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Trump's Economy - It's a Fraud Too

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How good is the Trump economy, really? And for whom?

Scorecard

Republicans tell us it's the best economy in history, but let's look closer. It's true that economic growth in 2019 was over 3% and the stock market stands near all time highs. But for most of us, the spin doesn't quite square with our own eyes and ears, much less our bank accounts. Our income has barely budged in recent years, but expenses continue to rise. What gives?

Let's dissect GDP - Gross Domestic Product. Starting with a rise of 3.09%, we need to take out inflation - 2.3%. That leaves 0.79% of economic growth. But wait - our population grew by 0.59% in the past year too, leaving just 0.2% real, per-capita growth. So we're still in the green, right? Nope. The cost of healthcare increased by 5.94%, and it makes up 17.7% of GDP. Healthcare "contributed" 1.05% to nominal GDP growth - all of it in our bills for insurance, drugs, and provider services! What's left? Our real GDP growth was (drum roll...) MINUS 0.86%.


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One problem is how we measure economic health. GDP is the value of all the goods and services we produce. It's not a bad approximation of our national income, but it doesn't give a clue about who gains and who doesn't when the economy grows.

Whose economy is it, anyway?

If a rising tide raised all boats, a 3% rise in GDP would be good for everybody. But that's not the way it works. Forty years ago, GDP was shared about 70/30 between labor and capital. That is, 70% of earnings went to workers - regular folks like us. The balance, of course, went to a much smaller number of capitalists - corporations, landlords, and coupon-clippers.

Today, things have changed. That 30% of GDP once claimed by capitalists has now bloated to 43%, leaving a smaller part of the pie for the rest of us. Sure, the pie is bigger, but most metrics show that there are no more calories in the labor slice than forty years ago.

This is a trend that predates the Trump administration by decades. But the corporate tax cut that took effect in 2018 accelerated the trend. In 2018 alone, corporate income taxes declined by $92 billion and personal income taxes rose by $90 billion. The tax cut was good for capital but not for the rest of us.

So we might think the economy is really good for corporations. Is it? Even though the tax cut added $92 billion to corporate profits, the total only rose by $68.7 billion. If it weren't for the tax cut, corporate profits would have declined from $2.06 trillion to a mere $1.97 trillion!

Stock prices

But wait - the stock market is soaring! How can that be? The investor class has been buoyed by three public policies that juice the nominal value of corporate shares - tax cuts, deregulation, and artificially low interest rates.

We've seen how tax cuts raise profits, and profits are a key determinant of stock price. But when the federal government runs a larger deficit, there's a price to pay - either inflation, debt, or higher taxes elsewhere. The corporate tax cut directly raises both debt and taxes for individuals. The effect is to take money from our pockets and put it into the pockets of investors.

Deregulation works a little differently. It does cut corporate costs, and that raises profits. But the costs are just passed on to others. Regulation yields benefits for workers, consumers, and the public - according to the administration itself (OMB) it pays for itself many times over. When regulations are cut, corporations can lay off their costs on others in the form of economic externalities - things like pollution, hazards, labor exploitation, and restraint of trade. The effect of deregulation is to pick the pockets of the many to stuff the pockets of the few.

What about artificially low interest rates? That's good, right? Sure, for corporations. Their valuation can be determined by tallying up all of the projected future profits and adjusting them for their present value. A dollar received today is worth more than a dollar received in ten years, and the present value of a profit earned in future years is discounted in proportion to current interest rates. When the Federal Reserve suppresses interest rates, it artificially raises stock prices. Who loses? Risk-averse investors who depend on interest payments from savings accounts and bonds - retirees and seniors approaching retirement.

Great economy, huh? If real per-capita GDP declined by 0.86% in the past year, and capital's share grew, a lot of folks didn't do well at all. The average non-investor worker is probably 2% to 3% worse off now than a year ago.

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Thirty five years as a small business consultant, CFO, and university educator specializing in quantitative business and economic modeling - a suite of experience now focused on economic inequality. Carefully attributed data, thoughtful (more...)
 

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Larry Butler

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But... what about that great unemployment rate? Two things. First, US population growth is less than 0.6%, compared to a historically normal rate of about 1%. This limits workforce growth, especially with recent restrictions on refugee and labor immigration. That's a half-million workers a year that aren't looking for jobs. If we add two or three years of lost immigration labor to the approximately 5 million unemployed, the unemployment rate stands at a more realistic 4.2% - near the level at the end of the Obama administration. And second, wages have barely moved for decades - job growth and available openings have been concentrated in poorly paid positions.

Submitted on Friday, Jan 24, 2020 at 5:43:02 PM

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John Rachel

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Some significant portion of what's referred to as the federal government has become an enemy of the people. It's not to be anti-government to demand that this element, which serves interests not related to promoting the "general welfare" of our nation and the entirety of its citizenry be rooted out and sent packing. If this requires an overthrow of the entire enterprise and refashioning it into something that looks like representative democracy, so be it. We can't continue like this. America is barely a recognizable version of itself in 2020.

Submitted on Saturday, Jan 25, 2020 at 11:22:03 PM

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nelswight

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Reply to John Rachel:   New Content

Can we nominate a resident of Japan for U.S. Senate? You, John?

Submitted on Sunday, Jan 26, 2020 at 12:28:23 AM

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Michael Dewey

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Reply to John Rachel:   New Content

I'd like to see the next "Occupy Every Group W Bench Every Where Movement" unite on demanding DC gets back to these 1956 GOP Policies that Vets like my Dad were able to raise 10 kids on one income as an Honest CPA.


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And also kicking these religious preachers out of power that Goldwater was right to warn US about, with them getting use to the fact that abortions will always be legal and safe.


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Submitted on Sunday, Jan 26, 2020 at 1:37:57 AM

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Larry Butler

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Reply to Michael Dewey:   New Content

You probably have an understanding of the events, people, organizations, and conspiracies that took us from the 1956 GOP Platform to today's plutocracy. The whole story - at least that part I could dig up - is contained in "Tax Reform for Donkeys - How Democrats Can get it Right" by Larry Judson Butler. It's at Amazon, running on a promotional price (free) through 9:00 PM Eastern, today only. With my compliments, Mr. Dewey.

Submitted on Sunday, Jan 26, 2020 at 4:18:58 PM

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John Rachel

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Reply to Larry Butler:   New Content

Thanks for the tip on the book. But are we sure the Democrats want to get it right? Much of the Democratic establishment are paid extremely well to get it and keep it wrong. Money talks when morality balks.

Submitted on Sunday, Jan 26, 2020 at 10:42:57 PM

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Larry Butler

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Reply to John Rachel:   New Content

Good question. I believe that Democrats at large do want to get it right on the economy. The leadership would want to get it right if they could retain their power - that's all that's in it for them when they're tempted to betray the values they hold in common with the rest of the Party. And that, Mr. Rachel, is a key point of the book. If you act quickly, it's still free.

Thanks for the astute observation.


Submitted on Sunday, Jan 26, 2020 at 11:44:51 PM

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Michael Dewey

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Reply to Larry Butler:   New Content

From just seeing recent posts from Gorbachev and Naomi Klein both calling for a new economic model, John Perkins too, don't see DC being the place to come up with the real answers.

Submitted on Monday, Jan 27, 2020 at 2:41:36 AM

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Larry Butler

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Reply to Michael Dewey:   New Content

Michael, I must reluctantly agree. I've been promoting something different among Democratic Party leaders, and I've gotten very little traction so far. Seems they know as much as they want to know.

Submitted on Monday, Jan 27, 2020 at 3:36:12 AM

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John Rachel

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Reply to Larry Butler:   New Content

I already got the book. Now I need time to read it. Thanks for the kind words. I was a life-long Democrat, born and raised in a union town known as the Motor City, until 1995 when I could see the party had abandoned its traditional values under Clinton. Now I'm pushing an issue-oriented electoral strategy that's non-aligned, non-partisan and non-ideological. If you're interested, you can look at these:

No Contract No Vote

CFAR 2018

CFAR 2020

Submitted on Monday, Jan 27, 2020 at 12:20:00 PM

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Larry Butler

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Reply to John Rachel:   New Content

I'm interested. I admire the way you've organized the issues, I've bookmarked the main page, and I've TAKEN THE PLEDGE (somewhat flexibly). I look forward to getting updates from time to time, and digging a little deeper. Issues are everything, and they all come back to the money. Good stuff, John!

Submitted on Monday, Jan 27, 2020 at 3:31:02 PM

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John Rachel

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Reply to Larry Butler:   New Content

Thanks, Larry. If you want to help, it'll only take an hour or two a week. We always have room for one more enlightened, dedicated person.

Submitted on Tuesday, Jan 28, 2020 at 1:33:00 AM

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