Long-Term Implications of Trump's Carrier Deal

Although they might not like to admit it, the media is having a field day covering the post-election world now that Trump has won. Every minor move he makes drives tons of traffic and increases the readership of the media outlets. With so much coverage it is interesting to read different perspectives of the moves he makes.

As Trump looks to make due on his promise to keep factory jobs in America, he's set up some sort of vague arrangement with Carrier (owned by United Technologies Corporation). The lack of details and the presentation make it look more like a political ploy and less like an actual victory. Trump worked out a deal that would give Carrier $7 million in tax incentives over a decade and the company would thus invest $16 million in keeping the company in state. Arguments have been made as to the merit of this deal in terms of the quantity of jobs saved or the stress on the defect, however, an article from the Washington Post delivers a deeper perspective.

Lawrence Summers, of the Washington Post, outlines why "Trump's Carrier deal could permanently damage American capitalism." Instead of focusing on the numbers involved in the deal, his piece poses questions about the deal's impact on the overall economic system. He discusses how these government deals might distort the free market by straying away from the rule and law based system. As we've discussed in class, the overall production function in America, comprised of the legal system and technology among other factors, is what drives our high standard of living. It will be interesting to see if these deals-based policies harm us in the long run, especially with economies around the world catching up.




https://www.washingtonpost.com/news/wonk/wp/2016/12/02/why-trumps-carrier-deal-is-bad-for-america/?utm_term=.600546527a18

What Donald Trump’s election means for government-bond markets

After Donald Trump was elected for presidency, the yield on the two-year bond rose from 0.78% to 1.12% and the ten-year treasury bond rose from 1.73% to 2.36%.  The thought behind these jumps is because of the belief that Trump will "push through a fiscal stimulus, in the form of tax cuts and infrastructure spending.  Not only will that boost the American economy but it will allow the Federal Reserve to return monetary policy to more “normal” levels by pushing up rates from the current 0.5%. It could also lead to higher inflation in the medium term. Forecasts for American inflation in the early 2020s can be derived from the bond market. In July, they pointed to 1.4%; now they imply 2.1%. All three factors—faster growth, rising short-term rates and higher inflation—are usually drivers of higher bond yields." 

So far this year, The thoughts of deflation and a quick slowdown in the Chinese economy has gone away.  Because of this, it is less likely that people will want to won government bonds.  Investment is becoming less popular. 

"The rise of extremist politicians brings with it the risk of extreme outcomes. The problem for investors is that the implications of such shocks are not uniform. The Brexit vote was followed by a fall in bond yields (as cautious investors opted for the safety of bonds), but the election of Mr Trump caused yields to rise. Had the president-elect made a swift promise to pursue his protectionist agenda, however, bond yields might have fallen, since a tariff war would hurt economic growth. The election of Marine Le Pen as French president would probably cause European government bonds to sell off; yields in America and Japan might fall."


http://www.economist.com/news/finance-and-economics/21711036-recent-falls-bond-prices-and-rises-yields-may-not-signal-end-low

Elderly people are holding Japan's Economy together

There is an interesting phenomenon happening in Japan right now.  According to Japan's Ministry for Internal Affairs and Communications and Cabinet office data, young workers in Japan (individuals under 60) have declined in their consumer spending since 2002 while those individuals (60 and older) have increased in their percentage make-up of consumption since 2002.  It is believed that young people are saving for retirement but so much so that it is hurting the Japanese economy.  Within the article cited, it is stated that, "Though they account for more than a third of the population, those over 60 contribute nearly half of consumer spending, according to government data. Spending by seniors is offsetting falling consumption among younger generations, according to UBS."  Another large reason for this decline among spending from younger communities is attributed, according to a report from Goldman Sachs, from a large decline in spending from consumers in their 40s and 50s because of a lack of change in incomes and a rise in "social insurance premiums." This phenomenon is very intriguing and makes you wonder how the Japanese government could stimulate this decline in consumer spending.    

https://www.bloomberg.com/news/articles/2016-12-04/silver-spenders-are-propping-up-japan-s-economy

Robots won’t kill the workforce. They’ll save the global economy.

There has been a rising concern about how the increase of robots might negatively affect the job market as the human population keeps on increasing . But on the other hand, some economists believe that robots will actually save the global economy as it doesn't depend on the number of people but the rate of population growth. The article talks about how the population growth has seen a decrease as women are having fewer children so the fewer people are entering the workforce and there is a decrease in labor growth worldwide. In the past use of technology has usually proved to be beneficial to growth as the article also states, "After the introduction of supermarket scanners, the number of cashiers grew. Though legal-discovery software appeared to threaten the jobs of paralegals, their ranks increased, too. ". If there was a negative impact of using artificial intelligence or advanced technology in industries we would have seen the decline in  growth already but after 2008 job growth in industrial countries have been more than the other countries. According to the article, "In the Group of Seven, the world’s top industrial countries, unemployment has fallen faster than expected in the face of weak economic growth, and faster than in any comparable period since at least the 1970s". Only time will tell if economists will start including robots in the working age population.

Link :
https://www.washingtonpost.com/posteverything/wp/2016/12/02/robots-wont-kill-the-workforce-theyll-save-the-global-economy/?utm_term=.60cdd1d473c4

Want to rev up the economy? Don't worry about the trade deficit.

Want to rev up the economy? Don't worry about the trade deficit.

This article talks about the concept that was learned in class a few months ago.  Essentially, President elect Trump intends to remove the trade deficit, because the thinking is that this will improve GDP as well as lower the unemployment rate.  The logic behind that end goal is that domestic spending would increase leading to higher GDP and lower unemployment.  But as we know, it is not that simple.  If the US intends to remove the trade deficit (in the manner that Trump talked about in his campaign with tariffs), it could potentially be bead for the economy.  The US dollar would appreciate, and less foreigners would buy our products.  This would lower output which is the opposite of the specified goal.  The article also backs up this idea with the fact that foreign investment in US capital assets has increased from $2.5 trillion in 2010 to the $8 trillion that it is today.  If the dollar appreciated, that number would surely decline.  The article suggests that the situation that the US has found itself in is not necessarily as bad as people make it out to be.  It is difficult to say whether this is a true statement or not, but there is certainly room to interpret.

http://www.nytimes.com/2016/12/02/upshot/want-to-rev-up-the-economy-dont-worry-about-the-trade-deficit.html?ref=economy

US consumer spending, income increase in October.

Even though it increased at a lower rate than anticipated, US consumer spending increased (as a result of a higher income boost) sufficiently enough to support the economy in the fourth quarter.

The Commerce Department said that consumer spending, which is accountable for around 70 percent of U.S. economic activity, increased 0.3 percent after an upwardly revised 0.7 percent gain in September.

The government reported that GDP increased at a 3.2 percent annual rate in the third quarter, driven by strong consumer spending and a surge in soybean exports.

With consumer spending consolidating, inflation continued to gain at a steady rate. The personal consumption expenditures (PCE) price index rose 0.2 percent after a similar increase in September.

To read more on this, go to:
http://www.cnbc.com/2016/11/30/us-consumer-spending-income-increase-in-october.html

US private sector created 216,000 jobs in Nov, vs 165,000 jobs expected

The article speaks about the increase in jobs in the US private sector. It created around 216,000 jobs  in November, which was higher than the expected 165,000 jobs. Private companies added a net 216,000 positions during the November, smashing the 165,000 estimate from economists surveyed by Reuters and marking the best month since June. Services dominated the month, with the sector adding 228,000 positions, while goods-producing industries lost 11,000 jobs. Also, within the broad services sector, trade, transportation and utilities created 69,000 jobs while professional and business services contributed 68,000, led by 47,000 in administrative and support services. Education and health services contributed 43,000 to the total, while the burgeoning leisure and hospitality industry saw payroll growth of 38,000. Wall Street positions continued to increase as well, with a net 12,000 new hires in the financial services industry.

However, on the downside of things, manufacturing jobs continued to decline, losing 10,000, while mining declined 4,000. Construction added 2,000. Small business has led the jobs recovery, but that wasn't the case in November. Firms with 500 or more employees grew by 90,000, while businesses with 50 to 499 employees added 89,000. Small business contributed just 37,000 to the total. Economists are expecting 173,000 total growth and 165,000 for private payrolls and the unemployment rate is expected to stay unchanged at 4.9 percent.

http://www.cnbc.com/2016/11/30/us-private-sector-jobs-nov-2016-adp.html

‘Economic Tsunami’: Fearing Donald Trump, Immigrants in New York Spend Less

According to the Center of an Urban Future, forty-seven percent of New York City's work force is made up of immigrants. Newly elected President Donald Trump has made the deportation of illegal immigrants one of his top priorities for our country moving forward. In New York City, there are 574,000 illegal immigrants whom pay $793 million a year in taxes, which is about 10 percent of the city. It is very difficult to truly understand the "massive ripple effect" that this massive deportation could have on the city or even our country. Jonathan Bowles, executive director of the Center for an Urban Future says "and these are folks that pay taxes, that spend money in their communities, that may be employing other New Yorkers. And we could see others take flight." It is often overlooked the actual impact undocumented immigrants have in our country, and the potential negative impact that could occur if Trump's plans were to be put to action. Many illegal immigrants that may end up being forced to leave have cut back on spending and have began to save because they do not know what is to come next. It is clear that no one knows for certain the kind of effect the deportation of so many people will have, but it is clearly something that needs to be brought to light. The majority of the undocumented immigrants have established jobs and are employers with companies. Negative impacts that will surely come include unemployment, and decreased consumption, and the cities more than anything will be forced to deal with the effects above all. Trumps new plans to deport immigrants in such massive numbers will surely have a greater effect on our economy than people expect.

http://www.nytimes.com/2016/11/23/nyregion/economic-tsunami-fearing-donald-trump-immigrants-in-new-york-spend-less.html?_r=0

Why Textbook Prices Keep Climbing

Prices of new textbooks have been going up faster than food, clothing, cars and even healthcare. James Cook, an economics professor at Old Dominion University, discusses the principle agent problem. This is a problem that means that the buyer is not the person choosing, meaning the professor picks the book but doesn't pay. Many professors do not pay close attention to the prices of books when making the decision of what book to choose for the course, as salesmen do not discuss prices. Many courses will end up with a textbook that is much fancier than what is actually needed in the class. Greg Mankiw's best selling economics textbook is $273. Mankiw even discusses the principle agent problem in his book. These issues are not uncommon though, when you build a new home, you rely on the construction company the price they name and so on. The textbook market is no different.

http://www.npr.org/sections/money/2014/10/03/353300404/episode-573-why-textbook-prices-keep-climbing

Trump promises a US coal revival, but the world's energy authority begs to differ

Almost half of the US coal production is at or near the bankruptcy level. DiChristopher writes that Trump faces a difficult obstacle to fulfilling his promises of achieving clean coal production lasting a thousand years and bringing coal miners back to work. He puts forward the position of the International Energy Agency, which argues that the coal companies in the US will have to keep cutting prodution in the face of falling demand, global oversupply and decreasing prices. Global market forces such as the availability of the plentiful and lesser costing alternative in natural gas will probably succeed in driving out coal production from the US.

There is a possibility of the coal companies going back to profitable levels but only after self-destructive debt restructuring. Even then, coal workers will eventually have to settle for lowered wages due to the cut-throat competition in global markets. US coal exports are already in a crisis mode, with a 32% decrease during the first half of 2016. Moreover, global coal demand is expected to increase by just 0.2% through to 2040.

Article link: http://www.cnbc.com/2016/11/16/trump-pledges-us-coal-revival-worlds-energy-authority-begs-to-differ.html

Trumps "tax reform"

Principles for tax reform are black and white, congress should improve efficiency by levying lower rates on a broader base of income: minimum wage incentives, distort loopholes and deductions. A tax reform should legitimately be a reform that changes for the better economically. Trump has something that looks on paper as if a proposal that the rich pays much less, and the poor pays a lot more. During the campaign Trump's team put forward a plan to slash revenue at a estimated 620$ million every year. That is roughly 19% of fiscal 2015 receipts, over 10 years with no credit offset in form of spending cuts. The top 0.1% tax payers would experience an average tax cut of nearly 1.1 million. Sending out mixed signals I believe Trumps team needs to put out a more plausible plan on paper. A plan that reduces revenue by about 3.1 trillion$ over 10 years is more plausible fiscally responsible absent by spending cuts to federal programs, which the GOP also proposes, but harder to pass than tax cuts. Trumps team doesn't seem right now to have any specific idea for taxes, but when asked it seems that they either really don't know, or that isn't what is most important in what Trump plans to do in office. http://www.businessinsider.com/trump-tax-plan-mortgage-charity-deduction-changes-2016-12
-Travon

What Economists Expect from a Donald Trump Economy

With Trump set to be president, Economists are continuing to weigh in on what they believe the outlook for economies will be over the next four years. They are currently anticipating higher GDP, higher inflation, and higher interest rates.

Unemployment has been forecasted to remain within a few percentage points of full unemployment. The average amount of job growth has been slowing over the past few years and is expected to continue along that trend. If unemployment were to fall any further, we could see some heightened inflation.

Real GDP is anticipated to grow by 2.2% in 2017 and 2.3% in 2018. Growth has been stifled in recent years due to an aging workforce, slow population growth, and slow productivity. This is however still higher than the current growth rate (about 1.5%).

The inflation rate is expected to be higher than last month's rate, as fiscal stimulus under Trump is expected. Forecasted at 2.2% in 2017 and 2.4% in 2018, this could be the highest rate of sustained inflation above 2% since '07-'09. The possibility of a trade war, trade treaty expiration, and increased tariffs will also increase the price of goods driving inflation upward.

The interest rate on 10-Year Treasury Bonds is expected to rise to 3% in 2018. Borrowing will become more expensive for both consumers and the U.S. Government. Mortgages, for example, would become more expensive while payouts to investors seeking higher yields would become more favorable.

Having made an astounding comeback since the recession, The housing market has seen prices settle at a steady 5.5% increase in price. That is forecasted to hit 4.3% in 2017. Higher mortgage rates discussed above could slow that growth, as builders are anticipated to build about 1.3 million houses in 2017.

The big question... What are the odds of a recession under Trump? In the next 12 months, "forecasters believe the odds of a recession are somewhat lower" than this past summer. The odds are predicted to be 19%. The past 7 years of growth is a long time for the U.S. to not face a recession, and should there be no recession in the next 4 years, "it would be the longest stretch in U.S. history without recession". This is considered to be unlikely by most economists as the economy regularly faces cycles, as it is the nature of the beast. It will be interesting to see whether or not Trump's legacy is tainted but an inevitable crash, or if he can deliver on the grandiose promises he made during his campaign.

http://blogs.wsj.com/economics/2016/11/14/what-economists-expect-from-a-donald-trump-economy/

Uneven Tax Distribution Under Trump

Despite reports by Steven Mnuchin that rich U.S. taxpayers won’t be beneficiaries of “an absolute tax cut” under Trump's new plan, Eugene Steurle says, "Trump’s current plan doesn’t identify sufficient offsets for high earners to pay for their rate reductions.”  In Trump’s new taxation plan for 2017, a division of several hundred billion dollars of revenue cuts will be spread across different income ranges. As a result, the required tax pay of U.S citizens will decrease, but the expected contributions of the different income ranges is expected to shift in a way that the wealthy, top 1% will benefit. Their average tax cut will be around $215,000 per household under Trump's new plan which is a drop to 25% owed in federal taxes from the 28.7% currently being paid and the Tax Policy Center expects nearly half of the benefits under Trump’s plan to go to the top 1%, households which would result in them earning north of $700,000 each year.  This uneven split of the benefits of Trump's new plan contradicts both his and his projected Treasury secretary's statements on his new plan.

http://www.wsj.com/articles/taxes-under-trump-almost-everyone-pays-less-and-the-richest-pay-a-lot-less-1480700891

Fed May Face Unnerving Shake-Up Under Trump Administration

The article mostly talks about the ideas that the chairwoman of the Fed Janet Yellen has, and what are her ideas of what the Fed should do. Her idea is to increase the interest rates at a slow pace so there is no extreme inflation. Then they start talking about the Trump administration, and how this people might change the plans for the Fed. For the economic ideas and plans that Trump has they need the interest rates to increase faster than the Fed would like to increase them, that is why they talk about the pressure that Trump and his administration might put on the officials of the Fed so they do what Trump wants. Also the talk about how Trump could get this to be true by getting people into the Fed, since there are many important officials that are going to finish their role in the Fed soon, Trump has the opportunity to name people for those positions which might give him control over the Fed and he would have more control to change things like the interest rates. They said that this could also lead to new laws about all these issues, but the most important one that the Fed might start being related to politics and government issues, which could end up in a big problem and politicians crashing the economy because of lack of knowledge and using this as a tool for things like elections. Only over time we would see how much Trump is going to influence the Fed and how much is this going to affect the economy.

http://www.nytimes.com/reuters/2016/12/01/business/01reuters-usa-trump-fed-analysis.html?_r=0

The opinion of the Greek prime minister on the American election

http://www.greekcrisis.net/2016/11/tsipras-expects-trump-to-govern.html

Alexis Tsipras, is the prime minister of Greece representing SIRIZA, a political party considered to be placed on the left side. When asked for his opinion, Alexis Tsipras said that he believes that Donald Trump will follow a different tactic during his presidency than that shown and promised. His aggressiveness will fade out through time.

With the Republicans being extremely conservative for the standards of SIRIZA, I did not expect Tsipras to say a good word about the new president. It is interesting thought to see that politicians tend to scold exactly what they do. The Greek prime minister totally followed a different tactic after being elected as well.

http://paidpost.nytimes.com/chevron/how-the-us-has-cut-pollution-while-growing-the-economy.html?tbs_nyt=2016-oct-nytnative_hpstory-chevron?module=PaidPostDriver&region=PaidPostMOTH&pgType=Homepage&action=click

In this article of the New York Times discusses the effects that new ways of consuming energy have had on the world. As worded by the writer of the article, not only the environment has been helped but also the economy has been boosted.

Since the seventees, the national GDP has risen by near two hundred fifty percent, while the pollution has fell by fifty percent. It seems that the use of  natural gas, re usable energy and other cleaner burning fuels, have managed to hit two birds with the same stone. It is refreshing to see ways in which science helps out the world.

How Puerto Rico's sinking economy is crushing the American dream

David Bogaty owner of WorldNet explains that Puerto Rico's government does not support entrepreneurship which is a main cause for their sinking economy. David explains that if Puerto Rico's government would have more structured government support for entrepreneurship, this has the potential to boost 14 billion dollars into the economy. David also explains that in the 2017 Global Entrepreneurship Index, Puerto Rico ranked 41 out of 137 countries and has dropped six positions since last year.

David has proposed 3 key fixes

1. Refocus government on economic growth,  "What we need to move our economy forward is more and more structured government support for entrepreneurship. Our government should be funding more incubators and accelerators. University of Puerto Rico, which is publicly funded, should be investing heavily in entrepreneurship education".

2. Reduce Taxes that are hostile to start-ups, businesses in Puerto Rico must pay a tax on gross revenue of up to 2% that goes to municipalities. "Talking about repealing this tax is taboo, because the municipalities are always hurting for money." "We need to change that mind-set. The tax is crushing for start-up businesses, especially those that bring in revenue but aren't profitable yet."

3.Reform the government bidding process, "our government agencies require entrepreneurs to use a competitive bidding process that discourages innovation. Officials come up with the solutions they want and to win the work; companies have to submit the lowest price bid. We would do better with a system that tells us what problems government needs to solve and asks us to submit innovative solutions in the areas where we have expertise. Government should choose solutions based on which ones will truly advance our economy, or at least drive government efficiency."

"The changes I suggest require political will — a true desire to build a stronger Puerto Rico for our children. They require sacrifice and political risk by our politicians, but they would transform a seemingly hopeless situation into one in which Puerto Rico controls its own destiny."

http://www.cnbc.com/2016/11/20/how-puerto-ricos-sinking-economy-is-crushing-startups.html

US home prices hit new peak

The prices of homes are 5.5 percent higher than September 2015. This index has now surpassed its peak in July of 2006. The nations 20 largest cities reported a 5.1 percent annual gain. "This gain will mark a shift from the housing recovery to the hoped for start to a new advance"-David M.Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices.

Still another new read on home prices, looking at October values, also shows a hefty jump from a year ago. Zillow's Home Value Index shows home values nationally up over six percent compared to a year ago. Competition for homes is so fierce that less than half of buyers get the first home they make an offer on, according to the report. So the housing market has been favoring sellers and we see this trend continue over the last couple of months. 

http://www.cnbc.com/2016/11/29/us-home-prices-hit-new-peak-in-september-sp-corelogic-case-shiller.html