Hillary Clinton: Will Her Economic Policies Follow Best Global Practices?

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DDHillary Clinton’s search for an economic policy seems to forget the phrase used to caution investors: “Past results are not indicators of future success.” The world of her husband’s administration is long gone. The great goods of all economies are now commodities; volume produces wealth and flatlines jobs and wages. Apple, Monsanto (80% of world corn seed), American Water Supply (the largest water utility), Pepsico and Google are diverse examples of commodity enterprises operating in global markets that increase capital wealth with little increase in jobs; yet they are vital to economic growth.

Clinton’s advisers don’t seem to get this paradox: the modern economy is built on essential commodities that transfer wealth without the traditional means of adding value through labor and large workforces. In fact, work itself is becoming a commodity, priced by industry and region, in the same way as good and services.

Clinton economic panels ignore this reality. Yet the US economy is deeply entwined with monopolies by companies and by regions (China’s Pearl River zone, Foxconn; Vietnam, Indonesia, clothing; Brazil, agriculture; the big banks, cell, music and cable services; et al.). Working around the economic margins through taxes and fees will not restructure a system designed to vacuum up cash and maintain rock-bottom wages while the private sector shifts social costs to government.

But more importantly, her panels of economists overlook global best practices and opportunities! They agree and disagree about the wrong things! Models in several countries have successfully produced rapid growth and gains for the middle class in the last two decades (interrupted by the global recession) and continue to do so!

To cite four: China, Brazil, Botswana (per capita income, $17.1k, one of Africa’s highest!), and Mexico. Each country has structural issues, several confront major corruption and crime, but their political economies have increased wages and the size of the middle class by taking advantage of training, government partnerships, economic planning and global growth.

All four share two essential features: modifying social capital to invest heavily in health and education incentives, and protecting wages and investments for families by safety nets and identifying markets through planning with high-paying, sustainable jobs.

US politicians look at polls and avoid plans. The US creates international agreements, but lacks domestic strategy. The private sector and conservatives applaud the open market, but ignore its chaos and corruption, and see government as an adversary rather than a partner, a view contrary to the emerging global vision of government’s role in expanding national economies.

On taxes, Congress closes doors and opens loopholes. The controlling party of Congress wants to tell the sick they are unaffordable, the illiterate they are flawed, and to describe the jobs in which workers are stuck for decades as entry-level. Their proclamation of progress has no plan or specific details. We are deluding ourselves. Especially if we think only the market can pick winners and losers.

Successful models don’t debate ideas, abandon common sense, or solve blame. They don’t tilt policy to accelerate the flow of wealth to the rich while blaming others for the lack of virtues that supposedly cause income inequality and static wages. Successful models promote growth. They engage stakeholders and establish activities—real organizations and businesses supported by advanced knowledge and research, highlighted and included in state and regional plans, aided by federal policies that will innovate as markets expand.

This approach would give rebirth to America’s economy. Developing global models are driving micro (for families) and macro (for companies) growth and job expansion around the world (except Haiti, close to home). Here in the US, partisan calculations blot out the rich benefits of using the models’ far-reaching economic calculations.

Three Global Opportunities: Rails, Smartphone Operating Systems, Hydro and Solar Energy

Though it expands year over year, the US has abdicated the global rail market to China and Europe. It is a huge missed opportunity. Rail’s five main market segments (high-speed, mainline, freight, light rail, metro) include 150 or more sub-industries, among them electronics, safety, signaling, communications, maintenance, interiors, metallurgy, construction, power engines and assembly, and will have steady long-term growth, powered by the need to transport grain, coal, chemicals, automotive, intermodal freight and urban ridership.

But rail’s sustained, high-wage jobs are ceded to Canada (Bombardier), Germany (Siemens), and France (Alstom), among others. In a global market approaching a trillion dollars annually, two-thirds of rail revenues remain directly accessible to the US—orders are open and awarded to the best bids from competing global suppliers! Yet, as an example missing the present and future, the US share of the rail car market is only 5% and is not using its superior financing, technical and research knowledge, experience with large-scale projects and skilled workforces to compete for dominant share.

China holds two of the top three positions as manufacturers and suppliers of rolling stock equipment, positioned to take advantage of new sales: in the next ten years, Europe will replace 10,300 locomotives, and Africa’s demand for rolling stock will double.

Consider these recent global rail projects:

  • In Basque, a 172km high speed network in Spain between three regional capitals.
  • In Algiers, Africa’s second metro system carries 300,000 daily riders underground on a 9.2km line, with ten stations.
  • In Ankara, Turkey, three new lines, Kizilay-Cayyolu, 16 stations, 18km; Ulus-Kecioren, six stations, 7.9km; TBMM-Dikmen, five stations, 4.8km; 108 metro cars.
  • In Warsaw, a 19km route with 19 stations.
  • In Mexico City, North America’s second largest rapid transit, a new Gold Line, 24km with 18 stations.
  • In Brazil: Bidding a 511km high-speed line (with 90 km of tunnels!) with contracts for tracks, stations and infrastructure.
  • In Argentina, a 710km high-speed line, $4B.
  • The Trans-Asian Railway, a 14,000km main rail link between Singapore and Istanbul, with connections to Europe and Africa.

US companies received none of these bids or subcontracts, missing out on 80,000 to 250,000 new jobs. Nor do they recognize a key value of rail is its stable long-term growth through flexible and sustained mobility.

With rails, entrepreneurial opportunities exist in adhesives, sealants and fixings; cables, hoses and connectors; paint and protective coatings; electrification, power supply, lighting, electromechanical systems and drives; fire safety, detection and suppression; computer hardware and software, controls and monitoring systems, door systems, gangway systems, public address and alarm systems; track engineering and construction, track maintenance and repair; fare collection and ticketing; noise, shock and vibration control; heating and cooling systems and compressors; and wash plants—leaving aside the importance of locomotive, rail and passenger car design.

Research for innovation include sensors, computers and digital communications to collect, process and disseminate information to improve the rail safety, security and operations. Research also includes alternative fuels and energy sources, reducing life-cycle costs while increasing reliability of equipment and infrastructure assets, and maintenance.

Chinese high-speed train makers are increasingly selling their products to Western countries. Experts say the established European firms in the sector urgently need to develop strategies to counter the competition.

Chinese high-speed train makers are increasingly selling their products to Western countries. Experts say the established European firms in the sector urgently need to develop strategies to counter the competition.

In fact, the US is absent from rail and many economic niches.

Apple dominates the high end of the smartphone market, but opportunities exist and are expanding for inexpensive models, a market in which India and China lead with no US competition. The Indian smartphone market for phones under $200 grew 186 per cent in the first six months of 2014. Other developing countries hold the same market potential.

Recently, Google announced Android One, a standard operating system intended to become the first choice for millions of new customers globally. Continue reading Hillary Clinton: Will Her Economic Policies Follow Best Global Practices?

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Newt Gingrich, Ronald Reagan and the Myth of Reagan's Success with Supply Side Economics

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Charles: My name is Charles Howard.

This is my third in a series of videos with Steve Leser from Democrats for Progress.

Today, we are going to discuss supply side economics and the two frontrunners for the Republican nomination. Steve, what impact does Ronald Reagan play in the economic beliefs and proposals of Newt Gingrich and Mitt Romney?

Steve: Hi, Charles, and thanks for interviewing me.

It has been 32 years since Ronald Reagan took office at 1600 Pennsylvania Avenue. His economic policies and the perception that they were successful have dominated American economic policy ever since.

Newt Gingrich is touting his involvement in the implementation of Reagan’s supply side economics as part of the reason people should vote for him. Mitt Romney also refers to Reagan’s economics as the underpinnings of his economics proposals.I think it makes sense at this point to look at whether Reagan and his supply side economics were as successful as we’ve been led to believe.

The cornerstone of his [Reagan’s] policies and supply side economics is the implementation of lower taxes in general, but particularly important is a lower tax rate for the top income bracket.

When Ronald Reagan took over in January of 1981, those earning the highest income paid 70 percent of the topmost portion of their income in taxes. Over the course of his administration, he lowered that rate to 50 percent and then to 28 percent.

Since Reagan left office, the top tax rate has oscillated between 28 percent and 35 percent, where it now stands. That seven-percent variation is insignificant in comparison to the rates between 1945 and 1980 which ranged between 70 and 94 percent.

I think it is fair to say – and a lot of people across the political spectrum are going to howl at this – that Reaganomics, at least as far as tax policy goes, remains in place today even under President Obama.

Charles: I have two questions at this point, but let’s take them one at a time.

First, I remember the way things were in the late 70s and early 80s. Things were really bad. Inflation was high, oil prices were high, unemployment was high. The way it seems is that Reagan took office, lowered taxes and things got better. Is that not the case?

Steve: That is such an important question.

There is a Latin phrase that applies here, and it is: post hoc, ergo propter hoc. This phrase describes a logical fallacy wherein someone suggests that because something occurred before something else, it necessarily caused the second thing to happen.

For instance, I am walking outside and I drop a penny and then a minute later it starts to rain. If someone were to conclude that my dropping the penny caused it to rain, I think we would all agree that would be a ridiculous suggestion of causation.

There is a similar situation with the economic recovery of the mid-1980s and the policies of the Reagan administration. Here are the facts.

In 1973, the first of two 1970s era energy crises exploded on the world scene with OPEC instituting an embargo against the US and its allies in retaliation for US support of Israel during the Yom Kippur war. At the start of the embargo, the price for a barrel of oil was around $20 a barrel in 2008 dollars.

By the way, for all of the prices I am going to discuss, I am going to use what the equivalent of the prices would be in 2008 dollars so it is easier for us to understand the effect of what happened.

The price of a barrel of oil promptly doubled and then some as a result of the embargo to nearly $45 a barrel. The effects of that first crisis on oil and gas prices hadn’t ended by 1979 when a second crisis ensued from Iran’s Shah coming to the US for medical treatment and the hostage crisis that occurred when our embassy personnel in Tehran were taken hostage.

At that time, the price of a barrel of oil shot up to $100 a barrel in 2008 prices. The price of a gallon of gas went up to an equivalent of $4 a gallon. The hostage crisis ended in 1981 the day that Reagan was inaugurated, and almost immediately the price of a barrel of oil and of a gallon of gas began to drop.

By 1984, the price of a barrel of oil had come down from the equivalent of $100 to $60 a barrel and the price of a gallon of gas had gone back down from the equivalent of $4 a gallon down to $2.80 a gallon

Now we all know what the effect of a massive increase or decrease in the price of gas and oil does to the economy. In economic terms, a huge increase or decrease in the price of oil and gas is known as a supply shock.

Supply shocks cause major shifts in the direction of the economy.

It is no coincidence that the economic recovery for which Reagan is credited follows the decrease in the price of oil almost exactly. Here are a couple of graphs that emphasize the point.

Here is a graph of oil prices from 1960 to 2010. The orange line is the line that shows the prices in their 2008 equivalents. You can see that prices take off in 1973 and spike again in 1979 and then start to decline sharply in 1981. They are significantly lower by 1984 and continue lower and stabilize in 1986.

Here is a graph of gross national product from 1979 to 1988 from tradingeconomics.com. You can see that the turnaround in the economy occurs in the 1983-1984 time frame and continues through the rest of Reagan’s Presidency.

I’m not saying Reagan deserves no credit for the turnaround; what I am saying though is that it was not his economic policies that improved the economy. What credit he deserves, he deserves for his foreign policies that produced somewhat of a cooling off of the situation in the Middle East and a resulting moderation in the price of oil and gas.

Reaganomics and supply side economics did not cause the recovery in the 1980s; a reduction in the prices of oil and gas did.

Charles: So the Reagan economic policies did not cause the recovery of the 1980s.

My second question – remember I had two questions – my second question is: over time, has the record validated those policies? Are we better off as a country as a result of Reaganomics and supply side economics?

Steve: We’re clearly not better off as a result of supply side economics. Well, let me back up slightly. If you are in the top five percent of wealth and income, you are better off. One would expect that because the lower taxes were aimed mostly at people in that bracket.

The problem is that the rest of the 95 percent of the country has done either worse or barely broke even after the change. Here is a graph that emphasizes the point, from afferentinput.blogspot.com. Suppose starting in 1979, we distribute $100 among 100 people as it would be distributed according to the distribution of wealth in the country then and since. Continue reading Mitt Romney, Newt Gingrich and the Myth of Reagan’s Success with Supply Side Economics

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