#232 Year-End Review. Is a Revenge Revolution Still Likely? (Part 1 of 2)

26 Monday Dec 2016

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.

Special 2016 Year-End Review. Is the premise of this blog realistic? Is the US headed for a 5^th revolution sometime after 2020 – the Revenge Revolution? Or is the premise more like “fake news,” which became so prevalent leading up to the election and continues today? The blog about a 5^th US revolution, the Revenge Revolution, was first published in late 2013 – before the campaign for the 2016 presidential election heated up and certainly before anyone took a Trump presidential bid seriously, including Donald Trump.

One can legitimately argue that the Revenge Revolution has already begun — with the election of Donald Trump. Who would have thunk Donald Trump would replace an older, more famous Donald, let alone become president?

Yet, a large percentage of the population voted for a candidate with no prior political experience, no experience running a large organization (the Trump organization despite claims to the contrary is quite small with only about 150 staff members, including family), no demonstrated understanding of macro and micro-economics, no demonstrated understanding of international relations, no demonstrated desire to learn…and a very long record of behavior that many people characterize as unethical and even immoral.

Further, the claims by Trump during the campaign were so outlandish and contrary to facts, that by historical standards, he should have not progressed past one or two primaries. Despite these flaws, Trump gained sufficient votes to win a majority of the Electoral College and become the president elect. I note the Electoral College because Hillary Clinton received about three million more popular votes than Donald Trump.

From my perspective and what I find ironic, is many of the people who voted for Trump seem the most likely to initiate the Revenge Revolution. Why? Because the promise to those voters about returning America to the days of widespread manufacturing and mining jobs for those with limited technical skills is impossible to keep.

As discussed in this blog, I agree some of the manufacturing jobs lost in the US have been shipped to countries with lower labor costs. But the jobs shipped elsewhere are going to suffer the same fate as many manufacturing jobs in the US – being replaced by technology.

For Trumpsters, the reason you have a cell phone, flat-screen TV, iPad, fast internet speed and a car with a bunch of electronic do-dads, is the same reason there are robots doing many of the jobs in the manufacturing and mining sectors (and other sectors as well) formerly done by semi-skilled and even some skilled labor. As unpleasant as this might be for Trumpsters, your vote does not count whether your job is replaced by a robot. You have about as much influence on the fate of your job as 100 years ago when horses couldn’t vote whether families bought a horseless carriage.

In addition, while waiting for the non-existent manufacturing jobs to return, the Trump Administration will likely attempt to dismantle or restructure the basic financial foundation for many retirees – Social Security and Medicare. Although efforts to radically change Social Security and Medicare seem unlikely to succeed, the mere attempt will create widespread anger among today’s Trumpsters.

A few more reasons of a long list why the Trumpsters…and others…will become increasingly incensed.

· Cabinet appointees. Many appointees have no experience running a large organization, public or private. Further, many appointees were selected because of intense opposition to the purpose of the agency – Education, HUD, HHS, EPA, Budget, Interior, etc.

· Financial conflicts of interest. Several cabinet appointees as well as Donald Trump/Trump family are likely to be charged with significant financial conflicts of interest. Many of the people who voted for Trump because of alleged financial conflicts of interest by Hillary Clinton and the Clinton Foundation, will eventually tire of the claims that (i) the president cannot have conflicts of interest and (ii) charges of conflicts by cabinet members are being fabricated by Democrats and the media. The conflicts in the Trump Administration are likely to be so blatant that even the most ardent supporters will be angered.

· Irrational behavior by the president on a number of fronts – nuclear weapons, trade agreements, economic policy are part of a long list. The challenge to other countries of trying to outmatch the US with nuclear arms will be the turning point for many older Trumpsters. These Trumpsters remember as children there was widespread fear in the US of a nuclear holocaust.

· Unbecoming boorish behavior by the president, his direct staff and some cabinet members. The public and even the Republican members of Congress will tire of tirades by the president and staff over even the most minor criticism. The American people want the president and staff to be role models and act like adults, rather than petulant 4-year olds…or even worse, neighborhood bullies.

One final thought…and I’m unsure if the event will have any effect on the likelihood of a Revenge Revolution. To me it is unlikely Trump will finish a 4-year term, whether the term ends because he is forced from office or incapacitated, physically or mentally. If Trump leaves and Mike Pence assumes office, there will be little calming of the unrest among the populous since many voters consider Pence more radical than Trump. Even if Pence is more moderate than Trump in the attempt to restructure agencies and programs — Social Security, Medicare, etc. — his policies will be unable to fulfill many of the campaign promises made to Trumpsters, especially bringing back manufacturing jobs.

Throughout history revolutions have been caused by extreme frustration among the populous. Repeatedly over-promising and under-delivering, especially to ardent supporters, is a sure recipe for creating extreme frustration…and the Revenge Revolution.

Note: after this segment was written, I decided to write another segment about a possible Revenge Revolution. The segments are not continuous but complementary.

#231 Lessons from Revenge Revolution: Trump’s ‘Incompetents Club’ Cabinet (Part 7 of 7)

18 Sunday Dec 2016

Posted by Jordan Abel in Federal Budget, Gov't Policy, Lessons of Revolution

≈ Leave a comment

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.

Gelly: “Drone Man, nice to see you again. I thought you were headed back to your granddaughter’s tour group.”

Drone Man: “Just as I got off the elevator in your lobby she called and said there’d been a delay of an hour or so. So, Gelly, if it’s OK, I’ll take that cup of coffee you offered a few minutes ago.”

Gelly: “Of course. Come on in. Jordan and I were just taking a short break.”

Jordan: “Welcome back, Drone Man. So we have you for another hour or so, eh?”

Drone Man: “If you can put up with me.”

Jordan: “It’s tough but we’ll try.”

(Gelly brings Drone Man coffee.)

Drone Man: “Thanks for the coffee Gelly. And since I interrupted you guys, I have another favor.”

Jordan: “Which is…?”

Drone Man: “In discussing lessons learned from the Revenge Revolution, I’ve not heard much about the Trump Administration…other than some lessons about what not to do for economic and tax policies.”

Jordan: “You have a specific topic in mind?”

Drone Man: “What about the lessons learned from Trump’s selection of various cabinet positions and heads of agencies?”

Jordan: “You mean Trump’s appointments to the ‘Incompetents Club?’”

Drone Man: “C’mon. You really don’t mean the appointees were incompetent, do you? Lots of smart people.”

Gelly: “Jordan, Drone Man makes an interesting point. These were smart people. What do you mean?”

Jordan: “Would either of you hire me to manage your brain surgery?”

Drone Man: “Of course not. That would be stupid. What do you know about brain surgery?”

Jordan: “Then stupid is as stupid does.. Why nominate a brain surgeon to be head of HUD (Housing and Urban Development). Just because he lived in public housing as a kid, doesn’t mean he knows how to manage the agency. The same applies to any number of Trump’s appointments – EPA, DOE, Interior…and the list goes on. Zero knowledge of the agency they were to manage.”

Drone Man: “Look, Trump was trying to ‘drain the swamp.’ He needed to appoint people who were not connected to the agency.”

Jordan: “If you’re going to drain the swamp, don’t you think you should put someone who knows something about swamps?”

Gelly: “But didn’t Trump claim that people who knew the swamp were the problem? Therefore, why appoint them?”

Drone Man: “Keep poking him, Gelly.”

Jordan: “My view is Trump was focused on the wrong target.”

Gelly: “Well, then who’s to blame for the swamp if it’s not the bureaucrats at the agencies?”

Jordan: “A group that few people really think about as a core problem – Congress. Oh, yes, people think some members of Congress are too self-centered and non-responsive.”

Gelly: “What about voters? People keep electing the same congressional rep. There’s very little turnover.”

Jordan: “I agree voters share part of the blame. But, unlike legislators in Congress, voters can’t make laws. Voters cannot determine what money the Federal government will spend. And that fact seems to be where Trump completely missed the boat. The Federal agencies do not authorize their budget. All spending bills are initiated in the House, not by the agency.”

Gelly: “So you’re saying the agencies really manage the money that Congress authorizes, right?”

Jordan: “Exactly. If you listened to Trump, who apparently had never read the Constitution and sleep-walked through his 8^th-grade civics class, you’d think EPA, Defense, Education, Interior, Transportation and all the other agencies just ran around printing money willy-nilly. Someone forgot to tell the Donald, if you want to change what goes on in Washington, you better start with the place that approves the spending…Congress.”

Gelly: “I must missing something. If the heads of agencies are really just managers, why were the Trump appointments so bad? I mean most of his appointments were business people and former military generals. Don’t these guys know how to manage?”

Drone Man: “She’s spot on, Jordan. What’s the issue with my man’s appointments…I mean Trump’s appointments?”

Jordan: “Like I said earlier, if you’re going to manage a complex task…like brain surgery…you should know something about the subject matter.”

Gelly: “This discussion all seems abstract to me. You have a specific example?”

Jordan: “Yes, Trump put ideologues in management positions. Few of the appointees had real-world experience in the field they were supposed to manage…and some had no management experience whatsoever. That same approach…ideologues managing areas where they had little experience…is what ruined one of the world’s best companies.”

Drone Man: “Based on you past, you must be talking about another general…General Motors?”

Jordan: “In the early 1980’s when Roger B. Smith took over as chairman, he too claimed he wanted to ‘drain the swamp,’ although he used different words. Like Trump he focused on cost, cost, and cost. He chose to pursue seemingly easy, high-profile targets, including shafting some long-time vendors.”

Gelly: “But isn’t that just the way good businesses operate?”

Jordan: “Not really. Trump’s record as a businessman is not very good. Why GM was so remarkably successful for so many decades was not because it focused primarily on cost.”

Drone Man: “What did Smith do that was so wrong? I still don’t understand.”

Jordan: “His approach to generating profits was wrong. Smith put a bunch of bean counters in staff positions that had nothing to do with finance. Their job was to generate more profits, primarily by cutting cost and then cutting more cost.”

Gelly: “That sounds like the approach Trump and heads of agencies took. Keep cutting cost.”

Drone Man: “What’s wrong with cutting cost? All large organizations have fat, especially the government. You sound like some screaming liberal…or even worse some academic.”

Jordan: “And you sound like Trump with his immature tweets.”

Gelly: “Now children, let’s behave.”

Jordan: “Yes, mother. Anyway, in Smith’s obsession with profits, he forgot one thing…sustained profits are not generated from cutting costs. Sustained profits, and not just for GM but for any company, are generated from selling more product, whether cars and trucks or computers or shirts and sweaters. No organization can sustain itself without generating revenue.”

Gelly: “So what really happened at General Motors when Roger Smith was chairman? Is that the person who people called ‘Squeaky’?”

Jordan: “During Squeaky’s reign…I mean Smith’s reign in the 1980’s, GM lost 10 points of market share. Let put that in perspective. If annual car and truck sales are say 15 million units, then GM no longer produced and sold 1,500,000 sales units every single year.”

Drone Man: “Each year? That seems like a huge number…and lots of money down the drain.”

Jordan: “At the time it was the equivalent of about six (6) large assembly plants with thousands and thousands of people and suppliers. 1.5 million is more cars and truck than sold in the US by Chrysler, Honda, Toyota at the time and bunch of other manufacturers.”

Gelly: “Well, if GM lost those sales in the 1980’s, did the slide continue in the 1990’s?”

Jordan: “That’s the problem, once a slide like that starts, it’s very hard to stop. GM eventually declared bankruptcy. Before it started to rebound in about 2014, GM share was only about 1/3 of what it was just before Smith took over.”

Drone Man: “That’s amazing. They lost 2/3 of their market share?”

Jordan: “Just about 2/3, yes.”

Drone Man: “So, if sales and revenue decline, all those cuts in expenses mean nothing. If the revenue falls, then profit also falls and the organization does not come out ahead…and in the end can be worse off.”

Jordan: “Interesting dilemma, huh? I’m not saying you shouldn’t look for ways to cut cost, but people need to understand what generates revenue…and it’s not from cutting cost.”

Gelly: “For the government, revenue is from taxes. So, if the economy continues to stall or even sink, or people are not as productive and make less money, then the long-term effects are like what happened to GM. That doesn’t seem very appealing.”

Drone Man: “I’d never really connected the dots between the skills of the cabinet members and the possible effect on the country. It’s really important to have the right people in the right job.”

Jordan: “As I asked earlier, would you hire me to manage your brain surgery?”

Drone Man: “When I think about Trump’s picks for cabinet posts, most of them were ideologues opposed to the fundamental purpose of the agency. No wonder there were so many problems.”

Jordan: “No different from Roger Smith chosing people in GM who were focused on cutting cost and not generating revenue. As most of Trump’s cabinet didn’t understand government, most of Smith’s picks didn’t really understand the car business.”

Gelly: “And Trump selected people who were focused on destroying the very agency they were supposed to lead. Rather than making the agency better, they wanted to destroy it.”

Drone Man: “Unfortunately, the result for the country was about the same as GM…except rather than going bankrupt the US had the Revenge Revolution.”

Jordan: “Now you see why I called Trump’s cabinet the ‘Incompetent’s Club.’ They might have been smart in one field but they were like Larry, Moe and Curly in their government jobs.”

Drone Man: “And with that bit of wisdom, I need to disappear…this time for good. Gelly, Jordan, it’s been swell.”

#230 Post Revenge Revolution Lessons — Republican Economics – 3-Card Monte (Part 6)

11 Sunday Dec 2016

Posted by Jordan Abel in Economics, Lessons of Revolution

≈ Leave a comment

Gelly: “I’m headed to the break room. Jordan, your cup’s mostly full. Drone Man, would you like more coffee?

Drone Man: “Gelly, how ‘bout a stiff drink instead? All this talk about who ran up the debt is bothering me. Actually, coffee would be great. Thanks.”

(Drone Man and Jordan each check phones until Gelly returns with coffee.)

Drone Man: “Thanks. Gelly, you’re very kind…unlike your buddy here.”

Jordan: “C’mon, Drone Man, don’t take all this discussion personally.”

Drone Man: “How else can I take it? Your attacking my fundamental beliefs. On top of that I voted for Trump. I’m still asking myself why.”

Jordan: “So you made a mistake and voted for the Trumpster. Yes, the Trump administration was an absolute disaster. Look, we all make mistakes.”

Jordan: “But I should have known better. I let ideology override good, objective analysis.”

Gelly: “Are we getting sidetracked? I thought this conversation was to be about economic policy.”

Drone Man: “My fault. It’s hard to admit that you’ve been spouting the wrong line for so long. OK, Jordan, show me that chart you were talking about.”

Jordan: “You mean the chart with US debt as a percent of GDP?”

Drone Man: “Yes. The debt percentage is what you were pounding into me a few minutes ago. Really should look at the chart but I’m afraid to.”

Jordan: “Here’s the chart.”

Drone Man: “How do I interpret this chart?”

Greenie: “May I try to explain this. Doing so will make sure I understand.”

Jordan: “Good idea. Go ahead.”

Gelly: “When calculating the percentage, the numerator is total outstanding debt and the denominator is gross domestic product, aka GDP, for the year.”

Drone Man: “Gelly, don’t confuse me. Have you turned into some kind of math whiz? Numerator, denominator.”

Gelly: “You know, Drone Man, total government debt outstanding at the end of the year divided by the GDP for the year. That gives you the percentage debt to GDP.”

Drone Man: “Debt for the year or total debt? Makes a big difference.”

Gelly: “Total debt. You know, like the sum of how much you owe on credit cards, car loans, mortgage, and whatever else. Right, Jordan?”

Jordan: “You got it. Keep going.”

Gelly: “So if total debt goes up during the year but GDP grows even faster, then the percentage decreases. The percent also declines if the country pays off some of the debt.”

Drone Man: “OK, so the chart shows some percentage – ‘a’ divided by ‘b’. Debt divided by GDP. But even if percentage declines, the amount of debt can go up, right? More debt is bad. Where’s the chart of total debt?”

Jordan: “Tell me why you think more debt by itself is automatically bad.”

Drone Man: “It just is. My gut tells me it is.”

Jordan: “Let’s say you’re a banker. What do bankers do?”

Drone Man: “They take your deposits…and they lend money to other people or businesses.”

Jordan: “Well, Mr. Banker, you have two customers who want to borrow $100,000,000.”

Drone Man: “OK, I’m the banker…and it must be a big bank. Who are the two customers?”

Jordan: “Say Gelly is one…and the other is Warren Buffett.”

Drone Man: “No offense, Gelly, but you don’t make the cut for the 100 mil. But Buffett? He gets the loan.”

Gelly: “I’m not offended, Drone Man, but why lend $100,000,000 to Warren Buffett?”

Drone Man: “Simple. He’s got enough income and assets to pay back the bank. Paying back $100 mil and he wouldn’t even break a sweat.”

Jordan: “So, as long as someone has enough income or assets to pay back the note, having debt is OK?”

Drone Man: “Sure. I’d lend Buffett $500,000,000 in a heartbeat. He’s really no risk.”

Jordan: “If you’d lend to Mr. Buffett, then why are you concerned about lending to the US government? The US government is actually a better credit risk than Buffett – he can’t print money and the US Treasury can.”

Drone Man: “Why are you always trying to trap me with these arguments? Besides the US government has been reckless in running up the debt. Buffett’s been very careful and very conservative financially. That’s why there should be a conservative in the White House.”

Jordan: “Let’s go back to what we talked about earlier and see which administrations have been reckless in running up the debt.”

Drone Man: “A few minutes ago (Entry #229), you tried to tell me Reagan ran up the debt. But look at your chart. At the end of Reagan’s term debt as a percent of GDP was only about 50%. At the end of Obama’s term it was about 110%. That proves Obama was reckless and the cause of all the debt problems. Just look at your own data. See?”

Jordan: “Let’s look at this bar chart. It’s the same data as the line chart but formatted differently. The bars represent the relative increase in debt as a percent of GDP for every president since Carter. The height of the bar represents how much more debt as a percent GDP was there at the end of an administration compared to debt at the beginning of an administration.”

Drone Man: “Before we go farther, what’s this ‘relative increase’ stuff you’re talking about? Another way of distorting the truth?”

Jordan: “Drone Man, do you think I would lie to you?”

Drone Man: “No, but I just want to make sure I understand. Gelly, tell me what he’s talking about. I can understand you.”

Gelly: “Think of ‘relative increase’ like this. Your mother makes a pie. You and your brother each get a slice that equals 25%, or ¼ of the pie. Then your brother asks for more and your mother gives him another slice, another ¼ of the pie. You object. Your mother says she only gave him another 25% or ¼ of the pie, and for you to be quiet.”

Drone Man: “She’s wrong. He didn’t get just 25% more. He got twice as much as I did. He got 100% more than I did.”

Gelly: “Now you understand the term ‘relative increase.’ Your brother’s relative increase was not 25% but 100%.”

Drone Man: “Ok. I got it. Thanks Gelly. Back to your bar chart. If I’m reading the first bar correctly, under Carter debt as a percent of GDP declined.”

Gelly: “That’s correct.”

Drone Man: “Then under Reagan, the relative increase in debt as a percent of GDP was about 60%. You said that before but I didn’t believe it.”

Jordan: “If you add Bush 41 to Reagan and compare against when Reagan took office, then debt went up more than 100%. You can’t just add up the bars since you have to compare end of Bush 41 against end of Carter’s term.”

Drone Man: “Why hasn’t anyone ever told me this? I’ve always been lead to believe that Reagan was a fiscal conservative. He spent money like a drunken sailor.”

Gelly: “Careful. My nephew is a sailor.”

Drone Man: “Look at the Clinton years. Debt went down. Under Bush 43 it shot up again. Why?”

Jordan: “Bush implemented tax cuts biased toward higher incomes. The tax cuts didn’t help middle and lower-income families and the economy really didn’t grow fast enough to offset the loss in revenue from tax cuts. Now you know why professional economists keep saying that trickle-down economics doesn’t work. Bush 41 called it ‘voodoo economics.’ I think of trickle down, or supply-side economics, more as a 3-card money game. You think you should win but only the shills win. You always seem to lose.”

Drone Man: “This chart is awful!”

Jordan: “What’s awful about it, Drone Man?”

Drone Man: “I’ve been bamboozled all these years. Are you sure these numbers are right?”

Jordan: “Yep.”

Drone Man: “OK, then I confess. I’ve been wrong a long time about the Republicans’ economic policy. Tax cuts concentrated at the top aren’t the silver bullet for economic growth.”

Gelly: “Want a refill Drone Man?

Drone Man: “No I gotta go and get back to my niece’s tour group. I hate to say this, guys, but thanks for the lesson in economics. And the lesson for me — no more Republican 3-card monte games.”

(To be continued)

#229 Post Revenge Revolution: Lessons Learned – Economic Policy Fundamentals: Taxes (Part 5)

04 Sunday Dec 2016

Posted by Jordan Abel in Economics, Federal Budget, Gov't Policy, Lessons of Revolution

≈ 2 Comments

Scene: Jordan’s office, Washington, DC, start of work day. (Conversation starts Entry #225)

Jordan: “Gelly, whenever you’re ready let’s continue the discussions about lessons learned from the Revenge Revolution. We’re supposed to talk about economic policy.”

Gelly: “We can start as soon as a friend of yours arrives.”

Jordan: “What? Friend visiting? There are no meetings scheduled now.”

Gelly: “Drone Man just called and asked if he could stop by. He should be by shortly. Is that OK?”

Jordan: “Of course. Besides, he and I have periodic conversations about economic policy. Interested to see if he’s changed his position since the Revenge Revolution.”

Gelly: “Speaking of Mr. Drone Man.”

Drone Man: “Gelly, Jordan, nice to see you.”

Jordan: “Nice to see you Drone Man. What brings you to the DC, or the Swamp as the Trumpsters called it?”

Drone Man: “Probably still a swamp, even after Trump. I’m here because my granddaughter had a field trip to Washington and she wanted me to be a chaperone. I’ve got a couple of free hours and thought it might be fun to stop by and chat.”

Jordan: “Your timing is perfect. Gelly and I have been discussing lessons learned from the Revenge Revolution. Next on the list is economic policy — taxes.”

Drone Man: “May I participate? I’ll try to be polite.”

Gelly: “So, Jordan, you were going to explain some of the fundamentals of good economic policy, starting with taxes.”

Drone Man: “Gelly, all you need to know about economic policy is two words. You don’t need to know anything else. The two words are ‘tax cuts.’”

Jordan: “Forever the Trumpster, despite all that went wrong under that administration. Let’s take Drone Man’s two-word policy and see if it works.”

Drone Man: “Of course tax cuts work. Tax cuts always work. Talking to you liberals is so frustrating. Why don’t you admit we’re right!”

Gelly: “Oh boys, I thought this was supposed to be a civilized conversation.”

Jordan: “You’re right Gelly. Here’s the premise for why tax cuts supposedly work. The tax rate on the wealthiest in the US is too high. By lowering the tax rate, the wealthiest will invest more money and create jobs for those with middle and lower incomes.”

Gelly: “You mean like the benefits of tax cuts for the rich somehow trickle down to the rest of us?”

Jordan: “Yes, that’s the theory. It’s also what Bush 41 called voodoo economics.”

Drone Man: “Cut the editorializing and keep to the theory, please.”

Jordan: “The added investment associated with the tax cuts would create more jobs, which in turn would create more taxes and the added taxes from the middle and lower-income families would more than offset tax cuts for the wealthier. Did I explain the theory about right Drone Man?”

Drone Man: “Close enough.”

Gelly: “I have what’s probably a really dumb question.”

Jordan: “I’m sure the question is not dumb. Fire away.”

Gelly: “Once taxes are cut, then the wealthy people are supposed to invest the extra money. But where do they invest it?”

Drone Man: “More factories to make more goods. They hire more people. That’s where all the extra jobs come from…and then the extra tax revenue flows back to the government. It’s so easy to understand.”

Gelly: “Here’s what I don’t understand. If middle and lower-income people only have a little bit more money to spend…or maybe no more money to spend after the tax cuts…then who’s going to buy all the extra products the new factories make?”

Jordan: “Good question. How ‘bout that Drone Man?”

Drone Man: “What’s not to understand?”

Gelly: “Let me ask the question this way. Drone Man, if you owned a business, under what conditions would you invest and expand the business?”

Drone Man: “I’d expand when I thought demand for the company’s products was going to exceed production capacity.”

Gelly: “Would you expand if customers could not afford to buy more of your products?”

Drone Man: “Of course not. That would be stupid. The idea of ‘build it and they will come’ only happens in the movies. What was the name of that movie about some baseball diamond in a cornfield?”

Gelly: “You mean ‘Field of Dreams’?”

Drone Man: “That’s the one. ‘Field of Dreams.’ No business can operate like that.”

Gelly: “Jordon also mentioned ‘Field of Dreams’ to me.”

Drone Man: “At least we agree on something.”

Gelly: “If I understand both of you correctly, business owners, even if they have more personal income…say through a tax cut…aren’t going to expand their business unless…”

Drone Man: “…unless demand is going to increase and outstrip capacity. Why can’t you guys understand this?”

Gelly: “Then why would a tax cut that disproportionately favors the wealthy cause these owners to make more…what do the accountants call it, capital investments? Why wouldn’t the business owners just put the money in the bank or the stock market? Tell me what I’m missing?”

Jordan: “Now Drone Man, tell Gelly what’s wrong with her logic?”

Drone Man: “OK, so the wealthy probably won’t increase capital spending and instead purchase bonds or stocks.”

Gelly: “Here’s another dumb question. Why wouldn’t putting more money in the pockets of middle and lower-income families create more demand than giving more money to the wealthy? It seems logical the lower and middle-income people would spend most of the extra money. Then the additional spending would create extra demand and allow the wealthy business owners to build more factories…and make even more money?”

Jordan: “Gelly, how much someone spends of an extra dollar received is called the marginal propensity to consume, or MPC.”

Gelly: “You said to remember the letters MPC. So I assume this MPC, or marginal propensity to consume, is higher for lower and middle-income families? If someone who doesn’t have much money gets $1,000, they’ll spend most of it. To someone who’s rich, $1,000 is probably a rounding error and they won’t spend it, right?”

Jordan: “You got it. Now Drone Man, what about Gelly’s analysis? Wouldn’t the economy be better off if the tax cuts or government spending were directed at people who would spend the money and help the economy grow rather than people who will put the money in stocks or bonds?”

Drone Man: “OK Gelly, you’re right…I mean you might be right. I mean, no you’re not right. Tax cuts for the wealthy have proved to be a way to sustain growth in the economy.”

Jordan: “Really? You have some hard evidence?”

Drone Man: “Look at what Reagan did. He cut taxes and the economy grew.”

Jordan: “What if I said Clinton raised taxes and the economy grew even more? Plus there was a budget surplus under Clinton and a huge deficit under Reagan. In fact under Reagan…and Bush 41/43… growth in the deficit as a percent of GDP was proportionately much higher than under Obama. In fact, under the so-called fiscally conservative Reagan-like Republicans, the debt as a percent of GDP increased more than 150%. The increase would have been much higher if Clinton hadn’t had a budget surplus and lowered debt as a percent of GDP. Here, let me dig out a chart and show you.”

Drone Man: “I don’t need to see your phony chart based on made-up data. You have your facts, I have mine.”

Jordan: “Excuse me, Drone Man? You’re claiming data about the deficit and GDP are fabricated? You think the there are multiple sets of economic data?”

Drone Man: “What I know is what I know…and I know I’m right. I don’t need some liberals so-called economic data. It’s always biased. Why did I stop by here?”

(To be continued)

usrevolution5

~ USA Headed for a 5th Revolution! Why?

Monthly Archives: December 2016

#232 Year-End Review. Is a Revenge Revolution Still Likely? (Part 1 of 2)

#231 Lessons from Revenge Revolution: Trump’s ‘Incompetents Club’ Cabinet (Part 7 of 7)

#230 Post Revenge Revolution Lessons — Republican Economics – 3-Card Monte (Part 6)

#229 Post Revenge Revolution: Lessons Learned – Economic Policy Fundamentals: Taxes (Part 5)