By the Numbers

The editors of the Wall Street Journal give us the numbers:

The Congressional Budget Office reports in its April budget review that revenues rose 2% to $2.041 trillion in the first seven months of fiscal 2019 from a year ago. Payroll tax revenue rose 4.7% due in part to rising employment and wages.

Individual income taxes were essentially flat in the wake of the tax cut, but corporate income taxes were down only $7 billion for the first seven months to $114 billion despite the cut in the corporate tax rate to 21% from 35% in the 2017 tax reform. April was the deadline for final 2018 tax payments for most corporations, and tax revenue from higher corporate profits partly offset the lower rate.

Overall revenues increased despite a sharp decline in payments to the Treasury from the Federal Reserve of $15 billion, or 34%. The decline is due to higher short-term interest rates that lead the Fed to pay banks more interest on their reserves. Watch this account closely in the future if the Fed’s reserve payments become a net Treasury drain. This is one cost of the Fed maintaining a very large balance sheet.

That’s the revenue side. Here’s the expense side of the ledger:

So why has the federal deficit increased by $145 billion this fiscal year to $531 billion? Because federal spending continued to rise rapidly—7% in the first seven months to $2.571 trillion. That’s $178 billion more than in the same period a year ago. As you’d expect, Social Security benefit payouts rose 6%, Medicare outlays 5% and Medicaid 4%. Anyone who thinks federal deficits and debt can be contained without entitlement reform probably still believes in the Russian collusion story.

Defense spending rose 10%, or $33 billion, in the first seven months, as intended by Congress and the White House after eight years of neglect under Barack Obama. The higher outlays went for much-needed operations and maintenance and R&D. Outlays for the Pentagon are still only about 3.2% of GDP, which is close to the historic low since World War II.

Interest payments on federal debt held by the public rose 13% to $234 billion, due to higher short-term interest rates and more debt. The Fed’s zero-rate policy disguised the size of the debt’s budget burden during the Obama years, but it is now coming due.

The second responsibility of government is to restrain the rate of increase of its outlays to the increase in national income. If you are not willing to do that, you are not a moderate. You are not a conservative. You are not a liberal. You are either an authoritarian or simply irresponsible. Outlays are increasing far faster than the national income. Do the math.

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Generation Gap

I don’t entirely agree with Nayyera Haq’s assessment at CNN of how Joe Biden’s age cohort affects his character:

The mythos of Joe Biden is built around the advice given by parents of a certain age. “Hard work will get you ahead”: Biden overcame his childhood stutter by practicing speaking in front of the mirror. He received a scholarship and worked during law school to later become one of the youngest US senators at age 30. “You need to commit and follow through”: Biden served in the Senate for more than 35 years. “Chin up, be resilient”: When his first wife and daughter died in a horrific accident, Biden famously commuted from Delaware to Washington every day in order to spend time with his sons.

Biden’s persona appeals to the sensibilities of an elder generation and the character traits they admire. This identity is a big part of Biden’s pitch, one rooted in nostalgia for a bygone era: It’s Trump’s Make America Great Again, skewed toward decency and civility.

But Biden also exemplifies the worst qualities of our parents’ generation. Apologies don’t come easy to him. When Biden spoke to Anita Hill to express “his regret for what she endured” at the hands of the Senate Judiciary Committee during Justice Clarence Thomas’ confirmation hearings in 1991, he didn’t accept any personal accountability as the committee chairman. Hill, who did not think Biden’s words amounted to an apology, said she was dissatisfied by his efforts. To make matters worse, Biden later appeared on ABC’s “The View” and said, “I don’t think I treated her badly.”

but that may be because I disagree with her assessment of his age cohort, the Silent Generation, those born between 1925 and 1945. I found this:

Biden also exemplifies the worst qualities of our parents’ generation

amusing because, unless her parents were relatively old when she was born in 1981, her parents are probably Baby Boomers not Silent Generation like Joe Biden. I have a somewhat more pragmatic, rule-of-thumb approach for identifying different age cohorts. If you were a teenager during the Great Depression and you or your contemporaries fought in World War II, you’re Greatest Generation. If you were a kid during the Depression and/or World War II and your older siblings or your parents or their contemporaries fought in World War II, you’re Silent Generation. If you cannot remember a time without television, you’re a Baby Boomer.

My take on the Silent Generation is that they have an insecurity deep within them. They don’t know where their next meal is coming from. They don’t if dad will be called off to war or if he is if he’ll come home again. It may even be more unsettling when he does come home because he’s seen a lot at his young age and is unaccustomed to children. Members of the Silent Generation won’t let go because they can’t—they don’t know where their next meal is coming from.

They may have pensions where those born later do not. Most of those who died during the Vietnam War were Silent Generation and it’s left a mark on them.

To put it into popular culture terms McGarrett (of the 1968 Hawaii 5-0) was Greatest Generation; Magnum is Silent Generation; Sonny Tubbs is a Baby Boomer.

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Explaining the Spike in Violent Crime

At RealClearPolicy economist Robert Cherry explains the model he has developed to explain the spike in violent crime which began in 2014:

I developed a model to explain the variation in state-level violent crime rates. It would have been ideal to use urban data, but racial measures are difficult to obtain on an annual basis because of small samples. Instead, I used state-level data for 2010 through 2016. Even at the state level, small sample size precluded the Department of Labor from publishing estimates of the black male population in a number of states. State-level explanatory variables included the black share of all men not in prison, poverty rate, male employment rate, high school graduation rate, and the share of disconnected men, 16 to 24 years old: those who were neither at work nor in school. Results varied, depending upon which variables were included. Once the disconnected youth variable is added, it is strongly statistically significant but now neither the poverty nor high school completion variables are significant. In particular, for every 10 percent increase in the disconnected rate, this comprehensive model predicts a 6.59 percent increase in the state’s violent crime rate. The black share of men is strongly statistically significant indicating that even after taking into account employment, education, and poverty, states with a greater black share have higher violent crime rates.

I suspect that many will find that model disquieting, challenging as it does so many comforting slogans. It basically comes down to we need more jobs that can be filled by young, black men.

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Mother’s Day, 2019

Mother’s Day is a distinctly sorrowful day here. My wife and I have no children. We were not so blessed. Both my mother and my wife’s mother have been dead for some years now. Mothers are in short supply here.

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The Real Real Agenda

I encourage you to read Matthew Continetti’s assessment of “the real Democratic agenda” at the Washington Free Beacon. I agree with some of what he has to say, for example:

Democrats have a problem. The base wants to impeach President Trump, ASAP, but the public does not. Indeed, Trump’s approval rating is the highest it’s been in the Gallup survey, right around Obama’s at this point in his term. The brute facts of public opinion suggest that the impeachment of Trump would look more like Bill Clinton’s trial than Richard Nixon’s. Not only would Trump remain in office; the backlash might deprive the Democrats of their 17-seat House majority.

For months, Nancy Pelosi’s solution has been to walk right up to the line of impeachment without actually crossing it. Unleash committee chairmen to fire their subpoena cannons in every direction. Make unrealistic demands of Attorney General Barr. Have Swalwell and Lieu and the rest of the cable gang keep alive the conspiracy theory that the Trump campaign was in criminal cahoots with Russia. Drag out the process into next year, when a weakened and bedraggled Trump faces the eventual Democratic nominee. That way Pelosi gets the political benefits of impeachment without the costs.

But I disagree categorically with his bottom line assessment:

This is not a serious party. It has abandoned policy for litigation, and common sense for fantasies of Medicare for All, Green New Deals, abortion after birth, and slavery reparations. The Democrats assume impeachment will be Trump’s Watergate. It may well turn out to be their Waterloo.

That’s a basic misunderstanding of the actual agenda of the Democrats who hold the reins of power in the party. They’re focused like a laser (to use a favorite Bill Clinton simile) on jobs—their jobs and those of their actual primary constituency: public employees. All of those other issues are just bright, shiny objects being dangled in front of their primary election voters to be forgotten as soon as the election is safely over.

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The War

The editors of the New York Times speak out against the war in Afghanistan:

The Trump administration has made missteps in its efforts to scale back the sprawling global war on terrorism. Its indecision on Syria left even staunch allies puzzled about American policy. For more than four months, the administration has lacked a secretary of defense, with the acting head, Patrick Shanahan, tapped for the permanent job only last week. Peace talks with the Taliban drag on — and Taliban attacks continue.

But the least that the Trump administration can do is be more open and honest with the American public about the unvarnished reality of the situation in Afghanistan. (The Pentagon hasn’t held an on-camera briefing in nearly a year.) Americans may have given up hope of “winning” the war long ago. But that doesn’t mean the full public accounting should halt.

To place our situation with respect to Afghanistan into perspective here are the U. S. casualties by presidential administration in the war in Afghanistan:

Administration Casualties
Bush 569
Obama 1,729
Trump 31

The number of civilian casualties has ballooned recently. Will increasing U. S. operational tempo increase, decrease, or have no effect on that? I think it will have little effect one way or another. Should Afghan civilian casualties be a factor in our calculus at all?

I voted for Obama in 2008, partially in the belief that he was a smart enough guy that he’d quickly figure out that his assessment of Afghanistan was wrong. It turned out that I was wrong. He wasn’t that smart.

No foreseeable president will ever want to be the president that lost Afghanistan. If you genuinely believe that we should leave Afghanistan, you should be eager for the conditions that will make that possible. I do not see how the passage quoted above does that.

There are multiple lessons to be learned from our experience in Afghanistan. One of them is that we should never go to war in a place in which we cannot supply our forces without transporting materials through a neighboring country that does not want us to succeed. A second is that we should not go to war to achieve the unachievable.

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U. S. Manufacturing Jobs

The purpose of my showing this graph is to expand on a point I made in comments. The graph tells us a lot. It tells us that a decline in manufacturing jobs was frequently a leading indicator of recessions. The number of manufacturing jobs peaked in the 1970s after they had increased sharply in the 1960s. Prior to the 1980s following economic contractions manufacturing jobs had generally returned to pre-recession levels. That pattern ended completely in the 1990s. There was a sharp decline in manufacturing jobs in the early 1990s and a precipitous drop in manufacturing jobs around 2000. Manufactuing jobs are recovering slowly now for the first time in more than 20 years.

Any number of different stories could be told to explain that graph. Here’s mine. The increase in manufacturing jobs in the 1960s is a story of global recovery. Not just here in the United States but all over the world economies were finally recovering from World War II. People had the money and wanted to buy more. American businesses wanted to sell more.

In the late 1970s globalization hit the U. S. economy like a ton of bricks. Japan began to encroach on what we had come to think of as “U. S. manufacturing jobs”, followed by South Korea. In the early 1990s China pegged the yuan to the dollar and that hurt us as well.

In the late 1990s granting China Most Favored Nation trading status and China’s admission to the the WTO did major damage to our manufacturing sector and there was no policy response as there might have been in earlier period. That was abetted by the conviction on the part of policy-makers, most of whom had college degrees or beyond, that a college education was the key to a bright economic future.

What happened in January 2010? I’m open to suggestions on whether Chinese or U. S. policies or both led to our increase in manufacturing jobs since then. The previous twelve years is strong evidence that the recovery in manufacturing jobs was not inevitable.

I don’t believe we will ever return to the number of manufacturing jobs we had in the late 1970s or their importance to our economy or that we should. I do think that we need a diverse economy that includes more primary production and more manufacturing.

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Pin the Tale on the Donkey

David Brooks has some pretty sharp criticism of Democrats in his latest New York Times column:

This constitutional crisis is just for show. Partly the Democrats want the show because it just feels good to bash the administration. “This has had a cathartic effect on the Democrats because we have finally been able to find a way to fight back at the obstructionism,” Representative Jamie Raskin told my Times colleague Sheryl Gay Stolberg.

Partly they are trying to appease the wing of the party that is calling for impeachment right away. The party leaders generally opposed impeachment for sensible reasons. It would be impossible to win a conviction in the Senate without some Republican cooperation and overwhelming popular support — which doesn’t exist. It’s much better for the Democrats if they focus media attention on their presidential candidates. A Trump vs. Nadler media war is exactly what Trump wants.

The problem with any policy of appeasement is that it rarely appeases; it only emboldens. And that’s what’s happening. You can feel the atmosphere in the Democratic Party changing, getting more passionate, getting more caught up in the back-and-forth combat with Trump, getting more whipped up into impeachment furor.

My advice to Democrats is that if they are going to impeach they should get about it as quickly as possible. It will not accrue to their benefit if this matter remains up in the air through 2020. If they are not going to impeach, they should not raise the expectation that they will.

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How Soon They Forget

Last week Chicago Mayor Rahm Emanuel (he leaves office May 20), as part of his tour to rehabilitate his reputation after falling on his face in Chicago, had an op-ed in the New York Times. I didn’t post on it on the grounds that he (and we) have suffered enough already but the editors of the Chicago Tribune have taken the trouble of fisking it:

In case you missed it, Rahm Emanuel penned a commentary for Thursday’s New York Times hailing his police reform efforts. With no disrespect for our Times colleagues: Had the mayor submitted his piece to the Tribune for publication, we would have performed heavier editing.

Emanuel’s column, titled “Lessons for police reform,” was the latest pit stop on his farewell tour. He leaves office May 20. The column spins furiously to his favor as he touts his insistence that law enforcement be consulted along the way. He compares Chicago and Baltimore, two cities that grappled with volatile cases of police misconduct and subsequent efforts to overhaul police protocols. Here, the catalyst for change was Laquan McDonald. There, it was Freddie Gray.

Does anyone seriously doubt that his office did not take an active role in suppressing the tape that eventually revealed the police murder that became a national cause célèbre. Thanks, Rahm.

Emanuel praises his embrace of police reform and notes a drop in homicides since 2016; they’re down 27 percent.

Left unmentioned is that between the time that Mayor Emanuel took office and the present, the number of homicides increased 50% (it doubled between the time he took office and 2016). That’s not an isolated instance of cherry-picking by Mayor Emanuel. It’s one of the things his administration was known for. Thanks, Rahm.

Since the fisking focuses on Mayor Emanuel’s wrapping himself in the flag of police reform, it doesn’t mention his presiding over the first teacher’s strike since 1987 then caving and giving the CTU everything they wanted or the sharp spike in property taxes (they’ve risen 35% while property values have remained flat) under his tenure or any of his other failings.

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Objects in the Rear View Mirror Are Larger Than They Appear

At RealClearPolitics Charles Lipson remarks on the trade deal with China. I wanted to bring attention to this segment of his post:

These failed policies don’t leave Washington with many options. The U.S. can either accept Chinese protectionism, as Europeans and previous U.S. administrations have, or it can make them an offer they can’t refuse. The terms are obvious:

  • Threaten China’s export-driven economy
  • Make that threat believable and sustainable
  • Offer China a reasonable deal
  • Make it costly for China to delay, and
  • Buttress the deal with tough enforcement mechanisms

While I agree with the general contours of that analysis I think he’s making one big miscalculation. China’s economy is no longer export-driven. That used to be the case but no longer. Today it is propelled by the domestic economy and fueled by debt, at the prefectural city and company level. Since the yuan is not convertible the debt is mostly denominated in dollars. That means China must hold many, many more dollars than should be the case.

China’s growth is not export-driven. It is dollar-driven.

I have no sympathy for the Chinese authorities. They have placed themselves in this conundrum.

We need to do what’s right for our own economy and otherwise let the chips fall where they may. In my opinion that means we should be producing a lot more of what we consume which means a lot more onshore manufacturing. That won’t mean a return to the “dark satanic mills” of the past. There should be a great increase in additive manufacturing and “lights out” manufacturing in general. We and the entire world will be better off for it.

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