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Economics Economy Minimum wage Politics Truth

IN-DEPTH: Flamingly Bad Big Government Drives Low Wages

Rod Thomson

During the past seven years, we’ve endured the worst U.S. economic recovery in the known history of recoveries. This is a plain and indisputable fact by the measurements of all economic recoveries. The worst ever.

Did this have something to do with President Barack Obama’s policies? Of course it did. It was no coincidence that the wild expansion of government in both spending and regulation put a damper on business growth and therefore economic growth. That’s a direct causal effect.

This spending and regulatory binge also played a role in income stagnation and, yes, in one of today’s favorite bogeymen: income inequality. The case for this is fairly straightforward to show, but you will be hard-pressed to find it in the mainstream media.

First, let’s be crystal clear that the American economy really has been sick since 2009. From 2010-2016 we had the objectively worst economic expansion in history, which is strange because typically, a deep recession such as the one we had starting in 2008 is followed by an equally powerful expansion. There’s a strong relationship between depth of decline and height of recovery.

Until this time.

President Obama was the first president without a single year of 3 percent real GDP growth while in office. Ever. GDP (Gross Domestic Product) is the only real measurement of the overall growth of the economy. But wait, there’s more. Annual economic growth during 2010-2016 was a full point less than overall growth from 1965-2010. So even including all of the recessions in those decades — including Jimmy Carter’s malaise, the dotcom bust and all the rest — that 45-year period still beat the Obama recovery years. By a long shot.

During the same 2010-2016 period, growth in real personal income and wages also dragged well below the historic average. Income inequality increased during this time. But both of these have been a long-term trend that just ratcheted up during the Obama years.

Weak economies overall drive income inequality because it’s people at the lower ends that are hurt the most. But there are multiple other reasons.

 

Why was the recovery so bad?

Let’s step back for a second.

There are three factors driving an economy: labor force growth, capital growth and productivity. All three happen during a strong economy. The labor market expanded rapidly during this crummy recovery, so that was not a problem factor. But capital formation — money to invest in startups, expansions, machinery, innovation — grew at half the historical rate and productivity grew at only about one-third of the normal rate.

Capital. Without access to money for investment, there was less innovation, less growth and expansion and fewer new businesses. So existing businesses were somewhat stagnant, and they faced less competition that would have bred innovation to compete. Without that, new markets and industries were not explored and the economy hobbled through a recovery that barely stayed out of recession at several points.

Capital was dramatically restricted through aggressive government laws designed to avoid the kind of subprime real estate bubble and bust in 2007 that led to a near-financial collapse and the recession. The primary law was Dodd-Frank, which mandated higher capital levels for all banks — including community banks, which were not a driver of the subprime crisis.

Further, the law added so many layers of regulations to an already heavily-regulated industry that compliance costs for banks have doubled since Dodd-Frank went into effect. Compliance costs alone are now figured at $70 billion annually — or nearly one-quarter of a bank’s total expenses — according to Federal Financial Analytics.

Banks need a level of regulation. But too much regulation stifles their ability to lend.

And without going into too much detail, the Federal Reserve Board’s money supply policies included loaning money to banks at such a low rate (essentially, 0 percent interest) that banks could invest in guaranteed financial instruments, such as U.S. Treasuries, and make guaranteed money with zero risk. Profits at zero risk are hard to pass up and that policy by the Fed kept billions of dollars out of the hands of business.

The truth is that businesses being able to access money from banks and investors is critical to a strong economy.

Productivity. Productivity can be measured a few different ways. The Bureau of Labor Statistics, however, puts it as: “Productivity is measured by comparing the amount of goods and services produced with the inputs which were used in production. Labor productivity is the ratio of the output of goods and services to the labor hours devoted to the production of that output.”

During strong economic growth, productivity increases. However, with fewer businesses and the associated lack of innovation and expansion, there were fewer options to be promoted, all of which kept productivity lower. More people wanted jobs, but the jobs they were getting were the same type and level as before, which meant their productivity was about the same.

This, of course, also leads to income stagnation specifically for the lower and working middle class.

 

More economy-wrecking government

Dodd-Frank deeply restricted businesses’ ability to get investment capital. But it was not alone in throwing anchors around the neck of economic growth.

A second major anchor was the Affordable Care Act, a.k.a. Obamacare, which turned out to be neither affordable nor about care. Obamacare added an enormous mandate on businesses to provide an increasingly expensive benefit, and it did so with mountains of paperwork detailing what all must be provided. Even small businesses with 50 employees frequently had to add a full-time position just to understand and comply with this law.

Obamacare’s onerous costs came at precisely the same time that Dodd-Frank and the Fed were making businesses’ access to capital almost impossible — a conflagration of government intrusions.

As the government adds more requirements on employers to offer benefits and comply with regulations, employers have less money left for actual wages. Obamacare was a double-whammy in that it required the extra costs but then also screwed up an already malfunctioning marketplace and prices soared even faster.

And of course the Obama administration was renowned for adding an enormous number of executive branch regulations through the EPA and other administrations. With this understanding, it’s a tribute to the capitalistic drive of Americans that the nation could mount any sort of economic growth at all.

 

Illegal immigration is a real growth roadblock

This is not hard to understand, just hard for multiculturalists to understand.

Millions of uneducated, unskilled people from Mexico, Honduras, Guatemala, El Salvador, etc. who do not speak English not only take low-end jobs from Americans, but they also depress the wages at the bottom because ridiculously low hourly rates by American standards are still better than anything they can make in their dysfunctional third-world home countries. Obviously, that’s why they came here.

In the past 30 years, the United States has absorbed 40 million foreign-born adults and another 20 million adult children of immigrants — legal and illegal — giving the U.S. an endless stream of low-wage labor. With that massive pool at the bottom, there will be no increase of wages for the foreseeable future. Economics.

Professor George J. Borjas, a highly respected economist at Harvard’s Kennedy School of Government and maybe the world’s foremost expert on the economics of immigration, has found that: “If immigration increases the size of a group by 10 percent, the earnings of native workers in that group fall by 3-4 percent.”

Interestingly, this conceptually works at the top just as it does at the bottom.

So consider this and laugh bitterly if you like: if you really want to close income inequality gap, our immigration policy should be the precise opposite of what it is. We should greatly increase the legal immigration of doctors, lawyers, engineers, MBAs, mathematicians and all but stop immigration at the bottom end. That would drive up incomes at the lower levels for lack of competition — including for newly arrived workers — but it would create wage stagnation at the top end by bringing in competition, and the income gap would close.

Of course, it will never happen. Consider who makes up Congress. Mostly lawyers and some doctors and MBAs who all have children pursuing similar high-end careers. And we have those vested in large-scale immigration in many industries and the Democratic Party. Not going to change.

 

Minimum wage laws just make it all worse

The solution to the problems offered by big-government progressives is — more government intervention.

The problem is they do not honestly assess the underlying foundational problems, but just see a symptom they perceive as a problem and go after that symptom in a vacuum. The causes listed above are the drivers of low-end wage stagnation. But rather than ratchet back those drivers, they pile another government solution on top of the government-caused problems — one that is already proven to make the problem yet worse.

It’s almost like there is a formula at work.

Nonetheless, the solution now being promulgated is to raise the minimum wage to $15 per hour. #Fightfor15 is the hashtag and rallying cry festooning the protest signs by people wholly unaware that the market might get the wages there if the immigration policy flipped and less money was required on failing benefits programs.

The obvious results of setting the minimum wage where central planners think it ought to be, and not where the market says it is, is that businesses will find ways around it. Legal ways. They will be forced to.

The first option: Automation. Where robotics and self-serve kiosks were too expensive at $8 per hour per worker, they no longer are at $15 per hour. They have now become less expensive than many workers. So companies invest in those, which results in minimum wage workers, and even those above that, being out of work completely. Workers lose jobs. $0 per hour.

The second option: Move. Companies pick up and move operations to a jurisdiction that does not have artificially high wages so they can compete effectively. Workers lose jobs. $0 per hour.

The third option: Downsize.  Companies either retrench at a smaller size or go out of business. Workers lose jobs. $0 per hour.

And guess what? This is exactly what has been happening in the uber-progressive city of Seattle, which has adopted the $15-per-hour minimum wage.

The city commissioned a study by economists at the University of Washington and published by the National Bureau of Economic Research. Those study results stunned progressives, but really just found basic economics and common sense at work: Low-wage workers’ incomes actually dropped, substantially, falling an average of $125 per month.

And this was only at a $13 hourly minimum wage, as the Seattle law ramped it up to $15 over a few years. If they allow it to continue, which the marching placard people want, it will continue to worsen the situation for the lowest end workers in Seattle through automation, movement and downsizing.

And the other component that will get worse is the income inequality bogeyman. Anyone want to guess how big government progressives will want to fix that?

Rod Thomson is a former journalist, author and is Founder of The Revolutionary Act.

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Foreign affairs Islam Media Politics Trump Truth

A Tale of Two Trumps: One with Anonymous Leaks, One Without

Rod Thomson

President Trump’s mega-trip to Saudi Arabia, Israel, Rome, Belgium, and Sicily is presenting the American public with a fascinating insight — not into Trump but into Washington, D.C. and the American media.

The Trump at home is beset by the triumvirate of what is now referred to as the Deep State’s daily leaks, a virulently dishonest media and the weak but wildly flailing Democratic Party. These three work in a common direction to undermine the Trump presidency and have been doing so since before inauguration day.

Trump abroad is presidential, courageous, respected and making progress in the impossible quagmire of the Middle East of all places. The Trump at home is under a barrage of embarrassing stories about his corruption or incompetence or collusion from “anonymous” sources.

The two Trumps could hardly be more opposite.

But is Trump really that different on the road, or is there another difference going on here?

 

The Deep State revelation

One of the early revelations in the Trump administration is that there actually is a vast Deep State apparatus that wields enormous power of the most unaccountable kind.

The Deep State refers to long-time entrenched bureaucrats who oppose Trump and have the power and apparent freedom to seek and send classified material to journalists. Journalists are joined at the hip with the Deep State as the anonymous leaks are what drive a lot of news cycles now.

Many of the leaks are illegal and could and should be investigated and prosecuted. That the FBI seemingly has no interest in doing so suggests that it is probably rife with a type of Deep State also.

Now to be clear, this is not likely to be any sort of broadly coordinated conspiracy.

Like the media, it is made up of hundreds, maybe thousands, of fellow travelers who share a worldview ideology that is distinctly left of the American center. As such, they reactively oppose Republicans and conservatives and are somewhat amoral regarding the means to accomplishing the ends.

So as they come across information that could be damaging to Trump, or are simply sitting on a pile of documents, they share it with journalists who they trust to not “out” them.

The leakers are not heros. They are cowards and criminals. Cowards for demanding anonymity. Criminals for violating federal law on classified documents.

 

The Deep State nuclearized

What’s important to remember about the Deep State is that the Obama administration, spearheaded by Susan Rice, armed them by unmasking an enormous number of Americans caught up in NSA intercepts. These were apparently fishing expeditions for Trump associates who were talking to Russians in order to create as many opportunities as possible to give the appearance of shadiness, without any actual evidence. Of course, it is common for presidential campaigns to communicate with foreign leaders to gather campaign information and prepare for being in office.

Those names and files were then disseminated through several branches of the federal government — nuclearizing the Deep State. The detonations are set off daily, providing regular damage to Trump, but in turn making the media and government radioactive to a large number of Americans.

Is there an investigation of this unmasking and dissemination of state secrets? Not that we are aware of. (See reason listed above for why no serious investigation of the leaks.)

It is entirely possible that this leaking from the Susan Rice unmaskings and the Obama dissemination could go on for a long time. But we also see it continuing after the Trump inauguration, and Rice and Obama were out of office. At least three personal phone calls between Trump and heads of state of other nations have been leaked in hopes of embarrassing the president.

That never happens to other presidents.

True deplorables.

 

The trip’s solid successes

Because Trump’s trip has been largely a success, and better than most any presidents do on their first trip, that doesn’t mean the triumvirate does not try to undermine him back home.

When Trump got to Israel, several good things had already happened:

  • In Saudi Arabia, Trump called out the Islamists and spoke the truth in the heart of Islam, speaking of “honestly confronting the crisis of Islamic extremism and the Islamists and Islamic terror of all kinds.” (Particularly timely as the next day an Islamic extremist in Manchester, England, slaughtered more than 20 people at an Ariana Grande concert.)
  • Egypt’s president told Trump publicly: “Let me say that you have a unique personality that is capable of doing the impossible.” Naturally, Trump agreed with this. But what you have here is a president speaking the truth, acting with strength, but willing to talk.
  • In Jerusalem, Trump got the Israelis to make changes that could improve the Palestinian economy and expand the border crossings to improve the climate for finding peace. He met with the heads of Israel and the Palestinian Authority. (Of course, the Palestinians don’t want peace with Israel, they want Israel exterminated. It’s literally written in their laws. But he’s getting some movement.)
  • Trump kept relentless pressure on Iran, which is obviously the biggest problem in the region, and has been. He vowed to never let them get nuclear weapons. And he and his team may be able to create a new alignment of several Muslim nations and Israel against Iran — which of course Obama put on a path to nuclearization and helped further destabilize the region.
  • Trump became the first sitting president to visit the Western Wall, and did so with the solemnity the occasion required.

At the halfway mark, the trip has been successful when the naysayers said he should just visit Canada on his first trip.

 

The triumvirate strikes back

But the triumvirate of Trump opposition will have none of it, and continues its relentless drumbeat of negativism.

The front-page reporting of the successful trip to Israel that followed the successful trip to Saudi Arabia outlined above was predictably jaundiced, and had to rely on the home team of underminers to get the narrative out. Headlines generally fell along the lines of “Accusations dog Trump’s trip” and “Questions follow Trump to Israel.” (These were followed by obligatory reporting of the actual trip.)

The media even went so far as to seek out and highlight any missteps — no matter how minor — and report on the apparent awkwardness between Trump and his wife. Because those are the things Americans care about.

PBS wanted to assure its loyal listeners that Trump’s trip would not overshadow all his problems at home with this story “Trump’s overseas trip doesn’t stop storm brewing at home over Russia.”

And of course, it is all about the Russia investigation, the collusion accusations, and the idea that many or most Washington journalists have that Trump was in bed with the Kremlin to get elected.

But our story from nearly three months ago remains exactly true. There is no evidence of any wrongdoing on the part of Trump. There is no crime. There is no collusion. Months more of daily hyperventilating stories by the media and now a special counsel, and we still have nothing.

Perhaps it’s because there is nothing and despite all of his personality foibles and Twitter nonsense, Trump can be a very effective President and leader — when it does not go through the media filter.