Economic Impact

Is the economy doing better under the dontard, or was it so strong that his policies couldn't derail it?

It certainly still seems like the Obama economy with just a few differences, one of which is the tax cuts.

Hard to say if they have any significant impact on what we are seeing, and if you are looking at the statistics the trend lines are pretty consistent since the change in administrations.

With April employment numbers being close to predicted but other elements such as participation rate yo-yo ing a bit its hard to see any change in the direction.  See following article.

Jobs

Still the economy hasn't crashed and the dontard now talks up the same Government reports he used to claim were fake.

In this article it talks about how the tariffs hurt small businesses, while the tax cuts and deregulation help.

small business

So maybe there is good and bad, at least as far as some elements of the economy.

What might take longer to impact us are the other changes to the tax laws, although there is no reason to believe that we are going to see any real trickle down impact.  If we do, it would be nice, but it looks like the wealthy people are doing what they know best, staying wealthy.

The long term impacts of these policies is probably predictably negative, considering the impact of higher tariffs and the retaliation to them.  This will simply make many items more expensive, like we are starting to see in gas prices.

Of course that's the result of a non-economic policy about the Iran deal and its those policies most likely to drive us into a recession at some point.

Jobs?

In the bible is the story of Joseph who interpreted Pharaoh's dream and advised him to store up grain during the 7 years of plenty to be used during the 7 years of famine.

It worked.

Its pretty sound economics.

Unfortunately it isn't followed frequently by many individuals and even fewer Governments.

The economy started to recover after the financial crisis and we saw the deficit shrink for a couple of years.

 We then elected the bankruptcy king who wants to spend more than we have while reducing income via tax cuts.

It sort of explains his numerous bankruptcies.

Now for most of my life the Democrats have been described as the tax and spend party, whether warranted or not.

The Republicans are now the don't tax but spend party apparently.

Its a degree of fiscal irresponsibility that is hard to fathom.

One of the things they pretend to believe is that big corporations or small businesses will create jobs if they get to keep more of the money they make.

That's not how the economy works.  You create jobs if the job is going to create more value than it costs you.  Just getting a windfall might allow you to do some projects that might create some jobs, but you aren't going to create jobs just because you have some extra cash.

Now you could create jobs with infrastructure projects and because the Government cut taxes they don't have the money to pay for them.  They are talking about public private partnerships, which have never worked tremendously well.

Its hard for a business owner to justify spending significant amounts of money on projects that benefit his competitors as much or more than they do his company.  Its poor money management.

Of course jobs are being created in areas where there are customers, like health care and some other service industries, but those were being created anyways.

Jobs would have been created if the tax cuts went to consumers who would have spent it creating demand.

We didn't do that.

Increased Profits, Increased Deficit

Good article today in the Wall Street Journal about various impacts of the new tax law, the link is below.

Tax Law Impacts

The analysis is generally favorable in the sense that companies will have more money to use and the uses will also be more profitable.

Of course that was clear in the reduction of the corporate tax rate, but the question about whether the impact will be enough to pay for the increase in the deficit isn't really addressed but based on the article there is no reason to believe it will even come close.

Yes in some cases the investments in new facilities will be spent in this country but the number of jobs from new facilities may after all be offset by the modernization which actually results in less jobs.

The article discusses a simple law of economics that companies will only expand if there is a market for their additional products.

So a biological research company that needed a new facility now decides it is cheaper to build it here, will create some jobs.

However additional use of robots in existing plants that get modernized will cost jobs.

Small businesses may grow faster, but growth is still a measure of demand.

Expansion without customers = bankruptcy.

The amount of economic growth being forecast as a result of the tax changes is modest indeed and it points out the flaw in the republican math without meaning to.

I've heard them say we only need .4% growth to offset the costs, but they mean .4% each year.  We might get a one time .4% boost but then it becomes as we say, cooked in, and the next year it doesn't generate new growth.

The companies have more money to use and it may reduce debt, increase dividend, even increase wages and bonuses some, but this was all money that used to get paid as taxes and without it the Government has to increase the deficit.

Its going to have to get paid sometime.

Boring Economics

It looks like this so called tax and jobs bill is going to pass and be signed even though there are no jobs in it.

Don't get me wrong, some people will be able to afford additional domestic help around the mansion, but as far as jobs that help working class Americans its all smoke and mirrors.

Of course the monkeys in the monkey house buy into a concept that America can achieve the type of growth it did in certain past periods including a number of notable economic eras.

There was a lot of growth during and after the world war with the amount spent to fight the war and afterword's with the veterans education and interstate highway as well as the fact that American manufacturing had a bit of a monopoly while the other industrial powers rebuilt.

You then had the baby boom generation entering the workforce and a increase in defense spending that continues to this day.

So what inspires growth?

Spending, by Government or Consumers.

Businesses don't make products they can't sell or expand facilitates to make products no one needs.  The supply side premise is based on the supply and demand chart, but the concept that supply can drive the chart is a conservative concept that is a mathematical construct, not a real one.

While decreasing the cost of items (supply) theory will have an impact on demand, limits exist.

Agriculture is a good example since years when crops exceed demand are not generally very good years for farmers, in fact it makes them lose money.

Simply reducing the cost of production doesn't mean there will be more production, unless there is more demand.

More demand is driven by more consumers since any one consumer can only consume so much.

Further, as our demographics age you have baby boomers leaving their peak earning years and consuming less.

Will the boost to corporations bottom lines somehow change all this?  Well since the people who run businesses aren't generally monkeys and dotards, the answer is only if customers appear.

It might have some impact on exports but as far as greatly increasing our GDP, by itself, its just going to make rich people even richer.

Scams and Tax Reform

As I was scanning the news headlines today one was about how a man stole $100 million from his clients and now is living in luxury.  I would think that would be the point although the story reveals a complicated possible con of wealthy people in Europe where the number of jurisdictions may have allowed the scammer to get off with a minor sentence and a lot of money.

Of course financial scams are tricky things, most of them fail, as this one did, when one of the victims wants some or all of their money.  Of course the question is how many scams don't get discovered?

One of the interesting things about this is how wealthy well educated people seem as easily tricked as everyone else.

Even maybe worse is how many companies, like the Swiss firm that was ruined by this person's actions, hire people who have the right background and connections, but no real qualifications.

Generally its possible that his luxurious life in the South of France may yet be disrupted, some of his victims are pretty determined, but for the last 15 years or so he has lived a lifestyle that eludes the vast majority of people and at worse he well end up in some European equivalent of a Club Fed.

What does any of this mean?  It seems that crime does indeed pay, it just depends what sort of crime.

Of course this week we are going to see a travesty of a tax bill probably pass which will put a trillion dollars into the coffers of business and add that amount to the debt we as a nation have to pay.

The biggest part of this con is that the dotard will lie and say it is a tremendous middle class tax cut, citing some numbers that are based on half the equation, the reduction in the tax rates and the increase in the standard deduction, ignoring the reduction in personal exemptions and itemized deductions.

Still, there are enough people who use the standard deduction that it is a net decrease, not much per capita, but a net decrease while of course all businesses and pass thru corporations get the full benefit of the corporate rate deduction.

One of the biggest scams is eliminating the requirement to get health insurance which appeals to certain people who don't want to pay their fair share now, but will cost many significantly in increased premiums. 

These are bills that will come due in the future folks, and like the financial scam above, they end up costing a lot in the end.

Saturday Ramblings

Sadly, John McCain's condition seems to be worsening.  He was a hero, despite being captured and a decent and honest person, who's politics I didn't always agree with, but still, I wish him the best.

Chances of the tax bill passing seem higher, Although the majority in the Senate is razor thin.  See if anything develops over the weekend.

Business has been pushing to get the corporate tax rate lowered for quite a while and the whole act is really designed to do that.  The rest of it is just give and take to make it seem like something and some will be winners, mostly very wealthy people and everyone else will be about the same.

The debt will increase, and it is worth discussing if reducing revenue with such a large deficit makes sense?

The entire Republican agenda is predicated on concepts that develop out of conversations you hear at cocktail parties and they accept the conclusions blindly.

Certain truths are simply accepted, regulation is bad, less government is good, wealth trickles down.  Of course, those things are worthy of discussion although its never as clear cut as that.

The real issue in this country is pretty simple, our demographics.

The baby boomer bulge is moving into retirement and the number of replacement workers is not enough, but that's probably a good thing since so many jobs have been automated out of existence.

The problem it creates is that without that pyramid where there are more workers on the bottom paying in than on the top taking out, social security is not sustainable.

We need more young people and instead of welcoming them we are trying to kick some of them out.

Suppose for an instant that the corporate tax reduction does result in some sort of expansion, although I don't think it will.  Where are the workers?  They happen to be overseas so the hiring isn't going to be in the rust belt.  Economics dictate what you pay and for low skilled workers this country's workers want too much.  Skilled workers are actually in short supply already, so that's not going to lead to much.

The companies will use the money to reward their executives even more since profits will be up, and maybe buy back their own stock or acquire other companies.  Those things don't create jobs, generally they end up reducing them as redundancies are eliminated.

What would create good paying jobs for people with basic skills would be infrastructure investment to fix our roads and bridges.  There are years of work in those projects but now, with the reduction in income, we have less money to pay for them.

Oh well, they are going to celebrate passing something, hope the people figure out its just a scam.

Better Profits Tax Act

It seems pretty certain that business tax rates are going to be reduced since that reduction is in both the House and the Senate versions.  The idea behind this is that by reducing the rates the US companies will have more earnings to invest and expand.

Of course they don't have to use the money that way and to the extent that many businesses are already rolling in cash and interest rates are still historically low, if there were profitable investments, I think they would have been taken.

The other possibility is that a new venture is profitable enough at a 20% rate than a 35% rate leading to start ups that didn't pass a return on investment criteria at the old rate.

Republicans act like this increase is going to be significant but most economists don't agree and see a very modest impact.

Still I suppose a modest impact is better than no impact except for the fact that we can't pay our bills already and this money is being borrowed by the Government.

So deficits and the debt will increase and these create a drag on the economy as the debt payments aren't used for things like infrastructure improvement or other productive uses.

Further, if interest rates rise, which inevitably they will, the debt payments get significantly worse.

The final piece of this puzzle is that business when it does invest, creates more efficient factories meaning more automation and less jobs.

So most of the increased activity won't actually be new jobs, just more profits.

Swampy Tax Bill

The Senate GOP tax bill would slash the corporate tax rate to 20 percent starting in 2019. It would also create incentives for multinational companies to bring foreign earnings back to the United States. And it encourages businesses to invest more, allowing them to immediately expense the cost of things such as new equipment and machinery.

The bill would temporarily cut taxes on families and individuals, lowering tax rates and expanding the amount of income that isn't subject to taxation. It would also, temporarily, expand the child tax credit for families earning less than $1 million. But it would also cut back on many tax breaks, prohibiting people from deducting the taxes they pay to states and localities.

Of course this bill would have to be reconciled with the house bill if it passes, and they really want to pass it, so expect some band aids to be applied.

The bill is going to make the deficit worse and if the same group of alligators continue to occupy the swamp they will go after Social Security, Medicaid and other programs while propping up defense contractors and Wall Street.

Its inevitable and since we now live in what I used to think of as a fictional world created in 1984, we have big brother telling us what is real and what is fake, even though the reality is different.

This is the greatest middle class tax cut ever would be sad if true since it hardly touches middle class taxes.

It plays games and seems to lower tax rates and increase the standard deduction but it eliminates the personnel deduction and many other deductions that people use.

I saw an estimate that for people earning less than $100,000, 60% might see a reduction of more than $100.  The other 40% would see less than $100 or an increase.

Its not like if you are in the lucky 60% its going to be thousands, just more than $100.  Maybe $500, but remember it expires so spend it carefully.  Your probably going to have to live with less Social Security or pay higher health care premiums soon enough.

The swamp continues to grow and that sinking sensation you feel is because the quicksand is sucking you down.

The companies can use the extra money to build bigger and better robots to replace you, so kindly step aside and except their word about how great America is for them.

You thought that slogan was about you?  Well PT Barnum is so proud.  This way to the egress.

Winners and Losers

Everybody tends to complain about taxes and of course that is going to continue no matter what comes out of the monkey house.

The complaints that got this ball rolling though really seem to come down to two that bother business and wealthy people.

The business tax is too high.

The Government imposes an estate tax on large estates.

The other things in the tax discussion, number of brackets, too many complex deductions etc. simply serve as smokescreens to cover up the fact that tax "reform" is designed to help business and allow the wealthy to keep their money in the family.

Neither of those objectives are particularly bad and if the tax rate is in fact suppressing business we probably should adjust it, although the evidence for this is slim.

Similarly, passing on your estate to your heirs isn't a bad thing, although it could be argued that years ago the top tax rate was lowered with the understanding the estate tax would collect at the end.

However, for every dollar given back to business or the wealthy, it has to come from one of two places, increased taxes for others or an increase in the debt.

This therefore creates a big pool of potential losers, but a plan that simply gives money to those that don't need it and takes it away from those who do is simply not going to pass, so it had to be additionally complicated so the losers are not as obvious.

Of course the $1.5 trillion increase in borrowing made this easier, but that money has to be paid by future people, unless of course we simply default.  Its like refinancing your house to pay current bills or to buy a car, it sort of works on a short term basis but leaves you owning less of your house.  If the house value just keeps rising it works OK, but watch out for a financial crisis.

Similarly increasing the deficit is potentially painless if the economy grows enough to generate more tax revenue to pay it off in the future.  That's very unlikely although it is the smoke and mirror the monkey house is relying on.

That is still not enough so you have to make other citizens pay more, over time to cover the difference and keep within the budget guidelines.

The shifts are complex and some Americans think they are getting a reduction (for the first few years) and others will pay more immediately.  Most will pay more over time but as I said, the smoke and mirrors took a lot of time to put together so its almost as complex as what we already had.

Homeowners, people in states with income taxes or high property taxes or people with high medical bills are losers right off the bat.

The retirement savings is an attractive target, take away money from middle class savers so wealthy people can leave more to their heirs.

I guess we know who the winners are.

True Deplorables

When this term was used in the election last year to refer to some of the dotard's supporters, many of his supporters who didn't consider themselves actually deplorable used it as a rallying cry.

It actually helped him to some extent since the use of it added some momentum.

Now the fact that the context in which it was use was pretty much that the dotard appeals to the worst our society has to offer.  Others supported him for whatever reason, but clearly the racists, misogynists, homophobes certainly supported him, probably enough to get him elected.

Of course if you lie down with dogs you are likely to wake up with fleas.

I generally don't understand how people who I think should know better believe the propaganda being spread by the alt right and their media.

America had never been more free or inclusive and as much as the propaganda rails against things like political correctness or patriotism, neither of those things are real issues.

Some Americans are caught in the change from manual to automated production and the switch over to service vs manufacturing but unfortunately all economic evolutions have some victims.

Many of those who lost their jobs in the rust belt were the descendants of farmers who were disrupted by the change from family farms to industrial farms (see Grapes of Wrath).

Nothing guarantees that the world will stand still, it doesn't and if you don't keep up you will be passed by.

What is deplorable is when in order to chase illusions you turn a blind eye to the very people who are willing to rape you and say you wanted it.

The tax "reform" packages struggle to look like they reduce taxes on the middle class when in reality they don't.  Some things help the people who already pay very few taxes, and many things help business and the wealthy, but if you are in the middle you will end up needing a rape kit.

Even worse, it increases the deficit and passes the bill down the road.

The people behind these bills are the real deplorables, they have sold themselves to the highest bidder, and that's not the general public.

See them for what they rally are.

The true deplorables.

LBO Tax Reform

One of the things that mystifies me is how convinced our congressional monkeys seem to be that Americans want tax reform.

I would argue that most don't care very much about it, although they would like lower taxes.

Who wouldn't.

The people who donate to their campaigns are looking for payback so they want "tax reform"  even if it only means laying more debt on future generations.

Wealthy people don't care, they can always take care of themselves.

The idea that these things help anyone but themselves is simply not true.

Take the leveraged buy out tactic that is responsible in large part for our retail issues.

Lots of debt restrict your options.

But if a company is doing well but has undervalued assets, you can buy a majority interest and borrow enough money to buy back all the stock at a great profit, saddling the company with long term debt.

You then issue new stock to raise even more cash at the right time, which of cause goes to the private owners.

The reward is immediate and the pain is long lasting.  If in the future the company can't manage them, it has to declare bankruptcy, causing the new stockholders and creditors to lose money.

Works very well for the ones who set it up and not so well for everyone else.

The simple idea is to milk all the value out of a company, like Sears and Toys-R-Us among others and get out while you can.  The changes will generate growth and income in the future (ha ha).

Pretty much the way the new "tax reform" republican plan is supposed to work.

Or not, but the wealthy get the money and get to keep it without an estate tax.