President Trump and the Triumph of Private Capital [feedly]

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President Trump and the Triumph of Private Capital
// The American Prospect



(Photo: AP/Carolyn Kaster)

President-elect Trump and Betsy DeVos, a charter school advocate chosen by Trump as education secretary, pose for photographs at Trump National Gold Club Bedminister clubhouse in New Jersey.

Charles Koch and Donald Trump may not much care for each other, but they share a common interest: a megalomaniacal desire for global power exercised through the unimpeded flow of private capital. That would explain why, despite Koch's one-time description of a choice between Hillary Clinton and Donald Trump as being as appealing as making a choice between having a heart attack or cancer, the Trump administration is expected to be stacked with members of the donor network helmed by Charles and his brother, David, and several veterans of Koch Industries, the second-largest privately held corporation in the United States.

Other names on the shortlist for cabinet posts and high-level administration jobs include millionaire and billionaire principals of privately held companies who are not part of that donor network. But ultimately, a picture is emerging of a government in which private capitalists will have an unprecedented level of control. These are people unaccustomed to accountability. Because their companies are not traded publicly, they don't have to deal with unruly shareholders. The only people who hold shares in their companies are people they've chosen.

Trump himself is a private capitalist, and has already shown a private capitalist's penchant for opacity with his refusal to cough up his tax returns. Add to that the potential conflicts of interest in his roles as president and as head of a company with global holdings that makes deals with foreign governments, and you can see where this is going. It's smelling a lot like oligarchy.

Often lost in discussions of the Koch donor network of billionaires—whose largesse has built a vast infrastructure of extra-party apparatus that serves the Republican Party—is the fact that it is a network of private capitalists. These are not, for the most part, people who got rich as the executives in a publicly traded company. Many are heirs to fortunes made by people who started a business and kept it in the family. They are fiercely anti-union.

Take Betsy DeVos, Trump's nominee to head the Department of Education. As the wife of an heir to the Amway fortune, DeVos is part of the Koch donor network. Amway ranks No. 29 on the Forbes list of America's largest privately held companies. In addition to spearheading nationwide efforts to privatize public education, her family foundation has been leading the charge against unions in Michigan, in part by generous donations to the Americans for Prosperity Foundation, the movement-building organization founded by the Koch brothers. According to Eli Clifton, writing in The Nation in 2014:

The DeVos family foundation contributed $3 million to the AFP Foundation in 2011. … The DeVos family foundation from 2007–11 also contributed $800,000 to the Koch-seeded FreedomWorks Foundation, a conservative and libertarian group that promotes "less government, lower taxes and more economic freedom"; in 2012, they wrote a $500,000 "unrestricted grant" to the Mercatus Center, according to the DeVos family's foundation's tax filings.

(The Mercatus Center is a Koch-funded think tank housed at George Mason University.)

Americans for Prosperity has been instrumental in the attacks on public-sector unions in Michigan and Wisconsin. Clifton also reported that Richard DeVos Jr., husband of the nominee for education secretary, "bankrolled anti-union campaigns in Michigan and gave serious momentum to Republican backed anti-union 'right-to-work' laws across the country, a key policy issue of AFP both in Michigan and nationwide."

Why, you might wonder, would public-sector unions concern private capitalists? The obvious answer is that these unions bring Democratic voters to the polls. Less obvious is the fact that the due process guaranteed to public employees with union representation requires a level of transparency in government. An employee with union rights cannot be summarily dismissed, and in the course of presenting her case, a union member may bring to light the inner workings of government. But private capitalists want a world in which they don't need no stinking badges.

 

BUT ANTI-UNIONISM IS only part of the private capitalist wish list, which in its totality amounts to nothing less than predation upon the wealth of all nations through the unfettered flow of dark money that private capital, by its very nature, represents.

Consider the list of those said to be under consideration for secretary of energy, private capitalists all. They include Harold Hamm, chief executive officer of Continental Resources, a privately held oil and gas company; Robert E. Grady, partner in the privately held Gryphon Investors; and James L. Connaughton, chief executive officer of Nautilus Data Technologies, a private company.

The energy sector represents 5.9 percent of the U.S. gross domestic product (GDP), according to Statista. Koch Industries has significant holdings in the energy sector, and is a proponent of deregulation of every sort imaginable, especially environmental.

For the position of U.S. trade representative, the Trump team has floated the name of Dan DiMicco, chief executive of Nucor Corporation, a privately held steel company. During the campaign, he suggested on his blog that China was cheating on trade deals. "[Y]ou don't win a Trade War with appeasement or more Free Trade agreements," he wrote.

Who knew we were in a Trade WarTM? Guess we're about to be—private capitalist–style.

Oh, and let's not forget Steven Mnuchin, the man nominated to be our next secretary of the Treasury. He's the co-CEO of Dune Capital Management, "a privately owned hedge fund sponsor," according to Bloomberg Research. In 2009, together with partners, he bought the mortgage lender, IndyMac, paying pennies on the dollar. The group changed the lender's name to OneWest. The group Americans for Financial Reform said in a statement that on Mnuchin's watch, OneWest "aggressively foreclosed on tens of thousands of families." Reporting for the Los Angeles Times in 2010, E. Scott Reckard explained:

The billionaires' club of private financiers who took over the remains of IndyMac Bank from the Federal Deposit Insurance Corp. turned a profit of $1.57 billion last year on the failed mortgage lender—more than they invested less than a year ago.

Yet under the sale agreement, the federal deposit insurance fund still could lose nearly $11 billion on bad loans that the Pasadena institution made before it was sold last March and renamed OneWest Bank.

"This is one hell of a deal for those owners, but hardly a good deal for the banking industry, which pays the FDIC's bills," said Bert Ely, a longtime consultant to banks.

(Liberals will be sad to know that George Soros also invested in the bank. But no one has ever named Soros to head the U.S. Department of the Treasury.)

And there are more: Billionaire Wilbur Ross, founder of the privately held WL Ross and Co. private equity firm, has been tapped for the role of commerce secretary. Ross sold his firm in 2006 to Invesco, a privately held company, and remains involved with the business, according to NPR. He is, according to Forbes, the 232nd richest person in the United States. He got there by snatching up failing companies and "restructuring" them, "often with significant layoffs and budget cuts," according to NPR.

In 2006, not long after he bought the Sago coal mine in West Virginia, there was an explosion that trapped 13 miners underground. Twelve died. Ross said that despite the 202 safety violations lodged against the mine by regulators (most before he purchased the mine), he had been assured by managers that the work environment was safe for the miners.

My colleague Justin Miller wrote here about the floating of the name of Andy Puzder, CEO of the privately held CKE Restaurants, as a potential secretary of labor. He opposes a raise in the minimum wage and persists in promoting the myth, according to Miller, that most minimum-wage workers are young, single people in entry-level jobs. "Puzder as labor secretary is like putting Bernie Madoff in charge of the treasury," Kendall Fells, organizing director for the Fight for 15, told Miller. Fight for 15 is a labor organization that advocates for a $15-per-hour minimum wage.

 

IN ADDITION TO THE gang of private capitalists poised to control the nation's wealth, there are the functionaries who serve them. Two of Trump's early picks pretty much owe their careers to the Koch brothers: Vice President-elect Mike Pence, and Chief of Staff Reince Priebus. As I wrote of Pence in July, the presumptive vice president has been a favorite speaker at Americans for Prosperity events, and has been described by AFP President Tim Phillips as "one of our favorite governors."

Priebus, meanwhile, was a state party leader in Wisconsin who saw his stock soar with the election of another of the Koch brothers' favorite governors, Scott Walker, and the passage of legislation that disenfranchised members of the state's public-sector unions by barring collective bargaining. On Priebus's watch, members of Tea Party organizations, in collusion with then-AFP Chapter President Mark Block, were caught engaging in a vote-caging scheme in Milwaukee that was designed to discourage students and minorities from casting ballots.

With the GOP takeover of Congress in 2011, Priebus won the party's top spot as chairman of the Republican National Committee. Now he's the president-elect's chief of staff.

At Politico, Kenneth P. Vogel and Eliana Johnson report more than a dozen Koch-linked names who are either on Trump administration short lists or involved with the transition. These include Don McGahn, recently named White House counsel. McGahn is the Jones Day attorney who has represented the Koch network pass-through group, Freedom Partners, in legal filings.

Sighted at Donald Trump's victory party at Trump Tower, as election night spilled into the day after, was David Koch.

 

DONALD TRUMP IS FAMOUSLY a fan of Russian dictator Vladimir Putin, and of the well-heeled cronies who surround the despot. Boasting of the VIP turnout for the 2013 Miss Universe pageant that Trump staged in Moscow, the man now poised to occupy the Oval Office proudly declared, "almost all of the oligarchs were in the room."

Soon he'll be able to say the same of a cabinet meeting.


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Lesson for Democrats: Back to Class [feedly]

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Lesson for Democrats: Back to Class
// The American Prospect



Lionel Hahn/ABACAPRESS.com/Sipa via AP Images

A Donald Trump supporter on election night in New York City. 

According to President Obama, the election that gave Donald Trump and the Republicans full control of the federal government and their greatest dominance at the state level since the Civil War had nothing to do with his policies. We Democrats have "better ideas," he insisted to the press. "But I also believe that good ideas don't matter if people don't hear them." Hillary, one might conclude from Obama's remarks, just didn't work hard enough.

The president's argument echoes through much of the Democrats' gloomy post-mortem. The problem was Hillary's schedule, or not enough "get-out-the-vote organizing, or James Comey's interventions. And, of course, the racist and sexist voters in fly-over America, who are too stupid to understand their own interest.

There is some truth to all of that. But the consoling claim that it wasn't our product that failed but merely our marketing leads to a dangerous conclusion: that all the Democrats have to do is to organize harder and wait for the vile and buffoonish Trump to implode.

The Trans-Pacific Partnership, however, was not a "better idea." Neither was the failure to prosecute Wall Street CEO's after the fraud-driven financial collapse that brought on the Great Recession. Nor the timid fiscal stimulus that stranded millions in the slowest recovery on record.

To be fair, these were not simply Obama's mistakes. They were the fruits of a culture of the implicit—and at times, explicit—contempt for working-class America that has been spreading through much of the Democratic Party's leadership for several decades.

As Democrats ponder their future, a little history might help.

Democrats' reaction to Ronald Reagan's victory over Jimmy Carter in 1980 was a gut-wrenching shock similar to what they have experienced in the past few weeks. Reagan wanted to privatize Social Security, ran a racist campaign against the "welfare queen riding in a Cadillac," and seemed willing to bring us to nuclear war with the Soviet Union. Liberals were sick to their stomachs that election night.

Trump is not Reagan. And 2016 is not 1980. But both elections were lost by tone-deaf Democratic elites who dismissed the economic anxieties of the working class.

As the unemployment rate began to rise in the winter of 1979-80, progressive Democrats appealed to Carter for a jobs program to offset the damage being done by the Federal Reserve's high interest rates. Carter rejected the idea because Wall Street would not accept more spending.

"Aren't you worried about the president's re-election?" I asked his staff at one White House meeting. Eyes rolled. "Do you really think that we could be beaten by Ronald Reagan?" one smirked. "The star of Bedtime for Bonzo?" Laughter all around.

Thus—in reaction to Carter's inaction—was born the Reagan Democrat.

Election exit polls that year showed that the chief concern of voters was unemployment. But Democrats blamed the defeat on Carter's dour personality and the Iran hostage crisis. They were confident that Reagan's loony economics would limit him to one term, and the blue-collar workers who voted for Reagan would soon come back home.

Meanwhile, Carter's efforts to make Democrats more business-friendly had opened doors to Wall Street's money. A generation of New Democrats—neoliberals—argued that because their party had a lock on the House of Representatives, which wrote tax laws, they would always be the senior partners in their relationship.

But, like Carter, they felt forced to prove their fiscal conservatism to their new financiers. Walter Mondale, Carter's vice president, ran in 1984 against Reagan's deficits, which were delivering jobs and growth. He lost. So did Michael Dukakis, with a similar message in 1988. He lost, too. Reagan tripled the national debt—and became a folk hero to conservatives.

It took 12 years for the Democrats to come back to the White House, and then only when Reagan's successor, George H.W. Bush, mishandled a recession and a third-party candidate siphoned votes from the Republicans. In 1994, Newt Gingrich picked the lock the Democrats thought they had on the House of Representatives, and with it went the leverage the neoliberals thought they had over Wall Street.

That Democrats did not want to be seen as anti-business in a capitalist America was understandable. But there was another option: an alliance with industry rather than finance. By the 1980s it was becoming obvious that the United States was losing its international competitiveness. In response, a network of industrialists, labor leaders and Democrats such as Ted Kennedy and Mario Cuomo argued for aggressive industrial policies to restore American competitiveness.

Bill Clinton, running on the theme that Americans were "working harder for less," seemed sympathetic. But for the bankers and brokers who had financed his campaign, globalization was not a threat; it was an opportunity to invest in production where labor was cheap and governments bribable.

As president, Clinton chose Wall Street over Main Street. He deregulated finance, extended privatization, and widened the revolving doors between Democrats and the financial sector. The bargain was sealed when Clinton allied with Republicans in Congress to pass NAFTA (the brainchild of Ronald Reagan), established a World Trade Organization to protect investor rights, and opened up the U.S. market to China.

Republicans and their Chamber of Commerce allies were, of course, fully on board. As they correctly saw, Clinton's trade policies not only shifted income from workers to investors, but they undercut the most important institutional support for New Deal social democracy—organized labor.

After Barack Obama won the 2008 election as an "agent of change," he renewed the Wall Street-Democrat alliance, persisting in the trade policies that had decimated the Democratic base in the industrial Midwest.

America's globalized capitalism can live with the politics of race, gender, and sexual identity. But it is implacably hostile to organized labor. The neoliberal Democrats got the message. As the unionized factories closed and labor's membership dwindled, the Democratic Party—while it happily took union members' dues and votes by arguing that Republicans would be worse—did virtually nothing to help.

History, the Democrats discovered, was about demography, not class. Democrats would assemble a coalition of the growth sectors—minorities, women, and professional white men. Like their Wall Street funders, the coalition's implicit antagonist, if not enemy, was the white male worker—the "loser" in the New Economy.

Ignored in this politics of social and cultural identity was that organized labor, for all its flaws, kept the white working class in the Democratic Party, and was a firewall against white racism. This was especially true for industrial unions. Moreover, factory jobs, along with government jobs, were the most important ladders of upward mobility for minorities and immigrants. In election after election, the best indicator that a white worker would vote Democratic was union membership.

So as industrial unions declined, the right wing punched through that firewall, firing up anger towards elites, whose definition of diversity and equality did not seem to include white "losers."

As long as Republicans maintained their own aloofness to the working class, that anger had no place to go. But with a Democratic mindset that allowed Rahm Emanuel—the Wall Street fixer who staffed both Bill Clinton and Obama—to tell Obama's task force on the auto industry bailout "Fuck the UAW!" it should have been no surprise that the Democrats were vulnerable in Michigan—and Ohio, Pennsylvania, Wisconsin, and Iowa.

So when Donald Trump, a man clearly unfit to be president, declared a plague on both political houses, white workers in the industrial Midwest, who had voted for Obama as an agent of change, were his.

Indeed, the election suggests that the Clinton/Obama coalition may not after all be on the right side of history. The current trajectory of the U.S. economy is for continued slow growth and a worsening distribution of income between capital and labor. If so, the politics of class may be more of a political motivator than social diversity, whatever the demographics.

The failure of the expected massive turnout of minorities and the college educated against a bigoted and crass huckster like Donald Trump becomes less of a mystery when you consider this: In the eighth year of the Obama recovery, almost half the electorate would have to borrow or sell something to meet an unexpected expense of just $400.

The success of Bernie Sanders—another unlikely candidate—demonstrated that economic pain and pessimism has already spread far beyond the middle-aged white guys who used to have union jobs. His campaign was energized by millions of young people who face a future of debt, marginal employment, and the relentless offshoring or automation of any jobs that can be done more cheaply abroad or by a computer.

As financially distressed 20-somethings become 30- and 40-somethings—black, brown, or white; male or female; straight or gay—economic class rather than social identity may well be the key to a progressive political future.

The good news is that the assumptions of neoliberal economics are discredited and that policy intellectuals on the party's left have already thought through the building blocks of a new economic policy agenda. It includes tax, trade, and regulatory changes aimed at shrinking speculative finance and expanding productive investment in America; increasing workers' bargaining power with stronger unions and workplace protections; and a foreign policy that shifts America from its untenable role as world policeman to one of honest broker for global cooperation on economic stability and climate change.

Moreover, there is core of experienced political leadership in Sanders, Elizabeth Warren, and others who understand what is needed.

The Democrats' task ahead, therefore, is to return to their own roots as the party of the new working class, whose anxieties about the future are spilling over the walls that separate people of different colors, genders, sexual preferences—and even educations.

This means making higher minimum wages, collective bargaining, and worker health and safety priority issues over the next few years. It also means committing to a coherent strategy for keeping and creating jobs with rising wages in America. By moving fast to preserve roughly half the jobs that the Carrier Corporation was going to ship to Mexico, Trump has already moved ahead of the flat-footed Democrats on this issue. Democrats may sniff that Trump's grandstanding cannot hold back the tide of globalization, but say that to the grateful Carrier worker who told The New York Times, "Now I can put my daughter through college without having to look for another job."

Still, his pushback at Carrier is a one-trick policy. So Democrats need to keep his feet to the fire on offshoring jobs. Since he can only do this by having government interfere with the right of businesspeople to make their own decisions, it has the potential for splitting Trump from the Republicans, or splitting him from his working-class base.

A pro-worker agenda will of course turn off many of the people who paid Hillary Clinton $250,000 a speech. Democrats therefore need a strategy for weaning the party from big money, starting with overturning the Supreme Court's decision on Citizen United.

Trump's victory, however, locks down the Court for the foreseeable future. So, given that overwhelming majorities think that Washington is corrupted by money, this is an issue that could ignite populist energy for the Democrats if they launched a grass-roots campaign to amend the Constitution.

No such campaigns or policies can be led by a policy class that moves from Wall Street to Washington and back, and remains much of the default pool of policymakers poised to return if and when the Trump experiment collapses.

The conventional wisdom is that Trump will tank; his promises contain too many contradictions for him to deliver on them. But Democrats also made that assumption about Reagan, whom they considered over his head when it came to policy. Trump, like Reagan, recites the catechism of fiscal conservatism, but like Reagan, he may turn out to be a Keynesian spender. Certainly he knows enough bankers and brokers to understand that their economic principles are easily bought off with tax cuts and deregulation.

Any Trump stimulus will direct the lion's share of benefits to the top 1 percent, but enough could trickle-down in the form of tighter labor markets to see a sustained rise in wages. Assuming he keeps his promise to defend Social Security and Medicare, a few dramatic confrontations over trade policy and a battle with the Federal Reserve to keep interest rates low, could cement his populist credentials.

Trump will always have trouble curbing his motor mouth, but he has already demonstrated a prowess for explaining away his failures by scapegoating minorities, immigrants, and liberals. A Democratic Party that cannot look at the economy through the lens of class as well as social identity may be just what he needs to turn Trump into a longer lasting Trumpism.               


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The Employment Situation in November [feedly]

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The Employment Situation in November
// White House.gov Blog Feed

The economy added a solid 178,000 jobs in November as the longest streak of total job growth on record continued. U.S. businesses have now added 15.6 million jobs since early 2010. The unemployment rate fell to 4.6 percent in November, its lowest level since August 2007, and the broadest measure of underemployment fell for the second month in a row. Average hourly earnings for private employees have increased at an annual rate of 2.7 percent so far in 2016, faster than the pace of inflation. Nevertheless, more work remains to ensure that the benefits of the recovery are broadly shared, including opening new markets to U.S. exports; taking steps to spur competition to benefit consumers, workers, and entrepreneurs; and raising the minimum wage.

FIVE KEY POINTS ON THE LABOR MARKET IN NOVEMBER 2016

1. U.S. businesses have now added 15.6 million jobs since private-sector job growth turned positive in early 2010. Today, we learned that private employment rose by 156,000 jobs in November. Total nonfarm employment rose by 178,000 jobs, in line with the monthly average for 2016 so far and substantially higher than the pace of about 80,000 jobs per month that CEA estimates is necessary to maintain a low and stable unemployment rate given the impact of demographic trends on labor force participation. 

In November, the unemployment rate fell to 4.6 percent, its lowest level since August 2007. The labor force participation rate ticked down, though it is largely unchanged over the last three years (see point 3 below). The U-6 rate, the broadest official measure of labor underutilization fell 0.2 percentage point for the second month in a row in part due to a reduction in the number of employees working part-time for economic reasons. (The U-6 rate is the only official measure of underutilization that has not already fallen below its pre-recession average.) So far in 2016, nominal hourly earnings for private-sector workers have increased at an annual rate of 2.7 percent, faster than the pace of inflation (1.6 percent as of October, the most recent data available).



2. New CEA analysis finds that State minimum wage increases since 2013 contributed to substantial wage increases for workers in low-wage jobs, with no discernible impact on employment. In his 2013 State of the Union address, President Obama called on Congress to raise the Federal minimum wage, which has remained at $7.25 an hour since 2009. Even as Congress has failed to act, 18 States and the District of Columbia—along with dozens of local government jurisdictions—have answered the President's call to action and have raised their minimum wages. (In addition to the States that have already raised their minimum wages, voters in four States approved measures to raise the minimum wage in November.) To assess the impact of minimum wage increases implemented by States in recent years, CEA analyzed data from the payroll survey for workers in the leisure and hospitality industry—a group who tend to earn lower wages than those in other major industry groups and thus are most likely to be affected by changes in the minimum wage. As the chart below shows, hourly earnings grew substantially faster for leisure and hospitality workers in States that raised their minimum wages than in States that did not. By comparing trends in wage growth for the two groups, CEA estimates that increases in the minimum wage led to an increase of roughly 6.6 percent in average wages for these workers. At the same time—consistent with a large body of economic research that has tended to find little or no impact of past minimum wage increases on employment—leisure and hospitality employment followed virtually identical trends in States that did and did not raise their minimum wage since 2013. (See here for more details on CEA's analysis.)





3. The strengthening labor market is drawing individuals into the labor force, offsetting downward pressure on employment growth from the aging of the population. Employment growth depends on three factors: population growth, the rate at which the population participates in the labor force, and the share of the labor force that is employed. The chart below decomposes employment growth (from the household survey) into contributions from each of these factors for each year of the current recovery. It further decomposes labor force participation into shifts attributable to demographics (such as the aging of the U.S. population) and shifts attributable to other factors (such as the business cycle). Throughout the recovery, demographic changes in labor force participation—primarily driven by a large increase in retirement by baby boomers that began in 2008—have consistently weighed on employment growth. In recent years, however, non-demographic changes in labor force participation have supported employment growth, as the strengthening of the labor market and increasing real wages have drawn more individuals into the labor force. The entry (or reentry) of workers into the labor force has helped employment growth maintain its recent solid pace even as the unemployment rate has fallen more slowly. These two shifts in labor force participation—demographic and non-demographic—have largely offset one another in recent months, and as a result the overall labor force participation rate has remained broadly stable since the end of 2013.



4. The number of unemployed workers per job opening, an indicator of labor market slack, is near its lowest level prior to the recession. Using data from the household survey and the Job Openings and Labor Turnover Survey, the chart below plots the ratio of unemployed workers to total job openings. In the recession, unemployment rose rapidly while job openings plummeted, sending the ratio of unemployed workers to job openings to a record peak of 6.6 in July 2009. As the unemployment rate has decreased over the course of the recovery, and as job openings have climbed to record highs this year, the ratio of unemployed workers to openings has fallen steeply, standing at 1.4 as of September (the most recent data available for openings). This is close to the ratio's lowest level in the 2000s expansion, another indicator—in addition to recent increases in real wages—of a strengthening labor market.



5. The distribution of job growth across industries in November diverged from the pattern over the past year. Above-average gains relative to the past year were seen in professional and business services (+49,000, excluding temporary help services), while mining and logging (which includes oil extraction) posted a gain (+2,000) for the second time in recent months amid moderation in oil prices. On the other hand, retail trade (-8,000), information services (-10,000), and financial activities (+6,000) all saw weaker-than-average growth. Slow global growth has continued to weigh on the manufacturing sector, which is more export-oriented than other industries and which posted a loss of 4,000 jobs in November. Across the 17 industries shown below, the correlation between the most recent one-month percent change and the average percent change over the last twelve months was -0.06, the lowest level since September 2012.



As the Administration stresses every month, the monthly employment and unemployment figures can be volatile, and payroll employment estimates can be subject to substantial revision. Therefore, it is important not to read too much into any one monthly report, and it is informative to consider each report in the context of other data as they become available.


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Another solid jobs report, but wage growth NOT pushing up price growth (so chill, Fed…) [feedly]

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Another solid jobs report, but wage growth NOT pushing up price growth (so chill, Fed…)
// Jared Bernstein | On the Economy

Payrolls were up 178,000 last month and the unemployment rate fell to a nine-year low of 4.6 percent, in yet another installment of solid, monthly job reports. Wage growth was flat in November, manufacturing jobs are down, and the labor force contracted slightly, so the report was not uniformly positive. But the job market continues to close in on full employment, and the Federal Reserve is unlikely to see anything in today's report to prevent them from tapping the brakes with an interest rate hike at their meeting later this month.

Below, however, I argue that the absence of inflationary pressure should make them think twice before slowing a labor market that's finally delivering jobs and (looking at the trend versus just November's data) wage gains to workers who've long been left behind.

Also, in today's write-up, I feature a quick comparison of two job markets: the one inherited by president-elect Donald Trump and the one inherited 8 years ago by Barack Obama. The difference is really something.

Smoothing out the monthly bips and bops, we see that the 178,000 payroll gain is very much in lockstep with the underlying trend in the pace of job creation. As revisions slightly lowered gains in the prior two months, the patented JB smoother shows that average monthly job gains in the last three months were 176,000. That's a slight deceleration from the 205K pace over the past 6 months, but broadly speaking, we're adding north of 170K jobs per month this year, a pace of job growth that should be plenty fast enough to keep the job market on target for reaching full employment at some point later next year.



But isn't 4.6% unemployment at or below most people's definition of the lowest unemployment can go without triggering spiraling price growth? Yes, but there are very important mitigating factors.

–The underemployment rate, which also fell last month, is, at 9.3%, still well above its full employment level, which I judge to be around 8.5%. This rate captures slack that's not in the headline rate, including involuntary part-time workers. As the job market tightens, the number of such workers is solidly trending down (down about 400K over the past year, to 5.7 million), a clear and positive symptom of job market improvement. But this key indicator is still too high.

–The labor force participation rate is still too damn low. As noted, the labor force contracted a bit last month and this contributed to the decline in unemployment. While the size of the labor force is a very noisy monthly number, it should be noted that the less noisy participation rate remains, at 62.7%, historically low. Some of that has to do with demographics and retiring boomers. But the employment rate of 25-54 year-olds is still only slowly climbing back to pre-recession levels, and 8 years into the recovery, has only regained 60% of its recession-induced loss.

–Perhaps most importantly from the Fed's perspective, wage growth is NOT bleeding into price growth (see below).

The report, as noted, includes a few less positive results. Manufacturing remains a real weak spot. Employment in the sector is down slightly each of the last four months, including 4,000 last month. This year, factory sector jobs are down 60,000; over a comparable period last year (Jan-Nov, 2015) they were up 20,000, and in 2014, they were up 186,000. This pattern links closely to the appreciation of the dollar, which makes our manufactured exports less competitive in foreign markets. It's also a politically timely observation, suggesting were going to need much more thoughtful and systemic policy than president-elect Trump's recent Carrier plant intervention.

Wage growth was surprisingly flat over the month (down 0.1%), but that's probably mostly give-back from last month's 0.4% pop. You've really got to look at the year-over-year trend for average hourly wages, which shows a 2.5% gain over the past year, very much on a trend that's up from about 2% a year ago. In fact, if we average this wage series over the past three months and compare to the average for the three months before that, it's growing at a 2.9% annual rate.

Which brings me to the Fed point. Today's report will be scrutinized for evidence as to the Federal Reserve's plans to raise the benchmark interest rate they control when they meet later this month. Before this morning's release, futures markets put a 93% probability on a rate hike. After the release, that rose to 95%.

Those probabilities speak to the "will they" question. But should the Fed raise?

This is much less obvious. Yes, there is good evidence that the tightening job market has boosted workers' bargaining clout, leading to faster wage growth (see the first scatter plot below). Given the long, dry, slack-driven period for wage growth, this is an unequivocal plus.



The risk, from the Fed's perspective, is that as the labor market hits utilization constraints that come with full employment, faster wage growth will bleed into faster inflation, and that invokes part 2 of their mandate: 1) full employment at 2) stable prices.

But the second figure shows no such bleeding and ergo no need to suture the non-existent wound with a rate hike (along with no need for such stretched metaphors).



Finally, and I'll have more to say about this later, let's use a few indicators from today to look at the job market that president-elect Trump is inheriting compared to the one President Obama inherited. The table below shows various indicators from November 2008 compared to those from last month.



The difference is remarkable. Remember, presidents get credit and blame for many economic outcomes over which their policies have little impact, so a lot of what goes on in terms of the nation's impression of their economic effectiveness, at least initially, is basically luck.

When it comes to the inherited trend, Obama basically was "catching a falling knife." Payrolls fell a horrific 769,000 in the month he took office. The unemployment rate was about 7% on its way up to 10%.

Conversely, Trump is climbing aboard a very favorable trend, with steady job gains delivering low unemployment and increasing wage gains.

Like they say: If you can't be good, be lucky.


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China’s Vision for a Regional Trading Block Has its Own Challenges [feedly]

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China's Vision for a Regional Trading Block Has its Own Challenges
// Follow the Money

One oft-made argument is that with Trump's decision not to move forward with the TPP, China has an opportunity to fill the regional trade void. Chinese policy makers are certainly pushing their regional comprehensive economic partnership hard. Nick Lardy of the Peterson Institute, in an article by Eduardo Porter.

"China is the one major power still talking about increased integration," said Nicholas Lardy, a China specialist at the Peterson Institute. "China is the only major country in the world projecting the idea that globalization brings benefits."

Perhaps. But I also suspect there are significant obstacles to a Chinese-led regional trading block, obstacles that are independent of the United States.

One. If (almost) all Asian economies are running trade surpluses, they cannot just trade with each other.

There is an old fashioned adding up constraint – one country's surplus is another's deficit, and if Asia is running a large surplus collectively, it mathematically has to be selling its goods to the rest of the world. And Asia's collective surplus in goods trade is now very large.



Add in the fact that many of the large Asian economies are exporters of manufacturers and importers of commodities, and it is, I think, self-evident that Asia as a whole needs to run a substantial manufacturing surplus with the rest of the world. For my paper on Asia's savings glut I estimated that Asia's aggregate surplus in manufacturing is in the range of two percentage points of world GDP. Some of that surplus is spent on the rest of the world's commodities, but less now than a couple of years back. And some is spent on service imports, but less — I suspect — than many think. Many services are hard to trade across linguistic borders.

Asia of course could do more intra-regional trade while continuing to run large extra-regional surpluses. But right now inter-Asian supply chains aren't faring so well, largely because China now makes more and more components internally.

Asia right now isn't in a position where it can just trade with itself, or even just trade with the world's commodity exporters. So long as Asia still needs large external surpluses to make up for short-falls in internal demand, Asia cannot write the global trade rules on its own.

And, to be clear, I write this from the point of view of someone who wants Asia to rely more on its own internal demand and less on global demand. That shift might raise trade, as Asia imports more from the rest of the world. Or it might lower trade, as stronger Asian currencies discourage production in Asia to meet non-Asian demand. It is hard to predict ex ante the nature of adjustment.

Two. It isn't clear that access to the Chinese market is all that great a prize. At least not right now.

China is talking a good game on global trade. But the reality is that China's domestic market for manufactured imports is still small relative to the U.S. and European markets. And it is shrinking relative to China's GDP and could shrink further if current trends continue. The following chart adjusts for China's "processing" imports (imports for reexport) — the comparison isn't perfect (the U.S. and Europe do not report processing trade), but I am confident it captures a real shift.



There is a growing body of empirical evidence that has found that China's attempted shift from investment to consumption means less demand for imports in the short-run. This could change. But for now Chinese consumption demand tilts heavily toward Chinese-made goods (and Chinese-produced services). The growth in China's goods import volume over the last three years has averaged something like 3% (counting the strong 2013 and the weak 2015), while growth has averaged more than 6.5% (of course).

And, well, China often seems much more interested in using its domestic market to build up its national champion firms than in sharing its domestic market with the world, hence the current round of complaints from foreign firms operating in China. My sense is that China often still doesn't have a "single" market internally – lots of provinces favor their state-sponsored firms against those of other provinces—let alone a market fully open to global competition. That is a problem for the U.S. and Europe of course. But it is also a potential problem for any Asian economy that thinks it can draw on Chinese demand for manufactures to boost growth.

Who knows, China may be ready to change—and use its consumer market to lure its neighbors into its geopolitical block and try to take on the United States' recent role as the world's consumer of first and last resort. Then again, China may well fail to generate enough consumption demand to keep its own economy going if investment falters.

Any country that ties its fortune to China should worry at least a bit about the risk that a further slowdown in China will generate a lot of spare capacity that China will want to export.

Three. The balance-of-payments consistent "vendor-financing" deal on offer from China is a mixed bag for at least some of its neighbors.

The offer is clear enough. China has spare savings. China has spare manufacturing capacity. Chinese firms know how to build infrastructure. And China has been willing to finance, through its state banks, the Chinese Development Bank, the funds set up to support One Belt One Road, and the Asian Infrastructure and Investment Bank, trade deficits inside (and outside) the region.

If others in Asia take the deal and borrow from China to fund sustained trade deficits (deficits that they generally have not wanted to finance in the market when the funds were available because of the risk of a reversal in capital flows) that could bring Asia's aggregate trade surplus down.

But there is a catch: intra-Asian vendor financing—borrowing from China so that China can export more—is somewhat different than a balanced two way expansion of Asian trade.

I can see why this kind of deal might appeal to poorer countries in Asia, particularly those that need more infrastructure and earn foreign exchange primarily through exporting commodities rather than manufactures.

Less so Korea or Japan.

Indeed, Korea and Japan have their own surpluses, and might want their own form of vendor financing. Of course, the main Asian surplus countries could try to join forces. The possibility of multilateral rather than bilateral financing with open competition for projects is part of the appeal of the Asian Infrastructure and Investment Bank. But the combined current account surplus of Japan, Korea, and China is around $500 billion (throw in Singapore and Taiwan and the sum grows to more than $600 billion). It would take a huge shift for there to be $500 billion in deficits elsewhere in Asia to finance.

Bottom line: Asia remains short on internal demand and needs to export to the rest of the world, and new institutions that facilitate trade among Asian economies on their own won't change that fact. Call me a balance of payments fundamentalist, but I prefer discussions of trade that mention the trade balance. And I am skeptical that China is really willing to open up its domestic market to imports, even if the opening is only to its (new) friends, when the macro story of the past few years has been China's difficulties in generating enough internal demand for goods to absorb China's own supply — at least during periods when China has tried to dampen domestic credit growth.


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Missing Workers: The Missing Part of the Unemployment Story [feedly]

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Missing Workers: The Missing Part of the Unemployment Story
// Economic Policy Institute

Updated December 2, 2016

In a complex economy, conventional measures sometimes fall short.

In today's labor market, the unemployment rate drastically understates the weakness of job opportunities. This is due to the existence of a large pool of "missing workers"–potential workers who, because of weak job opportunities, are neither employed nor actively seeking a job. In other words, these are people who would be either working or looking for work if job opportunities were significantly stronger. Because jobless workers are only counted as unemployed if they are actively seeking work, these "missing workers" are not reflected in the unemployment rate.

As part of its ongoing effort to create the metrics needed to assess how well the economy is working for America's broad middle class, EPI tracks "missing worker" estimates, updated on this page on the first Friday of every month immediately after the Bureau of Labor Statistics releases its jobs numbers. The "missing worker" estimates provide policymakers with a key gauge of the health of the labor market.

Current "missing worker" estimates at a glance

Updated December 2, 2016, based on most current data available

Total missing workers, November 2016: 2,320,000Unemployment rate if missing workers were looking for work: 6.0%Official unemployment rate: 4.6%

Chart: Total number of missing workersChart: Unemployment rate if missing workers were looking for workChart: Missing workers by age and genderMethodology

Missing Workers



Missing Workers



Missing Workers



Methodology

How do we estimate the number of missing workers?

First, we estimated trends in age- and gender-specific labor force participation rates between 1986 and 1996 as well as 1996 and 2006. We then took a weighted average of the age/gender specific labor force participation trends in those two periods and projected they would continue through 2016. We weighted the earlier period by a fifth and the latter period by four-fifths. Because the years we chose (1989, 1996, and 2004) had near-identical overall unemployment rates, we think this largely purges the age/specific participation trends of any cyclical impact. Given this, we assume that these projected participation rates capture the structural, long-run trends of these groups.

Any shortfall between these projections and the actual labor force participation rate is thus a good measure of the cyclical impact on the labor force participation rate, i.e., the change that is a direct result of the weak labor market in the Great Recession and its aftermath. These shortfalls do not count, for example, those retiring baby boomers who would have left the labor force whether or not the Great Recession happened.

Based on this logic, missing workers are estimated in the following way: The labor force participation rate projections for 2016 by gender and age group (age groups 16-19, 20-24, 25-34, 35-44, 45-54, 55-64, 65-74, 75+) that we constructed based on earlier trends as described above are assumed to be structural rates. The current month's structural rates (by gender and age group) are calculated by linearly interpolating between 2006 and 2016. The size of the potential labor force is calculated by multiplying the current month's structural rates by actual population numbers (available by gender and age group from the Current Population Survey public data series). The difference between the size of the potential labor force and size of the actual labor force (also available by gender and age group from the Current Population Survey public data series) is the number of missing workers.


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Fidel was right about US role in Latin America

http://cepr.net/publications/op-eds-columns/fidel-castro-turned-out-to-be-right-about-the-us-role-in-latin-america