The editors of the New York Times celebrate the tenth anniversary of the economic expansion that began in 2009 by telling us what they think is wrong with it:

Through the first quarter of 2019, the nation’s gross domestic product had increased by 25 percent during the current expansion. Between 1991 and 2001, economic output expanded by 42 percent. Between 1982 and 1990, output increased 38 percent. And between 1961 and 1969, output grew by 52 percent.

The distribution of the gains is even less satisfying.

Truck drivers still earned, on average, slightly less in 2018 than in 2009, after adjusting for inflation. Executive compensation, by contrast, went up, up and away. Chief executives of companies in the S&P 500 stock index — a list that includes most of the nation’s largest corporations — made an average of $14.5 million in 2018, increasing by $5.2 million in the past decade, according to data compiled by the A.F.L.-C.I.O.

The wealthy have also reaped most of the gains from rising stock prices. The least affluent 70 percent of American households had less wealth at the end of 2018 than at the beginning of 2007, according to the Federal Reserve. The top 30 percent of households saw at least some increase, but the big gains were heavily concentrated at the very top, in the hands of a small proportion of extraordinarily wealthy families.

Unfortunately, they don’t provide us with an explanation of why this has happened or how it may be remediated. The evidence it can be remediated via the tax system is zero. It’s one of those facile answers that just don’t pan out in real life.

I’ve expressed my opinion of what caused the distribution of income from poor to rich many times:

• The Clinton era change in business taxes that allowed businesses to compensate management with stock options without incurring tax liabilities.
• The feckless policy of opening trade with China without ensuring that the Chinese authorities actually followed through with their promises.
• Increased migration of unskilled workers. That of itself creates greater income inequality. Sit down with a piece of graph paper, draw it out, and you’ll see what I mean.
• Competition with relatively unskilled immigrant workers at the low end and with outsourcing and H-1Bs in the middle.
• The explicit policy of the Federal Reserve.

Mitigation and remediation require that those issues be addressed. So far I’ve been disappointed by the Democratic presidential candidates. They don’t seem to want to address any of them. I also have yet to see an explanation of how increasing taxes on businesses and increasing the taxes on capital gains will encourage investment, the most obvious need in our current economy which, to their credit, the editors do mention.

There’s an old one-liner: “We lose money on every sale but we’ll make it up in volume!” I don’t know how old it is but I suspect it’s well over a century old.

Is it my imagination or are we hearing that repeated with a straight face a lot these days?

Here’s Christian Taylor’s take at The Conversation on where Al Qaeda stands today:

Al-Qaida is no longer a hierarchical organization taking orders from its famous, charismatic leader, as it was on 9/11.

But it is stronger and more resilient than it was under bin Laden. And the “war on terror” has helped, not hurt it.

Read the whole thing. I take that as a complete vindication of the positions I’ve staked out over the last 18 years and a nearly complete repudiation of the positions of our political leadership and punditry. Sometimes the only way to win is not to play.

At Geopolitical Futures George Friedman has some interesting observations about capitalism and socialism as being discussed in the U. S. today:

Democratic socialism cannot be democratic because of the scope and scale of modern economies. It either evolves in a Soviet direction, to name one extreme, or, as in oft-cited Sweden, leaves most investment decisions to private investors, taxing them and transferring money to the rest of society. In the Soviet model, the state tries to manage mid-level civil servants by terrifying them with death. In the Swedish model, the battle is formed by demands of increasing social benefits and decreasing investment capital.

Under capitalism, the diversification of capital sources protects against bad decisions made by centralized governments. But it must, by its nature, create inequality and occasional social crisis. The flow of money into the hands of the investor class must generate crises as industries are shut down and as new ones are created. The speed of what Joseph Schumpeter called “creative destruction” generates rapid and intense crises that can turn just as rapidly into social unrest, chaos or repression. Capitalism has generally solved this in the same way that social democracy has: It has left investment to private investors and then imposed taxes on them to cushion social dislocation.

In short, the distinction between modern industrial capitalism and social democracy is minimal. Leaving aside socialist fantasies about the abolition of greed or capitalist fantasies in which a state will expect nothing from its citizens, the two systems have more or less merged. Capitalists and socialists accept private investment. Both expect economies to grow and from that growth they will pay taxes. In both Sweden and the United States, taxes are hated by the public, but the benefits are loved. Still, the political system decides the taxes and the politicians do what they were meant to do in a democracy – pander to the public. What may differentiate one politician from the next is the amount of taxation they propose, but even that is used to balance the system.

My complaints about capitalism and socialism are reciprocal. Capitalism is not nearly capitalistic enough and socialism not nearly socialistic. Capitalism in which you cannot bear to allow a business whose managers make terrible decisions to fail is not capitalism. Socialism in which somehow party apparatchiks manage to become millionaires is not socialism.

There was one thing that puzzled me about the editors of the Washington Post’s prescription that Congress raise the legal smoking age and enforce it:

Raising the smoking age must be one part of a comprehensive strategy that also looks at access and marketing to tackle this public-health crisis. Cigarette smoking and secondhand smoke cause more than 480,000 preventable deaths each year — more than opiate overdoses, gun violence and automobile crashes combined. Congressional action to curb underage tobacco use is long overdue.

and that was how do they plan to enforce it? Just passing a law won’t do it. There has been a law against marijuana use not just by teenagers but for everyone for as long as I can recall. Somehow nearly half of all kids have at least tried marijuana by the time they’re out of high school. The drinking age is 21 in all or nearly all states. Somehow nearly 5% of kids under 17 suffer from alcohol use disorder.

Passing laws is easy. Enforcing them is hard.

At Bloomberg Barry Ritholtz makes some very good points:

Consider the following data points. In a typical full employment economy, this is what you would expect to see:

— Robust wage growth;
— Rising consumer confidence;
— Record employment-to-population;
— Longer workweeks and more overtime;
— The chief executive officer survey showing confidence about the future;
— Rising quit rates as employees aggressively change jobs;
— Low and falling levels of people marginally attached to labor force;
— High and rising consumer spending;
— More household formations;
— Housing sales (for new and existing homes) are strong;

In many case, these measures are not where you might expect them to be in the 10th year of what is now the longest economic expansion in postwar history.

Why aren’t we seeing those things? Let’s consider some possibilities.

1. We are. We just don’t know how to measure them.
2. There are countervailing forces which even in an economy nearing full employment prevent them from emerging.
3. Unemployment rate doesn’t tell enough of the story. The labor force participation rate is still too low for those other things to start happening.
4. The statistics that are being used are carefully constructed to make the economists compiling them and the politicians who commission them look good.

I think that the answer is probably “all of the above” but I find the last one particularly appealing. Nobody wants to be the bearer of bad news. Or out of step with the smartest people in the field.

Another possibility is that neither Obama’s rather flat affect nor Trump’s highly mercurial approach has conveyed the confidence to managers or workers alike to take risks.

My general rule of thumb is that regardless of what the weatherman says it’s not raining until you see rain and people start behaving as though it were raining.

It’s been a few years since I’ve posted about this but maybe it’s time to revisit the distribution of incomes in the United States. The graph above is the most recent I could find. It’s five years old but things haven’t changed much over that time. Basically, the entire graph has moved right a few bars.

Let’s also take this opportunity of thinking about statistics. The distribution isn’t the typical bell curve in which mode = mean = median for a number of reasons the most important being subsidies and regulations. The mode (the most commonly occurring income) is around $30,000, i.e. two people working full-time earning minimum wage. The median, the point at which half of households earn more and half earn less, is now around $62,000 rather than the $53,000 it was just a few years ago. That’s a welcome improvement. The mean, the arithmetic average, is around $75,000 which tells us that there are quite a few people earning significantly more than the median income.

Here’s one definition of “middle class”. People who earn a middle class income are earning one standard deviation from the median, plus or minus. I won’t trouble you with the mathematics of it. That means that a middle class income is from around $30,000 to $90,000. If you earn $90,000 or more and you think of yourself as poor, you’re living in the wrong place. 7/8s of people earn less than you do.

To find the top 1% of income earners in the graph above, count six blocks right from the 95th percentile. That’s 1.27 million households. They earn around $400,000 or more. The greatest number of those are professionals, the middle management of large companies, or the upper management of small companies. To find the ultra-rich, the top 12,700 households in the country, you’ve got to go way to the right.

Let’s add one more wrinkle. 44% of households pay no federal income tax. Those are the leftmost six bars on the graph above. That includes most of the lower middle class and a good chunk of the middle middle class.

In reality there are only two ways to provide a large middle class tax cut. One way is by cutting property taxes but that’s the responsibility of state and local governments. The only practical way to accomplish that at the federal level is to cut payroll taxes. I will bet a shiny new dime that not one presidential candidate, Democrat or Republican, calls for that.

Consequently, if anyone calls for a large middle class tax cut, they are either lying or misinformed. Their hearts may be in the right place but their heads are in the wrong place.

In his Washington Post column Robert Samuelson expresses a reaction to the Democratic presidential debates similar to mine:

Three issues bother me.

The first is this: The campaign’s attention is focused heavily — almost exclusively — on domestic problems and programs, but the most pressing issues that await the next president will probably involve foreign policy.

How are we to judge the competence and judgments of the rival candidates on matters with which they have little experience? Assuming for the moment that President Trump does not win reelection, how is his successor going to deal with China, Russia, Iran, North Korea and our estranged allies, as well as our trade and economic relations with them?

With the conspicuous exception of former vice president Joe Biden, none of the candidates has much international experience. To be fair, this is often the case, but the consequences today loom larger, precisely because the post-World War II framework has broken down. Its replacement needs to deal with the reality of a populist backlash — both in the United States and in other advanced societies — as well as the need to remain engaged globally. In a world shrunken by technology and trade, we do not have the luxury of neo-isolationism and neo-protectionism, even if Trump thinks we do.

An enomrous amount has changed over the last 25 years. Decades worth of globalization, military intervention, and nuclear proliferation mean that we no longer have the luxury of treating the rest of the world as though it did not exist. You would not have received that impression from the Democratic candidates. They seem to be running for Bill Clinton’s first term.

Second: A similar dilemma afflicts domestic policies. As a society, we have committed ourselves to more programs and subsidies than we can easily afford. Despite this, the candidates seem wedded to yet more expensive experiments in social policy.

Shortly before last week’s debates, the Congressional Budget Office (CBO) released the latest version of its annual long-term budget outlook. Even with the economy near “full employment,” the federal government runs massive annual budget deficits, meaning that we spend more than we tax. At the moment, those deficits equal about 4 percent of the economy (gross domestic product), or about $1 trillion annually. Under present tax and spending policies, deficits will grow for decades. The resulting debt — the accumulation of past annual deficits — is now about 78 percent of GDP, up from 35 percent of GDP in 2007.

If we cut military spending to zero, something manifestly impossible, it would still not be enough to fill the hole in our budget. We will be extending credit to ourselves for the foreseeable future and our ability to do that depends on the dollar’s remaining the world’s save haven currency, see the primacy of foreign relations, above.

Third: leadership. The power of the presidency, the late political scientist Richard Neustadt constantly argued, is the capacity to persuade — that is, to convince other people that what the president wants is what they ought to want for their own good and the nation’s good. Neustadt’s imperative applies to both individual power brokers and to mass constituencies of voters.

On this I’m willing to cut the candidates some slack. Presently, they’re preaching to the choir—they don’t need to convince the already convinced. They need to rev them up. The graver questions are whether any of them can be elected solely by revving up the base or whether they can appeal to the unconvinced while revving up the base. I don’t believe they can.

There was something deeply nostalgic about the debates. They are running for president of the United States they wish we had rather than the one we have. Democrats have dug a hole for themselves, shovelful by shovelful, for many years. My advice: stop digging.

My post of yesterday has evoked a post today at Outside the Beltway from James Joyner and has occasioned an interesting conversation in comments there:

While that’s certainly the arrangement that the Framers had in mind, it hasn’t worked that way in my lifetime. Arguably, it hasn’t worked that way in living memory.

James and the commenters miss something important. Whether American voters are interested in it or not and whether presidents are interested in it or not, foreign policy is something that happens to presidents. The last president to run on his foreign policy experience was George H. W. Bush. Nonetheless every president since him has found his presidency largely devoted to foreign policy, even consumed by it. Clinton, George W. Bush, and Barack Obama ran campaigns that emphasized domestic policy. Their presidencies became preoccupied with foreign policy.

It’s not hard to discern why that might be. It’s in the job description, as I pointed out yesterday.

We have fifty governors, each of whose attention is completely devoted to domestic policy, but only one president, much of whose attention will inevitably be captured by foreign policy. Doesn’t it make sense to consider foreign policy more seriously when selecting a president?

Let’s imagine a presidential candidates’ debate. If I were coming up with ten questions questions to ask, here’s how I would allocate them:

Foreign policy—5 questions
The economy—1 question
Race relations—1 question
Health care policy—1 question
Education—1 question
The budget—1 question

It’s practically the opposite.