Some surprisingly simple ways to actually grow the economy

The Thinker by Rodin

In my last post, I discussed why the soaring stock market doesn’t mean a lot to most people. Roughly half of us don’t have the money to buy into the stock market, and most of us that do can only afford to do so through a retirement vehicle like a 401-K or an IRA. The principle value of a rise in stock prices is to inflate the wealth of those who bought stocks.

So the rich get richer while those who can’t afford them have to hope that their wage increases will exceed inflation. And so far, that hasn’t happened. Real wages, accounting for inflation, dropped .1% drop November through December 2019. Another sign it doesn’t mean much: the USA’s growth rate is 1.9%, at least as of the last quarter of 2019. This should suggest to most of us that markets are overvalued, and are due for a correction.

If Donald Trump is going to run on his greatest ever economy claim, then two percent growth must be outstanding. It’s not a recession but it suggests our real economy is anemic, just growing a bit while most of the rest of the world’s economy is starting to falter or is faltering. During his first campaign, Trump made it sound like 4% growth would be the absolute minimum that voters could expect. He’s failing at his own benchmark.

He’s been trying to juice up the economy with tax cuts. But as with the stock market, these tax cuts hardly affected the bulk of us and in some cases raised our taxes, such as the caps on state and local taxes that you can deduct from your federal taxes. The tax cuts definitely cut taxes on the rich and gave them a whole lot more money to do things like buy more stocks. One thing the rich aren’t doing is juicing the economy with all this new money by actually buying stuff. The trickle-down economy was never more than this: just a trickle of prosperity coming down to the rest of us from our betters.

Still, if 4% growth were a true goal, I can think of pretty easy ways to do it. So can Bernie Sanders and Elizabeth Warren. To start, we could take those tax cuts we gave to the rich and redirect them to the poor and middle class instead, who will almost certainly go out and spend it. This will cause the economy to grow, certainly by more than it has in our trickle-down economy, because the money will be used to actually buy goods and services.

Even better, we could redirect those trillions for the rich into service for the public good. Republicans clearly don’t want to address climate change, and certainly not with our tax dollars. It won’t stop climate change from happening anyhow. Trump’s trying to jumpstart the economy by stripping environmental protections clearly isn’t working either, but it is shortening our lifespans.

But it’s a sure bet that if that money were redirected to improving the environment, it would both cause the growth we want and put it to good use. We could use it to build the clean, green infrastructure we need to survive. That sounds like an excellent use of money. It will stimulate all sorts of jobs. The obvious ones will be in industries like the solar industry, but to go carbon neutral will require investment and ingenuity across our entire economy.

Moreover, if we tax carbon polluters, we can use that money to also build a green economy. I am already a beneficiary of a carbon credit. By putting solar panels on my roof in 2016, I allowed carbon polluters to claim credit for my clean and green energy. Being green paid me $1830 last year. This is real money in my pocket.

Such investments just compound. It stimulates industries like electric car manufacturing, wind energy, geothermal energy, green computing and the manufacture of more energy efficient products. By cleaning the air and water, we improve health. By removing carbon from our environment, we help address climate change.

All this growth in turn helps makes these industries profitable, so dollars start to follow them. Just as the space program brought us microelectronics and the Defense Advanced Research Projects Agency funded the beginning of the Internet, these investments make a better future possible. And if we can do it sooner than other countries, we stand to gain a disproportionate economic advantage.

But even if you don’t think government should be spending money to do these things, you could still advocate for increases in the minimum wage. This will certainly put money in people’s pockets that can use it the most. As they earn a living wage, there is less need for them to use government services like Food Stamps. That saves the government money, grows the economy and also saves lives. If we were a nation that truly was pro-life, it would be an obvious thing to do.

In short, if Trump were a progressive and had worked for our interests instead of against it, he’d likely not be facing a trial in front of the Senate, wouldn’t need the help of Russia to get reelected and would probably have his election in the bag. Even Democrats like me might have voted for him. Instead, we get an egregious use of tax dollars for counterproductive purposes and the most corrupt president ever.

Let’s hope on November 3, voters act more enlightened.

A soaring stock market means little

The Thinker by Rodin

Donald Trump is hoping to win reelection based on the soaring stock market.

Good luck with that. A soaring stock market doesn’t hurt, but these days a soaring stock market amounts to more evidence that more income is being redistributed toward the wealthy. Why is that? It’s because you have to be relatively wealthy to own stocks in the first place.

To the extent most of us own stocks, it’s probably through mutual funds we own as part of a 401-K and/or IRA. We do this because these investments are typically tax-advantaged. Unless you choose a Roth IRA, you defer taxes on the gains of these funds until retirement, plus these investments are typically pre-tax dollars, meaning you subtract the cost of buying these funds from your adjusted gross income, which means you pay less tax.

The bottom line, according to a 2016 study by NYU economist Edward N. Wolff is that the richest 10% of households control 84% of the total value of stocks. About half of U.S household own some stocks, generally through retirement funds. The other half doesn’t own any stocks.

When markets rise, wealth rises proportionately toward those who own them. Since about half of households don’t own any stocks, there is no stock appreciation to reap, so the rich simply get richer, increasing income inequality.

Our household is definitely not in the top 10% but we do hold onto a lot of retirement assets, principally in bonds and mutual funds. Markets are up about twenty percent this year, but the rise is not as big as it looks. As you may recall, in December 2018 markets gave up their gains for the year, effectively making 2018 a wash on the stock market. Over two years then stocks have gained about ten percent annually, which is definitely good but by no means amazing. Stock market gains during Trump’s tenure so far do not equal Obama’s. Of course, in Obama’s case there was no way for them to go but up, as stocks were severely underpriced after the Great Recession.

People who don’t own stocks mostly don’t own them because they can’t afford to own them. Their money is going toward more important priorities: keeping a roof over their head and food, most likely. Rental costs generally exceed inflation, and food usually does as well. So they are being stretched more. Lower income people aren’t stupid. If they could afford life’s basic necessities, they probably would be investing in the stock markets. It’s simply not an option for them.

As we learned, investing takes perseverance. If you want to fully reap the market’s gains, you have to keep at it persistently, relentlessly, in good times and bad. As a federal employee, I rarely missed a paycheck. When I did, it was because the government was shut down. I never lost money when the government was shut down. Plus, I earned enough money to allow us to invest.

And that’s pretty much how we built wealth: through steady paychecks and doggedness. As I noted, we profited from the Great Recession. In retrospect, this was the biggest factor between retiring okay and retiring comfortably. We bought a lot of mutual funds when they were priced artificially low and kept them while market values increased. I’ve done the math. Were it not for the Great Recession, I expect that our investment portfolio would now be worth about 25% less than it is.

While many of my friends have and continue to struggle with this economy, today’s economy feels to me like an unearned gift. While hardly in the top 1%, I sometimes feel like we should pay a wealth tax too. A lot of our gains seem unnatural and surreal.

This increase in wealth is having me rethink how I want to use it. It still doesn’t mean I will buy a bigger house, a fancier car or a second home somewhere. It’s not quite that large. But as someone nearly age 63 with hopefully twenty-five more good years ahead of him, it does expand the possibilities.

For example, a year ago we were visiting Ecuador and the Galapagos. It was not a cheap vacation. The two weeks cost us at least $15,000, probably closer to $20,000 when you add in all the airfare and extras. It was amazing and incredible but we probably wouldn’t have done it without all this unexpected extra wealth. And it didn’t impact our bottom line at all. It seemed surreal.

Consequently, we are setting our sites further. We could have afforded two Hawaiian vacations for what we spent in Ecuador and the Galapagos. Now we are thinking: why not sail the South Seas? I hesitate to be away from home for too long, as we have two cats. But when they are gone, why not take a round-the-world cruise? Why not a month long train tour around Australia?

But if I were one of those in the fifty percent of households without any stocks, I’d feel resentful. They might want to visit the Galapagos too, or at least Hawaii, but it’s probably not an option. I would feel, rightly, like my pocket had been picked. That’s because it has. Their productivity has been swept up and placed in my pocket instead, but much more disproportionately into the pockets of the very wealthy who can’t begin to spend all of this new wealth. The difference is that I think I can use it to make the rest of my life much more meaningful. Rest assured a fair amount of it is going to help others too, roughly $400 a month or so.

To change this, we need that political revolution that Bernie Sanders keeps talking about. This comfortable retiree will be voting to bring it about.

Here’s why the improved economy means so little

The Thinker by Rodin

The stock market is reaching record highs again, which make us moneyed people woozy. I’m modestly including myself here although I’m not that well moneyed. But I am retired on a nice pension with plenty of assets to draw on should things go south. The Dow Jones Industrial Average passed 27,000 yesterday and closed for the week at 27,322. Not bad for an index that dropped to 6547 on March 6, 2009, a little over ten years ago.

Happy days are here again? It might help to wonder why the market indexes are so high. The most recent surges are almost surely due to the Fed’s strong hinting that it’s going to reduce interest rates soon. Maybe Donald Trump’s bullying is getting to the Fed, but much more likely the Fed has read the tealeaves and suspects a recession is getting started and is trying to prevent one. And it’s enough to calm Wall Street and make them think happy days will keep on coming.

You don’t have to look hard though to find worrying signs: tariffs are slowing trade, commodity prices are dropping, and the percentage of people in the workforce keeps dropping. This is artificially keeping the unemployment statistics low. Consumers are taking on the same levels of record debt they took on before the Great Recession and Republicans have managed to repeal many of the key safeguards put in place to keep it from happening again. Student loans passed the $1T mark, sucking money from these former students’ wallets that they can’t spend on actual goods and services like houses. Perhaps in response, mortgage rates are dropping again, which is actually not a good sign. Banks are trying to entice people to buy houses, so the lower the rates go the harder time they are having finding people who can afford to take out a mortgage.

Still, many of us including me have been expecting calamity and have been wondering why we have been proven wrong. There are a few positive signs. With unemployment low, workers can bargain for higher wages and it’s working, sort of. They are beating the cost of living by .5 to 1% annually. That doesn’t translate into a whole lot of money, but it beats the decades of wage stagnation we’ve been experiencing. This is hardly the end of wage stagnation, but it is at least a hopeful sign.

Donald Trump is wondering why he isn’t getting more traction on the economy. That’s actually his one bright spot, with a slim majority approving of his handling of it, while his overall approval ratings seem mired in the low 40s. 40% of Americans still cannot find $500 to draw from in an emergency. It could be they are all inept at financial management, which is what Republicans would like you to believe.

The real reasons are much simpler. Much of today’s work requires people with fewer valuable skills, which mean they can’t command as much in wages. That’s why they are working two or three jobs to pay the bills. Even this is not enough, which is the real reason they can’t find $500 and are living paycheck to paycheck.

But there’s one other important factor that is often overlooked. Certain things cost a lot more than they used to (housing is a prime example) and there are other things that cost dramatically more than they used to. The most likely reason you will get thrown into poverty is if you need more medical care than you can afford. The Affordable Care Act was a good first step, but it wasn’t nearly affordable enough, despite the subsidies. You still needed enough income to pay for the bronze plans. And since they came with high deductibles, they mostly only bought catastrophic protection. All those deductibles, copayments and coinsurance payments cost a heap of money and all of it needs to be in the form of disposable cash, which for the most part these people don’t have. They still can’t afford to be sick. Of course, a lot of states won’t offer health care under Medicaid to these people, which they probably could afford if it were offered because copays are minimal when they exist at all. Medical price inflation is still insane and there are fewer mechanisms to check it. The magic of the free market has proven largely illusory with health care costs.

It’s no wonder then that surveys show that for most voters it’s not how well the economy is doing that matters, but how well their economy is doing — and it’s not going that great. The good news is that there is work out there for pretty much anyone who wants it. The bad news is that without a lot of high-paying skills, at best you can barely get by on the wages you are earning. Voters have figured out that health insurance really matters, and it’s their number one concern now. Those who had Obamacare realized that at least for a while it cushioned financial shocks. But they also need health care because they can get sick and simply can’t afford to get well. There are people driving hundreds of miles to Canada regularly just to buy insulin at affordable prices.

While it’s true that Donald Trump is widely seen as unlikeable and unpresidential, what voters are really understanding is that government needs to actually govern, and so little of it is happening. A president can be thrown out after four years, which is likely to happen to Trump. But we need a Congress that compromises in the public interest and tackles real problems like immigration reform and the lack of affordable health insurance ten years after Obamacare.

It may be a long wait. The Supreme Court recently decided states were perfectly free to gerrymander based on political party. In short, it’s allowing states to stay in the business of incumbent protection, making it harder and harder for people to actually have a true republican form of government. With our courts now largely in conservative hands, it’s hard to see how this can change.

Which is why Bernie Sanders’ call for a political revolution makes a whole lot of sense. Achieving it without wholesale insurrection though looks incredibly improbable.

Republicans continue to make the rich richer and the poor poorer

The Thinker by Rodin

It’s pretty hard to keep up with the inanities coming out of the mouth our “president”. As a Democrat he sure embarrasses me, but I often wonder why Republicans are not. If retiring Senator Bob Corker (R-TN) is correct, most Republicans in Congress are embarrassed by Trump, but can’t summon the political will to say so.

Trumps tweets and remarks get weirder and weirder. This is probably due to 50% ignorance and 50% cognitive decline. Still, it’s quite embarrassing. Yesterday, a day after his Secretary of Energy Rick Perry declared that Puerto Rico was a country, Trump told a convention of evangelicals that he has spoken with the “president” of the Virgin Islands. So two top administration officials including our “president” don’t understand that both Puerto Rico and the Virgin Islands are American territories. What’s next? Sending in the marines to take over these “countries”?

Yet on such capable shoulders we are entrusting our nation. The only thing seeming to restrain Trump from his worst impulses seems to be a few officials, principally Chief of Staff John Kelly, Defense Secretary Maddis and Secretary of State Tillerson. They are our firewall of sorts, although there is no guarantee they can restrain Trump. Reportedly they have a suicide pact: if one gets fired they all resign. In any event depending on one unflagging Chief of Staff to babysit Trump 24/7/365 doesn’t seem like a great plan. Trump might launch nuclear weapons against North Korea while Kelly is in the bathroom.

So what does all this have to do with the rich getting rich and the poor getting poorer? Nothing really. I am just venting. But in the boatload of stupid that has come out of Trump’s mouth and Twitter feed recently, there was this from his interview with Sean Hannity on Tuesday:

The country — we took it over and owed over 20 trillion. As you know the last eight years, they borrowed more than it did in the whole history of our country. So they borrowed more than $10 trillion, right? And yet, we picked up 5.2 trillion just in the stock market.

Possibly picked up the whole thing in terms of the first nine months, in terms of value. So you could say, in one sense, we’re really increasing values. And maybe in a sense we’re reducing debt. But we’re very honored by it. And we’re very, very happy with what’s happening on Wall Street.

Aside from the numbers themselves that are off, there is the amazing conclusion from Trump, a graduate of Wharton. Remember, Trump recently bragged that he could beat Rex Tillerson in any IQ test. Trump apparently thinks that gains in the stock market cancel out federal debt. This is surprising in itself, but apparently it only works if he is in office. It doesn’t apply to the Obama administration, which saw the longest sustained growth of the stock market in history. There is no doubt that the stock market is doing very well since he took office, but it’s not doing appreciably better than it did under Obama. Those of us with lots of stocks are just seeing our pile of wealth get larger and larger.

I certainly see it in our portfolio. We take $1900 a month out of it to supplement our retirement. Just our investments (almost all of it in retirement accounts) amounted to $795K on February 1, and is now valued at $857K. Add in our house and other assets are we are millionaires, if a net worth of about $1.41M means that much these days. Gains in the stock market though create wealth only for those who own stocks. Guess what? Many of those who voted for Trump don’t have much if anything invested in the stock market. That’s due in part because there is little money left over to invest in stocks. According to one study, in 2013 the top 1% alone owned 38% of the stock market. The top 10% owned 81.4% of stocks. That leaves 19% for the rest of us. I may be technically a millionaire but rest assured my assets are part of that 19%. In reality I am not even close to being rich, at least not by the standards of the top 10%. I sure don’t plan to buy a Tesla or fly on a private jet to Monaco.

To make money in the stock market though you need to invest regularly over many decades and hold onto the assets. And that’s only possible if you have money left over to invest in the first place. It also means that you also need a relatively secure job, so that you are not raiding your nest egg in lean times. You also need it just to get through recessions and downturns with your investments able to wait out the hard times. If you don’t have all these factors in your favor you probably won’t be investing much in stocks and if you do it will be periodic retirement investments during relatively flush times.

So the surging stock market is really creating wealth principally for the rich who already have plenty of it, exacerbating income inequality. At best its effect for the rest of us is indirect, perhaps by keeping unemployment low thus maybe pushing up wages a bit, or by stimulating investment in the economy. Nothing about the stock market’s rise though fundamentally changes things for the middle class, poor and working class.

Indeed, Republicans seem intent to make things worse. Just yesterday Trump ordered an end to Obamacare subsidies for the working class. This will have the effect of pricing almost all of them out of the health insurance market. This will make healthcare more expensive, increase the probability of bankruptcy due to medical debt and make their financial situation more precarious. In short, they are likely to be pushed down the ladder again. The major reason these classes saw any gains recently was from having affordable health care, which helped protect their assets.

Having tasted real health insurance, these voters are likely to be furious when they vote next November, particularly as the rich will keep getting richer. While the stock market may continue to surge until then, these changes will directly affect the financial stability of the middle and lower classes. It’s likely that when these voters realize they have been shafted once again that Republicans will pay a huge political price.

Ted Cruz is worried about a blowout if Republicans don’t deliver on tax cuts and repealing Obamacare. As he will discover next November these are the factors likely to cause the blowout.