• Bob Sellers

Why Nancy Doesn't Like the "I" Word

Updated: Mar 12, 2019

Nancy Pelosi now says that Democrats in the House are not going to try to impeach President Trump. All of the cable networks are speculating as to why, but as we've mentioned before, the reason is pretty simple: Newt Gingrich in 1998. The then-Speaker of the House drove the GOP midterm campaign with the focus on impeaching Bill Clinton. The strategy backfired, with the loss of 5 Republican House seats. The miscalculation cost Gingrich his leadership position and still serves as a warming that a party needs to stand for something other than just trying to impeach the opposing party's president.. Lesson two is if you want to remove a president from office, you better be able to count to 67 in the Senate. Pelosi can count, and unless Mueller produces a game changer in GOP support for Trump, Democrats are now focusing on 2020.

The White House Now Hiring

We often hear about people leaving the Trump White House, the most recent, Bill Shine, the top communications advisor, who either resigned or was fired, depending the story you read. (“Resigned under pressure” is always a useful term.) But guess who’s being hired? Lawyers. With a barrage of investigations—special counsel Mueller, Congressional Democrats, the G-Men and women of the Southern District of New York—WBP has learned that the White House counsel’s office has made at least 17 new hires. So while the pace of job creation in the U.S. economy slowed considerably -- just 20,000 new jobs created in February -- the pace has increased markedly at 1600 Pennsylvania Avenue, N.W.

Turnover at the White House

• Does it seem like there’s a lot of turnover in top positions? The Brooking Institute – a liberal think tank in Washington – has estimated the turnover rate for Trump’s “A Team” – which does not include Cabinet secretaries -- at 65%. (As of March 1, 2019 – before Shine’s departure.) Yes, that’s on the high side. The chart below shows that the pace of turnover exceeds all five of Trump immediate predecessors. (Blue is the first year; green, the second year.) In addition, 29% positions on the “A Team” have seen serial turnover.

• Trump can console himself with the fact that the second year of the Reagan administration saw a higher turnover rate than Trump’s second year. And two years later Reagan won reelection in a landslide. But WBP has previously pointed out the differences in the economic conditions then and now, including an economy and stock market in 1982 that were beginning to rebound, compared to the current direction of the economy, which is slowing.

• Why it matters to Wall Street and Main Street: Getting legislation through Congress is easier when there’s a steady voice from the same team in the White House. It also makes a message easier to get out to the public. Trump has never found a team to pull some of the weight for him, like Reagan did with Ed Meese, Michael Deaver and Jim Baker.

The New Trump Budget is Out

• Fact: Trump projects GDP reaching 3.2% this year and 3.1% in 2020

• Fact: The CBO projects GDP at 2.7% this year and 1.9% in 2020

They can't both be right.

The White House is also asking for $8.6 billion to build a border wall. Will he get that? Not likely. Will cable networks talk about it? Oh, yes.

The Growing Trade Deficit

Remember when Trump promised to lower the trade deficit? How’s that going?

• Fact: The U.S, trade deficit for goods has reached an all-time high.

• Fact: The deficit with China equaled $38.7 billion in December. How big is that? It takes the next five biggest trading partners to reach that level (amounts in billions): European Union ($15.8), Mexico ($8.8), Germany ($5.7), Japan ($5.5) and Italy ($3.0).

• What Trump is missing. From the very beginning WBP didn’t understand why Trump would want to voluntarily target falling trade deficits as one of the measures of his success. The reason? Take a look at this chart. Do you notice a trend? The trade deficit was lower when we were in the Great Recession.

And history shows that in fact, the trade deficit tends to get bigger as our GDP expands.

• Now, we’re not economists, and we know there are many arguments that it’s best to have an expanding economy AND a trade surplus -- but it was Trump himself that decided to pick this fight. So while he can point to a 2018 GDP that was expanding, he cannot point to a shrinking trade balance – which was bound to happen with a growing economy!

• Then there’s that pesky little national debt. Trump told Bob Woodward in 2016 that he could eliminate the national debt in eight years. Instead, the debt has grown from $20.24 trillion to more than $22 trillion. Without balancing the budget, there’s no way to pay down the debt. And the latest Trump budget doesn't come anywhere near being balanced. The federal deficit, $665 billion in fiscal 2017, is projected to be $984 billion in fiscal year 2019 (which began on October 1st). That’s an increase of 48% in three years. You don’t have to be a rocket scientist to know what happens when the government spends more while taking in less: the deficit goes up, and so does the debt. By 2028 the Congressional Budget Office estimates that the national debt will reach $33 trillion.

• Why it matters to Wall Street and Main Street: We often hear politicians say that the problem with a big national debt is that we are leaving it to our children and grandchildren to pay off. But it’s not a long term problem – it has IMMEDIATE effects. Here are just a few off the top of our cluttered little heads:

  • Borrowing by the government to pay its bills – through treasury notes, bill and bonds on the open market -- drives up interest rate for all Americans.

  • It also makes us indebted to other countriesas our lenders, the biggest being five-letter word starting in “C” and ending in “A.”

  • Because so much of our budget goes toward paying interest on our debt, it takes away potential spending on other programs, like rebuilding our infrastructure.

  • And if we don’t stop spending so much, we’ll once again raise taxes, which tends to be a drag on economic performance – meaning fewer jobs and lower income.

• Most politicians see little incentive to balance the budget. They figure they’ll be gone and it’ll be somebody else’s problem. It is. Yours and mine.

The return of “voodoo economics”

• The term that George H.W. Bush made famous in his critique of Reaganomics in 1980 made a return this week – from Larry Summers, the former Bill Clinton economic advisor. But it wasn’t a critique of supply side economics, but rather of Modern Monetary Theory (MMT).

Summers, to Yahoo Finance: “I think MMT is today’s version of voodoo economics…It promises a free lunch…It takes ideas that have a little bit of validity and extends them to a grotesque point where they defy the laws of arithmetic.”

Before we get to the economic basics of MMT, why are we even talking about it? Well Benjamin, I just want to say one word to you. Just one word. Are you listening? “Politics.”

• In an effort to take back power in Washington, some Democrats on the left – think Bernie, Elizabeth Warren, Kamala Harris, AOC, etc. – are floating some ideas that have populist appeal, especially to their liberal base. That includes programs like Medicare-for-all, free college tuition, and a guaranteed income for everybody. But they’re immediately shot down when they’re asked how they would pay for them. As we've mentioned, our national debt is at a record level and we’re not even close to balancing our budget.

But what if deficits didn’t matter? What if national debt didn’t matter?

Enter Modern Monetary Theory.

The idea is that we could just print more money to pay for government programs. The newly printed money would pay for the programs and if that ends up driving up inflation to crazy levels, we could just raise taxes. (Ironically, they recognize that taxes can slow down economic activity.)

This approach ignores the success that monetary policy has proven in recent decades .We’re not saying we’ve avoided ups and downs in the economy, but we have avoided economic disaster and fiat currency driven by politicians who want to pay for promised programs with paper that’s worth just about what its printed on.

The latest Fed’s Beige Book is out

• The interesting thing about the Beige Book– besides the fact that it used to be red and isn't any color now because it's electronic – is that is contains no numbers. The Beige Book collects qualitative and anecdotal information to go along with all the boring numbers that the Fed gathers.

So the verdict? Ten of the twelve districts in the U.S. are showing slight to moderate growth, while two (St. Louis and Philadelphia) are observing flat economic conditions. And remember the partial government shutdown? Half of the districts say that it led to slower sales in areas like real estate, restaurants, auto sales and manufacturing. That’s probably why there wasn’t a SECOND government shutdown.

Manufacturing sources also say they continue to be concerned about weakening global demand, and higher costs due to tariffs. Oh yeah, they also say they don’t like uncertainty in trade policy, something that seems to be, ironically, certain.

• The Democratic National Committee has announced that Fox News will not be allowed to host a debate for the Democratic primary. Really?

  • What are they afraid of? That Fox journalists will ask them hard questions?

  • How can they criticize Trump as president for banning any journalistic outlets from covering him when they are choosing which media to work with themselves?

  • What if Trump turns around and decides not to allow non-Fox networks to cover Republican debates?

Did DNC leadership think this through? It might make some Democrats feel good to ban Fox News from debates, but they're also passing up an opportunity to preempt, say, Tucker Carlson or Sean Hannity for an evening and get their own message out. Short term, it may feel good. Long-term: it’s counterproductive to shut off communication.

There’s also the question as to what do Democrats stand for? They want to distinguish themselves from Donald Trump and the Republicans for the 2020 campaign. Now they can’t argue that they support a free press. Is that what they wanted?

Why Biden’s bidin’ time

Reports say the former Veep say he is “90%” of the way towards announcing a 2020 run. But the other 10% is concern that some of his Senate votes—he represented Delaware for 36 years—could be seen as out of step with today’s Democratic party. Examples: He backed the Reagan-era tax bill that cut th e top income rate from 70% to 50% while exempting many wealthy families from the estate tax on unearned inheritances. He later called for a spending freeze on Social Security in order to reduce the deficits that tax law helped to create.

Should all of us be afraid of Artificial Intelligence?

• A recent study finds that Artificial Intelligence is more of a threat if you:

  • Live in a rural area rather than an urban area

  • Are Hispanic, black or American Indian

  • Are a man rather than a woman

  • Work at a low wage job (Source: Brookings)

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