Naomi Klein's 2007 book "Shock Doctrine", chronicles Milton Friedman's other expertise besides supply-side economics: the use of shock to redistribute wealth
Friedman's earliest work was advising Chile's Pinochet and his economists to implement economic policy to create free markets that were even less regulated than those that existed before the Great Depression. That work went on with the CIA's approval for a logical reason: countries that learned how to get rich were less likely to become Communist.
Then it was used in post-Cold War Eastern Europe including Russia. As we now know, the result was a massive redistribution of wealth leading to Russia's current oligarchies.
Although the book was written in 2007, the 2008 banking crisis, was "shock therapy" that lead to a massive shift in wealth. The poor lost their jobs and homes and the rich were bailed out.
I am trying to read the Tea Leaves of the president-elect. Here is what I am seeing:
Trump only listens and respects rich guys, and that doesn't necessarily mean they are the smartest.
Trump's Goldman Sachs team suggests to me, that "eliminating business regulation", will include taking off the shackles put in place after the 2008 banking crisis.
Trump's administration is going to protect fossil fuel's economics and enhance them by eliminating alternative energy. What's worse than a coal miner's health? A coal miner unemployed.
I believe I see an anti-shock doctrine (everyone is happy) path for more wealth concentration under Trump. The good news? I think it is going to work very well. The bad news? It will not be built to last.
1. Trump doesn't need a crisis. It is much easier to implement short-term successful economic policy on top of the 2016 economy.
2. If you let the banks go back to the "wild west", the US "gets" a twofer. Banks will go back to lending to everybody and anybody. That has to stimulate the economy. Home prices will soar. And that is good for main street. In the meantime, banks can go back to taking risk and getting richer than before.
3. Lowering corporate taxes is a boom for the stock market. Earnings after taxes jumps and the stock market jumps. I think that is already being priced into the market. Everyone is happy. The little guy's IRA goes up. Corporate executives make more money. Bank execs, by investing in stocks, get richer. #2 and #3 result in another wave of massive wealth distribution.
4. Trump is going to formally end the GOP's anti-deficit plank. He will satiate the masses by infrastructure projects, keeping the best of ObamaCare and making it better by increasing government funding, and being far more benign on immigration. He will also increase military spending. Add in #2, #3 and #4, and you get no one complaining on the way towards a national debt explosion.
If am right, under Trump, the economy will soar. The masses will be happier. The rich will get most of the wealth creation. And inflation and higher interest rates will be conveniently ignored in an economic stupor.
Of course the only problem with the plan is it will eventually lead us back to 2008 or 1928. But my guess is, it will not happen during the next 8 years under Trump.
December 10, 2016
It was gospel to the GOP - after Bush 43 was out of office - that Bush was responsible for reckless spending that doubled the national debt.
Under Obama, the GOP has been the national debt watchdog and town cryer of Obama's/Congress's spending agreements.
Trump plans to cut personal and corporate taxes, increase defense spending and leave entitlements alone.
According to Steve Rattner, a sobering numbers-driven guy, the net effect of Trump's plan would increase the national debt to $32 trillion by 2026.
Debt is a relative thing. It's relative to lenders for example. Businesses usually are allowed to borrow up to 5 times EBITDA. Homeowners can get mortgages for an amount correlated to their income.
So when you look at the national debt, it is just as relative. In 2016, today, the national debt is about 78% of GDP. By current law it will grow to 86% of GDP by 2026. Under Trump's plan the national debt would rise to 105%.
Here is the question? Will the GOP repeat their past practice of not being a deficit watchdog and town cryer when one of their own is president? I am not a militant when it comes to deficit spending. I think the real issue to me - and by extension all Americans - is whether the GOP is hypocritical. That will be determined shortly by the GOP Congress.
As an aside, Trump's personal tax cuts, according to his website, don't address the "working class" that make up part of his coalition. And it is at odds with claims that the rich will not get a tax cut (cutting rates but losing deductions was always meant to be misunderstood by the bottom 99% - deductions are eliminated from people making many millions of dollar already).
This tax plan doesn't seem to be in line with the "working class" Trump voter.
But I think Trump is betting on his mastery of misdirection and confirmation bias.
Misdirection through nationalistic jawboning and fighting for people. With confirmation bias - basic human psychology - that leads people to disregard the facts that are at odds with their choices.
December 8, 2016
First of all, thumbs up to our president-elect for firing JR yesterday. That was a leadership test. And he passed it.
There are a lot of theories why Trump was elected president.
Nate Silver, the Moneyball of polling data, has a rather convincing argument that education - not necessarily economics (although education is often correlated to economics) - determined voting, with college educated voters breaking for HRC and high school voters breaking for Trump.
Then there is the meme that enough voters made a protest-vote by voting for a losing candidate and that candidate won.
Finally, Trump was elected less because of Trump, than a rejection of returning to the days of Clinton.
The problem with all of these hypothesis is that they are being made through opinions outside of the actual voters. It is akin to trying to explain gorillas without someone spending time living amongst gorillas.
I recently had emergency dental surgery. My dentist is highly educated and lives a comfortable economic life.
During surgery he made a comment that implied he was a Trump supporter. When asked, he indeed said he voted for Trump. I asked him why. He said it was because there are too many illegal immigrants, but he was pro-immigration. So I then asked him how illegal immigrants affected him. He didn't have an answer.
I heard this same kind of reasoning during my company's User Conference.
While my sampling size has been limited, my exploration of the Trump voter debunks a split in education, that people voted for Trump as a protest vote and that they voted simply against HRC.
It also shows how high the voters are now on the Hierarchy of Needs. Despite an economy that was on the brink in 2008 and now enjoys record stock prices, economic growth, low unemployment, rising home prices, low interest rates and low gasoline prices, people found enough about 2016 America they still didn't like.
There is no right or wrong answer why people voted for Trump. The only thing that matters is that they elected Trump. And did so, for reasons that were important enough for themselves.
December 7, 2016
Fake news has moved into the vacuum created my mainstream news being not trusted because it isn't "fair".
One such fake news story involves appalling accusations against HRC and John Podesta - so appalling that I won't repeat them - and involves pizza joints. This fake news story led a man to enter a pizza joint with an automatic rifle, take a shot that didn't harm someone thank god and the man to be arrested
NSA Director Michael Flynn link to Pizzagate is tenuous. But his son, Jr, who is Flynn's Chief of Staff, is not.
Michael Flynn Jr tweeting this -
Donald Trump is on notice. Having his NSA Director (emphasis on national security) allow his son to be his chief of staff after this incident is totally unacceptable. Speaking for anti-Trumps wanting the president-elect to be successful, nothing short of having his NSA director fire his son today, is a slippery slope when Trump's leadership is being tested.
December 6, 2016
In a series of tweets early Sunday morning, President-elect Donald Trump warned U.S. companies that ship jobs overseas that they would face a 35 percent tariff. “Any business that leaves our country for another country, fires its employees, builds a new factory or plant in the other country, and then thinks it will sell its product back into the U.S. without retribution or consequence, is WRONG!” he wrote in a series of tweets. “There will be a tax on our soon to be strong border of 35 percent for these companies wanting to sell their product, cars, A.C. units etc., back across the border.” In addition, Trump pledged to “reduce taxes and regulations on businesses.” Trump repeatedly promised throughout the campaign that he would work to ensure that companies do not leave the U.S. and take jobs with it.
I think Trump's argument for "regulation by tax" is going to be lowering corporate taxes.
There are some basic problems with tariffs offset by lower income taxes. For the sake of argument lets say he is talking about air conditioners.
Surely Trump, knows all of this already or knows of it because he is hiring Goldman Sachs economic advisors.
Trump's 35% Tariff? I think it was like his tweet about the penalties for flag burning earlier last week.
Which I think suggests what Trump's tweet-strategy as president-elect and as president will be.
Tweet to show you are fighting for the regular guy/gal, while letting pragmatism and reality nonetheless rule the day.
And hope the tweets mean more to regular folk than results.
December 4, 2016
While all Americans should give our new President-elect their support, the financial progress from 2008 to 2016, shouldn't be dismissed, despite Trump's claims that won him the presidency.
The US economy grew 3.2% in Q3'16. The stock market is at record levels. Home prices are back to 2008 levels. The unemployment rate is down to 4.6%. Real-wages are growing. I know that these are numbers and they don't reflect an across the board impact, but that isn't the point. The numbers are a 180 degree turn from the 2008 financial crisis.
(BTW. If you say 3.2% growth is "weak", please remember that the world's largest economy - 25% of the total world's economy of about $18.6 trillion - is subject to the law of big numbers. China was supposed to lap us by now. Kind of like the old Japan yarn 30 years ago. US GDP is still 37% higher than China.
Due to the combined work of the outgoing Bush administration, the work from the incoming Obama administration and (yes) the combined stalemate/constitutional-check-in-balance of a Republican congress and a Democratic president; no historian will be able to deny that an economic miracle - from a complete meltdown of the bedrock of our financial system that drives our economy and the world's economy - from 2008 to 2016 occurred.
From this, we should draw some instructive reflections -
The US economy and its government are a strong and powerful aircraft carrier. No president can turn it into a boat that swiftly changes its compass. And that is a good thing.
December 2, 2016
21.2% of US GDP comes from world-wide trade.
In 1960, there was almost no world-wide trade. By 1980, over 16% of GDP came from world-wide trade. Although recessions, 1980 - 1983, 2000, and 2008, have seen dips in world-wide trade, the US economy has steadily grown from a reliance on world-wide trade. (The latest dip has been due to the effects of declining energy imports causing reflexed reactions from energy exporting nations closing their import markets and you can see why Obama was trying to augment this with TPP).
If you want or think protectionism is a positive, be aware that a much greater reflex reaction will come from other nations not buying our exports. 100% protectionism = 21.2% of GDP will disappear.
The definition of an economic depression is a drop of GDP by 10%. Is an economic depression the price people want to pay for protectionism?
To understand why trade lifts all boats, lets use a simple example. If Country A is able to export 20% of its surplus to Country B, and that causes Country B to export 20% of its surplus to Country A, the net effect on both countries economies is 40%. If both get into trade wars, 40% of the two-countries economies disappears.
And that means that one country's protectionism, not only leads to one country entering a depression, but the entire world entering a depression.
Higher paying jobs? Jobs that disappear by definition can't be higher paying. Depressions wipe out jobs.
And they do something else. Something that has occurred throughout human history. While trading promotes peace, nationalism and protectionism causes wars.
That is why more harm than good comes from trying to fix the unfixable.
The graph above shows manufacturing jobs from 2000 to 2016 in the Rustbelt. Because we know manufacturing productivity through automation and software slowed, almost to a halt since 2000, the job losses are - even after the economic recovery from the 2008 market crash - from shipping manufacturing oversees. Note Pennsylvania. Their manufacturing job loss since 2000 is a staggering 37%.
The Unfixable. You can't get economic growth or stop economic contraction, without letting US companies decide where to manufacture.
December 1, 2016
“The majority of voters supported Democratic Senate candidates over Republican ones, and the majority supported a Democratic presidential candidate over a Republican one. The American people didn't give Democrats majority support so we can come back to Washington and play dead. They didn't send us here to whimper, whine, or grovel.” - Elizabeth Warren
First the tone deaf part. Popularity majority doesn't mean electoral majority. The facts are immutable. Both houses of Congress have GOP majorities and the President-elect is a Republican. Period.
Now the nonstrategic. Trump won the election because (a) Trump was a fresher product than the Clintons, and (b) Trump successfully spoke to economically-disenfranchised voters.
But Trump can't fix the problems of the economically-disenfranchised voters. His tax cuts, forgetting the fact that it would make the national debt balloon, will not change the economics of many of his voters.
The right strategy? Shut up. Pledge to support our President-elect. Don't fight him the way the GOP fought Obama.
The reality is that - the same people that elected our 45th president (and every American needs to chill and see exactly what Trump "does" vs. what Trump "said" in the campaign) are more than likely to fickly switch parties, when Trump can't deliver the impossible
Again I want Trump to succeed. But strategically ... why pick fights now, when it is very possible/likely that Trump politically - with the best of intentions - hangs himself by over-promising his core voters with no solution?
All indications suggest the Trump administration - just like the Obama, Bush and Clinton administrations - are going to be lead by Goldman Sachs and other Wall Street bankers.
For me this is all reassuring.
But aside from, a Trump feint (distraction) on "flag burning" yesterday to satiate his base, shouldn't the opposition party be smart enough to understand that Trump can't fix a big part of his voters problems. Shut up. And take the temperature of those voters a year from now?
November 29, 2016
Kellyanne Conway - now an advisor to the President-elect - made some anti-Romney comments this past week in regards to filling the Secretary Of State position. I didn't pay much attention.
But she went into a another diatribe on Sunday during Meet The Press. Reminding "everyone" that Romney wasn't a Trump supporter, was in fact a Trump basher, and probably didn't vote for him.
All true. But exactly who is she "reminding"? I think we can safely assume one of the following is going on -
I don't know which of the four scenarios is true. I want to believe scenario one. I don't want to believe scenarios 2 and 3. Scenario 4? I doubt it given her background.
But I do think in time - day and weeks - we will know which scenario is true. And that will tell us a lot more about our next president.
November 27, 2016