“I Might as Well J(Tr)ump, Go Ahead and J(Tr)ump”

With the transition from the Obama Administration to the Trump Administration tomorrow, I find myself looking at the next Administration with some, albeit guarded, optimism, despite voting for Hillary. My mood has changed pretty dramatically since my “Lost in a Lost World” post in late October. This is in spite of the HUGE character issues I have with our new President. (Someone please take away his twitter account!) Perhaps it is because most of the Cabinet appointments are good ones in my view and have the possibility at least of reforming our bloated federal  bureaucracy and the possibility of changing our overly regulated economy back to one where this a more reasonable amount of federal regulations or at least less of them. (The Obama administration issued more regulations than the previous Bush and Clinton Administration combined and naturally the old ones that already existed were seldom repealed!). In this light, I have devoted this post to my optimistic hopes as they pertain to the key domestic, economic agenda items of a new Presidency.

The last 8 years have been a “stimulus” economy in the US (and around the world). Economic growth during the recovery period from 2009-2016 has been anemic with the worst GDP growth during an economic recovery since the 1930s. And what growth we have had has been entirely from our massive borrowing. Even in the last two years, our net borrowing has EXCEEDED our GDP growth by over $400 billion. (During the Obama Administration, we borrowed more money than the US borrowed in the previous 240 years of its existence, and we raised federal debt from $8-9 Trillion to an incredible nearly $20 Trillion today! This easily exceeded the amount of GDP growth we had during this period). If you are looking for a historical precedent for this, look no further. We have NEVER had a period in our history like this, which of course means we have NO idea how badly this might all end.

Ironically, while decrying and focusing on income inequality as a prime economic objective, the policies of the Obama Administration and for the first two years a Democratic Congress have actually increased income inequality. The huge fiscal stimulus in 2009 (which was permanent rather than one-time) accompanied by a massive monetary stimulus ( we QUINTUPLED our monetary base between late 2008 and 2014) has had the effect of fueling ultra-low interest rates and massive investment in the stock market. This has meant that the main recipients of our “fake” economic growth has been the wealthy, who disproportionately own US stocks.

Also, and much more disturbingly, there has been no gains in median, personal incomes dating back to 2000. For most of this period we have seen virtually no improvement in “productivity”, which is the holy grail for real economic growth and raising the standards of living for all Americans. (In fact, growth in real personal incomes generally is closely related to the growth in “productivity”). Even the reduction in the unemployment rate is a bit illusory during the past 8 years, as it fails to account for the very-low rate of overall labor participation which fell to the lowest levels since the  1970s. It also failed to account for a disturbing trend where part-time jobs have replaced full-time employment.

It is against this backdrop that I have some optimism based on early indications that the next Administration might actually improve things. The question is will it improve things quickly enough to avoid or at least partially mitigate the inevitable crash or is it too late? So herewith my top 10 economic/domestic policy list of sorts, agenda items that will be critical in the short and longer term to avoid the crash or at least lessen its impact and improve our longer run future. Note I have included a few ideas (but there are others) on how to accomplish each:

1. Balance the Budget by no later than 2020 and Enact a Balanced Budget Amendment. – Note to do this we will not only need to increase economic growth so that there are more tax revenues but ALSO cut discretionary spending and reform Social Security and Medicare/Medicaid.
2. Reduce Federal discretionary Spending Significantly (~15-20%) Starting NOW. This could include freezing new hiring to replace retiring government workers, eliminating a number of unnecessary or duplicative functions or departments and privatizing a number of services which should be funded via user fees  as well as eliminate or greatly reduce US agricultural subsidies and other federal subsidies.
3. Balance the Social Security Trust Fund thru the combination of  raising the full retirement age to 70 over the next 10 years, raising the amount of annual income subject to the social security tax and provide for some means-testing to receive full benefits.
4. Make Medicare and Medicaid Financial Solvent– One of my ideas is to add a consumption tax on ALL added sugar or caloric sweeteners in products which could be used as an additional significant source of tax revenue to fund Medicare and Medicaid, while discouraging our rampant sugar epidemic.
5. Repeal and Replace Obama Care retaining the pre-existing conditions and several other provisions, make insurance companies actually compete by allowing consumers to buy policies anywhere in the US (no in-state restrictions), eliminate regulations “requiring” certain elective services to be part of health insurance (e.g. birth control), eliminate or loosen restrictions on the use of nurse practitioners rather than doctors on many basic health care services, cap the maximum medical malpractice damages at reasonable levels. Last but not least, fix the provisions requiring businesses above 50 employees to cover employees that work 30 hours a week or more. By doing so we have discouraged some smaller businesses from growing more and have encouraged part-time work rather than full-time employment.
6. Corporate Tax Reform– Our corporate tax rates are the highest among all developed nations. We need to cut these rates, so that multinational corporations are encouraged to do more business in the US, (rather than in low tax countries like Ireland ), and also to reinvest cash earnings in the US (rather than keeping it overseas). However, we also need to eliminate or reduce other corporate tax deductions to make sure the changes are revenue neutral at least.
7. Personal Income Tax Reform– My favorite overall tax policy would be the Fair Tax (a national consumption tax which would replace ALL federal taxes), but even a system that reduces marginal tax rates and eliminates or greatly limits itemized deductions (to pay for the overall cuts and keep the system at least revenue neutral AND reduce the economic efficiency losses associated with such tax “subsidies”) would be a pretty good second best alternative.
8. Reform and Move to a More Competitive Education System – With a few exceptions scattered across the US, our public school education system is a disgrace and particularly unfair to middle class or poorer income students. We should move towards a more competitive school-choice system that provides ALL parents with vouchers to select their school including private or parochial schools. Further, we should eliminate much or all of the federal Education Department bureaucracy.
9. Eliminate The Large Number of Unnecessary Federal Regulations – The best example is Dodd-Frank (and to a lesser extent Sarbanes-Oxley) which has had the most pernicious effects by forcing companies to hire many workers just for compliance, instead of producing more output and thereby raising overall productivity and personal income.
10. Move US Economy to a Long run Growth rate of 3-4% rather than the 2% Growth of the past 8 years. – Sound corporate and personal income tax reform , elimination of unnecessary federal regulations, health care reform and even education reform should help here.

Based on the what Trump and his appointees has signaled so far, I expect significant activity on areas #5-10, but unfortunately, much less so on #1-4. So it will be important that the Trump Administration and Congress are reminded of the critical importance of ALL of these issues.

Of course, none of these changes will be easy and most will be resisted heavily by the complete spectrum of industry interest groups, AARP, environmental groups, farmers, teachers unions, government employee unions and just about everyone else involved in lobbying Congress, but we HAVE to make progress in most of these areas if we are to avoid a U.S. and worldwide economic meltdown, possibly of unprecedented scope.

More posts and details on many of these areas as we go thru the year. In the meantime, lets hope we can put aside the rancor of a difficult election and for many of us, our respective negative personal feelings about Donald Trump, and work together across state and party lines to solve these critical problems or at least make them better. It is in EVERYONE’s collective interest to make sure we accomplish them.