#242 Primer Cha 7: Eliminating Incentive to Pillage

First-time readers, the dialogue in this blog is set in the future (sometime after the year 2020).  Each entry assumes there has been a 5th revolution in the US — the Revenge Revolution.  More about Revenge Revolution and author, Entry #1.  List and general description of entries to date.  Annual assessment if Revolution plausible.

Note: most characters appear in a number of entries, with many entries building on previous conversations.  Profile of characters.  You’ll catch on quickly.  Thanks for your time and interest…and comments.

Scene: Gelly, Jordan’s assistant, has been editing and updating a primer Jordan wrote about 2011.  Section starts Entry #235(Primer will be available as PDF in another few chapters.  Then the primer download will be updated regularly.) 

092615_2031_Characters7.gifGelly: “Jordan, you’ve done it again?”

Jordan: “Done what, again?”

Gelly: “Made me scratch my head.  I just never thought about economic development as an incentive to pillage.  I mean isn’t economic development supposed to create jobs and make everyone wealthier?”

Jordan: “That’s the political line.  OK, some people do benefit.”

TurtleneckGelly: “You mean the executives of the company that’s relocating.  But I never though about the cost of these relocations to the people where the company left and even…”

Jordan: “…even to the taxpayers of the town where the company is relocating.”

Gelly: “If you add up all the costs, the only winners seem to be the company executives.”

Chapter 7: Eliminating the Incentive to Pillage.  Some might view decisions to shutdown facilities and/or relocate manufacturing plants or distribution centers as capitalism at its best. Others view such decisions as capitalism at its worst an incentive to pillage with no repercussions.

Wall Street SignSenior executives and shareholders of a company can benefit financially from these actions. Senior managers at companies often have a major portion of compensation in stock – 75.0% of total compensation in stock is not unusual.

Stock price, and therefore executive wealth, is highly influenced by short-term earnings. If you do not believe so, look at the effect on the stock price if a company does not meet the quarterly earnings forecast.

While having compensation in stock rather than cash, especially with a claw-back provision (right to “recall” a portion of compensation at a later date) if long-term earnings do not pan out, is a major step forward, executives of the company still have a major incentive to take actions that may be contrary to the best interests of US society.

ScrewedMany executives believe that by relocating operations, the company will lower its costs and in turn increase stock.  The theory of this action – and I emphasize theory is the wealth of those executives implementing job cuts will increase the company’s stock price.  Screwed in this equation are those people whose jobs are eliminated and who helped build the company and create its value.

This perverse incentive to screw the very people who helped create the company’s value is either not understood or ignored by the public and politicians who make the tax laws. Management of these companies is giving away most of the store in many cases transferring future wealth creatiooutside the US and being rewarded for the transfer. It is as if the country where the new manufacturing plant is located offered current management a kickback in effect robbing the US and the US taxpayers are rewarding the management for accepting it.

The same perverse situation occurs when plants relocate elsewhere in the United States. State and local governments offer tax incentives to have plants relocate from one state to another.

Who pays for these relocations?  Tax_Time_Clip_ArtTaxpayers at both locations. The people where the plant was previously located now have a lower tax base. The people where the plant is now located have higher spending to support the facility but without the benefit of taxes from the new company, which usually does not pay its fair share since it was recruited by waiving taxes.

If proper financial analysis were completed, my belief is it would be less costly to society and especially taxpayers, if the company revamped the existing facilitrather than relocating to a new facility in another state. While some might view this perspective as socialism, the view is actually one that ensures America remains a vibrant country for generations.

Benefits of Using Existing Manufacturing Facilities  The benefits of using existing manufacturing facilities rather than developing new or “greenfield” facilities are significant. Some benefits of existing over greenfield include:

  • Infrastructure in place and ready. Many new facilities require roads, sewers, highvoltage electric lines, schools and other expensive infrastructure. Existing facilities may need some upgrades but the cost of upgrades will be less than: (i)  building new and (ii) leaving the existing infrastructure in place to be repaired or sit idle and decay. Creating new infrastructure is double taxation on US citizens – once to build the existing infrastructure and again for the new infrastructure.
  • Workers already trained.  While some retraining may be needed, skills of existing workers can be utilized to develop and manufacture products of the same genre as currently produced. Why train someone in auto production in a different part of the US when a large segment of the population in another area is already trained?
  • Lower cost to begin production. When all costs are considered – not just labor costs per hour – revamping and continuing to utilize the existing facilities and workforce are less costly to society than starting new.  Even if a new building is required in the existing location, there are no additional costs for infrastructure or training.
  • Faster turnaround from product concept to production. Skills acquired over many years cannot be taught in a short period, no matter how proficient the trainers.  Even if the current employees are not trained in the latest technology, combining existing skills with those familiar with the latest technology will shorten the development time for new products.
  • Avoiding costs for family relocation. Relocating workers and families includes both the direct cost of relocation and the indirect social cost. While some workers will view the relocation as an opportunity to move beyond the current environment, many of those who want the adventure have already moved. Forcing families to choose between retaining a job and relocation can have a major social cost. The more dominant the company in the area, the higher the social cost of closing the facility and relocating to another area.

An Occasional Exception to the Rule  What if the existing infrastructure and local infrastructure is inadequate to support the company?  In these circumstances, can the relocation be justified?

Yes, if a true case can be made. A few years ago two companies relocated North American HQ from Augusta, GA to Charlotte, NC. – Electrolux, Husqvarna.  While Augusta, a town of about 200,000, had supported these firms and such other companies as EZ-Go and Club Car (both golf cart manufacturers), Electrolux and Husqvarna may have needed a larger community with a more diverse population, stronger academic institutions, international banks, international law firms and access to an international airport.

“Economic Development” Uneconomic Do most relocations add jobs to the US market? No. Are there usually incentives to entice the companies to relocate? Yes.

092615_2031_Characters12.gifDo these relocations create a net gain to US society? No. Owners of the business that’s relocating give taxpayers the finger twice.  Taxpayers where the plant was located originally lose a tax base. Taxpayers in the new location pay additional the relocation incentives.  Even for Electrolux and Husqvarna, there is likely a net loss to society rather than a net gain.

 I realize this rationale may seem counter intuitive, especially to those involved with what is often labeled as “economic development.” However, I am waiting for someone to convince me with a  rationale argument that these moves make economic sense.

Yes, the moves make sense for the companies. But the companies are part of a whole. Until we begin considering the impact of such moves on the system all society – we will be double taxing ourselves with no net gain to the country’s wealth.  Please show me why I am wrong. (BTW, please read Chapter 8 before forwarding your ideas. Thanks.)

#241 Primer Cha 6: Creating Societal Wealth: Manufacturing

First-time readers, the dialogue in this blog is set in the future (sometime after the year 2020).  Each entry assumes there has been a 5th revolution in the US — the Revenge Revolution.  More about Revenge Revolution and author, Entry #1.  List and general description of entries to date.  Annual assessment if Revolution plausible.

Note: most characters appear in a number of entries, with many entries building on previous conversations.  Profile of characters.  You’ll catch on quickly.  Thanks for your time and interest…and comments.

Scene: Gelly, Jordan’s assistant, has been editing and updating a primer Jordan wrote about 2011.  Section starts Entry #235(Primer will be available as PDF in more traditional format after Chapter 5 or 6.  Then the primer download will be updated regularly.) 

092615_2031_Characters7.gif

Gelly:  “Jordan, do you really think I’m a pick-pocket?”

Jordan:  “What are you talking about, Gelly?”

Gelly:  “In the primer chapter on creating wealth, you said people in service industries were like pick-pockets.”

Jordan:  “I think you’re wording is a bit of a stretch…but I get the gist of what you’re saying.”

TurtleneckGelly:  “Actually, I liked the analogy.  It helped me understand how wealth is created for a society rather than just an individual.”

———- TEXT of PRIMER ———- 

During summer 2009, which was still early on in the Great Recession, Congress was considering whether to bail out Chrysler and General Motors.  Many people stated that auto companies and auto production did not need to be in the US. In fact, some argued US consumers would be better off if auto manufacturing was done in lower-cost countries outside the US.

dude-with-questionI’m not sure where these people took Economics 101 but all the economics I have studied indicates manufacturing has a direct and positive impact on wealth creation for a country. Wealth for a societis created one way — taking materials and processing them so the end-product is more valuable to buyers than the individual components.

The concept of creating societal wealth through manufacturing is apolitical. Whether your political beliefs are left or right, whether you are a fervent capitalist or fervent socialist, creating wealth for society works the same way manufacturing.

Printing money can create wealth in the short term. So can mining and selling natural resources. But those resources often finite and are of value only, and only, if processed into another product.

Oil RigFor example, crude oil per se, has no value. Oil is feed stock for plastic and has value to companies manufacturing plastic products. Oil, when refined, has great value today for use in transportation, heating homes and generating some electricity. Oil would have much less value if more electricity and transportation were powered by non-fossil fuels.

Gold has no inherent value.  Gold becomes valuable when it is processed into jewelry, part of electronics components or other products.  Gold’s use as currency is arbitrary.  A society’s currency could be based on certain types of rocks…or even paper, as it is in most countries today.

Understanding how manufacturing creates societal wealth is not difficult.  For example, think of the manufacturing process as starting with iron ore – a bunch of rocks.  Through various steps the rocks are formed into steel.  Through another series Rocksof steps, the raw steel is turned into hoods and fenders for cars/trucks or support beams for industrial buildings. Each step in the manufacturing process adds value to what was originally a pile of rocks with no inherent value.

Farming, in a broad sense, is also manufacturing. Farmers take seeds and through various steps turn the seeds into corn or soybeans. The farmer then sells the corn to others who process it again, Tractorturning the corn into cereal or biofuel for cars/trucks. Each time the end product becomes more valuable.

Each step in the manufacturing also creates jobs. At each step, part of the “added value created” is distributed to workers through wages and owners through wages and dividends.

What about companies that offer services?  Do these companies create wealth?  Answer: No.

Service-related companies do not create wealth.  These companies/organizations merely transfer money from one person’s pocket to another person’s pocket. Yes, some individuals may make more money in the transaction but others lose an equal amount. Thus, with services there is no net gain in wealth for society…unless the service makes the manufacturing sector more productive.

taxpayerMedical care, for example, is a service that does not create societal wealth.   The doctor and medical staff may be economically better off after some procedure, but the patient, the insurance company and other taxpayers have transferred funds to the medical staff.   Unlike manufacturing, the doctor, nurse and others involved with patient care, created no wealth for society – they merely picked the other person’s pocket. 

Before you become enraged, just think about medical care.  For a society, the cost of medical care is, in many ways, like a tax. The cost of medical care transfers wealth from one pocket to another but does not create wealth overall.  However, like some taxes (note the term “some taxes”, not “all taxes”), medical care is necessary to sustain a vibrant and productive society.

newspaperRetailing is also a service that creates no societal wealth. The primary benefit of retailing is a convenient venue to purchase manufactured goods. While most people think of retail stores, the “storescan be physical structures, internet sites, business-to-business sales representatives or even doorto-door sales people.

The contributioretail “stores” make to local economic growth is not well understood. Retail stores, Amazon-like warehouses and other such facilities do not create jobs.  I am always amazed when a new store or Amazon-like warehouse comes to an area where many retail stores exist. The news report often is, “X Brand New Store/Warehouse Coming to Town, 200 New Jobs Created.

A new store does not create new jobs unless the market is underrepresented with retailers. A new store does not cause people to spend more money, but merely reallocates the money being spent among other retailers.

walmart_logoThe reallocation is particularly true for such retailers as WalMart/Sam’s Club, Amazon et al. WalMart/Sam’s Club draws customers from other stores and often pays lower wages than other stores. Further, most of the merchandise in WalMart is manufactured outside the US.

Shoppers at Wal-Mart create a double negative impact on wealth creation by (i) supporting lowerpaying jobs that replace higher paying jobs at existing local retailers and (ii) sourcing products outside the US at the expense of manufacturing jobs in the US.

The example should not be construed as antiWal-Mart. However, Wal-Mart is no patron saint. If the true economic impact of such stores as WalMarwere analyzed, the outcome would likely be negative, not positive.  Amazon has become the ”new Wal-Mart,” with even more erosion of higher-paying jobs and US-manufactured goods.

As a society, we need to understand what economic policies create wealth and what economic policies merely transfer wealth between people‘s pockets.  In many ways, the emphasis on service companies banks, medical, retail – are like taxes, which transfer wealth between segments of society but create no overall societal wealth.

Trump Administration and Manufacturing.  The promise by Trump during the campaign to bring back former high-labor-content manufacturing jobs is folly.  Yes, manufacturing is critical to create societal wealth but Trumptechnology has replaced much of the labor content in manufacturing.  And the use of technology to replace workers will only continue. 

If there is any doubt about the trend, merely look at agriculture.  The implementation of technology has resulted in enormous gains in output with far fewer workers.   The key for sustaining US manufacturing is not trying to create retro-manufacturing jobs but training workers help support technology for future manufacturing growth.      

 

#240 Primer: Cha 5 — Trends and Seasonally Adjusted Rates

First-time readers, the dialogue in this blog is set in the future (sometime after the year 2020).  Each entry assumes there has been a 5th revolution in the US — the Revenge Revolution.  More about Revenge Revolution and author, Entry #1.  List and general description of entries to date.  Annual assessment if Revolution plausible.

Note: most characters appear in a number of entries, with many entries building on previous conversations.  Profile of characters.  You’ll catch on quickly.  Thanks for your time and interest…and comments.

Scene: Gelly, Jordan’s assistant, has been editing and updating a primer Jordan wrote about 2011.  Section starts Entry #235(Primer will be available as PDF in more traditional format after Chapter 5 or 6.  Then the primer download will be updated regularly.) 

Gelly: “Jordan, my apologies.  I’ve fallen behind on editing the primer.  I’m working on catching up but it might be another week or so .”

woman_parentJordan: “No apologies necessary. We both took a week off from the business.  And, yes, I’m behind on some of my work as well.  What’s the topic of the next chapter?”

Gelly: “Seasonally adjusted annual rates and trends.  I confess, it was not a topic that gave me goosebumps.  However… ”

Jordan: “I take the ‘however’ to mean it wasn’t so boring.”

TurtleneckGelly:  “Actually, it was interesting.  Now, I think I understand what it’s all about.”

Jordan: “Good, let’s see what you think we should publish.”

———— CHAPTER 5 ————-

If you thought Chapter 4, the write-up on unemployment was confusing, go grab a coffee. The concept of seasonal adjustments is widely used…and also widely misunderstood.

dude-with-questionEconomic data are frequently reported as being “seasonally adjusted” and equal to an “annual rate.”  Just what does that mean?  A “seasonally adjusted annual rate” (aka, SAAR) is an attempt to predict what sales would be for an entire year, recognizing that sales for many products vary month to month and are not simply 1/12 of the total for the year.

Two examples:

  1. Sales of gift items are higher at certain times of the year – Valentine’s Day, Mother’s Day and especially leading up to Christmas. Sales of these-type items might be very strong one month and fall-off sharply the next month, or months because of the “pull-ahead” effect. The term “Black Friday” originated in the retail business because the Friday after Thanksgiving is when retailers usually began making money for the entire year, or as accounts say “going in the black.”  These monthly swings in sales make it very hard to gauge whether sales are headed up or down.  Without some sort of “seasonal adjustment,” a manufacturer or retailer might view lower sales in January vs. December as negative when in fact the sales pattern might be improving.  The seasonal adjustment attempts to “normalize” sales for the month.
  2. Sales of cars and trucks in the US are lower in the winter months as people spend money on Christmas gifts and delay buying new cars/trucks during inclement weather. Thus, sales of cars and trucks in the winter – and then the spring – need to be “seasonally adjusted” to help gauge whether sales are trending up, down or staying about the same.

Seasonal adjustments are often based on averages of actual data over a given period – say 5-10 years.  Because of changing economic conditions, sales activity in any given year probably will be somewhat different from the “average” sales pattern.  Adjusting the data for individual months or quarters can help determine sales trends.

Calculating Seasonal Adjustments.  While there are some sophisticated techniques to calculating how each month should be adjusted, the reality is for many users there are no Black School Teacherpublished seasonal adjustments.  To create your own seasonal adjustment, start by making a table with at least five (5) years of sales data by month.  If you have 10 years, great.  More than 10 years, stick with 10 years for now.

Begin by adding up sales for all the January’s, then the February’s and each month of the year.  After you have totaled 5 (or 10) years of sales, then divide total January sales by total sales for all five years.  If you’re in the lawn chair business, the “seasonal adjustment” percentage for sales of chairs in January should be less than 8.33% (1÷12).  Sales of lawn chairs in June should be well above 8.33%.

Lawn Chairs Table

To calculate the “seasonally adjusted annual rate for this year’s sales in January, simply divide sales by the January percentage (%).  If January sales in Year 6 were 50 lawn chairs and the “seasonal adjustment” percent was 3.0% (well below average), the seasonally adjusted annual rate of sales would be 1,667 lawn chairs.  If sales of lawn chairs in June were 125 (75 units higher than January) and the June adjustment percent was 12.2% (above average), the annual rate would be 1,000 units – a significant decline from the seasonally adjusted annual rate in January and an indicator that sales might be trending downward.

What Are Trends?  Would you believe someone who claimed the weather last June 12 was an indicator of what the weather would likely be for the next 12 months? In fact, most people would laugh at such an assertion. Yet, many of the same people believe a politician or talking head when single economic data-point is used to justify a claim that a particular program is working or not working.

The period for determining trends can vary.  Depending on the subject matter, reports of activity are issued weekly, monthly, quarterly and some annually. When viewing data, it is important to consider the type of data and how frequently a change becomes meaningful.

Weather ForecastData for weather may be the most extreme example.  Weather conditions and temperatures change daily, even hourly.  However, what constitutes a change in weather “trend”?  An early frost or a late snowfall might simply be an aberration.  But a pattern of increasing temperatures year after year after year indicates a change in the trend.

But what about trends in economic data or a company’s sales data?  How does one calculate a trend?  Are sales of lawn chairs headed up or down…or staying about the same?

Calculating a trend line can be as simple as plotting data on a chart and then taking a ruler and adjusting it so ½ the data points are above the ruler and ½ are below the ruler.  This “eyeball” method is not a bad place to start.

Lawn Chairs

In this chart of lawn chair sales, the “linear” trend line — i.e., ½ the data points are above the trend line and ½ below the trend line — suggests that:

  • Monthly sales bounce around…a lot
  • Overall, sales are improving…maybe
  • Using data for any single month is not an accurate predictor of other months

OwlA more sophisticated method to fit the data is called “exponential fitting” (think of compound interest rates on your savings). For many sets of data, using an “exponential” trend line provides a more accurate picture of the results. Using an exponential fit, the trend line indicates sales of lawn chairs are flat to falling compared to rising sales using a simpler liner trend line.

While the differences between the linear and exponential lines may not seem significant, if you were in charge of manufacturing for the lawn-chair company, the difference could change your decision. If you looked only at the data using a linear trend, you might add to the production schedule, assuming that sales were likely to increase. However, if you looked the data fitted exponentially, you would not add to the production schedule and might even consider reducing the schedule.

There are several credible methods to calculate trend lines. If you use Excel or a similar program, most have formulae built into the program. Sometime you will also hear these methods referred to as “regressions.” If you decide to use more sophisticated regression techniques to calculate trend lines or “fit the data,” and have not completed college-level statistics – or do not remember – I suggest you read at least two articles on the plusses and minuses of the best approach for a particular task.

MIT LogoTrend lines, aka regressions, can be extremely useful when looking for patterns. When I was a grad student at MIT, there was an oft repeated saying among the professors, “When in doubt run a regression.”

The “when-in-doubt” advice was sound and has served me well over many years in many different jobs and in addressing many different problems. Regressions and trend lines help you create some order out of chaos.

The seasonally adjusted annual rates and the trend lines described in this section can help reduce the risk of making a terribly wrong decision. Try both approaches individually, and then in combination.  I think you will find the approaches very useful.  Just do not make the analysis too complicated.

 

#239 Cha 4: Unemployment Rate: A Lagging Indicator

First-time readers, the dialogue in this blog is set in the future (sometime after the year 2020).  Each entry assumes there has been a 5th revolution in the US — the Revenge Revolution.  More about Revenge Revolution and author, Entry #1.  List and general description of entries to date.  Annual assessment if Revolution plausible.

Note: most characters appear in a number of entries, with many entries building on previous conversations.  Profile of characters.  You’ll catch on quickly.  Thanks for your time and interest…and comments.

Scene: Gelly, Jordan’s assistant, has been editing and updating a primer Jordan wrote about 2011.  Section starts Entry #235(Primer will be available as PDF in more traditional format after the first few entries.  The download will be updated regularly.) 

092615_2031_Characters7.gifGelly:  “Jordan, I finished another section.”

Jordan: “Good.  Which one?”

Gelly: “Unemployment rate.  Several things I didn’t know.”

Jordan: “Such as…?”

Gelly: “The unemployment rate lags behind economic growth.  Until I read your example, I never thought about why changes in the unemployment rate follow other activity.  I also didn’t realize how the rate was calculated.  The idea that the rate can go up as the economy is improving just didn’t seem right at first.”

TurtleneckJordan: “Understand it now?”

Gelly: “I think so.  Here’s the write-up.  I need to make one chart a little more clear.  We should also update some of the information for the Trump Administration.  But everyone should get the idea for now.”

Jordan: “OK, Gelly.  Thanks.”

——————- TEXT of CHAPTER —————

When Obama was president, most Republican politicians and conservative talking heads continually criticized the Administration for not creating more jobs. During president Obama’s first term, a typical comment from the right would be, “There has been no sharp decrease in the unemployment rate.  Therefore the stimulus package and deficit spending has not worked.”

On the surface, the comment seems fair. But what is the unemployment rate and how should we interpret changes in the rate?

How Would You Behave?  Situation: You own a business.  Sales and profits are down.  Lately there has been some uptick in sales but you’re not sure if it will last.  Question: Would you start hiring people the minute sales started to pick up or would you wait to be certain sales were going to continue at a higher level? Answer: Most all business owners wait…and the behavior is logical.

With this behavior in mind, let’s think about the unemployment rate.  If businesses wait to hire more people until they are certain the economy is getting stronger, how should the unemployment rate be characterized – as a “leading” economic indicator or a “lagging” economic indicator?

The unemployment rate is a “lagging” economic indicator – the unemployment rate does not decline until the economy is already weaker and the unemployment rate does not fall until the economy is already improving.  Thus, gains in employment will come after the economy has started to improve.

The chart depicts monthly changes in employment.  The data points above the “zero” line indicate increases in employment compared to the previous month.  Data points below the “zero” line indicate losses.  As you review the chart, keep in mind that employment is a “lagging” economic indicator so changes in overall economic activity occur before the changes in employment.   

17-02-18-total-employment-2007-2010

The economic decline that turned into the “Great Recession” started during Bush43’s second term and the decline accelerated sharply as Obama was taking office.  Early in the Obama Administration, Congress passed an economic stimulus package.  These type packages, whether implemented by Republican or Democratic administrations, take time to have an effect on the economy and an even longer time to have an effect on employment. 

Note that beginning October 2008, about 7-8 months after the stimulus package was passed, monthly job losses stabilized and the monthly losses decreased until the beginning of 2010.  Because the unemployment rate is a “lagging” economic indicator, the economy was actually starting to improve even though people were continuing to lose jobs and the unemployment rate continued to increase. 

While it makes for great political theater, those claiming that the economic recovery program implemented by the Obama Administration was a failure, conveniently failed to provide an accurate representation.  The recession of 2007-2008 was labeled the Great Recession because the economy almost sank into a depression.

Just how bad were job loss been compared to previous recessions? Much worse. The job losses were much sharper and more severe than in any other post-WWII recession.  The area within the ellipse reflects the losses in 2007-2008.  Notice how much steeper and deeper the losses are compared to other recessions.  (I’m working on a chart that is easier to read.)

17-02-19-bls-job-losses-recent-recessions-with-highlight

 

 

 

 

 

 

 

 

 

 

 

 

 

        So, if the job losses were significantly worse than previous recessions, wouldn’t you think any economic recovery should take longer?  Not if you’re a politician of the opposing party.  For all those criticized the Obama Administration for not creating more jobs, the critics should remember who was president when the recession started – and why the recession started.

Explaining the Unemployment Rate

Enough politics. Just what is the unemployment rate?   The unemployment rate is total number of people looking for work but unable to find work divided by the total work force.  The result is “unemployment rate” or percent of the workforce considered unemployed.

Part of the confusion lies in the definition of the “total work force.”  Total work force is the sum of people looking for work and people currently employed. If people are unemployed and have given up looking for work, they are not considered part of the workforce. Huh? Really? Yes, really. Here’s an example.

Situation A. 100 people are available to work – 90 are employed and 10 are unemployed and all 10 are actively looking for work.  Thus, the workforce is 90+10, or 100.  The unemployment rate is 10.0% (1-90/100).

17-02-18-unemployment-table

 

 

 

 

Situation B. Same 100 people as Situation A. However, after several months, 5 out of the 10 people unemployed cannot find work, become frustrated and quit looking for a job. What happens to the unemployment rate? It goes down. Yes, down, even though the total number of people stays the same.

The unemployment rate decreases from 10.0% (10 unemployed out of 100 in the workforce) to 5.3% (5 unemployed out of 95 in the workforce.) The unemployment rate decreases even though the number of people without work stays the same.

Even more confusing is when the economy improves, those who previously quit looking begin looking for jobs.  What happens to the unemployment rate?  The rate may actually increase even though the economy is improving.

Situation C.  Start with Situation B where 10 people were unemployed but 5 of the 10 quit looking for work. Now the economy starts to improve and the five people who quit looking start looking again. Only 2 of the 5 who quit previously find jobs right away but everyone who was not employed is again looking for work.

Situation C now has 92 employed, 8 unemployed.  What happens to the unemployment rate?  The rate jumps from 5.3% in Situation B to 8.0% in Situation C, even though the total number of people employed increased from 90 to 92.  Why?  Because the total workforce – the number of people employed and number looking for work increased from 95 to 100.  (Unemployment rate calculation, (1-92/100=8.0%)

Another problem interpreting the data is the unemployment rate includes workers who have jobs but are working less than full-time. These people are counted as “employed.” Using the same 100 people, if 15 are working say 30 hours per week instead of 40 hours per week, the 15 would be counted as “fully employed,” even if weekly income has been reduced.

While these calculations are not hard to understand, the method used to calculate the unemployment rate is not often explained, especially the effect of “under-employed” or “quit looking for work.” Understanding the methodology will help you explain to others why results of programs to reduce unemployment always lag economic growth.

(Reference material: Bureau of Labor Statistics website has vast array of information about employment, unemployment and how to interpret. http://www.bls.gov)

 

#238 Primer Cha 3: Is the Federal Debt Too High? Well, Not Really.

First-time readers, the dialogue in this blog is set in the future (sometime after the year 2020).  Each entry assumes there has been a 5th revolution in the US — the Revenge Revolution.  More about Revenge Revolution and author, Entry #1.  List and general description of entries to date.  Annual assessment if Revolution plausible.

Note: most characters appear in a number of entries, with many entries building on previous conversations.  Profile of characters.  You’ll catch on quickly.  Thanks for your time and interest…and comments.

Scene: Gelly, Jordan’s assistant, has been editing and updating a primer Jordan wrote about 2011.  Section starts Entry #235(Primer will be available as PDF in more traditional format after the first few entries.  The download will be updated regularly.) 

092615_2031_Characters7.gifGelly:  “Jordan, can you clarify something for me, please?  Is the Federal debt too high?”

Jordan: “Interesting question.  Why do you ask?”

Gelly: “Some people I know and some of the talk-radio bloviators keep saying…or at least they used to say when Obama was president…that the Federal government’s debt is too high.”

Jordan: “Then let me guess.  The follow-on comment, ‘The country needs to return to the fiscal-conservative days of the Reagan Administration.'”

parrothead_tnsGelly: “Exactly right.”

Jordan: “I find it interesting the claim about Reagan as a fiscal conservative…but what are the facts?  Here’s the question: ‘Since the 1960’s, under which president has the Federal debt as a percent of GDP (gross domestic product) increased the most?  (Note: In the early decades following WWII, Federal debt as a percent of GDP declined sharply.)

Gelly: “First, just what is the Federal debt?”

TurtleneckJordan: “Grab a cup of coffee and I’ll walk you through some of the basics.”

Gelly: “Good.  That should help me understand the rest of the primer.”

Jordan: “For non-economists, the Federal debt is essentially what you think it is…the amount of money the US government owes creditors. The Federal debt is similar in many ways to the debt you owe – mortgage on the house, outstanding car loan, student loan and credit cards.

One major difference. The US government can print money to pay-off its debt; you cannot print money…at least legally.

Is the Federal debt too high? Depends.

CashTo help answer whether Federal debt is too high, first let’s start by roughly adding up all your debt – mortgage on the house, loan on the car(s), outstanding balance on credit cards, etc. Let’s say your debt totals $250,000. If your income is $50,000 per year, your debt of $250,000 is too high. If you make $100,000 per year, your debt is reasonable. If you make $250,000 or more per year, you’re probably in very good shape.

So how do the examples of personal debt compare to the debt of the Federal government? Surprisingly, personal debt is generally higher, often 2-3 times more than household annual income. When you bought your first house, for example, how much higher was your mortgage (with interest) than your annual income?

If you were comfortable getting that big a loan for your house, then relax about the Federal debt.  The Federal debt is much lower proportionately than your personal debt.

Was Reagan a Fiscal Conservative?

The chart indicates debt as a percent of GDP from the 1960’s through early 2017. Most people who view the chart are surprised to learn that debt did not decline under Reagan/Bush.  In fact, under Reagan/Bush 41 debt as a percent of GDP just about doubled — from about 30% of GDP to almost 60% of GDP.  Based on the metrics used by many Republican to claim debt under the Obama Administration was “out of control,” Reagan should have been branded as a president leading the country toward bankruptcy.

17-02-12-gdp-growth-1950-2016

Republicans who brand Democrats as “tax-and-spend” need to be reminded that under the Clinton Administration that followed Reagan/Bush 41, the Federal government ran a surplus and total debt as a percent of GDP declined.  Yes, I understand the sarcasm in what’s supposed to be an apolitical primer.  However, without some prodding and poking, the “alternative facts” crowd will continue to make erroneous claims that Reagan was a fiscal conservative.

Federal debt as a percent of GDP climbed sharply under Bush 43 (2001-2009) Administration from about 55% of GDP to about 80% of GDP.  The primary causes were implementing a major tax cut, which decreased Federal revenues at the same time increasing spending for wars in Iraq and Afghanistan.

Under Obama, Federal debt as a percent of GDP increased sharply at the beginning.  The cause was primarily efforts to overcome a severe recession.  During the recession, which started toward the end of Bush 43, Federal government tax revenues fell sharply and Federal government spending increased sharply to help stimulate the economy.  In the latter years of the Obama Administration, annual Federal deficit declined as did the rate of increase Federal debt as a percent of GDP.

(For those thinking the government should cut back on spending in recessions, there will be a separate entry to explain why, in a recession, fiscal actions for the Federal government and individual households should be exactly the opposite.)  

Under the Trump Administration, debt as a percent of GDP is likely to increase. Trump voodoo-2015958and Republicans are pushing for a major tax cut, similar in many respects to the “trickle-down” tax cuts by Reagan and Bush 43.  “Trickle-down” economics is what Bush 41 famously labeled as “voodoo economics” in the campaign against Reagan.

In addition, Trump Administration has proposed a major infrastructure rebuilding program.  An equally ambitious infrastructure rebuilding program proposed under the Obama Administration was deemed “too expensive” by Republicans.  Apparently, the cost of such a program and the dramatic increase to the Federal deficit are no longer issues.  Mmm, wonder what changed the Republicans thinking?

Trump claims the additional expenses associated with government spending will be offset by additional revenues from accelerated economic growth.  Annual growth in GDP will somehow magically increase to an average 4.0%.  While 4.0% growth in GDP has been achieved periodically since WWII, such a high rate has not been sustained.  Further, the rate is often the result of the stimulus associated with large fiscal deficits.

17-02-12-gdp-growth-1950-2016

Given all the “don’t worry about the deficit because it will magically disappear” rhetoric now that Trump is in the White House, the next time a Republican claims policies of Democrats have crippled the country with debt, note that Reagan and Bush 43 administrations increased debt far more than any other administration since WWII…and Trump is likely to set another record for increasing the debt.  So much for being a “fiscal conservative.”

OK, What Really Caused the Debt to Increase?

  1. Republican-led tax cuts that did not translate into sustained economic growth, thereby creating more debt.
  2. Allowing taxes for Social Security and Medicare to be counted as “general revenues” and effectively used for other purposes. Such “baloney” accounting has allowed both parties in Congress to justify not raising taxes to pay for other programs.
  3. Belief by most Republicans that tax cuts for the wealthy will “trickle down” to middle and lower incomes.  There is no credible evidence to support such claims.
  4. Allowing, and even encouraging companies to relocate manufacturing outside the US, thereby reducing wealth creation and ability to collect tax on payroll and income.

Proposed Simple Changes to Policy.  Following are some simple changes to government policy that would have an immediate and positive impact on US economic growth. Some of these have been proposed previously and some are under consideration by the Trump Administration.  Serious consideration should be given to:

  1. Stop counting tax revenues for Social Security and Medicare as “general revenue.” It is OK to run a Federal deficit. Just make certain the amount of the deficit is understood and not understated by phony-baloney accounting.
  2. Recognizing that people who are unemployed do not need lower taxes.  Unemployed people likely pay no income taxes. Unemployed people need cash.
  3. Recognizing that people who are unemployed/under-employed spend a higher percentage of income than those employed, especially those with higher incomes
  4. Recognizing that people who work have more self-esteem than those who take handouts. Put the unemployed to work, even if the task is ”beneath their skill level.” There are many worthwhile projects that need to be completed.  If you don’t like this idea, then read some accounts of how government programs during the 1930’s New Deal programs positively affected lives of all income strata.  And check your own family history to see who benefitted.”

Gelly: “Thanks for the summary Jordan.  Seems to me for the president and Congressional leaders, maybe the most important guide about proposing changes to government economic policy is use some common sense.  Think before you act…or react to an idea. Thinking before you act was good advice from our parents when we were teenagers. Still relevant today.”

 

#237 Primer Cha2: Basic Economics and Common Sense Test

First-time readers, the dialogue in this blog is set in the future (sometime after the year 2020).  Each entry assumes there has been a 5th revolution in the US — the Revenge Revolution.  More about Revenge Revolution and author, Entry #1.  List and general description of entries to date.  Annual assessment if Revolution plausible.

Note: most characters appear in a number of entries, with many entries building on previous conversations.  Profile of characters.  You’ll catch on quickly.  Thanks for your time and interest…and comments.

Scene: Gelly, Jordan’s assistant, has been editing and updating a primer Jordan wrote about 2011.  Section starts Entry #235(Primer will be available as PDF in more traditional format after the first few entries.  The download will be updated regularly.) 

092615_2031_Characters7.gifGelly:  “Jordan, are you a dismal guy?”

Jordan: “What are you talking about?  Dismal?  Do I look that bad?”

Gelly:  In your write-up, you said economics has been called a dismal science.  And I know you love economics.  Seriously, I am not sure why it’s called ‘dismal’ since economic-based decisions can have such a profound impact on society.”

TurtleneckJordan: “As you said, I find economics quite exciting. After editing the primer, I hope you don’t think I’m so dismal.”

Chapter 2.  Basic Economics and a Common Sense Test. 

There are some basics of economics that we all need to understand. The “economics wonks” already know the basics…but the wonks aren’t the concern.  The concern is politicians who choose to ignore the data or cherry-pick the data and claim a result that the data do not support.  So, if you’re not an “economics wonk,” the primer is designed to help you understand some terms and statistics that are cited frequently but that you might not understand completely.

drone-manOne of these problems is data are not displayed in easy-to-understand charts. (Pardon me for using a plural verb with data but…OK, so I’m old school.)   In addition, the data are often cited without reference to previous data points or without the proper context. One of the goals of this primer is to explain some economic terms in language for non-economists.

Three comments about the primer before proceeding:

  1. If you want to learn more about a series of data or an economic indicator, start with the Federal government websites.  Bureau of Labor Statistics has an excellent data base and reasonably understandable explanations.  (www.bls.gov(Let’s hope the Trump Administration honors the history and integrity of the government’s economic data.  If BLS data are compromised or access denied by the Trump Administration, then check some academic websites – start with MIT, Harvard and Chicago, which all have a long history of Nobel Prize winners in economics.)
  2. The list of databases and examples is not comprehensive but selected to be relevant to discussions.
  3. Not everyone will agree with the items listed and/or the definitions. The primer is just that, a primer, and not a college textbook on economics. Please read it accordingly.

Much of my academic and professional life has included using economic indicators to forecast demand, primarily for sales of cars and trucks. The forecasts have been used to decide: (i) if new assembly plants required; (ii) how many cars and trucks to produce: (iii) what type marketing programs needed: (iv) how many workers required.  These-type decisions can affect the lives and incomes of thousands of people.

Some key lessons learned from many years of forecasting:

  1. Forecasts are always wrong!
  2. Goal should be to minimize the forecasting error for critical variables.  If the forecast is for an item where there is little credible historical data, the default position I use is start at the mid-point of what you think are reasonable high and low estimates. By starting at the mid-point, the worst is the forecast is 50% wrong…and virtually all the time, the error is far less.
  3. Math-based forecasting models are very helpful. The model, however, needs to be easy to understand. If you cannot explain the basics of the model to a non-economist colleague, the model is too complicated

Common Sense Test – Like Some Real Basic Stuff

goofy006Situation #1: A family has no money because no one can find work. Then a family member is employed by the government to complete a task – say building a road or building a school.

Question #1: Is society better off with the person working and being productive or doing nothing…and likely receiving some form of assistance?

Situation #2: “A person has no money and can find work only in minimum-wage jobs.”

Question #2:  Will a person with a minimum-wage job benefit from a tax cut?”

Tax Cuts for the Unemployed?  

When the Bush 43 Administration was faced with declining employment and decreasing real personal income, the answer was not to implement programs similar to the New Deal but to implement tax cuts. I realize parties have platforms and some people are fundamentally opposed to any government programs. But, c’mon, use some common sense. If you were unemployed, would you want a tax cut, which is of no value since you pay little, if any, income tax… or would you want a job that provided cash to buy food, pay the mortgage and utilities? This is not a complicated question.  (Trump Administration – are you listening?  In another segment, we’ll address the societal benefit of “trickle-down” economics.)

Laws of Economics Are Like the Laws of Sciences

The laws of economics are much like the fundamental laws of physics and chemistry. formula-scienceFrom time to time someone claims to have invented a perpetual motion machine that defies the fundamental laws of physics or to have invented a battery that will last forever. And usually sooner rather than later the claims are proved false.

The same seems to apply to some who want to defy the fundamentals of economics. Despite claims to the contrary, wealth for society cannot be created by transferring money between individuals, selling services, offering more medical care or a plethora of other activities.  The only way to create wealth over the long-term is manufacturing.

money-in-pocketTransferring money between pockets helps individuals but offers no benefit to society. Stop and think about it. If you go to the doctor for a problem, where is the value add to society? If you go to a restaurant, where is the value add for society? Money has changed hands but there is no more wealth in society than before.

New-Age Economy Is Horse Pucky

The belief that a new-age “service” economy adds wealth to the country is horse pucky. Yes, certain services may make individuals more productive but at the end of the day, it is manufacturing that creates wealth.

The Chinese get it. I’m afraid many decision-makers in the US don’t get it — whether manufacturing-production-operations-jobsin Congress or in the board room. Unless the US changes policy toward retaining manufacturing and changes the system of rewarding executives for transferring wealth by relocating operations outside the country, the US is headed for a sustained decline in wealth and standard of living.  (In other entries, we’ll discuss: (i) international trade as a critical component of economic growth.  And, no, trade can’t be just one way; (ii) what activities constitute “manufacturing.”  Do economists…and policy makers…need to rethink the definition of “manufacturing”? )

 No country can sustain itself by just providing services and transferring money between pockets. The US needs a healthy manufacturing sector to survive.

(Trump Administration Policies re Manufacturing.  The Trump Administration is right to emphasize the need for manufacturing in the US.  The claim that the US manufacturing base has been completed eroded is false.  The claim that Trump Administration’s policies will bring back manufacturing jobs to industries that formerly included many semi-skilled workers – automotive, e.g. – is sheer folly.  Many semi-Coal Minerskilled and some skilled jobs have been eliminated by technology.  The idea of numerous jobs in “clean coal” is even more ridiculous.  An even greater proportion of mining jobs have been replaced by technology and electricity production is shifting away from coal.  More about these issues in a later entry.)

#236 Primer Cha 1: You Can’t Drive Very Fast Only Looking in the Rearview Mirror

First-time readers, the dialogue in this blog is set in the future (sometime after the year 2020).  Each entry assumes there has been a 5th revolution in the US — the Revenge Revolution.  More about Revenge Revolution and author, Entry #1.  List and general description of entries to date.  Annual assessment whether Revolution plausible.

Note: most characters appear in a number of entries, with many entries building on previous conversations.  Profile of characters.  You’ll catch on quickly.  Thanks for your time and interest…and comments.

092615_2031_Characters7.gifGelly: “Jordan, I’ve finished editing the first few chapters.”

Jordan:  “Good.  Make any changes?”

Gelly: “I tried to make the text more current by including excerpts from papers you wrote later, especially during the early days of the Trump Administration.  Hope adding the more recent information was OK.”

Jordan: Glad you added the updates.  Thanks.  Let me take a look.”

(Chapter 1 of Primer.  PDF Download will be available after a few more entries.  Text of download will be formatted in columns.)

windshield-screenImagine this: You need to get someplace quickly. You jump in the driver’s seat and start the car. But the windshield is covered by one of those sun screens. You can only see by using the rearview mirror.

Question: How fast can you drive when you can only see out of the rearview mirror? Not very fast and not very safely.

Where do we start? By removing the sun screen blocking the window. Start looking forward instead of only looking to the past. Duh, the future is different from the past. Yes, learning from the past is important so check the rearview mirror periodically, but spend more time looking ahead than looking behind.

fork-in-the-roadYes, like all countries, the United States needs to update its approach to economic development.  However, the US is facing a major fork…maybe forks…in the road.  The combination of a bifurcated economy, concern about our competitive position worldwide and a polarized Congress makes prospects for longterm growth problematic.  Without a change in approach the US could fall behind global competitors.

Think it can’t happen?  Roughly 100 years ago GDP/capita in Argentina was about 80% of the US GDP/capita.  Today, GDP/capita in Argentina is a little over 30% of US GDP/capita.  Argentina made some bad strategic economic decisions.

But what about decisionmakers in the US? Why are most people in public positions, elected officials and many CEO’s, seemingly reluctant to take a stand on issues outside what is perceived as “mainstreamthus the analogy of not driving fast while looking only through the rearview mirror?

rearview-mirror-with-diceAnd why, in 2017, is President Trump’s solution to “Make America Great Again” based on ideas that might have worked when kids hung dice on the rearview mirrors?  The ideas are great for nostalgia but they have no basis in today’s economic world, no recognition how technology has affected manufacturing employment and no recognition of the impact on jobs of emerging technologies. 

donald-duck-wishing-wellAnd, no Donald, merely claiming that GDP will increase 4.0% or more each year will not make it happen, nor will claiming “clean coal” bring jobs to back to West Virginia, nor will tweets or tariffs.  Nor will pillorying anyone, even well-respected office holders, who question the logic of these retro positions.

So, What Are They Thinking?  Given that kind of back-asswards thinking, it is no wonder that many of us get so frustrated with some government policy decisions. Is it no wonder we get angry when a CEO gets a large bonus after laying off workers? It is no wonder we get angry when tax policy encourages companies to send jobs overseas?

dude-with-questionAmong voters left, right and middle, many decisions by government and business seem to make no sense. In fact, many decisions by government and business seem to be exactly opposite of the best interest of the United States and its citizens.

Does Back-Asswards Have Negative Consequences?  Yes, most emphatically yes.  In searching for answers to what seem to me to be counter-intuitive decisions, three situations came to mind: (i) the town where I was raised and received my primary and secondary education has been devastated by job losses; (ii) my first post-college employer and a company which was the heart of US manufacturing for decades, General Motors, filed for bankruptcy (in 2011); (iii) thinking and analysis have been replaced by babble spouting talkinghead entertainers.

tweetyRather than pouting and shouting” or even worse, “tweetingabout these frustrations, I decided my therapy was to write a primer outlining how using basic economic principles, business principals and more practical, affordable solutions to help address some policy issues facing the US public and private sectors.

A few years ago I wrote a short paper titled “Why a Healthy Domestic Auto Is Important.” After distributing to a few friends and colleagues, I was surprised by how many commented they had not heard such rationale, agreed it made sense and as such changed their mind about whether the US government should have supported bailing out General Motors and Chrysler.  (The paper is included in this primer.)  

With that encouragement I drafted other essays, which will be part of the primer. My hope is at least a few people read some or all of the primer and begin to think more broadly and take action on those thoughts.

bookletThe primer is designed to be apolitical. The ideas are not exclusively left or exclusively right. Quite honestly, the ideas are so common sense and so basic that at times I am embarrassed to publish them. You would think everyone knew these fundamentals. But apparently not since many are not applied, not understood or lost in political rhetoric.

The primer is also designed to help describe what I consider the cause of the deterioration in the ability of US companies to compete effectively worldwide. Some essays are purely educational; others propose solutions.

open-mindAs you read these essays, please (i) keep an open mind about the analysis and proposed solutions; (ii) consider how you can implement part or all of the idea, whether you are a member of Congress, a CEO, employee or citizen; (ill) discuss ideas with friends, family and colleagues. The early entries are intended to offer an understanding of some common economic principles and terms. Other entries include common questions, claims and arguments for/against a particular government policy or action.

When you listen to others make claims about what government policy needs to change, or make such claims yourself, then think about the context of the argument and if some additional data or analysis would change your position.

The primer is work in progress. The intent is to add chapters regularly as topics arise. I will update existing chapters for new information and any necessary corrections.

professor4The primer is not a source authority on economics.  I would never be so presumptuous.  So, if you are schooled on these subjects, please scan the chapters. If nothing else, you can offer ideas on how to improve them.

I hope you find the primer thought provoking, entertaining at times and educational. Please send ideas other topics as well. This primer is the beginning of a journey. I need some guidance on where to go next. Thank you for your time.

For Your Information: If you are curious about my background, raised in Danville, IL, then a town of almost 50,000 (now closer to 30,000). Danville is about 120 miles south of Chicago. Like many Midwest towns in my formative years, Danville was a mix of industrial plants surrounded by farms.  Danville offered a good mix of ethnic groups and religions. The public school system was well respected, producing more than its share of successful entertainers, astronauts, educators, doctors and corporate executives.

  • Education: Drake University (Des Moines, IA); Massachusetts Institute of Technology.
  • Job locations: Detroit area (twice), New York, Boston, San Francisco, Los Angeles, Charlotte (currently).
  • Politics: Fervent independent. Have voted for wide range of Republicans and Democrats. Some in the south consider me a liberal. I remind them of the history of the Republican Party…and that the Civil War ended 150+ years ago, ending with a gentle reminder to “get over it.”  I skip “you lost.”

 

#235 The Set-Up. Primer from “Practical, Affordable Policies Institute” (Part 1)

First-time readers, the dialogue in this blog is set in the future (sometime after the year 2020).  Each entry assumes there has been a 5th revolution in the US — the Revenge Revolution.  More about Revenge Revolution and author, Entry #1.  List and general description of entries to date.  Annual assessment whether Revolution plausible.

Note: most characters appear in a number of entries, with many entries building on previous conversations.  Profile of characters.  You’ll catch on quickly.  Thanks for your time and interest…and comments.

Scene: Jordan’s office in Washington, DC

Gelly:  “At the beginning of each year, I clean out some file drawers.  Look what I ran across.”

Jordan:  “I’d forgotten about these.  I must have drafted some of these in about 2010-2011, but never published them.”

092615_2031_Characters7.gifGelly:  “What were they for?”

Jordan:  “Each article was to be a chapter in a primer about how to develop practical, affordable government policies to address key issues.  The primer would be the foundation for an organization I thought of creating – the working name was the Practical, Affordable Policies Institute, as known as…”

Gelly:  “PAPI.  I like that name.  My ‘pappy’ always had good, practical advice for our family.  So you wanted to become Washington’s ‘PAPI’, right?”

fatherly-adviceJordan:  “You know better than that.”

Gelly:  “Well, someone must have wanted your advice, at least some idea about what was in the primer.”

Jordan:  “Not that many people knew about the primer.  As a sense check, I circulated the articles within a fairly small group inside the Beltway.  Wanted to get reactions and ideas how to improve.” 

Gelly:  “That explains the phone call in the early days of the Trump telephoneAdministration.  A couple of staffers asked for copies of the primer.  I wasn’t sure what they were talking about.  Remember when I asked you about it?”

Jordan:  “Yes and I was out of town…somewhere.  I emailed the staffers a copy but you and I never talked about the primer when I got back.  The staffers that called probably were part of the review group.”   

Gelly:  “Now the rest of the conversation with the staffers makes sense.  They were concerned that senior officials in the Trump Administration had no clear policy for addressing many aspects of the economy.”

toss-out-iconJordan:  “You mean they didn’t consider Trump’s tweets and ‘toss out whatever Obama did’ as real policy?”

Gelly:  “I still shudder when I think about Trump’s approach early on.  Do you think these articles actually helped turn things around?”

Jordan:  “In Washington, as you know, a good idea has many fathers.  But, I presume the staffers did distribute the primer to some people in the Trump Administration…very discreetly, of course.”

Gelly:  “As I flipped through the pages, some of the articles seemed to be more about approach than actual policy.”

donald-duck-wishing-wellJordan:  “True.  I thought the articles about approach might be helpful since to make something happen – accelerate economic growth, for example – you can’t simply wish it to be true and expect results.”

Gelly:  “So, to implement a policy and make it work you really do need a plan and a disciplined approach to implementation.”

Jordan:  “Yes, and the statement seems so incredibly obvious.  I remember some people finished an article and asked…and I think rightfully so…’what’s the value here?  What’s being discussed is just common sense.’”

Gelly:  “Funny, I thought the same thing about some topics.  But I agree that common sense seems to get lost on some people when they’re inside the Beltway.”

Jordan:  “Let’s hope it doesn’t get lost for us.”

Gelly:  “Another question.  Do you think if all the ideas in the primer were implemented, the country could have avoided the Revenge Revolution?”

TurtleneckJordan:  “That’s a real stretch.  What I do know is if the Trump Administration had considered more carefully the essence of what was outlined in the primer, then the likelihood of a Revenge Revolution would have diminished.  At a minimum the Revenge Revolution would have been later and less disruptive.”

Gelly:  “You ever going to publish these?”

Jordan:  “Should I?  Whadda think?”

Gelly:  “My vote is ‘yes’ you should publish.”

Jordan:  “I’m not sure what all the topics were.  You have a list?”

Gelly:  “Here’s a list so far.  I think there are a few more.”

  1. You Can’t Drive Fast Looking through the Rearview Mirror
  2. Basic Economics and Common Sense
  3. National Debt Is Too High.  Well, Not Really.
  4. Unemployment: Always a Lagging Indicator
  5. Seasonal Adjustments and Trend Lines
  6. Manufacturing Creates Wealth
  7. Impact of Losing the US Manufacturing Base
  8. Eliminating the Incentive to Pillage
  9. Recruiting New Plants or Overseas Manufacturing
  10. Practical Policies to Rebuild US Manufacturing
  11. Why a Healthy Domestic Auto Industry Is Important
  12. Securing Equity Capital for Start-Ups, Emerging Companies
  13. Capitalizing on Global Warming

Jordan:  “I’d forgotten about a few of those.  Gelly, here’s an idea. I’ll consider publishing the primer…rather we’ll consider publishing the primer…after you edit the various entries.”

bookletGelly:  “You want me to edit?”

Jordan:  “I know some of the data needs to be updated, which I can help with.  But having you edit will make sure the papers are understandable to the average reader.  I tried to make the language simple but not sure I always succeeded.”

Gelly:  “How quickly do you want the editing finished?”

Jordan:  “Weave the editing into your normal schedule.  Finish at least one per week and try to get two finished.  And, then we’ll publish as you finish, OK?”

Gelly:  “We’ll publish?  But these are your papers.”

Jordan:  “No.  They’ll be our papers and we will publish.”

(Entries for the primer will be published at one or two per week.  Entries published to date will be available for download on the “Policy Primer” page of the blog.  Format will be double columns.)  

#234 The Bet: How Long before Trump Leaves Office?

First-time readers, the dialogue in this blog is set in the future (sometime after the year 2020).  Each entry assumes there has been a 5th revolution in the US — the Revenge Revolution.  More about Revenge Revolution and author, Entry #1.  List and general description of entries to date.  Annual assessment whether Revolution plausible.

Note: most characters appear in a number of entries, with many entries building on previous conversations.  Profile of characters.  You’ll catch on quickly.  Thanks for your time and interest…and comments.

Scene: Jordan’s office Washington, DC

092615_2031_Characters7.gifGelly:  “We have an unexpected visitor.”

JC:  “Hi Jordan.  Glad to see me?”

Jordan:  “Of course, JC.  I’m always glad to see you.  And you’re in town because…?”

JC:  “Greenie is adding a few chapters to her book about the causes of the Revenge Revolution.  She wants me to research if and how the tone of the transition after the election and the tone of the Inaugural speech might have influenced the effectiveness of the administration.”

092615_2031_Characters1.jpgJordan:  “Interesting topic.  So, if the transition was smooth, the incoming might be more effective, right?”

JC:  “Exactly…and vice versa.”

Jordan:  “Speaking of inaugurations, do you remember our conversation in 2017, just before Trump was sworn in?”

JC:  “Of course.  And the loser, or winner depending on one’s perspective, never paid off the dinner bet.  Whadda say we have the payoff this evening?”

TurtleneckJordan:  “Gelly, am I free this evening, please?  And, if so, would you like to join us for dinner?”

Gelly:  “Yes, you’re available and I would love to join you guys.  But I don’t know all the background about the bet, just bits and pieces.”

JC:  “Here’s the short version.  Remember I stopped by the office a few days before Trump’s inauguration?”

Gelly:  “Yes, but just after you got here I had to leave for a meeting.”

(Conversation from January 17, 2017)     

Jordan:  “JC, you must be in town for the inauguration.”

JC:  “You’re right about the inauguration but not here for the swearing-in.”

Jordan:  “Listen, if you need tickets, I can get you a couple.  Lots of members of Congress are not attending.”

tweetyJC:  “Not on your life would I attend.  I’m in town to join a protest march against Tweety Bird.”

Jordan:  “Now, now, you should show the incoming president some respect.”

JC:  “Why?  He never showed any respect to president Obama.”

Jordan:  “But still.”

JC:  “The Republicans never showed any respect for Obama either, especially old Mitchie McConnell.  What a hypocrite.”

Jordan:  “Some people think McConnell was just doing his job…and quite effectively.”

RantJC:  “Now we’re headed into an era where the Republicans…more appropriately called the Republicants and Republirants…actually have to do something other than say ‘no.’  And we’ve got an incoming president who thinks an oligarch is a hero and people with education and experience are trash.”

Jordan:  “The oligarch – you mean POTUS’ love for Putin?”

JC:  “Please, the Trumpster is not yet POTUS and, yes his love for Putin.  I mean really, Jordan, aren’t you upset?  The man is crazy!”

Jordan:  “You are a bit pumped.  Why do you say he’s crazy?”

JC:  “Look at his behavior.  Remarks during the campaign were bad…and frequently way out of line for a presidential candidate.  But his behavior and remarks since the election have been worse.”

Jordan:  “Such as…?”

trump-scowlJC:  “The list of ‘stupid is as stupid does’ is almost endless and keep growing daily.  Let’s start with trashing Representative John Lewis.  Trump tweets that Lewis is ‘all talk and no action.’  Really, Donald?  Lewis no action?  Every read any history?  Of course not.  And Donald what have you done that merits noteworthy ‘action’?”

Jordan:  “You consider that the attack on Lewis classifies him as crazy?  Maybe it was just a bad tweet.”

JC:  “You know my degree…my degrees are in psychology.  Diagnosing from afar is a bit risky.  But his behavior is so blatant and so consistently outside the norm that I goofy006think there’s a rock-solid case to label him as delusional.  He has exhibited no reasoning skills whatsoever.  In fact I’m not sure he can differentiate between what’s true and what’s not true.”

Jordan:  “Could his behavior be an early sign of Alzheimer’s?  Although when first diagnosed I think he was older than the Donald, Fred Trump was afflicted with Alzheimer’s.”

JC:  “I didn’t realize his father had Alzheimer’s.  Wouldn’t wish that on anybody.  Early-stage Alzheimer’s really hard to separate from some other mental illnesses and even dementia caused by say a chemical imbalance.”

Jordan:  “No way to really know?”

JC:  “If we take his brain out we’ll know for sure.  I know, I know.”

Jordan:  “So what’s the solution?  Your protests aren’t going to change his behavior.  He’s so thinned-skinned he’ll probably double down and bully even more people.”

gangster-cartoon-clip-art-540pxJC:  “The only solution I know of is to take him out.  Where’s the mafia when you need them?”

Jordan:  “You serious?  Take him out?  Really?”

JC:  “Tell me how else to control the guy?  He shows no sign of understanding the complexities of many domestic and international issues, let alone how to solve problems.  Tweeting does not constitute well thought-out policy.  He’s simply dangerous to the country.”

Jordan:  “I agree he doesn’t come across as the brightest bulb around but many presidents have not been the smartest guy in the room.”

JC:  “But no president that I’m aware of exhibited such irrational behavior.  On the Trump scale of behavior, Nixon look almost normal.”

Jordan:  “If he’s so bad, then how long do you think he’ll last?”

JC:  “Want my honest opinion?”

Jordan:  “Yes, please.”

JC:  “He’ll be taken out after a year…OK, I’ll give him two years.”

kick-in-the-pantsJordan:  “You really mean taken out…or just booted out, like impeached?”

JC:  “He will not be president in two years.  And I’ll bet you a dinner and drinks I’m right.”

(End of earlier conversation.)

Gelly:  “So now I have the whole story.  And I’m invited to the payoff this evening.”

(Entry to be concluded sometime.)

#233 Is Revenge Revolution Still Likely? Yes, Outlook Worse. (Part 2 of 2)

First-time readers, the blog is usually constructed as a dialogue between characters.  The dialogue is set in the future (sometime after the year 2020) and assumes there has been a 5th revolution in the US — the Revenge Revolution.  More about Revenge Revolution and author, Entry #1.  List and general description of entries to date.  Annual assessment whether Revolution plausible.

Note: most characters appear in a number of entries, with many entries building on previous conversations.  Profile of characters.  You’ll catch on quickly.  Thanks for your time and interest…and comments.

Normally, I allocate one entry every six months or so as a “sense check” sense-checkwhether the 5th US revolution, aka Revenge Revolution, seems plausible by say 2020-2025.  Given developments since the election of Donald Trump, and especially given recent actions and statements by the president-elect, I felt compelled to expand “sense-check” entry #232.

If you want to read no farther, my conclusion is this.  A Revenge Revolution is not just a possibility, but is quickly moving to the category of “highly likely.”  In addition, the US is likely to experience another president being assassinated, or at a minimum removed from office.  OK, now the rationale.

Believe what you want…and I don’t care if you voted for Clinton or Trump or a 3rd party…Trump continues to exhibit behavior that most politely can be described Howdy-Doodyas bizarre and more realistically described as Howdy-Doody like, reacting as would a puppet when various inexperienced people pull the strings.  There is no consistent pattern of behavior, just jerky, random motions. 

Trump’s campaign promised he would effectively “drain the swamp.”  Well, if you want to change the way an organization behaves, rational people know you  cannot simply “blowup” the infrastructure of the organization and expect it to remain standing and operate effectively.     

If you want to lead an organization through the change, you have to 092615_2031_Characters12.gifdemonstrate leadership qualities yourself.  The person trying to initiate the change cannot simply give staff members the finger, belittling the organization they work for and then expect staff members to follow proposed changes enthusiastically.  Plus, if one is going to make change, then there must be a plan to follow that leads away from the current way of operating to a new way of operating.  Change without a clear plan is a sure recipe for chaos. 

So far, Trump has not disclosed anything remotely resembling a plan.   And worse, Trump continues to demonstrate an apparent inability to develop a cohesive plan.  Sending tweets does not constitute a plan.  OK, so you want to questioncancel Obamacare.  What is the replacement?  The approach is not like tearing down a building before you’ve decided on plans for the new building and converting the land to a parking lot while building plans are crafted.  Such an approach won’t work for making changes to health care, or EPA, or Education or any other agency. 

Assessing the structure and efficiency of the CIA seems a fair goal.  But if you expect support for such an assessment, why on earth would you claim that Julian Assange and WikiLeaks provide more credible information than the CIA?  Such Self-Destruct-Buttonremarks not only fall in the category of “stupid is as stupid does,” but self-destructive.  Such remarks can affect national security and beg for some covert operator(s) to take out “the problem”, i.e., the Donald.  If you think such an idea is impossible in the US, then you’re being incredibly naïve or smoking way too much weed.

If you want the support of the military, it won’t result from merely appointing a couple of generals to your staff.  If you want support of the military, would you military-clip-art--military-clipart-8claim to know more about field operations than generals in Iraq, Afghanistan and elsewhere? 

If the wacko rhetoric had stopped at the end of the campaign, then many in the affected agencies might have sighed and agreed to move on.  But, no, the wacko behavior has not stopped.  The wacko behavior continues unabated and, if anything seems to have ratcheted up.  Before being briefed by the CIA, the Donald claimed to know “what no one else knows” about potential Russian hacking.  Well, Donald, that means one of two things – either you’re wired to Putin or you’re stupid.

I have a friend who claims Trump is a great negotiator and incredibly smart.  Trump might know how to negotiate a real estate deal, although the track record laughing-manis anything but stellar.  But Trump incredibly smart?  That’s one of the funniest statements I’ve heard in years.  The man cannot put a coherent paragraph together.  I realize many Trump supporters might not care what he says, but a lot of high-powered people worldwide do. 

If his words and tweets have to be interpreted by staff…as they are now…then how do critical messages get communicated to government agencies, the public and other world leaders?  Why not go ahead and tell the military to launch nuclear-explosionnuclear missiles…and then sometime later have a staffer clarify the remarks by claiming that’s not what he really meant to say.  Oh well, nuclear war means more new buildings are needed…and the Trump organization can build them. 

Maybe flaunting social norms, ignoring the press, disregarding protocol and thumbing your nose at possible conflicts of interest feeds the Donald’s ego and makes him feel important.  But, Mr. President-elect, you are setting up yourself and the country for failure.  Your behavior is  Richard Nixon on steroids.  Nixon was able to resign.  You are likely not to have that option.

092615_2031_Characters8.gifDictators in other countries might be able to bully the masses and stay in power.  What’s different about the US is the number of arms held by citizens.  Remember the 2nd Amendment?  And, in case you’ve forgotten, thanks to the NRA many of the arms owned by the citizens are military style and military caliber.  Oops.    

Some icing on the cake.  Discussion of and/or Congressional attempts to overthrow the basic operations of the Federal government, including Social Security, Medicare and some form of health insurance, will add fuel to an environment that is ripe for a revolution.  I find it interesting that soon after the election, I received an email from an ardent Trump supporter, asking me to sign a petition to ensure Medicare is not Connecting Dotschanged.  Some Trump supporters are starting to connect the dots and apparently are not very happy.  Think about this situation – if a segment of the population starts to rebel using firearms, even a small segment of the population, the local police and military will find it nearly impossible to maintain control.

As for Trump himself, while the Secret Service might be able to protect the president, Trump’s primary NY residence, Trump Tower, and other residences and properties associated with Trump will be easy targets.  Even for Trump Tower, the Secret Service cannot shutdown commerce on 5th Avenue just because Trump or some of his family is in residence.  Even more challenging is how the Secret Service will prevent IED-drones from being launched from near-by Central Park or even from New Jersey.  OK, so a single drone won’t bring down Trump Tower, and maybe five drones won’t…but five drones with high explosives can cause serious damage and a major fire.

american-revolution-728714Once it starts, the Revenge Revolution will not stop with taking out one key figure in government.   Unfortunately, if Trump is assassinated then it is likely vice-president Pence will be taken out as well.  Additional targets could be those in the Cabinet and Congress who are perceived to be destroying basic rights.

Do I hope I’m wrong with this prediction?  Yes, I hope I am wrong.  The segment has not been fun to write, believe me.  But like it or not, what we’ve not seen in the behavior of the president-elect is any indication he understands the gravity of the job as president.  Further, none of his remarks, tweets and other actions Turtleneckindicate a level of maturity, or even intellect, required to be the US president.  A couple of days ago Vice-President Joseph Biden was quoted as telling the president-elect to “grow up.”  Joe, you comment is spot on.  Unfortunately, for the US, and the world, the president-elect seems incapable of growing up.  And aside from that Mrs. Lincoln, how was the play?