CommentsIT’S THE ECONMOMY, STUPID (PART 2)-In Part I, we explored how Trump’s “Make America Great Again” was Obama’s “Promise of Hope” and both plagiarize Bill Clinton’s, “It’s the economy, stupid.” But no one cares as long as they deliver.
“We have a mandate” is a pathological delusion in which politicians believe that because they won, they have a mandate to do whatever they want. Trump has no mandate, just as Obama had no mandate to do Health Care before fixing the economy.
It turns out that not fixing the economy is the true third rail of American politicians, but I guess it’s the great talent of politicians to deceive and mislead, which then causes them to deceive and mislead themselves into thinking that they personally have some mandate. No. They do not.
How will Trump fix the economy?
If Trump has any idea, he is as secretive about it as he is about his plans to defeat ISIS. In fact, if I were a betting person, I’d bet he has better ideas how to decimate ISIS than he does how to manage the economy.
The Basic Flaw in Managing the Economy
The worst people in the world to manage a national economy are businessmen -- including people with a Wall Street mentality. That was Geithner’s fatal flaw that paved the way for Trump.
The government’s responsibility for the economy has nothing to do with how one runs a business or how a family manages its finances. While sometimes an analogy can helped illustrate an aspect of macro-economics, it is dangerous to use examples from business or personal finances because they are based in micro-economics. Asking a businessman about macro-economics is like asking a person who only speaks German to teach you French.
Managing the Economy Is the Function of Macro-economics
Businessmen run businesses and people run their family finances, but the government has an entire different responsibility. Its main domestic function is to set the parameters for the economy itself. It sets the rules of the system.
The Price System
Adam Smith, writing in 1776, John Maynard Keynes, writing in 1936, both placed protection of the Price System at the core of the economic system – much in the same way as the Right to Privacy is at the core of Liberty. Without a right to privacy, there is no liberty. Both the price system and the right to privacy are so intrinsic to the economy and our constitution that we seldom enunciate them.
The Price System is the mechanism by which everyone knows what something is worth from moment to moment. It is sometimes called the law of supply and demand. In totalitarian systems like Communism, they try to have a central authority set prices. There is nothing better to establish the value of any commodity than what a willing buyer will pay to a willing seller. These decisions are made billions of times a day.
The Price System needs to be protected. The biggest threat is fraud, such as when people send out false information about the cost of wheat and deceive people into selling it far below market value. The fraudsters buy up huge quantities and when the market corrects itself, they sell their wheat for a huge profit. Not only are the people who sold their wheat for below market value harmed, but others who depend upon them to purchase merchandise are harmed. The fraudsters have nothing of value to wheat and they have provided no value by their transactions.
Wall Street has been allowed to run wild with fraud since the end of the Clinton Administration and neither Bush nor Obama did anything to stop that from being the modus operandus. People were deceived into investing in housing, based upon the fraudulent idea that there was a huge market of buyers for single family homes; in fact, the market was already greatly over-built. Many people chose to invest in home construction, but what about all the places where they did not invest their money? We will never know what medical advances could have been made if those billions of dollars had gone into genetic research. No one knows how much farther along science would be if those billions of dollars had gone into space exploration.
Thus, the first domestic job of the Trump Presidency is to “Protect the Price System.”
That will require beefing up the old Glass-Steagall law and outlawing credit default swaps. Dodd-Frank is a poor platform from which to begin. We need to separate the investment banks from the commercial banks and make certain there are no loop holes allowing them to indirectly coordinate.
Raise the cap on incomes which pay Social Security, Increase Unemployment Insurance, and Insure Residential Mortgages
The government needs to follow the basic principle that Joseph explained to Pharaoh. During the fat years, you need to save so that during the lean years you can spend.
There is no rational reason to cap the income for making Social Security contributions at only $118,500. The wealthier a person becomes, the less burden it is to pay Social Security taxes on higher income. It is the government’s duty to explain that Social Security payments have a benefit for businesses as well as for the individual who collects them.
When the economy turns down, and it always does, the government can ward off recession by adding money to the economy. The higher the social security payments to seniors, the more disposable income they have and the better that is for business. The entire society benefits when seniors have more money to spend.
Social Security was devised when people thought individuals would all have private pensions, but as we have seen, private pensions have become a fiction for everyone except the extremely wealthy. Thus, Social Security has to be the main source of income for the elderly. To this end, it is the duty of the Trump Administration to increase Social Security payments.
There are two basic ways to do this:
(1) Starting in 2018, and each year thereafter Social Security payments will by at least 5% more than any increase in the Consumer Price Index.
(2) An alternative would be to keep the current rate of increase at the CPI, but set an automatic “sur-increase” if there is a decrease in the economy. That way, as the economy becomes weak and moves towards recession, seniors and the disabled with have more money to spend and that extra money will help businesses weather the downturn. Since this increase would allow the country to head off a crisis, the amount of increase would have to be significant.
Either way, Trump needs to lift the cap on Social Security contributions.
For the same reason, we also need to start increasing the deductions for Unemployment Insurance. We need to set aside more funds to handle increased unemployment insurance payments because an economic downturn always increases unemployment.
Similarly, we need to insure all residential mortgages with a type of insurance that is similar to life insurance and fire insurance. An economic downturn is similar to a fire that only burns down the den and the master bedroom. A family may lose part of its income due to a layoff. Thus, the mortgage insurance would kick in to pay that portion of the mortgage that has become out of reach. An automatic program like insurance with pre-set criteria is required; a time consuming and complicated refinancing system would only harm the banks at the time when everyone needs help.
Thus, two things which we need to hear from Trump are his vigorous protection of the Price System and the institution of more programs to remove money from the economy while it is doing well in order to have the funds to add to the economy when it becomes weak.
A Word about Los Angeles and Macro-Economics
Measure HHH, Affordable Housing for the poor, is a horrible idea and is pseudo-macro-economics. It is a relic from the soviet-style CRA type of government in which Garcetti bureaucrats decide where poor people will live. Garcetti and the other central planners of the world suffer from the delusion that somehow GOD imbued them with the right to make these personal decisions for other people just because they are poor. The only thing that Measure HHH does is give the corrupt city council $1.2 billion to dole out to their buddies.
Late Breaking News Article about LA’s Decline
Although we’ve been writing for a couple of years about Family Millennials’ leaving Los Angeles, LA Weekly has presented some additional confirming data in its November 15, 2016 piece by David Romero, “Millennials Are Leaving Los Angeles.”
Here is the underlying study in the November 4, 2016 issue of Apartment LIST, “Where are Millennials Moving to?” by Andrew Woo. Note that the article’s focus on 18 to 35 year olds tends to conceal that the exodus is among the older Millennials, i.e. the Family Millennials. The City’s investment in high rise Transit Oriented Districts is a local form of mismanagement of macro-economics. The diversion of billions of dollars into DTLA high rises and into Hollywood InFill Projects, along with Garcetti’s war on the single-family home, have driven out the replacement generation for Los Angeles’ Middle Class.
Part III will discuss the political evil which allowed this disaster to befall the City.
(Richard Lee Abrams is a Los Angeles attorney. He can be reached at: [email protected]. Abrams views are his own and do not necessarily reflect the views of CityWatch.) Edited for CityWatch by Linda Abrams.
Pathological Delusion: ‘We have a Mandate’
