Trevor Noren, managing director at 13D Global Research and Strategy, discusses how the concentration of wealth and corporate power is shaping his macro perspective. He sees the past three decades of industry consolidation as root causes of the problems that the American economy currently faces: stagnant growth, increasing wealth inequality, and a QEdependent stock market. Noren predicts that this trend of consolidation will reverse, and he sees significant investment potential in gold, small cap stocks, and companies leading the decentralization movement. Filmed September 26, 2019 in New York.
Last week, one of President Trump’s top economic advisers, Larry Kudlow, argued the U.S. economy is “crushing it,” posting boom-like numbers in key areas, all thanks to the leadership of the president.
Evaluating such claims usually begins with assessing whether the president should get credit for an economy he inherited in year eight of a solid expansion. But the fact that Trump is claiming credit for trends that were largely ongoing before he took office is one of the few ways in which he is not much different from former presidents.
.. Who is actually getting ahead in the Trump economy?
.. . In contrast, corporate profits and equity markets truly are crushing it, both on a pre- and especially, given the large business tax cuts, a post-tax basis.
.. There is also no evidence of an investment boom, suggesting the recent, above-trend growth in GDP is Keynes, not Laffer — meaning the deficit spending is providing a temporary boost but will not have lasting, positive impacts for long-term economic growth.
.. Starting with wages, since Trump took office, the real hourly wage for the 82 percent of the workforce that is blue collar in factories and non-managers in services is up half-a-percent, an extra 11 cents per hour.
.. the growth of mid-level pay has picked up a bit, as we’d expect with such low unemployment. But inflation, largely driven by higher energy costs, has also sped up, canceling out any real gains.
.. If energy prices come down and unemployment continues to fall, real wage growth for mid-wage workers will improve. But the magnitude of their gains will likely be nothing close to the administration’s claim that the tax cut would add at least $4,000 to annual earnings within a few years of the legislation.
.. In President Barack Obama’s second term, real annual wage growth for mid-wage workers was about 1 percent, so call that the baseline.
.. Sticking with the tax cut, its proponents main claim was the big corporate cuts would generate more business investment, which would lead to faster productivity growth, which would position us for higher paying jobs. So far, every link in that chain is broken.
.. Business investment is growing, as we’d expect in an economy operating close to full capacity. But its growth rate is not faster now than at various points earlier in the expansion.
.. There has been a modest uptick in investment in structures (such as plants, offices, wells, mine shafts, warehouses) in the first half of 2018, but, as economist Dean Baker has shown, the growth in such investment was due to higher energy prices generating increased investment in mining for oil and natural gas.
.. While mining investment has increased by 36.7 percent over the last year, it rose by 47.3 percent from the second quarter of 2009 to the second quarter of 2010, when the Obama administration was still enforcing environmental laws. In both cases, the key factor was rising world oil prices.
.. It takes time to plan investments, so it is too soon to conclude the tax cuts have not made a difference. But none of the surveys of companies’ investment plans show any plans to ratchet up capital spending
.. What is clear is firms are using their tax windfalls to boost share prices through buybacks, which, along with strong corporate profits, are fueling a historical bull market for stocks.
.. instead of borrowing $2 trillion to finance the regressive tax cut, Congress could have put more money in the pockets of working Americans and made investments for our economic future.
.. First, we should have expanded the Earned Income Tax Credit to compensate for decades of stagnant wage growth. The Brown-Khanna plan, calling for a $1.4 trillion EITC expansion, would have provided working families making up to $75,000 with up to $8,000 more in take home pay.
.. the best way to raise pay for ordinary Americans is to do so directly as opposed to pretending it will come through the largesse of executives and shareholders.
.. Second, we should have put billions to expand the National Science Foundation’s Advanced Technological Education program, linking employers to technical schools to develop credentials that respond to the needs of our cutting-edge industries.
.. Third, we should have provided hiring incentives for anchor companies to create jobs in places left behind such as Paintsville, Ky., or Flint, Mich. If a company is willing to hire in places where people do not have enough access to high-wage jobs, then they should get support for doing so.
.. Fourth, we should have invested in bringing high speed Internet to every corner of America. Providing fiber broadband to every corner of the United States is the modern equivalent of rural electrification.
.. Larry Kudlow’s right: The Trump administration is crushing it for its donor base, which is in turn handsomely rewarding them.
.. But it has done nothing for the forgotten Americans and nothing to make sure America is a winner in the 21st century. We do not need more sugar highs for those already doing well. We need to give lasting pay raises to those struggling to pay the bills and then focus on the forward-looking investments that will finally reconnect GDP growth to broadly shared prosperity.
In the other story, corporate America just performed another bait and switch at the common good’s expense — making a show of paying bonuses and raising wages after the passage of the corporate-friendly Republican tax bill, but actually reserving most of the tax savings for big stock buybacks
.. Corporate activism on social issues isn’t in tension with corporate self-interest on tax policy and corporate stinginess in paychecks. Rather, the activism increasingly exists to protect the self-interest and the stinginess — to justify the ways of C.E.O.s to cultural power brokers, so that those same power brokers will leave them alone
.. In every era and every political dispensation, businessmen ask themselves: What am I required to do to make money unmolested by the government?
.. But there are other ways to compromise besides on wages
.. a certain kind of virtue-signaling on progressive social causes, a certain degree of performative wokeness, is offered to liberalism and the activist left pre-emptively, in the hopes that having corporate America take their side in the culture wars will blunt efforts to tax or regulate our new monopolies too heavily.
.. It’s worth noting, for instance, how Tim Cook’s willingness to play the social justice warrior when the target is a few random Indiana restaurants that might not want to host hypothetical same-sex weddings does not extend to reconsidering Apple’s relationship with the many countries around the world where human rights are rather more in jeopardy than they are in the American Midwest.
.. the Peace of Palo Alto won’t be fully tested until the next time the Democrats hold real power
.. “As much as we fear corporations gone wild,” Poulos concludes, “we love corporations that love us.” And in a rich society people may prefer that their #brands prove this love by identifying with favored social causes rather than through the old-fashioned expedient of paying their workers a little bit more money.
.. For others, though, the Peace of Palo Alto has rather less to offer. It confirms the blue-collar suspicion that liberalism is no longer organized around working-class economic interests, and it encourages cultural conservatives in their feeling of general besiegement
.. the Republican Party even as it lurches deeper into demagogy and paranoia — by making a vote for the G.O.P. the only way to protest a corporate-backed liberal politics that seems indifferent to the working man and an ascendant cultural liberalism
.. Their wokeness buys them cover when liberalism is in power, and any backlash only helps prop up a G.O.P. that has their back when it comes time to write our tax laws.
The win-win scenario for woke capitalism can’t last forever. But it might be quite the racket while it lasts.
its centerpiece was a gigantic corporate tax cut, lowering the statutory corporate rate from 35 percent down to 21 percent. This cut accounted for about $1 trillion of the bill’s total $1.5 trillion cost, but Republicans said it really wasn’t about helping corporations at all.
.. No, the real target was the workers: Corporations would take the money and use it to create new jobs and raise the wages of those working for them, as trickle-down economics did its magical work.
Democrats, on the other hand, said it was a scam. They charged that workers would see only a fraction of the benefits, and instead corporations would use most of their windfall for things like stock buybacks, which increase share prices and benefit the wealthy people who own the vast majority of stocks.
.. even before the tax cut, corporations were making near-record profits and sitting on mountains of cash; if they wanted to invest, create jobs and raise wages, they already had the means to do it.
.. even before the tax cut passed, corporations were saying publicly that they intended to use the money for stock buybacks.
.. It’s true that some companies did give workers one-time bonuses. But it was essentially a PR move.
.. Walmart, for instance. It made a splashy announcement that it would be giving bonuses of up to $1,000 to workers, which sounded great. But then it turned out that you’d only get that much if you’d been working there for 20 years, and the average worker would get around $190.
.. the total value of Walmart’s bonuses was $400 million, which seems like a lot until you learn that over 10 years the value of the tax cut to the corporation will be $18 billion. In other words, about 2 percent of its tax cut is going to workers
.. Republicans make absurd claims in the knowledge that even if they get debunked in the occasional “news analysis” piece, on the whole they’ll be treated with complete seriousness, no matter how ridiculous they are.
.. lies about the future — and that’s what they are when you know that what you’re saying is utterly bogus — will not be policed with nearly the same vigor as lies about the past.
.. When Republicans said that their tax cut wouldn’t increase the deficit because it would create so much economic growth that revenue would actually increase, it was treated as a questionable claim, not an assertion on par with “If I flap my arms, I can fly to the moon”
.. Sure, Democrats will squawk, and all their criticisms and predictions will turn out to be right. But it hasn’t stopped you in the past, and it won’t in the future.
It’s nonsense, of course. Think of the motivation: lots of companies are raising wages at least a bit in the face of tight labor markets; pretending that it’s because of the tax cut is a cheap way to curry favor with an administration that has no hesitation about using regulatory and antitrust decisions to reward friends and punish enemies. It’s basically Carrier all over: make a Trump-friendly splash by declaring that he persuaded you to save jobs, then lay off lots of workers after the cameras have moved on.
.. even if you believe economic analyses that suggest corporate tax cuts are good for wages, it shouldn’t happen right away. Any trickle-down should come about because the tax cuts lead to higher investment, which leads over time to a larger capital stock – and it’s the increase in the capital stock, which may take many years, that leads to the wage rise.
But a new study co-authored by Harvard University economist Lawrence Summers says that’s wrong. He and Anna Stansbury, a doctoral student at Harvard, found a strong and persistent link between hourly productivity and a variety of wage measures since 1973. The problem, they conclude, is that the positive influence of productivity on pay has been overwhelmed by other forces pushing the other way.
.. between 1973 and 2015, they found that a one-percentage-point increase in productivity growth generally led to a 0.5- to one-percentage-point increase in average or median pay growth, depending on the type of workers measured. Yet while productivity and wage growth tended to moved together over these short periods of time, there was enough of a difference in growth rates that over time a huge gap opened up between the pay and productivity. By 2015, productivity was up 73% from 1973 but wages were up just 12%.
.. they say other forces such as weaker unions were eating away at the ability of workers to share fully in the rise in productivity.
.. The late 1990s was one of the few times since 1973 when worker pay grew briskly, but that, he says, was probably because unemployment was around 4%, not because productivity was growing rapidly.
.. Productivity almost always grows faster than pay. “It’s a matter of whether you want to look at the glass half full or half empty,” Mr. Mishel says. “We’re saying it’s half empty, at best.”
.. There have been only three fleeting periods in the past half-century when the U.S. unemployment rate was as low as it is today.Low unemployment of the late 1960s preceded an inflation spiral in the 1970s. The late 1990s bred the Dot-com bubble and bust. The mid-2000s saw the buildup and collapse of U.S. housing.