Trump's imaginary economy

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Trump's imaginary economy

Come with me
And you'll be
In a world of pure imagination

Willy Wonka has nothing on the Trump White House.

The first White House press briefing in three weeks featured Kevin Hassett, the chairman of the White House Council of Economic Advisers. Hassett painted a fantastical picture of an idyllic American economy. The only thing that was missing was a chocolate river.

In Hassett's reality, wages are booming, business investment is spiking, and a trillion dollars in corporate tax cuts is paying for itself. And we have one person to thank: Donald Trump.

None of this, however, is true. Hassett's apocryphal economy has little in common with the real thing.

Wishful thinking on wage growth

"We're seeing a massive amount of wage growth right now," Hassett told reporters at White House.

Economic data show real wages are declining.

In the 12-month period that ended in July, nominal wages grew by 2.7%. But this was outstripped by inflation of 2.9%. So real wages declined.

Hassett is aware that legitimate economic data is a problem for his narrative about the Trump economy. So last week, he invented a new definition of real wages. Hassett's new version includes items that are traditionally not counted as wages, like vacation time and health benefits. He also makes some technical changes to juice the numbers.

After all that, Hassett finds that real wages "increased" by 1.4% over the last year.

This approach, conveniently, complicates apples-to-apples comparisons to other periods in American history. It also does not accurately capture the economic experience of workers. Not all workers receive fringe benefits, and those that do aren't seeing the value of their benefits increase any faster than wages.  

The increased value of a fringe benefit isn't the same as an actual increase in wages. If your health insurance costs increase and your employer absorbs some of the cost, Hassett will count that as a raise. But nothing has changed. You still have the same health insurance and are in the same financial position.

Trump didn't create the problem of stagnant wages. Workers have seen their wages flat-line for 40 years. But he has not, as Hassett and Trump claim, solved the problem.

Robert Reich@RBReich

3. Wages: the biggest problem now. Today’s hourly wage, adjusted for inflation, has less purchasing power than it did 40 years ago. In fact, adjusted for inflation, the average hourly wage in January 1973 would be $23.68 today. Yet today's actual average hourly wage is $22.73.

September 10, 2018

Cuckoo on corporate taxes

Hassett said that the $1 trillion corporate tax cut enacted in December 2017 "has about paid for itself."

It has not paid for itself.

So far this fiscal year, corporate tax revenues are down 40%. As a share of the economy, corporate tax revenues have hit a 75-year low.

Meanwhile, the Trump administration has revised its deficit forecasts and now expects the deficit to exceed $1 trillion in each of the next three years.

Business investment baloney

Hassett claimed that business investment has boomed as a result of the Trump tax cuts.

"If anyone were to assert that the capital spending boom that we're seeing right now was a continuation of the trend that President Trump inherited then, well they wouldn't get a high grade in graduate school with that assertion," Hassett said.

But if you look at the trend in business investment since the end of the recession, you can see a steady increase since the great recession ended in 2010.

There was a slowdown in 2015 and 2016, but that was due to a collapse in oil prices which precipitated a collapse in "oil and gas drilling." As oil prices rebounded, drilling activity resumed, continuing the growth trend.

Hassett establishes a "trend" of declining business investment under Obama only by excluding six of the eight years of his presidency.

No evidence points "to any significant surge due to the tax change." It was, MarketWatch reported, simply a return to "business as usual." Overall increases in business investment since the tax cuts, from a historical perspective, are "unremarkable."

Hassett 36,000

Perhaps Hassett is not the best judge of economic trends.

In 1999 he wrote a book called "Dow 36,000." Hassett and his coauthor predicted that the Dow Jones Industrial Average would top 36,000 by 2002 or 2004. The book offered investment advice on how to profit from this coming surge.

In 2002, the Dow stood at about 8,000. Nearly 16 years later, the Dow is at about 26,000, still 10,000 short of Hassett's prediction.

'You'd have to talk to the President''

The President shares his top economic adviser's predilection for economic fantasy. Monday morning he tweeted that GDP growth exceeded the unemployment rate for the first time in 100 years.

Donald J. Trump@realDonaldTrump

The GDP Rate (4.2%) is higher than the Unemployment Rate (3.9%) for the first time in over 100 years!

September 10, 2018

This has happened 64 times over the last 70 years.

Under questioning, Hassett acknowledged that Trump's statistic was false. "You'd have to talk to the president about where the number came from," he said.

This pseudo-rebuke by Hassett has dominated the media coverage of his appearance at the press conference and crowded out most scrutiny of his own claims.

Reality check: Job growth

In touting his stewardship of the economy, Trump frequently brags about "record" job growth.

Donald J. Trump@realDonaldTrump

“Unprecedented Jobs Growth Streak Continues as Wages Rise” https://t.co/Mk0WSyjdOe

September 7, 2018
Overall, job growth has slowed since Trump became president. As Robert Reich notes, in the last 19 months of the Obama administration, the economy created 3.96 million new jobs. In the first 19 months of the Trump administration, the economy created 3.58 million new jobs.

Tax cut 2.0

The Trump administration is eager to make the case that the tax cuts have delivered. Why? Because they want more.

The administration and Republican leaders in Congress are currently working on a new wave of tax cuts that will be unveiled sometime this month.

The centerpiece of the proposal is to make the individual tax cuts enacted in December 2017 permanent. That legislation created massive permanent tax cuts for corporations but its individual tax cuts, which are heavily tilted toward the wealthy, expire around 2025.

The cost of the extension would be about $600 billion.

The effort is expected to struggle to get the necessary votes in the House and has no chance of passing the Senate.

One reason: Support for the original tax legislation is languishing below 40%.  


20,000 lost years

A new report reveals that exonerated defendants have spent over 20,000 years in prison since 1989. The report, released by the National Registry of Exonerations, found 2,265 innocent people spend an average of 8 years and 10 months behind bars.

The exonerated man who spent the most time behind bars was Richard Phillips:

In March 1972, [Fred] Mitchell became the lead suspect in the murder of his brother-in-law, Gregory Harris, because a gun that was seized from him was linked to the bullets that killed Harris. Mitchell told the police that he helped Phillips and Richard Palombo commit the murder. In October 1972, based solely on Mitchell’s testimony, Phillips and Palombo were sentenced to life in prison with no possibility of parole. At trial, Mitchell falsely swore he had no deal with the prosecution, and the prosecutors let that lie stand.

Phillips was released in 2017 after Palombo finally admitted that he had killed Harris with Mitchell. Palombo testified that he never met Phillips until after they were both arrested for the Harris murder.

Richard Phillips was 26 when he was falsely convicted of the murder of Gregory Harris, and nearly 72 when he was released. He had spent 45 years and two months in prison. His children were 47 and 49; they had been two and four when he was last free.

The report found that "African Americans are greatly over-represented among innocent defendants who have been exonerated." African Americans represent 12% of the population, and 46% of exonerated defendants.

Among all exonerees, 56% have received no compensation.


The rapidly changing politics of Obamacare

Not so long ago, Obamacare was considered a political albatross. Republicans held dozens of votes to repeal Obamacare entirely, believing the issue was a political winner.

But as people gain experience with the law, it is becoming more popular. Recent polling shows a majority of Americans support Obamacare.

Senator Joe Manchin, a Democrat up for reelection in bright red West Virginia, launched a new television ad touting his commitment to guarantee nondiscriminatory access to health care for people with pre-existing conditions, a central component of Obamacare. He attacks his opponent, State Attorney General Patrick Morrisey, for participating in a lawsuit that would invalidate those protections.


A recent poll by the Kaiser Family Foundation found Obamacare's protections for people with pre-existing conditions are extremely popular, earning the support of three-quarters of Americans, including 58% of Republicans.

Obama himself is ready to go a step further in securing quality health care for all Americans. He recently endorsed a single-payer system, Medicare For All.


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September 10, 2018
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September 10, 2018
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September 10, 2018