Trump’s Tiny Tent: Foreign Policy

December 5, 2024December 5, 2024 tomkapostasy1 Comment

https://www.washingtonpost.com/news/powerpost/wp/2017/03/06/here-are-the-photos-that-show-obamas-inauguration-crowd-was-bigger-than-trumps/

Trump’s 2017 inauguration crowd was only one-third the size of Obama’s in 2009. I was there in 2009. The wind chill was around 10 degrees. Trump’s REAL and deep foreign policy support among Republicans is similarly quite small.

(1) Fiscal Conservatives, Balanced Budget Republicans

Trade wars, attacking allies and driving an active industrial policy all undermine the US economy, resulting in lower GDP, lower tax revenues, higher spending, a greater budget deficit and higher inflation. Fiscal conservativism was recently the hallmark of the Republican party. It helped to unify the various flavors of conservatism. Everyone could agree on a balanced budget amendment, no trade-offs of higher taxes for increased spending, and threatening a government shutdown and possible debt default in order to force congress and the president to address the budget deficit and the growing federal debt. The real situation is worse today, with larger debt as a share of GDP, a forecast increase and a large annual budget deficit during a time of 4% unemployment. Trump’s headline foreign policies threaten the economy. Despite the Federal Reserve Bank’s reduction to the benchmark federal funds rate, long-term interest rates have drifted upwards. Will a Paul Ryan re-emerge?

(2) Corporate America

US based multinational corporations have thrived in the 75-year post-war era. They benefit greatly from the opportunities that free trade provides. Tariffs, trade wars, restrictions, industrial policy and presidential interference all reduce profits and increase risks. Trump may reduce corporate taxes and regulations, but international tariffs and regulations will hurt corporate bottom lines. The net benefits may quiet some corporate leaders. Others will incur greater harm and work to protect their interests.

(3) Agriculture/Rural America

American agriculture is a world class exporter. It thrives under consistent patterns of free trade. Trade retaliation is a big threat to agricultural revenues, profits and land values. Production agriculture is just 1% of US GDP, but it exceeds 5% of GDP in 1,130 American counties, averaging 14.11% of the value of production in this one-third of America geographically. In the other two-thirds of the country, agriculture accounts for just 0.36% of GDP, so it’s politically irrelevant. American agriculture has always been disproportionately effective in politics. Trade wars may soon have one-third of American counties up in arms.

(4) Philosophical Conservatives

Proven cultural and institutional frameworks are best. If it ain’t broke, don’t fix it. Support countries with similar cultural institutions and values. Protect the interests of the wealthy and powerful against the claims of the fringe interests. Isolationism, protectionism, and “do it yourself” foreign policy are unproven and risky strategies. The philosophical conservatives enjoyed a nice run from William Buckley’s 1950’s through the rise of the “tea party” in response to the Great Recession. They were amongst the first and strongest opponents of Trump’s views and have led the “never Trump” movement. They were never a large share of the party, but they provided a mental framework that allowed the components to work together and the conservative think tanks and media to earn a degree of respectability in the court of intellectual public opinion. Trump’s character challenges and blatant transactionalism and individualism cannot be reconciled with their views.

(5) Wall Street/Banking

America dominates international finance and banking. Raising capital, making markets, advising firms, and making risky investments. The global financial system works for Wall Street. Rapid and unpredictable changes to the “rules of the game” increases risk levels and makes global investments harder to plan, finance and execute.

(6) Hawks/Neoconservatives

Might makes right. Don’t fall for ideals. This group agrees with Trump on basic principles but can’t understand why anyone would undermine the highly valuable postwar alliances that the US has developed with NATO and individual countries because “they don’t pay enough” or “they win too much in trade”.

(7) Economic Free Marketers

True believers in capitalism and free markets see it as the best way to create and preserve value with the added side bonus of protecting individual liberty. Tariffs and active industrial policy are the traps that idealistic Democrats fall into. Republicans know that only the market, in the end, will deliver prosperity and liberty. Trump’s preference for a very active foreign economic policy and a relatively active and intrusive domestic economic policy does not match this group. They can embrace his general low tax, low regulation, only results matter views.

(8) Libertarians

Same as above on economic policy issues. There is a huge risk of the empowered centralized state, stripped of checks and balances, turning around and threatening individual liberties. A centralized totalitarian or fascist state is a huge threat that must be avoided at all costs. Trump has a libertarian streak, but he does not embrace libertarian principles.

(9) Main Street Republicans/Professional Class

This group wants to ensure that the hard-working professionals, managers and small business owners that add value for Americans overall continue to receive their fair share of the rewards. Trump’s “activist” foreign policy puts these rewards at risk. Firms and investors, large and small, will win or lose based upon imposed tariffs, regulations and industrial policies. The economic churn will be much faster, greater and random. A significant number of previously secure upper middle-class professionals will incur significant losses in a much more dynamic Schumpeterian age of creative destruction. The general demonizing of the elites, bureaucrats, experts, intellectuals, scientists, universities, teachers, media, economists, military leaders, pundits, market researchers, pollsters, high-tech leaders, foreign policy community, NGO’s, public health, etc. is a big negative for this group which naturally found a home in the Republican party in the post-war era. Trump’s belief in the “great man” theory of history is at odds with the mildly progressive culture of suburban, upper middle-class America.

(10) American Patriots/Neoconservatives

The US fought the “cold war” against communism for 50 years. Trump thinks that Putin is just another global competitor. Trump’s claim that “Putin’s actions are no better or worse than America’s historically” sounds like something Bernie Sanders might claim! He’s not worried about the communist views of China, North Korea or Vietnam. He’s ready to negotiate. He opposes the “communist” dictators in Cuba and Venezuela. There is no defense of the American values of democracy, equality, free markets or human rights in Trump’s approach. It’s simply America versus all other nations. Tactically and politically, Trump has repositioned China as the new great enemy. Historically, Americans fought the world wars, and the cold war based on the principles of democracy, liberty, freedom, individual values, capitalism and human rights. Trump wants to disengage from Europe and the Middle East while increasing assets to address China, just like Obama. Some patriots just need an enemy, others want to defend principles.

(11) Social/Cultural/Values/Religious Conservatives

Many cultural conservatives have deep, fundamentalist religious beliefs. Their views are “right” and other views are “wrong”. Trump’s foreign policy is purely transactional. It doesn’t assert that the western or Christian world view is better, preferred or right. He’s not following Bush, Jr. to provide the world with the benefits of American political, economic and cultural systems. He just says that the American people, perhaps with their Christian/western opinions, are worth defending aggressively. It defends some dictators in Russia, Turkey and Hungary who do not share historical American values. Trump’s overall pragmatic, transactional, economics first views don’t square well with cultural conservatives who place moral and religious values first. Trump is delivering a set of Supreme Court and federal justices willing to overturn activist liberal judge rulings and to support legislation passed by culturally conservative states and the US Congress. He’s willing to poke at other cultures, races and nationalities as being “others”, not as good as the true Americans. Younger evangelicals seem less willing than their parents, who have been fighting the “culture wars” for 50 years, to embrace Trump at a transactional level and give up their ideals. Trump’s anti-immigrant posture, protecting America from the threat of the “others” does resonate with some cultural conservatives. Net, net, Trump is not losing support from this group due to his international policies.

(12) Victims of Economic and Social Change

This group clearly supports Trump’s populist diagnosis and prescriptions. The loss/decline of American industry was due to international traitors and coconspirators who undercut the owners and workers. It was all avoidable. Economic, banking, university, media and political elites conspired to undermine the domestic virtuous workers and owners in order to benefit “others”: other countries, religions, races, cultures, classes and interests. The story is just like Hitler’s description of the Weimar Republic leaders. The country was sabotaged by traitors. This is a very powerful story. Many Americans today buy this story. For how long?

Summary

Politics is all about telling a story and managing coalitions. Ronald Reagan told a very attractive story that wove together the various strands of conservatism into a coherent narrative. This story reframed American politics. Presidents Clinton and Obama confirmed the core conservative story, just like Eisenhower and Nixon confirmed the core New Deal story earlier. Newt Gingrich triggered both parties to adopt a polarized world view.

Trump leveraged this situation to attract economically and culturally disadvantaged individuals to embrace a greatly reformulated conservative, Republican, red, populist world view. Trump’s international relations policies don’t really fit well with the historical views of the Republican party. It remains to be seen if these mental conflicts will undermine his political support as he is able to implement them and deliver results. He is “riding on the coat tails” of broad popular support for “conservative” solutions to our many challenges.

International affairs have been secondary priorities for the last 50 years. They were top priority in the quarter century after WWII. Trump’s emphasis may make them top priority once again!

Framing What Matters Most in America: 2023

Trump’s International Policy

December 1, 2024December 1, 2024 tomkapostasy1 Comment

Why It Matters

The world faces five issues that require global solutions.

Risk of global war, including nuclear war
Risk of a pandemic that kills billions of people
Risk of global warming accelerating out of control
Risk of China and the US unintentionally destabilizing all global systems
Risk of the international economic order breaking down, impoverishing billions

The world has found a variety forums, agreements, institutions, relationships, indirect promises, incentives and threats that have “managed” such risks for 80 years. Unilateral bargaining has not been the best solution.

Some Trump Approaches to Consider

International relations, economics, military and migration are very important and should be treated as top priority by the USA.
The US has a variety of power bases that could be more actively used. Military power, nuclear power, dollar as the reserve currency, tariffs and trade restrictions, soft cultural powers, SWIFT currency system, immigration laws and enforcement, educational systems, regulation of major global corporations, treaties, global military bases, market size to allow protectionist policies/threats, leading universities, intellectual property, strategic asset reserves, technology leadership, flexible/dynamic economy, small expected role for government, low tax rates, trusted economic institutions, support for the rule of law, independent and effective central bank, extended track record of innovation and economic growth, younger population, global economic and cultural connections, multi-cultural, multi-racial, multi-religious society. Trump emphasizes some advantages more than others, but the basic point that the US has the resources to pursue a more “active” set of foreign policies and negotiations is clear and worthy of consideration.
Pragmatic, transactional, realpolitik approaches should be balanced against idealistic, principled approaches. Win/lose and win/win frameworks should both always be considered and re-assessed based on the current situation in each area of application.
Making automatic value judgements about dictators, authoritarians, fascists, socialists, cultures, races, religions, human rights, capitalism, free trade, globalism, isolationists, and globalists is not the best approach. Countries and leaders resent this presumptuous approach. They oppose the inevitable shortcomings, inconsistencies and self-dealing of the winning post-war coalition. East vs. West. North vs. South. Emerging markets. BRICS. Everyone thinks that they are “right”. Relating at a neutral level has many advantages.
Some situations can be addressed on a purely transactional level without making them more complicated by considering all of the potential issues between the parties.
The US has leverage in specific one-on-one situations where it holds the overall advantage or a single trump card.
Other countries have internal political situations which can be exploited.
Single country deals are easier to reach than regional or global deals.
The views of America’s foreign policy elites, including the military, are relatively similar. They and we could benefit by considering alternative approaches in many situations.
Some degree of inconsistency, deception, changes, flexibility, bluffing, fakes, misdirection, multiple paths, opportunism, threats, espionage, bribes, breaking the rules, etc. are valid components of making and breaking deals.
Less powerful states should not automatically be elevated to “most favored nation” or “sovereign equality” status.
The economic, diplomatic, military, communications and polemical responsibility for maintaining the “global economic order” must be shared by all of those who benefit and not upwardly delegated to the US.

Where Trump Goes Too Far

Soft power is quite valuable for the US. Don’t undermine it on principle.
Alliances multiply the power of the US. Don’t discount or undermine them.
Global bodies and principles can support US interests.
The US is a smaller share of global population, cultural, military and economic power. Going it alone is a risky strategy.
There are very significant advantages of global free trade, especially for the most competitive US based multinational corporations.
Direct pursuit of pure power politics is not supported by many Americans.
The US benefits greatly from maintaining the existing international system of trade and finances.
Sovereign nations and politicians do not automatically respond rationally. They are willing to take “irrational” steps to protect and promote their sovereignty.
There is a value with allies and opponents of maintaining some belief or trust that the US will uphold its commitments, even in the face of adversity or opportunities.
Some results (nuclear annihilation) are so bad that they must be avoided at all costs.
Maintaining long-term allies is quite valuable.
Public criticism of allies undermines their incentive to cooperate.
Trade deficits “come and go”, no real reason to oppose them on a country-to-country basis.
Very successful countries incur trade deficits without harm for many decades.
Embracing or engaging with authoritarian leaders undermines the support of traditional liberal leaders of allied countries.
A consistently transactional approach undermines the expectation that a nation will do “whatever it takes” to pursue its big picture goals and ideals.
There are significant long-term benefits from developing and maintaining allies.
Trade wars are inherently unpredictable, but historically they have devolved into a race to the bottom, greatly reducing valuable trade.

Summary

Trump overemphasizes a win/lose perspective, leverage and direct negotiations. Individuals, firms and countries since WWII have learned that there are win/win strategies and tactics to be considered even when the stakes are highest. Actors have used these strategies because they deliver sustainable results. The best negotiators use all of the tools which are available. They don’t use a hammer as their only tool.

Biden versus Trump Economies

July 27, 2024July 27, 2024 tomkapostasy1 Comment

The US economy continues its evolution from agriculture to manufacturing to services to information. President Trump was responsible for the US economy from February, 2017 through January, 2020. President Biden assumed responsibility in February, 2020. In order to compare the two presidents, let’s look at Trump for the 3 years of sustained growth deep in the business cycle before the pandemic. For Biden, let’s look at a comparable 3-year period from June 2021 through June 2024, after the post-Covid rebound. Trump benefitted from an 8-year long business cycle expansion. Biden had to deal with a once in a century pandemic driven economic depression.

Inflation: Advantage Trump

The independent Federal Reserve Board responded to the pandemic by greatly increasing the money supply to ensure that profitable, well-run financial institutions would be able to survive the temporary disruptions in the real economy. The Fed increased the money supply by 4-5 times its prior level to ensure the economy did not collapse! The extra money supply had to end up somewhere. It drove up consumer prices and increased asset values in the stock market and for home prices.

Inflation grew by 2% per year with Trump. It grew by 5% per year, on average, with Biden. Overall prices are 9% higher with Biden. Trump’s economic policies extended the Obama recovery for 3 years without triggering an increase in inflation, despite a low unemployment labor market.

The largest cause of higher than usual inflation in Biden’s term was the 20% spike in US and global demand for durable goods. Factories shut down during the pandemic. Demand rebounded within 6 months as consumers chose to spend money on goods rather than in-person services. Consumer demand at the end of the Biden period is 50% higher than at the start of Trump’s term in office.

Corporations were able to capture and maintain a 50% profit increases due to market disruptions of the pandemic. Experts mostly reject Biden’s claims that corporate profits were the main driver of inflation, but they clearly aggravated the impact of the supply chain disruptions.

Obama was able to reduce federal budget deficits by two-thirds by the end of his presidency. Deficits doubled on Trump’s watch before the pandemic arrived. Biden cut deficits from their record highs during the pandemic, but they have been 50% higher than the pre-pandemic Trump era. Most economists consider the budget deficits to be the main cause of the continued higher than typical rates of inflation, accounting for 3%, 2% and 1% extra inflation in the 3-year Biden time we’re considering.

High profile gas prices remined flat during Trump’s period. Global supply and demand caused prices to increase from $2.50 per gallon to $3.50/gallon where they have remained for the last 3 years.

Trump enjoyed historically low 4% mortgage interest rates, a thin 2% above the inflation rate. The expansion of the money supply drive rates down to 3% during 2020 and 2021. They rose to 7% as inflation rose sharply and has stayed there. Inflation has fallen but markets typically require years of data to reset expectations of long-term inflation which drive mortgage rates. The Federal Reserve Bank has hesitated to cut its benchmark interest rates until inflation is clearly approaching its 2% target.

Labor Market: Advantage Biden

Trump reduced unemployment by 1%. Biden reduced it by 2%. Both presided over best in 50 years overall labor markets.

Layoffs have remained at historic lows, with Biden enjoying slightly lower rates.

Job openings in the Biden market have been 50% higher than the Trump market, reflecting a strong economy with growing labor demand, despite the impact of the pandemic.

The Biden economy recovered all 20 million jobs lost in the pandemic within 2 years, much faster than expected. Total employment has continued to grow at the trend rate to a record 159 million.

Core labor force participation is 1% higher with Biden than Trump. The current participation rate was last achieved in 2001.

Median real wages have been slightly higher during Biden’s tenure.

Asset Values: Advantage Biden

Despite the pandemic disruptions and losses, US firms are worth 70% more today than before the pandemic. This reflects the 50% profits increase and continued positive future prospects.

Home prices have nearly doubled since before the pandemic, reflecting the post Great Recession decline in home building, construction issues during the pandemic and general asset inflation caused by the rapid expansion of the money supply.

The US enjoyed a solid 7% savings rate before the pandemic, an extraordinary high 10% after the pandemic, falling to just 4% for the last 3 years.

https://educationdata.org/number-of-college-graduates

Human assets increased during Trump’s presidency and resumed growth after the pandemic. As college graduation rates have increased throughout the post WWII years, the cumulative number of college educated individuals continues to rise each year. The growth in masters and professional degrees is noteworthy.

The Economy – Advantage Biden

Population growth has resumed after the pandemic.

The healthy US economy is able to support 3 million more retirees after the pandemic.

Real dollar GDP is 2 trillion dollars larger than before the pandemic disruption. That increase is the same size as the total GDP of Russia, Canada or Mexico. We added the Canada economy during Trump’s time and the Mexican economy during Biden’s time.

Real personal income grew a little bit faster during Trump’s time and more smoothly. Personal incomes jumped up during the pandemic but have been flat since that time with corporations capturing a greater share of the economy’s returns.

Workers have been 8-10% more productive in the Biden economy.

Farm income has doubled in the Biden economy.

Manufacturing employment grew by a surprising 3% in Trump’s term. It is slightly higher in the Biden era.

Real dollar exports increased during the Trump presidency and then again during Biden’s time despite a greatly stronger US dollar which hampers exports.

The world is willing to pay 10% more to hold US dollars in the Biden period, reflecting strong economic realities and prospects despite the risks of higher US inflation and budget deficits.

Summary

The US economy is very strong. Trump was able to extend the Obama recovery for longer than most expected, keeping inflation, interest rates and unemployment at low levels. Biden managed the recovery from the pandemic induced recession better than expected. The economy, asset prices and labor market have recovered very nicely. Inflation has remained the weak part of the Biden economy. It is lower than in comparable global economies and trending towards the 2% target in 2025. Critics point to excess government spending as an avoidable source of high inflation.

The Trump economy built upon the success of his predecessor. The Biden economy overcame the disruption of the pandemic to produce equal or greater results. Both presidents delivered solid results.

U.S.A. : GDP Whale, Soccer Minnow

June 10, 2024June 10, 2024 tomkapostasy1 Comment

Despite doomsayer predictions for the last 20 years, the USA remains the world’s largest economy. China’s population, productivity, property, politics, energy, trade, innovation and middle-income transition challenges have undercut past predictions of its inevitable world economic leadership.

One way to get a tangible sense of the USA’s economic size and dynamism is to compare individual states with other countries. Most of us have read articles highlighting the size of California, Texas, New York, Florida or Illinois as standalone economies. They would currently rank globally as economies numbered 9, 14, 16, 25 and 30, lining up with France, Spain, Saudia Arabia, Vietnam and Argentina in the pecking order. Their men’s soccer teams are ranked 2, 8, 53, 115 and 1 in the world. The US soccer team is ranked 11th and after its recent 5-1 pasting from 12th ranked Colombia it is sure to fall several places.

The real economic strength of the US is shown by the next 27 states. Collectively their GDP is as large as India. These 27 states match up one by one with the next 36 states in the global rankings. The 27 matched countries are each proud nations. There are surprises throughout this listing. UAE 33rd largest country? Romania 34th largest? Morocco 56th largest? Qatar 60th largest? Dominican Republic 62nd largest? New Zealand 63rd largest?

Even bigger surprises arise from the pairing of US states to their global equivalents. Raise your hand if you predicted that these US states are the economic equals of their global nation partners: Georgia and Switzerland, Massachusetts and Sweden, Virginia and Ireland, Maryland and Ukraine, Arizona and Portugal, Indiana and Denmark, Minnesota and Norway, Missouri and Greece, New Jersey and Singapore, Alabama and New Zealand.

The remaining 18 US states are not so large. Their combined GDP is about the same as our neighbor Canada, which ranks 15th overall by GDP, about the same size as Spain or Texas.

On the other hand, the US soccer team was ranked 11th globally. Three of the top 5 matching countries of Argentina, France and Spain deliver 1st, 2nd and 8th FIFA ratings. The middle 27 states matching nations provide another 8 world-class soccer teams in Belgium (3), Portugal (6), Morocco (13), Switzerland (19), Denmark (21), Ukraine (22), Austria (25) and Sweden (27).

The US is an economic colossus that continues to grow faster than the rest of the “developed countries” and maintains its global economic lead. We don’t normally think of Tennessee, Colorado, Michigan, Arizona, Indiana, Minnesota, Maryland and Missouri as global economic powerhouses, but they would EACH rank in the top 55 countries of the world as standalone economies.

https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)

https://www.bea.gov/data/gdp/gdp-state

https://inside.fifa.com/fifa-world-ranking/men

Human Progress: Accumulate and Innovate

December 22, 2023December 22, 2023 tomkapostasy2 Comments

https://www.cnn.com/2016/03/17/world/gallery/tbt-albert-einstein/index.html

Human progress is based on 4 things, IMHO. We are able to abstract and generalize. We accumulate our lessons learned. We innovate. We combine our structured, accumulated knowledge with innovations. Creativity and innovation get most of the attention. Yet, the accumulation of our practical and theoretical experience in language, books, records and equations may be equally important. The ability to switch “back and forth” between a fixed structure, history, religion and culture and new innovations may be the most important aspect of all. We have divergent and convergent thinking abilities. We use inductive and deductive reasoning. We intuitively prefer “either/or” but can manage “both/and” logic. The modern history of mankind’s progress points towards the importance of creativity and “both/and” logic.

Abstraction is a relatively recent phenomenon. Democritus imagined atoms, smaller and smaller particles. Heraclitus imagined all as change. The Greeks imagined earth, water, air, and fire beneath everything. Pythagoras and Euclid provided geometric proofs and ideal figures. Aristotle offered a powerful version of formal logic. Plato defined the “forms” and the ideal realm that stands above our experienced reality. Descartes defined mind versus body and the Cartesian coordinate system. Newton rationalized the universe in terms of algebraically defined laws. Kant defined pure logic and the limits to pure logic. The great appeal of abstract rules and an implicit mechanical universe remains to this day. The “Enlightenment” produced new politics, economics, culture, science and religion based upon these powerful insights.

The accumulation of knowledge has occurred in a surprisingly wide variety of forms. Life in DNA. Sexual reproduction. Man’s biological memory. Human consciousness. Spoken language. Music. Myths. Written language. Culture. Laws. Accounting systems and records. Religious practices. Architecture. Books. Libraries. Scribes. Printing. Histories. Universities. Experimental science. Prophets. Peer-reviewed journals. Scientific societies. Mass media. Recordings. Radio. Video. Internet. Wikipedia. Zoom.

The history of innovation is well known. I want to highlight the general trend away from simple, atomistic, “either/or”, static views to more complex, multi-level, “both/and”, dynamic, organic views that provide much better insights into our real experience.

Physics has moved from statics to dynamics. Classical mechanics has been replaced by complex, probabilistic quantum mechanics. The fixed, static, deterministic perspective has been replaced by Einstein’s relativity. In general, deterministic views are replaced by probabilistic views. The solid atoms have been replaced by waves and fields. Light exhibits both wave and particle behaviors. Heisenberg says we cannot measure everything. The background framework of an “ether” is no longer required. The mathematics required to describe physics has moved from algebra to multi-variate calculus to string theory. Only a handful of people truly understand the frontiers of physics in the last 100 years.

Mathematics has advanced wonderfully in the last 500 years. Newton and Leibniz invented the calculus. Man could now measure, describe, imagine and control changes through time. There is an equation underlying all activities that can, in theory, predict the future and explain the past. Dynamics can be described. Three-dimensional Euclidean geometry was superseded by multiple-dimensional geometry, Riemann curved space and fractals. Probability theory was developed to clearly describe apparently random activities, providing a solid basis for evaluating the results of experiments. Set theory evolved to encompass all of mathematics and logic, including various conceptions of infinities. Goedel’s 1931 “incompleteness theorem” undercut Russel’s attempt to define a single, bottoms-up, certain, powerful mathematics.

Biology evolved from collecting, illustrating and categorizing specimens to Lamarck’s deterministic evolution to Darwin’s evolutionary survival of the fittest perspective. Society increasingly adopted a biological, process, systems theory perspective in place of a physics, mechanical, materialistic perspective. Nature versus nurture became nature and nurture. The details of genetics is better understood as a very complex process involving multiple genes and other structures.

In philosophy, Hegel defined his dynamic thesis, antithesis, synthesis model. History now ruled. Eternal universals were much less likely. Multiple perspectives were elevated. Certainty was less likely. Marx tried to use Hegel’s general framework combined with an economic, materialist determinism but he failed.

In practical technology, we have seen the rapid accumulation of knowledge. We have also witnessed the great importance of “both/and” solutions. For example, ships and automobiles required the invention of a clutch that provided both solid propulsion and slippage. Powered vehicles first required rails but were turned loose as motor carriages. Wheels evolved from steel to rubber to accommodate shocks, turns and rough roads. Vehicles added suspension systems.

In economics, we advanced from mercantilism to comparative advantage and free trade. We left behind land, labor or capital as the only sources of value with the insights of the marginal productivity economists. We moved from static to dynamic perspectives and focused on the determinants of growth in advanced and developing nations. Keynes demonstrated that national economies were more than the sum of individual markets and that self-regulating equilibriums were not inherent in a market system.

Computer systems have evolved from fully defined linear and logical systems to massively parallel systems capable of artificial intelligence and spoken interaction with humans.

Businesses have replaced assembly lines and Taylor’s experiments with a deeper understanding of individual tasks in probability terms and the sequence of events in any process. Firms have embraced Japanese style process management and improvement, delivering constantly improving results. Supply chains span the globe. Project management is now “agile”. Strategic planning is no longer deterministic, but focused on mission, vision, values, strengths, weaknesses, opportunities, threats and culture. Investments are considered within the framework of portfolios of risks and returns. Entrepreneurs and leaders are valued above technical and professional experts.

For many, religion has evolved from a legal, literal, deterministic perspective to one that emphasizes the principles, insights, opportunities, feelings, experiences and possibilities of a given creed, despite the loss of absolute certainty in a “Secular Age”.

As humans we prefer a simpler, more deterministic view of the world. Yet the world shows us that it is more complex and that we will never fully understand it.

Mostly Good News Since the 2008 Great Recession

August 8, 2023August 8, 2023 tomkapostasy4 Comments

https://content.time.com/time/specials/2007/article/0,28804,1733748_1733756_1735278,00.html

Real, after inflation, Gross Domestic Product is up by one-third, despite the pandemic. That’s 2% annually, despite the Great Recession and the pandemic. The US economy is very solid.

A 21% increase in per capita income during this time. Quite solid and constant growth.

Inflation averaged a bit less than 2% before the pandemic, spiked to 8%, and has since declined to 4%. Experts disagree on whether it will return to 2% soon.

Gas prices are the most obvious component of inflation. They are largely driven by global supply and demand. Prices today are the same as in 2011-14, despite the general inflation increase of more than 20% since then.

Despite the pandemic, US unemployment is at a 50 year low!

Job seekers today encounter 3 times as many job openings.

Core age labor force participation has snapped back after the pandemic.

Investment values have doubled.

The number of millionaires and billionaires in the US has continued to increase.

Personal savings rates rose from 6% to 9% before the pandemic, shot up and fell back down to just 4% recently.

Housing values have doubled since the Great Recession.

Mortgage rates averaged 4% after the Great Recession, dropped to 3% and then increased to 6%+ as the Federal Reserve raised interest rates.

US exports have nearly doubled in 14 years.

Despite the Trump tariffs, which Biden has maintained, imports have also nearly doubled.

Despite historically slower growth rates, higher budget deficits and looser monetary policies, the US dollar is more highly valued today than in 2008.

Foreign countries still see the US as a positive ally, despite their concerns during the Trump era.

Obama returned the budget deficit to a “reasonable” 3% by 2016. Trump expanded it to 5% and then 15% as the pandemic struck. Biden drove some recovery to 5% by 2022, but has not driven further reductions.

US coal production is in a long-term decline.

Natural gas production has nearly doubled in 14 years.

Net farm income has been significantly above the base for 6 of the last 14 years, despite lavish Trump farm subsidies.

Manufacturing employment has continued to rise slowly in the last 14 years against the headwinds of international competition.

It’s difficult to put the pandemic in perspective, but here we see a 2-year reduction in expected lifespans. Opioid deaths and so-called “deaths of despair”, alcohol, drugs, suicide, also play a role.

Birth rates continue to drift lower as seen in all regions of the world.

The number of retirees has increased by more than 50%.

Retiree incomes are up by one-third, matching inflation.

Prospective retirees have doubled their cumulative savings.

The abortion rate has continued to fall in the last 30 years.

Church attendance has dropped from 40% to 30%.

Summary

The US economy recovered slowly after the Great Recession and then very quickly after the pandemic. Real, after inflation, output and per capita output increased. The labor market became very tight. Asset prices (investments and housing) rose for intrinsic and monetary reasons. The US remained a competitive international producer. The federal budget deficit was better at the end of the Obama period but worse for Trump and Biden. The pandemic reduced life expectancy and households had fewer children. Successful retirements grew and will grow. Social trends continue, uninterrupted by political positioning and policies.

Perceptions of the country and the economy are increasingly shaped by partisan political party views. Nonetheless, the US economy continues to grow and thrive.

Good News: The US Economy

November 3, 2022November 3, 2022 tomkapostasy2 Comments

https://www.indystar.com/story/news/local/hamilton-county/carmel/2022/05/13/carmel-indiana-parking-garages-add-1-300-new-spaces/9515644002/

Recovery from Covid Pandemic

https://fred.stlouisfed.org/series/GDPC1

https://fred.stlouisfed.org/series/PAYEMS

https://www.cnbc.com/2022/10/07/jobs-report-september-2022.html

Real, inflation adjusted, GDP has quickly resumed its long-term growth rate. GDP grew in the 3rd quarter and on an annual basis has continued to grow through the 3rd quarter of 2022. Employment recovered more slowly, but has exceeded the pre-pandemic peak. Very solid job growth has continued through September, 2022.

Real Consumer Spending

https://fred.stlouisfed.org/series/PCESC96

https://fred.stlouisfed.org/series/PCEDG

https://fred.stlouisfed.org/series/PCEC96

Real, inflation-adjusted, consumer spending quickly recovered from the pandemic and continues to grow. Consumers have enough income and savings to spend more, despite inflation challenges.

Best Labor Market in 50 Years

https://fred.stlouisfed.org/series/UNRATE

https://fred.stlouisfed.org/series/JTSJOL

https://fred.stlouisfed.org/series/LNU01300060

https://fred.stlouisfed.org/series/LES1252881600Q

This is the labor market we have been waiting for since I graduated from high school in 1974. Record low unemployment, twice as many job openings and real wages above those of 2018-19, after inflation.

The Growing Economy

https://fred.stlouisfed.org/series/GDPC1#0

https://fred.stlouisfed.org/series/EXPGS

https://fred.stlouisfed.org/series/IEAMGSN

https://fred.stlouisfed.org/series/DTWEXBGS#0

https://fred.stlouisfed.org/series/OUTMS

https://fred.stlouisfed.org/series/MANEMP

https://fred.stlouisfed.org/series/B1448C1A027NBEA

https://fred.stlouisfed.org/series/B359RC1Q027SBEA

The overall US economy continues to grow, faster than other countries, including China. Exports are up by 20% as US companies continue their competitive wins. This is in spite of a much stronger US dollar. Imports are also up by more than 20%, providing consumers with the best of all global choices. Manufacturing output and employment have recovered to pre-pandemic levels. Farm incomes and output are up significantly.

Government Deficits Are Way Down

https://bipartisanpolicy.org/report/deficit-tracker/

https://www.pewtrusts.org/en/research-and-analysis/articles/2021/10/15/states-financial-reserves-estimated-to-surpass-pre-pandemic-levels

https://www.pewtrusts.org/en/research-and-analysis/articles/2022/05/10/budget-surpluses-push-states-financial-reserves-to-all-time-highs

State Tax Reform and Relief Enacted in 2022

The federal budget deficit has been cut in half, with fiscal year 2022 back to the 2019 level. States have strongly recovered from the pandemic with increased revenues and slowly growing expenditures. State reserve funds are at record levels. 11 states had enough reserves to provide rebates to their taxpayers.

Personal Assets Are Way Up!

Click to access 22_TL_HAS_FullReport_2022.pdf

https://fred.stlouisfed.org/series/SP500#0

https://fred.stlouisfed.org/series/MSPUS

https://fred.stlouisfed.org/series/CUSR0000SETA02

https://fred.stlouisfed.org/series/LNS11324230

https://fred.stlouisfed.org/series/CP

Retirement savings is at a record high. House values are up by one-third. The US stock market is up by one-third, despite the significant declines in 2022. Used car values are up by one-third. Retirement after age 55 remains very attainable for a majority of individuals. This growth in personal asset values has taken place while corporate profits have increased by one-half.

Fewer Downsides

https://fred.stlouisfed.org/series/MORTGAGE30US#0

https://fred.stlouisfed.org/series/DRSFRMACBS

https://fred.stlouisfed.org/series/DRCCLACBS

https://www.axios.com/2022/09/14/child-poverty-rate-census

Most Americans today have fixed rate mortgages at 2.5%-3%-4%, locking in advantageous low mortgage payments for 10-30 years. New home buyers and those who must move and get a new mortgage do face 7% interest rates. Mortgage delinquencies are down by 80% and credit card delinquencies are down by one-third. Child poverty, after transfers, is at a record low.

Summary/Interpretation

The news media and politicians want to highlight the negative aspects of the US economy: higher inflation, lower personal savings rates, higher mortgage rates, higher home and apartment rents and prices (lower affordability).

It’s important to put all of the pieces in perspective. Inflation is higher and threatens fixed income and low-income households. Households are using up their extra pandemic period savings. The real estate market is slowing, but prices remain high. Economic growth is close to zero, so there are relatively fewer open positions and net new jobs created. There is a threat of a mild recession continuing through the second half of 2023. BUT …

The overall economy has quickly recovered from the pandemic and exceeded record pre-pandemic levels. Recall that the post-Great Recession recovery continued for almost a full decade. The economy recovered from the record pandemic lock downs and “lost jobs” faster than anyone expected.

Economic growth was low, marginally below the arbitrary 0.0% level in the first and second quarters, but recovered to 2% in the third quarter. Annual GDP growth is likely to be in the -1% to +1% level for the next 3-4 quarters as the Federal Reserve Bank’s increased interest rates work through the economy. We may have an “official recession”, but households will encounter limited negative effects.

The labor market is likely to continue its very positive status. Firms still have 10 million open positions that they expect will EACH deliver positive net economic results. We have a labor shortage. At some point, business Republicans will join Democrats to revise restrictive immigration rules and other policies that limit labor force participation.

Firms, businesses, retirement plans and state governments are in very solid economic shape. Assets are very high, liabilities are low. Net assets are at record levels. The Federal government budget deficit is back to the pre-pandemic level.

There is no evidence of a wage-price spiral of inflation. The president and most Democrats seem to accept the Federal Reserve Bank’s actions to increase interest rates, slow the economy and return inflation to its prior 30 years of modest 2%.

Behavioral economists have repeatedly shown that most people are much more sensitive to losses and risks than they are to economic gains. Hence, it is natural to focus on higher inflation and slower growth and discount the many other positive results.

The US economy quickly recovered from the severe pandemic recession with less collateral damage than anyone expected. The growth in the money supply and federal spending/transfers to ensure that we avoided a business, banking and personal meltdown drove a faster than expected recovery resulting in supply chain disruptions, labor shortages and inflation. The “experts” were slow to identify this situation and take offsetting policy steps. Fortunately, fiscal and monetary policy during 2022 have been tight, slowing the economy. We are in the difficult months of transition. No one knows if the steps taken so far are adequate, exactly right or too much. We need another 3 quarters to decide.

US Recession? Probably Not Yet

August 3, 2022August 3, 2022 tomkapostasyLeave a comment

I tried to find a “mainstream media” article that objectively and insightfully evaluates the state of the US economy as of the end of the second quarter without success. So, I’ll take a shot at it.

First, I want to highlight that “this time, it’s different”. The US and global economies are recovering from a global pandemic situation last seen more than 100 years ago. The global economy is more integrated than ever. Viruses spread faster than ever. Businesses and governments have more information and ability to change quickly than ever before. The economic contraction was sharp, far more severe than the Great Depression or the Great Recession. The health care experts were unable to immediately evaluate the threat or recommend public policies. Nonetheless, “they persisted” and the medical, travel and economic recovery was far quicker than ANYONE expected in March, 2020 or December, 2020 or September, 2021 or January, 2022.

Second, I apologize for the required details involved to evaluate the simple question, “are we in a recession?”. Unfortunately, there is some judgment involved, as we have to evaluate three factors. Is there a clear downturn versus the trend rate? Is the downturn of significant length? Is this a widespread downturn, effecting most sectors of the economy?

Einstein said “be simple, but not too simple”.

https://wiki.c2.com/?EinsteinPrinciple

Sir Walter Scott noted the “tangled web we weave”.

https://nosweatshakespeare.com/quotes/famous/oh-what-a-tangled-web-we-weave/

The Ancient Greeks noted “many a slip twixt cup and lip”.

https://en.wikipedia.org/wiki/There%27s_many_a_slip_%27twixt_the_cup_and_the_lip#:~:text=There%27s%20many%20a%20slip%20%27twixt%20the%20cup%20and%20the%20lips,your%20chickens%20before%20they%20hatch%22.

Cheech and Chong rambled on with ” recession, repression …”

https://www.lyricsfreak.com/c/cheech+chong/santa+clause+and+his+old+lady_20745568.html

Total Economy Level

https://fred.stlouisfed.org/series/GDPC1

At the aggregate level, we clearly have a peak. Do we have an extended downturn? Not yet, based on the total. The rapid recovery from the second quarter 2020 bottom could not be sustained. A significant slow-down in the growth rate was expected. Typical annual real GDP growth in recent years has been only 2%, so the difference between “extended expansion” and “recession” is thin.

Components

Macroeconomic theory focuses on aggregate demand and aggregate supply. Real, inflation adjusted, gross domestic product (GDP) is a measure of the productive output of a nation. The demand side is split into consumption, investment, government and net exports. I’ll go one level deeper, reviewing 9 components of GDP.

The business cycle is influenced by the relative sizes of the components of GDP and their relative variability from quarter to quarter and typical changes as the business cycle moves from expansion to decline to recovery.

From most to least correlated with the business cycle, with their current percentage share of GDP (sums to more than 100 because imports are a negative factor and changes in private investment can be negative), the 9 components are: Change in private inventories (1%), Residential Investment/Housing (5%), Business Investment (14%), Durable Goods Consumption (9%), Imports (16%), Non-durable Goods (food, energy) (15%), Services (45%) !!!!, Exports (8%) and Government (17%).

Overall, I see 4 sectors as “maybe” trending to a recession and 5 sectors currently at “no”. Unfortunately, the two most sensitive, Housing and Business Inventories, are in the “maybe” category, along with non-durable goods consumption and government consumption.

It is critical to look at the longer-term trends and context to evaluate short-term changes. There is significant month-to-month and quarter-to-quarter variability in the final numbers for GDP and especially for the initial estimates, like those we just saw for the second quarter of 2022. Significant revisions are made for 6 months, which is why the NBER committee which officially declares recessions is typically waiting longer to make a final call than everyone desires. Hence, I won’t usually share a long-term graph, a short-term graph, annual percentage changes and quarterly percentage changes annualized for each component. The media tends to focus on the preliminary quarterly percentage change annualized as the “gospel”. This is unwise. Let us begin to review the 9 main components.

Durable Goods (9% of GDP, 4/9 Volatile)

https://fred.stlouisfed.org/series/PCEDGC96#0

Durable goods demand spiked by an incredible 20-30% during the pandemic, fueled by government transfers and fewer opportunities to consume services. Demand for durable goods has flattened at this 20% higher level, it has not declined. In my view, this sector is not signaling recession.

Non-durable Goods (15%, 6/9 Volatile)

https://fred.stlouisfed.org/series/PCENDC96

Non-durable goods consumption jumped by a real 12% during the pandemic and has essentially remained at this elevated level. We have two quarters at slightly lower consumption levels, so I rate this as “maybe” moving to a recession. Focus on the “big picture”. Both durable and non-durable goods consumption increased by historic percentages during the pandemic period and have remained at that elevated level 2 years later. It is not surprising that this demand has flattened or fallen off a bit. The surprising feature is the willingness of the American consumer to voluntarily spend much more money on “things” during the pandemic and maintain that level of spending as service opportunities returned, government transfers ended, and savings were drawn down.

Services (45%, 7/9 Volatile)

https://fred.stlouisfed.org/series/PCESC96

The very large (44% of GDP) services sector was slower to recover from the pandemic, but demand for services remains quite strong, even though the percentage growth rate is lower than during the initial recovery period.

Business Investment (14%, 3/9 Volatile)

https://fred.stlouisfed.org/series/PNFIC1

Business investment was above trend in the two years before the pandemic and has resumed its solid level. No recession indicator here.

Housing (5%, 2/9 Volatile)

https://fred.stlouisfed.org/series/PRFIC1

New housing investment grew by 50% between 2012 and 2016 and then remained at that level for the next 4 years before the pandemic. Long-run supply and demand factors indicate a “need” for more housing construction in the US to make up for the “missing” construction from 2008-2016. New housing construction did not decline with the pandemic, it increased by 15% in real terms! As with durable and nondurable goods consumption/production, this would not have been predicted in March, 2020 by anyone. Residential construction has levelled off 15% above 2019, equal to 2007 before the Great Recession. The increased mortgage interest rates indicate that demand will soften and this sector will decline somewhat in the second half of 2022, so this is a “maybe”. The long-term shortage of housing supply provides a floor for this sector.

Business Inventories (1%, 1/9 Volatility)

https://fred.stlouisfed.org/series/CBIC1

https://fred.stlouisfed.org/series/A371RX1Q020SBEA

“Supply chain issues” have restricted the accumulation of business inventories since the pandemic began. The unexpected spike in demand for durable and nondurable goods and residential construction lead to shortages. Worries about supply chain resiliency have led to higher targeted business inventory levels. Retailers have overstocked some product categories as the recovery has slowed and are being forced to discount prices to move these goods. Overall, this is a slight “maybe” recession indicator. I think that businesses would like to have 20% higher inventories overall.

https://fred.stlouisfed.org/series/ISRATIO

Exports (12%, 8/9 Volatility)

https://fred.stlouisfed.org/series/EXPGSC1

US exports continue to solidly recover from the pandemic.

Imports (16%, 5/9 Volatile)

https://fred.stlouisfed.org/series/IMPGSC1\

Although imports act as a reduction in the calculation of GDP, they tend to decline when the US economy declines. Import demand remains high, not indicating a recession.

Government (17%, 9/9 Volatile)

A majority of government spending is accounted for as a simple transfer, not part of the annual production of goods and services.

https://fred.stlouisfed.org/series/GCEC1

Government production activity grew quite significantly from 2014 to 2020. It has since declined by less than 1%. I rate this as a “maybe” indicator of recession, even though government activity is typically a countercyclical indicator, rising when recession arrives.

Summary

Services (45%), Business Investment (14%), Exports (12%), Imports (16%) and Durable Goods (9%) are NOT in recession. Housing (5%) and Non-durable Goods (15%) point towards recession, while Government (17%) and Business Inventories (1%) show warning signs. If I were a member of the NBER board, I would not designate a recession in the first half of 2022 as of today.

For the second half of 2022, a recession is possible. The Fed raising interest rates is already affecting the housing industry. But businesses continue to report solid to record profits. The stock market has declined by a bear market 20% but may or may not have found a bottom. The global risks from Russia’s attacks on Ukraine and China’s Covid lockdown strategy remain. Consumer confidence is weak, especially in a partisan world. Business confidence is weaker than in recent months, but most measures remain marginally positive. The labor market is at its strongest position in 50 years, supporting consumer demand. Higher than expected inflation has slowed consumer spending, but not to recession levels. Consumer savings and debt levels remain positive. Business debt levels have increased, but most businesses locked in low debt interest rates during 2020-22.

Why So Positive?

Governments operate with expansionary fiscal policy, ensuring that aggregate demand is adequate. There is a risk of too much stimulus and “modern monetary theory” excesses, but so far this is not a risk in the major economies.
Central banks are more effective. They provide credit in downturns, increase interest rates when required, coordinate with each other and pressure banks to hold adequate capital.
Governments and central banks take proactive steps to avoid currency crises,
After the Great Recession, lending in the US housing market is more reasonable.
Businesses have worked through many challenges in the last 15 years and are well positioned to prosper.
The overall economy is increasingly based on services more than manufacturing, mining and agriculture. The operations leverage of manufacturing facilities is a smaller factor in the world economy.
Labor power is lower. Cooperation with management is stronger.
Demand for labor is high. US has record open jobs and voluntary quits. The effective minimum wage has increased from $8-10 per hour to $12-15 per hour without major business disruptions.
Trade is lightly restricted.
Global economy is multipolar, relying on US, EU, Japan, China, India, Middle East, etc.
Technological progress continues. Better goods and services. Better processes, trade, transportation, markets, communication and insights.

https://apps.bea.gov/iTable/iTable.cfm?reqid=19&step=2#reqid=19&step=2&isuri=1&1921=survey

Click to access gdp2q22_adv.pdf

Good News: Vehicle Dependability Continues to Improve

August 1, 2022August 1, 2022 tomkapostasy1 Comment

https://www.vwvortex.com/threads/jd-power-dependability-2001-vs-2011.5350295/

https://www.jdpower.com/business/press-releases/2021-us-vehicle-dependability-study-vds

Ongoing defects dropped by 60% from 2001 to 2011 and then dropped by another 20% from 2011 to 2021. The compounded reduction is 68%, a little more than two-thirds of the defects disappearing in 20 years.

JD Powers started its initial quality surveys in 1987 and its Vehicle Dependability surveys in 1990. The summary results are not easily found on the internet. The Consumer Reports defect rates are similarly restricted to paying customers.

https://www.yahoo.com/news/30-years-iqs-perspectives-history-222747086.html

In the 1980’s, Toyota and Honda offered significantly higher vehicle quality. Other manufacturers essentially “caught up” in the next 20 years. A snapshot from 1985 illustrates the gap that was closed by 2000-5, before the Vehicle Dependability improvements shown above.

https://www.carqualityinfo.net/reliability-durability-gpas/car-brands—7-best-brands-of-my-1985/

https://www.jdpower.com/business/press-releases/2022-us-vehicle-dependability-study

The very disappointing 2022 results are inconsistent with the downward defect trend of the last 20 years, reflecting the pandemic production, supply chain sourcing and vehicle prep problems of the last 2 years.