Monday, May 14, 2018

Paul Krugman Was Wrong

Paul Krugman, if you are not familiar with him, is a brilliant man. He is a Nobel Prize winner in economics. More important to me, he is a columnist for the New York Times, where his columns over the years have taught me almost everything I know about economics. That is a remarkable accomplishment for a writer, taking a complex topic and making it comprehensible to a lay reader such as myself. Having said that, in a recent column, Paul Krugman was wrong.

Krugman was offering an explanation for why the Republicans are finding that their tax bill, their only major accomplishment under Trump, is so unpopular. It is a terrible bill, but so were the Bush tax cuts, and they polled much better. Krugman said that the American people have finally woken up, and realized that this bill cheats them. He said that Americans understand that Donald Trump can not be trusted, and therefore they are feeling a healthy skepticism for anything related to him. I wish I could believe that. In Donald Trump, we have a man who employs a fixer to make problems go away. We expect mob bosses to do that, not presidents. But Americans, even when they tell pollsters that their dislike and even distrust of Congress is at an all time high, want to believe that their government is at least trying to act in their best interests. That is exactly why the Bush tax cuts were popular. The reason the Trump tax cuts are unpopular is much simpler than Krugman realizes. It has to do with a variation on a question once made famous by a Republican: are you better off than you were a year ago?

Krugman probably is better off than he was. He is, deservedly, well compensated for what he does, and so his tax cut probably gave him more cash on hand than he had last year. But Paul Krugman, for all of his brilliance, does not live in my world. I am not dirt poor. I have a good job that pays me well above the poverty level, even as the sole bread winner for a family of four. But I am not better off than I was a year ago, and neither are most Americans. There are two main reasons for this, both of which completely consumed my tax cut before I ever got it. First, I live in area that is very poorly served by public transportation, so gas prices are a key part of my budget. They are much higher than they were a year ago. On top of that, I have had medical benefits most of the time through my employer since 1999, and I have never seen the cost of them jump as much as they did this year. Even without the cost of gas, that consumed my tax cut and more. Most Americans are feeling the bite of these two issues, and they blame their government for their plight. In the face of this, they regard their tax cut as a cruel joke. They understand that the tax cut only helped people richer than themselves. They don’t own the tax cut, because they can not see that it helped.

In light of all of this, it is worth asking if Americans are being fair. Are the rises in gas prices and healthcare the Republicans’ fault? Are they Trump’s fault? Let’s talk about healthcare first. This one is pretty clear cut. Last year, Donald Trump tried to get the Republicans in Congress to keep a long standing promise to get rid of Obamacare. He failed, because voters let their Representatives and Senators know that they had come to depend on the protections embedded in the Affordable Care Act. But Trump, with the blessings of Republicans in both Houses, did everything he could to destabilize the insurance market. Premiums are higher this year because the uncertainty and instability this created, and that was the plan. Trump and his allies hoped to create enough pain to justify getting rid of the ACA at some point in the future. The tax cut bill itself also repealed the individual mandate in the ACA, which will only make things worse going forward.

Oil prices are harder to pin down. Barack Obama does not get enough credit for getting oil prices down to the levels they were at by the end of his presidency. He did this by continuing, and even expanding, a program started by George W Bush to promote domestic production. The Trump administration and its allies are, if anything, even friendlier to oil producers. Trump is willing to abandon any environmental concerns in the name of the all mighty dollar, and that certainly applies to the oil industry. But there were two other important reasons why gas prices fell so much under Obama. Obama did everything he could to pursue peace in the Middle East. Some specific conflicts were intractable, and they remain volatile now. But Obama used a shrewd combination of diplomacy and military force as a last resort, to get and keep oil flowing from places like Iraq and Syria. In contrast, Trump has not even hired ambassadors to some oil producing nations, and his bellicose manner in international affairs has threatened to jeopardize the flow of oil. Until last week, however, it was hard to point to anything specific that Trump had done that made oil more expensive. Breaking the nuclear treaty with Iran and threatening new economic sanctions changed that, and there was an immediate reaction in the price of oil futures worldwide. The other Obama initiative that helped tame gas prices was an aggressive push to promote alternative energy sources. Trump brought that to a screeching halt almost as soon as he took office.

Now you might think that things can’t possibly be as bad as I say. After all, the economy continues to expand. Unemployment is at a historic low. Where are the signs of the distress that I allege makes people dislike the tax cut bill so much? Actually, the signs are there for any who care to read them, and they are getting clearer. Yes, the April jobs report showed that unemployment fell below 4% for the first time since 2000. But job creation was actually pretty weak; unemployment fell because 236,000 people dropped out of the workforce. In addition, the stocks of casual dining companies have been down all year, because people are eating out less. And there have been 11 bankruptcies in the retail sector this year. That is a record for this time of year, and includes the demise of Toys R Us. All of this will translate over time into job losses, and will further strain the economy. The stock market can continue to defy gravity for some time, as corporations continue to use their tax cuts to buy back shares, instead of raising wages as the Republicans promised. Wealthy individuals will continue to need someplace to put their tax cut loot to work, and it won’t be any place that increases consumer spending or creates jobs. But the stock market is not the economy, and there will have to be a reckoning at some point.

So there you have it. Americans reject the tax cut bill not because of some great awakening in consciousness, but simply because they have less money now than before they got their tax cut. I wish Paul Krugman was right, but I don’t see it.

Tuesday, January 23, 2018


Racism is not going to be my topic this week. But there are those who say that silence is complicity, so let me get this out of the way. Of course Donald Trump is racist. It could not be more obvious. It did not come out of nowhere when he made his comment last week about “shithole countries”. It goes back further than his statement regarding Charlottesville that there were fine people on both sides. It didn’t begin when he called Mexicans rapists when he announced his campaign. It wasn’t just a matter of Trump playing to his base when he promoted the birther myth about Barack Obama. Donald Trump is not simply playing to his base when he says and does these things. It is not an act. The record goes all the way back to his first public acts, discriminating against potential black tenants in his properties, even in defiance of an order from the Department of Justice. It took a second order to get the discrimination to stop, and this was forty years ago. The times when Donald Trump’s racism emerges are the few times when we are seeing honesty from this man, and his honesty is even uglier than his lies.

But that is all I want to say on the subject, because it has been covered by better writers than I. If you need to see more, you can start here. Also, being a lifelong resident of New Jersey, I count Corey Booker as one of my Senators. We have our differences, but he made me proud last week with this. Booker uses the word “complicity” several times, and that is the topic I want to address. Donald Trump can be openly racist because his Party does not mind. They make excuses for it and for him, in the name of serving their donors. Secretary Nielsen, the target of Corey Booker’s ire, has convenient memory lapses, but she is hardly the only one. And it isn’t just about racism either.

Consider the state of the investigations concerning the 2016 election and the Russian interference therein. Robert Mueller’s investigation continues apace, but the committees in the House and Senate have veered into dangerous territory. We are hearing the term “deep state” all over the place suddenly. The term has broader application, but the current usage in Washington comes from right wing media sources such as Breitbart, where Steve Bannon championed it. It is the basis of a conspiracy theory that says there are unelected officers, especially within the FBI, who are seeking to undermine the Trump administration. According to this idea, the Mueller investigation is biased, and is part of this supposed conspiracy. So now we have calls by prominent Republicans to investigate this instead of the Russian involvement in the election. Some of this is surely self defense, since it started when Mueller announced he was expanding his investigation to examine the role of the Republican National Committee in the possible compromising of not only the presidential race, but possibly Senate and House races as well. But the upshot is that committees which are supposed to be investigating the election are instead working to promote right wing propaganda designed to delegitimize Mueller and his investigation. This is not thoroughness on the part of these committees, and the Democrats on the committees rightfully want no part of it. No, let us call this what its: obstruction of justice. The Republicans promoting the “deep state” theory are seeking to interfere in and undermine an ongoing investigation. It is time for us as citizens to call on Mueller and other relevant authorities to call witnesses and bring charges if necessary against members of the House and Senate who are engaging in these tactics. We must send a clear message that these tactics are unacceptable. We must shut down calls for any investigation of the “deep state”, before this goes any further.

As I say this, I can hear the cries of “witch hunt”. I can imagine comparisons to the last time there was an attempt to root out “evil doers” in Congress, and the name Joe McCarthy comes up. But I am not calling for a new McCarthy era. If anything, the McCarthy era represented an earlier time when a “deep state” theory took hold, and became a basis for policy decisions. I am calling for a Constitutional remedy to stop this in its tracks. McCarthyism was ultimately halted in disgrace, but not before political enemies were subdued and important progressive voices were permanently silenced. With new energy on the left, the country is at a critical point. The Republican strategy for attempting to turn back the blue wave is beginning to reveal itself, and the “deep state” theory is the opening salvo. Now is the time to end this, while we still can.

For music this week, I will circle back to the topic of racism after all. Joni Mitchell’s brilliant collaboration with Charles Mingus produced this gem, which sums it up nicely:

Monday, January 8, 2018

Rules of Engagement

Starting immediately after the election of Donald Trump, I began to see a lot of hand wringing over the question of how to talk to a Trump supporter. Some people agonized over losing a friendship of long standing, or even the prospect of banishing a family member from their lives. Then, last year, some of these same people began to report, almost with pride it seemed, that they had blocked these people on social media, or taken that step in some other way to cleanse these people from their lives. But now it is 2018, and we have an election to win. We need not just to capture both parties of Congress, but to reengage with the rest of our nation to make sure our victory is something we can build on in years to come. We need to talk to the enemy because it is still one country that belongs both to us and to them, and we all want a better future than we can expect if things go on as they are.

I am not suggesting that anyone is owed any apologies here. Nor do I expect that reengagement will be easy. But I think there is a way forward. Start by realizing that the typical Trump supporter does not respond to facts and figures, nor do they want to be told what is good for them. Yes, the facts are on our side, and yes, a vote for Trump was a vote for a set of policies that will hurt greatly most of those who made his presidency possible. But that was not why they voted for him in the first place. It was not a rational decision, and neither is their continued support, but it did and does follow its own weird logic. To successfully reengage with a Trump supporter, especially one who was once important in your life, you must first understand that logic.

As the 2016 election cycle wore on, there was an increasingly prevalent view that the system had failed. The working class, in this view, had no champion to turn to. Aided by what we now recognize as a sophisticated Russian propaganda operation, many came to believe that Bernie Sanders was the only politician who wasn’t part of the system, and who cared. Later, again with Russian assistance, the idea spread that Sanders was undone not by a late start or a key lack of organizational efforts in minority communities, but by a sinister conspiracy perpetrated by the Democratic National Committee and the Clinton campaign. Almost all of the negatives that surrounded Hillary Clinton originated either in right wing media sources or in Russia, but the Russians especially made sure that this information found its way to left wing political sites, from whence it spread like wildfire. Of course this meant that anger was a prominent feature of the 2016 general election. It drove many to sit this one out, and many more saw in Donald Trump an instrument of revenge. His policy positions made no difference; he was going to destroy the system that gave us these awful choices in the first place. For many, that is still what they want from him. Don’t tell them that this is not normal, because normal never helped or cared about them. If you point out how horrible he is, you may be told how the resistance to Trump is something that never would have happened if someone less horrible sat in the White House. By this line of reasoning, we need Trump to give us something to get us activated and organized. That argument is harder to rebut because there is some truth to it, but it has a horrible cost.

So I think the way to reengage is to present an honest desire to understand where a Trump supporter is coming from. Ask key questions, and then listen like crazy. Don’t try to rebut their arguments; instead, use your questions to subtly guide them to common ground, because it does exist. Let’s consider some questions you could ask.

Do you think the healthcare system in this country could work better for you and your family? How would you change it if you could? How would you pay for those changes? The idea here is not to push universal healthcare on anyone. In answering the question, they may get there on their own, but they may also go somewhere else that is worth the trip. Your job when reengaging is to let them take you there, and then take their ideas seriously.

Can you name one action Donald Trump or the Republican Congress has taken on the economy that has benefitted you or your family personally? If you know someone else who has benefitted, it may be that they have left out important details, so please tell me your story. Here you have the chance to follow up with probing questions, but do not be confrontational. You are asking them not to share your viewpoint, but to help you understand. In doing so, you are helping them to understand as well.

Do you personally know any first generation immigrants to this country? Are any of them working at jobs that you or a family member would want and are qualified for ? Here you are asking them to challenge their own xenophobia, rather than challenging it yourself. Once again, avoid being confrontational; the confrontation that occurs must be within them, not between you. Not everyone you talk to will be a racist or a xenophobe at all. In that case, this question could be a great way to break the ice.

These are just suggestions. I’m sure you can now think of questions of your own, and I hope you will share them in the comments. I hope you will also seek out these conversations, and tell us in the comments how it went. Since the 2016, we have been getting better at fighting for what we want, and that is important. But we must also start to prepare for the peace that I hope will follow that fight. When we finally win back everything we are losing now, how do we keep those wins? I believe we start with a few simple conversations.

I plead guilty to the charge of irony, but there could really only be one song this week:

Tuesday, January 2, 2018

Making Waves

2018 is here. This is supposed to be the year of what is being called the Democratic wave election. In November, the story goes, voters will show their displeasure with Donald Trump by electing Democrats in large numbers. The Democrats will take over the House, possibly the Senate as well. They will win in statehouses across the land, both governorships and control of state legislatures. Well, I have news for you. It may happen, and it needs to happen, but it won’t happen for all the wishing in the world. Instead, it will take hard work, money, and some intelligence about what we learned in 2016 and 2017.

I hope everyone learned in 2017 what too many did not know in 2016: the two parties are not even remotely the same, and it matters a great deal which one wins. The most flawed Democrat, and Hillary Clinton may own that distinction, would not have conducted an all-out assault on the Affordable Care Act. She would not have tried to ban immigration from Moslem countries. She would not have pushed for, or signed, a tax package drafted in darkness that is so clearly tilted towards the wealthy at the expense of everyone else. And she would not have done everything in her considerable power to load the judicial branch for a generation to come with judges who are openly hostile to the LGBT community in particular, and to individual rights more generally. She would not have implemented an environmental policy that is hostile to science and scientists. Finally, for now at least, she would have fully staffed the government with people who are genuinely qualified to do their jobs.

Having said all of that, it is still important for the Democrats to do a better job of choosing their candidates. In 2017, we saw in Alabama what can happen when it is done correctly. Doug Jones won in the end because he demonstrated a clear and easily understood difference between himself and his opponent. Black voters in Alabama didn’t show up in record numbers just to keep a pedophile out of the Senate; they voted for a man who persuaded them that he would be their champion in Washington. Jones did not try to win in one the reddest states in the nation by trying to be conservative enough to appeal to independents. He won as a progressive, and an answer to the deeply unpopular policies of the national Republican Party.

I am old enough to remember when the nation was split between conservatives and liberals. Nowadays, however, you hardly ever hear anyone proudly claiming to be a liberal when running for office. That’s because the right wing worked very hard over the course of many years to make “liberal” a poisonous brand. 2018 is the best chance we will ever have to start to do the same to the word “conservative”. To do so, we need candidates like Doug Jones in the reddest states and everywhere else. We need to make the differences between our side and theirs starkly obvious everywhere. We need to let Democrats in the House and Senate know that we support their decision to stand united against anything the Republicans try to do without them. And we need to link the word “conservative” to every policy Donald Trump pushes against the will of the American people.

In terms of policy, we must remember that many Trump voters did not care what his policy prescriptions were; they voted for him to get their revenge on a system that they felt had failed them. It doesn’t matter to a Trump supporter that “this is not normal”; it isn’t supposed to be normal, and the abnormality only proves that they got what they voted for. What does matter is that their healthcare is going to be needlessly more expensive. It matters that their sons and daughters will not have the same protections with Social Security and Medicare that they will have. It matters that corporate tax cuts will be used in part for corporate mergers that will threaten their jobs. Voters in states like Alabama will respond to appeals based on these issues, as long as the candidate pointing them out can make them believe he or she will do better. It will not be enough to point out these issues. The candidate must lay out a credible plan to address them. Bernie Sanders could not explain how he would pay for universal healthcare without hurting the people he wanted to help, and that more than anything else may have cost him the nomination. The negative branding of “liberal” is all about “tax and spend”, and Sanders fell into that trap. It follows that the negative branding of “conservative” will require a thorough debunking of the notion that tax cuts for corporations and the wealthy create jobs.

We have our work cut out for us in 2018. We must do what we can to put forth the best candidates everywhere to oppose Trump and the Republicans. But, when the more establishment candidate wins a primary, we must still recognize that we need every Democratic win we can get. Majorities in the House and Senate mean the Democrats get the chairmanships of all committees, and control of investigations. Majorities can also keep noxious bills from going to the floor for votes, and they can keep horrible nominees from being voted on by the full Senate. So even if the Democrat in your state or district wasn’t your first choice, his or her election could empower someone from another part of the country who is more to your liking. For all of these reasons, we can not afford to sit back and watch, and hope for a blue wave. We must make it happen, and we will never have a better chance.

The famous quote that “Eternal vigilance is the price of freedom” seems apt to me, and here is a song that expresses it on a personal level:

Tuesday, December 5, 2017


The Republicans got their fantasy last week. The tax bill that nobody read passed the Senate, and now it only has to go through reconciliation with the House version to become law. There is no question that Donald Trump will sign it, also without reading it. All along we have heard how this will spur job creation. This is pure fantasy. What this bill will do is damage the insurance marketplace created by Obamacare, thereby raising premiums for everyone, and causing a drop in consumer spending as a result. Before that happens, companies who are already more than able to afford to hire new workers or give raises to existing ones will instead ramp up their efforts to acquire other companies, costing the economy jobs rather than creating them. Wealthy individuals will now have more money to invest in the stock market and more speculative items, and the stock market will also benefit from a rise in stock buybacks by corporations. This will fuel a rise in stock prices, but without a corresponding rise in value that would come from an increase in consumer demand. For a while, top executives will love the rise in the value of their portfolios of company stock, but something will have to give in the end. The prospects for consumer spending get even worse if the Republicans are able to use the sharp increase in the national debt that this bill will cause to justify cuts in social spending.

But let’s focus on that speculative investing I mentioned before. In the wake of the Bush tax cuts, a lot of that money went into mortgage backed securities, and we know how that ended up. As I discussed in a previous post, some will fuel speculation on the price of oil, which will mean that we will pay more at the pump. That will also cut into consumer spending. But it is the possibility of a speculative bubble that concerns me the most. On the one hand, Barack Obama was never able to completely undo the Bush tax cuts. Politically, the only way you can get tax increases through Congress is if you have a total economic collapse. I can make the case that George W Bush was an evil president, but faced with the prospect of a total financial collapse on a scale that would have rivalled the Great Depression, Bush was smart and sane enough to push for emergency measures to prevent that. Today, we are not so lucky. Even if Treasury Secretary Steve Mnuchin told Donald Trump that a new Depression loomed, Trump might simply refuse to believe it until even his real estate empire lay in ruins.

So where could the next financial collapse come from? It won’t be mortgages this time. In the wake of any collapse, measures are put in place to prevent a repeat. That’s why the last collapse wasn’t about internet stocks or savings and loans, to use two recent examples. The most famous collapse in financial history was the brutal end of the Dutch tulip mania, as shown in the chart at the top of this article. Today, the price of a tulip bulb reflects its value as an addition to your garden. There is a premium that allows tulip growers to make a reasonable profit. But during the Dutch mania, tulip prices rose astronomically, as everyone feared missing out on the enormous profits being made by others. People traded away their estates in order to possess a single bulb. By 1637, sanity returned and the prices plummeted, ruining many people financially in the process. But a tulip bulb is a tangible object. You can hold it in your hand. So it is clearly worth something.

We would all like to believe that we are smarter today. After all, the tax cuts for the extremely wealthy are going to those who are rich enough to invest in hedge funds. Hedge funds are lightly regulated because our law considers these wealthy investors “sophisticated.” Mutual funds are available for far lower prices, and are therefore regulated to protect the consumer. Of course, a lot of “sophisticated” investors fell for the Bernie Madoff scam, so you have to wonder. Where then might the next financial collapse come from? Something else might happen first, but let’s talk about bitcoins.

The chart of bitcoin prices above bears an eerie resemblance to the first part of the tulip chart. A bitcoin is different from a tulip bulb, however, because you can not hold a bitcoin in your hand. That means that, unlike a tulip bulb, the value of a bitcoin can drop to zero. If you are just hearing of bitcoins for the first time, they are the most popular of what are called cryptocurrencies. Basically, someone invented them out of thin air, and created an admittedly brilliant software package to monitor and control their exchange. This software is referred to as blockchain technology, and it has practical applications for transactions conducted with traditional currencies. But the bitcoin itself is a fabrication. The key selling point is that bitcoins are not controlled by any government. They are a pirate currency, and sure enough, many early adopters were engaged in illegal activities. But this is also libertarian money. You can conduct business in bitcoins, and pay no taxes because it is difficult to track the profits. Officially, only a limited amount of bitcoins will ever be issued, so prices reflect planned scarcity as well. But already billions of dollars have gone into bitcoins. Now, the CTFC has approved the selling of bitcoin futures, which makes it possible to speculate on the price of a bitcoin without even owning one. That means that the amount of money involved in the bitcoin market is about to explode. But who controls the bitcoin? No one knows. The trading is controlled by a company in the Philippines called Satoshi Citadel. The company has three co-founders and two additional officers, but nothing else is known of these men. They have no history before their involvement with this company. Miguel Cuneta is one of the co-founders, and the chief mouthpiece for the company. He talks a good line, but we have no way of knowing if he might have intentions that are not discussed in his official utterances.

Both the CTFC action and the tax cut bill mean that more money will go into bitcoin speculation. They will become further enmeshed in the global financial system, just as mortgage backed securities did. And then, one day, something will happen, and people will start to demand answers to uncomfortable questions. I hope I am wrong about this. I hope bitcoins really are the next great innovation after the internet itself, as Miguel Cuneta would have us believe. But I am chilled by having seen this show before. And if all of this results in a crisis, I have no faith in Donald Trump to get us through it. The only positive I can see is that it might create the political climate that would make possible the removal of both the Trump and Bush tax cuts. But it would come at a very high price.

If there is a song about the Dutch tulip mania, I do not know of it. However, this one describes a crash pretty well:

Monday, November 27, 2017


If you rely on a cable company or satellite provider for your television programming, you start by paying for a basic package that includes the most popular, and innocuous, programming. If you want to add sports coverage, that’s extra. Movies, extra. And so on, to a very large bill if you want everything. And everything isn’t everything. With a full package, you still don’t have any alternative news sources. There is nothing comparable to this blog, or any other blog for that matter. There are no outlets for individual voices, because there is no money to be made from that, so the content providers believe. Even small record labels and distributors have no way to get word to you on cable or satellite about their artists.

Fortunately, for the moment, we have net neutrality. The term is intimidating, but what it means in plain terms is that all of the missing elements I mentioned above can be found on the internet. Unlike cable and satellite providers, internet providers are currently required to provide the entire internet, even the nooks and crannies that could never be profit centers for them. And that is really what the current struggle to save net neutrality is about. Donald Trump and his friends can talk all they want about the best way to promote innovation on the internet, but the truth is that they want to do away with net neutrality in order to allow large companies to monetize our online lives more effectively. That means having access only to websites they believe the can sell to large numbers of people. It means your preferred social network might become part of a premium package. It means you might lose access to Facebook for several months while they fight through a contract dispute with your provider. And it means that many independent musicians would lose their careers. That last one may be more important to me than to some of my readers, but it is part of a larger suppression of independent voices that would result from the loss of net neutrality. Many truly independent political websites would be lost, or at least lost to most people. Russian propaganda sites would not be lost, however, because they are well financed. They could meet the prices internet providers would ask to carry their services.

So far, I have only mentioned the natural consequences of the loss of net neutrality. By that, I mean the effects that accrue from the new financial model that would follow from a closed internet. This stifling of independent voices would happen for purely financial reasons, without any intent from internet service providers. But surely, there would also be intent. My current internet provider is Verizon, and they could decide that they will not allow access to any website whose politics they don’t like. There would be no way to stop them from doing this. Initially, there might arise new internet providers who fill the gaps by allowing access to these niche sites, but the financial aspects of doing so would make it hard to stay in business, while the Verizons of the world would be busy lobbying Congress to eliminate these competitors.

I hope my readers already know that I am writing this post now because Trump’s head of the FCC, Ajit Pai, has proposed eliminating net neutrality, and ushering in a new era of a fully monetized internet. The FCC has to allow public comments until December 14, and they will then make a final decision. During that time, we need to flood the FCC with our comments. We also need to pressure our Senators and Congressmen to go on record in opposition to Pai’s plan. We do not have to listen to any politician who wants to tell us what the new, monetized internet would look like. We already know. Almost all of us have cable or satellite television, so we’ve seen this show already. Fortunately, there are many links like this one that make it easy to send comments to the FCC. Please do so, and remember that adding your own comments counts for extra on the receiving end; it shows the FCC that you cared enough to personalize your response, and that it did not come from a bot.

My musical selection this week has to come from an independent band. Red Molly have self produced and released all of their albums. They have made a good career for themselves, using the strength of their performances, the occasional video like this one, their website, and online vendors for their CDs. One such vendor is CD Baby, and that is a site that would be hurt by the loss of net neutrality. So I would like to believe that artists like this would continue to be able to share their art with us even if we lose this fight, but surely their careers would suffer.

Monday, November 13, 2017

Paying at the Pump

I don’t want to see the economy collapse. I am not even wishing for a mild recession. But I watch as Wall Street continues to celebrate the Trump presidency, and I know this can not end well. I once worked as a financial advisor for Morgan Stanley. There are many reasons why it did not work out for me, but one was the toxic political environment I found there. There was a near religious belief in Republican policy prescriptions, despite the fact that the market had ultimately fallen in every Republican administration, and risen in every Democratic one, since World War II. That was in 2001, but even though it remains true today, Wall Street does not seem to have learned anything from this streak. I have talked about the reason for this disconnect before: the market is not the economy. Supporters of Donald Trump like to point to the Wall Street rally under his rule so far as evidence that the Republicans got it right this time, so let’s take a look at why the market, and corporate profits, are doing so well, and why that might not continue. I am not an economist, so I am going to focus on something most people aren’t talking about yet: the price of oil.

The price of oil is something anyone can see for themselves at the gas pump. It has a great impact on consumer spending. Far away from Wall Street or Capitol Hill, most Americans live from paycheck to paycheck, so more expensive oil means we must cut costs elsewhere in order to afford fill our tanks. When gas prices jump, there is a period of denial, in which Americans increase borrowing to make up the difference. We are in such a period now, but borrowing has its limits, so gas prices must come back down soon if consumer spending is to remain unaffected. Even now, Wall Street is being surprised by earnings reports in the retail sector. There are some exceptions, but the story these earnings reports are trying to tell is that Americans are downshifting their spending, so McDonalds and WalMart are doing well, but mid-range retailers and restaurants are not.

So what does Donald Trump have to do with the price of oil? Americans enjoyed a sharp drop in oil prices during the Obama administration. To give credit where it is due, this was partly due to a continuation of energy policies started in the administration of George W Bush that promoted and greatly expanded domestic oil production, and Trump is continuing this effort, possibly even expanding it by pushing for exploration and drilling on public lands. That’s bad news for the environment, but it helps keep prices lower at the pump. However, Obama also applied downward pressure on oil prices with his push for alternate energy, and here, Trump has completely dropped the ball. Trump has exerted upward pressure on oil prices by placing obstacles in the way of alternative energy development, thereby freezing our dependence on oil at current levels.

Less obvious but possibly more important is the conduct of foreign policy. Obama had a fully staffed State Department, and he understood the subtleties of diplomacy. While he was president, OPEC was knocked off balance, and it became harder for them to commit to unified actions to control the global market for oil. Perhaps it is just a coincidence, but Trump believes the State Department is wasteful, and he has deliberately left many key positions unfilled. He also appointed as Secretary of State former oil executive Rex Tillerson. Tillerson knows that more expensive oil globally means increased profits for companies like the one he used to lead. Just recently, OPEC seems to have recovered their balance: their recent agreement to lower production quotas has been the main driver behind the recent rise in oil prices.

There is one other driver to consider, and that is the Republican tax plan. Tax cuts and credits for the working poor and the middle class translate to consumer spending. But when you have all the money you need already, a big tax cut allows you to put more away for the purchase of stocks and more speculative investments. One of those speculative investments is oil futures. The price of oil on world markets includes a speculative premium. By that, I mean that investors buy oil futures, and those purchases translate into higher prices at the gas pump than you and I would otherwise pay. In normal times, this speculative premium is modest, and the sale of futures helps to stabilize prices. But now the Republican tax plan threatens to provide oil speculators with additional funds to play the futures market. No one wants to miss the party, and we have seen that other trends are favorable, so the speculative premium for oil is increasing in anticipation of the Trump tax cuts. This is true even if the tax cuts do not ultimately pass, because speculators do not want to wait to take their positions until the tax bill is law, for fear of missing the profits to be had in the meantime.

So I expect that oil prices will at least remain at their current elevated levels, and possibly go higher still from here. That will put pressure on consumer spending, as would any cuts to safety net programs that Republicans manage to pass. Eventually, even Wall Street will notice, and with stock prices already high by most historical measures, that won’t be pretty. It is notoriously difficult to predict the timing of the stock market, and I failed badly last December. So I will simply leave you with this meditation on oil, and a song about oil prices from forty years ago: