Americans Need to Go Shopping ...and Ignore the Internet

Last week, one of my readers asked me , “Why are your blogs so depressing?” I responded, “Why can you not understand clear thinking when you read it?” I tend to be sarcastic at times. But he got it right. I do find American news depressing these days. For example, having campaigned on a critical assessment of the Obama administration’s economic policy and deficit spending, not to mention the huge trillion dollar debt, the Trump administration has approved a $1.3 trillion budget deficit which will raise America’s debt to more than $20 trillion. Interestingly, the President has said he will never again approve an omnibus bill and is demanding a line item veto. This means he would have the right to approve some budget items and veto others. The last President to have this privilege was Bill Clinton.

Other areas of concern: the imposition of steel tariffs on China has been met with swift retaliation. China has placed a 25% tariff on pork. Many American pig farmers who export their animals to China may find it hard to stay in business, while pig producers in the EU are rubbing their hands with glee. Yes, lots of fun but a trade war helps nobody in the long run. Last week I wrote of the power of the DC banking lobby and how Congress has allowed some banks to position themselves so they can wreck our savings with abandon, much like they did ten years ago. And Sunday’s marches to protest on the lack of gun control laws might produce nothing worthwhile. Altogether, I see gross failures in American governance. Little wonder there is no joy.

If you think I am a mere scare-monger, are you aware of the state of the American retail industry? Back in the late 80s, I visited a friend of mine in Scottsdale, Arizona. Then he lived close to the centre of town, a suburb of Phoenix. Within ten years, American capitalism had taken hold. His house was now in the suburbs of a thriving city with its temples of steel and glass, the Shopping Malls.

Nowadays, wherever you go in America, you will find cities and towns with their shopping malls, outlet malls and strip malls. Often there will be one or two anchor tenants, usually well-known department stores like Sears or Neiman Marcus. From sleepy Maine to quaint Oregon, bustling New York to outrageous Los Angeles and all places in between, American retail is king. But of late, things have changed.

There is a staggering number of U.S. retail companies at potential risk of defaulting on their debts and seeking bankruptcy court protection, failing which the businesses will close with huge debts and their staff facing unemployment. The rating agency, Moody's, currently lists a whole host of companies in the retail sector facing financial struggles this year, partly as a result of competition from online retail giants like Amazon. Corporations such as the massive Sears, as well as Kmart which owns Sears, J. Crew, Claire's Accessories and two dozen other well-known retailers have some of the lowest credit ratings issued in December, 2017, by Moody's.

Household name retailers such as Neiman Marcus, nutritional supplement seller General Nutrition Centre, and foot-wear companies like Nine West and TOMS Shoes are struggling. Some businesses like Gymboree and Rue 21 filed for bankruptcy protection last year and have since opened their doors after closing stores, shedding debt and making huge numbers of employees redundant.

It is staggering to find that more than thirty substantial U.S. retailers filed for bankruptcy protection during 2017. Moody's competitor, Standard and Poor’s, has issued similarly downbeat news for store operators. It suggests the retail and restaurant sectors are the most distressed in the U.S.

Apart from the ever increasing e-commerce competition from Amazon and others, factors hurting retailers include too many stores, the need for heavy borrowing, followed by refinancing and repayment deadlines, and low cash levels, partly because of the costs of servicing debt. Cash is vital in any business. In some forty years of advising businessmen, I found the sole reason for any business failure was running out of cash. However, many retailers are their own worst enemies. Their web sites are often poorly thought out, confusing to navigate and unprepared for things I would have thought obvious. I wanted to buy a gift card from Sears. When I finally found the item – it took more than five minutes – my American debit card was not accepted, nor was my UK credit card.

On line retailers do not face the same overheads and loan requirements. They have storage facilities to maintain, not bright, attractive stores where rents are high. They do not need the same number of employees. True, they have logistics to deal with to make deliveries but their prime costs and overheads are substantially lower than those of traditional retailers. One store now out of business is Toys ‘R’ Us. It drowned in a $5 billion long term debt. Sales were inadequate to service such a vast loan. It ran out of cash.

Retail is a huge part of American life. In the Malls, you often see T shirts emblazoned with sayings like, “When the going gets tough, the tough go shopping.” My favourite: “Veni, Vide, Visa.” Thanksgiving is followed by Black Friday, when vast numbers of Americans go shopping. Not only do customers snap up discounted bargains but they stock up on Christmas presents. Had there been insufficient demand for the gigantic number of stores throughout USA, retailers would not have been parties with developers in saturating the United States with shopping malls. But sometimes the party has to stop and the future for American retail looks bleak, unless the corporations have a strong Internet facility to boost sales.

I would like to know what Congress and the executive branch, as well as the Office of Budget Management, has calculated as the tax take from the retail sector for this fiscal year? If the downward trend of failures and bankruptcies continues, the bean counters' sums could be way out and tax revenue will fall short by many billions. I am not an economist so cannot be accurate about the consequences but the America government may well have to borrow more or spend less. If the former, government bonds will come at a higher coupon rate, costing the taxpayer even more. 

 

Maybe a special tax could be levied on Amazon and other internet retailers to level the playing field? Amazon avoids tax aggressively, just like Facebook and Google. On 1st March this year, The New Republic reported that Amazon paid zero federal taxes in 2017 on a profit of $5.6 billion and was being rewarded with further tax breaks at state and city levels. Is Mr Bezos just too clever for the IRS or is he too big to touch? 

 

 

 

 

 

 

Unleash the Dogs of Banking

Former British Prime Minister, Harold Wilson, famously said, “A week is a long time in politics.” So, what price a decade? Would it amount to an aeon? What is also said by many political observers is that voters have short memories. I don’t know how true this is but I would suggest that most voters are uninformed. I do not suggest they are lazy or uneducated but that legislation passed by governments is often complex and the language used is too often opaque.

All of us remember that ten years ago, there was a banking crisis in the West, the like of which had not been seen before, not even in the Great Depression. Big banks, those too big to fail, were running out of money and the Federal Reserve and the Bank of England were prevailed upon to save the day.

In the early 1930s, bank failures in America were rife, so much so that in Roosevelt’s Inauguration speech, he declared a five-day bank holiday. During those five days, all American banks were inspected by federal government officials. Those banks found solvent were provided with sufficient cash to deal with demands of depositors. Those banks found insolvent were closed and depositors lost their money. At the end of the bank holiday period, solvent banks soon satisfied depositors and the banking crisis was averted.

Then, in FDR’s first 100 days, Congress passed the US Banking Act, commonly known as Glass Steagall. The most fundamental provision of the Act separated commercial and investment banking in an effort to stop security firms and investment banks from taking customers’ deposits without consent. It also prevented commercial Federal Reserve member banks from a number of actions, including dealing in non-governmental securities for customers.

By the 1960s, the banking community sought the repeal of Glass-Steagall, pressuring Congress in a manner that has become only too common. Lobbyists doing their masters’ bidding sought to persuade members of the House of Representatives and Senators alike of the value and benefit of their cause, which of course were for the few at the potential cost of the many. Congress initially was unhelpful and bank successes took time. However, the cause was not helped by the Reagan administration, assisted by the Thatcher government, who both approved Big Bang, the phrase used to describe the deregulation of the financial markets. Market activity increased exponentially and there were significant structural changes of the financial markets. For example, old brokerage firms were taken over by big banks. The American banking community wanted its day in the sun.

In the laissez-faire climate of the 1980s and 90s, Glass-Steagall’s effect diminished. In the late 1990s, the securities firm, Salomon Smith Barney was taken over by Citibank. President Clinton recognised the reality that Glass Steagall was, to use his words, “no longer appropriate.” The truth was it was moribund. When the financial crisis of 2007/8 reared its ugly head, one can trace the causes to the egregious acts of banks like Lehman Brothers and Merrill Lynch, who had leveraged the value of securities to unrealistic levels in the expectation that the market would never fall. Put simply, the bankers’ behaviour was grossly negligent, probably criminal and uncaring of the suffering it would impose on ordinary depositors. Their conduct was exactly what Glass Steagall was designed to prevent.

The list of names ending in bankruptcy or government bail-out is endless. In addition to the banks named above, one can include, Bear Stearns, HBOS and the Royal Bank of Scotland. Billions of taxpayers’ money went into saving the banking system. How much was the contribution of those who caused the crash and where were the punishments? Little or nothing. Little wonder that better regulation was needed.

In 2010, Dodd-Frank was signed into law. The Dodd-Frank Wall Street Reform and Consumer Protection Act changed America’s financial regulatory environment, affecting all federal financial regulatory agencies and the country’s financial services industry. The Act improved America’s financial stability and consumer protection, according to articles in several newspapers including The Financial Times. However, the banking lobby is very strong. The investment banking community disliked Dodd-Frank because it placed strict limitations, not only on banking business but also and more significantly, the conduct by bankers of their business.

Congress has now decided to help the bankers. The Senate has passed the Economic Growth, Regulatory Relief and Consumer Protection Act. It’s one of those misleading titles which can be compared to a sensational newspaper headline which bears no resemblance to its story. The new measures gut Dodd-Frank, undoing regulations which protect ordinary consumers.  The bankers say that small and mid-sized banks serving rural America need the help of reforms but the Act, if passed into law, will deregulate foreign megabanks like Santander and let off the hook domestic firms like American Express from regulations that ensure failure does not bring down the banking system. In addition, Federal Reserve oversight will be undone or diminished. How does this help rural America? Face it, the Act is in lock-step with the wish list of the banking lobby and its paymasters.

Why does the Senate have such a poor memory that it cannot recall what happened ten years ago? Let me help jog memories. During the financial crisis, Countrywide Financial, a $200 billion mortgage lender, failed, a stark reminder that mid-sized, regional financial institutions can put the entire financial system at risk.

The failure to learn from history is not limited to politicians. Administrators and bankers can be accused of the same failing. What would be the most appropriate way for Congress to mark the tenth anniversary of the financial crisis later this year?  Remembering the attitude and greed of many of those who work in Wall Street, surely the rules should be strengthened on banks and bankers. Wall Street should never again get away with cheating ordinary Americans and crashing the economy. I suspect this suggestion will fall on stony ground. I believe President Obama would have vetoed the current bill. President Trump will sign it without a care.

One of my readers recently observed: “Nothing is more precious and perishable than trust and confidence which take years to build but can be destroyed in minutes.” Another banking crisis so soon after the last will destroy confidence. Perhaps the President and members of Congress, as well as the Wall Street bankers should learn this lesson and realise a bank crisis in America is not limited to America. It is global. The responsibilities of those concerned, especially members of Congress, should be told these truths in no uncertain terms. Furthermore, excuse the pun, someone should remind Mr Trump that bad Presidents make bad laws.

 

 

What Price Free Trade?

The world seems to be receding into the dark ages. Brexit negotiations between UK and 27 European nations are bogged down. Effectively, twenty seven trade deals need to be negotiated in the knowledge there will be a price to pay, possibly in trade tariffs.  In USA, President Trump has imposed trade tariffs on steel and aluminium imports to prop up America’s failing steel and aluminium industries. China, which has often been accused of trading unfairly by “dumping” its goods on the west now has a President for Life who will put China first to maintain its economic power. What next?

Laissez faire seems to be in retreat. The expression means to leave alone, exemplified by an economic and political doctrine that considers economies function most efficiently when unencumbered by government regulation. The alternative is protectionism. When America was in its infancy, trade tariffs were imposed on the traffic of goods, not just brought from other nations but from other colonies and states. If a producer in the Carolinas wanted to sell goods to a buyer in Maine, every time those goods entered a new colony or state, a tariff had to be paid. It made all exports prohibitively expensive. The 1789 Constitution helped to cure the problem.

Until Roosevelt’s time in the 1930s, America’s trade policy was set by Congress without the benefit of international negotiations. Protectionist legislators, under the 1930 Smoot-Harley Tariff Act and in response to the Great Depression, raised duties on thousands of imports. The intention was to protect American industry. America’s trading partners retaliated by raising their own tariffs. World trade slowed almost to a halt.

FDR and his team and trading partners quickly learned the lesson, as did the trading world nations. The US 1934 Reciprocal Trade Agreements Act granted the President authority to agree tariff reductions with foreign governments. The policy was accepted internationally in 1948 with the creation of the General Agreement on Tariffs and Trade. The World Trade Organization followed in 1995. Reciprocity is the key underlying principle. Each country will liberalize its trade to the extent that other countries liberalize theirs. International negotiations overcome protectionism. I do not suggest that GATT and WTO were perfect. WTO is not a free market organization. Instead, it has a set of rules designed to facilitate fair and undistorted economic competition. But it is encumbered by delay and weighted towards first world countries

It is always dangerous when politicians ignore history. Mr Trump does so, not only at his country’s peril but also for the rest of the world who trade with USA. One of the Trump administration’s first acts was to withdraw the United States from the Trans-Pacific Partnership, a major initiative of the Obama administration. It was intended to create the world’s biggest economic bloc, linking America’s economy with those of eleven Pacific nations. Withdrawing from the agreement denied American exporters enhanced access to substantial foreign markets and opened the way for more Chinese influence. The other signatories of the original deal, including Japan, Australia, Canada and Mexico, went ahead without the U.S. These countries now grant preferential market access to one another, making it harder for American companies to compete in their markets.

If the United States is reluctant to participate in multilateral trade agreements, other countries have every incentive to do deals that both exclude and hurt Trump’s renegotiation of North American Free Trade Agreement. While Canada and Mexico may be more dependent on the U.S. than vice versa, an end of NAFTA would probably devastate many U.S. industries that rely on Pacific trade. 

In addition to withdrawing from and renegotiating trade agreements, the Trump administration has increased unilateral sanctions against U.S. trading partners for receiving subsidies or for dumping their products on the American market. Decisions to impose trade penalties, like the latest steel and aluminium tariffs, risk unwanted reactions.

It is worth noting that sanctions on Bombardier drove the Canadian plane manufacturer into another deal with Airbus, Boeing’s major foreign rival. And when Bethlehem Steel, the US number two steel producer, crashed in 2001, the cause was bad management, not unfair competition.

President Trump seems to believe the U.S. can act unilaterally without consequences. Economic history is firmly against him. The world’s economies are interdependent, so the impact of governments all following Trump’s America First trade policy will likely have disastrous consequences. The international trade system the U.S. helped create, one based on open markets and classically liberal principles, is threatened. Trump’s approach is an abdication of the traditional U.S. role as the free trade defender. In a way, he and his Administration have become Ugly Americans, where American behaviour changes dramatically and adversely when dealing with foreigners. On what goods will he seek to impose tariffs next?

If the U.S. abdicates its role as champion of the international trading system, will China fill the vacuum and with what consequences for the current system of open and free markets? I was taught the standard principle of economics that all individual actors exist within a system. Any action taken by one actor will likely result in a response from others. This means that wise governments, in considering which policies to adopt, must calculate how their actions will interact with those of others. “America First” makes no such calculations. Instead, it seems to demonstrate what happens when an ignorant, thin-skinned bully has a big stick in his hand. This time the Trump bull will rage in China’s and other shops to no avail.

 

Immigration: A Political Football.

I may be wrong but I suspect the majority of people who read this blog are grandchildren, great-grandchildren or great-great grandchildren of immigrants. My father’s father was born in the Ukraine. In UK, immigration has been an issue for as long as I remember. The arrival of the SS “Empire Windrush” in 1948, carrying 492 passengers from Jamaica, marked the latest round of debate. British Caribbean people who came to Britain are referred to as the Windrush generation. Since then, emigration to the UK has been reported far more as an issue of race and colour, rather than people providing services needed by society as well as the successes such immigrants have made of their lives. Economics and culture are usually trumped by fear and hatred.

In 1992, J. K. Galbraith published “The Culture of Contentment” where he argued that the contented in society resist change when their short-term interest is at stake but that immigrants, whether legal or illegal, are welcome in first world countries when they will do the jobs and provide services that others do not want to perform. They may be janitors and cleaners, porters and cooks in offices, hospitals and schools. Presently in UK, they include nurses whose services augment those working in our overstretched NHS. They are fruit pickers, working for less than minimum wage, to help feed society. In America, life seems much the same, as “illegals” cross the Mexican border to find a better economic life and escape difficult conditions. They too work as produce pickers in the valleys of California and do many jobs that second and third generation Californians will not do.

In his recent book, “Trumpocracy”, David Frum looks at the recent history of US immigration. The 2012 Deferred Action for Childhood Arrivals Act, (DACA) permitted some individuals who entered US as minors and had remained there illegally (the Dreamers) to receive a renewable two-year of deferred action from deportation and to be eligible for a work permit. By 2017, more than 800,000 Dreamers had enrolled in the DACA programme. 

Dreamers’ lives are now in limbo. President Trump rescinded DACA in September, 2017 and told Congress to pass new immigration legislation by March 5, 2018, a deadline that has passed by without action. The White House presented an immigration reform plan to Congress that included a pathway to citizenship for as many as 1.8 million Dreamers and other illegals. The framework eliminated the visa lottery for immigrants and reduced migration into the US for extended family members of individuals already in the country. Only immediate relatives of new citizens could be sponsored.

There was also a trade-off. Congressional Democrats would have to accept a dramatic increase in restrictions on immigration in the future and approve $25 billion to fund the long promised border wall. The Democrats did not bite and it is problematical whether the Republicans in Congress would have supported the deal. Now Trump and the lawmakers have failed to reach an agreement, all Dreamers are now at risk of losing their residential status.

Frum tells the story of how during his two terms, President Obama fought hard for the DACA deal and moved the constitutional goalposts to get it done. In his first term, Congress rebuffed Obama even when Democrats held the majority. When advocates for immigrants pressed Obama to provide executive protection, he reminded them: “I’m president, not king…There’s a limit to the discretion I can show because I am obliged to execute the law. I can’t make laws by myself. That’s not how our democracy works.”

In the run-up to the 2102 election, advisers counselled the President that the Hispanic vote would be crucial to his victory. Obama signed an executive order deferring enforcement of immigration laws against people under the age of thirty who had entered the US before they were sixteen, provided they had violated no other laws. So, this cautious president reversed himself, asserting a power that he himself had previously said was unlawful. He did not have to face a test in the law courts because Congress approved DACA.

In November, 2014, the President signed another executive order, deferring action against the parents of the beneficiaries of the 2012 Order, protecting another four million “illegals.” An appellate court ruled Obama had exceeded his powers. Obama argued that Congressional inaction left him no choice but to act alone. As a constitutional scholar, Obama had to have realised how specious this argument was. Frum contends that Obama had become impatient with the restraints on his power and his supporters on immigration had become likewise.

Since 2014, immigration has remained a political football as the political parties play for votes at the cost of the illegals’ futures and Presidents Obama and Trump have played along in the search for popularity and votes. Frum’s point relates to Presidential power rather than immigration, suggesting that even the most knowledgeable President will overreach himself if Congress refuses to listen.

The coming weeks will be interesting. President Trump declared war on Muslims seeking entry to America and has damned the Mexican people as “drug dealers, criminals and rapists,” while threatening to build a border wall at the Mexican’s expense. Will he be thwarted by Congress who may well maintain its refusal to fund the Wall?

If I was an illegal immigrant in the US, had lived there for twenty years or more, was otherwise law abiding, paid my taxes and raised a law-abiding family who worked hard at school/university, I would feel betrayed if my and my family’s futures were threatened by misplaced ideology. Sadly, politicians rarely prioritise people’s lives before following ideology and their search for votes. Dreamers don’t have the vote.

 

 

 

 

 

The Presidential Aberration

A few days ago, I visited one of my alma maters to meet the US politics lecturer who taught me so much. What he does not know about federal politics in America is probably not worth knowing. He is an expert on the New Hampshire primary and since I am a so-called expert on American city government of the 1920s and 30s, we both have similar nerd-like qualities. If you find it odd that I should be meeting a lecturer at my ancient age, I’d mention to those readers who do not know my past that I first attended university when I was 58.

Eventually, our discussion led to the current incumbent of the White House. I expressed the view that Trump’s win in 2016 was an aberration, a one-off, something unlikely to re-occur. My friend accepted the aberration point but reminded me that Trump was not the first businessman to be elected President and that the previous two so elected in the twentieth century had received their marching orders after one term.

In 1932, Franklin Roosevelt won the Presidential election by a landslide. His opponent, President Herbert Hoover, had a pedigree unusual for a President. He had been a successful engineer and businessman, a millionaire promoted by President Coolidge from the business world into cabinet, as Secretary of Commerce. Hoover had little or no political experience, nor had he served in the US Congress or the Iowa state congress. During World War I, President Wilson appointed Hoover to head the US Food Administration to ensure the nation's food needs during the war. However, an administrator is not necessarily a politician too: until Hoover reached the White House, his political nous was arguable. The job of Secretary of Commerce in good economic times is not challenging. Most damning was Hoover’s failure to spot the oncoming recession, even though business leaders had warned him and President Coolidge of the rocks ahead.

Hoover held no strong ties to the Republican Party. He did not socialize nor have close relations with members of either party of the US Congress. Thus when he took over the Presidency in 1928, he was politically inept. He did not reach out to members of Congress. The White House staff remained small, as it had for decades. Hoover was not one to make changes.

The Great Depression caused untold damage and distress, not only to the poor but to the middle class. Hoover’s reaction was typical of a Republican in those times. The economy was not a problem for the Administration to solve. This was something to be resolved by the market. If welfare was needed, the states, the cities and charities were there for this purpose. Americans adversely affected would have to practice what Hoover called, ‘rugged individualism.’

By November, 1932, the mass of the population were angry at and disillusioned by the Republican federal government, both in the White House and Congress. The Democrats grabbed the Presidency and Congress. The electorate had given the incumbents a bloody nose from which it would take two decades to recover.

Move forward to the 1980 election. President Jimmy Carter had been elected in a reaction to Nixon and his lying ways. Indeed, Carter’s mantra was, “I will never lie to you.” Over the four years of his Presidency, Carter failed to see or understand his job in the most depressing and dreary post-war times imaginable for American workers. Honesty was all well and good but where was the Presidential leadership? Although Carter had limited political experience as Governor of Georgia, he had no close ties to members of the US Congress and his time in office was marked by the small number of meetings he held with them. He just did not understand what it took to make Washington work.

In 1980, the electorate was offered someone different, a man who talked up America and who told the people, “government is not the solution, it’s the problem.” By election time, the voters were again angry with their President and his party, as well as disillusioned by Carter’s policies and leadership. The White House was lost. The Democrats would not be back for the next twelve years.

So to 2016. The electorate was offered a stark choice. Hillary Clinton was portrayed in the media and by her opponent as a policy wonk, out of touch with the white American working class. She was termed “crooked Hillary” by her opponent. She offered old solutions that had not succeeded for the working class. The alternative was Donald Trump, a self-proclaimed billionaire who uttered the most appalling statements while campaigning but did not upset his core voters, perceived as angry white workers who wanted a change from Old Washington. What happened on election night was surely a massive rejection of the status quo of traditional politics and expertise.

So, what might happen in 2020? Trump’s appeal is now limited to a very narrow section of voters. Let’s remember, in 2016, he lost the popular vote by over 3 million. Had Clinton upped her game in Ohio, Pennsylvania and Illinois, the result could well have been different. I know nobody who has a good word for Trump. I think he is a shocking leader, although I’d give him points for recognising that America’s infrastructure needs a lot of work. Sadly, he does not seem willing to fund it wholeheartedly, maybe because the budget has yet to be settled.

There are parallels between Hoover and Carter on the one hand and Trump on the other, parallels which are not exact. For example, Hoover and Carter were articulate. However, all seemed hide-bound by ideology and, if Trump runs and loses in 2020, it will be because the electorate does not want this type of Presidency, as happened in 1932 and 1980. Disillusionment and unpopularity could swing the vote but if the economy provides more good jobs, if the stock market stays strong, and if Trump reaches out to the people as a whole and rejects former friends like the NRA, maybe he might hang on.

Election 2020 is a long way away. I’m not placing bets.

 

The US Deficit and Debt

I’m not certain what 20 trillion dollars looks like. I think it is $20,000,000,000,000 but it might be plus or minus a nought or three. 20 trillion is the estimated American debt for the end of the current fiscal period, which I understand is 31 December, 2018. Put simply, at the end of the year, this is what America’s federal government and its citizens will owe the rest of the world. Put another way, assuming there are three hundred million Americans (I know there are more but the math gets too difficult) every single American man, woman, child and baby owes in the region of $70,000 and this amount rises daily. I am no economist but how is this debt sustainable? What happens if the bond market decides America has become too big a risk or can it be too big to fail?

Congress and the Chief Executive keep “kicking the can down the road” when it comes to the budget. The current Continuing Resolution to keep the federal government open expires on 5^th March and the President is zealously threatening that there will be no more CRs. Without an agreement, including a deal on new immigration laws, the federal government will shut down.

I have to ask myself, what the hell are these people doing? Here we have the wealthiest country in the world borrowing vast sums from the rest of the world to sustain a standard of living. It’s like Rockefeller borrowing a few bucks from his workers to keep the lights and heating on in his mansion. Yes, totally crazy.

If Congress approves the Trump budget, the deficit, i.e. the difference between the federal tax take and government expenditure, is an estimated and eye-watering one trillion dollars. In times of strife, war or economic depression, governments need to borrow. Less than a century ago, Roosevelt borrowed the country’s way out of the Great Depression, creating numerous agencies and programmes along the way to put the nation’s men back to work. But FDR was not a deficit spender and he sought to balance the budget as soon as he could. Forty years ago, Republican President Ronald Reagan ran huge deficits to boost military spending and restore America’s No 1 world position. Reagan was a colossal deficit spender but Reagan believed he had huge US assets to borrow against and seemed unconcerned by both deficit and debt.

The current Trump budget is both a message and a wish list but it contradicts and breaks many campaign promises. For example, during the campaign Trump promised he would not cut Medicare or Medicaid. The current proposals include cuts of $554 billion to Medicare and $250 billion to Medicaid. The middle classes and poor will feel the cuts the most.

Another Trump promise was he would balance the budget “very quickly.”  Last year, the self-proclaimed “king of debt” laid out a plan to balance the budget in 10 years. This year he has not bothered. Trump accepts annual deficits in excess of $1 trillion as the new norm. It is worth recording that Trump also promised to get rid of the national debt by the end of his second term. That one has clearly gone by the board.

In 1999, then Texas Gov. George W. Bush denounced a House Republican plan to save $8 billion by deferring tax credit payments for low-income people. “I don't think they ought to balance their budget on the backs of the poor.” While Trump has never claimed the mantle of “compassionate conservatism,” his budget validates several of the negative stereotypes that Bush tried to shed. For example, Trump wants to cut $214 billion from the food stamp program in the next decade, a reduction of nearly 30 percent.

However, the President is not calling for a reduction in the size of government. He seeks to spend $4.4 trillion next year, up 10 percent from last year. He’s calling for spending less on the home front to cover a massive military build-up. Trump wants $716 billion in defence spending in 2019, a 13 percent increase. “The Trump plan provides more money for just about everything a general or admiral might desire,” Greg Jaffe notes. “The United States already spends more on its military than the next eight nations combined.” More to the point, military spending is at the expense of the poor and middle classes.

Trump proposes to slash the State Department’s budget by 23 percent. He will justify this act as part of “clearing the swamp.” Should there be ensuing foreign disasters, Trump will no doubt excuse himself and blame another factor, in the same way that he blames the Parkland school shootings on mental illness, not guns. Yet this is the same man who signed an Executive Order easing restrictions on the mentally challenged buying weapons.

Alongside this massive budgeted expenditure are the tax cuts. This is solid Reaganomics. Cut taxes and the tax take will go up, thus paying for the massive expenditures. For example, the administration hopes that by reducing corporation tax from 35% to 21%, the amount of tax actually paid will be increased because corporations will not try to avoid or reduce the tax they pay. For me, this is pure Disney, fantasy without the music and the warm, mushy feeling.

Where are the legislators in this mess? It seems the Democrats have given up on the deficit and the debt arguments and opposition this year in exchange for a debate on immigration laws that save DACA and the Dreamers, those children born outside US but brought to US by their parents who were illegal immigrants. Why did the Democrats not continue to fight on all fronts? Do they approve deficits and debt? As for the Republicans, these are the same people who denied Obama funding on several welfare programmes and, in 2013, shut down the federal government on terms of “not a cent more.” The sheer hypocrisy of the politicians at the heart of American government is breath-taking.

In my younger days, I loved my many visits to the United States, whether for business, research or just visiting. I found out that the special relationship between Brits and Americans did indeed exist, although mainly at the grass roots level. Now, the lack of progress in America on any meaningful gun control, the sheer flippancy when it comes to the economy and the apparent dominance of the ‘me’ society, not the ‘we’ society, makes me fear for the future there. I sincerely hope I am wrong.

 

 

Gun Control: An Oxymoron.

This is not a blog I want to write but I feel compelled to do so. Who among us could not have been horrified by the killings in Parkland, the school in Broward County, Miami, when seventeen children were shot to death? There has been outcry and condemnation from all over the States. “Blood is being spilled on the floors of American classrooms, and that is not acceptable,” said ­David Hogg, a senior at Parkland. Following this mass shooting, something new stands out. This time, the survivors of the rampage, as well as their parents, are demanding to know why the adults who run the country have not done more to prevent it. This is a good question.

Dan Gelber, the Mayor of Miami Beach, sent a message to all residents on 15^th February. He wrote about the steps the city was taking to protect residents. “I would like our City to do more. So much more needs to be done. I would like to outright ban the possession and sale of the assault rifle that was used in the Parkland murders. I would like to create gun free zones in our City. Regrettably under current law these and other measures cannot happen because in 2011 the Florida Legislature passed, and our Governor signed, a bill that fully ‘pre-empted’ the ability of local government to regulate in any manner firearm usage and sale. Courts will not enforce such measures and public officials that even try to implement them are subject to fines and penalties including removal from office.”

I cannot imagine how it must feel to be a parent or sibling of one of the seventeen murdered yesterday. The habitual outpouring of grief, regret and anger is heart-rending but like the mass gun murders on numerous other occasions, such as Las Vegas and Sandy Hook, I regret to say that nothing will happen to stem the outrages. I will try to explain why America is paralysed and unable to stop, lessen or control guns. This will be familiar to my American readers but my British followers might not understand the politics, law and money involved.

Let’s start with the US Congress, the law-making body for the United States. Provided the House of Representatives and the Senate are in agreement on the nature of a new law, one would think that legislation is simplicity itself. These days it’s a tall order to find any agreement across the aisle of these two parties who play partisan politics to the hilt. It is worth bearing in mind that the minority party in the Senate has the power of filibuster and can talk out a bill. Passing legislation through Congress is very difficult unless there is political will on both sides to get something done.

Additionally, lobbying in D.C. is big business. The gun lobby, led by the National Rifleman’s Association, has access to vast amounts of money and is incredibly powerful. Florida’s Senator Rubio is reported to have received in excess of $3 million in donations from the gun lobby. Unsurprisingly, he does not support gun restrictions. Furthermore, any US Congressman or Senator can find himself or herself in difficulties at election time when an incredibly well financed gun lobby candidate stands in primaries and the election.

So getting a meaningful gun law passed is a pretty tall order. Let’s assume this is achieved. The next hurdle is the President. He may approve the legislation but if he does not, his power of veto can only be defeated by the passing of an override motion, when two-thirds majorities in both the House and Senate are needed.

If the President approves the new law, is that the end? Not a chance. The gun lobby will field an army of lawyers in the federal courts, seeking to reverse or ban the new law. The case will probably travel speedily through the Court system, ending with the Supreme Court who will likely deliver the final judgment. The role of the Supremes is to rule on whether a law is constitutional. In the case of gun legislation, the Court will consider whether the new law is in conflict with the Second Amendment which states: “A well-regulated militia being necessary to the security of a free State, the right of the People to keep and bear arms shall not be infringed.”

On countless occasions over the years, the Court has struck down all manner of gun control legislation as unconstitutional. For those interested in the details, Google will provide. The essential point is that the Supremes continually find that the Founding Fathers intended all Americans to have the right to own not just guns but automatic and semi-automatic weapons.

I very much doubt that the Court will change its stance as a result of Parkland, especially as the current balance leans towards a strict construction of the Constitution. Until the Second Amendment is construed differently, there is no possibility of meaningful gun control legislation coming into force in America. Even checks on individuals before they buy guns have received short shrift from the courts.

The Constitution has provision to change its terms. An example is the Prohibition amendment passed in 1919 and expunged in 1933. The latter was achieved very quickly after FDR’s election because the mood of the country made it a vote winner. It comes down to politics and money. If legislators as a whole see an issue as a vote winner and can raise the finance to advertise and promote the arguments, thereby getting a groundswell of opinion of voters in favour, all well and good.

I cannot pose all the variables should the Second Amendment be changed. For example, outlawing all automatic and semi-automatic weapons, as well as munitions, is needed but a new law cannot be all-embracing. The police and the armed forces will demand such weapons. Furthermore, there are innumerable federal and state gun laws whose removal and replacement will take years, not months, to achieve.

I am sorry to write in such a defeatist fashion but I regard the gun issue in America as insoluble. America seems to have a gun culture unknown elsewhere in the West. How does one change something embedded for centuries?