Month: December 2016

My Political Platform for the Nation – 2017

For me, the ideal American government would deliver its important but limited functions efficiently and effectively and would raise the money to pay for these activities with efficient, minimally distorting (neutral), and fair taxes following a principle of maximum subsidiarity (decisions made and services performed at the most local levels possible). The government should do fewer things than it does now but should do them better and should fully pay for them with taxes and fees (cyclically balanced budgets).

My unrestrained, radical platform will be presented here at a high level of general principles. Details need to be refined by a political process involving public discussion and are likely to evolve somewhat over time. Links to earlier articles provide additional details. In the very broadest terms Americans should be self reliant and free to work and play as hard as they choose with the government supporting their choices by providing security, the legal foundation and framework of private property and contracts, and an efficient safety net when individual undertakings are not feasible or fail.

The limited functions of the Federal government are enumerated in Article 1 section 8 of the U.S. Constitution. Broadly these are to:

  1. Develop and maintain our relations with other countries and international bodies and to maintain an Army, Navy and Air Force for the purposes of defending and promoting the security of the United States;
  2. Establish and enforce the rights to property and contracts and to adjudicate related disputes;
  3. Provide for public safety;
  4. Provide an efficient and effective social safety net (welfare);
  5. “Regulate commerce with foreign Nations, and among the several States;”
  6. “Coin money, regulate the value thereof, and of foreign coin, and fix the Standard of Weights and Measures;”
  7. Arrange for the provision of roads and essential infrastructure; and
  8. Tax, borrow, and levy fees and tariffs to pay for these activities.

Our Social Contract

Sovereignty resides with each individual, who have collectively ceded limited powers to government for the general welfare. Each of us is free, within legal limits on doing harm to others, to lead our own lives and build or work at whatever we choose. Thus the government’s laws apply equally to each of us without regard to our race, religion, sex, or sexual orientation. From this environment of freedom and innovation, America has built the most successful economy in the world.

When building companies or developing products, many will fail and try again. The government provides the legal framework (bankruptcy) for resolving such failures. The implicit agreement between citizens and their government is that government will provide a floor—a safety net—whenever a person’s efforts fail or when, e.g., for health reasons, a person is unable to provide for him or herself. The level of the safety net should reflect the level of the country’s income and social consensus and should be designed to achieve its objective as efficiently as possible with careful consideration of the incentives it creates.

Income redistribution: taxation and a guaranteed minimum income

All income (personal and corporate) taxes should be replaced with a comprehensive, flat, consumption tax (Value Added Tax—VAT) and limited progressivity introduced by paying every legal man, woman and child resident a guaranteed minimum income. US federal tax policy, Cayman Financial Review July 2009 Each recipient of these monthly guaranteed income payments would be required to set aside a minimum amount for health insurance (chosen by each person or family in the competitive market place) and a minimum amount for retirement (invested in qualifying retirement funds in the competitive market place). Saving social security

As the guaranteed minimum income should be at a level sufficient to minimally support life’s basic needs, supplements such as unemployment or disability insurance would not be needed or provided. However, disabilities acquired from military or public safety service should receive additional income support.

Health care

Each person will be responsible for paying for at least part of routine medical care (the copay required by the insurance they have chosen) and will thus care about its cost. The cheapest insurance policies will be limited to major medical expenses (catastrophic health insurance). As everyone will be required to contribute monthly to a health savings account from their guaranteed minimum income, most people will chose to use such funds to buy health insurance, which would not be tied to employment or an employer.

Doctors and hospitals will be required to make medical service costs transparent. On that basis, patients, in consultation with their doctors, will decide the level of care and treatments to receive. These measures will introduce normal market competition into the provision of medical care that is currently absent, which will improve its quality and lower its cost.

Education

Equal access to quality education is a critical element in maximizing opportunity for all and the wealth of our society and each person in it. The public school system has often failed in this objective. While the wealthy can afford to put their children in private schools when the neighborhood school is of poor quality, lower income families generally cannot. Every K-12 aged child will receive a tuition voucher that covers the cost of state provided education. The amount will generally vary from state to state (or school district to school district). The voucher can be used to attend the local neighborhood public school with no additional cost, or any private school the family chooses, which might incur additional costs. Schools eligible to receive such vouchers must meet minimum education standards set by the state and must disclose the performance of their students on state administered achievement tests. This information must be available to the public. The learning progress of each child is more important than the average level of achievement of each school’s students as some schools might well specialize in slow or problem learners and performance data should reflect this distinction. The neighborhood school has the advantage of being easier to get to every day and will normally be chosen by families if it provides a good education. The argument for universal tuition vouchers goes beyond providing a level playing field to all. It also introduces the competition for students that is the basis for good quality, low cost goods and services in every other area of our economy.

Access to higher education raises different issues. Those with the aptitude and desire for a college or postgraduate degree can significantly increase their lifetime incomes as a result. It would hardly be fair to tax the general public to subsidize the higher education of those who will become wealthier as a result. However, the tuition loans that may be needed by those from lower income families to make this investment would be hard to get without insurance against default. Many states also provide community (or Jr.) colleges at public expense that provide training in various trade skills as well as four year college preparatory courses. These seem to have often been successful in leveling the playing field. The optimal structuring of higher education subsidies (e.g. between insurance guarantees and tuition subsidies) needs further examination.

Monetary and Financial Policies

Government policies that affect business should be as rule based and transparent as possible. Monetary policy stands out as a particularly important area in which clearer rules are needed. A currency with stable real value (purchasing power) is an important part of the foundation of efficient free markets. At the very minimum the Federal Reserve’s mandate should be tightened as provided in the very pragmatic Federal Reserve Accountability and Transparency Act of 2014. This act would require the Fed to chose an operational rule, from which it could depart only with an explanation to Congress of its reasons. A deeper review of options is proposed by the Centennial Monetary Commission Act of 2015. I have proposed a more radical reform in the spirit of the gold standard but with tighter rules and an anchor of a large number of goods rather than just gold. The supply of this currency, which ideally would become the global currency, would be regulated by the market using currency board rules and “indirect redeemability.” A hard anchor for the dollar.

The banking and financial sector are currently smothered with detailed regulations the compliance cost of which are driving smaller banks out of business. Under the Dodd Frank law adopted after the financial crisis of 2008, the largest five American banks have grown even larger (in absolute terms and as a share of the banking sector) than they were in 2008. Regulators, despite (or because of) their detailed banking regulations have failed to make banks safer and have slowed the competitive process of producing better and cheaper services. Bank owners and market preferences should regulate risk taking by banks.

Bank regulation by the government should focus on broad principles with strong owner accountability. Bank capital requirements should be raised and the no bail out rules strengthened. Bank owners and investors should absorb any bank losses. The payment services of banks should be isolated from the rest of its lending and investing business by adopting the Chicago Plan of one hundred percent reserve requirements against current account deposits, and virtually all other regulations (other than accounting and reporting standards) should be dropped. Larger banks will develop their own risk weighted capital requirements for their internal use, but the government’s capital requirements should state the minimum required leverage ratio (ratio of core capital to total assets) and set it at a high level. Changing direction on bank regulation, Cayman Financial Review April 2015. A bill now in congress moves in this direction: The Financial Choice Act

Business activities and regulation

The government should only provide services that that private sector can’t. It should provide the legal and regulatory framework for the private economy rather than compete with it. Though the approaches to providing “public goods” such as police, courts, prisons, firemen, parks, highways, airports, etc. have varied over time, they are almost always paid for by the government (i.e. collectively by tax payers) and should be provided efficiently at the level expected by the public. Publicly funded and privately produced goods and services are often sources of hard or soft corruption. Rather than over charging for services or paying bribes to win contracts (hard corruption), soft corruption exploits influence on government to obtain contract terms or regulations favorable to particular firms (“rent seeking”). The government’s purchases of goods and services from the private sector should be governed by transparent rules that promote competition among suppliers. This is easier said than done. Open the Books

While the government is involved in and trying to do far too many things, it doesn’t do many of them very well. Of those services the government needs to provide, states generally perform better than the federal government though performance varies across states. In Maryland, where I live, I was able to register my Limited Liability Company on line in about 30 minutes start to finish. Registering my car and updating my driver’s license is quick and easy. However, it took me months to obtain a statement of my residency from the U.S. Treasury and a personal trip to the State Department to have it certified to provide to the National Bank of Kazakhstan before they could pay me for my services. Getting a passport or green card is more complicated and takes longer than they should. The government should do much less and do it much better.

Those in the government who believe they can judge better than competitive private markets how best to allocate resources (what to invest in and produce) are generally wrong. Moreover, they establish an opportunity and thus incentive for corruption.

The government’s regulation of private businesses in the interest of public safety, environmental protection, and market competition should be limited and subject to very serious cost/benefit tests. Cost/benefit analysis unavoidably reflects subjective judgments but their role should be limited to the extent possible by full transparency of the basis of any assessment. Competitive capitalism vs. the other kinds.

Foreign policy and national security

The purpose of our foreign policy is to serve American security interests and the international rule of law under which American’s can explore the world and American businesses can compete globally on a level playing field. Our security requires a strong military, but it also requires the skillful use of diplomacy. Our military must be structured for defense, not offensive wars of our choosing. Our 2003 war in Iraq and subsequent developments in the Middle East have cost many lives (some American) and treasure, undermined our moral authority, and seriously damaged our security. Our foreign policy should be one of “restraint.”

Our relations with other countries should be based on shared interests consistent with our respect for individual dignity and the rule of law. We should support and, where appropriate, lead international bodies dedicated to developing, promoting, and overseeing compliance with the rule of law internationally. Our international leadership should rest, in addition to our economic and military strength, on our commitment to broadly shared values and standards of behavior. Just as we give up limited amounts of our individual sovereignty to our own government when it serves our individual and collective interests, so should we give up limited amounts of our national sovereignty to international bodies when it serves our national and international interests.

Our economic strength depends in part on providing for a sufficiently strong military in the most economical way possible. Money spent on tanks can be spent on building other businesses and producing goods that we enjoy. The very nature of the relationship between our military and the industries that supply it, what President Eisenhower called “the military industrial complex,” makes achieving this objective very difficult. As argued above, clear rules and transparency are important tools. Our unsupportable empire

Trade

Next to the right to personal property, nothing is as central to our liberty and well being as the right to trade. It is the basis of virtually all of our enormous increase in productivity and thus our standard of living. The government impedes our right to trade with a wide range of often unnecessary or excessive regulations. Restricting our freedom to trade across national borders is also a mistake that reduces our standard of living from its potential.

Trade has destroyed some jobs while creating others. “Since 1900, the portion of the U.S. workforce in agriculture has declined from 41 percent to less than 2 percent. Output per remaining farmer and per acre has soared since millions of agricultural workers made the modernization trek from farms to more productive employment in city factories…. Manufacturing’s postwar share of the labor force peaked at about 30 percent” in 1953 and has since declined to less than 9 percent while manufacturing output continued to climb. “Of the 5.6 million manufacturing jobs lost between 2000 and 2010, trade accounted for 13 percent of job losses and productivity improvements accounted for more than 85 percent.” George Will, Washington Post.

As with domestic, competitive trade, those out-performed in competitive markets suffer, at least temporarily. The safety net for “losers” in the competitive process discussed above is an important feature in our willingness to unleash the benefits of free trade. We must insure that they are adequate. We should support the World Trade Organization (WTO) as well as regional and bilateral agreements that reduce the barriers to trade and promote freer trade. Save trade. Globalization and nationalism-good and/or bad?. Trade and globalization

Conclusion

Our government should assume that each of us is capable of and has the right to make our own decisions and lead our own lives as we see fit. Its role is to protect those rights, in part by protecting us from others, foreign and domestic, who would violate them. We are, however, part of and best flourish within broader communities. Our government should develop legal frameworks to facilitate our interactions and relationships within and across societies both business and personal. Our successful flourishing will also depend greatly on a shared culture of mutual respect and comity.

Our Risks from Terrorists

“’The free movement of good people also means the free movement of bad people. Expect Schengen to dominate the EU debate next year,’ Nigel Farage, a leading British anti-E.U. campaigner, wrote on Twitter, referring to the area that allows for border-free travel in most of the European Union.” Washington Post /2016/12/23/

Fear of terrorists may destroy the EU or limit some of its finer features. In addition, government measures to protect us from terrorists often restrict our privacy and potentially our freedom from government interference with our lives. How should we determine the best balance between freedom and security when confronting terrorist threats? Answering that important question should start with putting the risk of death from terrorist attacks in broader perspective.

From 2001 to 2014, 3,043 people were killed on U.S. soil as the result of acts of terrorism. Almost all of them (2,990) died on 9/11/2001. An additional 369 Americans have died from terrorist acts abroad (excluding Afghanistan and Iraq) for a total of 3,412 souls. This is a terrible loss but should be seen in the perspective of other risks we face and accept.

Over this same period 440,095 died on American soil from guns. Put differently, for every person killed on American soil by terrorists, 1,049 were killed with guns.

Over the same period 534,137 people died in car accidents in the U.S. The good news is that deaths from car accidents have been steadily declining over this period, falling by 22%. Since its peak of 53,543 in 1969 deaths on American highways have falling by 39% . Given that automobile accidents are caused almost totally by human error, the expanding use of driverless cars will cause this figure to plummet.

Poisoning (drug overdoses) comes in second as the cause of deaths in the U.S. with around 39,000 deaths annually in recent years.

Falling kills around 25,000 people annually in the U.S. Most of these falls occur in the home. Two thousand seven hundred people die in fires annually and 2,500 choke to death per year while eating.

We rightly take practical measures to reduce all of these sources of unnatural death. Measures that pass the cost/benefit ratio test differ for each cause of death. In the case of guns, the right to bear arms is balanced with various approaches to regulating that right. Taking account of the use of guns for self-defense (as opposed to hunting), it is not obvious whether wider gun ownership increases or reduces public safety. No one has proposed outlawing cars.

Preventing terrorist attacks is devilishly hard. Attempting to guess who might commit a terrorist act (particularly in cases of isolated individuals who perform these acts alone – so called lone wolfs) aside from being basically impossible, can be extremely expensive with significant risks to our privacy and freedom as we have seen. I will not attempt to advise on how best to deal with the threat of terrorism. Rather, I want to stress how tiny the risk of a terrorist death is in both absolute terms and relative to all of the other accidental deaths we face. You are more than 100 times as likely to choke to death as to be killed by a terrorist and no one is proposing that we stop eating (which would also be fatal). Nor should we significantly restrict the freedom of movement in the world. We should not overly put our privacy at risk or significantly change our life styles and public policies in order to try to reduce the risks of terrorist attacks.

Save Trade

I have written about the importance of trade to our standard of living many times because it seems to be under attack. The graph below, which reflects Angus Maddison’s data showing a massive increase in income throughout the world over the last two centuries and which is reproduced, courtesy of Human Progress, provides a dramatic visual depiction of the impact of Trade.

Once households were able to trade what they produced for what they needed, the increase in their output as they specialized in what they were best at was truly staggering. But it is not surprising when you reflect on how limiting it would be if you had to be self sufficient in everything.

Following the disastrous imposition of high tariffs by the U.S. in 1930 (Smoot-Hawley Tariff Act) to save American jobs and the great depression and world war that followed, representatives of all 44 Allied nations came together under U.S. leadership at Bretton Woods in 1944 anticipating the end of World War II. They established the International Monetary Fund (IMF), the World Bank, and what is now the World Trade Organization (WTO) in order to establish, protect, and further a liberal international economic order (i.e., to protect and promote free markets globally).  Trade again flourished, as it had previously at the end of the nineteenth century, leading a resumption of dramatic growth in wealth and income across the globe.

The United States was the natural (indispensable) leader in promoting this liberal order for several reasons. By the end of WWII the U.S. was the largest economy in the world. And while the size of the United States and the guarantee of free trade within its boarders provided in the U.S. Constitution assured substantial trade within the U.S., opening the rest of the world to trade was very beneficial to all countries (win-win). The Boeing Company, for example, sells more of its planes abroad than domestically because the world market is larger than the U.S. market. So the U.S. is the natural leader because it is the largest trader. But more than that, most other countries respect the commitment of the U.S. to the rule of law and a level playing field for commerce. Thus they gladly accept our leadership.

The world is far from the ideal level playing field for trade but is much closer to that model than it was at the end of WWII. The WTO (the successor of the General Agreement on Trade and Tariffs – GATT) and regional and bilateral trade agreements keep moving us closer and closer to such a world. It is a very desirable goal for the United States and for the rest of the world (look at the above graph again). As with technical progress and the increasing productivity it brings, some capital and labor (workers) will need to move to new activities and we need to insure that displaced workers do not suffer in the process (we seem to care less about the displaced capitalists assuming, I guess, that they can take care of themselves).

While it is still early, President-elect Trump seems uncommitted to the U.S. leadership of our increasingly liberal (freer) international economic order. In fact, he is threatening to throw it away by unilaterally imposing tariffs on imports and behaving like a bully internationally. We need to recall the terrible consequences of the Smoot-Hawley tariffs and resist any moves in that direction.

It is true that following WWII the U.S. often gave favorable terms to Europe (the Marshall Plan) and less developed countries in order to promote their reconstruction and development (“Trade not Aid” we used to say). The world’s economies are now growing into better balance and the U.S. is no longer as dominant as it once was. The international rules of the game (trade agreements) can and should seek a better balance of mutual benefits. But we would be making a very serious mistake to give up our leadership of the world order and abandon our commitment to free and fair global commerce.

David M Friedman

PEOTUS Trump’s nomination of David M. Friedman as his ambassador to Israel is a very bad choice. It will perpetuate Israel’s refusal to take the steps it needs to take to be a secure and prosperous member of its neighborhood and will further discredit the U.S.’s reputation and influence in the Middle East.

If you are not familiar with the basic details of what is now generally referred to as the Israeli Palestinian conflict I urge you to read my summary of it written 11 years ago: https://works.bepress.com/warren_coats/26/ and take a look (it has pictures) of my blog from Jerusalem exactly five years ago today. https://wcoats.wordpress.com/2011/12/16/the-invented-palestinians/

Israel drove Palestinians from their homes in several wars decades ago because they wanted to establish a homeland for Jews that was both democratic and Jewish. After the horrors of the Holocaust, most of the world was sympathetic. But to be democratic and Jewish, the new occupants of Palestine needed to drive out most of the existing residents (Palestinians) in order to insure a Jewish majority. Fast forward to recent decades, most of the world has settled on a two state solution by which the exiled Palestinians would be given the West Bank and Gaze to rule but the several details requiring agreement were never fully worked out. Under the Oslo Accords, which provided a step-by-step process for implementing a two state solution, I led the IMF teams that set up the Palestine Monetary Authority.

The UN, U.S. and most of the world designated Israeli settlements in the West Bank by those Israelis wanting to take still more land from the Palestinians as illegal and urged the Israeli government to stop supporting them. They continue to expand.

“Friedman has been outspoken in describing as ‘legal’ Jewish settlements in the West Bank, which every U.S. administration since 1967 has considered illegitimate.”

“Trump-picks-a-supporter-of-west-bank-settlements-for-ambassador-to-Israel”/2016/12/15/ Washington Post. Israel itself is strongly divided on the issue. Many support a two state solution and making peace with their neighbors (giving up land for peace). Others want to expand Israel’s borders to encompass all of Palestine, relying on America’s military protection for its security.

“J Street, the Washington-based [Jewish] organization that supports a two-state solution, said it was ‘vehemently opposed’ to the nomination. ‘As someone who has been a leading American friend of the settlement movement, who lacks any diplomatic or policy credentials . . . Friedman should be beyond the pale for Senators considering who should represent the United States in Israel,’ J Street President Jeremy Ben-Ami said in a statement.

“Calling the proposed nomination ‘reckless,’ Ben-Ami said it puts ‘America’s reputation in the region and credibility around the world at risk. Senators should know that the majority of Jewish Americans oppose the views and the values this nominee represents….’”

“In a column for the Jerusalem Post before the election, Friedman wrote that…under president Trump, Israel will feel no pressure to make self-defeating concessions, America and Israel will enjoy unprecedented military and strategic cooperation, and there will be no daylight between the two countries.” [All quotes are from the same Post article linked above.]

This is just the sad point. Our blanket guarantee of military support for any policy (including illegal settlements, bombing Iran, etc.) that Israel might pursue has removed the incentive for Israel to make genuine peace with its neighbors and do right by the Palestinians (peace for land). The U.S. Senate should reject the Friedman nomination.

Trump’s approach to government corruption

PEOTUS Trump is giving conflicting signals on his policy toward government corruption. He seems to recognize clearly the conflicts of interest in the “military industrial complex,” when he criticized the F-35 fighter plane and the revolving door between the defense department and the defense industry. “On Monday, Trump also took a shot at Lockheed Martin’s $400 billion F-35 Joint Strike Fighter program, the most expensive in the history of the Pentagon, saying the “cost is out of control. Billions of dollars can and will be saved on military (and other) purchases after January 20th….Trump said there should be a “lifetime restriction” of top defense officials going to work for defense contractors ” “Trump-takes-aim-at-pentagons-revolving-door-and-lockheed-martins-400-billion-f-35-program”

This is commendable. But it is only one example of conflicts of interest that can arise in government. We await with interest to see how Rex Tillerson, Trump’s choice to head the State Department, will handle his conflicts of interest arising from the extensive business deals between Exxon-Mobile, the company he currently heads, and Russia and his friendship with Russian President Putin.

But we particularly await Trump’s clarification of how he will handle his own conflicts of interest. As a private citizen, Trump did not hesitate to use the power of government to force private citizens and companies to bend to his will. “And-so-here-we-are.” While Trump apparently has no direct businesses in Russia he has plenty of indirect business relationships. “Donald-Trump-ties-to-Russia” He has delayed until January his promised Dec 20 clarification of how he will handle this. “Trump-corruption-conflict-of-interest.” He still has not disclosed his personal and business tax returns that would clarify some of the potential conflicts. Given his strong position on the Pentagon’s revolving door, perhaps we can be hopeful that he will take equally strong measures with regard to potential conflicts of interest of his own and of his cabinet’s.

Competitive capitalism vs. the other kinds

Free market capitalism requires the rule of laws that apply equally to everyone. This is an important foundation for the enormous efficiency and productivity of free market capitalist economies as well as for their fundamental fairness. What PEOTUS Trump did with Carrier and promises/threatens to do with any other company that behaves in ways he does not like does not meet this test.

As the powers of feudal lords were restrained by laws, they and their friends used laws to protect their special interests when ever possible. Judged by modern standards such uses of the law have undermined both the efficiency and fairness of economies dominated by them. The United States has prospered more than most other economies in part because it has generally been freer of such misuses of the law. The idea that publicly spirited technocrats can make better decisions about the allocation of our productive resources, even if they could somehow avoid the inevitable rent seeking pressures of market players, has been firmly repudiated by history. “Trumps carrier deal is the opposite of conservatism”

Professions, and other service providers often, if not always, attempt to use laws and regulations to protect themselves from open competition. Labor unions are an obvious example, but professional licensing requirements for doctors, lawyers, electricians, plumbers, etc. often go beyond certifying basic competence in order to restrict competition that might force them to lower the cost of their services to the public. Disruptive new ways of packaging and offering services, such as we have seen recently with Uber and AirBNB, that challenge, as well as complement, established cab and hotel business models are often resisted by the incumbents. These challenges have little to do with public safety and product quality and everything to do with preserving quasi-monopoly rents to the incumbent firms. Free Markets Uber Alles

The recent case of auto dealers vs Tesla provides a good example of this behavior. A recent Washington Post article on this dispute began with: “Don Hall, president of the Virginia Automobile Dealers Association, was making the hard sell. Staring directly into the camera, using the language of war, he urged car dealers to unite against a force that he said threatened their livelihoods: electric-car-maker Tesla…. The reason that Hall was sounding the alarm: Tesla, which sells its cars directly to consumers rather than through franchise dealers, is trying to open a second store in Virginia.” Auto dealers sound alarm as Tesla pushes for second Virginia store

Mr. Hall defends “the franchise system that they say protects consumers as well as their own business interests.” Perhaps he is right, but if franchise dealers served consumers better than direct sales by the manufacturer they would be preferred by customers and would not need special protection from laws that prohibit alternative arrangements for selling cars. The simple issue is whether we are better off allowing the market to determine which products and retailing and servicing arrangements are best or giving that power to bureaucrats, who have rarely been able to resist the “pressures” of the entrenched firms. “Over the past decade, VADA [Virginia Automobile Dealers Association] has given Virginia politicians $4 million in campaign contributions” (Washington Post). What Mr. Hall is really concerned about is the “business interests” of the franchise dealers.

President elect Trump’s Carrier deal is a more blatant retreat from the free market. When combined with Trump statements and appointments that seem to give more power to markets, it is very difficult to see where Trump is going. It is shocking to hear Republicans say: “’The free market has been sorting it out and America’s been losing,’ Mr. Pence added, as Mr. Trump interjected, ‘Every time, every time.’” “Trump carrier pence jobs”

In negotiating deals with individual companies to keep specific operations in the U.S. or to continue operations a company planned to reduce or end, Trump is engaging in a form of industrial central planning that is contrary to our tradition of free markets. It should be strongly opposed and I was pleased (and rather surprised) to see Sarah Palin speak out against it. While we do not yet know the details of the Carrier deal (aside from the $7 million in tax subsidies from the state of Indiana that Carrier had earlier rejected) the knock on effects are difficult to track. For example, we don’t know what the effect on Carrier jobs will be of its loss of competitiveness from more expensive output produced in Indiana?

It would be highly objectionable if Trump used “the threat of pulling federal contracts from Carrier’s parent, United Technologies…. Mr. Trump,… said he did not directly raise the $5 billion to $6 billion in federal contracts United Technologies receives, much of it from the Pentagon.” (NYT) It would not be objectionable if Carrier’s decision reflected Trump’s pledge to lower corporate income tax rates and reduce costly regulations, as these would apply to all similar firms.

Evaluating the specific economic effects of the Carrier deal is also made difficult by Trump’s loose relationship with the truth. According to Chuck Jones, the union leader representing the Carrier workers whose jobs Trump claims to have saved, Carrier announced in February that it would “would move 1,300 jobs to a plant in Mexico.” After Trump got involved he “said he’d saved 1,100 jobs, he hadn’t. Carrier told us that 550 people would get laid off.” “Im-the-union-leader-donald-trump-attacked-im-tired-of-being-lied-to-about-our-jobs”

If you wondered why out of the blue Trump tweeted that: “Chuck Jones, who is President of United Steelworkers 1999, has done a terrible job representing workers. No wonder companies flee country!”, the answer seems to be that Trump was angry that his job numbers were being challenged by Mr. Jones. If this explanation is correct, it reflects shockingly immature behavior by the President elect.

On the other hand, Trump’s attack on the projected cost of a new Air Force One being planed for 2020 is of a totally different nature. Putting aside the inaccuracies of Trump’s tweet—at this point Boeing only has a $170 million contract to design the plane—it is totally appropriate for his administration to be concerned with the cost of the planes they are ordering and to negotiate the best possible deal. It may be that Trump’s dramatic tweets are part of his bargaining strategy. At this point, who knows? I am not competent to evaluate such a strategy, but Trump as President-elect has taken us where we have never been before. His behavior is wholly inappropriate for an American President. Hopefully he will realize this before too much serious damage is done.

” Donald J Trump@realDonaldTrump

Boeing is building a brand new 747 Air Force One for future Presidents, but costs are out of control, more than $4 billion. Cancel order!”

Trump the Terrible

To say that Trump’s future presidency promises to be a mixed bag, while true, seems increasingly too kind. On the positive side there seems to be a very good chance of a truly monumental tax reform. House Ways and Means Committee Chairman Kevin Brady recently released the outline of a major tax reform plan as part of Speaker Paul Ryan’s “A Better Way” agenda that would, if enacted, introduce a dramatic, growth enhancing reform of U.S. personal and business income taxation. While there are a few differences with the President Elect’s tax reform proposals, it should not be that difficult to resolve them. Prospects for adoption are the best they have been for decades.

On the growing negative side Trump is adding to the nasty character traits he seemed unable to control during his campaign—a level of blatant corruption that would even embarrass the Clintons. After having his daughter, who is also his business partner, at his side during his private meeting with the Japanese Prime Minister Shinzo Abe, a few days later he put Ivanka on the phone with Argentina’s President (Trump is seeking approval to build a real-estate project in Buenos Aires).

For me these examples of Trumps many conflicts of interests pale in comparison to the deal he claims credit for to keep 1000 Carrier jobs in Indiana where Mike Pence is still the governor. The Chicago Tribune reported today that “Carrier would receive a $7 million package of incentives to keep its factory here from moving to Mexico, the company said Thursday, under a deal negotiated with the state after an unusual intervention by President-elect Donald Trump that could reshape the relationship between the White House and private enterprise.” http://www.chicagotribune.com/business/ct-trump-carrier-jobs-subsidies-20161201-story.html

This goes beyond the corruption of personal enrichment and vote buying from the public purse to measures that undermine the very basis of our national wealth. And Trump proudly stated to the press that he would give any other company that wanted to move production abroad a VERY hard time. He is gloating over his “skillful” use of his great power as president.

The standard of living of the average middle class family in the U.S. could not even have been imagined half a century ago. Among the many things that make our wealth possible is the ability of companies and each of us to allocate our resources where we think they will be most productively used. Trump is now inserting the power of the Presidency—of the government—to over ride those economic decisions in order to save some jobs at some (favored) companies at the expense of other jobs and overall economic efficiency. This is blatant corruption of a high order and if allowed to persist will erode our economic productivity and standard of living over time. Read any of my blogs on trade and free enterprise (or what most of us call the liberal economic order).

Not only is Trump’s corruption shocking, but also his failure to behave presidentially is beyond embarrassing. It is dangerous. Someone should take Trump’s phone away until he figures out that his campaign style of ad libbing is simply wrong for the POTUS. When he said he would jail and take away the citizenship of flag burners, was he ignorant of the law (confirmed by a Supreme Court ruling) or contemptuous of it??? In his recent phone conversation with Pakistani Prime Minister Muhammad Nawaz Sharif, was he looking ahead to what he might say to the Indian PM when he committed himself (and implicitly the United States) to the following: “I am ready and willing to play any role that you want me to play to address and find solutions to the outstanding problems.” You can read the entire terrific, wonderful, exceptional conversation here: http://www.pid.gov.pk/?p=30445 What in the hell is he thinking? Unfortunately the list of problems is growing. And he’s not even the President yet.