Recommended: Democrats’ 2020 economy dilemma, explained

Trump claims the U.S. economy is in the best shape it has ever been. It isn't. Democratic presidential candidates claim the economy is in terrible shape. It isn't. Cherry-pick the right statistics and you can prove any side of the argument. There is an article today in Vox.com by Matthew Yglesias entitled Democrats' 2020 economy dilemma, explained which does a pretty even-handed, data-based analysis of just where the economy really is, and it is worth reading.

The short version: yes, by and large the economy is in pretty good shape, better than it was under the Obama years. There is still inequality (there will always be some inequality, even under socialism!). There are still segments that are struggling (there will always be some segments that are struggling). Profits are still going disproportionately to the wealthy and powerful (that has been true throughout history in almost every civilization - nothing really new there).  But on the whole the U.S. economy is perking along just fine. So Yglesias argues Democrats would do better to acknowledge the fact and try to win on other issues.

Recommended: David Brooks columns

Two recent New York Times opinion columns by David Brooks seem worth recommending:

The Politics of Exhaustion: Voters pick whichever candidate exhausts them less  (Dec 12, 2019)

and

Impeach Trump and then Move On: Stop distracting from the core issue, elite negligence and national decline (Nov 6, 2019)


With reference to the first piece, his division of the power blocks driving politics these days, both here and in the UK, between the proleteriat and the precariat, is an interesting perspective. And his comment that both see the world in apocalyptic terms seems to me accurate.

With reference to the second piece, I think the nation, except for the activist fringe on both sides, is frankly bored with the whole impeachment thing. Democrats started talking about impeachment before Trump was even sworn in, so most of the nation sees it as nothing more than a Washington knife fight between politicians. Frankly, I think it was a tactically poor move for Democrats. The Trump campaign  has picked up $10 million dollars and 600,000 new small donors since the impeachment push started - all it is doing is energizing Trump's base. And polls show it isn't playing well in the key swing states that Democrats need to win to get the presidency.

The Madrid climate talks

The Madrid climate talks ended in disarray. That is not particularly surprising. As long as all that was required was voluntary promises with no teeth and no accounting (as in the Kyoto and Paris agreements) everyone was happy to participate, and the delegates got to feel important and got free trips abroad and good food on an expense account – what’s not to like about that?  Once the debate got down to real details and real money and real sacrifices it all fell apart. The developing countries are not about to give up their drive to modernize and lift their citizens out of poverty. The developed countries are not about to give up their central heating and cell phones and cars.

Trump’s decision to withdraw from the Paris agreement was certainly bad optics, but in practical terms it made no difference. Those that argue that America should “lead the way” are, I think, hopelessly naïve. First, I don’t think any politician can make Americans give up what would be required to meet the Paris agreement goals. Second, I don’t think America has enough influence to convince India and China, among others, to abandon their drive to modernize and just let their billions of people continue to live in poverty.

The shadowy activist groups that have created the Greta Thunberg media phenomena are certainly clever (The main one seems to be the Swedish” We Don’t Have Time” NGO). Notice that they keep well in the background, but write good speeches for her and quietly arrange her transportation around the world (including flying two crew to America to sail back the low-carbon-footprint sailboat that brought her here). But in fact, while she gets media attention, it doesn’t really change any of the facts on the ground.

The core facts that the climate activists don’t seem to understand or are deliberately ignoring  are (a) modern civilization worldwide is built on heavy energy use, and (b) neither wind nor solar energy are “dense” enough or reliable enough to provide more than a fraction of the energy modern civilization requires. Nuclear energy and (if we can ever get it to work) fusion energy might help solve the problem, but the (largely irrational) public fear of nuclear power plants is a powerful disincentive.

Let’s look at US energy use, just to get real about this issue.37% of our energy use is for transportation. 35% is for industrial processes. About 16% is residential use and the remaining 12% is commercial use. So if we are going to make major cuts that matter, most of it will have to come from transportation and industry. Just putting LED bulbs in our houses isn’t going to make that much difference (though it is still worth doing).

Here is some of what we would really have to do to make significant cuts in US energy use:

1. Clean out most of the local grocery store shelves, since almost all of that fresh food and canned goods and boxed cereal and fresh meat is shipped in from all over the world these days. Imagine a grocery store stocked only with what is grown or made locally. For that matter, you would have to clean out the shelves of most of your local retail stores – hardware stores, clothing stores, auto supply stores, appliance stores, etc. etc. They all depend heavily on transportation, not only to bring in their stock from around the country and around the world, but to support the complex supply chains involved in making those products in the first place. Oh, and forget about buying from Amazon.

2. Give up our cars and give up ever flying. Those in the core of big cites with good bus or subway service can probably manage this. The rest of the country is built around cars – if you live in the suburbs or the country do you think you can walk to the nearest mall or grocery store or doctor’s office? For that matter, can you even walk or bicycle to your place of work?

3. Give up our cell phone and home computers and streaming services on our TV and all the apps we love to use. It’s great that we can use Siri on our cell phone to get the weather forecast or look up the definition of a word, or that we can stream a movie when we want to, but did you know that the massive server farms that drive those services worldwide currently use about 416 terawatts of electricity annually, or about 40% more than the entire United Kingdom (England, Wales, Scotland and Ireland)?

4. Many of us would lose our jobs, especially if we work in transportation or industry. Suppose, just as a rough estimate, that we cut both U.S. industry and transportation by half, which is the order of magnitude that would be required to meet the Paris agreement. There are, for example, about 3.5 million truck drivers in the US today, so there might be about 1.75 million newly unemployed truck drivers.  There are about 13 million workers in US manufacturing today, so there might be about 6.5 million newly unemployed. And that is just the tip of the iceberg. Making such drastic changes would ripple through the rest of the economy as well, producing massive unemployment in other sectors as well. What are the odds that any U.S. politician, or any political party, could survive implementing such deep cuts?

Dealing with climate change is a very complex technical, economic, political, geopolitical and psychological/sociological issue. Simplistic answers – like naïve and uninvolved bureaucrats setting unenforceable national goals - aren’t going to work, however passionate climate activists may be.

Recommended: How America Ends

There is an interesting article in the December issue of The Atlantic entitled How America Ends: a tectonic demographic shift is under way. Can the country hold together? It started with an interesting, but I think valid, line: Democracy depends on the consent of the losers. The article details many of the previous demographic and political shifts in the nation's history, to try to put the current one in perspective. Clearly neither the progressive losers of the last election, nor the conservative losers who fear the next election, have consented, which is why the partisan divide in the nation is so deep and so bitter. Worth thinking about.

Depressing??

Courtesy of Mark Blyth's blog yesterday:

Paying for progressive proposals

This business, touted by people like Bernie Sanders and Elizabeth Warren, about paying for expensive new progressive programs (Medicare-for-all, forgiving College loans, “free” federally-funded college for all, etc) by taxing the rich and corporations more, needs to be examined a bit more.

Here is where federal taxes come from right now:

In 2018 the total income taken in by the federal government was $3.3 trillion. (total outflow was $4.1 trillion, with the difference made up by new borrowing). Payroll taxes (35% or $1.15 trillion) go almost entirely to pay for social security, Medicare and unemployment insurance, so the real total the government had available for the rest of its services, including military spending and everything else, was about $2.15 trillion (65% of $3.3 trillion).

Notice that corporate taxes now make up only 6% of the total revenues, a little under $200 billion. The vast majority of the $2.15 trillion annual federal income (not counting social security or Medicare payments) comes from taxing ordinary workers. And in fact the Medicare and social security portion is also partially paid for by taxes on individuals, taken out of their payroll.

We keep hearing about how corporations don’t pay their fair share and ought to be taxed more. True enough.  In 2018 Netflix, Amazon, Chevron, Delta Airlines, Eli Lilly, General Motors, Gannett, Goodyear Tire and Rubber, Halliburton, IBM, Jetblue Airways, Principal Financial, Salesforce.com, US Steel, and Whirlpool, among others, all paid no (zero!) taxes. Why? Because they can all afford to hire masses of high-priced and very competent lawyers and tax accountants to find every loophole and tax-avoidance scheme possible, and to “buy” with campaign donations favorable tax legislation. Meanwhile the IRS has had its budget cut repeatedly and doesn’t have enough auditors these days to even follow up on individuals who fail to file their taxes, let alone take on big corporations. (In 2010 they had 2.3 million such investigations. By 2017 it was down to just 360 thousand). My conclusion – the odds realistically that the federal government can significantly increase tax revenues from large corporations is very small, whatever campaign promises candidates may make. But even if the government succeeded in doubling the amount from corporations (highly unlikely), that only adds about $200 billion per year.

What about taxing the rich more? Rich individuals of course follow the same route – they too can afford to hire good lawyers and tax accountants to help them evade taxes, and the IRS is so strapped it has admitted publicly that it doesn’t have the staff or expertise to even try to untangle the more complex tax-evasion schemes the rich use.  Even so federal data shows that the top 1% (incomes over half a million a year), already pay about 39% of all individual federal taxes collected, or about $1.3 trillion of the $3.3 trillion annual total.  Realistically significantly increasing the taxes on the rich would probably not collect that much more income, because the incentive to avoid taxes would be sharply increased.

These back-of-the-envelope calculations suggest that, despite the populist proposals to tax the rich and the corporations more, realistically these expensive new programs would have to be paid for largely by the 55% of the population who make enough to pay taxes in the first place, and aren’t part of the top 1% and so can’t afford the expert tax-avoidance schemes. That 55% pay a little over $1.6 trillion in annual taxes. So if we wanted to absorb, say Elizabeth Warren’s additional $1.2 trillion a year (assuming my reduced $11-15 trillion over 10 years estimate, per my previous note) or so for Medicare-for-all, we would have to almost double the taxes on those people. And that doesn’t even include some of the other expensive proposals. I just don’t think that dog will hunt.

And notice that all this ignores the current federal deficit, which with Trump’s unwise tax cuts added on top of the deficits imposed by previous administrations is now topping $1 trillion a year this year. Of course the Fed can probably continue to sell bonds (ie – borrow more money) at relatively low interest rates for the foreseeable future because of all the capital flight to this country, driven by the economic and political unrest in the rest of the world. But if Peter Zeihan’s predictions are correct, the cost of capital will begin to rise sharply in a few years as the demographics shift and the baby boomers begin to retire, and the interest on the national debt (currently about 2.5%) may then rise sharply, with significant impacts on the federal budget.