Month: October 2018

Unemployment, Labor Force Participation, and the Government Deficit

Unemployment, Labor Force Participation and the Government Deficit

Issue:   The Chart below has data on three important economic variables – the unemployment rate, the labor force participation rate and the government deficit as a percent of GDP.   The unemployment and labor force participation rate variables are observed on three dates   — July 2009 (near the peak of the recession) January 2017 (the month of President Trump’s inauguration), and September 2009 (the most recent month at the time of this writing.

What does this data say about the recovery after the recession under President Obama?

What does this data say about the impact of President Trump’s economic policies on the labor market and on the government deficit?

How does information from the unemployment rate and information obtained the labor force participation rate differ regarding, evaluations of the economic records for Obama and Trump, an assessment of the current strength of the economy and projections of the likely path of debt to GDP?

Three Economic Variables
Unemployment Rate
Date Value
Jul-09 9.5
Jan-17 4.8
Sep-18 3.7
Labor Force Part. Rate
Jul-09 65.5
Jan-17 62.9
Sep-18 62.7
Government Deficit as % GDP
Date Value
FY 2009 -9.8
FY 2016 -3.2
FY2018 -4.2

Trends:

The unemployment rate fell from 9.5 percent during the recession to 4.8 percent at the end of President Obama’s term.

The unemployment rate has continued to fall under President Trump and is currently at 3.7%.   This is the lowest level since 1969.

The labor force participation rate was higher during the recession than at the end of President Obama’s term.

The labor force participation rate has not risen under President Trump despite the tax cut.

 

The government deficit fell from 9.8 percent of GDP in 2009 (recession year) to 3.2 percent in 2016 (last Obama year.)

The FY 2018 deficit as a percent of GDP is 4.2 percent, substantially higher than when President Obama left office.

Discussion:

An analysis of economic conditions and the labor market based on the unemployment rate alone would conclude that the job market and economy are red hot.   The unemployment rate has not been this low since 1969.  President Trump’s tax cut is one reason why the unemployment rate fell to its current level.

An analysis of the recovery from the recession and current economic condition incorporating information about the labor force participation rate, indicates the economy is not over heated.

Many critics of President Obama claimed that recovery was weak because the labor force participation rate remained very low.

https://freebeacon.com/issues/obama-economy-9-9-million-employed-14-6-million-left-labor-force/

The labor force participation rate is lower under President Trump than under President Obama.   President Trump’s economic policies have failed to increase the labor force participation rate.

President Trump’s economic policies have increased the government deficit as a percent of GDP.  The 2018 fiscal deficit is over 30 percent higher than the 2016 fiscal deficit.

Concluding Thoughts:

My view is that the LFPR has decreased due to population aging and further stimulus will not expand the workforce.  Moreover, the decrease in unemployment which coincided with the tax cut will not persist for much longer.   The loss of revenues from the tax cut will be larger in FY 2019, 2020 and 2021.   The budget deficit could be larger than 9 percent of GDP prior to the start of the next recession.

President Trump by reducing taxes and expanding deficits in a strong economy has weakened the ability of fiscal authorities to stimulate the economy when the next recession hits.

Authors Note:   I hope you will try my book

Innovative Solutions to the College Debt Problem:

https://www.amazon.com/Innovative-Solutions-College-Debt-Problem/dp/1982999446

 

 

 

 

 

 

 

 

A Red Tide and a Blue Wall 

There is a lot of discussion, hope and prayer for a blue wave leading to the Democrats retaking the house.  The House is very hard to predict.    Now I am focused on two other aspects of the election – a Red tide controlling outcome of the Senate and the rebuilding of the blue wall.

The Red Tide:

A red tide occurs when algal blooms become so numerous the coast gets discolored and water becomes unpleasant to swim in.   The Republicans by suppressing the vote in numerous states and by colluding with the Russians have created the political equivalent of the red tide.

Political pundits are claiming many Senate sears are in play.   Mitch McConnell lists 9 senate seats that are dead even.

I list 5 seats (AZ, FL, IN, NV, and MO) that are dead even.  Polls are going back and forth in these states.  I am concerned that FL could flip if the voting irregularities that helped Governor Scott in 2014 reoccur.

https://www.local10.com/news/elections/judge-rejects-emergency-motion-by-crist-camp-to-extend-broward-county-voting-hours

Two seats (MT and ND) are not even but are in play.  The polls are close but consistently favor the Democrat in MT.   Poll averages are deceptive in ND as proven when Heitkamp fueled by a large Native American vote pulled out a surprise victory in 2012.  Also, the RCP average in ND was affected by two large outliers.

This time many Native Americans will not be able to vote.

https://www.npr.org/2018/10/13/657125819/many-native-ids-wont-be-accepted-at-north-dakota-polling-places

Republicans in red states are getting very good at voter suppression.    Have you read about the exact match program in Georgia?

Exact Match in Georgia

https://www.nbcnews.com/politics/politics-news/georgia-sued-placing-thousands-voter-registrations-hold-election-n919526

The pundits believe that TN and TX are in play.    My view is that Republicans are highly likely to hold both states.

  • Breedsen cratered when he stated that he would support Kavenaugh. Volunteers quit.  Last three polls were abysmal.
  • TX is highly polled. Polls are relatively close but Cruz leads in just about every poll.

There have been some accusations about voter suppression in Texas but some articles say this problem is being fixed.  We’ll have to see.

 

Voting in Texas:

https://www.startelegram.com/news/state/texas/article219921185.html

 

Senate control depends on these races but objectively the Republicans have many more paths than the Democrats.

This is supposed to be the year of the woman. but sadly two senior female Democrats Macaskill in MO and Heitkamp in ND are in dogfights.   The number of female democrats could fall depending on these outcomes and results in AZ and NV.

Restoring the Blue Wall: 

There is some good news for the Democrats.   The blue wall in Michigan, Wisconsin and Pennsylvania is being repaired.  The Democratic incumbent running for reelection is up by double digits in all three states.

All three states which were blue for decades, went for Trump over Clinton in 2016.

Many of the people in these states appear to regret their vote for Trump.

Even more surprising is that Democratic Gubernatorial candidates are leading in the polls in Ohio and Iowa against two strong GOP candidates.  Obama won both states twice but Trump won both states by large margins.

It does appear as though some voters want to send Trump and the GOP a message

The ability of the GOP to stop Democrats from voting may be too much for the Senate contest.

 

Some RCP Data:

 

Senate Race RCP Averages
State RCP Average Red – Blue
AZ 0.3
FL -2.4
IN -2.5
MO 0.4
NV 0
MT -3
ND 8.7
WV 9.4
TN 5.5
TX 7
OH -16
WI -10.6
PA -16

 

 

 

 

 

Discussion of a Centrist Health Care Plan

The Republican and Progressive views on the future of health care are clear.   Republicans want to repeal the ACA and move us towards a system with fewer regulations.   The Trump Administration has taken us towards this goal by ending the individual mandate, ending reinsurance subsidies, and legalizing bare-bones health plans.

The Progressives want either a single-payer system or a Medicare-for-all option.   Republicans are attacking Democrats for their support of the single-payer option.   Some of these attacks may stick because centrist Democrats have not put forward a clear centrist plan that improves health insurance and health care.

A Centrist Health Care Plan is the topic and name of my new paper, available at SSRN

A Centrist Health Plan:

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3263159

The proposals discussed here include – (1) new incentives to encourage continuous health insurance coverage, (2) alterations to rules governing health savings accounts and high deductible health plans, (3) rule changes leading to reduced reliance on employer-based insurance, and (4) government subsidies for certain expensive health care cases, which are not easily treated by narrow-network HMOs.

The ACA was a good first step towards expanding and improving health insurance coverage.  Republicans failed to totally repeal the ACA but under Trump the nation is moving backwards.   The individual mandate and reinsurance subsidies have been eliminated and new bare-bone insurance policies undermine comprehensive insurance.

The individual mandate as previously structured was unpopular.   It could be replaced with a tax credit exclusively for people with comprehensive health insurance.

The new temporary bare-bone insurance plans can be eliminated by executive order.

Many health care problems were not affected by the ACA.   The trend towards higher deductibles and larger out-of-pocket expenses was accelerated by the introduction of health savings accounts coupled with high-deductible health plans.    Many Americans now actively debate whether they should reduce contributions to 401(k) plans to maintain contributions to health savings accounts.  Other Americans actively consider foregoing needed prescription drug regimens so they will have funds for their retirement.

Financial instability and health problems caused by the increased use of health savings accounts coupled with high-deductible health plans can be reduced by a new tax credit and by more flexible rules governing contributions to health savings accounts.

Issues caused by narrow-network health plans, which do not allow access to top doctors and hospitals predate the ACA.  Narrow-network health plans provide great health care for the vast majority of health care conditions.   However, access to certain specialists for certain diseases like cancer is often limited.   This issue can be called the breaking bad problem after the fictional chemistry teacher who manufactures and sells meth to fund his cancer treatment.

The Republicans maintain reinsurance or risk-adjustment payments are subsidies to insurance companies, a form of corporate welfare that must be eliminated. Under the Centrist proposal, the government subsidy for expensive health care procedures would be sent directly to the out-of-network provider on behalf of the patient.  These subsidies would allow the narrow-network health plan to contract out complex procedures, concentrate on basic health care problems and maintain low premiums.

The ACA attempted to create a viable individual health insurance market by changing rules governing coverage for pre-existing conditions and underwriting of health insurance premiums.   However, ACA rules still substantially favor employer-based health insurance over the new state exchange market places.   A centrist Health plan would cautiously reconsider these rules to strengthen the nascent state exchange market places.

The new subsidies for contributions to health savings accounts and expensive health care cases are partially paid for by reductions in tax expenditures on ACA and employer-based insurance.