To Trump and Clinton: Heed the Lesson Jimmy Carter Never Learned

From left: Donald Trump and former Secretary of State Hillary Clinton (credit: Gage Skidmore/Marc Nozell)

Yesterday I observed here how the 2016 race reflects American conditions in the late 1970s — also stagnant — and how the political elites are echoing President Jimmy Carter’s feckless reaction in his notorious July 15, 1979 address to the nation in which he said, in part:

The threat is nearly invisible in ordinary ways. It is a crisis of confidence. It is a crisis that strikes at the very heart and soul and spirit of our national will. We can see this crisis in the growing doubt about the meaning of our own lives and in the loss of a unity of purpose for our nation.

The erosion of our confidence in the future is threatening to destroy the social and the political fabric of America.

What’s really going on? The destruction of our social and political fabric derives from stagnation, not vice versa.

My Letter to the Left: the Gold Standard Will Restore Upward Mobility was an analysis of an important piece by Stan Sorscher in The Huffington Post, itself headlined “Inequality — “X” Marks the Spot — Dig Here.” Sorscher perceptively wrote:

The second message is the very abrupt transition from the post-war historic period to the current one. Something happened in the mid-70’s to de-couple wages from productivity gains.

The third message is that workers’ wages – accounting for inflation and all the lower prices from cheap imported goods – would be double what they are now, if workers still took their share of gains in productivity.

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Hillary Clinton Elevates the Federal Reserve to God-Status

Former Secretary of State Hillary Clinton (photo credit: State Chancellery of Latvia via Flickr, CC BY-SA 2.0)

On Monday, Donald Trump stated what is essentially a fact to anyone who follows financial markets — the Federal Reserve has created a “false economy” that has artificially inflated the stock market.

Via Reuters:

“They’re keeping the rates down so that everything else doesn’t go down,” Trump said in response to a reporter’s request to address a potential rate hike by the Federal Reserve in September. “We have a very false economy,” he said.

“At some point the rates are going to have to change,” Trump, who was campaigning in Ohio on Monday, added. “The only thing that is strong is the artificial stock market,” he said.

This isn’t controversial. The financial media constantly speculate about whether the Federal Reserve will raise interest rates and how that will impact the markets. It is generally understood that higher interest rates spell trouble for equities — and that would be especially true given the historically overbought status of the stock market.

Hillary Clinton certainly knows this. She’s not stupid. But, whether out of loyalty to Goldman Sachs or out of political expediency, Clinton responded to Trump’s comments by defending the Federal Reserve as an institution that should be above reproach:

Democratic presidential candidate Hillary Clinton criticized Republican rival Donald Trump on Tuesday for making comments about the Federal Reserve’s monetary policies, which she said should be off-limits for U.S. presidents and presidential candidates.

“You should not be commenting on Fed actions when you are either running for president or you are president,” Clinton told reporters on her campaign plane.

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A Letter to the Left: The Gold Standard Will Restore Upward Mobility

About a year ago, Stan Sorscher, Labor Representative, Society for Professional Engineering Employees in Aerospace, published a frighteningly important blog at The Huffington Post (where I also blog on a regular basis) headlined “Inequality — “X” Marks the Spot — Dig Here.”

It was as important for what it gets right as for what it misses.

Sorscher writes:

In 2002, I heard an economist characterizing this figure as containing a valuable economic insight. He wasn’t sure what the insight was. I have my own answer.

Figure 1. Something happened in the mid-70’s

The economist talked of the figure as a sort of treasure map, which would lead us to the insight. “X” marks the spot. Dig here.

This figure tells three stories. First, we see two distinct historic periods since World War II. In the first period, workers shared the gains from productivity. In the later period, a generation of workers gained little, even as productivity continued to rise.

The second message is the very abrupt transition from the post-war historic period to the current one. Something happened in the mid-70’s to de-couple wages from productivity gains.

The third message is that workers’ wages – accounting for inflation and all the lower prices from cheap imported goods – would be double what they are now, if workers still took their share of gains in productivity.


This de-coupling of wages from productivity has drawn a trillion dollars out of the labor share of GDP.

Economics does not explain what happened in the mid-70s.

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Trump Sounds Like Reagan: GOP Should Help Workers

Donald Trump speaks in Reno, Nev. (photo credit: Darron Birgenheier via Flickr, CC BY-SA 2.0)

There’s a story in Politico today where Donald Trump says that the GOP will become a ‘workers party’ under his leadership:

“Five, 10 years from now — different party. You’re going to have a worker’s party,” Trump said in the May 17 interview. “A party of people that haven’t had a real wage increase in 18 years, that are angry.”

Trump is right to recognize a critical flaw in the GOP’s current economic platform, which focuses almost exclusively on businesses and “job-creators.” The only way to win future elections is to make the GOP platform more friendly to workers. Republicans’ goal should be to win voters with all income levels, and that starts with winning voters with incomes under $50,000, where Romney got trounced 60 percent to 38 percent in 2012.

In understanding this need to make the GOP a ‘workers party,’ Trump is a lot like Ronald Reagan. Reagan understood that having an economic message that reached voters across the socioeconomic divide was critical to electoral success. Reagan’s big tent included businesses and job-creators, to be sure, but it also included working families that had been crushed by the high inflation of the 1970’s — almost immediately after we ended the gold standard, by the way — and who were inhibited from getting ahead due to oppressively high taxes.

I feel like a broken record, but I’ve been saying this since at least the 2012 election and probably before. Continue Reading

The GOP’s Best Shot in 2016? It Could Be This…

Photo credit: blogdnd via Flickr (CC BY 2.0)

FiveThirtyEight has put together a fantastic summary of how each issue should impact the 2016 campaign. Check it out here.

On economics, Ben Casselman writes:

Americans remain uneasy about the economy, even if they have become more sanguine in recent years. In a recent Wall Street Journal poll, just 47 percent of Democrats — and only 4 percent of Republicans — reported being “cautiously optimistic” about the economy. That dissatisfaction is driven by a harsh reality: Six-plus years after the recession officially ended, there has been no meaningful recovery in household income.

Republicans clearly see an opening. At last month’s CNBC debate, which focused on economic issues, candidate after candidate blamed Obama and the Democrats for stagnant wages, persistent inequality and lackluster economic growth. Marco Rubio said the American dream is “slipping away.” John Kasich promised to “get this economy moving again.” And Bush, who has based his campaign in part on a pledge to return the country to 4 percent annual growth, asked viewers to “imagine a country where people are lifted out of poverty again.”

But Republicans face their own delicate dance. The middle class didn’t exactly thrive under the last Republican president; median household income rose sharply in the 1990s but was stagnant in the 2000s, when George W. Bush was in office.

Republicans are finally starting to get it on economics and monetary policy. Ted Cruz has openly discussed tying our currency to gold, and others have followed suit Continue Reading

Don’t Look Now, But Monetary Policy Just Became a Top Issue in the GOP Primary

Photo credit: via Flickr (CC BY-SA 2.0)

It’s greatly encouraging to see the GOP candidates focus more on one of the largest economic problems facing the United States: the Federal Reserve and monetary policy. On Tuesday night, we witnessed the GOP field address monetary reform as a key to economic fairness and growth in a bigger and more substantial way than ever before. Candidates centered their comments on the problems created by the Federal Reserve’s artificially low interest rates and how it has adversely affected equitable prosperity through rising prices and stagnant wages for working families.

The Federal Reserve’s zero interest rate policy repeatedly came under fire at the Fox Business GOP debate, and several candidates chimed in on the issue substantively:

Rand Paul: “I think the Federal Reserve has made [income inequality] worse. By artificially keeping interest rates below the market rate, average ordinary citizens have a tough time earning interest, have a tough time making money. They’re actually talking now about negative interest. The money as it’s created through quantitative easing or other means tends to start out in the big banks in New York. And because we’re now paying interest for them to keep the money there, much of that money has not filtered out into the economy. So what we’re finding is there is increasing income disparity and income inequality.

“We also find that as the Federal Reserve destroys the value of the currency, what you’re finding is that, if you’re poor, if you make $20,000 a year and you have three or four kids, and you’re trying to get by, as your prices rise or as the value of the dollar shrinks, these are the people that are hurt the worst. Continue Reading

Incomes Decline Again, But Will GOP Candidates Speak Out?

Last week, new data released by the U.S. Census Bureau showed inflation-adjusted median income slipping to $53,657 in 2014, a drop from the previous year and a 6.5 percent drop from 2007, the year before the Great Recession, when it was $57,300.

Source: Wikimedia Commons (CC BY-SA 3.0) Source: “Measuring Working Family Stress in Relation to the Cost of Living,” JEC.

The fall in real income is affecting millions of families across the United States. So why aren’t the GOP presidential candidates talking about it?

If Republicans want to appeal to voters when they discuss economics, they had better talk about what’s impacting everyone — stagnant wages and a rapidly rising cost of living.

Wage stagnation has been going on for decades, a global phenomenon dating back to when President Nixon first pulled us off the gold standard and empowered the unelected Federal Reserve to control our currency.

But the problem has been exacerbated in recent years by irresponsible policy. The Federal Reserve has held interest rates at nearly zero for almost seven years now, and the consequences of that policy have been dire for working families — wages are effectively dropping, while prices continue to go up year after year.

Not only are people earning fewer dollars, but the precious few dollars they do earn are worth even less.

Sure, the Federal Reserve’s zero interest rate policy has been wonderful for the stock market and for wealthy hedge fund managers, but it’s been awful for the rest of us as the gap between rich and poor only grows larger. Continue Reading

Hillary Abandons Income Inequality

Former Secretary of State Hillary Rodham Clinton (public domain photo via Department of Defense)

Had you tuned in to Hillary Clinton’s hour-long speech on economics yesterday in order to learn the specifics of how she intends to achieve “strong growth, fair growth and long-term growth,” you would be unsatisfied:

Throughout the campaign, I’m going to be talking about how we empower entrepreneurs with less red tape, easier access to capital, tax relief and simplification. I’ll also push for broader business tax reform to spur investment in America, closing those loopholes that reward companies for sending jobs and profits overseas.

See, she’s FOR small businesses and she’s going to TALK about that.  As for the actual policies by which she will achieve these goals, well that’s for another time.

But as a preview of how she understands the politics of economic issues, the speech was revealing.

First off, she has abandoned “income inequality” as her central theme and instead embraced in a bear hug the central concern of voters: the rising cost of living.  Time and again she came back to this:

Wages need to rise to keep pace with costs. . . Paychecks need to grow. . . The defining economic challenge of our time is clear: we must raise incomes for hard-working Americans so they can afford a middle class life.  We must drive strong and steady income growth that lifts up families and lifts up our country, and that will be my mission from the first day I am President to the last.

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More Bad News in June Jobs Report

In recent months, analysts have been pointing to a supposedly improved job situation for workers. Voluntary minimum wage increases at companies like Walmart allegedly pointed to an upward movement in wages due to increased competition. Workers purportedly were feeling more secure in their jobs and more willing to explore new possibilities. Despite a first quarter slide in economic growth, the economy was apparently poised to bounce back. The proverbial ‘rosy scenario’ was finally appearing on the horizon.

Much of this optimism, however, was surprising news to the middle class, and today’s jobs report showed why. The headline — 220,000 new jobs and the unemployment rate dropping to 5.3 percent — appeared to confirm the ‘rosy scenario.’ Yet the underlying data present a very different story. These numbers point to an enduring fact of this so-called ‘recovery’ — the middle class has been left behind.

For example, the 220,000 new jobs in June sound like a step towards real improvement. However, when combined with the downward revision of 60,000 over the previous two months, the net creation is only about 160,000. In fact, the average monthly job growth so far this year (208,000) is far below the average in 2014 (260,000). That is hardly anything to write home about and certainly doesn’t deserve glowing media headlines.

Unemployment appears to have fallen, but mostly for the wrong reasons. The underlying numbers reveal a large drop off in people employed or looking for work—more than 400,000 —accounting for much of the decline in the unemployment rate. Continue Reading

Yellen to Hillary: What’s the Problem?

Federal Reserve Chair Janet Yellen (photo credit: Day Donaldson via Flickr, CC BY 2.0)

Yesterday, the Federal Reserve announced that it is maintaining its existing policy of historically low interest rates, stating that the policy “remains appropriate.” When asked at the news conference about the renewal of this controversial policy and whether there is a role for congressional bills affecting Federal Reserve actions, Federal Reserve Chair Janet Yellen replied, “What’s the problem?”

The Fed Chair insisted that the institution is extremely transparent and questioned what else Congress and the public could possibly want.

With Hillary Clinton making income inequality a key campaign issue, one has to wonder—will she address Yellen’s stubborn insistence that the economy is just fine?

You would think she would. Clinton correctly insists that the current recovery has left behind the average American worker. Janet Yellen must disagree—how else could the current policy ‘remain appropriate’ when it has resulted in stagnant wages and rising prices that have negatively impacted millions of Americans?

If Clinton is serious about tackling income inequality, she should understand how critical it is for us to have a currency debate—a debate in which Janet Yellen has shown no interest. That starts with congressional oversight and complete transparency at the Federal Reserve.

Steve Lonegan is the Director of Monetary Policy for American Principles in Action. Continue Reading