Although the markets seemed to
settle down from the volatility in February, this week seemed like another week
of chaos and instability in the public sphere.
I felt overloaded from political narrative this week and was in dire
need of some serious discussion of the current state of the economy and where
it is likely to head from a respected observer of the economy that doesn’t necessarily
have an axe to grind, so I signed up to hear Martin Feldstein speak this week
at the Chicago Counsel of Global Affairs.
I felt that attending a Feldstein talk might be a good tonic when you
are desperately seeking sanity.
Feldstein painted a pretty rosy
picture of the economy at the moment, terming it “picture perfect” but
fragile. Unemployment is at 4.1%, with
college grads at 2.3%. Inflation is only
at 2.2% and excluding food and energy is at 1.8%. Consumers are in a pretty happy place.
Yet, Feldstein says that this happy
equilibrium is very fragile. He cites
abnormally high asset prices caused by unusually easy monetary policy for a
decade as a source of fragility.
Investors have bid up share prices so that the PE ratio is 70% higher
than the historical norm. Long term bond
prices and short term rates are abnormally low.
If PE ratios reverted to the historical average we would have a
reduction in share prices by 40% and the subsequent reduction in consumer
demand would take 2% off GDP. Feldstein
asserted that the Fed should have started raising rates three years ago.
If and when we do get a downturn,
the Fed will be constrained in its ability to pull us out of it. With interest rates so low, it will not be
able to cut rates much further. It can
buy bonds but the effect of bond buying is small. Our ability to apply fiscal stimulus will
also be constrained. The debt/GDP ratio
was 35% ten years ago. It is now 75% and
headed to 100% by the end of the decade, so Congress may not want to increase
debt or cut taxes to stimulate the economy.
In addition, Feldstein said that
Social Security is in trouble. Lifespans
have increased by 3 years since it was last reformed in 1983, and we should do
it again and raise the age at which full benefits are available to 70. Our budget is 2/3 entitlements and we need
to slow the growth of benefits—for instance, people with high incomes currently
pay nothing and that aspect should be reformed.
Feldstein also commented on two
distorted perceptions about the economy.
First is his belief that income and GDP are higher and faster than the
official statistics imply. He said that
we should “stop crying that there is no middle income growth,” because that
assessment is not correct. Our economic
data cannot take into account and measure betterments in services and products,
but he admits that he does not know how to measure that, despite many efforts
over the years. The second distortion is
regarding wealth inequality. Wealth is
really providing for retirement. Because
the data do not take into account social security payments, claims of worsening
wealth inequality are misleading, and overstate its effect.
He spoke about tariffs as well
and said that the tariffs are a slight negative but he believes they aimed
mainly at the Chinese and are mostly about technology transfer. The Chinese had been engaged in overt
cybertheft but were caught by the Obama administration and confronted with
it. China has shifted tactics and makes
transferring technology to them a condition to doing business. Since it is “voluntary,” the practice cannot
be raised with the WTO. The tariffs,
Feldstein believes, are a poke at the Chinese and an attempt to get them to
stop this practice.
Feldstein’s talk was refreshing,
if anything because it was largely devoid of politics. You may agree or disagree with the emphasis
of his discussion, but he steered clear of taking any political positions,
other than to heap praise on income economic advisor Larry Kudlow.
Unfortunately, despite that
little breather, the political madness
continued last week:
Hillary Clinton continued on her
1000 Points of Excuses tour last week, with her assertion that white women
voted for Trump because their husbands, bosses, and sons pressured them to (how
many sexist comments can you pack in).
She called states that didn’t vote for her “backwards” (read:
deplorables) and that Trump voters “don’t want blacks to have any rights.” Now, before you write that last comment off
to Clinton, remember that Nancy Pelosi recently commented that “Trump wants to
make American white again,” and in 2012 Joe Biden asserted that “[Romney] is
going to put y’all in chains.” You have
to assume that this is the divisive message that Democrats are going to run on
in the midterms and 2020.
Then there is Stormy Daniels,
seeking to void the nondisclosure agreement with Trump. Aside from the fact that Ms. Daniels is
being represented by a Democratic operative, the Daniels issue is a play
straight out of the Democratic playbook.
Recall that Barack Obama won the senator race in Illinois when he went
public with Jack Ryan’s divorce records which claimed that Ryan tried to talk
his wife into going to a sex club.
Democrats now see scandalizing consensual sex as a political strategy.
Jerry Brown, in yet another act
that demonstrating that California really doesn’t want to be part of the union
anymore, appointed an illegal alien to a government post. If Trump was really bold, he would send ICE
to his office during his first week on the job and deport him.
The killer of Kate Steinle,
backed by ACLU lawyers, is suing the government for “malicious
prosecution.” The ACLU has gone from
being a defender of free speech to a defender of illegal aliens and those that
wish to practice female genital mutilation (the ACLU fought anti-FGM
legislation in Maine).
Rex Tillerson was apparently
fired while he was in the latrine, prompting a tweetstorm about getting
canned. There are some details of Washington personnel
changes that we really do not need to know.
Andrew McCabe was fired hours
before becoming eligible for his pension for leaking sensitive information and
lying about it. His firing prompted a
response from Democratic strategist David Axelrod, who immediately attacked
Trump’s tweet about McCabe’s dismissal but not the behavior of McCabe. Axelrod, it will be remembered heaped praise
on disgraced CPS chief Forrest Claypool after Claypool also lied repeatedly
during their internal investigation. Apparently,
in Axelrod’s view there is a professional ethics exemption if you’re on the
right political team.
Last week saw the nationwide student
walkout and young David Hogg, the new media darling, protesting guns. I predict that Mr. Hogg will have a prominent
speaking position at the next Democratic convention, especially now that he is
tying gun control to white privilege.
With universities now clamping down on free speech, and the Left pushing
high schoolers to protest gun rights, you should be very nervous about the long
term prospects for the 1st and 2nd Amendments.
Then of course, there was Marco
Rubio, who whined about McCabe’s firing (without seeing the IG report), “I don’t
like the way it happened. He should have
been allowed to finish through the weekend.” Rubio was steamrolled by the “Gang
of 8” on immigration, allowed himself to be bludgeoned in a CNN debate by a 17
year old, and now is leaping to the defense of a corrupt law enforcement officer. His latest proposal is to do away with
Daylight Savings Time which seems to me to be a safer project for Rubio than
having him involved in immigration or 2nd Amendment issues. “Li’l Marco keeps getting li’ler all the
time.
Former UN Ambassador and champion
unmasker Samantha Power leveled a not so veiled threat at Trump, “Not a good
idea to piss off John Brennan,” which elicited a wave of responses such as, “or
what, Samantha?” So a former UN
Ambassador is using language of a gangster, and directed it not at a rogue
nation, but at a duly elected president of the U.S. Let that sink in.
Toys R Us is liquidating. It came to the attention of several
commentators that the company was a large contributor to Planned Parenthood and
its troubles were due, in part, to not selling enough baby clothing and
toys. Talk about a snake eating its tail.
Lastly, The College of the Holy
Cross, a Catholic school, which has decided to do away with its mascot, the “Crusader”
because it connoted violence and religious wars and was deemed to be offensive
to Muslims. Has anyone heard of a
single instance of an Islamic school, organization or political entity that changed
its symbol or slogan because it was offensive to Christians or Jews? Shouldn’t Holy Cross go all in, then, and
change the name of its school? If a society
is pressured to change its culture to fit someone else’s culture, doesn’t that
look more like invasion than immigration? Just wondering.
It really was quite a week.
Despite a more or less happy economic
assessment from Mr. Feldstein, I fell into despair later in the week, until Sister
Jean showed up trending in my Twitter feed.
Sister Jean is the 98 year old chaplain of the Loyola University
basketball team (who was around for their 1963 national championship team. Sister Jean scouts for the team and almost
acts as an assistant coach. She has been
cast in the spotlight since underdog Loyola has won games in the first two
rounds with miraculous shots at the buzzer. This spry and energetic woman says that “God
is on their side,” and that she “prays for the other team, too, but not as
hard.” Sister Jean also played
basketball in her youth. Imagine
that? A Catholic school being Catholic
and having fun at that.
In times like these, it’s good to
have folks like Martin Feldstein and Sister Jean to hang on to.
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