President Donald Trump’s chief economic adviser raised the possibility of increasing the federal gasoline tax next year to help pay for the administration’s $1 trillion infrastructure plan, U.S. Representative Tom Reed said. National Economic Council Director Gary Cohn brought up the fuel tax as a way to help fund promised upgrades to U.S. roads, bridges and other public works during a meeting with a bipartisan group of lawmakers dubbed the Problem Solvers Caucus on Wednesday, said Reed, a New York Republican who is co-chairman of the caucus.
Republicans mostly seem to be pretty lukewarm to the idea, but they shouldn’t be. Here’s the gasoline tax over the past 70 years:
An increase of five or ten cents would get the gas tax back to where it’s historically needed to be to properly fund road and highway maintenance. More than that might allow us to build new stuff, as Trump wants. Unfortunately, Republicans don’t recognize that inflation exists if the topic happens to be tax rates. I don’t suppose there’s much chance of this happening unless Trump himself gets out and starts getting big cheers at his rallies for the idea.
If the comments on Covered California’s Facebook page are any indication, you’re all suffering from acute health insurance confusion:
“I wanted to sign up again this year … I’m hesitant now because of what Trump has done. Should I still consider?”
“Does the removal of subsidies mean we might lose our premium tax credits during the year?”
“So you’re telling me that [Trump’s] executive order didn’t do anything? I am so confused.”
This is all deliberate. Calculated and deliberate. Lots of people are confused, just the way Donald Trump intended, and they have only six weeks to figure out what’s going on. Many will just give up. Many will try to get help but won’t be able to because of cutbacks in the navigator program. Many will decide to take care of it at the end of the year and then discover to their horror that they’ve missed the signup deadline.
In other words, many people’s lives will be wrecked thanks to the vengeful manipulations of the halfwit in the White House. He may not know anything about anything, but he has an animal instinct for screwing people over. Welcome to 2017.
A British company that has been investing in internet and information businesses is having its best day on record.
On-line Plc jumped as much as 394 percent on Friday after announcing plans to change its name to On-line Blockchain Plc….“Blockchain technology and cryptocurrencies are a new and exciting area we have been working on for some time,” the Essex-based company said in a statement on Thursday. “We feel the time is right to re-name the company to reflect these developments, where we believe the future growth will be in our sector.” The shares pared gains after the company published a follow-up release on Friday, cautioning investors that the development of its blockchain product is still at an early stage.
Ah yes, early stages indeed. Here’s what the company said this morning:
As announced yesterday, the Company has worked as an incubator and investor in internet and information businesses and the Company has been investigating the development of potential applications and customer markets. In particular, the Company has focused on information technology where On-line’s links with ADVFN provide an opportunity to develop a Blockchain-based product to support financial website users’ ratings of information contributors using token-based applications.
Shareholders should note that the while the Company has identified an initial product, the Company’s development of a Block-chain product is still at an early stage of investigation and development, and its current plans envisage that the first application will only be tested early in 2018.
Roger that. But it dampened enthusiasm only a bit:
From Thusday to the close of Friday, the stock tripled in value because it’s “investigating” an extension of its product line that would use “token-based applications” to help web commenters on financial boards more reliably rate “information contributors” (i.e., fellow commenters).
This is just one report from the world of penny stocks. It probably doesn’t mean anything. But for those of us of a certain age who used to work in the tech industry, it brings back memories.
Over at Vox, Sean Illing interviews Nikole Hannah-Jones about race and segregation in America. She identifies segregation in schools and housing as the primary barriers to equality:
Segregation is not about test scores; it’s about denying full citizenship to a caste of children who have not, for one day in this country, been given full and equal access to the same educational resources as white children….What people also don’t want to acknowledge is that schools are segregated because white people want them that way. It’s not simply a matter of zip codes or housing segregation or class; it’s because most white Americans do not wish to enroll their children in schools with large numbers of black kids.
….Segregation in housing is the way you can accomplish segregation in every aspect of life. Housing segregation means that certain jobs are located in certain communities, that certain grocery stores are located in certain communities; it determines where parks are located, if streets are repaired, if toxic dump sites are built nearby. Segregation accomplishes so many other inequalities because you effectively contain a population to a geographic area and suddenly all the other civil rights law don’t matter. We don’t have to discriminate if we’re living in totally segregated neighborhoods; all the work is already done.
I have long been a proponent of affirmative action based on class rather than race. It accomplishes many of the same goals since blacks and Hispanics are far poorer than whites. It eliminates difficult legal and constitutional problems. It provides an additional level of fairness by helping poor people of all races. And it gets past the toxic bigotry that has long prevented race-based affirmative action from working very well.
But if you support class-based affirmative action, as I do, you have to acknowledge that although it accomplishes many of the same goals as race-based affirmative action, it’s not a perfect substitute. You don’t have to dive into the unanswerable morass of whether race or class is truly the most foundational cultural issue in American politics to agree that race is certainly in the top two. And this means that even when blacks make as much money as whites, they still remain segregated. Here’s a chart from the New York Times last year:
Black families with sizeable incomes are far more likely to live in poor black neighborhoods than whites are to live in poor white neighborhoods. Some of this is historical and structural: many people like to stay near their families and friends, and for blacks that means living in black neighborhoods, which are overwhelmingly poor. Some of it is bigotry: blacks often don’t feel welcome in white neighborhoods no matter how much money they make. And some of it is personal preference: some blacks simply prefer living around other blacks.
It’s all but impossible to untangle all this. So while I continue to believe that class-based affirmative action is, on balance, good policy, it’s not perfect policy. Nothing ever is. Even if we go down that road, we still have to deal with all the bigotry and racism that it doesn’t directly address. It’s never easy.
The economy grew at an annualized rate of 3.0 percent in the third quarter of 2017. This is a pretty good result, especially considering the revision of last quarter’s growth to 3.1 percent. That’s two quarters in a row of 3 percent growth. Third quarter growth was mostly driven by a sizeable increase in the purchase of consumer durable goods (cars, refrigerators, etc.) and an even bigger increase in the purchase of commercial equipment (computers, backhoes, etc.). Investment in housing was down considerably for the second quarter in a row.
Disposable personal income increased by $51 billion less than in the second quarter. Consumers apparently made up for this by eating into savings, which decreased $51 billion compared to the second quarter. This is a small red flag, but nothing to get too concerned about unless it keeps up.
Aside from the fact that Donald Trump will start crowing about how growth like this has never been seen before in human history, this is basically good news. I remain concerned about some signs here and there that point to a fairly tired expansion, but so far there’s no indication that the US economy is in anything but pretty decent shape.
Dylan Scott writes today about the the Children’s Health Insurance Program. Funding ran out last month, and Republicans have so far shown no inclination to extend it:
CHIP’s funding expired on October 1, and the program has now gone four weeks without being extended. States are on the clock: The Georgetown University Center for Children and Families reported that six states expect to run out of money by the end of the year or by early January.
….You would think that would motivate Congress to act. But instead, Republicans and Democrats in the House are digging in, feuding over — just as CHIP advocates feared — Obamacare and other programs….The problem is offsets — spending cuts to pay for CHIP’s funding for the next five years. Congress needs to find about $8 billion in savings.
This is a good time to remind everyone that Republicans just passed a budget that contained instructions for a net $1.5 trillion tax cut that will mostly benefit corporations and the rich. But $8 billion in net spending increases to provide medical care for kids? Sorry. Can’t be done. Gotta watch the deficit, you understand.
Or maybe they could fund CHIP and settle for a $1.492 trillion tax cut? That’s out of the question, of course.
At times like this I wish I were a religious man. At least then I’d feel some sense that eventually these meanspirited bastards would pay for their sins.
Needless to say, not everyone agrees. And I address some of the most common criticisms in the text of the article. But I feel like I should add one other thing: an awful lot of pushback about the revolution in artificial intelligence amounts to pointing out what AI can’t do right now. Driverless cars get confused! Siri misunderstands stuff all the time! Watson has been a bit of a bust for IBM in the medical diagnosis market! The human brain is really, really complicated!
This stuff is, frankly, not worth giving the time of day to. It’s like laughing at the Newcomen steam engine because it was really inefficient and broke down a lot. For three or four decades, the laughter seemed justified. Lots of people fiddled with steam engines, but they didn’t really get much better. It was just another bit of Cornwall Valley hype.
But then along came James Watt and suddenly steam engines got real. Add in better manufacturing and continued improvements and the Industrial Revolution was born. Back in 1712 nobody knew how that could happen, but it did. Someone figured it out.
The same is true for AI. The reason it doesn’t work very well right now is that it doesn’t yet exist. Nothing we have today counts as even crude AI, and the barriers to getting there are formidable. But the glimmerings are pretty obvious if you open your eyes, and just about everyone in the field agrees that improvements over the past decade have been far greater than in previous decades. In other words, thanks to improvements in hardware, software, algorithms, and custom silicon, the growth of digital intelligence is not just exponential, but finally at the point where we can begin to see that it’s exponential with our own eyes. That’s never happened before. Within ten years we’ll most likely see the first crude but real artificial intelligence, and people will begin to lose their jobs to it. That will accelerate for the following three or four decades until virtually no one has a job left.
This is different from the Industrial Revolution, where machines took away jobs but also created lots of new jobs. The AI Revolution will be nothing like that. Once the intelligence of AI gets near the class of human intelligence, then by definition, any new jobs it creates will also be done by AI. Welcome to the future of mass unemployment.
This is the point of my article. Part 1 of my robot trilogy, four years ago, was mostly about the rise of AI itself. Part 2 recapitulates some of that, but it’s primarily about what AI means for the future of the economy. The short answer is that by the end of the century it will probably be great: robots will do all the work and we humans will get all the benefits. But getting there will be rocky:
One thing is certain: The monumental task of dealing with the AI Revolution will be almost entirely up to the political left. After all, when the automation of human labor begins in earnest, the big winners are initially going to be corporations and the rich. Because of this, conservatives will be motivated to see every labor displacement as a one-off event, just as they currently view every drought, every wildfire, and every hurricane as a one-off event. They refuse to see that global warming is behind changing weather patterns because dealing with climate change requires environmental regulations that are bad for business and bad for the rich. Likewise, dealing with an AI Revolution will require new ways of distributing wealth. In the long run this will be good even for the rich, but in the short term it’s a pretty scary prospect for those with money—and one they’ll fight zealously. Until they have no choice left, conservatives are simply not going to admit this is happening, let alone think about how to address it. It’s not in their DNA.
Owners of wealth will have every incentive to see every increase in unemployment as a temporary thing. And they’ll be right some of the time. After all, the economy will continue to go up and down, just like always. At some point, however, labor force participation will start dropping steadily enough that it will be difficult to deny what’s happening. But even then there will be tremendous resistance to understanding what this means: that labor and wealth creation have become permanently unmoored. That means accepting an entirely new way of distributing wealth. Unfortunately, I can’t think of any era in human history where that’s gone peacefully.
Really, we have only two choices. The first is to accept that this is coming and start preparing for it, calmly and reasonably. I can’t bring myself to say that I think this is likely. The second choice is to fight it as long as possible until the vast (former) working class revolts—possibly with violence, possibly not. That will force the issue, but the results are dangerously unpredictable. If the zillionaire class is smart, they’ll start thinking hard about this and eventually conclude that their own enlightened self-interest suggests that they give up some of their wealth in return for enormous economic growth in a peaceful and stable society. I suggest several ways this could happen in my article, but I have to say that the main takeaway is that hardly anyone outside the tech community is really thinking very much about this. That needs to change.
Over at The Corner, Veronique de Rugy complains that Republicans are making a hash of tax reform. No argument there. In particular, she’s unhappy about increasing the child tax credit even though she admits it’s politically popular:
But is it more important than simplifying the tax code and getting rid of special handouts to preferred groups? And is it more important than cutting the corporate tax rate as much as we can? Everyone agrees the growth dividend increases as the rate gets lower. In the long run, that will boost take-home pay for everyone by more than an expanded child credit. And if cuts to middle-class taxes are necessary politically, which I understand, we should do it by lowering tax rates rather than by granting tax credits.
Does everyone agree that the economy grows as the corporate tax rate gets lower? I’m not so sure about that. Courtesy of EPI, here are two charts relating economic growth to the effective tax rate on capital income. First, here’s the basic chart:
Within the bounds of 23-43 percent, it looks like conservatives are right: higher economic growth is associated with lower tax rates. But what happens if we remove that one weird outlier on the top right from 1954? Everything flips:
Now it looks as though the sweet spot for capital taxes is 35 percent. Growth is lower both below and above that point.
So what does this mean? Pretty much nothing. Basically, a simple look at tax rates and economic growth doesn’t tell you much. If removing a single point from 60 years ago can not just change the trendline, but turn it upside-down, then the relationship is so fragile that it tells you almost nothing.
What you could conclude is that there’s probably not much relationship at all between corporate taxes and economic growth. In the range from 20-40 percent it’s mostly just noise. It’s quite possible that specific changes could make a difference, and it’s almost certain that getting rid of special interest subsidies and loopholes would help a bit, but it’s hard to say much more than that. The likelihood that the Republican plan to cut corporate tax rates would supercharge the economy is close to zero. And the likelihood that it would help workers is about the same.
True tax reform on the corporate side is a great idea. But that’s not what Republicans are up to. They just want to cut taxes, especially on rich folks who declare a lot of pass-through income. That will be great for lawyers and hedge fund managers, but it won’t do anything for the middle class.
Let’s see. What country am I in today? Oh yeah: the United States. Well, California, anyway, which is sort of an outlying territory these days. So let’s do something America-centric with a chart to get me back into non-vacation mode.
Alex Tabarrok points out today that the “Great Moderation” in the US economy appears to be alive and well: the economy doesn’t bounce up and down nearly as much as it used to. Here’s the basic chart:
Let’s count. In the four decades from the 50s to the 80s, the economy grew by more than 3 percent for a sustained period five times. It declined below zero twice.
In three decades since then, it’s grown by more than 3 percent once and declined below zero once.
Is that more moderate? I suppose so. But it’s pretty heavily weighted to moderation at the high end. Troughs have tended to hover around 1 percent growth for the entire era since World War II, while peaks have declined from around 4 percent to around 2 percent. Basically, the Great Moderation has been a moderation in the frequency of economic booms.
Do we know why this happened? Apparently not. But if I had to guess, I’d say it’s at least partly the result of a Fed that became so nervous of inflation after the 80s that it tamped down the economy anytime there was even a hint of upward price movement. Basically, they’ve been routinely taking the punch bowl away too soon, instead of allowing the economy to roar occasionally even at the risk of inflation getting a little high.
This is still happening today. Inflation hasn’t even hit the Fed’s 2-percent target over the past five years, let alone shown signs of going above it. And yet, the Fed is still fearfully pulling back, afraid to let the economy grow lest somehow, somewhere, inflation might rise to 3 percent or some other ghastly number.
This is the world we live in today. Recessions are still OK, but big economic booms aren’t. I’m not sure “moderation” is the right word for that.
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