Month: October 2017

According to the GOP, American businesses are being strangled by high taxes and regulations.  If only we could create a more business-friendly environment, investment and growth would take off, and the benefits would trickle down to hard-pressed working people.  All boats would be lifted by the rising tide.

The story is not conceptually absurd.  It is not difficult to come up with examples of political entities with lots of taxes and regulations that do stagnate in this manner.  It is also relatively easy to imagine yourself in the position of a would-be entrepreneur who just doesn’t think that the benefits of an investment are worth the hassle and the risk in a highly-regulated state.  In other words, it could be true.

There are two problems with the story, however.  First of all, the GOP believes it regardless of the circumstances;  even if the facts don’t bear it out at any particular time and place, they push the narrative anyway.  Second, there are plenty of examples of fast-growing political entities with lots of regulations.  Is China a laissez-faire paradise?  Are the blue states in America growing much more slowly than the red states?  Is there a Mississippi Miracle?  Obviously not.

The bottom line is that you have to view these issues on a case-by-case basis, and there are plenty of factors that affect growth outside of taxes and regulations.  My personal judgment is that the story is largely true as applied to the French economy, but not in the US in 2017.

 

As I’ve noted previously, requiring people to pay taxes on money that legally belongs to someone else makes no sense from an economic perspective.  You might as well tax them on the number of unicorns they own.  The GOP plan to eliminate the deduction has a different basis, however: first, it provides offsetting revenues for their huge regressive tax cut; and second, it is an attempt to impose a small government ethic on blue states.

Assume, for purposes of argument, that the tax cut passes with the SALT deduction either eliminated or highly limited.  What happens next at the state and local level?

1.  Who takes the fall?  There can be little doubt that small government “conservatives” in blue states will be emboldened, and that politics in these states will become more polarized and toxic.  Given that the tax cut can only pass with a razor-thin margin, will the voters respond by trying to remake their systems, or will they simply look to replace any GOP members of Congress in the hope of overturning the tax cut at the federal level?  The latter would be much easier, and is more likely.

2. What gets cut?  Assuming that the GOP plan works and that the blue states start turning red, there will have to be enormous cuts in state and local spending. Notwithstanding the fantasies of some GOP voters, this will not result in a significant reduction in the size of the welfare state, which is driven primarily by federal spending.  Instead, based on what happened during the Great Recession, the cuts will come from:  (a) infrastructure spending (particularly maintenance); (b) the education budget; (c) pensions; and (d) employee salaries and benefits. The first two will damage economic growth, and the third will have a major impact on a large cohort of GOP voters.

There is nothing in the indictment that has any direct link to Trump, his campaign, or collusion with Russians.  On its face, all it proves with regard to Trump is that he has really bad taste in campaign managers.  We knew that already.

The pertinent questions to be answered are:

1.  Does Manafort know anything about collusion that he is willing to sell for a better deal?  I know of no evidence of that, but we’ll see.
2.  Will Trump overreact and do something really stupid, like fire Mueller?  His lawyers will tell him to brush this off, but he isn’t exactly famous for taking good legal advice.

Trump’s victory has caused a power shift within the GOP.   While the Trump tax plan is clearly PBP-friendly, the rest of his agenda is tilted towards the Reactionaries.  Can this situation be reversed in the foreseeable future?

The Reactionaries are clearly the largest faction within the party, although probably not a majority.  I can only see two scenarios in which the PBPs regain control of the party:

1.  A catastrophic failure on the part of the Trump Administration, resulting in a resounding Democratic victory in 2020; or
2.  A proliferation of Trump wannabes run against a single PBP presidential candidate, and lose, in the GOP primaries in 2024.

Both are reasonably possible, but neither is by any means assured.

 

Don’t declare independence over the known opposition of the central government unless you are ready, willing, and able to fight for it.

On the one hand, Ross Douthat despises Donald Trump for all of the reasons that I do.  On the other, he sees a Democratic Party that is unquestionably becoming more secular, and less responsive to religious people like himself, over time. What is he to do?

I don’t agree with Douthat on very much, but you can’t help sympathizing with someone who is left with these two unappetizing choices.  It’s enough to make you look for a political Benedict Option.

How should the Democrats respond to people like Douthat?  Keeping Trump in check is the overriding priority.  For now, at least, it should be all hands on deck.

Our dog Marlowe passed on today.

We loved him more than we can say.

He lived as our child

But for just a short while.

With dogs, that’s the price that you pay.

Bittersweet

We chanced to meet

No point in asking why.

I’m sure you’d say

A better day

Awaits you when you die.

 

You’re here; you’re gone.

We’ll carry on.

We have no other choice.

The house is still

A bitter pill

To never hear your voice.

 

Bittersweet’s

No trick-or-treat.

I know it’s time to go.

But what we’d pay

For you to stay.

Dear God, we’ll miss you so!

The Reactionaries and the PBPs were all in for all of the Obamacare repeal bills: the Reactionaries because it meant taking benefits away from the undeserving poor; and the PBPs because it was a tax cut and deregulation measure. Ultimately, the bills were sunk by an alliance of Democrats, CDs, and CLs;  the first two didn’t think that taking insurance away from millions of Americans was a great idea, and the last didn’t think the bills went far enough in that direction.

Could the same thing happen again with the tax cut?  If the tax cut were part of a budget bill that included massive spending cuts, yes, but that will not be the case. Rand Paul will vote for a tax cut bill that is decoupled from spending issues, and, I suspect, so will Susan Collins, who will be under pressure to prove she isn’t a RINO.

The real issue with the tax cut is whether the GOP can finesse the state and local tax and 401(k) issues to the point where they can get enough votes to pass the bill.  A tax cut bill which actually raises the taxes of millions of GOP voters for the benefit of plutocrats will be a hard sell.  My guess is that the analysis behind the bill will contain enough magic asterisks to permit compromises on these issues, and the bill will ultimately be approved, thereby creating the “Funhouse Reagan” economic scenario I predicted at the beginning of the year.

The Flakes and Corkers of this world essentially have two problems with Trump:

1.  They concur with the description of the president’s personality that appears on a daily basis on this blog.  They find him unprincipled, thin-skinned, narcissistic, autocratic, and profoundly ignorant of policy.  They hate his tweets, and his affinity for dividing the country.  Regardless of his image, they believe he is a poor and uninformed negotiator and leader.  They think he’s likely to run their party, and the country as a whole, into the ground.
2.  They disagree with his white nationalist worldview, and all of the implications that come with it.

These sentiments are probably shared by most of the GOP members of Congress. Where the dissidents do not have a problem with Trump, however, is on most specific matters of policy, largely because Trump has been content to farm out these issues to the legislative leadership; he’ll sign anything as long as he can call it a “win.”  And so, while Trump did nothing to bring the various GOP factions together, you really can’t blame him for the delays in tax reform and the failure to repeal Obamacare;  those are on Congress, not him.

Where is this going?  So far, most of what the dissidents object to has been noise, not action.  We haven’t started a nuclear war in Iran or North Korea, or pulled out of NAFTA, or sold the country to the Russians.  Yet.  All of these things are still possible, and if calamities result, the trickle of objections will become a roar.  If, on the other hand, nothing really bad happens,  then nothing will change.

As it turns out, the supporters of the corporate tax cut aren’t really arguing that the additional cash pouring into corporate coffers will then be distributed directly to workers in the form of higher wages.  The argument is, instead, that the additional funds will be invested in new ventures, that the new ventures will need workers, and that wages will increase as a result of higher demand for labor.

This is, of course, just another way of calling on that old trickle-down magic that has served us so well over the last 40 years.  Leaving aside the lack of recent historical support for the notion that a rising tide lifts all boats, the argument has the following logical weaknesses:

1.  American corporations are already sitting on massive cash mountains, and interest rates are very low.  A lack of access to capital is not the reason they are not investing. Why would increasing the size of the cash mountains make any meaningful difference?
2.  Even if you accept the argument that we will see a massive increase in investment, why would you assume that American workers will benefit from that, given that the money could be invested in firms using large numbers of foreign workers or robots?

The bottom line is that the investment problem is driven by a lack of demand, which in turn is caused by demographic trends and the hollowing out of the middle class.  The Trump tax cut will do nothing to address either issue, and will only enrich shareholders.

Trump managed to avoid military service during the Vietnam era by a fairly spurious (pun intended) medical deferment.  He has spent his entire adult life, until now, making money by screwing people over.  He ran for president because he saw the presidency as a prize, not a sacred trust.  He uses his office to expand his ego, not to help people.  In short, he has no concept of public service whatsoever.

He has, however, surrounded himself with military men to whom service presumably means everything, and they defend him.  Hence, the paradox.

There are very real dangers here.  The military consists disproportionately of people from red states and minorities.  If the connection between Trump and the military causes people in both parties to see the armed forces as just another wing of the GOP, much like evangelical churches, the implications for a divided country will become very serious.  Blue America will become alienated from the people protecting them, the red portion of the military may consider blue people not worth defending, and the military itself may split politically between its red state and minority components.

The GOP man they call Flake

Told the world he’d had all he could take.

He called Trump unfit.

Didn’t hold back a bit.

Could his speech be the start of Trump’s wake?

 

Alas, almost certainly not.

 

After a brief break, the conversation continues.

C:  Next, I’d like to ask you some questions about racism.

B:  I’m not a racist.  I’m a patriot.

C:  What do you mean by that?

B:  I have a great emotional appreciation of America and its culture.  I recognize the intellectual roots of it–in religion, politics, and philosophy– come from Europe.  I will fight to protect it against outsiders, whether they come from the Middle East, China, or wherever.

C:  Do you view African-Americans as outsiders?

B:  Obviously, they have made some important contributions to our culture.  But basically, yes.

C:  Are you familiar with Ta-Nehisi Coates?

B:  Absolutely!  I’m his biggest fan.

C:  Why?

B:  Because every time he opens his mouth about reparations, he wins us another million votes from hard-working white people who don’t see any reason why they should feel guilty about being white.  The point of revolution is to force people who are on the fence to actively take your side.  That’s exactly what he does for us.

C:  All of the statistics back up his claim that African-Americans get a raw deal in this country.  Don’t you think he has a point?

B:  Look, I admit that black people have been treated unfairly at times in the past. The bottom line is that the statute of limitations has to run on claims like that at some point in time.  Otherwise, we would have to give our country back to the Indians.  Slavery and Jim Crow are over.  It’s time to move on.

C:  You will admit that some of your supporters are outright racist?

B:  Sure.  There are extremists in every group.  I have no sympathy for Nazis.  I do have sympathy for struggling white people who think that the government is determined to punish them for being white, and who have good reason to believe that minorities get cuts in line.

C:  Let’s talk about protectionism for a minute.  What do you hope to accomplish with that?

B:  We’ll make America great again, of course!

C:  By reducing GDP growth both here and abroad?

B:  Ultimately, it would increase growth here.

C:  Let’s use an example.  You presumably view hard-working white Christian farmers as the kind of people that you want to protect.  The bottom line is that retaliation for American protectionist actions will prevent them from exporting to places like Mexico and Japan and will cost them lots of money.  It’s already happening.  Is, say, protecting steelworkers worth hurting those farmers, to say nothing of driving up prices for everyone else?

B:  You can’t make an omelette without breaking some eggs.  Anyway, in the long run, the foreigners need our markets more than we need theirs, so they’ll cave. You just have to be firm with them.

C:  There is a famous photo of your whiteboard with “taxes” in the middle.  Why was that?

B:  Tax cuts are a means by which we can actually give some clear and immediate relief to Americans who really need it.

C:  Does the current GOP tax plan do that?

B:  No.  It’s a disaster.  It’s the same old crap that the business elite have been forcing on us in exchange for illusory promises on social issues.  We need tax relief for working people, not Wall Street plutocrats.

C:  Sometimes you sound more like a Democrat than a Republican.

B:  There is some convergence of our views on this issue.

C:  Time is running short, so I have one last question.  You obviously have a vision of international relations that puts more emphasis on independent sovereign nations and less on international institutions.  On the other hand, you want the sovereign nations to be united in the battles against Islam and the Chinese.  How do you reconcile the two?  If everyone is a nationalist, how can you get them to cooperate instead of doing battle with each other?

B:  It’s tricky, admittedly, but if you work hard to keep everyone’s eye on the ball, it can be done.

C:  Thanks for your time.

The interview concludes.

 

House Republicans are reportedly considering severe limitations on the use of the 401(k) in order to provide more funds for their big regressive tax cut.  This would, of course, make retirement saving more difficult at the worst possible time for masses of baby boomers, and raise taxes on people like me.

Trump tweeted this morning that there will be no change to the 401(k).  I would be comforted by this if I didn’t know that he will sign anything that reaches his desk as long as he can claim it’s a tax cut and call it a “win.”