Team Trump’s phony poverty argument, GDP growth v. chaos, and a little e.g. of where an FTT would come in handy.

July 17th, 2018 at 3:12 pm

First, Trump’s Council of Economic Adviser abuses data and logic to conclude that work requirements would help poor people. Over at WaPo.

Next, I will not stray from my lane and comment on what everybody’s thinking about today: the summit from Hel…sinki. I will share this Steven Colbert clip, to which I’ve nothing to add.

I do, however, find it interesting that amidst all this madness–which feels too much like an existential threat to American democracy from within–the US macroeconomy is, if anything, stronger. Obviously, I’m all about the distribution of GDP growth, which remains a serious problem. Also, quarterly GDP numbers are jumpy and it’s a far more limited measure than we generally admit. But the latest GDPnow forecast for Q2 (data out late next week) is 4.5%, which is about 2.5% above trend.

Part of this, maybe a bit north of half-a-point, is fiscal stimulus; also, strong financial conditions and high corp profits and the strong labor market–more jobs than wages, but aggregate employment * earnings is fueling strong consumer spending.

Sources: BLS, BEA

But neither trade war, a president leaning into treasonous rhetoric, nor a dysfunctional Congressional majority that does nothing to restrict him seem to dent the macroeconomy, at least thus far.

That’s not so hard to believe. I’ve got quibbles with some of their actions, but the Fed is still a strong, and most importantly, politically independent institution working to maximize employment at stable prices. And the simple, virtuous cycle that drives expansions–more demand, more jobs/incomes, more demand–is strong and durable. Our credit and financial markets are deep and liquid. The trade war has hardly dented equally deep global supply chains (at this stage, Trump has placed tariffs on less than 5% of our imports). Even if it gears up, I don’t expect large, negative macro effects from it (though certain industries/products will be hurt; e.g., soybean exporters currently hit by Chinese counter-tariffs).

But let’s keep it real as to the limits of GDP. Though it does a good job of measuring a narrow concept, we elevate it to a much greater level of significance than it deserves. It not only fails to reflect environmental degradation, it scores such actions as growth-positive. It says nothing about the distribution of growth. OTE’ers know I’ve been hammering on the weak real-wage-growth story and we just learned that the real annual earnings of full-time, middle-wage workers fell by half a percent in the second quarter, and this was their third quarter in a row of losing ground. Meanwhile, as noted above profits are crushing it.

Source: BLS

And, of course, GDP says nothing about the loss of representative democracy.

There are those who believe that if GDP, profits, and the stock market are all up, then there’s nothing to worry about. I suspect if you’re reading this, you’re more moved by a fair distribution of growth, a sustainable environment, a representative voice in politics and in the workplace, racial and gender justice, economic mobility such that people can achieve their potential whatever their race or zipcode, and more along those lines.

Don’t get me wrong. I don’t take GDP growth for granted and worry a lot about the next recession. But even a string of strong quarters, if that’s what we’re looking at, is nowhere near enough to assuage our current discontent.

Finally, this article from the WSJ about how high-speed traders are front-running trades on future ag prices by getting the data two seconds before everybody else. In high-freq trading land, two seconds is analogous to two months. Anyway, the Ag Dept is going to try to make sure everyone gets the data at the same time, but I’m with the guy in the piece who said:

“I struggle to see how releasing crop and livestock reports via the USDA’s website will address the fact that some participants will be able to capture, analyze and respond to that data more quickly than others,” Rob Creamer, president and chief executive of Geneva Trading, a high-tech trading firm in Chicago, said in an email.

There’s a simpler, surefire way to fix this problem: a small, one or two basis point financial transaction tax. Not only would an FTT raise needed revenues, it would dampen noise trading that has far more to do with nanosecond price arbitrage than allocative efficiency. Moreover, given the long-term decline in the costs of financial transactions, such a small tax as I’m suggesting would be unlikely to dampen market liquidity versus the high-frequency stuff.

No, the R’s in control won’t go for this or any other revenue raiser. But I and everyone else who likes this idea needs to start elevating it such that when and if rationality returns, an FTT is prominently teed up.

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