Trump’s tweet has at least two problems, but Adam Schiff’s “response” is even worse.

Trump’s Tweet

1. Trump’s tweet appears to suggest that the money spent by Russians on Facebook was the only money spent by Russians to affect the U.S. election—which was surely not the case, and
2. That the Russians spent anything, anywhere to affect our election is bad whether or not billions of dollars’ worth of fake news were used in an effort to defeat Trump/elect Hillary, i.e., Trump compared two things that were almost totally unrelated.

Neither of these fumbles, however, undermined the fundamental reasons for Trump’s tweet. On the other hand, it is difficult to identify any substantive or fundemental reason (other than pandering to his followers) for Schiff’s tweet.

Schiff’s Tweet

Schiff’s tweet is even more ridiculous than Trump’s.

1. The point of Trump’s tweet is to suggest that the effects the Russians had on the election were minuscule compared to effects of billions of billions of dollars of free assistance to Hillary’s campaign supplied by the Main Stream Media news. A relevant or rational response to Trump’s tweet would have pointed out how it is that the effects of Russia’s efforts were not minuscule compared to the efforts of the MSM, or make try to make a case that the MSM news was not fake. Schiff did neither of those things. So his comment missed the point.
2. Schiff’s tweet is premised on the idea that Trump said what he did because he does not know the difference between fake news and foreign interference. Because nothing in Trump’s tweet supports Schiff’s premise, or abridges anyone’s right to freedom of press, Schiff’s bringing up free press in this context is irrational.
3. Because calling out the MSM press for its biased, fake news (but I stutter.^[i]) reporting in no way abridges anyone’s freedom of the press, Trump was merely exercising his freedom of speech, which is every bit, if not more important, than the freedom of the press. Schiff’s tweet shows that Schiff is probably clueless with respect to this point.

As such, Schiff’s tweet was more irrational than Trump’s.

Obviously both tweets are intended to pander to, and they hope grow, their bases. Note, however, that even if the two tweets were equally irrational, Trump’s tweet has the strategic advantage of driving leftists nuts. The more leftists show the public how nuts they are, the better Trump’s chances of winning a second term. Schiff’s irrationally on the primary point of Trump’s tweet (with its problems only as to details) is more likely to help Trump win his next election in the long run.

Trump’s tweet also showed that whereas the support Hillary got from the MSM press was free to her campaign, it was very costly to Trump’s (he would have won much more biggly had he gotten an equal amount of helpful coverage). Schiff offered nothing to defend the press’s misuse of it special privileges.

Moreover, for people in the press to deserve the special protections (“freedoms”) afforded to the press, the press should at least attempt to present the whole story about a new item (opinion pieces excepted).^[ii] Trump’s tweet reiterates that the MSM news is not earning its freedoms.

One of the reasons Schiff vehemently opposes Trump is that he feels Trump is dumb. Yet Schiff’s responses to Trump’s tweets help Trump more than it helps Democrats. Which of the two comes off as the wiser in this skirmish?

---

^[i] See “What is Fake News?”

^[ii] See, “The Truth Is Hard For The New York Times.”

This morning Facebook prompted me to share a “memory” (one of my posts I had forgotten) from February 9, 2014. Because it gives a timeless lesson about how “trickle down” works, I thought it appropriate to post a slightly edited version of the post here.

“In 1991, the equipment and services to do what an iPhone today can do (not counting it camera, motion detectors, ease of use, brilliant display, or the endless array of available apps) would have cost over $3.5 million and it would have been bigger than a refrigerator.^[i] Only the top 1% could afford such equipment in 1991. Today (2014), half of Americans own smartphones. [That percentage was 77% in 2017.]^[ii]

A consequence (unintended by some, intended by others, and opposed by too few) of many of today’s most popular economic policies is that they impede the pace of innovation.

“Innovation blindness . . . is a key obstacle to sound economic and policy thinking. And this is a perfect example. When we make policy based on today’s technology, we don’t just operate mildly sub-optimally. No, we often close off entire pathways to amazing innovation.” Brett Swanson^[iii]

All things that impede innovation, entrepreneurship, free trade, and the profitability of doing business slow the speed with which more and better things become affordable by the vast majority of people.

Innovation creates new valuable things. Entrepreneurship produces and delivers the new things. Free trade ensures that the raw materials and component parts needed for the new things come from the lowest price source, and profitability is not the only reason, but is usually the sine qua non of why humans go to the trouble of doing all of the above. (Eliminate any of the parts of this process and process slows or comes to a halt.)

Even the poorest among us benefit from the cornucopia of benefits that are made possible by innovations, entrepreneurship, and wealth creation. A simple example is that the poorest Americans today can walk into an emergency room (or be hauled there in an ambulance) and receive world class medical treatment. The faster those processes proceed, the faster the rise in standards living of essentially everyone occurs. Note also that lower prices and higher quality also provides more bang for every welfare dollar.

The fostering or pursuit of innovations, entrepreneurship, free trade, and wealth creation should be limited when the sum of the “externalities” (negative consequences) of a business that would produce cheaper and better things exceed the sum of its benefits. It is impossible, however, to attempt such an analysis if the benefits are ignored or overstated or the negative consequences are ignored or overstated.

All too often in the U.S. today the benefits of innovations, entrepreneurship, free trade, and wealth creation are largely ignored, and their negative consequences are overblown. That sadly ubiquitous approach to policy proposals unnecessarily slows the rise in standards of living of all Americans, especially the poor who need such rise the most. It also slows the rise in standards of living of everyone else in the world (whose progress largely depends on American innovations, entrepreneurship, and wealth creation, whose defense is largely provided by the U.S., and who rely on U.S. foreign aid—which is possible only because of the vast wealth created in the U.S.).^[iv]

---

^[i] See “How much would an iPhone have cost in 1991?”

^[ii] See “10 facts about smartphones as the iPhone turns 10”

^[iii] See endnote i.

^[iv] See “Wealth.”

In FDR – PART I: Is FDR Still a Big Deal?  claimed that (1) leftist^[i] believe that the success of what FDR did in the 1930s validates leftists’ modern policy prescriptions, and (2) that myths have been created about FDR and his deeds to gin up support for and allegiance to those policies.^[ii] For the leftist story to be valid, what they believe FDR did needs to be true and those deeds need to have been successful.

To put FDR’s deeds in context let’s first sort out the leftists’ beliefs that they believe (or that they say they believe)^[iii] FDR’s deeds validate. Those beliefs include: 1) If something is not good about society, government can and should ameliorate it, 2) Government spending is good, 3) Government deficits and debt are unimportant (except as a means of bashing (as hypocritical) supposedly fiscally conservative non-leftists who support spending on things leftists oppose)^[iv], 4) The scope of government authority to do good, as they define “good,” should not be limited (e.g., by a constitution), 5) Citizens have a right to economic “security and independence,” an “adequate”^[v] standard of living^[vi] (which operationally is nearly the opposite of a “right to life, liberty, and the pursuit of happiness”), 6) achieving “social justice” for all citizens is both possible and a proper goal and role of government, ^[vii] and 7) another proper role of government is to take from the rich and give to the poor. ^[viii] An important aspect of the seventh belief is that if someone is poor, government should help that person regardless of her culpability in being poor or unwillingness to work to become less poor (as distinguished from “the deserving poor,” a concept leftists have all but banished in the U.S.).

It is illustrative to contrast those beliefs with the beliefs Ronald Reagan enunciated in his first inaugural address^[ix] (e.g., “…government is not the solution to our problem; government is the problem,” “We are a nation that has a government—not the other way around. And this makes us special among the nations of the Earth,” and “For decades we have piled deficit upon deficit, mortgaging our future and our children’s future for the temporary convenience of the present. To continue this long trend is to guarantee tremendous social, cultural, political, and economic upheavals.”)

FDR believed in most, but as we shall see in a future post, not all of those seven things. Things that today’s leftist believe that FDR opposed are typically left out of the leftist FDR mythologies.

The gist of the FDR myth is that Hoover fiddled while America was going up in smoke on account of the recession following the 1928 stock market crash that was caused by Harding’s, Coolidge’s and Hoover’s belief in laisse faire economics. The myth continues with a story that America was on the eve of destruction when FDR took office, and FDR saved America with his 1) command and control of the economy, 2) spending with abandon on welfare, infrastructure and jobs, and growth of government, 3) support of labor unions,^[x] 4) indifference to debt,^[xi] 5) quickly abandoning “austerity” when it did not “work,”^[xii] and 6) advancement of a change of America’s culture from one that revered equality of opportunity for all to a culture that revered equality of outcomes.^[xiii] In short, FDR began the Era of Big Government^[xiv] (the thing Bill Clinton falsely claimed was over in his The 1996 State of Union address).

The following is a partial list of FDR’s mythologized deeds that are actually true:

1. FDR’s administration exercised “Unprecedented Power” over the country’s business and economic affairs.” ^[xv]
2. FDR spent more than any other president before or after. In the words of Henry Morgenthau, FDR’s Treasury Secretary, “We have tried spending money. We are spending more than we have ever spent before….”^[xvi]
3. “The tremendous gains labor unions experienced in the 1930s resulted, in part, from the pro-union stance of the Roosevelt administration and from legislation enacted by Congress during the early New Deal.”^[xvii]
4. “[Of all the presidents ever] President Roosevelt increased the debt the most percentage-wise.”^[xviii]
5. “In early 1937, Roosevelt still sought to submit a balanced budget (defined the old-fashioned way) for the next fiscal year. The objective seemed reachable without undue strain. After all, 1936 had been a good year, the best since 1929, and the momentum of recovery appeared solidly established. That upbeat mood was rudely punctured in August 1937, when the economy went into an unanticipated tailspin.”^[xix] FDR then saw the “wisdom” of eschewing balanced budgets.
6. FDR founded America’s welfare system. “By 1935, a national welfare system had been established for the first time in American history.^[xx]
7. The US became a superpower soon after FDR’s administration. “[T]he Roosevelt years had witnessed the most profound social revolution in the country since the Civil War – nothing less than the creation of modern America.”^[xxi]

While these factoids about FDR are true, they neither tell the whole story about whether FDR’s beliefs support modern day leftist’s policies nor mean that what FDR did caused more good than harm overall or vice versa. Nevertheless, because leftists believe FDR’s actions 1) improved America’s economy (e.g., those policies were what enabled America to become both more collectivist and a superpower),^[xxii] 2) changed for the better the relationships between the people and their government, and 3) changed for the better the country’s societal norms and mores, they assume that FDR was a net force for good. Because of that, they believe FDR’s “success” validate doing more of what he did. On the strength of that belief, they find it useful to constantly repeat the positives and ignore or reject the negatives of what he did, and to glorify FDR as the great savior and leader all good people should follow. In other words, they mythologize FDR and his deeds so the credulous do not dig too deep into the story.

If only these myths and beliefs were on balance true….

---

^[i] Of course there are leftists who do not subscribe to every belief I attribute to “leftists.” I am here identifying the salient beliefs of the group as opposed to every individual whose beliefs generally align with the group as a whole. That there are exceptions does not invalidate the generalization.

^[ii] Research for this post lead me to an additional confirmation by Doris Kearns Goodwin of my earlier claim that FDR is still a big deal: “ECHOES OF FDR.” An excerpt: “Gone for half a century now, Franklin Roosevelt has yet to relinquish his hold on American politics. When Bill Clinton-who was born a year after Roosevelt died tries to enlist the support of a doubting public, he echoes FDR, calling for ‘bold, persistent experimentation.’”

^[iii] Some extreme leftists and anarchists will mouth anything (including that they believe something they do not believe) that might accelerate the decimation or destruction of America and “The American Experiment.”

^[iv] Some leftists surely have a conception of an amount of national debt that would be “too much,” but the sum of the costs of all the programs they advocate and the increases in spending on most of the current social programs reveal that debt is of little concern. On the other hand, high debt is seen by many leftists to be advantageous because it creates more pressure to increase taxes (only on the rich, of course). Raising taxes without a general fear that the debt is too high is harder to do than when there is such fear.

^[v] A discussion of the absurd elasticity of this concept is explored in “’You will always have the poor among you. . . .’”

^[vi] See “Roosevelt’s argument was that the “political rights” guaranteed by the US Constitution and the Bill of Rights had “proved inadequate to assure us equality in the pursuit of happiness.” FDR called for a “Second Bill of Rights.” id.

^[vii] Some aspects of the futility of this belief were discussed in “You will always have the poor among you. . . .”

^[viii] See FDR’s “Message to Congress on Tax Revision.” “Our revenue laws have operated in many ways to the unfair advantage of the few, and they have done little to prevent an unjust concentration of wealth and economic power…. The individual does not create the product of his industry with his own hands; he utilizes the many processes and forces of mass production to meet the demands of a national and international market…. Therefore, the duty rests upon the Government to restrict [vast personal] incomes by very high taxes.”

^[ix] Ronald Reagan’s First Inaugural Address

^[x] See “Great Depression and World War II, 1929-1945”

^[xi] See “[Of all the presidents ever] President Roosevelt increased the debt the most percentage-wise.”

^[xii] See “Repeating Our Mistakes: The “Roosevelt Recession” and the Danger of Austerity”

^[xiii] See FDR’s “The Second Bill of Rights.”

^[xiv] See “FDR’s Big Government Legacy.”

^[xv] See “Unprecedented Power” and “FDR’s Big Government Legacy.”

^[xvi] “Guess Who?” BTW: Morgenthau went on to say, “…and it does not work. And I have just one interest, and if I am wrong . . . somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises. . . . I say after eight years of this Administration we have just as much unemployment as when we started. . . . And an enormous debt to boot.”

^[xvii] See “Great Depression and World War II, 1929-1945”

^[xviii] See “U.S. Debt by President: By Dollar and Percent.”

^[xix] See “FDR’s Big Government Legacy.”

^[xx] See “How Welfare Began in the United States.”

^[xxi] See “FDR: The President Who Made America Into a Superpower”

^[xxii] A recent example was discussed in “Non Sequiturs on Parade – PART VIII.”

On January 12 POLITIFACT weighed in on the controversy discussed in my last post, “A Prime Example of Fake News.” (That post has been cussed and discussed on Facebook HERE and HERE.) This supposedly unbiased fact checker totally botched the job. As it so often does, it let its biases prevent it from telling the truth, the whole truth and nothing but the truth.

Trump had tweeted: “Reason I canceled my trip to London is that I am not a big fan of the Obama Administration having sold perhaps the best located and finest embassy in London for ‘peanuts,’ only to build a new one in an off location for 1.2 billion dollars, Bad deal. Wanted me to cut ribbon-NO!”

Ultimately POLITIFACT concluded “Trump’s tweet blows past those [key details mentioned by POLITIFACT]. We rate this claim Mostly False.”

Let’s check out POLITIFACT’s “fact check.”

Trump made three basic claims as to why he was not going to London: 1) Obama sold the old embassy property, 2) the terms on which the old embassy property was sold was a “bad deal,” it was sold for less than fair market value, and 3) the combination of the location and the construction cost of the new embassy caused that deal to new embassy deal to be a bad one.

Let’s sort out what POLITIFACT said about those three claims.

1. Obama sold the embassy.

On this subject POLITIFACT said only this, “…Trump was off the mark in putting this deal on the shoulders of the Obama administration. The wheels started turning early in the second term of President George W. Bush, and the deal on a new location was announced Oct. 2, 2008, before Bush left office.
As was discussed in “A Prime Example of Fake News,” the fact that the “wheels started rolling earlier” does not come close to proving that when the wheels stopped at closing, the deal had not become an Obama deal. If the “agreement” was materially changed between Oct. 2, 2008 (when Bush signed onto the “agreement”) and the closing, then it would be accurate to say Obama sold the property. POLITIFACT does not even mention this possibility, much less provide proof that Obama did not materially change the deal before closing it.

Had there been facts to support POLITIFACT’s conclusions that Trump “was off the mark,” they surely would have provided them. The fact that they didn’t suggests that the information to check Trump’s claim are not publically available. We should not countenance a “fact checkers” drawing conclusions without having checked the relevant facts.

POLITIFACT then spent several paragraphs talking about the prudence of selling the old embassy. The presented facts with respect to prudence would have been true whether the old embassy was sold for $1 or $1 billion. In other words, all these facts are irrelevant to Trump’s claim and do not controvert Trump’s claim.

More important, Trump did not say that selling the old building was a bad idea. He didn’t even hint at that. All he said was that it was “finest embassy in London.” POLITIFACT did not contest that claim, and provided no information as to whether there were any finer embassies in London. Just because America’s old embassy could be the finest embassy in London but still be inadequate to meet America’s embassy needs in today’s world.

2. The Old Embassy Was Sold For Peanuts.

POLITIFACT said nothing definitive about this key Trump claim, i.e., POLITIFACT “blows by” perhaps the most claim of the tweet, despite the fact that POLITIFACT based its ruling on the fact that Trump’s tweet “blows by” details POLITIFACT claims are key.
The sole issue teed up by the tweet about the sales price of the old embassy is whether its sales price was a bad deal, i.e., was it sold for less than it was worth. The relevant question to test Trump’s claim is whether the following equation is true:

Embassy’s Sales Price Fair Market Value > or = Sales Price

If YES, then it was not a bad deal. If NO, it was a bad deal.
POLITIFACT said absolutely nothing about this key issue. It only (irrationally) discussed the sales price and a few qualities of the building. Not a word about the FMV of the building. Even if what POLITIFACT said about the sales price and building were true, those two factors constitute only one half of the necessary calculation to prove Trump’s tweet was false. POLITIFACT made its judgement without addressing the whole equation.
What POLITIFACT said about the sales price, however, makes no sense: “The final terms were not public, but a BBC report estimated the value at somewhere between £300 million and £500 million, or about $400 million to $680 million.”

POLITIFACT says there is no information available to the public (which, of course, includes the BBC) about the sales price, yet it quotes a BBC estimate (it would not have been an estimate had BBC had the facts) as support for its ruling. POLITIFACT, by its own admission, based its ruling on unverified “facts” that it was implicitly representing to a credulous public it had verified.

3. The Location and/or Cost of the New Building Rendered Them to Be Bad Deals.

a. As to the location, POLITIFACT said, “Whether the new embassy is in a good or bad location is matter of opinion.” This effectively says there are no facts to be checked with respect to the claim about Trumps location of the embassy.

Stated otherwise, “Move on, there’s nothing to see here.” Because POLITIFACT used that approach to dodge this issue, it is reasonable to assume that they chose to avoid taking about the location because it would confirm that Trump was right about this point.

b. As to cost of the new building, one should first note that Trump said nothing about either budgets or how the new embassy was funded. He said the cost of the embassy compared to what we got (not compared to a budget) was too high.

Yet the cost compared to a budget and the fact that the sales of other things funded the building are the only thing discussed by POLITICFACT with respect to Trump’s claim. Spinning the Trump’s claim into something that it isn’t and then beat up on the thing you falsely claim is the issue is a standard means by which the MSM generates fake news.
In short, POLITIFACT had nothing relevant to say about Trump’s claim about the cost of the new building.

Conclusion:

POLITIFACTs “fact check” did not confirm or deny any of the the facts underlying Trump’s claims, yet it somehow reached the conclusion it was looking for about Trump’s tweets, “Mostly False.”

THE VERDICT: POLITIFACT’s ruling was Fake Fact Checking.

A Facebook Friend put up this poster on his timeline last evening.

This poster is cruder than much of the press’s publishing, but is concise and close enough to what is being reported for government work. As was discussed in “The Truth Is Hard For The New York Times,” fake news is comprised of inaccurate reporting, not reporting important facts about a news item, and spinning the discussion away from what is important to obscure what is important. This post is firing on all cylinders.

The poster accurately reported the news about what Trump actually tweeted. The rest of what was said in the poster is fake news. The real news of the tweet (besides the fact that Trump is not going to the dedication of the new embassy) is being overshadowed in the press by fake news.

The real news from the tweet is that Trump claimed Obama sold America’s interest in the old embassy property at a deep discount to what it was worth,[i] that the US overpaid for the construction of the new embassy, and he is not going to its dedication. The point of Trump’s tweet was that he wasn’t going because he wanted to distance himself from such terrible real estate transactions. He also wanted to get into the news (raise the suspicion) that the below market sale (it has been estimated the price was $275 million below market) to Dubai was/could have been corrupt.

But look at what the poster made of this real news:

1. The property was not sold by the Obama administration.

An agreement to sell to Dubai was announced on the day Obama got elected (obviously a Bush initiative). “Agreements” are typically announced when an “agreement in principal” (“AIP”) is reached. Hammering out details or even significant changes to deals between an AIP and the closing of a deal are commonplace. Hence the phrase, “No deal, however, is done until it is done.” Moreover, Dubai would not automatically reject an offer had Obama offered to lower the AIP price

Neither the AIP price nor the final price was disclosed at the time. If the deal was corrupt, we cannot know from the available information whether it was Bush or Obama that benefited from the corruption. It is reasonable to assume, however, that the last guy at the negotiating table had the upper hand as to where the benefit went.) Obama had plenty of motive, time, power, and opportunity to lower Dubai’s purchase price in return for “favors” for Obama. Did that happen? I don’t know. Does the news media know whether that happened? No, unless they are withholding the truth of the fact that he did. Whatever, the final deal was not done by Bush’s administration. Consequently, item 1 is fake news.

2. The money generated by the sale was enough to pay for the new embassy.

One would have to work really hard to come up with a more irrelevant comment. This comment is obviously misleading/misdirecting the reader from the real news.

The old embassy should have been sold on the best terms America could get, and the new embassy should have been built on the best terms America could get. If that was a $1 Billion sales price for the old property and a cost of $500 million for the new embassy cost, or vice versa, so what? The relationship between those two numbers is completely irrelevant as to whether either good or bad. If the new embassy could have been built for $300 million, then paying $500 million to build it was a bad deal (that Trump, the real estate mogul would not want to be associated with), regardless of the sales price of the old embassy.

When the real news is that Obama sold American property for too little and spent too much on the new property, then the hogwash of Item 2 is fake news.

3. The old embassy needed to be replaced.

This has nothing to do with Trump’s tweet. Trump did not even hint that the old embassy should not have been sold or that a new embassy should not have been built. He just said that both were done on terms disadvantageous to Americans. Item 3 is fake news.

4. Trump is an idiot and chicken shit.

If so, you couldn’t tell if from the idiocy of this poster.

The press’ bias that induces it to so consistently produce fake news is also revealed by the fact that reporters neither dug into the undisclosed details of these big transactions nor offered up news or speculations about the potential impropriety of the two projects—no such lack of scrutiny has been present in during the Trump administration. On the contrary, the press constantly offers up inaccuracies, irrelevancies, and speculations, such as the ones included in this poster, all of which are designed to put Trump in a bad light. Not only was similar fake news rarely generated against Obama, much of the knowable real news about Obama was obscured or covered up by spinning similar irrelevancies and inaccuracies in order to mislead the reader away from the real news.

🙛

Of course Trump has access to the details of the London embassy deals. What if he knows the two deals were full of corruption? It would be brilliant of Trump to set this trap for the biased media, watch them gleefully jump into it, and then discloses information of the corruption, thereby certifying how fake the “news” from the mainstream media is.

---

[i] See, “REVEALED: American embassy in London really WAS sold for ‘peanuts’. Building at centre of Trump row was bought by Qatari royals for hundreds of millions less than value experts gave it”

Author’s Note: Amandeep Singh Sandhawalia made an interesting comment to my last post, “Tax Cuts and Employee Compensation.” He also posted the comment on Facebook. Our back and forth there generated many comments. Amandeep’s comments were mostly well reasoned, on point, and well presented. I am posting the conversations here because many interesting points were discussed, and I did not want the followers of this blog to miss them.

Amandeep challenged to what I had said under three main topics: 1) IMMIGRATION AFFECTS COMPENSATION, 2) RISING WAGES ARE ALSO OFTEN INHIBITED BY WHAT CORPORATIONS ARE CHOOSING TO DO WITH THEIR RECORD PROFITS, and 3) CEO WAGES HAVE BEEN GROWING RAPIDLY. Below I have attempted to sort out the various topics of each Facebook post under those heading. Amandeep also made some comments about income inequality and other matters which I consider to be off topic. I have included all of those under the third heading for a want of a better place to put them.

🙛

1) IMMIGRATION AFFECTS COMPENSATION

AMANDEEP: There are some additional factors that go into the formula. The first is immigration. There are obviously many significant positives from encouraging immigration, but one of the negatives is that it does increase the labor pool, and therefore potentially delays reaching the “full employment” tipping point after which wages increase.

HARVEY: Yes! Immigration of workers adds to the supply of workers. That additional supply puts downward pressure on wages. (Conversely, immigration of people/families whose after-tax income is less than the person’s/family’s consumption is a drag on the economy.) Because, however, Americans are not having enough babies to become the workers who will fill the jobs of a growing economy and fund medical care and maintenance of a rising number of elderly (over 65) Americans, immigration is essential to the vitality of the country. Japan, which has miniscule immigration and whose percentage of elderly has grown from 7% to 25% between 1970 and today, has had a stagnant economy for about 30 years and no solutions in sight. Even with America’s robust immigration, the percentage of elderly Americans has risen from 10% to 14.5%. The number of workers per social security recipient in America has fallen from 41.9 in 1945 to 2.9 in 2010 (Every worker must provide for her own family and 1/3 of the benefits of a person on social security!) In addition, immigration of highly skilled individuals is the immigration of “The Ultimate Resource” for any country.

Because America’s economy and wages would stagnate before it collapses without immigration, I did not believe immigration was a pivotal issue with respect to wages in America.

AMANDEEP: The effects of immigration are complex, since even though it is a potential headwind to wage increases, it is also necessary for other reasons as you point out. However, there is a debate over immigration reform … shifting from random (illegal, chain, lottery, etc) to targeted skills. Of course, when industry complains that they need to hire immigrants because there are not enough citizens to fill positions … well that is the same as saying they do not want to give pay raises in order to attract citizen applicants. Therefore, I suspect much of this proposed immigration shift is being pushed by lobbyists for particular industries that will benefit by focused visas in order to keep wages low.

HARVEY: I agree. Nevertheless, some immigration is essential, and some kinds of immigration are far better than other kinds of immigration.

2) “RISING WAGES ARE ALSO OFTEN INHIBITED BY WHAT CORPORATIONS ARE CHOOSING TO DO WITH THEIR RECORD PROFITS.”

AMANDEEP: Rising wages are also often inhibited by what corporations are choosing to do with their record profits. While you ascribe corporate reticence to invest their profits towards growth to ‘animal spirits’ fear surrounding negative expectations of the short term economy or inhibitive government action, large companies are also discouraged from risk taking by the ease with which they can spend their profits on ‘non growth’ expenditures like stock buybacks and dividends. This sort of corporate spending is great for wealthy stockholders as well as corporate executives with their stock based compensations, but it is not growth oriented investment. If the government were to either directly restrict this, or disincentivize it by taxing it, corporations would face greater market pressures to invest their profits towards growth instead.

HARVEY: True, but I take exception to most of your points.

You incorrectly describe my views on “animal spirits.” Contrary to what you said, they are only one of many factors in investment decisions, can affect investment decisions either positively or negatively, and are affected by both short and long term considerations.

I view the causes and effects of stock buybacks very differently than you do. It is in CEO’s best interest to create good returns for the company’s shareholders. If the company does not generate enough investment opportunities that have at least a 50/50 chance of to generate a risk adjusted rate of return greater than the return shareholders could reasonably expect earn on an alternative investment (say a bond), then cash will build up in the company. A company holding in excess of a reasonable working capital level is a waste of wealth that could be put to better uses. Stock buybacks are better for shareholders than dividends for several reasons, and, in theory, and usually in fact they cause stock prices to rise. (Despite such buybacks being a self-evident admission of management failure, management can only make matters worse by sitting on excess unproductively accumulated cash.) More important, for the most part all of the cash received in a stock buyback will be reinvested in companies that are generating profitable investment opportunities. Contrary to what you are suggesting, the relative ease of moving poorly used capital to more positive uses helps the economy grow.

Add to this the fact that taxes, regulations, and corruption turn what could be profitable investments into unprofitable investments. Much less idle cash should be sitting around or used in buybacks if Trump’s administration can lower taxes, regulations, and corruption.

AMANDEEP: I am not understanding why you say that stock buybacks are a productive investment. To me, they seem to be a quintessential anti-investment. Trillions in corporate profits are being spent on essentially a lottery ticket that the stock price will go up (although only shareholders benefit, and only on paper … the corporation does not because the stock bought back is never resold in order to raise money for other investment). As you say, management fails when it just sits on cash. Buybacks basically allow the corporation to metaphorically throw the cash onto the bonfire. Government policies that would disincentivize buybacks (either by outright bans or taxing them excessively) would force companies to apply that cash towards growth instead. I fail to see how this sort of policy would be growth inhibative in any way. See: “How Stock Buybacks Cause Economic Stagnation…”

HARVEY: The studies upon which the Forbes article relied are myopic. They found some interesting trees but missed the forest. Though the facts produced in the studies may be true, the conclusions drawn in the article from those facts are not supported by those facts.

Of course the companies that had such great innovators (inventors, researchers, and developers) that investing in those innovators was a good use of the company’s capital, i.e., the companies grew as a result. Of course companies that did not invest in good innovators fared less well. Those facts are as unsurprising as they are unhelpful in determining whether a company should invest in innovation or buy back stock.

To grow via investments in innovation a company needs to have above average innovators. Average or below average innovators will not win often enough to make it worthwhile to invest in them. Not all companies, however, have above average, much less great innovators. The cited studies did not broach the subject of whether a company’s shareholders would have fared better had the company invested in its average or below innovators, much less reveal whether investing in poor innovators or buying back stock is in the best interest of the shareholders.

Whether you believe that Alta Vista went down the tubes because it failed to invest in its innovators, or that Alta Vista would still be the leading search engine had it invested more in its innovators, the studies on which the Forbes article relies will not support your belief.

“Buybacks basically allow the corporation to metaphorically throw the cash onto the bonfire.”

I couldn’t disagree more. Investing in below average innovators would be equivalent to setting cash on fire, and is certainly not in the best interest of the shareholders. As I mentioned before, buyback are admissions of the failure of management. Those failures include not having hired enough above average innovators and not having an investment decision team with the capacity to get excess cash profitably deployed in a timely manner. Such poor managers should not compound their error by wasting the dollars instead of giving them back to the shareholders.

Stock buybacks are much better than wasting the country’s resources on below average innovators. It is better to release that capital back into the market so as to fund the next Google, Apple….

3) CEO WAGES HAVE BEEN GROWING RAPIDLY

AMANDEEP: Corporate executive wages have been growing, rapidly, even during the high tax high regulation era of Obama. To quote one article I read on this issue, “From 1978 to 2013, CEO compensation, inflation-adjusted, increased 937 percent, a rise more than double stock market growth and substantially greater than the painfully slow 10.2 percent growth in a typical worker’s compensation over the same period.” None of this gets explained by your analysis. It seems clear that what is also going on is that the folks that run these corporations are simply choosing to give themselves massive raises instead of the workers and not earning it based on productivity.

 I believe this phenomenon is referred to as “economic rents”, and the appropriate response is to alter the institutional structures that allow for such substantial rents.

HARVEY: True. High and rising CEO compensation was not explained by my analysis. That is because it is irrelevant to the question I was answering. The question was about rank and file compensation. The supply and demand in the CEOs market is vastly different than the supply and demand for rank and file employees. By way of analogy: If I were discussing the wages for non-star professional athletes (including farm team employees), a discussion of the compensation of Kevin Durant and other stars would be a distraction.

“It seems clear that what is also going on is that the folks that run these corporations are simply choosing to give themselves massive raises instead of the workers and not earning it based on productivity.”

It is generally true that people’s compensation is correlated with the value of their production. That each employee is paid a little less than the value of her production is certainly a company goal. While the goal is roughly achieved overall, in reality, other than the bonus portion of compensation, an employee’s compensation is based on the expectation of the value the employee will produce in the future. Employers (e.g., boards of directors and sports team managers) must always guess how productive their employees will be, and, with rare exception, they do not pay more or less than the market dictates they must pay.

Very few people have the combination of skills, personality, and other intangibles that are necessary to be a successful top executive (or athlete). The bigger the company, the more true that becomes. Because so many of those chosen do not meet expectations, it is obvious that there are fewer superstars than there are superstar positions. Nevertheless, all holders of superstar positions are paid superstar compensation because they were expected to produce superstar results. Such is not the case for non-superstar positions. The laws of supply and demand for labor works all the way up and down a company’s organization. The errors in guesses occur throughout the organization, but the top paid people get the most attention because the errors are more consequential and egregious.

There are exceptions. There are situations in which the CEO has so packed the board with cronies (and the cronies so want to hang onto their board status and/or pay) that they kowtow to the whims of the CEO. Such is life.

I submit, however, that the above situations are far less prevalent than your comment suggests. This is because even though a CEO may not be earning her keep, the firm must have a CEO. The issue before the board is not only whether the under-producing CEO should be fired. The issue is whether the company can find and hire a more cost effective CEO. That involves guessing at whether the current CEO or some other CEO (who knows vastly less about the company) would be more cost effective. This creates high risk of a “head I win, tails you lose” situation for boards of directors. (Consider how many football coaches keep their job after losing seasons because the team doesn’t believe they can find someone better. Perhaps more to the point, consider how many such coaches are fired only to be replaced by someone at a higher salary that produces poorer results.) This reality also gives incumbent CEOs inherent advantages. Because lower level employees are so much more plentiful, such is not the case with respect to lower level employees.

It is a sad and sometimes egregious, but unavoidable state of affairs in the market for CEOs. That, contrary to your suggestion, is why most CEO’s make the big bucks!

AMANDEEP: Rising CEO pay specifically, and upper level executive pay generally, is definitely relevant to your analysis. You claim that tax policy acts as a retardant to growth, which is certainly true. However, so does CEO pay. In fact, according to Forbes, CEO compensation actually exceeds taxes. And CEO pay has been increasing insanely rapidly … significantly faster than even college tuition over the decades. Given CEO pay is as much or as large a share of the pie as taxes, it’s effect should be viewed as equally significant.

You seem to treat corporations as close to automatons that simply set wages based on market conditions. However, incorporating behaviorial economics into the mix … it seems much more likely that executives are diverting earnings into non-growth paths based on personal greed divorced from market conditions. Corporations are making record profits, and the actual humans running the companies make the decisions whether to direct those profits towards outlets that benefit them personally as well as major shareholders to whom they are beholden. This is often not the ideal decisions towards growth of the company.

You are proposing a free market for CEO hiring and firing that does not exist. Removing a CEO is a very rare event, they are almost as entrenched as politicians are. There is absolutely no way to judge whether one is underperforming or not, except in the most extreme cases … and even then they often remain in their positions. Maximizing executive compensation and shareholder equity are not directly proportional to growth. The former can be increased even in the absence of growth. And if there is actual growth, it seems more likely that the folks in charge will direct almost all of it towards increasing their pay, not that of the workers … other than nominally as they have been. See: “Study Reveals The Obvious: CEOs Get Paid More Than Uncle Sam.”

HARVEY: Yes. CEO pay has been growing more rapidly than most other factors in business, on average big corporations pay more in CEO compensation than in income taxes (why is that a meaningful benchmark I do not know), CEOs are self-interested, most CEOs can influence what they are paid to some degree, and government doesn’t do much to prevent any of this. None of this is inconsistent with my other comments. (Therefore, I am not arguing that the market for CEOs is a completely free market. As I said, the aspects of CEO compensation that are not free market are “are far less prevalent than your comment suggests.”)

That CEOs are self-interested and have some influence over their compensation has been true of big corporations everywhere and always.  There are, however, some important differences between today and yesteryear:

a) Some corporations today are so large and profitable (in absolute terms) that the difference in the profitability (in absolute terms) of the firm between one CEO and a 20% better CEO is so large that the incremental compensation between the two CEO is often a small fraction of the value the CEO brings to the corporation. This fact gives CEOs tremendous bargaining power is their compensation requests are for less than the value they bring to the corporation. That can be a very large number. (Just Kevin Durant will get $108 million over the next two years because Golden State believes his presence on the team will enable the team to earn more than that.)

b) Government is granting favors to large corporation at a record pace in a record amount (in large part because of the desire of politicians to have their campaign coffers filled). Only large corporations can afford to lobby and their scale gives them a competitive advantage of potential competition with respect to regulatory compliance. Government favors and regulations cause there to be much larger companies than would otherwise exist. This largeness is the source of the problem described in a). (Kevin Durant would make much less if government did not so heavily subsidize basketball.)

c) The most egregious CEO pay is in the financial industry. Because they are routinely bailed out when their wildly risky investments, CEOs in that industry make tons of money during the good times (before the crashes their riskiness induced) and rarely bear the costs of the losses they inflict in their own industry and everywhere else. This government induced situation causes there to be much more short term thinking that would otherwise be the case. (Because governments do not bailout bad basketball team decisions, Kevin will not make $54 million a year two seasons from now if he does not generate more than $54 million a year for the team.)

d) “Experts” have advised companies, and shareholders have demanded, that CEO’s compensation be more aligned with stock performance. While there merits of that approach to compensation are obvious, the fact that it has focused CEOs on short term stock gains has been an inevitable result.

I too do not like the fact that so many CEOs focus on short term gain because some or all of their compensation is based on short term gain. Those that send their companies down the river for their own gain are contemptible. The CEOs that lobby government for and gain favors from government are as contemptible as the politicians who grant them.

More government involvement will exacerbate these problems, less would ameliorate them.

AMANDEEP: Corporate executives decide to direct corporate revenue to, broadly, four outlets. 1) Pay themselves. 2) Invest in growth. 3) Pay the government. 4) Pay the workers. Nothing wrong with this. And if things worked exactly as you described in your blog, increased growth would lead to proportionally increased wages as well. The flaw here though is that the relative ratios of these four have been changing over time … and dramatically in favor of #1. There is little reason to think that more growth will do anything other than continue to exacerbate this phenomenon (since there are no policies in place to prevent it) despite some nominal wage growth.

HARVEY: I have no problem with the “four outlets” analysis of the situation. The gist of this comment, however, appears to be saying that greater income inequality is likely to be a consequence of the tax bill and regulation cuts. That very well may be, but it does not undercut my claim that lower taxes and regulations working together could cause there to be many more jobs than would otherwise be the case and that more jobs means scarcer labor. Scarcer labor means higher compensation and lower welfare costs.

As you know, I have written extensively about income inequality.^[i] As you also know, my focus is making life better for the non-rich, especially the poor. To me, if the cuts in taxes and regulations improve the finances of those people it is a good thing. However bad income inequality is, it is a different topic. People are not poor because others are super-rich (but poor people are economically better off than they would be if there were no super-rich people).

You are also correct that the compensation increases I have been talking about are “nominal.” That does not mean that much could not have been said about real compensation increases. I was trying to keep the discussion focused. The way to improve real compensation is by increasing human capital and giving workers tools with which to be more productive. There are many reasons to believe that employers will invest more in employees if there is more profit to be made by investing in them than there was before the tax cuts. So if the cuts work, we should anticipate both nominal and real compensation increases.

---

AMANDEEP: Thank you for the detailed reply. It gives me a lot to think about.

Abstractly, corporations with superior innovators in charge will succeed more. But this is virtually always a post hoc determination. At the time of hiring, it is or should be the opinion of the board that they have hired the best person for the job. You say stock buybacks are better than wasting the money on below average innovators … but at the time they are approved, the board is always under the assumption that its corporation is being led by an above average innovator. What it really is is an active decision by the folks in charge to divert corporate profits to their own pockets instead of investing it. If a board feels they have an inferior CEO, they should simply fire him or her and hire a superior one.

 I brought up the comparison between CEO pay and taxes paid to emphasize that the former can be just as significant a factor in corporate decision making as tax policy. While I have no disagreements with your description of CEO value, that analysis has applied for as long as there have been corporations but the rapid escalation in CEO pay (as well as top tier management) over the recent decades is a new phenomenon that is not justified by market forces.

 Rising income inequality is a real problem. Not merely for the social dissatisfaction, but also because it eventually creates monopolies. And while monopolies may temporarily be acceptable, the more common outcome is inefficiency, higher prices, inferior products, and a loss of incentive to innovate. It is a major headwind to achieving your focus on making life better for the non-rich.

Eventually, monopolists, even those that began as above average innovators, become fat and lazy. Human nature after all. And the temptation to divert profits into their own pockets instead of investing gets stronger and stronger. And once a corporation becomes too big to fail, it no longer matters if an above or below average innovator is in charge. Market forces become insufficient to force change as opposed to inequality. IBM is a perfect example.

Much like the corporate board that never knows if their new CEO will be a dud or not, none of us know how successful this tax bill will actually be. But it’s definitely structured in a way that will increase inequality which will further us along towards the dystopian future. I guess one could defend it because there will be some nominal gains for the masses as well, but it could definitely have been crafted in a different way too. Once you restrict buybacks and corral CEO pay, market forces will demand that corporations put the best innovators in charge to a significantly stronger degree than currently.

HARVEY: Your last two posts have little to do with the topic of this thread: the relationship between tax and regulation cuts and jobs. Your comments are mostly about self-serving management and income inequality. As interesting as those subjects may be, they are not the subject of this thread. I’ll nevertheless make a few closing comments. Perhaps we can discuss those subjects in future posts having to do with those things.

I already conceded that there is some CEO self-dealing with respect to their own compensation. Repeating the claim does not refute what I said on that subject earlier in the thread. Additionally, agency problems are ubiquitous and largely unsolvable. Empowering more agents to address the agency problems of CEOs will merely move the agency problem (and opportunity for corruption) to the new agents. To make tax and regulation cuts dependent on solving agency problems would be folly.

As I have also conceded (see my blog post, “Non Sequiturs on Parade – PART IV”) that inequality creates some problems. Most of those problems, however, have nothing to do with the inequality itself. They have to do with some people’s feelings about the existence of significant inequality. Moreover, income inequality itself is in many ways a very good thing. (See my blog post, “Income Inequality Is More Than It’s Cracked Up To Be.”)

You state that income inequality causes monopolies. I think you have the causality arrow pointing in the wrong direction. Monopolies can cause there to be more inequality. Moreover, getting government more involved with achieve the opposite result from the one you suggest. With few exceptions, enduring monopolies are made possible only by government. Government already has the power to break up monopolies, but rarely do. If the goal is to eliminate monopolies, we cannot reasonably expect government to help you achieve that. History instructs that politicians like big, protected companies. (Remember the “solution” to “too big to fail” was to make banks bigger.) If we were to give government the power to directly manage company expenditures, we should expect even more corporate money finding its way to the coffers of politicians.

Your discussion of the differences between NBA and “most industries” suggests that I have said that higher profits leads to higher wages. I have said no such thing. I have said it is scarcity of labor relative to jobs that causes wages to rise. (Plus there is that productivity thing.) I have also said that tax cuts in the midst of excessive business regulations will not create enough jobs to change significantly the current scarcity of jobs relative to suitable laborers.

“Professional sports are the rare industry in which escalating wealth for the owners has coincided with rapid wage growth.” True. It is also true that without the NBA’s rise in revenue, such rapid wage growth would not have happened. Contrary to what you are suggesting, however, it is the scarcity of people who can play well enough to draw the fan base they do that has caused all of that to happen. It is folly to believe that unions played a major role in Durant being guaranteed $25 million this season and Kevon Looney, who plays the same position, being guaranteed $1.5 million this season. (Unions are typically into equal pay for equal jobs.) The difference in pay is mostly because the owners believe that Durant will produce at least 17 times as much revenue for the team as Looney will.

“[Stock buybacks]… is in no way superior to having that money returned as wages.” I find this to be nonsensical. “Returning” money to employees (as wages)? Somehow the company took money from employees that needs to be returned to them? That’s as bad as saying that extracting less wealth from high income earners in the form of taxes is a “giveaway” to the rich. It makes no sense to me.

---

 

^[i] “Investment Income and Universal Basic Income Are Not ‘Basically The Same’,” “Income Inequality Is More Than It’s Cracked Up To Be”, and “You will always have the poor among you. . . .”

Author’s Note: Two posts ago I said that the next two posts would be about FDR. I have already deferred those posts once. Please excuse another deferment because of the relative urgency of this post. Discussion about the tax bill on Facebook and elsewhere is ablaze and is jammed with misunderstandings. Discussion of the tax bill is urgently in need of some sorting out. I’ll get back to FDR soon.

🙛

The following is a prime example of what is being questioned about tax cuts and employee compensation on Facebook right now:

“American businesses are making record high profits. If corporations making more money equals more jobs and higher wages, why are we not seeing it and what makes you think that they will suddenly raise wages and hire more people if their taxes are lowered?”

This question reveals a misunderstanding of how employee compensation is set. I’ve commented on aspects of this issue in earlier posts.^[i] This post will sort out some of the interplays between taxes and compensation.^[ii]

Contrary to what is implied in the question, employers do not set employee compensation levels. If a firm sets its employee compensation higher than the market price for the labor, the firm cannot make as much profit as its competitors and will eventually, if no really soon, lose business to competitors.^[iii] If it sets compensation too low, it will not be able to retain or attract the laborers it needs to effectively run the business.

When it comes to purchasing things, people and corporations have an important thing in common (which shouldn’t be surprising given that corporations are run by people). Neither people nor corporations generally pay a higher price for things than they must in order to purchase what they want. This is true no matter how rich or poor the purchaser is. Consequently, corporations do not pay any more for employees (labor) than they must in order to entice laborers to work for them and otherwise meet corporate objectives. So the fact that corporations, with a few notorious exceptions^[iv], are not raising compensation immediately after the tax bill was passed is to be expected.

Unless the government gets involved,^[v] like the price of everything else, supply and demand for employees set employee compensation. When there are more people wanting jobs than the number of jobs available (jobs are exceptionally scarce), there is little, if any, need for companies to raise nominal compensation. So they don’t. On the other hand, as the number of jobs increases relative to the number of people wanting to fill those jobs (labor is exceptionally scarce), companies must increase compensation to attract new employees and to prevent competitors from hiring away their existing employees. All other things being equal, as the number of jobs rises, the more employee compensation will rise.

So a key to wage increases is to increase the number of jobs. In general, as the economic climate for growing businesses improves, the more businesses will grow and the more jobs will be created. There are two big factors to a good business climate: 1) The potential profits from risking capital, and devoting time and effort to grow a business is large enough to make it worthwhile to attempt to grow a business, and 2) Doing business is not so constrained by regulations that growing business is too hard, too expensive, and/or takes too long to grow businesses quickly and efficiently. (For this purpose, “regulations” includes the published rules imposed by governments, but also includes government corruption in the form of unpublished quid pro quo requirements of bureaucrats that must be met in order to get a permit, actual or implied threats of differential enforcement of rules, and favoritism in the form of subsidies for certain companies or industries (all of whom compete with every other company for funds, employees, and the purchase and sales of goods and services).

Each of those two factors can cancel out the other. The extremes reveal the certainty of this assertion: 1) Even if business income tax rates were zero, business would not start or grow if regulations prevent there being a high enough probability of making a good profit within a reasonable amount of time to justify the risk and effort, and 2) Even if there were no regulations, businesses would not start or grow if income tax rates were 100%. The reasonableness or modesty of regulations that constrain starting or growing new businesses is irrelevant if they make the possibility of good profit within a reasonable amount of time too remote to risk giving a new business a go. Similarly, if too much of any potential profit will be taxed away, then cutting regulations is less likely to kick-start new businesses.

So increasing either income taxes or regulations will cause there to be fewer jobs than there would otherwise be. Also note that increasing one and holding the other constant increases the negative effect on jobs of the one held constant, thereby compounding the negative jobs effect of increasing either.

The reverse is even more important. Improving the business climate with reductions in both taxes and regulations multiply the positive effects on jobs of each factor. To its credit, Trump’s administration appears to be working on both factors. Doing a static analysis of any tax cut (as the CBO did) is not very helpful in predicting the effects of a tax cut (or increase). Not including in the analysis the multiplying effect of simultaneous reductions in regulations and taxes in a static analysis was particularly unenlightening and unhelpful.^[vi]

Although John Maynard Keynes was wrong about much, his observation about the economy being moved by “animal spirits” (confidence and expectations are important factors in determining the future behavior of businesspeople and other economic agents) was largely correct (though usually incorrectly applied). In general, if the animal spirit, fear (of a worsening business climate in the future), dominates the thinking of most businesspeople, they will be less likely to risk starting new businesses. If hope (of a better business climate) dominates the thinking of most businesspeople, they are more likely to risk starting a new business. Increases in the rate of new business starts tend to validate “everyone” else’s confidence that the business climate is improving (or at least not likely to worsen), which causes there to be more hope, more investment, and more jobs. As a larger percentage of the population with jobs grows, business and payroll taxes will increase. As important, the percentage of people on “welfare” will shrink, thereby reducing government outlays to that purpose. With two major deficit factors improving, the government’s finances, and more hope that the business climate improvements will not be repealed will generate additional pro-growth animal spirits.

If all of these factors come into alignment, we can reasonably expect there to be many more jobs (demand for labor to increase), and the supply of workers to become more scarce. Companies will have no choice but to raise employee compensation. In light of the above, we could be on the verge of a wonderful virtuous cycle of prosperity.

There are headwinds that must be overcome in order to create a greater scarcity of labor. The country’s population increased by 2.3 million in 2017. Many able-bodied people are choosing not to work for the wages currently available to them in the job market. As wages rise, some of those unemployed people (but not in the “unemployment figures” because they are not looking for a job at current wages) will compete for the new, higher paying jobs, making labor more plentiful. Because tax revenues will likely fall until a more robust economy is generated, a rising deficit and debt will put upward pressure on interest rates, which impedes growth. The economy must overcome all of these headwinds to create enough jobs to create greater job scarcity. Doing so will require a very much more robust economy than the one extant when Trump took office.

The jury is, of course, out as to whether or how much of the above possibilities will come to pass. What can be said with a reasonable degree of confidence is that had we stayed with the policies that resulted in more and more onerous regulations, too few jobs, puny growth, stagnant compensation for middle and lower income people, and rising deficits, debt, unfunded liabilities, then continued lower and stagnant middle-income compensation would have persisted. Sadly, Trump’s “fair trade” policies (corporate welfare), inability to repeal Obamacare, and unbalanced budgets portend the retention of too many of the bad policies of the past. On the other hand, with the aggressive undoing of many of the Obama era regulations and the new tax bill, there is a reason for hope things will get better.

Consider again the opening question: “American businesses are making record high profits. If corporations making more money equals more jobs and higher compensation, why are we not seeing it and what makes you think that they will suddenly raise compensation and hire more people if their taxes are lowered?” The answer is that there has not been enough job growth to create significant labor scarcity which is the only thing that will put upward pressure on employee compensation. There is now a chance that will change.

---

^[i] “Investment Income and Universal Basic Income Are Not ‘Basically The Same’,” “Income Inequality Is More Than It’s Cracked Up To Be”, and “You will always have the poor among you. . . .”

^[ii] While the relationship between taxes and employee compensation discussed in this post are the most salient to the question addressed being addressed, many other things that affect employee compensation will not be explored here. In particular, we will not discuss here: 1) how minimum wage laws affect the compensation of low skilled workers, and 2) the role of employee productivity on employee compensation and how employee productivity is improved.

^[iii] It is no different than what would happen if a gas station were to set the price of its gasoline noticeably higher or lower than its competitors. Set the price too high and drivers will drive on by. Set the price too low and the company will be on the road to bankruptcy.

^[iv] I don’t know the extent to which the reasons AT&T and other companies that boosted bonuses and wages after the tax cut bill passed were 1) to improve employee morale, 2) get out ahead of their competition (who will as a result of the tax bill have more money to hire away AT&Ts employees), 3) to improve public relations, 4) to gain favor with the administration, or 5) to gain some other business advantage. The apparently gratuitous payment was surely done to meet a corporate objective other than keeping and attracting employees unless they were addressing a preexisting employee hiring or retention problem, i.e., it was no more likely to have been motivated by the goodness of the executives’ hearts any more than you are to offer to pay more than the sticker price of a car because you believe the owner of a dealership deserves more for the car.

^[v] An example is when government imposes minimum wages. Fortunately, minimum wage earners constitute less than one percent of U.S. employees. While the effects of minimum wages ripple up a few levels in an organization, the compensation of at least 70% of all employees is unaffected by minimum wages. Because very few of the people affected by minimum wage laws pay income taxes, they can be safely ignored for the purposes of this discussion of income taxes and compensation.

^[vi] If you believe the multiplier effects may be insignificant, take a look at some climate change research. The catastrophic projections are typically the result of piling multiple compounding effects on top of each other (usually ignoring any mitigating factors, much less their multiplying effects).

UPDATE: An excellent article that corroborates much of what is said in this posts (and in other posts), “‘Economists Say’ a Lot of Things. Many of Them Are Wrong” By David Harsanyi, was published after this post was published.

I said in my last post that my next two post would be about FDR. The next day the tax bill was passed and my Facebook feed was flooded with nonsense about the bill. In research for a blog post to sort some of that nonsense out I came across “America and the ‘Original Position” by Jonah Goldberg. It is too insightful, timely, and well written not to share it with you immediately. Enjoy!

A comment about it: Goldberg says, “Human ingenuity is the engine of wealth creation, and there is no other.” I complete subscribe to that claim. My faithful readers, however, may recall that in “Income Inequality Is More Than It’s Cracked Up To Be,” I said, “… that income inequality is the engine of wealth creation (prosperity). In fact, the greater the income inequality, the higher the engine’s horsepower, i.e., the more rapidly prosperity accelerates. (The extreme importance of the pace of wealth creation is also discussed in my blog on Wealth. In a nutshell, improvements in standard of living increase exponentially as the pace of wealth creation increases linearly.)” Rather than codger and impose on you another analogy to rationalize the two “engines” of wealth creation (income inequality is the gasoline?), suffice it to say that both working together are what enables massive rapid wealth creation.

Author’s Note: This series of posts is inspired and informed by last week’s wonderful EconTalk podcast, “John Cogan on Entitlements and the High Cost of Good Intentions.” I highly recommend it (and all EconTalk episodes for that matter). Mr. Cogan is the author of “The High Cost of Good Intentions: A History of U.S. Federal Entitlement Programs” (September 26, 2017).

🙛

I suspect some of you cannot believe I’m going to write multiple posts about a president who was born in 1882 and died over 70 years ago—on top of the many of my earlier posts^[i] that discussed Franklin Delano Roosevelt. Here’s the good news: I am not going to reel off a long series of back-to-back posts on FDR—just this one and two other short ones for now.

Why FDR? The idolized FDR (idolized primarily with myths that support the left’s narrative) continues to have a huge impact on what is going on today in America, and the world.  All movements need compelling stories/narratives. Superheroes cause stories to be compelling. FDR is the superhero in the leftist narrative, i.e., stories they use to proselytize their faith. FDR is a big deal.

Given how long ago he lived, you might wonder if FDR is really as big a deal as I’m making him out to be. If you don’t believe me, consider this: The second endnote^[ii] contains a list of 90 books about FDR that were published over the last ten years. Seventeen of those 90 were published in 2017. In addition, many books that focused exclusively or significantly on FDR’s administration were published during that period. Ones I found particularly interesting were: “Unprecedented Power: Jesse Jones, Capitalism, and the Common Good,” “The Forgotten Man: A New History of the Great Depression,” and Liberal Fascism: The Secret History of the American Left, From Mussolini to the Politics of Change. (I’m looking forward to reading Mr. Cogan’s book cited above.)

Articles that include references to FDR seem to be produced every hour.^[iii] I just did a Google search for “Franklin Roosevelt” and Google reported 64.5 million results. Herbert Hoover and Calvin Coolidge, his two predecessors got 17.7 million and 0.7 million results respectively. Harry Truman and Dwight Eisenhower, his two successors got 35.7 million and 19.3 million results respectively. Eisenhower is the most recent of the group, and, unlike FDR, a war hero and a president, and a general who warned the country about the Military Industrial Complex. Yet Eisenhower is the only president in that era whose results were fairly high, at only 55% of FDR’s.

Also, note that most informed people today would know to whom I was referring when they saw “FDR” in the title of this post. I dare say that the same would not have been true had the initials been: “JCC,” “HCH,” “HST,” “DDE,” “RMN,” “JC,” “RWR,” “GHWB,” or “WJC?”

Though this post is inspired by the podcast mentioned above, it was spurred on by listening on December 18, 2017 to a Sirius XM POTUS channel (a left-leaning talk channel) longer than normal interview of the author of the new book, “The Last 100 Days: FDR at War and at Peace.” That lengthy, fawning ode to FDR confirmed my belief that over the last 90 years or so FDR has been and still is a really big deal. Just this morning (December 21, 2017) I listened to a “this day in political history segment” on that same channel. About seven presidents were mentioned. By far the longest portion of that segment was the replaying of a “fireside chat” FDR broadcast in the 1930s.

Why all this fuss about FDR? It is because, according to the left, what FDR did and the resulting positive results validate what leftists want America to do more of today. Convincing Americans that FDR was a superhero helps leftists make their case. For leftists, maintaining, if not elevating, FDR’s superhero status is worth the time, cost, and effort of the constant maintenance of that myth.

Maintaining the FDR superhero narrative is worth it because the narrative has been highly successful at gaining true believers over the last several decades. Winning the hearts and minds of ever-larger percentages of Americans provides comfort and encouragement to the far leftists who are dead set on imposing on all Americans the policy prescriptions derived from that narrative—by violence if necessary. The growing activity of Antifa is one manifestation of the success of the narrative.

During the Obama administration, great strides were made by the left toward a tipping point of no return from the horrors of the collectivist path I discussed in “Two Paths for America” and “More On Two Paths for America.” As my dear readers know, avoiding the leftist path for America is a primary focus of this blog.

Demythologizing and correcting the FDR narrative might be a way to slow or stop the successes of the left. Fortunately, the army engaged in the fight against the leftist narrative appear to be growing. Much of the backlash against leftists was spurred on by the progress of the Obama administration toward the collectivist path triggered. Through the efforts of libertarians and limited government conservatives (and their research, news, and information organs) push back against government overreach is on the rise. That somewhat effective competition in the arena of ideas is most unwelcome by those who hold dear the FDR as a superhero narrative. A redoubling of efforts to reenergize the FDR myths was to be expected. The fact there were at least 17 new books about FDR in 2017 alone is a sign that the reactionary left is mobilizing.

The election of Trump could be interpreted as the backlash against the left’s successes. While it is possible that the backlash is strong enough to grow and turn the country back from the collectivist path it has been on for decades, it is at least as likely that Trump’s election was a consequence of the flaws of Trump’s competitors.

If we, our children, and our children’s children… (and everyone in the world for that matter) are to avoid the horrors of the collectivist path, it is important to turn as many hearts and minds as possible away from the siren song of the leftist narrative. Because so many of the leftist myths about FDR are so fanciful or fabricated, it is important to highlight its weaknesses and fallacies. Consequently, my future posts will be sprinkled with discussions of FDR from time to time. I’m hoping that sorting out the flawed leftist FDR narrative will get us on a better path.

^[i] “Obamacare – Repeal, or Repeal and Replace? PART II,” “’Progressives’ and the Constitution,” “Non Sequiturs on Parade – PART VII,” “More On Two Paths for America,” “Non Sequiturs on Parade – PART VIII,” and “Non Sequiturs on Parade – CONCLUSION.”

^[ii]

1	The Last 100 Days: FDR at War and at Peace	12/12/17
2	Kings and Presidents: Saudi Arabia and the United States since FDR	11/21/17
3	A Matter of Honor: Pearl Harbor: Betrayal, Blame, and a Family’s Quest for Justice	11/14/17
4	Franklin D. Roosevelt: A Political Life	11/07/17
5	Eleanor Roosevelt, Volume 3: The War Years and After, 1939-1962	11/07/17
6	His Final Battle: The Last Months of Franklin Roosevelt	10/31/17
7	The Simple Faith of Franklin Delano Roosevelt: Religion’s Role in the FDR Presidency	10/10/17
8	Eleanor Roosevelt: In Her Words: On Women, Politics, Leadership, and Lessons from Life	09/05/17
9	Uncle Joe, FDR and the DEEP STATE	08/18/17
10	Franklin D. Roosevelt: A Life From Beginning to End	08/14/17
11	The Roosevelts and Their Descendants: Portrait of an American Family	07/28/17
12	Franklin Roosevelt: A Captivating Guide to the Life of FDR	07/20/17
13	Upstairs at the Roosevelts’: Growing Up with Franklin and Eleanor	07/01/17
14	The Gatekeeper: Missy LeHand, FDR, and the Untold Story of the Partnership That Defined a Presidency	06/06/17
15	FDR and The Great Depression: 1933-1939	05/18/17
16	The US President Who Served Longer Than Any Other President – Biography of Franklin Roosevelt	04/15/17
17	Churchill, Roosevelt & Company: Studies in Character and Statecraft	01/30/17
18	The Wars of the Roosevelts: The Ruthless Rise of America’s Greatest Political Family	12/06/16
19	Captain McCrea’s War: The World War II Memoir of Franklin D. Roosevelt’s Naval Aide and USS Iowa’s First Commanding Officer	11/15/16
20	His Final Battle: The Last Months of Franklin Roosevelt	09/06/16
21	1932: The Rise of Hitler and FDR―Two Tales of Politics, Betrayal, and Unlikely Destiny	09/01/16
22	The Presidents and UFOs: A Secret History from FDR to Obama	08/02/16
23	FDR and the American Crisis	07/12/16
24	A Boy Named FDR: How Franklin D. Roosevelt Grew Up to Change America	01/12/16
25	Franklin D. Roosevelt: The War Years, 1939-1945	03/22/16
26	Rightful Heritage: Franklin D. Roosevelt and the Land of America	03/15/16
27	The Train to Crystal City: FDR’s Secret Prisoner Exchange Program and America’s Only Family Internment Camp During World War II	01/05/16
28	Off the Record with FDR: 1942-1945	03/22/16
29	Rightful Heritage: Franklin D. Roosevelt and the Land of America	03/15/16
30	Commander in Chief: FDR’s Battle with Churchill, 1943 (FDR at War)	06/07/16
31	Dog Diaries #8: Fala	01/05/16
32	The Four Freedoms: Franklin D. Roosevelt and the Evolution of an American Idea	12/21/15
33	Eleanor Roosevelt: Wife of President Franklin D. Roosevelt	10/31/15
34	1944: FDR and the Year That Changed History	09/22/15
35	Franklin D. Roosevelt: Road to the New Deal, 1882-1939	09/08/15
36	The Mantle of Command: FDR at War, 1941–1942	05/19/15
37	No End Save Victory: How FDR Led the Nation into War	04/28/15
38	The Speeches of President Franklin Delano Roosevelt	01/28/15
39	Jay Winik: 1944 : FDR and the Year That Changed History	01/01/15
40	Before the Trumpet: Young Franklin Roosevelt, 1882-1905	09/09/14
41	The Sphinx: Franklin Roosevelt, the Isolationists, and the Road to World War II	11/10/14
42	A First-Class Temperament: The Emergence of Franklin Roosevelt, 1905-1928	09/09/14
43	Eleanor and Franklin	08/20/14
44	1940: FDR, Willkie, Lindbergh, Hitler―the Election amid the Storm	06/06/14
45	Hunting the President: Threats, Plots and Assassination Attempts–From FDR to Obama	04/14/14
46	The Fight for the Four Freedoms: What Made FDR and the Greatest Generation Truly Great	04/08/14
47	Wall Street and FDR	01/01/14
48	The Man He Became: How FDR Defied Polio to Win the Presidency	11/12/13
49	On Dupont Circle: Franklin and Eleanor Roosevelt and the Progressives Who Shaped Our World	07/16/13
50	Rendezvous with Destiny: How Franklin D. Roosevelt and Five Extraordinary Men Took America into the War a nd into the World	07/03/13
51	FDR: A Life in Pictures	06/14/13
52	Those Angry Days: Roosevelt, Lindbergh, and America’s Fight Over World War II, 1939-1941	03/26/13
53	FDR and the Jews	03/19/13
54	Their Fair Share: Taxing the Rich in the Age of FDR	01/29/13
55	FDR’s Ambassadors and the Diplomacy of Crisis: From the Rise of Hitler to the End of World War II	01/07/13
56	FDR and the Holocaust: A Breach of Faith	01/01/13
57	Dogs of War: The Stories of FDR’s Fala, Patton’s Willie, and Ike’s Telek	11/06/12
58	FDR and the End of Empire: The Origins of American Power in the Middle East	10/16/12
59	FDR and Chief Justice Hughes: The President, the Supreme Court, and the Epic Battle Over the New Deal	02/07/12
60	The Plots Against the President: FDR, A Nation in Crisis, and the Rise of the American Right	01/03/12
61	Pearl Harbor: FDR Leads the Nation Into War	10/25/11
62	FDR Goes to War: How Expanded Executive Power, Spiraling National Debt, and Restricted Civil Liberties Shaped Wartime America	10/11/11
63	Scorpions: The Battles and Triumphs of FDR’s Great Supreme Court Justices	10/03/11
64	FDR’s Funeral Train: A Betrayed Widow, a Soviet Spy, and a Presidency in the Balance	06/21/11
65	America’s Dictator: FDR the Red	06/17/11
66	Supreme Power: Franklin Roosevelt vs. the Supreme Court	03/14/11
67	Forged in War: Roosevelt, Churchill, And The Second World War	02/08/11
68	The Fireside Conversations: America Responds to FDR during the Great Depression	09/07/10
69	FDR and the New Deal For Beginners	07/20/10
70	FDR v. The Constitution: The Court-Packing Fight and the Triumph of Democracy	04/27/10
71	Nothing to Fear: FDR’s Inner Circle and the Hundred Days That Created Modern America	01/26/10
72	FDR’s Alphabet Soup: New Deal America 1932-1939	01/12/10
73	Who Was Franklin Roosevelt	01/07/10
74	FDR: Selected Speeches of President Franklin D Roosevelt	06/03/10
75	Franklin Delano Roosevelt: Champion of Freedom	05/11/10
76	Quotations of Franklin D. Roosevelt	04/20/10
77	Franklin Delano Roosevelt	12/30/09
78	Franklin and Lucy: Mrs. Rutherfurd and the Other Remarkable Women in Roosevelt’s Life	05/12/09
79	In the Shadow of FDR: From Harry Truman to Barack Obama	12/04/09
80	New Deal or Raw Deal?: How FDR’s Economic Legacy Has Damaged America	11/17/09
81	Together We Cannot Fail	11/01/09
82	Traitor to His Class: The Privileged Life and Radical Presidency of Franklin Delano Roosevelt	09/08/09
83	Franklin D. Roosevelt and the New Deal: 1932-1940	02/24/09
84	Closest Companion: The Unknown Story of the Intimate Friendship Between Franklin Roosevelt and Margaret Suckley	07/21/09
85	The Fireside Chats of Franklin Delano Roosevelt	02/13/09
86	FDR The First Hundred Days	07/31/09
87	Franklin D. Roosevelt and the New Deal: 1932-1940	02/24/09
88	My Dear Mr. Stalin: The Complete Correspondence of Franklin D. Roosevelt and Joseph V. Stalin	01/22/08
89	Franklin D. Roosevelt: Our Thirty-Second President	08/01/08
90	FDR	05/13/08

^[iii] The Steve Roth article I examined in the series of posts that ended with “Non-Sequiturs on Parade – CONCLUSION” is a prime example.