About Me

In writing the "About Me" portion of this blog I thought about the purpose of the blog - namely, preventing the growth of Socialism & stopping the Death Of Democracy in the American Republic & returning her to the "liberty to abundance" stage of our history. One word descriptions of people's philosophies or purposes are quite often inadequate. I feel that I am "liberal" meaning that I am broad minded, independent, generous, hospitable, & magnanimous. Under these terms "liberal" is a perfectly good word that has been corrupted over the years to mean the person is a left-winger or as Mark Levin more accurately wrote in his book "Liberty & Tyranny" a "statist" - someone looking for government or state control of society. I am certainly not that & have dedicated the blog to fighting this. I believe that I find what I am when I consider whether or not I am a "conservative" & specifically when I ask what is it that I am trying to conserve? It is the libertarian principles that America was founded upon & originally followed. That is the Return To Excellence that this blog is named for & is all about.

Wednesday, January 23, 2019

Part A - Trump Economic Policies & The Tax Cuts & Jobs Act Of 2017 - So Far So Good - Last In A Series Of Three

Google was unable to post the entire post I intended so the last in the series of posts on the economy is presented in two parts, A & B.  Part A pertaining to Reducing Regulation & Controlling Regulatory Costs is below.  Part B will cover Lowering Individual Income Tax Rates, Lowering The Corporate Income Tax Rate, Full Expensing, Repatriating Earnings, & Opportunity Zones & will be issued next week.
 
Both Parts A & B taken together make up the entire post that should be considered the last in a series of three that covers the features of the Tax Cuts & Jobs Act of 2017 (TCJA) that blend in with the Trump administration's policies & practices that will enhance the productivity growth component of the overall economic growth equation thereby propelling continued economic growth in America forward.
 
The first two posts in the series respectively covered the importance of continued economic growth in America & the headwinds facing economic growth.
 
1.  Reducing Regulation & Controlling Regulatory Cost
 
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Ten days after his inauguration President Trump issued Executive Order 13771 of January 30, 2017 regarding Reducing Regulation & Controlling Regulatory Cost.  The executive order confirmed Trump's commitment to fundamental regulatory reform for the American people & businesses by reducing, amending, & eliminating unnecessary regulatory burdens that are ineffective, duplicative, & obsolete - thereby promoting economic growth & innovation while protecting individual liberty.  For instance, the Trump administration delayed or repealed more than 1,500 BO-era regulations.
 
In addition, the aforementioned executive order not only called out the importance of managing both public funds but also the costs associated with the governmental imposition of private expenditures required to comply with Federal regulations.  Accordingly, for every one new regulation issued, @ least two prior regulations must be identified for elimination.  Further, the total incremental cost of all new regulations, including repealed regulations, shall be no greater than zero meaning that any new incremental costs associated with new regulations shall be offset by the elimination of existing costs associated with @ least two prior regulations.
 
In this regard the above graphic shows that the number of economically significant final rules published in 2017 by the Trump administration was the lowest since 1982 published under the Reagan administration.  Economically significant rules are regulations issued by executive branch agencies that have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities.
 
The lower the number of such final rules the better in reducing regulation & controlling regulatory costs.
 
The graphic below shows that the number of significant rules published by the Trump administration in 2017 was very small compared to every other presidential year going back to 1994.  Significant regulations, which include economically significant regulations defined above, are principally those that may create a serious inconsistency or otherwise interfere with an action taken or planned by another agency plus a few other similar matters. 
 
Again, the lower the number the better.
 
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The graphic below shows the number of major rules published in 2017 by the Trump administration is far & away the lowest number ever published in the entire history of this topic which dates back to 1996.  The Government Accountability Office reports on major rules published which includes much of the above definitions of significant & economically significant rules plus includes the ability of U.S. based enterprises to compete with foreign based enterprises in domestic & export markets.
 
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Although President Trump is doing his best to reduce regulations & control regulatory costs there are sticky regulatory problems in the Washington DC swamp.
 
Clyde Wayne Crews Jr., Policy Director @ Competitive Enterprise Institute, writing in Forbes compiled the following summary table & analysis (A through D below) that shows the results of Trump's work regarding Regulatory & Deregulatory Actions – Spring 2018.
 
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Please focus on the grey shaded areas (Deregulatory & Regulatory) of the above table to see the pertinent results summarized as follows:
 
A.  Overall there are 611 Deregulatory actions & 234 Regulatory actions: ratio 2.6 to 1;
 
B.  For recently completed rules there are 80 Deregulatory actions & 14 Regulatory actions: ratio 5.7 to 1;
 
C.  In the Active category (pre-rule, proposed, & final) there are 499 Deregulatory actions & 133 Regulatory actions in progress: ratio 3.8 to 1;
 
D.  The Long Term category (requires Congress to act) is reversed with 87 Regulatory actions & 32 Deregulatory actions: counter ratio 2.7 to 1.
 
Point D above shows the problems encountered when Congress gets involved.
 
The following table shows the number of pages in the Federal Register from 1936 through 2017.  The 61,950 pages (includes regulatory & deregulatory actions) published in 2017 was the lowest since 1993. 
 
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The Federal Register is the daily journal of the federal government in which all newly proposed rules are published along with final rules, executive orders, & other agency notices.  It provides a sense of the flow of new regulations issued during a given period & suggests how the regulatory burden will grow as Americans try to comply with the new mandates.
 
The above is presented to provide an idea of the gargantuan task President Trump faces in trying to reduce regulations & control regulatory cost.  He obviously has a long way to go. 
 
But investors & entrepreneurs are appreciative that Trump, like Calvin Coolidge, is a friend of business who knows that the "business of America is business" & that regulations hinder business formation & growth. 
 
In this regard, Apple has said it plans to create 20,000 jobs & invest $30 billion in the U.S. over the next five years, including a second campus in Austin, Texas.  And, earlier this past week Volkswagen announced it is adding a second Chattanooga, Tennessee assembly plant to build electric vehicles – an $800 million investment expected to create 1,000 U.S. jobs.  In addition U.S. Steel has announced it will restart two blast furnaces & steelmaking facilities that have been closed since 2015 – one in March (500 jobs) & the other in October (300 jobs).
 
The point is Trump is trying to reduce regulatory burdens on businesses & they know it & that has produced an entirely different attitude – one that we haven't seen since the 1980s.
 

Sunday, January 13, 2019

The Headwinds Facing Economic Growth - Second In A Series Of Three

The last post clearly showed the importance of continued high levels of real annual economic growth in America – real economic growth in the first six full quarters of Trump's presidency was twice the rate of growth of BO's final six full quarters.  A reversion to BO's policies of government encroachment & the 1.5% real annualized economic growth rate realized during BO's final six full quarters in office would amount to a loss of 24 years of job creation, increased compensation, & general prosperity for the American people compared to the level realized under President Trump's first six full quarters in office if sustained.
 
This post presents the potential headwinds that could hold back our expansion.  It is the second in a series of three posts on the economy.
 
Stanford economics professor John Taylor teaches that economic growth equals employment growth + productivity growth.
 
The first part of Professor Taylor's definition – employment growth – faces many obstacles.
 
First, the population of the U.S. rose only 0.6% in the past year ending July 1 – the slowest increase since 1937.  The problem with this low population growth rate is that it obviously retards economic growth as defined in Professor Taylor's above economic growth equation.
 
The November Jobs Openings & Labor Turnover Summary (JOLTS) issued by the Bureau of Labor Statistics (BLS) on January 8 showed there were 6.89 million job openings in America, a figure exceeding the number of unemployed people who are actively looking for a job by 870,000.  There have been more jobs openings than unemployed people looking for work since March.  This phenomenon is obviously hindering economic growth.
 
The demand for qualified temporary worker visa requests is illustrated by the overloading & crashing of the Department of Labor's website literally five minutes after it opened on New Year's Day.  The federal government allows 66,000 such visas known as H-2B each year – the website crashed @ the 100,000 request marker.  Employers obviously need more help.
 
Defense contractors are especially hard hit trying to find qualified welders, fitters, & mechanics – there are reports that Prime Contractors' recruitment drives rob their own suppliers' staffs of these tradesmen.
 
The federal government has offered retraining through its Trade Adjustment Assistance (TAA) program since the 1960s.  The program is open to workers the government determines lost employment due to overseas competition.  TAA has had limited success in that more than a quarter of the 16,375 workers who took the program in fiscal year 2017 could not find employment within six months of completing retraining & on average those who did earned 81.3% of their old wage in what is a classic example of what I have termed U7 unemployment in many previous posts – i.e., U7 is the unemployment rate that includes the total unemployed, plus all persons marginally attached to the labor force, plus the total employed part time for economic reasons, plus those employed full time who make a fraction of their former pay.
 
Accordingly, it is not hard to conclude that employers are having trouble finding & hiring qualified people.  Some people that I have talked to conclude that these last few percent of unemployed people really don't want a job.  But in any event having more job openings than unemployed people for several months shows a large headwind for economic growth in that we just don't have the people, qualified or not – another offense to the first part of Professor Taylor's above definition of economic growth.
 
As socialism has become more & more appealing, especially to millennials & Democrats, the American dream concept of getting a good education followed by gainful employment in the field of college study has waned for a significant portion of the citizenry.  The lure of a government guaranteed job for life, Medicare for All, & free college with forgiveness of college loans already incurred all convey the idea that there is no rush or that time is not of the essence.  Accordingly, far too many millennials are not taking, or are not qualified or capable of taking a productive place in society – they are starting later in life to build their own life thereby not making their best personal contribution to economic growth over a lifetime of productive work.
 
Next – the interest rate headwind.
 
After nearly a decade of following a zero interest rate strategy the Federal Reserve System (Fed) has raised their policy rate that banks pay for overnight borrowing from just about zero to a range of 2.25% to 2.50% currently & has also started to liquidate the assets on their record high balance sheet.  The Fed's inflation target is 2% meaning that a median income earner loses about $1200 in purchasing power per year.
 
As a result of the Fed's action the average interest rate on a 30 year fixed rate home mortgage rose to 4.87% in November before falling to 4.51% earlier this month – this rate is still substantially higher than the 3.95% in January 2018. The combination of higher mortgage rates & higher home prices due to low inventories of homes for sale means that people, especially first time buyers, whose incomes are not rising as fast as the price of housing, cannot afford to buy a house – these people are being priced out of the housing market.  It is hard for an economy to expand with housing (& interest rate sensitive autos) not participating.  Potential first time home buyers not buying furniture exacerbates the problem.
 
But housing & autos are only part of the increasing interest rate problem hindering the growth of our economy.
 
The Federal Reserve Bank of St. Louis reports that since 2008 the U.S. debt held by the public more than tripled from $5.1 trillion to just under $16 trillion.  During most of this time span interest costs were held down by the Fed keeping interest rates artificially low. 
 
But it is not just the higher interest rates on future budget deficits that are the problem.  During the next five years about 70% of the existing $16 trillion federal debt will mature & will  be refinanced @ these higher interest rates.  This is the opposite of a family refinancing their home mortgage @ a lower interest rate saving substantial money each month – the federal government will be refinancing Treasury obligations that mature while interest rates are going up thereby increasing the cost of the debt to taxpayers.
 
In 2017, interest costs on federal debt totaled $263 billion – paid @ very low interest rates.  The Congressional Budget Office (CBO) calculates that interest costs will rise to $915 billion by 2028 – paid @ increasingly higher interest rates.  This means that interest costs will rise from 7.9% of federal revenue in 2017 to 16.6% in 2028, both of which are bad enough.  Calculations based on data provided on CBO – Budget & Economic Data, 10-Year Budget Projections, April 2018, Table 4.1 (www.cbo.gov/publication/53651)
 
But wait.
 
Allen Buckley, writing in the WSJ, lets us know that the average interest rate on 10-year treasury notes for the past 200 years has been about 5%.  Doing the arithmetic of 5% interest on the current $16 trillion debt results in $800 billion annual interest costs – three times what was actually paid in 2017 thereby illustrating just how low interest rates have been manipulated.  Federal receipts in fiscal year 2017 were $3.3 trillion so the interest costs, if @ our historical average, would have amounted to 24% of revenue.  It is a point like this that will be the point when politicians & more importantly the citizenry, after ignoring them for decades, realize the importance of budget deficits & the national debt. 
 
It took a decade of rapidly rising deficits & very low interest rates, masking the dangers of debt, followed by a continuation of large deficits & rising interest rates to bring us to this point.  Just look @ the red portion of the bars, representing net interest on the graphic below, with the above understanding of the dynamic @ play regarding what is happening to the interest costs of our national debt & you will see that our danger point is even closer than indicated on the graphic which does include the growing liabilities of Social Security, Medicare, & Medicaid but does not include the enormous unfunded liabilities of Social Security & Medicare.
 
click on graphic to enlarge
 
Although low interest rates are preferred by investors a real Fed policy rate of zero is not consistent with 3% real annual economic growth so if this economic growth rate continues we can expect interest rates to continue to rise & bring with it all the problems mentioned above.
 
But American interest rates are not high by historical standards – they are high compared to those of our trading partners.  The last few years the European Central Bank (ECB) followed by the Bank of Japan (BOJ) pushed the large economies of both Germany & Japan into negative interest rate territory.  Last month the BOJ continued this policy by keeping short-term interest rates @ minus 0.1% & the target for 10-year government bond yield @ around zero.
 
But the real enemy in all or any of the government budget battles is not the deficit but rather spending.  Professor Friedman would rather have a budget of $1 trillion with a $500 billion deficit, than a budget of $2 trillion with no deficit.  He taught that the burden borne by the American economy is measured by what government spends & disposes of, not by whether it calls its receipts "taxes" or "proceeds from bonds."  The 2,232 page Omnibus spending bill signed into law in March 2018 not only violated Professor Friedman's principle but actually boosted spending by $300 billion over caps previously agreed to in the 2011 Sequester.
 
Most of 2018 was full of talk of trade wars, tariffs & retaliatory tariffs, & renegotiating &/or not participating in trade deals.  Specifically President Trump imposed tariffs on steel, aluminum, washing machines, solar panels, & $250 billion of imports from China & of course President Xi retaliated in kind.  Trump has also threatened tariffs on car imports & another $250 billion of China's exports. 
 
Trump also negotiated the United States-Mexico-Canada Agreement (USMCA) - a new NAFTA - with Mexico & Canada, & now needs Nancy Pelosi to approve it.
 
Most of the rest of the world is suffering an economic slowdown (by the third quarter of 2018 Germany's & Japan's economies had actually contracted) & these trade tensions are not helping & may be to blame.  Apple & FedEx have already warned that slowing growth overseas is hurting multinational companies.  In this regard Apple's recent announcement that it was forecasting a large downturn in 2019 sales of iPhones in China is a strong indicator of a slowing Chinese economy.
 
This trade uncertainty is also hindering business capital spending & investment – businesses want to know if they are investing into 25% tariffs or no tariffs.  It does make a difference & this is another headwind.
 
But in the process of levying tariffs on U.S. imports President Trump has exposed many of the one sided anti-American protective trade agreements that have been in place for decades – Trump has exposed protectionist measures that have imposed restrictions on U.S. products & services entering many poor countries, like China.  Accordingly, nations like China have been free, under these agreements, to meet their robust export demand without worrying about American competition.
 
Following the meeting in Buenos Aires in December China has generally committed to cut tariffs, buy more U.S. goods & services, reduce subsidies that Beijing pays to Chinese companies, ease restrictions on foreign firms operating in China, & further open sectors for foreign capital.  There is a 90 day temporary tariff truce that ends on March 1 if suitable agreement in detail is not reached – in which case Trump will raise tariffs, whose increases are suspended during the temporary truce, on another $200 billion of Chinese goods from 10% to 25% thereby deepening the slowdown in the Chinese economy.
 
Although China's middle class has started to grow & prosper China is still a very poor country that is very export dependent regarding increasing its wealth & prosperity.  If Trump totally levels the trading field & deprives China of the principal parts of the current one sided trade deals – namely, protective tariffs on imports to China, subsidies China pays to Chinese companies, & pressures China puts on U.S. partners into transferring technology to China against their will - China's ability to manufacture will be severely hindered.  Where then will the Chinese get the money to purchase American made products & services?  Who will America sell these products & services to if China is unable to buy them?  In short, we may need "unfair trade deals," like those described above, for the U.S. to have any trade @ all with poor nations in the global economy.
 
Another indication of a world wide economic slowdown is the drop in the price of oil – i.e., countries are not expanding if the price of energy is dropping.  Of course lower prices of gasoline @ the pump is a welcome sign for drivers.
 
In the past Saudi Arabia has virtually single handedly remedied OPEC's pricing problems by cutting production.  Its latest plan is to cut oil exports ultimately by 800,000 barrels per day starting with 200,000 to 300,000 barrels per day by the end of January with a goal of raising oil prices by over $30 per barrel to the $80 to $85 per barrel level.
 
In summary, some of the economic headwinds we are facing are caused by the U.S. just not having enough people to help the economy expand per Professor Taylor's definition while others are caused by government programs where 70% of a decade's worth of debt accumulation will be refinanced within the next five years @ today's higher interest rates thereby substantially adding to the country's interest costs.  The apparent global economic slowdown is an obvious headwind.
 
But the strong & healthy December jobs report released earlier this month presents a contrast to all of the above economic headwinds – it showed that businesses, owned & managed by people who put their money where their mouth is, have the confidence to keep hiring as they anticipate continued economic growth.  There are reports that some companies are even once again adding healthcare benefits to employee compensation packages in order to attract qualified workers – or rather drag discouraged workers & others marginally attached to the labor force back to work.
 
As described above the demographics of slow population growth presents a challenge for high economic growth but the productivity growth component of Professor Taylor's formula should be increased substantially by several features of the Tax Cuts & Jobs Act of 2017 along with several of the Trump administration's policies & practices – these features, policies, & practices, whose ability to counterbalance the above headwinds & propel economic growth forward, are the very points that'll be explained in the next post.
 

Sunday, January 6, 2019

The Importance Of Continued Economic Growth In America - First In A Series Of Three

 
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Economic growth is the bedrock foundation of the U.S. standard of living & our prosperity.  A fast growing economy employs more people who make more money than they would in a slow growing economy. 
 
Employment growth is one of two factors that drives economic growth because a larger work force & commensurate labor force participation rate means more workers producing more things & more consumers buying things. 
 
The second factor is productivity increases which averaged 2% growth in 2018 – compared to 0.7% growth from 2011 to 2017 meaning you have the potential for good times ahead, not just in 2019 but for years to come.
 
In essence economic growth boils down to how many people are working & how productive they are.
 
It wasn't that long ago that 4% real annual economic growth was the American standard of prosperity.  The above graphic shows that three of the last four presidents did not achieve 4% real annual economic growth in the best calendar years of their presidencies.  BO did not achieve 3% real annual economic growth in his best calendar year, let alone all the other calendar years of his presidency, according to the Bureau of Economic Analysis (BEA) as shown on the above graphic.
 
So 3% real annual economic growth has become the new reduced elusive economic standard – it was last realized in back to back calendar years in 2004 & 2005 with 4% real annual economic growth last realized in the four consecutive calendar years 1997 to 2000, after which our prosperity started to diminish.  See graphic below.
 
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The economic figures showing the real percentage change from the preceding quarter for President Trump's first six full quarters in office have resembled many of both GW Bush's & BO's quarterly levels for the good & mediocre quarters without so far falling to the levels of the subpar quarters of both the Bush & BO presidencies when real quarterly economic growth rates of way below 2% were recorded with some negative growth quarters sprinkled in.  It was the subpar & negative quarters that significantly brought down the calendar year growth levels for both Bush & BO.
 
Bush had three annual periods (any four consecutive quarters) of over 4% real economic growth & nine annual periods of over 3% real economic growth when measured as a percent change from any quarter one year ago (i.e., not necessarily a calendar year but rather any four consecutive quarters – not counting overlap of the first quarter of the first year of a presidency there are 31 such annual periods for a two term president).  BO had no such annual periods of 4% real economic growth & four annual periods of 3% or greater real economic growth over the 31 such periods of his two term presidency.  Source – BEA Table 1.1.11.  Real Gross Domestic Product: Percent Change From Quarter One Year Ago – December 21, 2018.
 
Real annual economic growth averaged 1.4% for all of BO's presidency & 2.1% from June 2009 when the recession ended to the end of BO's presidency – by far the weakest expansion of the post WWII period.
 
But more importantly to see the dramatic & immediate change that Trump made to the American economy & our prosperity please consider that the real average annual economic growth rate during BO's final six full quarters in office was 1.5% compared to Trump's first six full quarters in office that produced a 3.0% real annual economic growth rate – both rates calculated from BEA Table 1.1.6 entitled Real Gross Domestic Product, Chained Dollars – December 21, 2018.
 
This immediate doubling from lackluster growth under BO to reasonable growth under Trump should dispel BO's claim that he is the one who started the prosperity realized since Trump took office.
 
If we can achieve a continuous 3% real annual economic growth rate the economy will double in 24 years as opposed to over 48 years to double @ a 1.5% continuous real annual economic growth rate.  Starting with a $20 trillion (rounded) economy, a 1.5% continuous real annual economic growth rate would result in $12.07 trillion (in 2018 dollars) less goods & services being available for consumption than would be available with a 3% continuous real annual economic growth rate over 24 years.  It would take more than an additional twenty four years to make up this $12.07 trillion difference @ 1.5% real annual economic growth.  This example depicts a lost twenty four years regarding job creation, increased compensation, & general prosperity for the American people – exactly per BO's purposeful design to make people dependent on government.
 
Now economic growth does not operate in a vacuum & the next post, second in this three part series, will present the potential headwinds that could hold back our expansion. 
 
A very dear friend & regular blog commenter recently wrote "there is such hostility & hatred of Trump, it seems what happens to the U.S. is unimportant to Democrats & many Americans."
 
Please take this thought into account if you find yourself not hoping the American economy continues to expand under President Trump's policies.
 
As for me, I'm rooting for a return to 4%.