Trump’s top economist offers solution to unemployment: More government jobs

In the latest edition of the ‘POLITICO Money’ podcast, Council of Economic Advisers Chair Kevin Hassett discusses tax policy, drawing Americans back into the workforce and his ‘Dow 36,000’ prediction.

President Donald Trump’s top economist has an unusual idea for dealing with the problem of long-term unemployment: Just have the government hire people.

.. Kevin Hassett, the conservative chairman of the White House Council of Economic Advisers, believes some Americans are so disconnected from the workforce that the best idea to get them working again could be a federal jobs program that would ultimately lead to private-sector employment.

 .. To Hassett, long-term unemployment often leads to family breakdown and descent into addiction and other maladies. “People who have been unemployed for more than a year very often don’t ever reconnect to the labor force,” he said. “And very often they fall into sort of downward spirals of personal despair where they end up abusing substances and have a higher risk of divorce. Some of the literature in this area is just absolutely disturbing.”
.. Hassett remains convinced that the tax cut bill now emerging on Capitol Hill that would slice the top corporate rate from 35 percent to 20 percent will in fact add at least $4,000 in increased wages per household over the next several years
.. Hassett called the idea “iron-clad” based on studies of other countries cutting their corporate rate. And he said he believes the increase could be even greater.
.. He argues that a lower corporate rate and more immediate expensing of capital investments will lead to greater productivity among workers and thus higher wages without big inflationary pressure.
.. “If you have a supply-side stimulus precisely now, we can get capital deepening back to where it used to be, then you could add a percent to GDP growth,” he said. “And that will increase labor productivity and increase wages but not in a way that’s inflationary.”
.. Hassett, an affable economist with friends on both side of the partisan aisle, also spoke about his often-lampooned 1999 book with James Glassman, “Dow 36,000,” that predicted stocks would hit that mark by 2004. Instead, the dot-com bubble burst and stocks tanked.Hassett described the title of the book as a bit of a “youthful indiscretion” that was also somewhat unfairly maligned. “The point was that people who buy and hold stocks for the long run tend to do well, but that stocks go up and down a lot and it’s scary.”

Trump was an election surprise. Expect more.

The Trump election likely signals a new era of extreme voter discontent and improbable national election results. Why? Because the so-called American Dream — that each generation would live better than its predecessor — has ended for most of our citizens. Half of the young adults in this country will earn less over their lifetimes than their parents did. Indeed, the whole idea of rising living standards, which defined this country for so long, is a thing of the past for most Americans. More and more voters realize this and are angry about it.

.. Are wages rising? Looking back over the past 40 years, the answer is no.

According to the Hamilton Project, overall U.S. wages, adjusted for inflation, are essentially flat over this period — registering about 0.2 percent growth. Which means that purchasing power, a good proxy for living standards, is flat, too.

 .. The 2016 Federal Reserve Board survey of household well-being found that 46 percent of U.S. adults could not meet a $400 emergency expense without borrowing or selling something they owned.
And a stunning one quarter of adults cannot pay their monthly bills in full.
.. A series of powerful, entrenched factors have brought the American Dream to an end. Economists generally cite
  • globalization,
  • accelerating technology,
  • increased income inequality and
  • the decline of unions.
What’s noteworthy is that these are long-term pressures that show no signs of abating.
.. there continues to be a debate among political scientists and sociologists as to whether these income pressures or cultural factors such as a rebellion against the establishment contributed more to the Trump upset. But, in reality, the two factors are interrelated. Household financial troubles increase cultural resentment and the sense that there are two Americas. Especially with the share of national income going to the lower 80 percent of earners at a 100-year low.

Kevin Hassett Spanks the Tax Policy Center

For me, Hassett’s biggest contribution to the tax debate is the notion that high corporate tax rates depress the wages of workers.

.. Because companies have stashed profits overseas, and because the U.S. tax cost of investment is so high, middle-income wage earners have suffered mightily. Hassett — and his AEI colleague Aparna Mathur — have argued for over a decade that if you want to raise wages, cut corporate tax rates.

.. “for the median household in the U.S., the top corporate marginal rate cut from 35 percent to 20 percent would boost wage growth almost four-fold.”

.. Hassett has argued that 70 percent of the benefits of lower business tax rates accrue to middle-income wage earners — in other words, Donald Trump’s middle-class base.

.. former CEA chair Glenn Hubbard recently wrote in the Wall Street Journal that too many economists fail to consider the share of the U.S. corporate tax burden borne by labor — 60 percent according to his research

.. concluded that it would boost wages by 8 percent.

.. It’s the difference between a prospering and optimistic middle class and a pessimistic middle class that lives day-to-day, paycheck-to-paycheck.

.. Trump’s tax-cut and regulatory-rollback policies are aimed directly at ending the war on business, which has dragged down the economy for nearly two decades. Let’s reward success rather than punish it.