americans.

The problem is that this simply doesn't work. Instead of anything trickling down, the bank accounts of the rich and corporations just grew fatter.

This does not have to be this way, and it didn't used to be. Prior to 1980, workers got a share of increased productivity. Now they don't -- making the rich much richer, and increasing the wealth and income gap between the rich and everyone else.

This must be changed. A good start would be to increase the minimum wage, strengthen unions (and make it easier to create and join them), and make sure the rich and corporations pay their fair share of taxes. But Republicans won't allow any of that to happen. They must be voted out of power to create a fairer economy.

They will whine that this is socialist income redistribution. But remember, income is always being redistributed in a capitalist economy. It's just that the current economic rules (instituted by the Republicans) have the money being redistributed from most Americans to the rich. That is backward. 

In our economy, money naturally flows upward -- it does not trickle-down. And when the working and middle classes do well, everyone benefits (including the rich).

It is time to institute a fairer economic system, and the fist step toward doing that is to vote the Republicans out of power. 

Donald Trump Has NOT Been Good For The U.S. Economy

 The chart above reflects the results of a recent Quinnipiac University Poll -- done between December 1st and 7th of a national sample of 978 registered voters, with a 3.1 point margin of error.

It shows that a small majority of voters think Donald Trump has done a good job with the economy. The poll is in line with many others I have seen. People generally have accepted Trump's claims about being responsible for a great economy.

The truth is far different. Although he inherited a good economy from President Obama, and watched it continue to improve early in his presidency, he has not acted in the best interests of American workers and consumers. He taxed consumers by putting tariffs on China (and U.S. allies). The he trashed the economy by ignoring and then mishandling badly the Coronavirus pandemic. The truth is he has been a terrible president for the economy.

Here is part of how CNN reports Trump's record on the economy:

President Donald Trump still can't accept the numbers measuring his loss to Joe Biden: more than 7 million popular votes and 74 electoral votes.

But another set of numbers adds insult to his psychological injury. They show that -- notwithstanding lies as promiscuous as the ones he tells about election fraud -- Trump will leave office in January with a historically bad record on the economy.

That sounds discordant since many Americans believe the economic fable that Trump has repeated relentlessly throughout his term. But placing his bottom-line results alongside those of his predecessors paints a deeply unflattering portrait.

Alone among the 13 presidents since World War Two, Trump will exit the White House with fewer Americans employed than when he started. He will have overseen punier growth in economic output than any of the previous 12 presidents.

His throwback "America First" agenda has failed to restore the old economic engine that powered an earlier era's prosperity. On Trump's watch, industrial production has fallen. The Federal Reserve says the manufacturing sector fell into recession in 2019 even before the coronavirus pandemic hit.

Last week was the 38th in a row in which at least 700,000 Americans filed first-time claims for unemployment benefits.

Holiday-season lines at food banks dramatize the scale of human suffering. More abstract measures, such as the US trade deficit and ratio of government debt to the size of the economy, have also worsened during Trump's term.

"Trump's economic record ranks near or at the bottom compared with other presidents," concludes Moody's chief economist Mark Zandi, who compared the economic results of all presidents from the last 70 years. "The economy under his watch has performed very poorly."

To be sure, the deadliest public health pandemic in a century has devastated economic activity during this last year of the President's term. But responding to unexpected catastrophe -- from hurricanes to terrorist attacks to civil unrest to financial crises -- represents a big part of the job. And, as Zandi notes, Trump's bungled coronavirus response has exacerbated and extended damage to jobs and output. . . .

Growth accelerated in early 2018 following Trump's sole major legislative achievement, the tax cuts he and Congressional Republicans enacted. But that didn't last long with the economy already near full employment, and the budget deficit swelled. A temporary surge in investment resulted mainly from higher energy prices. . . .

The counter-productive tariff wars Trump initiated quickly offset any short-term benefit from the tax-cuts and the administration's deregulation push. That's why Trump, to avoid further damaging the economy in his re-election year, called a truce with China in January without obtaining the structural reforms he had demanded from Beijing. Trump earlier threw away leverage by abandoning the Trans-Pacific Partnership with allies that the Obama administration had negotiated. . . .

The President can cite a higher-than-average 3.32% annual gain in real per capita disposable income. But that average conceals the extent of those gains that flowed to the affluent, who benefited disproportionately from his tax cuts. . . .

Through the third quarter of 2020, Zandi says, the least wealthy 50% of Americans own just 1.9% of the nation's net worth, while the top 1% own 30.5%. The surging pandemic promises make that disparity worse before Trump leaves office.

When the Labor Department issues the final monthly jobs report of his presidency in early January, Zandi expects it to show a renewed decline in employment. In the first quarter of 2021, as Trump yields power to Biden, the Wall Street firm JPMorgan predicts that economic output will shrink.

Democratic Presidents Are Better For Economic Growth

 

Republicans have been selling Americans a lie for decades now -- that Republican presidents are better for the economy than Democratic presidents. And sadly, many Americans have bought that lie. 

That does not make it true though. In fact, it turns out that Democratic presidents are significantly better for economic growth than Republican presidents -- and that is true of both Gross Domestic Product (GDP) and stock market growth.

This is not just my opinion. The data bears it out. Here's how Business Insider (a conservative publication) reports this:

It's a widely held view that Republican presidents are better for the economy and stock market than Democratic presidents, because of their drive to cut taxes and reduce government spending. But the data says otherwise.

According to an August 21 note from Liberum, a UK-based investment bank, historical stock market returns and gross domestic product data points to a stronger economic expansion under Democratic presidents than under Republican presidents.

The firm looked at data going back to 1947, which is when official GDP calculations were introduced, to analyze who did better. Liberum credited a new president with the economic performance of the first quarter of his first year in office.

According to Liberum, the average annual US GDP growth rate under a Democratic president was 3.6%, compared to 2.6% for a Republican president. And those economic gains trickled down to stock market gains as well.

Liberum found that the stock market, represented by the S&P 500, posted an average annual total return of 10.8% under a Democratic president, compared to just 5.6% for a Republican president, since 1947.

Many would likely argue that the data is skewed to favor a Democratic president because it includes the Great Recession of 2008, and the COVID-19 induced market sell-off of 2020, both of which happened under Republican presidents.

Therefore, Liberum also looked at the historical data from 1947 to 2006, which excludes both the Great Recession and the COVID-19 pandemic.

But the data is more of the same. From 1947 to 2006, the average annual return for stocks under a Democratic president was 10.5%, versus 6.1% under a Republican president.

The difference in economic and stock market gains between a Democratic and Republican president can be explained by "fiscal multipliers," according to Liberum.

While Republicans aim to stimulate the economy via tax cuts and deregulation, Democrats aim to stimulate consumption (and thus the economy) with redistribution policies like increased unemployment benefits, increased child credits, and food stamp support, Liberum noted.

And those policy differences can lead to sizable differences in their economic impact.

If a tax cut introduced by Republicans led to a 1% decrease in tax income for the government, it would boost economic growth by 0.3% to 0.4%. 

Meanwhile, expanding unemployment benefits and other policies often pushed by Democratic presidents "has a fiscal multiplier of 1.2 to 1.7," Liberum found.

In other words, tax cuts would have to be 5x larger than increases in welfare spending to have a similar economic impact.

Failing To Help State & Local Governments Will Turn This Recession Into An Extended Depression

Donald Trump is trying to force states to reopen right now, even though the pandemic has yet to be controlled. But congressional Republicans don't seem to understand that their delaying is working against an economic recovery. They don't want to pass the House stimulus bill, part of which would bail out state and local governments -- who have had to spend to control the virus while having their revenue stream cut dramatically because of it. Majority Leader McConnell has even said the states should declare bankruptcy.

Our recovery will not magically happen just because Trump and Republicans want it to happen. If the states are not bailed out, the cuts they will have to make will hurt the economy -- costing more jobs and turning the recession into a much longer depression.

Here's part of how Josh Bivens at the Economic Policy Institute puts it:

Congress is currently debating a new relief and recover package—the HEROES Act—that would deliver significant amounts of fiscal aid to state and local governments—more than $1 trillion over the next two years, all told. This is a very welcome proposal. The incredibly steep recession we’re currently in is guaranteed to torpedo state and local governments’ ability to collect revenues. Further, nearly all of these governments are tightly constrained—both by law as well as by genuine economic constraints—from taking on large amounts of debt to maintain spending in the face of this downward shock to their revenues. The result will be intense pressure for large cutbacks in public spending by state and local governments in coming years. Such cutbacks would be absolutely devastating to the cause of restarting the economy and allowing people to find jobs, even if the virus has completely abated.

We know how devastating these cutbacks would be because we have lived through the mistake of allowing them to drag on growth in the quite recent past. State and local governments became relentless anti-stimulus machinesduring most of the recovery from the Great Recession of 2008–2009. This post highlights a couple of findings from that period that should inform policymakers’ decisions this time around.

• Growth in state and local spending was far slower during the recovery following the Great Recession than in any other post–World War II business cycle on record.
• This state and local spending austerity dragged heavily on growth during that time. If this spending had instead followed the trajectory it established following the recovery from the similarly steep recession of the early 1980s, pre-recession unemployment rates could have been achieved by early 2013 rather than 2017. In short, this austerity delayed recovery by over four years.
• Recent justifications for denying aid to state and local governments sometimes rest on claims that this spending has been profligate in recent years. This is absolutely not so—growth in state and local spending has been historically slow for nearly two decades. Given the importance of what this spending focuses on (education, health care, public order), this decades-long disinvestment should be reversed, not accelerated due to an unforeseen economic crisis.
• If federal aid is passed that is sufficient to close the enormous revenue shortfalls the economic crisis will cause for state and local governments, it will create or save roughly 5–6 million jobs by the end of 2021. Without this aid, we will remain at least that far away from a full economic recovery by then.

Public spending austerity was a catastrophe for recovery and growth following the Great Recession of 2008–2009. During the official recession from January 2008 to June 2009, policymakers instituted significant fiscal recovery efforts, including the American Recovery and Reinvestment Act that was passed in early 2009. However, one year after the recession’s official end, the unemployment rate was at 9.4%, and fully two years after it was still at 9.1%. The lesson here is simple: The criteria for whether or not the economy needs continued fiscal support is not “is it in official recession or not?” Instead, it is “is the economy at full employment or not?”

The spending austerity in the 2010s was the entire reason why it took a full decade to return to pre-crisis unemployment rates following the onset of the Great Recession. It is why millions of Americans struggled—through no fault of their own—to find work and it is a key reason why wages for tens of millions of Americans barely kept pace with price inflation over this time, as labor markets remained too soft to give workers the bargaining power they needed to demand better-paying jobs.

Hispanics Boost The U.S. Economy (Far More Than Trump)

The racist living in our White House loves to take credit for the U.S. economy, even though he has done nothing but give the rich and corporations a huge tax break -- which is adding a trillion dollars a year to the national debt. Hispanics (the people Trump loves to vilify) help the economy far more than Trump ever has (or ever will).

Consider this post from Mayra Rodriguez Valladares at Forbes.com. I give you only a part of it, but urge you to read the whole thing! She writes:

In ground breaking research that has significant implications for U.S. policymakers and financial institutions, Peterson Institution for International Economics (PIIE) researchers found that “The Hispanic community in the United States has contributed significantly to US economic growth in recent decades and will continue to do so over the next 10 to 20 years.”

Research Analyst Gonzalo Huertas and Senior Fellow Jacob Funk Kirkegaard, in their recently published working paper, The Economic Benefits of Latino Immigration: How the Migrant Hispanic Population’s Demographic Characteristics Contribute to US Growth, present an incredible diversity of quantitative analysis that proves that “The outsized contribution of Hispanic immigrants to US economic growth results from the quality of the workforce, not just quantity.” Moreover, in what goes against numerous unfortunate, negative stereotypes “Hispanic arrivals have exceeded contemporary native-born Americans and some other migrant groups in their entrepreneurial capabilities and integration into economically relevant parts of the workforce.”

Given the growth of Hispanics in the U.S. workforce, they represent significant market opportunities for every type of financial institution, including banks, insurance companies, asset managers, and fintech.  Unidos US, a non-partisan Latino civil rights and advocacy organization projects that in five years, Hispanics will account for about 20% of the U.S. workforce and over 30% by 2050.

Huertas’ and Kirkegaard’s research shows that “the increase in Hispanic labor could contribute around 0.21 percentage points to annual real GDP growth in the United States over the next three decades if the Hispanic community catches up to the rest of the country in labor productivity.” By 2025, the increase in employed Hispanic labor could contribute more to US GDP growth than non-Hispanic labor.

Huertas and Kirkegaard also found that Hispanics are the largest demographic group in new opportunity entrepreneurship.  "While the US economy has exhibited gradually declining economic dynamism in recent decades, and the share of new firms being created each year has fallen in a trend accelerated after the Great Recession, foreign-born and Hispanic populations have become engines of US entrepreneurship, especially since the Great Recession.”  The growth of the Hispanic population and the relatively younger composition of the Hispanic community are key factors driving entrepreneurship developments. Other factors, such as a decline in the historical gap between the Hispanic unemployment rate and the national average, would also contribute positively to this trend.

The GDP Growth From The Tax Cuts Is Going Away Now

The only thing Donald Trump has going for him is a fairly good economy (although while the numbers look good, too many people are not benefitting from it). We can argue about whether he is just the beneficiary of a growing Obama economy or deserves some credit for the economy. But one thing is becoming clear now -- the economy is starting to slow, and Trump's tax cuts are not producing the growth they were supposed to produce.

Here's how Nobel Prize-winning economist Paul Krugman puts it in his NY Times column:

So far, Donald Trump has passed only one significant piece of legislation: the 2017 tax cut. It was, to be fair, a pretty big deal: corporations, the principal beneficiaries, have already saved more than $150 billion, and over the course of a decade the tax cut will probably increase the budget deficit by more than $2 trillion.

But the tax cut was supposed to do more than just give stockholders more money — or at least that’s what its proponents claimed. It was also supposed to lead to many years of high economic growth, 3 percent or more at an annual rate.

Independent observers were skeptical, to say the least. They conceded that the tax cut might lead to a brief sugar high, because that’s what big deficits do. But any favorable effects on growth, they argued, would soon fade out. And they always insisted that it would take some time to assess the tax cut’s actual effects.

Nonetheless, when the economy grew pretty fast in the second quarter of last year, Trump and his supporters cried vindication, and ridiculed the critics.

But a bit of time has passed since then. The chart (above) shows the U.S. economy’s growth rate by quarter since the beginning of 2018. The last number isn’t official; but there are a number of independent observers, including both Federal Reserve banks and private financial institutions, who produce “nowcasts” that estimate growth based on early data. At this point all of these nowcasts show slowing growth, and most put the first quarter at around 1.5 percent.

So do the results so far look like the huge, sustained boom the Trump camp promised, or the brief sugar high predicted by the critics? . . .

The Trumpist theory — which was, I’m sorry to say, endorsed by conservative economists who should have known better — was that there was a huge pile of money sitting outside the U.S. that companies would bring back and invest productively if given the incentive of lower tax rates. But that pile of money was an accounting fiction. And the tax cut didn’t give corporations an incentive to build new factories and so on; all it did was induce them to shift their tax-avoidance strategies.

As Brad Setser of the Council on Foreign Relations points out, a casual glance at the data seems to suggest that American companies earn a lot of their profits at their overseas subsidiaries. But a closer look shows that the bulk of these reported profits are in a handful of small countries with low or zero tax rates, like Bermuda, Luxembourg and Ireland. The companies obviously aren’t earning huge profits in these tiny economies; they’re just using accounting gimmicks to assign profits earned elsewhere to subsidiaries that may have a few factories, but sometimes consist of little more than a small office, or even just a post-office box.

These basically phony profits then accumulate on the books of the overseas subsidiaries, rather than the home company. But this doesn’t affect their ability to invest in America: if Apple wants to spend a billion dollars here, it can always borrow the money using the assets of its Irish subsidiary as collateral. In other words, U.S. taxes weren’t having any significant effect in deterring real investment in the U.S. economy.

When Trump cut the tax rate, some companies “brought money home.” But for the most part this had no economic significance. Here’s how it works: Apple Ireland transfers some of its assets to Apple U.S.A. Officially, Apple Ireland has reduced its investment spending, while paying a dividend to U.S. investors. In reality, Apple as an entity has the same total profits and the same total assets it did before; it hasn’t devoted a single additional dollar to purchases of equipment, R&D, or anything else for its U.S. operations.

Not surprisingly, then, the investment boom Trump economists promised has never materialized. Companies didn’t use their tax breaks to invest more; mainly they used them to buy back their own stock. This in turn, put more money in the hands of investors, which gave the economy a temporary boost — although for 2018 as a whole, one of the biggest drivers of faster growth was, believe it or not, higher government spending.

So the theory supposedly behind the Trump tax cut has turned out to be a complete bust. Corporate accountants got to have some fun exploring new frontiers in tax avoidance; the rest of us just ended up saddled with an extra $2 trillion or so in debt.

Now, I’m not deeply worried about that debt. Given low borrowing costs, the costs and risks of federal debt are far less than the usual suspects — again, the same people who cheered on the Trump tax cut — have claimed. But think of all the other things we could have done with $2 trillion — all the infrastructure we could have built and repaired, all the people who could have been given essential health care.

What a colossal, corrupt waste.

GOP Tax Bill Will Increase Inequality And Stunt Growth

The Republicans claim that their tax plan will spur economic growth, and therefore, be good for all Americans. But we already have a vast inequality in wealth and income between the richest Americans and the rest of the country (as big as it was just prior to the Great Depression), and their plan will make that inequality grow significantly larger. This is a serious problem, because wealth and income inequality stunts economic growth -- it doesn't increase that growth.

Josh Bivens has written a great (and lengthy) article about those at the Economic Policy Institute. Here is just a part of his article:

The problem of anemic wage growth—recognized for decades by American workers wishing for higher paychecks—has finally reached the front-burner of American politics. Angst over the stagnant pay of low-wage workers has for example, sparked recent movements to raise minimum federal, state, and local minimum wages far above levels that have characterized the recent past, and often even to levels that would constitute historical highs.2

This new attention to the crisis of American pay is totally proper. The failure of wages of the vast majority of Americans to benefit from economy-wide growth in productivity (or income generated in an average hour of work) has been the root cause of the stratospheric rise in inequality and the concentration of economic growth at the very top of the income distribution. Had this upward redistribution not happened, incomes for the bottom 90 percent of Americans would be roughly 20 percent higher today.3In short, the rise in inequality driven by anemic wage growth has imposed an “inequality tax” on American households that has robbed them of a fifth of their potential income.

There would be huge benefits to American well-being from blocking or reversing this upward redistribution. This welfare gain stemming from blocking upward redistribution is the primary reason to champion policy measures to boost wage growth and lead to a more equal distribution of income gains. Put simply, a dollar is worth more to a family living paycheck to paycheck than it is to families comfortably in the top 1 percent of the income distribution.

Proponents of increases in the minimum wage and other measures to boost American wages have often argued that there are benefits to these policies besides the welfare gains stemming from pure redistribution. These proponents have often argued that boosting wages would even benefit aggregate economic outcomes, like growth in gross domestic product (GDP) or employment.

Recent evidence about developments in the American and global economies strongly indicate that these arguments are correct: boosting wages of the bottom 90 percent would not just raise these households’ incomes and welfare (a more-than-sufficient reason to do so), it would also boost overall growth. For the past decade (and maybe even longer), the primary constraint on American economic growth has been too-slow spending by households, businesses, and governments. In economists’ jargon, the constraint has been growth in aggregate demand lagging behind growth in the economy’s productive capacity (including growth of the labor force and the stock of productive capital, such as plants and equipment). Much research indicates that this shortfall of demand could become a chronic problem in the future, constantly pulling down growth unless macroeconomic policy changes dramatically. . . .

Recent work has highlighted the possibility that rising inequality constitutes an exogenous shock to aggregate demand growth in the American economy. For years, this negative shock could largely be ameliorated by declining interest rates set by the Federal Reserve. But since 2000, the American economy has often found itself with a shortfall of aggregate demand even with short-term interest rates essentially at zero. This means that further increases in inequality will be damaging indeed to prospects of economic growth over the short and medium term unless some other lever of policy fills in the demand shortfall caused by the upward redistribution of income to high-saving households. Further, there is growing evidence that prolonged periods of too-low aggregate demand can damage the economy’s productive capacity.

Policymakers need to get much more serious about avoiding this vicious spiral of chronic demand shortages caused in part by rising inequality degrading productive capacity. Getting serious would mean adopting a more expansionary monetary and fiscal policy portfolio (public investments and expansions to social insurance programs) than has been pursued in recent decades. But, as Taylor et al. (2015) highlight, the scale of upward redistribution of income in recent years would require historically unprecedented changes in taxes and transfers to reverse. They also note that to move the dial on aggregate demand, policy efforts to spur wage increases will have to be much more ambitious than the adjustments to the federal minimum wage in recent decades. We need to enact a much larger raise in the minimum wage and advance policies to boost wage growth for workers making substantially more than the minimum wage.

This makes the EPI’s Raising America’s Pay agenda so vital. It proposes a series of policies that, together, could raise wages for American workers. Pay increases for the bottom 80 percent of households would not just raise the welfare and living standards of these families. Pay increases would also substantially loosen a binding constraint on economic growth: the chronic shortfall in aggregate demand. In short, boosting pay for America’s workers will indeed not only be good for their living standards, it would create a healthier economy overall.

CRS Says Tax Cuts For Rich Will Not Grow The Economy

Donald Trump has said he will spur enormous growth of the U.S. economy (GDP) and create a massive number of new jobs. Sadly though, his plan to do that will NOT accomplish that goal. His plan is to give the rich (and the corporations) a massive tax cut.

As I have said many times on this blog, tax cuts for the rich do not produce economic growth. In fact, the size of the top tax rate has nothing to do with GDP growth. The only thing a tax cut for the rich will do is to significantly increase the wealth/income gap between the rich and the rest of America (which is already at a pre-Depression 1920's level) -- and that's not good.

I'm not alone in this belief. The nonpartisan Congressional Research Service (CRS) has done a study on taxes and economic growth -- and they concluded that the two are not related. Here is the conclusion from the CRS report:

The top income tax rates have changed considerably since the end of World War II. Throughout the late-1940s and 1950s, the top marginal tax rate was typically above 90%; today it is 35%. Additionally, the top capital gains tax rate was 25% in the 1950s and 1960s, 35% in the 1970s; today it is 15%. The average tax rate faced by the top 0.01% of taxpayers was above 40% until the mid-1980s; today it is below 25%. Tax rates affecting taxpayers at the top of the income distribution are currently at their lowest levels since the end of the second World War.

The results of the analysis suggest that changes over the past 65 years in the top marginal tax rate and the top capital gains tax rate do not appear correlated with economic growth. The reduction in the top tax rates appears to be uncorrelated with saving, investment, and productivity growth. The top tax rates appear to have little or no relation to the size of the economic pie.

However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution. As measured by IRS data, the share of income accruing to the top 0.1% of U.S. families increased from 4.2% in 1945 to 12.3% by 2007 before falling to 9.2% due to the 2007-2009 recession. At the same time, the average tax rate paid by the top 0.1% fell from over 50% in 1945 to about 25% in 2009. Tax policy could have a relation to how the economic pie is sliced—lower top tax rates may be associated with greater income disparities. 

If Trump was serious about spurring economic growth and creating jobs, there is a much simpler solution that would accomplish that -- raise the minimum wage to a livable level. That would not only raise the wages of more than 20% of workers, but would put upward pressure on all worker wages. It would result in a massive amount of new spending, which would grow the economy (GDP) and create many new jobs.

Of course the Republicans won't do that. Trump and the congressional Republicans believe wages are too high. They want to leave the minimum wage at its current inadequate level, or abolish it entirely. They are not serious about creating jobs. They just want to give the rich tax breaks -- and their lie about it producing jobs is an effort to fool the public and allow them to cut taxes for the rich.

$15 Minimum Wage Would Boost Economy & Create Jobs

Our economy is still limping along. While the rich and the corporations have rebounded from the Bush recession (and are enjoying record-breaking incomes and profits), most Americans have not. Unemployment is still too high and wages are still stagnant (meaning with inflation, workers have less buying power than before the recession). This has resulted in weak demand for goods/services, resulting in both weak GDP and job growth.

Donald Trump has promised to produce massive job creation. Unfortunately, his solution is the same old failed "trickle-down" economics that has failed for many years now -- to give huge new tax breaks to corporations (and the rich). That will pad the bank accounts of the people who don't need help, but will not boost the economy or create enough new jobs. These groups are already sitting on trillions of dollars, but not creating jobs.

That's because tax breaks do not create jobs, regardless of what Trump or the Republicans say. There is only one thing that creates new jobs or boosts the economy -- an increase in the demand for goods and services. So, how can we increase that demand? Demand is increased when the masses have money to spend. And it is decreased when the buying power of the masses decreases (which is now the case).

The easiest and fastest way to increase demand substantially would be to raise the minimum wage to a livable wage -- say $15 an hour. This would increase the financial well-being of at least a third of the population, and put upward pressure on the wages of many more Americans. That bottom third would spend that new money they make (since they are barely subsisting now), and that new spending would increase the demand for goods/services -- which would create jobs to meet that new demand, and increase the profits of the business sector as they meet that demand.

Republicans like to say that increasing the minimum wage would cost jobs and make businesses uncompetitive. Neither is true, as many studies have shown. Substantially increasing the minimum wage would be good for workers, businesses, and the economy in general. And the side benefit is that it would be good for government also, taking many people off government assistance (and reducing the deficit).

Here's what Lawrence Michel at the Economic Policy Institute had to say on November 29th about raising the minimum wage to $15 an hour:

Today, working people across the country, from fast food workers to adjunct professors, are striking and demonstrating in favor of a $15 minimum wage—the largest demonstration in the history of the Fight for $15 movement, which has invigorated the debate over raising the minimum wage and helped make a $15 minimum wage and a union the standard for people who care about an economy that works for everyone. EPI applauds this effort and urges Congress to listen to the American people and raise the minimum wage.

For some employers, policymakers, and even economists, $15 an hour sounds high. But against the backdrop of rising productivity and an increasingly educated workforce, it’s clear that raising the federal minimum wage to $15 by 2025 is a bold target but something the economy can afford. For decades, workers’ wages have been stagnant even as productivity has risen steadily. And indeed if the minimum wage had risen alongside productivity, it would be well over $15 today. The fact that it has languished at $7.25 is a reflection of deliberate policy choices to keep wages low—not the laws of economics.

We should not ask today’s low-wage workers to pay for years of policy choices made on behalf of the rich and powerful by saying that $15 an hour is “too high,” when throughout most of the country, it is barely enough to get by. A bold proposal such as $15 is needed to lift the earnings of the bottom third of the workforce, generate robust wage growth overall, and fuel economic growth.

We Are Living In A Second "Robber Baron" Era

It is obvious that the U.S. economy continues to struggle, and has done so since the latter part of 2007. The rich (and the corporations) have fully recovered from the Bush recession, but few other Americans have. Unemployment can't get below about 5%, leaving millions still out of work, wages are stagnant (with almost all rising productivity going to management), and the GDP remains below normal.

The Republican prescription for fixing this is to maintain (and double-down) "trickle-down" economics. Just give more money to the rich (and corporations) and everything will be OK. There are a couple of problems with that. First, the rich and corporations already have more profits and more money in the back (and hidden offshore) than ever before -- and none of it is trickling down (in the form of jobs or new investment).

Second, it is this "trickle-down" economics (instituted during the Reagan administration) that started our financial problems in the first place (and culminating in the Bush recession and current struggles). Continuing this failed economic theory won't solve our economic woes -- it will just make them worse. That's why the Republicans MUST be voted out of power in November.

So, how can the economy be fixed? Nobel Prize-winning economist Paul Krugman says we need to start by reversing the growth of monopolies in the U.S. He says these monopolies (encouraged by "trickle-down" economics) inhibit both job creation and economic growth -- and he makes a good case for that. Here is how he describes it in his April 18th New York Times column:

In recent years many economists, including people like Larry Summers and yours truly, have come to the conclusion that growing monopoly power is a big problem for the U.S. economy — and not just because it raises profits at the expense of wages. Verizon-type stories, in which lack of competition reduces the incentive to invest, may contribute to persistent economic weakness.

The argument begins with a seeming paradox about overall corporate behavior. You see, profits are at near-record highs, thanks to a substantial decline in the percentage of G.D.P. going to workers. You might think that these high profits imply high rates of return to investment. But corporations themselves clearly don’t see it that way: their investment in plant, equipment, and technology (as opposed to mergers and acquisitions) hasn’t taken off, even though they can raise money, whether by issuing bonds or by selling stocks, more cheaply than ever before.

How can this paradox be resolved? Well, suppose that those high corporate profits don’t represent returns on investment, but instead mainly reflect growing monopoly power. In that case many corporations would be in the position I just described: able to milk their businesses for cash, but with little reason to spend money on expanding capacity or improving service. The result would be what we see: an economy with high profits but low investment, even in the face of very low interest rates and high stock prices.

And such an economy wouldn’t just be one in which workers don’t share the benefits of rising productivity; it would also tend to have trouble achieving or sustaining full employment. Why? Because when investment is weak despite low interest rates, the Federal Reserve will too often find its efforts to fight recessions coming up short. So lack of competition can contribute to “secular stagnation” — that awkwardly-named but serious condition in which an economy tends to be depressed much or even most of the time, feeling prosperous only when spending is boosted by unsustainable asset or credit bubbles. If that sounds to you like the story of the U.S. economy since the 1990s, join the club.

There are, then, good reasons to believe that reduced competition and increased monopoly power are very bad for the economy. But do we have direct evidence that such a decline in competition has actually happened? Yes, say a number of recent studies, including one just released by the White House. For example, in many industries the combined market share of the top four firms, a traditional measure used in many antitrust studies, has gone up over time.

The obvious next question is why competition has declined. The answer can be summed up in two words: Ronald Reagan.

For Reagan didn’t just cut taxes and deregulate banks; his administration also turned sharply away from the longstanding U.S. tradition of reining in companies that become too dominant in their industries. A new doctrine, emphasizing the supposed efficiency gains from corporate consolidation, led to what those who have studied the issue often describe as the virtual end of antitrust enforcement.

True, there was a limited revival of anti-monopoly efforts during the Clinton years, but these went away again under George W. Bush. The result was an economy with far too much concentration of economic power. And the Obama administration — preoccupied with the aftermath of financial crisis and the struggle with bitterly hostile Republicans — has only recently been in a position to grapple with competition policy.

Still, better late than never. On Friday the White House issued an executive orderdirecting federal agencies to use whatever authority they have to “promote competition.” What this means in practice isn’t clear, at least to me. But it may mark a turning point in governing philosophy, which could have large consequences if Democrats hold the presidency.

For we aren’t just living in a second Gilded Age, we’re also living in a second robber baron era. And only one party seems bothered by either of those observations.

 (The picture above of Paul Krugman is from the Business Insider.)