Paul Ryan retired from Congress in January 2019 after 20 years of service culminating in his 3+ years of service as Speaker of the House.

Ryan was the chief cheerleader for the Tax Cuts and Jobs Act, and he left D.C. touting it as the greatest accomplishment of his political career.

Ryan repeatedly exclaimed how this new legislation (TCJA) would unleash unprecedented U.S. economic prosperity, by providing:

  1. Tax relief for middle-income families;
  2. Simplification of the tax code for individuals;
  3. Economic growth; and
  4. Repatriation of $3+ Trillion of profits U.S. companies have parked overseas would generate more investment and jobs in the U.S.

16 months after passage of the TCJA, it should be crystal clear that:

  1. Almost none of the tax cut benefits have reached the low- and middle income Americans who were promised tax relief;
  2. The TCJA legislation is some 1,097 pages itself, and it states very clearly that it is an Amendment to (the existing) Internal Revenue Code of 1986 (not a simplification);
  3. Economic Growth? The jury is still out on this one, but there seems to be no evidence of growth above or beyond the existing growth trend line which began in mid-2009;
  4. American companies have returned some (+/- $500 Billion) of their profits held overseas as a result of the tax holiday which was part of TCJA. Much of that money was used for stock buy-backs and debt reduction.

In fact, 16 months following the passage of the TCJA, U.S. companies are still waiting for final guidance from the Treasury Department on many of the final rules relative to repatriation.

And, despite continued U.S. economic growth and record corporate profits, a record 60 Fortune 500 companies avoided paying any federal income tax in 2018.

Federal tax revenues have declined during a period of economic expansion and our government spending has increased, thus the verifiable result from Paul Ryan’s signature accomplishment – the TCJA — is an increase in our federal deficit, an extra-special gift to our children and grandchildren.

The Treasury Department announced in March 2019 that the deficit for the first four months of the 2019 budget year (which began Oct. 1, 2018) totaled $310.3 Billion, up from a deficit of $175.7 Billion in the same period the year prior.

The Congressional Budget Office is projecting that the annual federal deficit between revenues and expenses will hit $897 Billion in fiscal year 2019, up 15.1 percent from the $779 Billion deficit recorded in FY 2018.

The end result: Our total federal debt will reach $22 Trillion this year – about 105% of GDP.

Why is that important? A comprehensive study by the World Bank examined economic data from 100 developing and developed economies spanning a time period from 1980 to 2008, concluding that a public debt/GDP above 77% begins to create a drag on economic growth.

The World Bank analysis concluded that for each additional percentage point of debt above the 77% threshold costs 0.017 percentage points of annual real growth.

If the World Bank study is correct, we are currently missing about 0.5% of our economic growth potential due to misguided public policy decisions, in addition to the future burden of repaying federal debt which was incurred unnecessarily.

Paul Ryan achieved his personal goal of shepherding record tax reform through Congress resulting in the passage of TCJA.

Although his personal goal was achieved at the expense of American society, Paul Ryan clearly is a winner.  So, please join me in sending a note of thanks and congratulations to Paul Ryan.  He left us a legacy.

Advertisements

Paul Ryan & Tax Cuts

April 16, 2019

Dear Paul Ryan,

In 1998 – at the age of 28 – you were first elected to the House of Representatives to represent the 1st District of Wisconsin.  You were re-elected a number of times, and you served for 20 years in Congress.

After John Boehner announced his intention to resign from the House and the Speakership in 2015, you were selected by your colleagues to become Speaker of the House.

You were involved in some very positive legislative accomplishments during your 20 year tenure as a Congressman representing the 1st District of Wisconsin, and during your tenure as Speaker of the House.

Unfortunately, your legacy will forever be connected to the Tax Cuts and Jobs Act (TCJA) which was passed into law at the end of 2017.

Although the TCJA provided the Trump Administration with an accomplishment relative to their campaign platform, it is a highly flawed piece of legislation which was created on a foundation of fictitious and inaccurate assumptions.

Just 16 months following the passage of TCJA, we can clearly see the adverse impacts.

Business and corporate tax cuts have resulted in: stock buy-backs; excessive executive compensation and bonuses; acquisitions and consolidations resulting in plant closings and layoffs.  All of these have been enabled by tax cuts which have resulted in 60 major corporations paying zero federal income taxes in 2018.

Whereas in times of economic expansion, the great majority of economists advise public sector entities to reduce deficits and aim for balanced budgets, the TCJA does just the opposite.

Some of the loss of tax revenue from business and corporate entities has been replaced by increased federal tax liability on individuals (like me), the majority of the lost tax revenue has been made up through deficit spending.

The annual federal budget deficit is expected to reach $900 Billion in fiscal 2019 and to equalize in the range of $1 Trillion annually for the next decade, up from $779 Billion in 2018.

Mr. Ryan:  over the course of your service in Congress, you achieved national recognition as a conservative policy wonk and as a relentless critical observer of our federal budget. You seemed to be a relentless critic of federal deficits, winning acclaim from centrists for your detailed charts showing the dangers that fiscal shortfalls posed to America’s future.

You slipped out of Washington in January 2018 knowing that you led the American people down a dangerous and dead-end road.

In your defense, we can acknowledge that you reluctantly took on the role of Speaker knowing that it was an impossible responsibility to fulfill.  Despite this, we must hold you fully accountable for failing to disclose to your constituents – and the entire U.S. population – that the TCJA was a sham – a complete flim-flam designed to create a false reality.

Paul Ryan:  Let us hope that your family, your wife, your children – and your neighbors – are willing and able to forgive you for selling out the interests of the people of Wisconsin — as well as the people of the United States – for whatever benefits you personally gained from your treachery toward the end of your tenure in Congress when you became the champion of the fictitious Tax Cuts and Jobs Act.

Mr. Ryan:  Good luck to you, and God bless.

National Emergency

February 13, 2019

Yes, we are facing a national emergency, and it’s not along our southern border.

Our real national emergency is our National Debt.

Let’s first agree that when the U.S. federal government runs a deficit, or spends more than it receives in tax revenue, the U.S. Treasury Department borrows money to make up the difference.

Next, let’s agree that our national debt is the amount of money the federal government has borrowed through various means, including: (1) by issuing bills, notes and bonds which are bought by investors (domestic and foreign), including the public, the Federal Reserve and foreign governments; (2) through intra-governmental debt, essentially money borrowed from trust funds used to pay for programs like Social Security and Medicare.

The great majority of economists and economic and fiscal analysts tend to agree that the significance of national debt is best measured by comparing the debt with the federal government’s ability to pay it off using the debt-to-GDP ratio, simply by dividing a nation’s debt by its gross domestic product.

Various sources have estimated that a healthy debt-to-GDP ratio is in the 40% to 60% range.  A longitudinal study conducted by World Bank economists published in 2010 estimated that in highly developed countries, 77% was a ‘tipping point’ where productivity and potential economic growth was constrained by adding additional debt without addition of incremental revenue.  (In emerging economies, they estimate that 64% is the tipping point.)  In either case, potential for default begins to increase once the tipping point has been breached, thus putting upward pressure on borrowing costs.

The first instance when U.S. debt-to-GDP ratio exceeded 77% was toward the end of World War II.  In the post-war years, our national debt shrank in comparison to the booming post-war economy, and the debt-to-GDP ratio fell as low as 24 percent in 1974.

Recession and rising interest rates during the Carter administration put upward pressure on the debt-to-GDP ratio, and once the tax cuts enacted during Reagan’s first term combined with increased spending on both defense and social programs, the debt-to-GDP ratio reached 50 % in July 1989.

Economic growth in the ‘90s, combined with tax increases under both Presidents George H.W. Bush and Bill Clinton helped keep the debt load in line, and by the end of December 2000, our national debt was about 55% of GDP.

Following the terrorist attacks on 9/11/2001, U.S. military spending spiked, yet tax cuts enacted in 2001 and 2003 during the George W. Bush administration combined with a mild recession in 2001 and the Great Recession beginning in 2007 caused significant decreases in tax revenues. By the time Barack Obama took office in January 2009, the debt-to- GDP-ratio reached 75%.

Deficit spending is one of the key tools available to stimulate economic recovery, and by the time of Obama’s 2nd inauguration in January 2013, the U.S. debt had grown to $16 Trillion – a debt-to-GDP ratio of 101%. By that time, it was clear that the economic stimulus of deficit spending had worked, evidenced by an expanding U.S. economy; signs of ending the wars in Afghanistan and Iraq; resurgence of the U.S. stock market; continued job growth; and other positive economic indicators.

All of these positive signs at the beginning of 2013 pointed to the need to rein in government spending and to strategically increase revenues (i.e. raise taxes).

Yet, the Congress has stubbornly refused to deal with the reality that our U.S. debt-to-GDP ratio has remained above 100 percent since 2013.

In early 2018, an analysis by the nonpartisan Committee for a Responsible Federal Budget concluded that the Tax Cuts and Jobs Act signed into law in late 2017 will push the U.S. national debt to $33 Trillion — 113 % of GDP — by 2028, a ratio not seen since immediately after World War II.

The Tax Cuts and Jobs Act is a sham (and a scam) which created a situation exactly opposite of what responsible elected officials should have supported.  The sooner it is  amended, repaired or repealed, the sooner the American people will be transitioned into a less dangerous and more stable and sustainable economic environment.

Economic and Fiscal Policy

February 12, 2019

Our current POTUS rarely stands still long enough for anyone to really examine how his positions and policies impact us in the present, or potentially in the future.

Here are a couple of observations which I managed to glean from rapidly moving targets:

Fiscal Policy:  Failure

By late 2017, the U.S. economy had enjoyed over 8 years of economic expansion (since June 2009), leading virtually all economists to conclude we were moving toward the end of an economic expansion cycle. Most experts agree that the government should constrain both borrowing and spending during an expansion phase, concurrently decreasing government debt.

When the expansion phase of a business cycle comes to an end, and the economy begins to sputter – and ultimately to contract – a government with reduced debt will have the capacity to spend more and tax less, helping to support the softening economy return to equilibrium faster and smoother.

The much-touted Tax Cuts and Jobs Act enacted at the end of 2017 introduced a $1.5 Trillion tax cut, sold as a source of economic stimulus when it was least needed.

In times of economic expansion, the government is on notice to reduce its deficit.

On February 12, 2019, the national debt passed a new milestone, topping $22 Trillion for the first time.  According to the U.S. Treasury Department, total outstanding public debt hit $22.01 Trillion, up from the $19.95 Trillion when President Donald Trump took office on Jan. 20, 2017.  This is mighty dangerous stuff, folks.

Trade Policy:  Failure

Tariffs are a tax on consumption, paid by end users.

Over several decades, the U.S. developed a dependence on manufactured goods from China.  In turn, U.S. exports to China – predominantly agricultural and unfinished goods – enjoyed strong growth over time.

President Trump abruptly started a trade war with China, imposing tariffs on goods imported into the U.S. beginning in July 2018.

China quickly retaliated, raising tariffs on American goods imported into China, resulting in significant shifts by China to alternative sources.

Winners?  Brazil; Russia; Germany; Japan.

Losers?  American agricultural producers in Iowa, Nebraska, Indiana, Missouri, Ohio, South Dakota, North Dakota, and Kansas; some American manufacturers; and American consumers overall.

It was once said, “When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win.

The evidence seems to emphatically refute that position.

Monday, January 21, 2019The International Monetary Fund pared back its world economic growth forecasts for 2019 and 2020 due to sustained economic weakness in Europe and some emerging markets. They also said looming trade tensions and the longer-term ramifications of the U.S. government shutdown could further destabilize a slowing global economy.

“After two years of solid expansion, the world economy is growing more slowly than expected and risks are rising,” IMF Managing Director Christine Lagarde said.

In addition to other forces, IMF economists pointed to: (a) challenges to German auto manufacturers due to new fuel emission standards; (b) uncertainty in Italy where a newly elected coalition government has clashed with EU leadership over a budget proposal which would dangerously increase the Italian sovereign deficit, combined with limp domestic demand; and (c) the uncertainty of fallout from a less-than-smooth exit from the European Union by the U.K. a.k.a. ‘a no-deal Brexit’.

Fears of a global slowdown began to jinx financial markets in early November 2018 as investors began to worry about increasingly weak signs in China.

The ripple effect of Sino-U.S. trade frictions over the past year apparently has exacerbated the slowing of China’s official growth rate to its weakest level since 1990, attributed to a combination of diminishing domestic demand and damaging U.S. tariffs.

Each of these issues is important, and they generally share a common theme:  bad policy decisions made by incompetent and/or uninformed people, some of whom are voters; some private-sector executives; and some unconstrained elected officials.

On Day 30 of the 2018-19 U.S Shutdown:  It is becoming increasingly evident that this partial federal government shutdown is taking an increasingly negative short-term toll on consumer and business confidence, and by extension, the overall US economy.  The White House’s Council of Economic Advisors recently updated their estimate that the shutdown will reduce current economic growth by 0.13% for every week that it lasts.  Doesn’t sound like much, you say?

We can look back to the “Ted Cruz Green Eggs & Ham” shutdown of 2013 – a mere 16 days – to see estimates of negative economic impact:

  • $24 billion in lost domestic economic output;
  • $2.1 billion in non-productive government costs (primarily the cost of paying furloughed workers for hours they didn’t actually work);
  • $2.4 billion in lost travel spending (based on a combination of estimated reductions in business travel for federal contractors and federal employees, plus cancellations of discretionary travel by tourists);
  • $7.2 Million in lost revenue at National Parks (based on an average collection of $450,000 per day);
  • Most alarming? While we can estimate current economic effects, there really is no valid means to estimate long-term economic – and societal – effects of an extended shutdown.

The message?  Political decisions made by unqualified and/or inexperienced individuals can and do have long term negative consequences. A comprehensive system of checks and balances is a critical ingredient in the long-term viability of any institution. In the public sector, a key ingredient seems to be the involved and active participation by a well-educated and well-informed body of citizens who are able and willing to vote.

The Trump Trifecta

October 26, 2018

Since taking office in January 2017, Donald Trump has stood with House Speaker Paul Ryan and Senate Majority Leader Mitch McConnell to proclaim various ‘victories’ for the American people.  Here are what seem to be the top three, A.K.A. “The Trifecta”:

  1. Complicit with Russia, Saudi Arabia and several other suspect regimes. Trump has continued to send public messages which downplay and/or absolve bad actors from behaviors which are contrary to existing international standards.

One clear reason:  Trump — and his close advisor Jared Kushner —  is involved in highly leveraged real estate development.  Neither Trump nor Kushner have the liquidity or availability of traditional financing sources to invest their own money.  Instead, they are forced to chase shady money from around the world, including huge sums of money sourced from Saudi Arabia, Russia, China, etc.

Essentially, Trump (along with the Kushner Companies) is beholden to Crown Prince Mohammed bin Salman; Vladimir Putin; various Chinese investors; along with ‘dark money’ sources in Cyprus, Panama and the Cayman Islands, among others.

2. The “Tax Cuts and Jobs Act” (TCJA) was passed in late 2017 incorporating some modest temporary individual and small business tax cuts while focusing in on very substantial big business and corporate tax cuts.

Traditional economic models, developed and refined over countless economic cycles, encourage tax cuts and deficit spending during economic downturns as a means to stimulate economic growth.  During times of economic expansion, increased government revenue from tax collections is then used to pay down public debt and help stabilize the economy.

N.B.  There was a strong case to be made for a modest corporate tax cut as the U.S. economy began to improve post 2012; there was zero legitimate case to be made for the magnitude of the corporate tax cut which was a cornerstone of the 2017 TCJA.

The foundation of the TCJA was a promise that slashing corporate taxes from a maximum 35% rate to a 21% cap would result in dramatic increases in capital investment, resulting in job creation and wage growth.  Americans for Tax Reform, a vocal advocate for the plan, generated promises of employee bonuses, increased wages, increased retirement contributions and/or expanded business operations as a result of the TCJA.

Actual outcomes of the Tax Cuts?  Record stock buybacks; extraordinary executive compensation; flat employee compensation; and continued failure of venerable American corporations.

Definitive proof of the foolishness of cutting taxes in a time of economic expansion?  A rapidly expanding federal budget deficit.  According to the final monthly Treasury Statement for Fiscal Year 2018 (the year that ended on 9/30/2018), the deficit was $779 Billion — a $113 Billion (17%) increase over the$666 Billion deficit recorded from FY 2017.

Perhaps most egregious to the American people?  Mitch McConnell is blaming self-funded safety net programs [Social Security, Medicare and Medicaid] as the root cause of our rising federal deficit.  Visualize McConnell as he does a little smile; looks straight into the camera; and then blatantly lies to the American people.  Was he also lying when he took the Oath of Office?

3.  Incendiary, Irrational and Emotionally-Inspired Immigration Policy:

Right or wrong, the U.S. economy depends on immigrant workers – documented or undocumented. Industry sectors which rely on immigrants for between 1/4 and 1/2 of their employment needs include: agriculture; hospitality; construction; textile, apparel and leather manufacturing; food manufacturing; and private households.

Through a series of small moves that add up to dramatic change, the Trump administration has bypassed Congress to create new process and procedures which could have lasting effects on how the US welcomes and evaluates immigrants.

In his election campaign in June 2015, Trump told us, “When Mexico sends its people, they’re not sending their best. They’re sending people that have lots of problems, and they’re bringing those problems with us. They’re bringing drugs. They’re bringing crime. They’re rapists…”

By painting virtually all immigrants with a broad brush as criminals; as a national security threat to the U.S.; as bad people; as people who steal jobs from Americans;  he has created a hostile environment on the world stage, offering fear and fallacies with no attempt to find viable and sustainable solutions.

In late October 2018, facing a ‘caravan of migrants’ moving north from Central America toward the U.S. Southern border, Trump has proclaimed that there are ‘criminals and people of Middle Eastern descent among the migrants within the caravan’ and has pointed to it as evidence that the U.S. has weak immigration laws. He has also threatened to cut off aid to Central American countries in response to the caravan.

An internal report from the Department of Homeland Security’s Inspector General found that the Trump administration’s “zero tolerance” crackdown at the border in early 2018 was troubled from the outset by planning shortfalls, widespread communication failures and administrative indifference to the separation of small children from their parents.

It has been said that the Trump Child Separation Policy is related to the worst abuses of humanity in history.  Child separation is connected by the same evil that separated families during slavery, and which dislocated tribes and broke up Native American families.

What’s the point?

The point is that differences of opinion are a cornerstone of society, and a critical ingredient of humanity.

The very essence of Debate relies on formal discussion on a particular topic.

In an honest debate, opposing arguments are put forward to argue for opposite  viewpoints. Genuine and honest debate can occur in public meetings, academic institutions, and in legislative assemblies.

A genuine debate requires some ground rules, particularly in the areas of logical consistency and factual accuracy, yet it also allows some degree of emotional appeal to the audience.

Sadly, today’s discussions on topics of importance to the American People seem to lack any rules about civility, logic or even factual accuracy.

Turn on the television and we find absolutism, tribalism and a “win at any cost” approach to delicate yet important societal issues. Dialogue has effectively been replaced by diatribe.

Worse, people can select news sources which support and reinforce their biases, finding comfort in “being right” by selective listening or watching. No time or need to consider other options when the platform has been fully developed to mirror your comfort zone.

Add to this dilemma the continuing disenfranchisement of American adults from the political process.

More adult males in America today are able to recite NFL statistics than are able explain issues facing American society, and women are not far behind.

Voter turnout in the United States fluctuates in national elections. In recent elections, about 60% of the voting eligible population votes during presidential election years, and about 40% votes during midterm elections. Turnout is lower for odd year, primary and local elections.

If we compare national voter participation in the 2016 presidential election to viewership of the 2016 Superbowl, we find a dead heat at around 112 Million.

Not necessarily the same people, but it does strike me that we have a real disconnect between the American public and our governance model, perhaps helping to explain why our system seems to be in need of some serious adjustments at this point in time.

Since Donald J. Trump announced his candidacy for president in June 2015, there have been many commentaries on his financial history — particularly because he has refused to release his tax returns.

In 2016, David Barstow, Susanne Craig and Russ Buettner of The New York Times obtained Trump’s 1995 tax returns, and for their article published on the front page of The New York Times on October 3, 2018, they worked together for over a year to investigate the wealth that the president inherited from his father.

The narrative in the NY Times investigative piece is compelling.

Like most rules and regulations, U.S. tax law assumes that people will voluntarily comply in the interest of equity and fairness across the board.  If the laws are not fair, they should be amended, not circumvented.

Having worked in the real estate and financial services industry for many years, I am familiar with many of the strategies exposed in the article, particularly the rather arbitrary and capricious use of independent appraisals to determine market value at a point in time.

Where many — if not most — wealthy families and individuals pay their fair share of taxes (perhaps grudgingly), the Trump family has notoriously and conspicuously fought against taxing authorities, continually challenging assessments and levies as a part of their overall family business plan.

Note a recent kerfuffle in Westchester County, NY where a Trump National Golf Club is located.

With a 65,000 square foot club house, private gourmet restaurant, swimming pool, tennis pavilion and courts, the 18-hole, 7,261 yard Jim Fazio designed course is situated on 140+ acres of prime real estate in the Town of Ossining, NY.

This ultra-exclusive private club demands a hefty 5-figure initiation fee from new members, with minimum annual dues of $19,400.

In his 2017 Executive Branch Personal Financial Disclosure Report (filed 6/14/2017), Donald Trump revealed the value of his ownership interest in Trump National Golf Club – Westchester at ‘over $50,000,000.’ with annual personal income attributable to the Club of $9,771,428.

Yet, in 2015, the Trump Organization sued the town of Ossining to lower its assessment from the 2014 value of $13.5 Million to $1.4 Million in order to reduce property and school taxes.

After the feud with Ossining became public, Trump’s lawyers raised the dollar value of the golf course, but it was still nowhere near the official 2015 assessment of $14.3 million and 2016 assessed value of $15.1 million.

The moves are consistent with repeated efforts by the Trump Organization to challenge property valuations in an effort to win massive local property tax reductions, not to mention the potentially illicit impacts on federal, state and local income tax obligations which in many cases are directly linked to these local assessments (valuations).

Over the past several years, Trump has lauded himself as “one of the most successful businessmen in the world,” who paid “no more tax than legally required.”

“I have brilliantly used [the U.S. tax] laws,” Trump said at a campaign event in October 2016. “I was able to use the tax laws of this country, and my business acumen, to dig out of the real estate mess — you would call it a depression — when few others were able to do what I did.”

It was a reported $916 Million net operating loss in 1995 which gave Trump the ability to avoid paying taxes on more than $50 Million in annual taxable income over the following 18 years.

Make America Great Again? Only if others are willing to cough up the tax revenues needed to pay the freight.

Labor Day Reflections

September 2, 2018

Labor Day, the first Monday in September, is an outcome of the U.S. Labor Movement and is dedicated to the social and economic achievements of American workers. It is an annual national tribute to the contributions workers have made to the strength, prosperity, and well-being of our country.

The first Labor Day holiday was celebrated on Tuesday, September 5, 1882, in New York City, in accordance with the plans of the Central Labor Union.  It didn’t take long for the federal government to recognize it (1885), and it became a national holiday in 1894.

The inspiration of Labor Day is closely tied to both the roots of Capitalism and the emergence of Labor Unions in the U.S.

In 1983, the first year for which union data are available, the union membership rate was 20.1 percent and there were 17.7 million union workers.

By 2017, the union membership rate had declined to 10.7 percent, and – most alarmingly – union representation of public-sector workers (34.4 percent) had become more than five times higher than that of private-sector workers (6.5 percent).

The origin of Capitalism as economic system assumed that private individuals or families who directly invested in (and directly took on the risks of loss) would own the means of production, distribution, and thus ensure a free and fair market for goods and services: They had real skin in the game.

Relying on the theories that: (1) people (consumers) are rational and will seek maximum utility from their economic actions; (2) information is transparently available to all who participate in the economy; and (3) markets are self-correcting; the concepts of Capitalism are compelling to most people when contrasted to cooperatively or state-owned means of wealth.

Worker exploitation was one of the early criticisms of the Capitalism model. The Labor Movement in the U.S. was instrumental in creating a buffer (safeguard) to help ensure a safer workplace, fair wages and reasonable hours and benefits.  The Labor Movement was enabled by Labor Unions.

Today’s version of Capitalism has morphed into ownership of corporations by passive investors (mutual funds, pension funds, venture funds, etc.) which seek maximum current ROI with little or no regard to sustainability or externalities.

The executives who are charged with achieving the expectation of the passive investors are “hired guns” who begin with no skin in the game, yet who often are rewarded with stock options when short-term outcomes are positive.

In 1978, the average CEO earned about 30 times as much as the average worker.  U.S. Census data tells us that the average income for U.S. households was $17,730, pegging average CEO income at $531,900.

In just 40 years, statistics from 2017 indicate that CEOs in the 350 largest companies in the U.S. are earning over 300 times as much as the average worker (actually, 312:1).

A recent survey by Glassdoor found that the median salary for U.S. employees is $51,272, implying median CEO compensation at nearly $16 Million.

There is no rational explanation for the explosion of the CEO to Worker compensation ratio.  It seems to reflect a total lack of oversight by those individuals who have been elected to represent the interests of the American people.

Current economic conditions ought to raise a red flag to our elected officials that our nation has navigated very close to a Feudalistic System which is on track to implode and to destroy the very notion of what is described in the Declaration of Independence.

Labor Day seems like an appropriate time to pause and reflect on what seems to be an egregious obstacle to the healthy future of our American society.

Our system of governance in the U.S. is highly dependent on the willingness and ability of citizens to elect leaders who will solve the problems and challenges of the current environment, and who will promote institutional adaptations in the long-term public interest.

Most of us will identify with the basic attributes scholars often point to as the foundation for effective public leaders: (1) Honesty; (2) Basic and Common roots; and (3) A reputation of high integrity and personal principles.

As I searched for the “secret sauce” of public sector leadership, I found a few terrific recipes.

My favorite might be, “If leadership has a secret sauce, it may well be humility. A humble boss understands that there are things he doesn’t know.”

Some contenders include,

“Good leaders motivate and encourage others.” Continued emphasis on controlling and/or reducing costs in the public sector puts extreme pressure on public sector employees.  Good leaders create supportive atmospheres and encourage initiative. They invest in their people and foster skill growth. And when employees are satisfied in a healthy environment, great results likely will follow.

“Good leaders communicate clearly and listen attentively.” When good leaders sincerely listen to the needs and challenges of their constituents, they can respond effectively and bring about the greatest positive change.

“Good leaders are trustworthy.” Trustworthiness is built upon integrity and character. When people trust leaders and value their integrity, they tend to be more open to new ideas and exude a willingness to try.

“Good leaders think critically and act collaboratively.” Effective decision makers employ careful consideration and analysis of the evidence before formulating a decision. Public sector decisions can have multi-generational impact, so using a team approach incorporating strong analytical, problem solving and critical thinking skills is essential to the job.

“Good leaders are resilient.” In the world of public policy and governance, the only constant is change. Uncontrollable external variables will create unexpected challenges. Good leaders remain positive; they develop alternative solutions; and they encourage confidence in their employees to help ensure they will remain effective at the most crucial times.

My greatest hope is that other fellow citizens of the U.S. will take a few minutes to step back and think about the strategic implications of leadership.

The headline comes directly from Steven Mnuchin, our U.S. Treasury Secretary, who recently penned an op-ed piece which appeared in print in the Tampa Bay Times (July 3, 2018).  https://www.whitehouse.gov/articles/trump-tax-cuts-strengthened-u-s-economy/

Mnuchin’s opinion piece seems to consist primarily of fluffed-up puffery related to the Tax Cuts and Jobs Act (TCJA) of 2017.

Mr. Mnuchin omitted several critical issues which most economists agree must be included in any analysis of the U.S. economy.

First is the ‘business (economic) cycle’.  The National Bureau of Economic Research (NBER) has been tracking the U.S. economy for 160+ years.  NBER defines one business cycle as: A period of economic expansion; followed by a contraction (recession); ending at the next point of recovery.

NBER’s 160+ years of records reflect that (over that time) the U.S. economy experienced 66 business cycles. Since 1945, we have experienced 11 business cycles with an average length of expansions of 5 years, followed by an average length of recessions of 1 year.

We can’t forget that the U.S. economy almost collapsed in early 2008 following a period of ebullience and expansion apparently accompanied by loose regulatory oversight of the financial sector.

Quick intervention in 2008 by our federal government saved the U.S. economy from the deepest and longest downturn since the Great Depression.  NBER data reflects the point of recovery (beginning of expansion) of the U.S. economy occurred in June 2009, and has now entered its 10th year (109th month) of growth.

Our current economic expansion is now the second-longest expansion on record, exceeded only by the expansion from March 1991 to March 2001, which lasted a full 10 years.

History tells us we are very close to the point of contraction (recession) of the U.S. economy.

Second is the ‘Skills Gap’.  When Mr. Mnuchin tells us that “…there are enough job openings in America for every unemployed person in the country” he fails to explain that the majority of open jobs require skills which the majority of unemployed people lack. In other cases, the unfilled jobs are located hundreds – maybe thousands – of miles away from the location of potential job seekers.

One solution to filling the open jobs is to encourage migration – or immigration — of skilled workers.

Another solution is to recruit, educate and train currently underemployed or unemployed U.S. residents who live in near proximity to the open jobs.

Third involves a dangerous combination of tax cuts and deficit spending to finance those tax cuts.

Mr. Mnuchin touts benefits to U.S. workers as a result of repatriation of hundreds of billions of dollars from off-shore corporate subsidiaries to the U.S.  In fact, companies thus far have paid out dividends and other withdrawals of $305.6 billion from foreign receipts which far outstripped the amount of this cash which was reinvested domestically.  By some estimates, corporations have spent 72 times as much on share buybacks as they have spent on one-time worker bonuses and raises.

The U.S. ‘current account deficit’, which measures the flow of goods, services and investments into and out of the country, widened by $8.0 billion to $124.1 billion, or 2.5 percent of national economic output in the first 3 months of 2018, virtually all of which seems to be attributable to the repatriation tax holiday.

To make up for the loss of tax revenue, the Trump administration is relying on a combination of debt financing and mystical economic growth which they expect to occur at the end of an extended business cycle.

Mnuchin tells us that U.S. economic growth is on steroids.

Some observers have noted that the appearance of economic growth is highly influenced by the infusion of repatriated cash – somewhat similar to feeding 2nd graders sugar before sending them out onto the playground.

The energy is intense, but it won’t last very long, and it is just not sustainable.

A recent report (6/21/2108) from the U.S. Office of Government Accountability (GAO) warns that responsible action is needed on the nation’s growing federal deficit, which grew to $666 Billion in FY 2017 (10/01/16 to 9/30/17) and is projected to surpass $1 Trillion by 2020.

According to the GAO’s 2017 financial report, the federal deficit in FY 2017 increased by 13.5% from $587 Billion in FY 2016 and $439 Billion in FY 2015. Federal receipts in FY 2017 increased by $48 billion, but that was outweighed by a $127 billion increase in spending.  (Note that Deficit is an annual measure; National Debt is aggregate, an accumulation of annual shortfalls.)

The aggregate (gross) amount that the U.S. Treasury can borrow is limited by the U.S. debt ceiling. As of April 30, 2018, our National Debt was $21 Trillion, about 78% of GDP.

Since its passage in December 2017, the non-partisan Congressional Budget Office has warned that TCJA will add $1.84 Trillion to the federal deficit over the next 10 years, which they estimate will push the National Debt to an unprecedented 152 percent of GDP by 2028, significantly increasing the odds of a new financial crisis.

Interest rates are rising, and National Debt is increasing, thus interest on National Debt will consume an ever-increasing amount of future federal budgets.

And, of great concern is the flattening of the ‘yield curve’.  Traditionally, interest rates on short-term debt are lower than rates paid on long-term obligations.

The spread between the yields of the 2-year Treasury note (2.55 percent) and 10-year Treasury note (2.89 percent) was 34 basis points on June 23. That’s less than half of what it was in early February and the narrowest it’s been since August 2007.

An inversion of the yield curve — when long-term rates fall below short-term rates — traditionally predicts a looming recession.

—————————————————————————-

It’s not clear why Mr. Mnuchin – a seasoned financial services sector professional with a clear expertise in fixed income securities – would omit such important information in his assessment of the U.S. economy.

I am drawn to conclude Mr. Mnuchin is using his position as a high-ranking federal official to ‘butter his own toast’, likely through complex – and undisclosed — derivative positions.

We’ll have to see if the Walrus is correct…..