The Elephant in the Room and the Federal Reserve

            The Fed did the right thing on Wednesday afternoon when it decided not to raise interest rates.  In making decisions about interest rates, the Fed is supposed to be primarily concerned about 2 things: inflation and employment.  Generally, it’s supposed to raise interest rates when prices start to surge and lower them when unemployment gets too high.

            There isn’t any inflation to speak of, and in fact, Janet Yellen noted that world economic conditions, including a strengthened dollar and unusually low oil prices are holding inflation well below the Fed’s target rate. 

            And despite the fact that the economy is producing jobs at a brisk pace, there are still too many people who are either in part-time jobs but want full-time work or not participating in the work force because they’ve given up any hope of finding employment.  There also doesn’t seem to be the kind of demand for workers that would result in upward pressure on wages.

            Yet, all this attention on the Fed is diverting attention away from the elephant in the room.  That elephant is the GOP, which has been squashing all attempts to use fiscal policy to improve things for the middle class.

            Fiscal policy comes in two basic flavors.  First, Congress can use its spending power to pick up the slack in the economy when there isn’t enough demand encouraging business to produce more and hire more workers.  Second, it can cut taxes so that people will have more money to spend, thus, increasing demand and stimulating business.  Both types of policies normally result in higher deficits that must be financed by government borrowing.

            Republicans in Congress detest the first flavor and are loathe to spend any money on anything, except sometimes for the military.  They think most government spending is wasteful.  They’re fond of wringing their hands about federal solvency while ignoring the facts that (i) it would be smart to upgrade, repair or replace crumbling infrastructure now while interest rates are low; (ii) Congress can improve the country’s debt position by raising taxes when good times return; and (iii) the bond market isn't showing any concern about the ability of the government to handle debt because it's not demanding higher yields to compensate for additional risk.

            Republicans do sometimes like the second flavor of fiscal policy, but only when it’s in the form of cuts in the marginal rate.  They’ve allowed “holidays” on payroll taxes that mostly benefitted poor and middle income Americans to lapse while continuing to clamor for marginal rate cuts for businesses and the rich.

            The problem is that Republicans remain wedded to a discredited economic theory that burned brightly in the Reagan era.  It’s the “Field of Dreams” notion of supply side economics: if you make it easier or cheaper for entrepreneurs to build it, the customers will come.

            This is obviously an economic theory created in an ivory tower and advanced by people who have never run or managed a business like my wife and I do.

            We own a mom-and-pop outfit that sells corporate swag. We represent a large network of manufacturers who don’t have their own sales forces and will not sell to end-users.  We work with end-user companies that want to give  logo-marked stuff to their prospects, customers or employees.  Our customers choose the products they want to give out, and then we arrange for a manufacturer to make those products.  The manufacturer delivers the products to our customer and sends us a bill. We mark the bill up and send an invoice to our customer.

            Like almost all other small businesses, we do a lot of what it takes to keep the business running ourselves.  We sometimes do product research, billing and accounting and even packing and shipping after regular business hours or on weekends.

            We could hire other people to help us with these activities, but that would mean less profit for us.  Even if we hired another commission based salesperson, it would take over a year for the sales person to be billing enough to repay his or her associated overhead costs.

            There simply aren’t any tax breaks you can give us that would encourage us to expand the business or hire more people.  We’re only going to make commitments to people if we see more customers coming and our workload increases beyond the level where we can handle it ourselves.

            Since we deal mostly with the marketing and human resources departments of other businesses, we only get to do more deals when they are busy marketing or hiring.  Our clients only do more marketing when they think there is an opportunity to sell more to their customers.  And they only hire when their existing work forces can’t handle the additional work more potential sales could generate.

            Customers generally can’t spend what they don’t have.  They also don’t spend when they’re afraid of the future and want to deleverage or save.  Once people stop buying, the only way to protect the economy from tottering into recession is for some mammoth entity to provide the demand the economy needs to remain productive and efficient.  The only behemoth big enough to supply the needed demand is the government.  It can supply the demand by buying things needed for the general welfare such as roads, schools, bridges, computers, and scientific research.

            When ordinary people earn money, they spend it.  That encourages our clients to increase their marketing and hiring efforts.  If they buy more stuff from us, we can consider hiring more people to keep up with all those lovely new sales.

            This isn’t rocket science.  It’s just sensible business. Why the “party of business” doesn’t get it is a wonder.

Trump Trees, Trump Forest

            In trying to understand the Donald Trump phenomenon that has flummoxed most political pundits, it is helpful to think about forests instead of trees.  My take on what is driving Trump to the top of the polls has less to do with anything most of us would think of as an issue and more to do with what most of us would think of as a culture.

            According to 2 NBC News polls of over 12,000 respondents conducted during July and August, Trump supporters “match non-Trump Republicans in terms of age, income, racial identity and political ideology,” but they are somewhat less educated and less religious.

            What’s striking, though, are their positions on a syndrome of cultural, racial and related economic issues.  Table 1, copied from the linked poll results summarizes these positions and shows how they differ from the views of other Republicans.

Table 1

	Non-Trump Republicans	Trump Republicans
Immigrants are a burden on our country because they take our jobs, housing and health care	61%	83%
Confederate flag is a symbol of Southern pride	79%	88%
Gun Owner	44%	52%
Government should promote traditional values in our society	62%	70%
Blacks who can’t get ahead in this country are mostly responsible for their own condition	86%	93%
Increases in Earth’s temperature are due more to natural changes in the environment	59%	65%
Government regulation of business usually does more harm than good	79%	83%
Display the American flag	76%	80%
In today’s economy, everyone has a fair chance to get ahead in the long run	60%	55%
More likely to vote for a candidate who wants stricter limits on abortion	60%	45%

            The analysts who conducted the poll conclude that Trump supporters “are more conservative than other Republicans on almost every issue.”  While I don’t want to quibble about the meaning of the word “conservative,” there’s something much more important going on, if you look at the results as a whole.

            What I see going on in these poll results is an extreme rearguard attempt to recover a largely white, Norman Rockwell kind of America that no longer exists (if it ever actually existed at all).  We mustn’t miss the fact that for the most part, large majorities of Republicans, regardless of whether they are Trump supporters, are in general agreement with each other.  But in most cases, Trump supporters hold these beliefs much more fervently than other Republicans.

            Responses to the three racial questions are telling, when considered together.  Though, by now we know that Trump’s signature hostility to undocumented workers resonates with his supporters, they are also more likely to say that if African-Americans have failed to get ahead, that failure is the fault of African-Americans.  Trump supporters are less likely to think that everyone has a fair chance in today’s economy, and so for them, “everyone” must not include African Americans.  That’s why it’s not surprising that Trump supporters are more likely to see the Confederate flag as a symbol of southern heritage than as the racist symbol most of the country has come to believe it is.

            Trump supporters are more likely to be gun owners, and though I have no evidence on the point, it wouldn’t surprise me if the reason for this is that they own guns more for personal protection than for sport.  That would be consistent with Trump’s rhetoric about the kinds of people coming across the southern border from Mexico.

            The American flag is a somewhat more potent symbol for Trump supporters than it is for other Republicans. That’s consistent with the idea that Trump’s candidacy is about recovering a by-gone America, as is his supporters’ greater desire for the government to promote “traditional values.”  Whatever those values are, they apparently do not include banning abortion, the mother of all traditional values for other “conservative” Republicans.

            One of the reasons that Trump is doing so well in the polls right now could be that there are so many other Republican candidates vying for the nomination among the same core group of voters.  That’s one reason professional pundits aren’t counting out a Republican establishment candidate just yet.  Even if Trump maintains a plurality lead of about a third of the Republican electorate, that still means that two thirds of the GOP’s voters prefer somebody else.  That leaves plenty of room for one of the establishment Republican politicians to build a coalition composed of supporters of the “also- rans.”

            But it’s also important to note that Trump supporters are merely giving more lurid color to a chimerical image of America most Republicans still hold.   Regardless of who wins the Republican nomination, Trump’s wistful crusade to “make America great again” is likely to be the subtext of the coming general election Republican campaign.     

           

           

           

Kim Davis Should Resign

            I have a lot of respect for people who have the courage of their convictions.  Gandhi and Martin Luther King, Jr. are personal heroes, as are a number of ancient Jewish sages who were tortured and executed for refusing Roman commands not to teach the Torah.  In all of these cases, my heroes preferred incarceration, torture or death rather than to comply with commands in violation of deeply held ethical or religious beliefs.

            But I have no patience for people like Kim Davis, the Rowan County, Kentucky clerk who has refused to issue marriage licenses to same-sex couples.  She has insisted that requiring her to issue the license would violate her faith as an Apostolic Christian.  Davis thinks that her faith gives her the right to refuse to perform the parts of her job she finds distasteful, despite the rulings of the Supreme Court and the U.S. District Court.

            U.S. District Judge David L. Bunning was having none of it.  Not only did he hold Davis in contempt of his order to follow the Supreme Court’s ruling on same-sex marriage, but instead of imposing a fine, he sent her to jail.  In opting for jail time instead of a fine, Bunning noted that Davis’s supporters could easily raise the funds to pay whatever fine he imposed, thwarting the will of the court.

            According ABC News, Davis’s supporters were “stunned by this development.”  Said Mat Staver, head of the organization that has taken on Davis’s defense, “Kim Davis is being treated as a criminal because she cannot violate her conscience."

            No, she isn't.

            I draw a sharp distinction between Davis and King.  King acted as a private individual and not as a government official.   Though he considered the laws he violated to be unjust, he acknowledged the power of the state to punish him for his refusal to comply.  He did not complain about being taken off to jail.

            But Davis is complaining.  Unlike King, she doesn’t acknowledge the power of the government in this matter. 

            Davis is arguing that she is not obliged to carry out the official obligations of her office because of private scruples.  But that argument, in effect, converts her elected office into private property.  According to Stayer “The fact of the matter is, she has a right to this employment and you don’t lose your constitutional liberties just because you are employed by the government.”  Her argument really is that having been elected, the office belongs to her, and that it is up to her to decide whether and to what extent she will follow the law.

            This is a remarkable assertion reminiscent of the Confederacy’s theory that states had the power to “nullify” federal laws they found to be objectionable.  Whatever the merits of that argument were in 1860, it was settled conclusively by the Civil War.  The Constitution, as interpreted by the Supreme Court is the supreme law of the land and no one, most particularly a public official, has the right to ignore it for any reason.

            Bobby Jindal, governor of Louisiana, Mike Huckabee, former governor of Arkansas, and Senator Ted Cruz (R. TX), all of whom are candidates for the Republican presidential nomination, have sided with Davis.  For Jindal, nobody “should be forced to choose between following their conscience and religious beliefs and giving up their job and facing financial sanctions.” For Huckabee, Bunning’s order amounts to a “criminalization of Christianity.”  For Cruz, Bunning’s ruling was “judicial lawlessness” that “crossed into judicial tyranny.”  He condemned the ruling for being “the first time ever, [that] the government arrested a Christian woman for living according to her faith. This is wrong.  This is not America.”    

            These three candidates should be ashamed of themselves.  And that goes double for Ted Cruz who once served as a clerk for former Chief Justice William H. Rehnquist and should know better.  They are pandering to the same demographic of aggrieved "real Americans” that Donald Trump has all but won.

            Though Trump has come out against Davis, he ought to beware of the monster he’s effectively awakened from its slumber.  When it realizes that Trump is not the true nativist for which they’ve been searching, it will turn on him.

            The issue isn’t freedom of religion or freedom of conscience.  It is, instead, the rule of law, a favorite conservative theme.   As conservatives are fond of pointing out with respect to President Obama, we simply cannot have a government in which its officials get to pick and choose which laws they will follow.  Allowing Ms. Davis and her deputies to “opt out” of complying with a clear ruling of both the Supreme Court and a direct order by the federal district court makes a mockery of our constitutional rights and a sham of American democracy.

            Workers in this country are paid to do certain jobs, and if they have reasons for not wanting to do the jobs they have been hired to perform, they should not have been hired in the first place.  Though employers must make reasonable accommodations for their employees religious beliefs, we don’t expect employers to stop offering certain services simply because one or more of their employees object to delivering them.

            Ms. Davis is a public official, though, and cannot be fired.  As the Boston Globe notes, she can only be removed from office through impeachment or indictment, both of which are not likely in this conservative state.

            The correct and honorable thing for Davis to do is to accept that the Supreme Court has declared that same-sex couples are constitutionally entitled to marry, and that as county clerk, it is her responsibility to issue marriage licenses to them in accordance with state law.  If she believes that it would violate her faith to permit documents bearing her name to be issued to same-sex couples seeking to marry, she should simply admit to herself that her job is inconsistent with her faith and resign.  She retains full rights to believe what she wants and to seek to overturn the Supreme Court's ruling through the Constitutional amendment process--as a private citizen.

            Davis is not a civil rights icon.  She is not a martyr.  She is not entitled to admiration.  She is simply exhibiting a lazy ethnic entitlement mentality that has become inappropriate in the context of America’s diversity.  She wants to have it both ways.  For that, she is entitled to scorn.

Seeing Red in Red America

            They’re seeing red in Red America, according to the results of a Quinnipiac University Poll released last week.  Though the media was preoccupied with what the poll had to say about how Americans perceived the current leading presidential candidates, it missed what could be early evidence of an impending Republican meltdown in 2016.  I’ll get to the numbers in a moment, but first I want to place the results in context.

            From a political standpoint, the United States is a highly polarized nation.  We no longer have very many liberal Republicans or conservative Democrats.  In Congress, the most liberal Republican is still more conservative than the most conservative Democrat.

            This polarization is not entirely the result of gerrymandered seats in Congress.  It reflects a  political and geographical realignment of American politics that has been going on for the last 40 years.  Our communities are now more politically segregated than at any other time in our nation’s history.  We now live in communities where most people agree with us politically, and we rarely come into deep contact with people who are staunch supporters of the other party.  It’s gotten so bad that, after we look to a person’s religion, we look to his or her politics to decide that person is worth dating or marrying.

            In terms of public opinion, Republicans and Democrats are often mirror images of each other. We ought to expect that Democrats will feel antipathy for Republicans and that Republicans will not much like Democrats or their leaders.  For example, when asked whether they held a favorable opinion of Barack Obama, only about 10% of Republicans held a favorable opinion of him while 88% held an unfavorable opinion.  On the other hand, 89% of Democrats held a favorable opinion while only 8% held an unfavorable opinion.

            Here’s where things begin to get interesting.  In Table 1, I’ve provided the results of a similar question asked about the Democratic and Republican parties.

Table 1

	Democrats		Republicans
	Dem. Party	Rep. Party	Dem. Party	Rep. Party
Favorable	81%	7%	5%	64%
Unfavorable	10%	83%	87%	27%
N/A	8%	9%	7%	8%
Net Favorability	71%	-74%	-82%	37%

You can see that Democrats have strongly favorable impressions of the Democratic Party and highly negative impressions of the Republican Party.  Republicans hold a highly negative opinion of the Democratic Party.

            Republicans, though, do not see the Republican Party as favorably as the Democrats see the Democratic Party.  In fact, there’s a gap of 17 percentage points between the way the Democrats see their party and the way that Republicans see their party.  And, if you subtract the respondents who saw their party unfavorably from the respondents who saw their party favorably to get a “Net Favorability” score for each party, its fair to say that Democrats like their party almost twice as much as Republicans like their party.

            A recent Pew Research Center poll confirms these results.  According to Pew, the percentage of Republicans who view their party unfavorably has doubled since January of 2015.  The percentage of Independents who say they lean Republican and have a favorable opinion of the GOP has fallen by about 15 percentage points.  On balance only 44% of Independents now say they have a favorable opinion of the GOP.

            Despite the fact that their party now controls Congress, only 11% of Republicans say they are very satisfied or somewhat satisfied with the U.S. government compared to 51% of Democrats and 20% of Independents.  And 39% of Republicans say that they are angry with the federal government, compared to only 9% of Democrats.

            According to the Quinnipiac poll, Republicans don’t seem willing to trust their political professionals.  Table 2 shows how the parties differ in terms of the political experience they are looking for in presidential candidates.  Over three

Table 2

	Republicans	Democrats	Independents
Want a D.C. Insider	21%	77%	37%
Want a D.C. Outsider	73%	18%	55%
Don’t know	6%	6%	5%

quarters of the Democratic respondents want a D.C. insider.  Almost three quarters of the Republican respondents want a D.C. outsider.  And that’s why Donald Trump, a businessman, and Ben Carson, a retired neurosurgeon, neither of whom have any experience in government, currently top the polls both in Iowa and in the nation.

            American presidential elections are all about turnout.  One key to turnout is enthusiasm.  Angry voters may well stay home on election day if they feel that they have no one to vote for.  That could be important if an establishment type ultimately wins the Republican nomination.

            The Republicans clearly have a problem with politics as usual that the Democrats don’t have.  All of the announced Democratic candidates are experience politicians.  They generally know what it takes to get elected, and after getting elected, they know what it takes to govern.  The same can’t be said of the current Republican frontrunners.

            These numbers ought to have the Republican establishment quaking in its boots.  The pitchforks are out.  Rank and file Republican voters seem ready to rumble.