The new mayor of New York City, Zohran Mamdani, is the perfect choice to annoy the old people and inspire the young people. Mamdani’s background as an immigrant from Uganda with parents of Indian descent (mother Hindu, father Muslim) makes him even more interesting to rebellious youth and “dangerous” to traditionalists who want to return to “the good old days.”

Those who see this as just a short-term, New York City affordability crisis requiring rent freezes, universal childcare, free bus transport and government grocery stores are missing the big picture. The transition from high birth rates and one-earner families to very low birth rates and two-earner families did not happen overnight. The so-called K-shaped economy with an upward leg of 20 percent doing very well and a lower leg of 80 percent doing relatively poorly has come about as a result of a systematic diversion of the money flow since 1976.

Our current version of capitalism is failing for the same reason that communism failed. It undermines incentives and rewards the wrong people. Why work hard if most of the value you create is going to the top 10 percent wealthiest people who own 93 percent of the money in the stock market. Owners of mutual funds and exchange traded funds (ETFs) often don’t even know what companies they are invested in.

Under supply-side economics, the financial economy provides money to invest in the real economy. Demand is assumed to always be sufficient to buy up whatever useful and desirable products and services can be created ( Say’s Law “supply creates its own demand”). The financial markets were created to make money available to reward creative entrepreneurs. But a combination of stock options, share buybacks and many cleaver trading tools and strategies have brought about a money flow reversal, where even nonfinancial firms find that just investing in a broad-based index fund (e.g., SCHB, VTI, ITOT, etc.) can provide a higher and much more reliable return than investing in their own business. No wonder that the United States economy is currently only growing at 3 percent while the S&P 500 grows in recent decades at an average rate of between 10 and 20 percent a year.

As we learned after the “Great Recession” of 2007 to 2009, when a crash comes, average people may have their homes repossessed, but wealthy investors are bailed out. Many young people who were angry about all this and voted for Donald Trump are now starting to think seriously about supporting Zohran Mamdani (for president?) and are open to considering “Socialism,” especially if it upsets the old people.

After World War II, peace came with a sense of solidarity. The G.I. Bill provided low-cost mortgages, low-interest loans, and educational benefits. In the 1950s and 1960s our economy was reasonably well-balanced. Unions were strong. Workers were sufficiently well compensated enough to allow moms to stay home to take care of their young children, who formed the “baby boom” generation. Husbands took jobs in careers that lasted for decades and retired with pensions paid for by their long-time employer.

Countering communism meant maintaining a free market system that benefited everyone. President Eisenhower’s Federal-Aid Highway Act of 1956 was an expensive investment by taxpayers that greatly improved the efficiency of free enterprise by allowing companies to gain economies of scale by expanding their markets way beyond their production location using what is now known as the Eisenhower Interstate Highway System. The Elementary and Secondary Education Act of 1965 followed the “no child left behind” philosophy to improve the education of all children. The Civil Rights Act of 1964 and the Voting Rights Act of 1965 made government the key player in this focus on helping the dear neighbor regardless of race, religion or national origin. The fundamental philosophy was: “We all do better when we all do better.”

This solidarity and sense of community began to fall apart in the mid-1970s. Unions were suppressed with so-called “Right-to-Work” laws that used the “free rider problem” to undercut unions. Automation moved many workers off of assembly lines. Giant earth-moving equipment removed mountain tops in coal mining instead of sending thousands of coal miners underground. By 1980 employers were replacing pension plans with 401k contributions that transferred future financial risk from the employer to the employee. The sense of commitment of employers to their workers started to fall apart and workers began to frequently change employers. Instead of working for the same employer for thirty or forty years, many people now change jobs every three or four years. Maximizing immediate profits has replaced investments in the long-term profitability and viability of the enterprise.

Capitalism works extremely well when local restaurants compete to provide better quality meals at lower prices. But what works really well at the local level has become very distorted at the national level. The Greedy Pig Theory of Economics was developed in the 1980s to justify the shift to focus on the maximization of shareholder value. Conservative economists pointed to Adam Smith’s invisible hand that described a simple, imaginary world where in an attempt to maximize their profits companies competed to provide better quality products at lower prices. The underlying philosophy was: “We all do better when everyone is out for themselves.”

Instead of trying to improve the efficiency of government and find the right combination of free enterprise and government oversight, President Ronald Reagan just wanted to get government out of the way. He claimed that government was not the solution to our problems. According to him, government was the problem. Supply-side economics diverted the money saved by automation and globalization to profits with less money going to the two-thirds of Americans with no college degree.

Every generation of Americans finds a way to rebel. Young wealthy Wall Street bankers now use the F-word with abandon. Their less-well-off counterparts adorn their bodies with tattoos. Old curmudgeons have come to accept interracial marriage, gay rights and trans rights. But now a new generation is rising and has found the perfect word to annoy the old folks: “Socialism.”

“Socialism” means different things to different people. To conservatives it is just about the worst possible word (other than that unspeakable word “communism”). To them it means the suppression of private enterprise with government ownership of the means of production. But to others it is about finding right balance between the needs of the community and the needs and desires of individuals.

To conservatives Mamdani’s proposal for creating some government-owned grocery stores is totally unacceptable. To older folks the idea of government competing with private enterprise is unthinkable, even though it appears to work reasonably well in many other countries such as China and Brazil. You can wait for the city workers to stop by to pick up the leaves you raked up once or twice in the fall or pay a company to do so once a week. You can wait for several days for the city snowplows to clear the snow from your neighborhood or have your home owners association (HOA) pay private plow trucks to plow your street overnight so you can drive to work in the morning. Some conservatives want to replace public schools with voucher-funded private schools and replace Social Security with private retirement investments. They want government to do less while Mamdani wants government to do more. Finding the right combination of free market private enterprise and collective community action is not easy, but going to one extreme or the other is clearly not optimal in every situation.

Prior to the industrial revolution which started around 1760, the nobility owned the land and the peasants worked the land. The nobility lived upstairs, and the servants lived downstairs. Throughout the last half of the 20th century, many incoming immigrants and low-income workers lived in New York City, while the elite Wall Street bankers typically commuted from New Jersey, Long Island or Connecticut. Now in New York City and other expensive east coast and west coast (San Francisco) cities, the elite have established expensive townhouses in the city or its immediate, close-in suburbs, while the workers struggle to afford the ever-more expensive essentials of life in the big cities.

Living in an expensive, densely populated city is entirely different from living in a rural town or village. In rural communities people are more likely to know their neighbors. Private enterprise and free market economics work really well. The best restaurants survive and the hardest working, insightful owners and entrepreneurs succeed. Houses are usually well-separated so burning your leaves instead of paying to have them hauled away is no problem. The economics of rural areas and big, dense, expensive cities could not be more different. Employing the same economic philosophy and the same rules for the rural areas and the big cities makes no sense.

Mayor-elect Mamdani clearly has a lot to learn and think about. He seems open to experimentation and problem solving. Whether he is up to the job is yet to be seen, but immediately rejecting him as just another wacko, nutcase “socialist” may be big mistake. Now that he has been elected by a clear majority of NYC voters, lets give him a chance to find out what works, even if it is something that should not necessarily be extended outside of a densely populated and expensive city.

Sometimes what works best as the optimal strategy at the microeconomic level has disastrous consequences at the macroeconomic level. Saving money is good! A balanced budget is good! But not when the economy is in a recession. My sales and profits may increase if other businesses pay their employees more so that their employees can spend more at my store, but my profits decrease if I have to pay my employees more as well. What is optimal for one may be detrimental for the larger group and vice versa. Individual interests and community interests can sometimes be in conflict.

One example is the Paradox of Thrift where in a recession you respond to your neighbor losing their job by trying to save more in case your hours are cut back or you lose your job. Since my expenditure is your income and your expenditure is my income, this attempt to save more at the microeconomic level during a recession leads to a reduction, rather than an increase, in total savings at the macroeconomic level. This is just one of many examples of where good microeconomic behavior can lead to bad macroeconomic outcomes.

The attempt of many European countries to balance their budgets by imposing austerity during the Great Recession of 2007 to 2009 led to a deeper and more prolonged recession than the shorter, less severe recession in the USA, which used an increase in deficit spending to revive its economy.

Supply-side economics follows Say’s Law that says that “supply creates its own demand.” But Say’s Law worked when food was very scarce and population would expand rapidly to consume whatever food was available. Any breakthrough in food production led automatically to a population explosion that quickly consumed the increased supply of food.

However, in recent decades Say’s Law has been reversed where birth rates have fallen well below replacement. Automation in farming along with much higher crop yields and a much greater supply of goods and services produced around the world has created excess supply and inadequate demand as explained in Daniel Alpert’s book “The Age of Oversupply.” This contrasts sharply with Milton Friedman’s book “Capitalism and Freedom” in 1982 that emphasized the importance of investments to stimulate supply with a focus on maximizing profits and shareholder value, while more or less ignoring the demand side.

Supply-side economics has created a very distorted economy in the United States. In recent years, the high return (10 percent to 20 percent a year) to investments in the stock market (and now crypto-currencies) has diverted money out of the real economy and into the financial markets in a money flow reversal that is suppressing productivity and growth in the real economy, which has now been growing at less than 3 percent a year.

Steve Jobs was excited about changing the world with new products and inventions. He wasn’t focused on making money. John Scully came along and, in effect, told Jobs: “Steve, you really need to increase Apple’s marginal rate of profit. You need to raise Apple’s stock price.” But Jobs stayed more excited about new products so Apple’s board replaced Jobs with Scully who worked hard to cut costs and raise profits. He got Apple’s stock price up by buying back millions of Apple’s stock shares with money that could have gone into product innovation. Then other technology companies began to overtake and surpass Apple in creating new and exciting products. The Apple board finally relented and brought back Jobs when it realized its mistake in focusing on profits and stock market share price. Creative people are much more motivated by the recognition and respect they get by “changing the world” than in accumulating huge amounts of money.

Too often economists confuse creative people with greedy people. They are entirely different. Economic policies that focus too much on maximizing investor return can sometimes suppress innovation and productivity in the economy. Economists tend to emphasize time and money because they are easy to measure. But there are things that money can’t buy and may be hard to measure. Creative people are more focused on gaining recognition and respect.

Arrow’s Impossibility Theorem caused economists to give up on trying to directly link economic well-being (“utility”) at the microeconomic level to overall well-being at the macroeconomic level. By default macroeconomic theory has been implicitly assuming that “a dollar is a dollar” of equal value to everyone. But this is very, very far from reality. As one becomes wealthier and wealthier, the marginal economic utility of an additional dollar drops dramatically. Poor people have the highest marginal propensities to consume. Give them an additional dollar and they will spend it right away. But rich people run out of things to buy so they have very low marginal propensities to consume and invest any additional money they get.

Under supply-side economics the Federal Reserve has pumped more money into the financial markets by purchasing Treasury securities and mortgage backed securities under quantitative easing (QE) when the economy was weak and needed more investment on the supply side, but over the last 50 years our economy has switched from inadequate supply to inadequate demand. Very little of the money provided to investors in the financial markets trickles down to middle class people with high marginal propensities to consume. To get much more “bang for the buck” the Federal Reserve could stimulate the economy more efficiently by giving the money directly to the people with the highest marginal propensity to consume instead of its current QE policy which follows supply-side economics in giving money to wealthy investors who are among those with the lowest marginal propensities to consume.

To avoid dealing with this, economists tend to invoke “economic efficiency” where we focus on motivating people to make as much money as they can. But exactly how do economists define “economic efficiency”? We often say that economic efficiency is using all our resources to bring about “the greatest good for the greatest number of people,” which is sometimes referred to as “the common good.” Even if we set aside the problem of defining “the people” as those in our own country or everyone in the world, economic theory has failed to provide a time span for achieving this objective. The whole discussion of Arrow’s Impossibility Theorem doesn’t even get to the problem of short-run optimization versus long-run optimization. Over what time horizon are we seeking to maximize “the greatest good for the greatest number“? A first attempt might be to use the average life expectancy of the existing population.

Economic efficiency also requires a more precise definition of “the greatest good.” This problem throws us right back to dealing with the problem of measuring and aggregating economic utility. Even if we think of gross domestic product (GDP) as how much we produce and gross national product (GNP) as how much we consume, we still have the problem of measuring economic well-being in an economic utility sense. Many commentators have pointed out that GDP and GNP are clearly not measuring what we are trying to maximize (“the greatest good“). All that food you grow in your backyard garden and eat or give away to your friends is not counted in GDP or GNP. You are not contributing to “the economy” (as measured by GDP or GNP) when you take care of your own children instead of dropping them off at daycare. According to these measures, growing your own food and taking care of your own children are not productive activities.

Ignoring the problem of how to aggregate individual utilities to promote the common good is clearly not working. One possible step toward a more realistic solution may be to define the utility of a dollar as being the inverse of the amount of wealth that a person has. If Elon Musk has 425 billion dollars (where one billion is a thousand million dollars), then we could measure the utility of an additional dollar to Elon Musk as one divided by 425 billion. Of course, to be fair we would have to theoretically “monetize” everyone’s other possessions and include that value as part of a person’s net wealth to properly measure the long-run value of a dollar to that individual. This does not solve all the difficulties raised by Arrow’s Impossibility Theorem but does not completely ignore the problem altogether as most economists have done. (Note: This is similar to choosing a voting system where ranked-choice voting is not perfect but generally much more likely to result in more representative legislators than traditional plurality voting.)

Right now in the United States we have exactly the opposite situation, where under the Supreme Court’s “Citizen’s United” decision, having lots of money buys you a great deal of political influence. Instead of one-person one-vote, we have changed the fundamental basis of our constitution to mean one-dollar one-vote. In effect, we have changed the definition of “the common good” to mean primarily benefiting the wealthiest of the wealthy in our economy. By giving up on developing a more reasonable and precise definition of “the common good” in the face of Arrow’s Impossibility Theorem, we seem, in effect, to be inadvertently minimizing “the common good” under any reasonable definition of the term.

The December 7, 1941 attack on Pearl Harbor changed everything. Americans had been divided on whether to be isolationist and stay out of the war or join in the battle against the fascist enemy. Before the Pearl Harbor attack, some such as the famous celebrity aviator Charles Lindbergh seemed to be Nazi sympathizers. But suddenly we were all joined together in the war effort and finally in 1945 came out of the war as a united people, where rich and poor had fought along side one another in the difficult and sometimes brutal effort to stop the enemy.

World War II united Americans to pursue “the common good” with strong unions and shared prosperity during the population explosion in the 1950s and 1960s called the baby boom. Many CEOs treated their workers as family and provided pensions for them in retirement. As output per worker rose, compensation per worker rose along with it, allowing a male worker to serve as the sole breadwinner, as married couples produced a bumper crop of babies. Supply-side economics was working to produce more for everyone.

Using taxpayer money, President Eisenhower pushed through a bill funding the Eisenhower Interstate Highway System that allowed businesses to distribute their products much more quickly and efficiently throughout the economy. Back then, investing in America was a great thing to do, even if it was not “profitable” for the government. We understood that government’s laws, rules and investments created and maintained our free enterprise system. The role of government was to enhance free market efficiency whenever and wherever possible.

The distain for government grew after a popular Hollywood actor, Ronald Reagan, became president. To President Reagan and his supporters the smallest possible government was the best possible government. Large corporations promoted this idea as a way to expand their power with less government interference in their determination to drive up their profits by suppressing unions and competition. Buying up competitors or driving them out of the market reduced most major industries to a few large firms with a well-defined leader that set the prices and rules for firm behavior. For details, see the book by Jonathan Tepper and Denise Hearn called “The Myth of Capitalism.”

As a consequence of increased corporate power and less government “interference,” compensation per worker leveled off in real terms around 1976, but automation continued to drive output per worker (and profits) upward. As industry became more concentrated and many states passed “right-to-work” laws to suppress unions, workers could no longer buy back the value of the goods and services that they produced and had to go deep into debt to feed their families. Having children became very expensive even with both parents taking jobs. Supply was plentiful, but demand was inadequate. Wealthy people were becoming much, much wealthier but could not consume enough goods and services to maintain an adequate level of demand.

A K-shaped economy emerged, where the top 20 percent got much wealthier, while the bottom 80 percent lost ground economically in real terms. According to Federal Reserve data 93 percent of the stock market is now owned by the 10 percent wealthiest people. Consequently, demand for exclusive properties has shot up. But driving up the price of Picasso paintings does not bring Picasso back to life to produce more paintings. Wealthy people’s marginal propensity to consume new goods and services dropped sharply as soon as they reached the multi-million dollar level. Supply was abundant but demand was inadequate. Say’s Law had been abruptly and profoundly reversed.

Private debt skyrocketed. But even that was not enough to keep the economy out of recession. Both Democratic and Republican politicians complained that the federal debt was too big and deficit spending needed to stop. But to stimulate the economy to stay out of recession, Democrats passed big spending bills and Republicans passed big unpaid-for tax cuts that increased the federal deficit, because they were afraid of losing votes if they allowed the economy to slip into a recession. Say’s Law has been reversed. Instead of inadequate supply, the diversion of money to the wealthiest Americans (who just reinvest any additional money they get) and away from the workers (who are no longer paid enough to buy back the value they create) has produced inadequate demand.

A balanced budget is not the same as a balanced economy. Sometimes achieving a balanced economy means running a deficit and at other times a surplus. It also means paying the middle class adequately instead of diverting enormous amounts of money to already wealthy stock market shareholders. Government plays a key role in the economy but needs to develop better and more effective tools to keep the economy running smoothly. This led Stephanie Kelton to help develop modern monetary theory and publish the New York Times bestselling book “The Deficit Myth” in 2021. A new powerful savings tool to stop inflation, improve free market efficiency and provide an automatic stabilizer for our economy is described in this short YouTube video: https://www.youtube.com/watch?v=nnMT7DVyK0g .

Each year approximately one million international students pay around $50 billion in the United States to attend American colleges or universities. A large number of them earn degrees in science, technology, engineering and mathematics (STEM). In what has become known as the “Brain Drain,” many don’t return home and end up contributing enormously to America’s technological progress and wealth. Approximately twenty-five percent of internet startups are started by immigrants. Over fifty percent of the internet startups that are valued at more than $1 billion, which are called unicorns, were started by immigrants or the children of immigrants. Well-known examples include Google (Sergey Brin), Tesla (Elon Musk), Yahoo (Jerry Yang) and eBay (Pierre Omidyar).

You may have noticed that our medical profession has benefited by retaining foreign doctors who specialize in all sorts of important areas. According to the American Medical Association (AMA) approximately twenty-five percent of U.S. medical doctors were born outside of the U.S. and then immigrated to the U.S. to practice medicine. This is an especially attractive option for doctors from India where English is one of the official languages.

More generally, immigrants make up approximately twenty-nine percent of U.S. healthcare workers. With the aging of the large baby boom generation, the need for more healthcare is rapidly increasing.

Why is President Trump imposing a $100,000 fee for skilled immigrants just when their skills are becoming more important, especially in healthcare? Recently President Trump announced a $100,000 fee for new H-1B visas. H-1B visas are for skilled foreign workers such as doctors and for those coming to the United States to earn advanced degrees. Perhaps this is part of President Trump’s efforts to discourage immigration and at the same time to help pay for his tax cuts. But the consequences of this and other such policies are much more profound.

Apparently, President Trump doesn’t want this foreign tuition money or foreign talent to continue to flow into the United States. Unfortunately, the Trump administration is trying to block federal money going to our universities for health and scientific research. Less cutting-edge research at American universities would discourage international enrollments. Cutting funding for the National Institute for Health (NIH) and the National Science Foundation (NSF) could free up money to reduce the federal deficit or facilitate income tax cuts that mostly benefit the wealthiest Americans.

In Germany almost every university is tuition free. Many other European countries offer a tuition-free college education. They recognize the spillover effects as revealed by economist William Baumol (1922 to 2017) where everyone benefits by being in a country with a well-educated population. Some of those countries limit the free tuition to citizens of the European Union while others are tuition-free to all of their students regardless of nationality. Other English speaking countries such as UK, Canada, Australia and New Zealand actively court people with advanced degrees to emigrate to their countries with clear pathways to permanent residency.

Tuition keeps going up at research universities in the United States at the same time that President Trump is trying to cut funding that has enabled many students to work as research assistants. If well-funded and well-respected foreign universities offer free tuition to American citizens, why not get your college education abroad? There are opportunities that don’t even require learning a foreign language. Many universities in the EU offer English-taught programs, especially at the master’s level. Countries like the Netherlands, Sweden and Denmark have a high number of English programs. Research universities such as the University of Amsterdam, Lund University and Copenhagen Business School offer English language programs.

Many of America’s smaller colleges are having difficulty finding enough students to keep operating. Raising children has become more and more expensive, especially if the costs of providing a child with a college education are taken into account. Birth rates in the United States are well below replacement. The 2.1 children per woman in her child bearing years is now down to 1.62 and falling. The number of college-age students is dropping. Many small colleges are unable to find enough students to continue to operate and are closing down. Researchers at the Federal Reserve Bank of Philadelphia predicted the closure of 80 colleges in the United States in the coming year.

President Trump is trying to deport as many illegal immigrants as possible. Along with the large number of baby boomers retiring, this should greatly shrink the labor force. Fewer workers means the production of fewer goods and services, especially hands-on services such as provided by doctors and nurses. The laws of supply and demand cannot be denied. With fewer workers and more retired people living longer, labor costs will rise, forcing up prices. Even getting your car fixed or your roof repaired will cost you more. This will be especially hard on people with fixed incomes.

A smaller labor force will also lower the total earnings of our population which funds Social Security. Just at the time when more Social Security money is needed to fund a larger and larger group of retired baby boomers, the earnings tax money for Social Security is drying up. The two biggest pieces of the federal budget go to Social Security and the Defense Department. Past Republican attempts to get rid of Social Security by “privatizing” it (to facilitate greater income tax cuts) have failed.

President Trump’s reversal of the brain drain to discourage other countries from sending us their best and their brightest while encouraging American citizens to look for education and work abroad, will ultimately have a big impact on the future of the United States. Reducing both the quantity and quality of our workforce will hurt everyone.

Why are some people so eager to follow President Trump’s plans to return to the “good old days,” where white, Christian males dominated, and foreigners (especially those who have a different ethnic background, speak a different language or have a different religion) are treated as outsiders? What has led us down this path to the “us-against-them” mindset, and how can we instead face the future with the “we-are-all-in-this-together” mindset?

To a newborn child, everything is new and exciting. Who are these people called “Mom” and “Dad”? Can I learn to walk and talk as they do? Dogs, cats, cars and airplanes are all new and exciting. Eventually, as children grow older, they start to run out of new things but continue to seek excitement in fictional stories and wild adventures accessed through television and the internet. As adults get older, they begin to lose interest in finding new things, as they focus on dealing with current realities. Older adults typically try to avoid the disruption of the new and take comfort in thoughts of the “good old days.”

As birth rates fall and the elderly live longer, the median age in the United States is passing forty and rising. The “good old days” are looking better and better to many Americans. But instead of slowing down, change is coming faster and faster. The internet and new technology are welcomed by the young but often avoided or hesitatingly embraced by the elderly. Uncertainty about the future is increasing (e.g., the role of artificial intelligence).

Many people in their thirties and forties are beginning to realize that they may not be able to achieve the same level of success as their parents and grandparents. The emphasis on maximizing shareholder value has diverted so much money to shareholders that workers can no longer buy back the value of the goods and services that they are creating. A distorted money flow is creating huge private debt and public debt bubbles that risk undermining, not just our economy, but our ability to live together in peace and harmony.

Humans surpassed other animals in evolution by accepting membership in conceptual groups beyond the physical groups where they could see their fellow group members. Wolves had their wolfpacks, but homo sapiens extended the tribe to a larger community. Beyond the family, the village and the tribe, humans gained a sense of their regional and national identity, especially when based on a common language, religion or ethnicity. This enabled humans to begin to trust one another as members of an “extended family.”

The willingness to trust and develop a sense of honor to fulfill commitments with a sense of moral obligation allowed for the division and separation of labor, which is the fundamental basis and essential reason for the enormous economic and technical success of humans. I need to be able to trust my auto repair mechanic, my financial advisor and my heart surgeon. Without the ability to trust one another, our economy would collapse into a “dog-eat-dog” world with disastrous consequences.

A key aspect of trust is the concept of truth. As a child in the 1950’s and 1960’s, we were frequently told to “tell the truth, the whole truth, and nothing but the truth.” Our sense of honor kept us from deviating too much from the truth (other than an occasional “little white lie”), even when doing so could greatly benefit us as individuals (at least in the short run).

Our trust in one another is beginning to unravel. Politicians tell lies or go along with lies told by others. Scam artists try to trick us to take our money. Honesty and service to our country is now seen by some as being for “suckers and losers.” Such people may take pride in outwitting and deceiving opponents to achieve great wealth and power for themselves. Instead of working together with others to grow a bigger economic pie for everyone, they focus on tricking others to take a larger piece of the existing fixed pie for themselves.

English tradition is to ask “Is it fair?” while Americans (traditionally led by politicians with legal training and law degrees) more often ask “Is it legal?” But now we have a leader who sets the bar much lower by simply asking “Can I get away with it?” Some people think only of themselves and ignore the effect of their actions on others. Throwing an empty soda can, water bottle or other trash out of your car window is an obvious example. Such people typically use the excuse that “Other people are doing it so why shouldn’t I do it as well?” (Economists call this the “free rider” problem.) This harmful logic may then be extended to shop lifting and petty crime, not to mention internet scams, car theft and burglary.

As conflicts around the world deepen with more and more death and destruction, many Americans (especially older Americans) look to a return to the past and to isolationism as the answer. But policies designed with this in mind are often naive and short-sighted.

I was born eighty years ago, during World War II. Eighty years before that, Americans were killing one another in the Civil War (1861-1865), which resulted in the death of more than a half of a million Americans. It took a long time for Americans to extend the vote to women (1920) and to provide civil rights protection to minorities (1964). Most Americans have accepted these changes and pledge allegiance to our laws while waving the American flag to say that as Americans “we-are-all-in-this-together.” But others reject outsiders and immigrants and waive the American flag to say it is “us-against-them.”

The world can only achieve peace, harmony and strong economic growth if we finally realize and accept that humanity itself is just one big family. For centuries Western European nations fought one another in never ending wars. France against England; England against Spain; Germany and Italy against many others. At the end of World War I, the allies imposed reparations on Germany to make the Germans pay for the war. The result was World War II.

But at the end of World War II, the United States did something very strange. Instead of punishing the Germans for all the death and destruction, America worked to bring the Western European countries together. With American taxpayer money, America changed the game from “us-against-them” to “we-are-all-in-this-together” with the Marshall Plan to aid in the recovery of all the Western European nations. Instead of competing to see who can be most greedy, America changed the game to generosity.

In addition to rebuilding the worn-torn economies, the goals of the Marshall Plan included removing trade barriers, modernizing industry, improving productivity and increasing prosperity. The Soviet Union was offered participation in the Marshall Plan but turned down the offered benefits. Eastern Germany received what would be worth almost $15 billion in today’s dollars. The result was finally bringing peace to Western Europe. It eventually led to the establishment of the European Union in 1993 and the Euro Zone in 1999. Why fight one another, when much greater economic progress can be achieved by everyone working together?

Like President Trump, many Americans, especially older Americans, would like to return to the past. But we must face up to reality. With the amazing advances in technology throughout the 20th century and the beginning of the 21st century, the world is getting smaller every day. Ultimately, we must recognize that we are all in this together and must now prepare for the future. The past is not coming back.

Friday prayers, Saturday Sabbath and Sunday morning services are all about helping the dear neighbor. Monday morning is all about running the dear neighbor off the road. Adam Smith’s invisible hand of competition is used to justify this contradiction under what might be called the Greedy Pig Theory of Economics.

In Adam Smith’s book “The Nature and Causes of the Wealth of Nations,” the first invisible hand tells us that by competing to make the most money that we can for ourselves under free enterprise, we are actually making everyone better off. To maximize profits for ourselves, we compete to offer better quality products at lower prices. When this strategy pays off to increase our profits, other people notice our success and jump in to offer even better quality products at even lower prices and drive our profits down until the marginal competitor is just indifferent to staying in the game.

What a wonderful world! Our individual ignorance in not realizing that our hard work and greed to make the most money for ourselves will be undercut by free enterprise to instead benefit the economy as a whole and leave us just marginally better off. Our ignorance and hard work pay off again and again for the community as a whole, but not so much for us as individuals. Free markets magically benefit everyone!

We want the world to be simple. Each of us has a limited amount of mental energy. Why complicate things? The Greedy Pig Theory provides us with a simple explanation of how pursuing our own immediate, individual self-interest benefits everyone. Except for national defense and enforcing contracts, government should be kept as small as possible so as to not interfere with this wonderful world of free enterprise. But what if the real world is very far from this wonderful imaginary world? What damage is done if reality is entirely different from the world described by the Greedy Pig Theory of Economics? 

One important assumption underlying the Greedy Pig Theory is that the individual person or business bares the immediate (marginal) costs and benefits of their business operations. This can fail dramatically when costs spill over to the broader community such as when their operations generate air and water pollution as negative externalities. In the 1950s all our neighbors raked their leaves to the edge of the road and set them on fire. In the fall we had to stay inside to avoid all the smoke, which was particularly harmful for people with asthma. Laws were passed to stop this. Conversely, getting vaccinated for a highly contagious disease generates a positive externality by protecting others and not just the person paying for the vaccination. Offering free vaccinations can help. In general, governments frequently have to intervene to counter these types of positive and negative externalities. 

The success of the Greedy Pig Theory of Economics in making the economy work efficiently is based on the flawed assumption that we will always each act as an isolated individual or as an owner of an isolated business. We do not see any benefit in working with others voluntarily. We are not willing or able to work with competitors to fix prices and prevent others from entering the market. 

In contradiction to the Greedy Pig Theory of Economics, we sometimes see ourselves as more than individuals seeking to only benefit ourselves. A basketball player who is blocked by opponents has to decide to either try to make the long shot or to pass to a teammate who is closer to the basket. If he cares only about glory for himself and the salary increase he can get as the player with the most baskets, he will go for the long shot. But if he cares about helping his team win, he will pass to his teammate who has a better chance of making the shot.

After watching our favorite football team win, we tell our friends and neighbors “We won”. What do you mean “We won”? Did you help the team? You just watched them on tv. But you are part of a community. We fly the American flag to show we are more than ourselves. We are part of a bigger, more prominent group. Group membership and group success matter to us apart from any money we may get as individuals. 

The Greedy Pig Theory of Economics is based on the idea is that our primary focus is making money for ourselves. Going around your neighborhood to pick up trash violates the Greedy Pig Theory because “free riders” will benefit at your expense. Others can throw trash out their car windows as long as there are “suckers and losers” who will pick up that trash for them. 

“Right-to-work” laws were created to prevent unions from forming by allowing workers to benefit from union contracts without paying union dues. If you can get something for nothing, why pay? Under the Greedy Pig Theory we only care about ourselves and are happy to “free ride” at the expense of others.

The Greedy Pig Theory implies that only a “sucker and loser” would vote in presidential elections because the chance that their one vote will determine the outcome of a national election is zero, so the time and expense in going to vote does not benefit the individual who votes. To be motivated to vote, you must see yourself — not as an individual — but as part of some larger group. 

One fundamental flaw in the Greedy Pig Theory of Economics is the belief that we are primarily focused on making money and all else is of little importance. But perhaps we value our reputation and sense of self-worth more than just making money. A researcher determined to find a cure for cancer may be more motivated by their potential success than the little money they get from the National Institutes of Health (NIH) or the National Science Foundation (NSF) to run the lab that they need to carry out their research. A second flaw is in assuming that we care only about ourselves and don’t make sacrifices for the broader community. Spending time and effort as a volunteer to help others, such as Rosalynn and Jimmy Carter did before their deaths, makes no sense under the Greedy Pig Theory of Economics.

But even if the importance of money and focus on self interest were valid, there is another fundamental flaw that the Greedy Pig Theory of Economics ignores. It is the second invisible hand that is implicit in Adam Smith’s book when he says: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” This is Adam Smith’s invisible hand of “collusion” that competes with his invisible hand of “competition.” In reality economics is a contest of hand wrestling where these two hands compete for domination. Barriers to entry, which include first-mover advantage, natural monopolies, economies of scale and network effects, along with government rules and regulations, play a key role in determining who wins. Patents, licensing requirements and noncompete clauses in contracts are just some of the many restrictions designed to prevent or severely limit competition. 

We would love to believe that the first invisible hand of competition is the dominant invisible hand and that the invisible hand of collusion is just a short-run distraction that is eventually destroyed by the inevitable force of competition. However, when barriers to entry are strong and persistent, that “inevitable” competition may never arrive. As John Maynard Keynes was reported to have said: “In the long run, we are all dead.”

Amazon began as a way of learning about and purchasing books without having to drive to a bookstore. Amazon ran in the red for a while until it became popular. It came to dominate book sales. If your book is not available on Amazon, you are unlikely to sell many copies. Now Amazon sells an amazing array of products that can be delivered to your door rather quickly. Services such as having a cook and a driver were once restricted to the king and the nobility but are now available from online services such as DoorDash and Uber. 

Meta (formerly Facebook) with plenty of cash on hand now owns Facebook, Instagram, WhatsApp, Threads and Messenger. Alphabet (formerly Google) has bought up nearly 200 technology businesses including Waze, YouTube, GrandCentral and VoIP, which is now known as Voice. In the old days businesses could advertise their products and services on television with limited targeting of potential customers, but now the internet provides a deep understanding of the interests and tastes of at least millions and potentially billions of potential customers. With more and more dominant internet firms, we are now entering the age of what the former Greek finance minister, Yanis Yaroufakis, calls “Technofeutalism.” 

Economists committed to the Austrian paradigm recognize economic cycles but see economic downturns as beneficial using the phrase that Austrian economist (and former Austrian finance minister) Joseph Schumpeter called “creative destruction” that refers to the elimination of inefficient firms to cleanse the economy during economic downturns. However, in reality the firms that are driven out of business are not necessarily the inefficient ones. Very efficient and profitable restaurants can go bankrupt during severe economic recessions and pandemics simply because they don’t have the cash reserves to make it through the bad times. Efficient firms without sufficient cash on hand can get wiped out or bought up by more wealthy competitors during severe economic downturns. 

During recessions large inefficient firms with lots of cash on hand can often just ride out the economic slowdown until conditions improve. Schumpeter’s “creative destruction” might be more accurately called Schumpeter’s “competition destruction.” Jonathan Tepper and Denise Hearn have revealed the amazing degree of industrial concentration in the United States in their 2018 book “The Myth of Capitalism.” In reality, a truly competitive industry is almost as rare as Bigfoot, Yeti or the Loch Ness monster. 

One of the biggest flaws in the Greedy Pig Theory of Economics is in its explanation of the role of financial markets. In theory the financial markets provide money for creative entrepreneurs to use to create new products and services and generate new and better businesses. Once the children have grown up and left home, a parent who loves to cook for others may want to open their own restaurant. Maybe you have noticed that artificial intelligence (AI) is heavily dependent on pairwise correlations and you want to create a new AI company to introduce tri-wise, quadra-wise and quintic-wise correlations. The financial markets are there to provide the money you need. 

But what if the financial markets have become a separate economy that is actually drawing money away from the real economy. What if more money can be earned in the stock market with a long-term annual growth rate of nearly 10 percent while the real economy is growing at less than 3 percent. What if instead of providing money for the real economy, the financial markets are now drawing money out of the real economy in a reverse money flow.

Before 1982 the Securities and Exchange Commission (SEC) did not allow stock share buybacks. The SEC ruled that share buybacks were a form of insider trading and illegal. But CEOs, CFOs and other corporate leaders were being rewarded with stock options and their performance was often being judged on the basis of their company’s stock price. Under pressure from the financial elite and the politicians they supported, the SEC began allowing stock share buybacks in 1982. Corporations began diverting money away from product development and employee compensation to use instead to jack up the company’s share price, which drove up the company’s stock price but did not benefit the company directly in any way. In fact, the long term competitive viability of corporations who engaged in expensive share buybacks was being undercut. 

When the stock market is providing a substantially higher return than provided by creating new or better products and services, why would a non-financial firm waste its money rewarding its own creative entrepreneurs and hardworking employees when it can earn a lot more by investing its money in the stock market? This reverse money flow is suppressing productivity and economic growth in the real economy. 

Just as wolves formed packs to have greater success by working together, humans realized the importance of the tribe to make everyone better off. But how do you identify members of your tribe? Is it language, religion, skin color or ethnicity? Some gangs use tattoos to identify members. Others use special slogans or passwords.

But humans were able to extend group membership using broader concepts such as being a member of a particular nation or of the world community. We can only hope that the threat of climate change and incoming asteroids will help us see all humans as members of one big family, understand that working together overcomes the “free rider” problem where individuals working alone will inherently fail to solve our most fundamental problems and finally reject the Greedy Pig Theory of Economics before it is too late.

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Are Smartphones and A.I. Bringing Us Together or Tearing Us Apart?

When I was growing up in the 1950s and 1960s, the baby boom was well underway with birth rates climbing through the roof. Books were being written about the “population explosion.” China had to impose its one-child policy to keep its population from getting out of hand. We were beginning to worry that we would soon need to find another planet to accommodate all the children being born throughout the world, especially as death rates were falling. Darwin’s natural selection of humans to rule the earth was creating a gigantic population explosion that we were going to have to take seriously before it was too late.

Back in the day when the only phones available were dumbphones attached to a phone line, teenagers interacted a lot directly in person. Couples held hands instead of holding tightly onto smartphones. They developed emotional ties and learned to build commitments to one another. Around twenty years of age or so, they took a partner in marriage.

More recently, I have begun coming across more and more people in their forties and fifties who mention that they haven’t yet gotten around to looking for a partner in marriage. I could understand that some people might have been born to parents in bad marriages or had some other reason for deciding not to get married, but “not getting around to” seemed like a rather strange reason for not having gotten married early on.

What has happened to the birth rates in the United States and around the world? Almost all the birth rates had fallen below the replacement rate of 2.1 children per woman in her child-bearing years. Only a few countries such as some in the middle of Africa are still above that replacement rate. In recent years the United States’ rate was at 1.62 and falling. Some countries such as South Korea with a rate of 0.75 have fallen well below one child per couple. The whole abortion controversary in the United States and the refusal of doctors to get involved with miscarriages in case they were judged to be abortions was putting women’s lives at risk and was clearly going to drive our birth rates down even more.

The world is facing a Darwinian natural selection paradox. The dominant species on earth is suddenly losing population. What happened to the survival of the fittest theory? Will humans go extinct? What is going on here? Should we leave a note for the last remaining human to remember to turn off the lights?

Are smartphones and artificial intelligence (A.I.) bringing us together or tearing us apart? Are we creating a new world of freedom and bounty for all or a world that benefits a small wealthy elite at the expense of everyone else? Are we making the best possible decisions together in democracy or would we be better off letting one dominant person or A.I. algorithm call all the shots?

In life we have to decide to commit to one another or just try to go it alone. We can work together with a commitment to one another in a “win-win” strategy or follow an “I-win-you-lose” approach to life. Marriage is clearly a commitment to a spouse and potentially to children as well.

But what about in employment? Back in the day, many people made a work-life commitment to a particular employer for their entire career of thirty or forty years. And our employer often provided us with a defined pension plan for our dedicated service of many, many years. But nowadays, jobs seem to last only two or three years. Our employer has changed the defined pension plan into a defined contribution plan. The idea that we were “all in this together” has changed to we are “all on our own.”

Commentators have expressed concern about artificial intelligence (A.I.) taking over as if it were a concern for the future. What most people don’t realize is that computer algorithms are already directing our behavior more than we may realize. A simple example is Google Maps where you can use your smartphone to tell you exactly how to drive to get to a pre-specified destination. The smartphone’s voice commands sound simple enough: “Stay in the left lane. Turn left at the next traffic light.” But we are blindly following the computer’s orders. It is just the beginning.

A standard Google search directs us to nearby stores to find a product we ask about. But an A.I. algorithm designed to think for itself might respond to our request to find a flexible, rubber garden hose by directing us to Home Depot, Lowes and a nearby neighbor’s back yard. Stealing a neighbor’s garden hose may not be what we had in mind. An A.I. algorithm does not automatically understand what is legal and ethical and what is not. We may understand that it is important to avoid driving through high crime neighborhoods, but the A.I. algorithm may not be programmed to take this into account. How do I tell Google Maps that I am an old retired person with lots of time who is more interested in the safest way to get there than the shortest or quickest way?

A lack of knowledge of the law may be just the tip of the iceberg for an A.I. algorithm. What about having empathy for another person? In humans the area of the brain that provides us with a sense of empathy is the anterior cingulate. Most humans have a pretty good sense of empathy, although you may occasionally come across someone who does not. For example, I ran into a guy from my neighborhood with a poor sense of empathy who I hadn’t seen for some time. When he saw me, he said: “Hi, Larry. I thought you were dead.” An A.I. algorithm would most likely also have a complete lack of empathy. The A.I.’s response to a screaming child might be to ask itself “What is the fastest way to turn off this noise?” rather than “How can I help this child?”.

An even more concerning use of A.I. is in social media where the algorithm is tasked with maximizing the user’s facetime on the platform. It sounds simple. But the A.I. algorithms have discovered that people pay more attention to things that sound threatening than things that are merely interesting. Just as a student can use A.I. to create a new paper out of “thin air” from a wide range of sources, A.I. algorithms not only present existing conspiracy theories but actually create their own composite conspiracy theories from data about people’s most prominent concerns. One report claims that such created conspiracy theories have been responsible for much of the killing of Rohingya people in Myanmar.

It is not that A.I. is inherently evil and wants to kill us, but the goals that we set for the algorithms could create situations where we end up killing one another. The world is currently on a knife edge between those people who want to help the dear neighbor and those who want to run the dear neighbor off the road. Are we playing us-versus-them or we-are-all-in-this-together? At the moment, the world appears focused on fighting over the pie rather than trying to grow the pie for the benefit of everyone.

On your smartphone do you only see posts by people who agree with you, or do you see alternative viewpoints? We all have a limited amount of mental energy and may not want to waste it on some long-winded discussion. Are you interested in knowing the arguments of the other side in a debate or do you want to conserve your mental energy and have a strong confirmation bias in wanting to block out opposing facts and arguments? Do you like to think new and different thoughts, or do you dislike cognitive dissonance and reject alternative points of view out-of-hand?

A.I. presents us with two distinct futures: (1) where private enterprise in a free market trains A.I. to maximize profits for Facebook, Google, Amazon and other dominant companies, or (2) where government agencies tasked with keeping a close eye on A.I. development ensure that it achieves the greatest good for the greatest number.

In the distant past, the king, the pharaoh, the emperor or the czar controlled everything. You had to stay in your place in the established order or face execution. Slaves who were unable or unwilling to do the work were killed. From an economic efficiency point of view such a slave was consuming valuable resources (food, clothing, etc.) and not producing enough to warrant continued existence.

This old top-down system was called feudalism. The former finance minister of Greece, Yanis Yaroufakis, calls our emerging A.I. dominated society “Technofeutalism” in his recent book by the same name. The dominance of private technology firms with their smartphone and A.I. driven knowledge and control over our individual behavior may inevitably lead to the end of the rein of humans on this earth. After all, we are inherently inefficient creatures with very limited mental energy and rather restricted intelligence compared to Deep Mind with its ever more powerful A.I. data analysis centers.

What I have discovered in my marriage and in democracies throughout the world is that joint decision making can work much better than one person deciding everything. As Winston Churchill was reported to have said: “Democracy is the worst form of government, except for all the others.” Thinking together may not be easy, but it is much better than simply relying on a dominant leader with limited knowledge and limited mental energy.

We all have limited brain capacity and a limited amount of mental energy. The success of Homo Sapiens as opposed to Neanderthals and six or seven other branches of the human family is based on our empathy and sense of trust and moral obligation that enables use to benefit from the separation and division of labor. If we only cared about ourselves and were willing to take advantage of others whenever and wherever possible, we would never have gotten this far. Our commitment to fairness is the fundamental key to our success.

In Econ-101: Principles of Economics we are typically told that each person maximizes their own “utility” by rationally choosing among all the possible choices. Dan Ariely’s book “Predictably Irrational” captures the reality of people not behaving in the manner predicted by Econ-101. Even the conservative, former Federal Reserve chair, Alan Greenspan, realized this anomaly in 1996 when he declared that the stock market was exhibiting “irrational exuberance” in defiance of the prevailing conservative “Efficient Market Hypothesis.” Economists have finally come to realize human irrationality in the creation of a relatively new field called “Behavioral Economics.” Traditional economic theory is so far from reality that it is not a distant cousin but a creature from a different universe. The new age of instant communication with smartphones and artificial intelligence is totally unrelated to free enterprise in a free market working to maximize profits or shareholder value.

Working together in discussion and debate and welcoming alternative points of view allow us to make much better decisions than we would make if we had to figure everything out on our own.

We are running out of time. As with climate change, we have a very limited amount of time to face up to the danger before us. We must either confront the danger that these new technologies pose to our well-being and existence or surrender to the “inevitable” disaster that awaits us. Now is the time to confront this problem by working together to figure out how to deal with this.

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The claim that globalization is killing jobs is designed to distract us from the big elephant in the room — automation. Yes, there were some great production-line jobs back in the 1950s and 1960s where workers stood shoulder to shoulder in automobile assembly plants. But times have changed. Most of the manufacturing jobs coming back to America will go to robots. Unless Republicans pass legislation to allow robots to vote, they are not going to get much from these trade wars. The real purpose for blaming foreigners is to distract attention from the enormous amounts of money saved through automation and where that money has gone.

Economists call the mistaken idea that there is somehow a limited number of jobs in this world and we need to fight over them the Lump of Labor fallacy. In reality proper monetary and fiscal policy can increase the demand for goods and services to increase jobs and reduce unemployment. The real issue is the quality of the jobs especially in terms of the current levels of compensation for most working class jobs. There is no fixed number of jobs to be fought over.

The government can adjust the money flow to increase or decrease the number of jobs any time it wants to, but major employers who provide the most campaign donations would prefer a moderate degree of unemployment to maintain the “reserve army of the unemployed” to keep downward pressure on wages.

More money going to people who will spend it will increase demand and jobs. For example, the Federal Reserve can buy existing U.S. Treasury securities in the financial markets with money created out of “thin air.” By injecting money into the financial markets in this manner, the Federal Reserve can lower interest rates and facilitate auto loans and mortgages to help create more jobs in auto production and housing construction. With those jobs and more money, those workers will increase the demand for goods and services to increase the overall number of jobs in the economy. Of course, the Fed must avoid creating too much money, which could cause inflation if taken too far. The Fed’s mission is to establish and maintain full employment and stable prices.

Supply-side economics assumes that there is a shortage of investment money and that any additional money will go to creating more jobs. After all, financial markets were created to make money available to entrepreneurs to create new businesses and new products and to pay hard working people to produce more and better goods and services.

What supply-side economists fail to understand is that the financial markets on Wall Street have become increasingly separated from the real economy on Main Street. For several decades the New York financial markets have been growing at a much faster rate than the real economy. This has made investing in the financial markets much more profitable than investing in the real economy.

Large corporations have been buying back their own stock to drive up their stock price instead of investing their money in improving their productivity or creating new products and services. Even nonfinancial firms without stock in the stock market have found that it is more profitable to invest in the stock market than invest in their own companies. In fact, a money flow reversal has developed in recent decades that is moving money out of the real economy and into the financial markets. This is suppressing productivity and economic growth.

The money flow reversal has reversed Say’s Law from “Supply creates its own demand.” to “Demand creates its own supply.” The world today has an enormous capacity to create goods and services. Under ordinary conditions, automation and globalization together generate an almost unlimited supply. The problem is that demand is relatively weak with many consumers up to their eyeballs in debt and the federal government using deficit spending to pump up demand to keep the economy out of a recession.

Under our current economic system, hard work pays off. But not for the worker doing that hard work. The worker’s hard work pays off for the shareholder. As automation has taken over in production, industries have become more concentrated and less competitive and profits have grown enormously with much less money (in real terms) going to both labor and real capital investment.

At first I thought that automation was increasing the share of real capital investment. I was astonished to learn that both labor and real capital were losing out to financial capital. Simcha Barkai (2020) calculated the capital costs for the US non-financial corporate sector over the period 1984 to 2014 and found that while labor’s share has dropped by 11 percent, the share of real capital has declined 22 percent. Neither labor nor real capital were rewarded, as most of the money flowed to pure profits. See Simcha Barkai’s article “Declining Labor and Capital Shares” in Journal of Finance, 2020, vol. 75, issue 5, pp. 2421-2463.   https://doi.org/10.1111/jofi.12909

The cutoff for being in the top 10 percent wealthiest people in the United States is about two million dollars. The most recent data from the Federal Reserve shows that 93 percent of stock market wealth is now owned by the top 10 percent wealthiest Americans (up from 84 percent several years earlier).

When interest rates rise, wealthy people say “Great, I will earn more on my money.” while most Americans say “Oh, no. I will have to pay more on my debts.” The law of compound interest over time can produce enormous wealth. Once a person has a few million dollars, they tend to judge their success (and self-worth) on how much money they have and not their need for money to pay the rent and buy groceries. This is why President Trump see tariffs as important for keeping money and is not concerned about acquiring a new pair of sneakers or a less-expensive mobile phone. One billion dollars is a thousand million dollars. For exceptionally wealthy people it really doesn’t matter to them whether a pair of sneakers cost $10 or $1,000. It is all chump change.

To President Trump tariffs are just another way of acquiring more money. Revenue from tariffs can be transferred to wealthy people through tax cuts. Carefully targeted tariffs can also sometimes be useful politically as both President Biden and President Trump have demonstrated. By blocking competition from abroad, tariffs drive up prices and benefit workers in industries where the tariffed products are outputs but cause layoffs in industries where those products serve as inputs. For example, using tariffs to block steel and aluminum imports will increase domestic production but decrease overall supply and drive steel and aluminum prices up. But those higher prices will cause prices in industries that use steel and aluminum as inputs to go up as well. Demand will fall for automobiles as their prices rise due to the higher steel and aluminum prices and auto workers will face cutbacks and layoffs.

Politicians step in when workers see that they will benefit or that they will be hurt and speak up. Steel and aluminum workers clearly benefited and are well-represented by the United Steel Workers Union. But automobile workers complained so President Trump exempted steel and aluminum parts going into automobile production. Other workers in industries that use steel and aluminum as inputs didn’t complain or didn’t complain loudly enough to get attention so they lost jobs from the imposition of those steel and aluminum tariffs. Many other products such as refrigerators, stoves, microwaves, washers and dryers will also go up in price, which will suppress demand for those products. Both President Trump and President Biden benefited politically from steel and aluminum tariffs, but the country as a whole lost out with higher prices and fewer jobs in other industries. In other words, tariffs just raise prices on consumers and create a game of musical chairs in jobs where some workers benefit and others lose out.

But what about the enormous savings fromautomation? Before the mid-1970s as output per worker increased, the compensation per worker increased along with it. In econ-speak, workers were paid “the value of their marginal products.” But starting around 1976, while output per worker continued to increase, the real compensation of workers leveled off and failed to increase in real (inflation adjusted) terms. The emphasis on maximizing shareholder value via higher corporate profits took hold. With CEO and CFO stock options, the goal became to raise the company’s stock market share price as high as possible.

In 1952 unions were powerful when John Kenneth Galbraith wrote his book “American Capitalism: The Concept of Countervailing Power.” Companies controlled block of jobs. Without unions, workers would have to compete with one another, while company jobs stood together in a single block called a localized monopsony. The imaginary world of individual jobs competing with one another against individual workers in competition with one another for each of those jobs is pure fantasy.

Twenty-eight states have “Right-to-Work” laws or equivalent restrictions to use the “free-rider” problem to prevent the formation of unions. Nonunion “scabs” not only avoid paying union dues but usually get overtime pay for working during a strike. If production continues during a strike, while grocery bills and rent payments continue to pile up, the strike may end without much improvement in pay or working conditions.

In 1955 unions controlled about 35 percent of America’s workforce. According to the U.S. Bureau of Labor Statistics, in 2024 only about 10 percent of all workers were unionized while only about 6 percent of private-sector workers were unionized. Without the countervailing power of unions, wages are set well below what would otherwise be the free market equilibrium wage. After the mid-1970s workers were no longer paid the value of their marginal products. Virtually all of the savings from automation were going to profits. Credit cards were created in 1946 but did not become widely used until the 1980s after workers could no longer buy back the value of the goods and services that they were creating.

But driving up private debt to enormous levels to maintain adequate demand for goods and services was not enough to avoid an economic slowdown. Republicans and Democrats say they hate federal deficit spending. But Republicans passed unpaid for tax cuts and Democrats passed unpaid for expenditures using federal deficit spending to keep the economy out of a recession to avoid losing votes at election time. They could not avoid the consequences of the distorted money flow that minimized worker pay in order to reward passive investors (who when using mutual funds may not even bother finding out what companies they are invested in).

The excess profits from automation were no longer being used to pay workers the value of their marginal products but instead were plowed back into companies’ stock market share prices. A company does not get any additional money when it stock share price increases unless it issues new shares. Only existing stock holders benefit, which often include the company CEO and CFO, especially if they have stock options.

Before 1982 the Securities and Exchange Commission (SEC) ruled that stock share buybacks were a form of insider trading and were illegal. But in 1980 Ronald Reagan was elected president to carry out his war on government where he said “Government is not the solution to our problems. Government is the problem.” He promised to get rid of many of the regulations that were put in place after the stock market crash of 1929 and subsequent Great Depression where half of the banks in America went bankrupt and 25 percent of American workers were thrown into unemployment. In 1982 wealthy stock holders pressured politicians to make the SEC drop the restriction on stock share buybacks.

What can be done to “Make America Great Again” by permanently fixing our broken, screwed up economy and the distorted money flow that has created the huge divide between the wealthy, well-educated elite and the rest of Americans who are up to their eyeballs in debt, including the two-thirds of Americans who do not have a college degree and typically feel cheated and left behind?

To stop the distorted money flow that is over-rewarding the wealthiest 10 percent of Americans who own 93 percent of stock valuations (which is currently leaving most other Americans and the federal government with excessive debt) and to stop the resulting reverse money flow that is suppressing productivity and economic growth in our economy, we need to take the following five steps:

(1) Direct the Securities and Exchange Commission (SEC) to require that any stock shares bought back be immediately distributed to rank and file employees. This will redistribute the shares instead of reducing the shares, which will have less effect on the stock price than taking the shares out of the stock market entirely.

(2) Allow the Federal Reserve to speed up or slow down the economy directly instead of relying on purchasing or selling securities in the New York financial markets by having the Federal Reserve create a “FedAccount” for everyone with a Social Security number where all IRS refunds and direct stimulus money can be deposited as needed whenever an economic slowdown threatens to throw the economy into a recession.

(3) Get Congress to reissue The Postal Savings Act of 1910 and put the Federal Reserve in charge of running and paying for the post office (USPS) so that taxpayers will no longer have to pay for the USPS. Whenever inflation becomes a problem, the Federal Reserve could offer a high interest rate (e.g., 10 percent) on up to a maximum amount (e.g., $10,000) on each “FedAccount” which could be accessed both online (either directly or through private apps like Venmo, PayPal, Apple Pay, Google Pay and others) and at all of our over 30,000 post offices throughout the United States.

(4) Follow Germany example by getting Congress to require that 40 percent of the members of corporate boards be elected directly by rank-and-file employees. By replacing the CEOs golf buddies with company employees from product development, production, marketing, sales and distribution, the board would not only have direct inside information about what was going on in the company (instead of relying on the CEO’s reports to the board about what a great job the CEO was doing) but would also have a stronger incentive to reward the creative entrepreneurs and hardworking employees in the company.

(5) Promote employee stock ownership plans that turn a company into a team of owners who work together to create new and better products and services. Encourage the use of pensions and stock ownership to reduce employee turnover and build long term employee commitment. In a company that is employee owned, payments in the form of stock dividends would be taxed at a lower rate than ordinary worker pay.

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A while back I paid $9.98 for a pair of memory foam sneakers from Walmart, which were made in China. Lately, I noticed that the price has risen to $14.98 at Walmart. I was curious about the price increase so I investigated how this may have come about and what to expect in the future.

What I learned is that when a Walmart shipping container from China arrives at the port in Long Beach, California, a United States federal inspector prevents the Walmart driver from driving away with the Walmart shipping container until a broker representing Walmart has Walmart pay the tariff for the particular items in that shipment.

Naturally Walmart can’t afford to pay a permanent Walmart employee to be stationed at every port of entry into the United States (seaport, airport and border crossing). But at each port of entry into the US there are brokers, where each broker represents a different set of companies that import products into the US. Walmart has arranged in advance to have a broker to represent it at the ports of entry that it might use.

When the Walmart sneakers from China are priced at the local Walmart store, the price has to cover the price paid for buying the sneakers in China, the travel cost over the Pacific Ocean, the tariff and the cost of driving those sneakers to the local Walmart store, along with overhead costs (such as paying the Walmart employees) and a little bit of a profit. Of course, Walmart’s fundamental marketing strategy is to sell an enormous amount of products by offering them at the lowest possible prices, which means keeping its profit margins on individual items very low. What that means in practice is that Walmart must either incorporate the tariff into the shelf price or drop the item altogether if the tariff makes the product too expensive.

Of course, as the tariff is part of the shelf price, the cost of the tariff is not broken out separately on the sales slip. It also means that the state and local taxes on the sales slip are being applied to the tariff along with the other costs included in the shelf price. In other words, in effect, the state and local sales taxes are being applied to the tariff. You are paying a tax on a tax!

As a source of revenue, unlike an income tax, a tariff is similar to a sales tax in that it is not based on your ability to pay. It is what economists call a regressive tax. Moreover, tariffs are not an unlimited source of revenue. A small tariff may bring in a bit more revenue, but if the tariff gets too large, customers say: “No way! I am not going to pay that much.” As tariffs get higher, fewer customers buy that product, and stores just switch to some other source or drop the product altogether. In that case, the revenue from the tariff can drop to zero. President Trump’s idea of benefiting the rich at the expense of the poor by replacing the income tax (based on ability to pay) with tariffs (paid regardless of ability to pay) is totally unrealistic.

It is certainly true that the United States has a trade deficit with China. The total value of all the items that we import from China far exceeds the total value of the items we sell to China. Is this bad? The idea that we must maintain balanced trade with each country makes no sense. We may export a lot to some countries and import little from them. We may import a lot from other countries (such as China) and export little to them. Having a balanced trade with each and every country is like saying we must work at Walmart to pay for everything we buy at Walmart. The whole point of trade is to use money to sell to some and buy from others. Having perfectly balanced trade with each country makes no sense.

Even the idea of maintaining an overall balance of trade with the value of exports matching the value of imports may not always be in a country’s best interest. For example, the U.S. dollar serves as the world’s reserve currency. Ordinarily, if a country issues too much of its own currency, the value of its currency will fall in international markets making its products cheaper for other countries to purchase but making the products of other countries more expensive for its citizens to purchase. This just generates inflation in the country that issued too much of its own currency.

However, the United States is in a unique position in that the U.S. dollar is used as the world’s reserve currency. As world trade expands, the demand for U.S. dollars expands. This means that the United States can get away with issuing more of its currency without generating inflation in the United States, as long as it limits its increase in U.S. dollars to the increase in the world’s demand for U.S. dollars as the world’s reserve currency. In other words, the United States can (to a limited extent) get something for nothing in world trade. Running a long-term international trade deficit on this basis may not technically be colonial exploitation, but it has some of the same implications. This may not have been intentional, but the United States certainly has benefited from being able to run a long-term trade deficit.

To understand US-China trade, we must step back and look at the bigger picture. When China transitioned from communism to its own version of state led capitalism, it was also undergoing a major transformation in agriculture. The transition from labor intensive agriculture to the extensive use of machinery in agriculture freed up a large number of rural people to move into Chinese cities in search of jobs.

This created a political problem for China. The last thing that China wanted was political unrest. But China did not have a large enough middle class to buy all the products that this large number of peasants coming in from the countryside were capable of producing. The solution was to temporarily “borrow” the American middle class to provide the demand for the products that these peasants could produce in newly created Chinese factories.

Consequently, China takes its natural resources and has its workers work hard to make products for us. We get high quality products from China (such as my memory foam sneakers) at very low prices. In return, instead of sending China a lot of our products, we send them pieces of paper with George Washington’s picture on them (US dollars). In other words, instead of sending a large number of our products to China, we keep most of our own products for ourselves.

Ordinarily, those US dollars would flow into the foreign exchange markets and drive down the value of the US dollar while boosting the value of the Chinese yuan. But this would make Chinese products more expensive for Americans to purchase and reduce the demand for products from China. To prevent wide-spread unemployment and political unrest, China has its businesses turn in those US dollars to the Chinese government in return for the Chinese yuan. Then China’s government uses those US dollars in its sovereign wealth fund to purchase US Treasury securities in the New York financial markets.

The big picture is that China sends us high quality products a low prices, but we keep most of our own products for ourselves. China is helping to finance our international trade deficit. Then China takes the US dollars we use to buy those Chinese products and loans them back to us to finance our internal federal deficit spending. Who is getting cheated? Hint: It is not us. Instead of criticizing China, we should be praising China for being so generous, or at least keeping our mouth shut and going along with a trade relationship that favors the USA.

Trade between nations, as between people generally, enables the division and separation of labor. Even if you are better at auto repair and roof replacement, you may not have the time to do everything yourself. The same is true between nations. Economist David Ricardo (1772-1823) developed the “law of comparative advantage” that tells us that even if we are better at everything, we still benefit from focusing on those things that we do best and let others handle the other stuff. The very best stock broker may also be the very best heart surgeon, but trying to do both jobs may be a bit too much.

What about employment is the United States? Don’t we want to create more jobs for US workers? This implies that there is somehow a fixed number of jobs in this world, and we need to fight over them. Economists call this the lump of labor fallacy. Proper fiscal and monetary policy can create as many jobs as we want as long as we don’t overstimulate the economy and cause inflation.

The real issue is the quality of the jobs. Every country must decide for itself how much taxpayer money to invest in the education of its people from elementary school through college. We not only benefit from our own education, but economist William J. Baumol (1922-2017) revealed that there is a considerable spillover effect that transfers substantial benefits from the education of some to the well-being of others. As retiring baby boomers get older (and sicker), they will come to appreciate the education of nurses and heart surgeons. Given the substantial spillover effects, American taxpayers would do well to consider extending educational support beyond high school to vocational education and college. This could greatly expand the number and quality of higher paying jobs in the United States. Germany already makes most college education tuition free as do the Scandinavian countries. Norway and Finland make college tuition free for all students including international students, while Sweden and Denmark make college tuition free only for EU/EEA students.

For political reasons both President Biden and President Trump have favored the US Steel Workers who are well organized. But using tariffs to protect jobs in the steel and aluminum industries just causes job losses in the industries that use steel and aluminum by blocking inexpensive steel and aluminum imports such that the prices of steel and aluminum rise sharply. For example, about fifty percent of an automobile is made from steel and aluminum. Rising steel and aluminum tariffs may mean more jobs for US Steel Workers in exchange for higher automobile prices and fewer jobs for workers in the automobile industry.

President Trump wants to restore labor-intensive production in manufacturing. But it is automation and not globalization that has destroyed those jobs. Instead of sending thousands of coal miners underground, a small number of workers now use giant earth moving equipment to remove mountain tops to get at coal seams directly. Some manufacturing plants are so automated that they use “lights out” manufacturing where robots work through the night in the dark without any workers on the assembly line.

China is way ahead of America in the production and sale of electric cars, which are cheaper to produce and can ultimately run on solar and wind power stored in ever-more-efficient batteries. President Trump wants us to return to the past, but the higher cost of steel and aluminum along with his blocking our transition to cheaper electric vehicles is going to make American vehicles ever more expensive while China provides ever less expensive vehicles to the rest of the world. Also, China’s middle class has grown from about 3 percent of its population in 2000 to over 50 percent of its population today so it no longer needs to “borrow” America’s middle class to create enough demand for its products to keep its people employed.

President Trump’s trade war with China also affects American agriculture. American farmers sell a large volume of soy beans and other farm products to China. But in response to President Trump’s tariffs, China has imposed high tariffs on farm products from America. However, China does not want political unrest in China with food prices rising because of the high tariffs on farm products from the United States. Consequently, China is lowering or dropping altogether tariffs on farm products being imported into China from other countries, such as Brazil and Argentina.

Since the end of World War II the United States has been seen as a reliable and dependable trading partner. President Trump’s use of tariffs a a bargaining chip has convinced China and other countries that they can no longer rely on the United States, so some are permanently switching their imports to other countries that they consider more reliable. As the Canadian prime minister said: “The United States is no longer a reliable trading partner.” The use of the tariff bargaining chip has turned into a long-term loss for American farmers and other workers as well as the cause of substantial increases in the prices of products that we were previously importing from China and other countries.

A good way to lower prices quickly and effectively is to eliminate virtually all tariffs. By following the win-win strategy and eliminating tariffs everywhere, the USA and China can both be winners.

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The Trump administration is planning to sell the U.S. Postal Service (USPS). From the Trump point of view, it is just another government bureaucracy running in the red with little chance of achieving a profit for taxpayers. With FedEx, United Parcel Service (UPS) and Amazon delivery service, who needs the U.S. Postal Service (USPS) anyway? Why not sell off your local post office to become a convenience store, such as a candy store, or, better yet, a fast food delivery service already equipped with a pick-up counter in the front of the store?

At first it might seem like selling off so many post offices around the country would be a huge task. However, hedge funds have plenty of experience buying up and selling off the assets of large firms. Hedge funds know how to take a little of their own money, more money from investors and a lot of borrowed money to buy up firms and sell them off in pieces for a handsome profit. But who would buy so many individual post offices? No problem. There are plenty of property management companies running local shopping centers and a few other commercial properties here and there. They often have to find new businesses for some of their properties from time to time, so finding a buyer in each city and town would be no problem.

Without competition from a government controlled postal delivery service, the private delivery companies could make mail delivery much more efficient. Why not charge a higher price for delivering a single letter to some location out in a rural part of the country than delivering that same letter to a location in the middle of a dense urban or suburban location where many other letters are being delivered daily? Efficient resource allocation requires that higher prices go with the higher costs of time and gasoline consumption while lower prices correspond to lower costs.

But there is another way of off-loading the administrative expenses of the U.S. Postal Service (USPS) so that the taxpayer could completely off-load the expense and yet still get all the benefits of the current system as well as fulfill all the pension obligations to postal workers. Turn the whole thing over to the Federal Reserve. The Federal Reserve Bank earns billions of dollars in the New York financial markets as well as from money it earns from the Federal Reserve’s twelve regional banks. It doesn’t need taxpayer money. In fact, the Federal Reserve often donates billions of dollars to the U.S. Treasury in years when it earns more money than it knows what to do with. Why not keep all the benefits of the current system but drop the taxpayer burden of paying for it? Who can argue with getting something for nothing? In return for paying for our postal delivery service, the Federal Reserve could get a new, more effective tool to stop inflation quickly and efficiently.

To give the Federal Reserve the new return-on-savings tool to stop inflation efficiently and effectively when turning the Postal Service (USPS) over to the Federal Reserve, Congress would need to reissue the Postal Savings Act of 1910. When I was a little boy in the 1950s and 1960s, many people had savings accounts at their local post office. In response to excessive inflation, instead of using its cost-of-borrowing tool and punishing people for inflation by raising the cost of loans when too much money was chasing too few goods, the Federal Reserve could create a return-on-savings tool by posting a sign at every neighborhood post office offering ten percent (or more) on savings to reward people for saving money when too much money is chasing too few goods causing inflation.

As was done under the Postal Savings Act of 1910, post office savings could then be reinvested in whatever nearby private banks were offering the best interest rates. The Federal Reserve could easily afford to eat the difference between the high rate it offered and the somewhat less generous private bank interest rates to stop inflation quickly and effectively.

Ironically, it would make the free enterprise system more efficient, because, in reality, without the post office signs offering a high rate, many people pay little attention to the interest rate on their savings or on their certificates of deposit after they have made their initial investment. The rates often drop dramatically over time without them noticing, but they are much more likely to notice the signs offering high rates in their nearby neighborhood post office. The Federal Reserve would make sure that the money got reinvested in the private banks that were offering the best rates and move that money around as necessary to always get the best rates offered by the private banking system. Once the excessive inflation subsided, the Federal Reserve could lower the post office savings rates to simply match the best available local private bank rates, or, in the face of economic downturns, lower the rates even more to encourage spending to avoid recessions.

The Federal Reserve has relied too long on its old cost-of-borrowing tool where it raises the interest rates on loans and mortgages to try to stop excessive inflation. But raising the interest rate on loans just transfers the inflation from things that require a loan to less expensive things that don’t require a loan. In addition to discouraging people from buying a house or replacing their old beat-up car with a new car, it causes farmers, who borrow money to plant more crops, to cut back on production just when an increased supply was needed to stop inflation where too much money is chasing too few goods. Many retail establishments that typically borrow money to allow them to run in the red through most of the year until the holiday season at the end of the year when they cover their costs and make a profit would have to cut back or stop when facing higher loan rates. This ultimately does stop inflation but by suppressing both supply and demand as worker hours are cut back or workers are laid off. Since they can’t spend money they don’t have, the workers cut back their demand for goods and services dramatically at such times, and that does finally stop excessive inflation.

However, a return-on-savings tool such as with the post office savings accounts would be much more effective and efficient in stopping inflation. People who ordinarily don’t save much due to the rather low interest rates on savings could switch gears and start to save more when offered a savings rate significantly higher than the rate of inflation. Moreover, getting people to save more money creates an automatic stabilizer for the economy as a whole. Less debt and more savings is exactly what is needed to allow people to ride out economic downturns without having to cut back on their essential expenditures.

Now is the time to contact your Congressional representatives to tell them to turn our neighborhood post offices over to the Federal Reserve instead of selling them off to become candy stores or who-knows-what.

John Locke’s (1632-1704) original idea was that you earn the right of property ownership through what today would be called “sweat equity.” Taking property or materials from the natural world and imbuing your labor into them established your property ownership. Capital ownership was earned through sweat equity.     

However, the link between sweat equity and capital ownership broke down when larger projects required more resources than individual workers could obtain through their sweat equity. In England the nobility provided the resources when investments were larger than individuals or even groups of workers could manage. Workers were not given any ownership in such capital equipment. Subse­quently, capital became concentrated in the hands of the capitalists with little trickling down to the workers.

Hard work pays off, but not for the workers doing that work. The workers’ hard work pays off for the shareholders who do nothing but watch the money pile up in their stock portfolio. We like to think of America as the land of opportunity with a level playing field for all who are willing to work hard. But the United States does poorly when compared with other developed countries in measures of upward mobility. We are listed near the bottom around country number twenty-six in such comparisons. Too often the key to financial success is just inheriting a lot of money and investing it in the stock market. 

When the workers work hard, stock ownership pays off with big increases in shareholder dividends and valuations enhanced through share buybacks. In theory all that money could be used to produce lots of products. But the workers can’t afford to buy those products because of the inadequate money flow to employees relative to shareholders. Most middle-class Americans end up with lots of debt. This diversion of money from Main Street to Wall Street is a reverse money flow, where money flows out of the real economy and back into the financial markets and ends up suppressing productivity and economic growth.

Conservatives like to talk about the importance of incentives. But where is the incentive for a wealthy person to work hard when the value of their stock portfolio keeps rising without any effort on their part? The return to capital is much higher than the return to labor and has to a great extent become a substitute or alternative to rewarding rank-and-file employees for their work. Today, the largest share of the profits in most large corporations goes to the top management and the shareholders, with little left over for most of the company’s workers. In the 1950s and 1960s CEOs earned about 20 times the pay of the median worker. Today, in the United States, CEOs earn over 200 times the pay of the median worker, while in Europe the CEOs have kept their pay at 20 times that of their median workers.

Investing in Adobe or Apple in the 1990s and just checking the box that says: “reinvest dividends,” provided shareholders with an over five thousand percent return, when some of that money could have gone to employees to reward their hard work. Sure, investors deserve a reasonable return, but the extreme emphasis on maximizing shareholder value has gone to an extreme at the expense of reducing our economy’s efficiency and productivity. It is true that someone retiring with a retirement portfolio of only $100,000 is taking a big risk when investing in internet startups and stocks. But most retirees with that little money avoid taking risks with their limited funds.

Most of the money invested in internet startups and individual stocks is from millionaires and billionaires who can afford to lose $100,000 here and there with no effect on their day-to-day lives. After all, how many pairs of shoes can a person wear, how many cars can a person drive, and how many fancy meals can a person eat at expensive restaurants each day? Even buying vacation homes can become a burden after a point. In reality, the wealthiest Americans already have so much money that taking risks with excessive funds is not something that requires great rewards. Most don’t know what else to do with all that money anyway. If there were no places to invest money, a wealthy person would need to pay a bank to hold on to their money for them. 

There is no shortage of money to invest in good ideas, but a shortage of creative entrepreneurs with the ability and willingness to work hard to bring good ideas to the marketplace and to inspire their employees to work hard in carrying through on effectively implementing the plans and programs needed for success. Investors, who have inherited a lot of money and don’t know what to do with it other than investing in broadly based index funds or, alternatively, gambling on individual stocks without much understanding of their potential, don’t need to be highly rewarded for spending their days at the country club playing golf. Our emphasis on rewarding shareholders, instead of actual entrepreneurs and their employees, undermines incentives in a distorted version of free enterprise.

To be fair there are some firms that are entirely employee owned such as Burns & McDonnell Engineering[1] in Kansas City, Sammons Enterprises in Dallas, Swinerton Builders in San Francisco, and Chemonics International Inc. in Washington, DC.  There are also many companies that allow for partial employee ownership through various stock option plans and similar arrangements. Government should create ways for all Americans to have some stock ownership that would grow over time and supplement Social Security and other sources of retirement income. In Germany workers are represented directly on corporate boards and incentives are designed to inspire workers to work hard and thoughtfully for their companies.

When the workers cannot afford to buy back the value of the goods and services they are producing and the wealthy dominate the financial markets, the relationship between the stock market and the real economy breaks down. The stock market thrives while the real economy struggles. I do nothing, and my stocks generate more and more money. The workers work hard, while their earnings stagnate. This was not always the case. After World War II the wages of workers kept pace with worker productivity until around 1974 when real wages flattened out even as worker productivity continued to rise. After 1974 the profits from increased productivity were diverted to the shareholders.

Unions once provided the balance to counter businesses controlling blocks of jobs with quasi-monopsony or oligopsony power. With about a third of the labor force unionized after World War II, employee pay kept up with employee productivity increases until around 1974 when employee productivity continued to rise but employee compensation flattened out and declined to some extent in real terms when adjusted for inflation. In recent years, the degree of unionization has dropped to ten percent or less.  It should be no surprise that so little money ends up in employee paychecks relative to enormous amounts of money given to the ten percent richest people in the United States who own eighty-four percent of the wealth on Wall Street.

Things have only gotten worse and more extreme since then. The top one percent have accumulated enormous wealth while the average worker has gotten nowhere except deeper in debt while living paycheck to paycheck. It is only in recent decades that the emphasis on maximizing shareholder value and CEO pay, and wealth inequality in general, has become so extreme. It is no surprise that workers have rebelled against the elite so forcefully and emphatically. 

To keep the economy from tanking in the face of such a distorted money flow, the federal government has itself gone deep into debt. The more distorted the money flow in favor of the wealthy, the greater has been the rise in the national debt to try to keep the economy from collapsing into a deep recession. The fundamental problem is not the government debt itself, but the distorted money flow that makes deficit spending necessary.

Another concern about government spending in general, but government debt financed spending in particular, is whether the government is “crowding out” private investment. This assumes that the economy could achieve full employment without deficit spending. For many decades, the US economy has had weak, inadequate aggregate demand relative to the excessively robust global aggregate supply. This soundly rejects the assumption that federal deficit spending is not needed to achieve full employment. In addition, we find an a priori assumption that private investment is always preferable to government investments and that future generations would be better off if there were no debt financed government investments. But this assumption is wrong when common property resource considerations allow for government debt that is judged by voters to provide a better return for future generations than private investments of equal cost. Some investments in education, infrastructure, and basic research, for example, may require government funding to be viable. Major advances in basic research that are unprofitable at the micro level for individual firms can be highly profitable for the nation and the world. Extensive examples of the benefits of government investments in basic research and technology infrastructure can be found in several books by Mariana Mazzucato.^[2][3][4]

As in any investment, public or private, the costs and benefits of taking on debt should be carefully considered before making the investment. But that fact does not rule out debt-funded public investments if such investments are sufficiently beneficial to future generations. Such investments often offer a higher return to the nation than any alternative private investment projects. This is particularly true of investments which would never be made by the private sector because their common property nature generates a free rider problem which the private sector cannot overcome by private contracting because of excessive transaction costs but is recognized by the public sector as a public benefit.  From this point of view, one might be just as concerned about private investment “crowding out” public investment. When all available resources are fully employed, there will always be a trade-off between public and private invest­ment.

On the other hand, when the economy is stuck at a lower level of capacity utilization with high levels of unemployment, government investment expenditures may more accurately be thought of as “crowding in” private investment expenditures by stimulating demand and increasing the money flow throughout the economy.    There are many such investments such as money for infrastructure, education and basic research at the National Science Foundation and National Institutes of Health.

In the past America has led the world in taking the initiative in providing and requiring school attendance for its children. But now other countries such as South Korea and China are making advanced education a priority and may ultimately leave the United States behind in educating their citizens. Most universities in Germany are tuition free. 

Pharmaceutical companies will only invest in medicines with patents that can effectively block competition. If a medicine could cure breast cancer using easily accessible household ingredients, don’t expect a pharmaceutical company to investigate it, reveal it, or develop it. Pharmaceutical companies are motivated to charge a high price for any medicine to cure an illness that threatens people with severe disability or death. Where the need is greatest, the price will be set the highest. Only the government through the National Institutes of Health can make the investments needed for the university research needed to find cures in a cost-effective manner that can offer cures at a reasonable price.

Concentrated economic power and patent laws have enabled pharmaceutical companies to gain enormous returns on relatively minimal investments in research. Patents were originally designed to encourage innovation by allowing a company time to earn a profit on investments that take a lot of money and time. However, patents have been extended well beyond a reasonable period to recoup costs and earn a reasonable profit. Patent trolls have matters even worse. When companies fail to adequately register patents for the products and methods they have developed, patent trolls register patents for those products and methods and then sue those companies for compensation under the patent laws. The patent trolls just exploit the system and discourage innovation. We now have a patent system that suppresses rather than encourages innovative invest­ments.

Infrastructure is clearly another area where public investment in public goods is needed because the incentive structure of private commerce does not lend itself well to building common property resources that benefit everyone without providing a clear path to matching private costs to private benefits. Historically, the benefits of the Eisen­hower Interstate Highway System cannot be overstated. The enormous benefit to our economy in general and to individual companies in particular in transporting their products has demonstrated the value of solving a common property resource transportation problem that require public investment. Fortunately, the passage of the “Infrastructure Investment and Jobs Act of 2021” is a good start toward at least repairing our damaged and deterior­at­ing roads, bridges, tunnels, ports, airports, and rail facilities. 

Cave dwellers had no choice. You did what the big guy said.  As tribes got larger, the king, the pharaoh, the emperor or the czar had total authority over their domain.  You could not hunt deer in the forest or take fish from the stream without permission from the king.

Apparently there was little discussion or debate, and mental energy was in short supply.  A little progress was made with the invention of the wheel and the use of fire, but thousands of years went by with little progress.

In earlier times, the king and the church demanded obedience. The earth was the center of the universe, and any fool with any common sense saw the sun rise in the morning and set in the evening as the sun traveled obediently around the earth. 

But Copernicus disagreed.  He argued that it was the earth that traveled around the sun and not the other way around.  At first, Galileo agreed with Copernicus.  But then the authorities threatened to execute Galileo for deviation from established doctrine.  Galileo had to recant to save his skin.

But somehow, starting with the Greeks and later with the Magna Carta of 1215, cracks began to appear in the authoritarian foundation.  People began to live longer and acquire more mental energy.

Groups of people seeking greater independence of thought, including religious thought, had to get the permission of the king to organize and collect enough money to purchase a ship and enough provisions to make it across the Atlantic Ocean. Even after their colony was established, they were not really fully independent, as they were often at the mercy of the authority of a dominant military power. The New York City area was under the control of the Dutch military before the English military took control. Even within the “rebellious” group, a hierarchy of authority maintained power. Creative thinking was organized and formalized by the American colonial elite with the establishment of Harvard College in 1636. 

Until the American Revolution, land in the American colonies was allocated by King George and the colonial governors that he appointed. Only those considered to be descended from the British nobility were given land. George Washington, John Adams, Thomas Jefferson and the other founding fathers of America were not commoners. Only Caucasian male landowners could vote. The American revolution was not led by commoners, but by the very colonial aristocracy that King George had established.

But as the United States of America was being established in the late 1700s, an entirely different type of revolution was taking place across the Atlantic Ocean. The French Revolution was an attempt to completely overthrow the French aristocracy. Aristocratic heads were being chopped off in the guillotine. The American aristocracy got the message. They taught their children to avoid showing off their wealth or their superiority and to always be generous with commoners. But to maintain their dominance, they used legacy almost exclusively in all the leading colleges. This bond of legacy, in turn, led to positions of power in government and in industry. Initially, who you knew was more important than what you knew. But eventually cracks began to appear in the American aristocratic hierarchy with the introduction of SAT and ACT tests as a consideration in college admissions.

Gradually commoners who rose through the ranks began replacing the aristocracy with a meritocracy in American industry and governance. Unfortunately, the meritocrats tended to judge themselves on the basis of their wealth and often failed to follow the modesty and generosity mandates of the old American aristocracy. Many failed to share their wealth and, instead, built up huge fortunes. The greedy pig theory of economics set in with the maximization of shareholder value mandate.

As America developed and expanded, the original colonists were greatly augmented by immigrants from an ever widening array of countries. This gave America a rather extraordinary advantage in that immigrants are typically not random draws from their original country, but instead immigrants are people with more independence and determination than average. In their countries of origin, this is sometimes referred to as a “brain drain.”

More often than not, human progress has come about through the efforts of rebellious “troublemakers.”  Progress is made by people with enough mental energy to think independently and to refuse to blindly go along with the crowd. We have gradually come to realize the enormous benefits that come from encouraging people to think for themselves instead of blindly following “the dear leader.” Instead of imprisoning people who think differently, we now give them Nobel prizes.

A leader who wants to hang on to the past and demand obedience in following tradition to conserve mental energy needs “advisers” who are essentially “yes men” who go along with whatever the leader wants.  Their job is just to tell the leader how great he is and to not raise any issues or concerns.  Even today, people often conserve their mental energy by following a left-wing checklist or a right-wing checklist to decide where they stand on various issues and policies.  Thinking independently takes too much mental energy and may separate you from your tribe. 

Putin established such an authoritarian system in Russia, which led him to think that he could easily take over the Ukraine in a few days. No one dared challenge his judgement or question his authority. The result is not just a disaster for the Ukraine, but also a disaster for Russia itself with the loss of Russian lives and with many young Russian men leaving the country to avoid the “military incursion.” But Putin needed to warn of some external threat (NATO) to justify suppressing internal freedom. Ironically, before Putin’s “incursion” into the Ukraine, NATO was weakening, with few countries paying the full two percent of GDP for defense. Putin’s incursion has now greatly strengthened NATO with Finland and Sweden joining the alliance in response to Putin attacking the Ukraine, and now NATO members are significantly increasing their military expenditures.

Former President Trump now believes that he made the mistake in his first term of having advisers who offered advice, instead of offering unwavering praise and obedience. In a second term, he will make absolutely sure to avoid appointing any independent thinkers with too much mental energy for their own good.  In every instance, they must be absolutely committed to following their dear leader and not their own thinking or the rule of law.

Trump could not come up with a credible military threat from Canada or Mexico to get Americans to give up internal freedom to defend their external freedom, so the best he could come up with was the external threat of millions of rapists and murderers with poison blood pouring over our southern border. That story would allow Trump (under Supreme Court official immunity) to further suppress internal freedom to protect us from such a horrific external threat.

The 2024 election appears to be a choice between either replacing the rule of law with the rule of Trump under presidential immunity as granted by the Supreme Court, or continue following the rule of law and thinking carefully with as much mental energy as possible from all our citizens with presidential advisers who provide criticism and advice and not just praise and adulation. Under Trump, “troublemakers” may be arrested for “disrespecting” the presidency just as Vladimir Putin can now arrest Russians for using the word “war” in reference to his military incursion into the Ukraine.  If Republican politicians are afraid of offending Trump when he is not in power, imagine how obedient they will be if he regains the presidency. 

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A Vermont janitor had $8 million dollars when he died in 2015.  His frugality and stock market investments, along with his longevity, paid off big time – but not his hard work as a janitor.

Actually, hard work does pay off – but not for the person doing the hard work. The worker’s hard work pays off for the shareholder. That is our system. Understanding our system and following the tough and demanding rules of compound interest can make you very rich.

Historically in America if you put $10,000 in the stock market when your baby was born, by age 80 he or she would be a multimillionaire just from that initial investment.

Don’t tell your child about it, just put $10,000 in a broad market index fund with a low expense fee in a Roth account, check the box that says reinvest dividends, put the stock fund in a trust account for your child. When you die, your child, who is then (hopefully) near or in retirement, might discover that they are well on their way to becoming very wealthy. At the close of the stock market yesterday (Sept. 30), over the past year the Dow Jones Industrial Average has grown over 26 percent while the NASDAQ has risen over 36 percent. For many years the stock market generally has increased on average over 10 percent a year with lots of ups and downs. But in recent years gross domestic product (GDP) has typically been growing at an annual rate of only about 3 percent or less! 

Many non-financial firms have discovered that investing in the stock market provides a much higher return than investing in their own businesses. Why invest in creating new products and services when you can on average get a much better return in the stock market? If you do the math of compound interest, you discover (using natural logarithms => ln) that the number of years needed to double your money is equal to ln(2)/ln(1.10) when your annual percentage yield (APY) is 10 percent. (Note: This is a precise calculation which is much better than “The Rule of 72” which is only approximately correct around an APY of 8 percent.)

Isn’t this wonderful. Your child may become a multimillionaire regardless of how much they worked or didn’t work, and regardless of how creative or unimaginative they may have been. You don’t even need to know the names of the companies you have invested in, much less have helped them in any way other than investing a little bit of money a long time ago. We like to say that America is the land of opportunity. And it is, if you have wealthy, well-educated parents. But less fortunate children with poor or middle class parents face a much tougher road to success. What if you finished your education with a high school diploma (i.e., no college debt), you relied on public transportation (i.e., no car), bought no house (i.e., no mortgage), and skipped marriage and raising children? You may over time be able to invest enough money into the stock market early enough to benefit from compound interest and become wealthy.

Is this what we want people to do? Frugality is great up to a point. But do we want everyone to engage in extreme frugality instead of getting a good education, raising a family while living paycheck-to-paycheck and building up mountains of debt?

Is our country better off by over-rewarding extreme frugality while under- rewarding hard work and creativity? Should we encourage passive investors or hard-working employees? How can we still encourage frugality (up to a point) but do a better job of providing work incentives and encouraging entrepreneurial creativity?

The fundamental problem is that so much money is being diverted from Main Street to Wall Street that the people on Main Street can’t buy back the value of the goods and services that they are creating at full employment.

Two thirds of Americans do not have a college degree. Over 40 percent are living paycheck-to-paycheck and are up to their eyeballs in debt. High levels of savings would provide an automatic stabilizer for the economy as a whole while high levels of debt create a very unstable system.

The objective is to raise the growth rate of our economy to better align with the return to passive investors in the stock market. Bringing down the artificially inflated average annual increase in the stock market could help stop the reverse money flow that has drained the real economy of funds needed to enhance productivity and economic growth. Less money flowed into new and better products suppressing productivity and economic growth. High levels of private debt had to be supplemented with high levels of public debt to keep the economy from sliding back into recession.

I have personally benefited greatly from the current system. But at some point I have to speak up against my own self interest in favor of the truth about what is in the best interest of our nation.

We need to stop over-rewarding passive investors like me and redirect more of the money flow to reward hard working employees and creative entrepreneurs. One way to move in that direction would be to restore the Security and Exchange Commission’s rule that existed before 1982 and designate stock share buybacks as insider trading and illegal.

Another step would be to follow Germany’s example and require employee representation on corporate boards. All too often corporate boards consist of the CEOs golf buddies, who only know what is going on within the company from reports that the CEO gives them about what a great job he or she is doing. Requiring some employee representation on corporate boards for all companies above a specified size could provide representation from product development, production, marketing, sales and product distribution. We should also provide companies with incentives such as tax benefits for starting employee stock ownership plans.

Burns and McDonnell in Kansas City started as a small construction company but grew to become a worldwide engineering company. All the company stock is owned by its employees. When retiring employees have to cash in their company stock. The secret to its success is employee ownership. As owners, workers are not only motivated to do their best for the company but also want their fellow employees (their teammates) to work hard to achieve great success for the company.

Hopefully, with these and other such reforms, instead of a stock market growing annually on average of over 10 percent while the real economy grows at less than 3 percent, we could create a better balance, stop the reverse money flow and bring them to both grow together at roughly 6 percent or more.

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Note:  This commentator is not a registered financial advisor. None of his commentary should be considered to be financial advice.  You could lose a great deal of money in the stock market.  Contact a professional financial advisor if you want appropriate and efficacious financial advice.

Check out the “Optimal Money Flow” website at: http://optimal-money-flow.website/

Does Adam Smith’s invisible hand of competition, which supports the greed is good philosophy, justify minimizing the role of government in our economy?  

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Too often in teaching and talking about economics, we have a tendency to oversimplify economic problems and focus solely on how the individual, seeking only their own advantage, ends up helping the community by offering better products at lower prices. Government is often seen as just getting in the way of this amazing outcome. As President Reagan said in his inaugural address: “Government is not the solution to our problems. Government is the problem.” But was this actor who became our president oversimplifying economics and overreacting to the brutal, authoritarian communist governments suppressing human initiative and economic growth? Have advocates of the Greed is Good Theory of Economics gone too far?

Adam Smith actually posited two invisible hands, one explicitly and the other implicitly, although only the first one is widely known. The first invisible hand tells us that greed is good because working hard and creatively in the marketplace to beat the competition and maximize your profits will produce better quality products at lower prices for everyone. We are told not to worry, because when this invisible hand dominates, we will all be made better off. Advocates of this greed is good philosophy want us to act individually and not collectively. This invisible hand is called the invisible hand of competition.

But Adam Smith also alerted us to what might be called his second invisible hand when he told us: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” This is the invisible hand of collusion.

These two invisible hands are in constant conflict with one another. This puts us in a dilemma. On Sunday morning we are told that greed is bad, but on Monday morning we are told that greed is good. Should we be trying to help the “dear neighbor” or trying to run him off the road? 

What about the basketball player who has to decide whether to take the long shot (glory to me) or whether to pass to a teammate much closer to the basket (glory to the team)? If he follows the greed is good philosophy he will take the long shot. But if he is focused on working to make everyone better off and realizes that his teammate has a better chance of getting the ball in the basket, he will pass the ball to his teammate.

In caveman times, men who were bigger could look out for themselves, but women who were pregnant couldn’t run and they couldn’t fight so they looked to others (a strong male or a larger group) for protection. Even today, women tend to be more socially oriented than men. Elderly women are likely to have more social groups than their male counterparts. Are we better off acting individually under the greed is good philosophy or acting collectively?

We are constantly faced with this dilemma in life. Should we be helping ourselves or helping the community? Should we focus on our own needs or the needs of the community?

In the stock market, are we cheering for the good guys (normal profits from competition) or the bad guys (excessive profits from collusion)?  Warren Buffett has caught on. He invests in firms that have been able to create a barrier to entry. Are there economies of scale? Is there a first mover advantage? Are there network effects? Is there a natural monopoly? Are there government regulations that restrict entry (prescription drugs, copyrights, patent laws, et cetera)? Do we want to look for, invest in, and encour-age excess profits wherever they might be? Or are we going to restrict ourselves to socially responsible investing? We are often confronted with this sort of dilemma, where what is good for us as individuals may be bad for our community or the country as a whole.

Our industries are much more concentrated than we realize. Denise Hearn and Jonathan Tepper wrote the book: “The Myth of Capitalism,” which perhaps should have been named “The Myth of Competition,” because they show in industry after industry that competition has been minimized. 

Reading glasses cost just a few dollars, but prescription glasses, which are primarily supplied by two companies, cost hundreds of dollars even though they use about the same amount of plastic and glass as the reading glasses. Customization should raise the price a bit, but the prices charged are clearly taking advantage of the duopolistic nature of the business.

You may be surprised to learn that the beer industry is also dominated by just two companies, in spite of the many craft breweries.

What about the fossil fuel industry? Should the maximization of profits come first, and the overheating of our planet be ignored until the outside temperature reaches over 120 degrees Fahrenheit and you have to put on an air-conditioned space suit to take a walk outside? What about your dog collapsing from the heat when you try to take your dog for a walk? Cheap fossil fuels now are going to cost us much more later. Perhaps before too long, even older people will begin to have to pay the price of “cheap” fossil fuels, not to mention the burden put on our children and grandchildren. What seems good for us in the short run (cheap gasoline) is certainly going to be bad for all of us in the long run.

Traditional economics focuses so intensely on the interests and behavior of the individual that it ignores very important and productive aspects of our economy. Without interstate highways, air traffic control systems, free (taxpayer funded) vaccinations for highly contagious diseases, and the provision of elementary and secondary education, we would be a lot worse off than we are now.

We all have a limited amount of mental energy, so we naturally want to keep things as simple as possible. Our first economics course (“Principles of Economics”) is designed to do exactly that. We assume a level playing field, where we all have an equal chance in our “land of opportunity.” The most important decision you make in life is your choice of parents. You want to choose wealthy, well-educated parents. Of course, you do not get to choose your parents, which is why there is no naturally occurring level playing field.

To get a level playing field to give everyone an equal chance in life, in state after state and community after community, we voted and promoted the idea of education for all. We all take reading and writing for granted. Almost every one of us can read and write as well as carry out basic mathematics such as addition and subtraction. But who invested money in our education and made sure that we all got a basic education?  After all, education is a common property resource that we all benefit from.  And not just as individuals; I benefit from living in a country where everyone is well-educated. Education needs to be taxpayer funded, encouraged and supported by the government.

But how much education?  Every state in the United States of America has not only made elementary and secondary education available but has required it for all young children. Can you imagine making such a requirement today? The anti-government crowd would go ballistic! Yet state after state from Massachusetts (1865) to Mississippi (1918) required community funded education for all young children. This gave us an essential advantage in the development of our country’s economy over other countries which were slower to implement free education.

But now other countries such as Germany, Norway, Denmark and Finland also provide a free college education. Even offering two years of either college or a vocational education would be a step in the right direction. We cannot get ahead by falling behind in the transformation from physical work in manufacturing and mining (which is being taken over by automation) to higher-skilled careers for our citizens. If we really want America to be the land of opportunity, we need to make college or technical education available to all for free at taxpayer expense.

What about those government created state universities with their agricultural experiment stations? Government-funded agriculture experiments transformed America’s farms to make them the most efficient and most productive in the world!  Yes, our farmers worked very hard and very creatively, but the free rider problem, which is too often ignored, discouraged any one farmer from putting in all that time and money to carry out agricultural experiments that may or may not work out. But many of those government-funded agricultural experiments paid off big time in substantially improving American agriculture and making it the most productive in the world.

What about our amazing infrastructure with interstate highways crisscrossing the United States?  It was a Republican president who envisioned and promoted the Eisenhower expressways that crisscross America. Government enabled small businesses to grow larger by giving them a way to get their products much more widely distributed throughout the United States of America. Government is not the problem. More often than not, when presented with a common property resource problem, government can be the solution, especially with projects where the free rider problem prevents private businesses from making the necessary investments.

The fundamental problem is in our colleges and universities in our “Principles of Economics” courses where we have for too long been teaching and promoting the greedy pig theory of economics, which ignores community efforts to promote the common good. Ironically, we often get enormous benefits in our individual lives from government investments, especially in our health and wellbeing. The Department of Health and Human Resources and the Centers for Disease Control and Prevention have funded independent researchers whose primary motivation is to gain recognition by publishing their medical research results in professional journals and books as well as an award such as a Nobel prize in their area of specialization.

Devotees of the greedy pig theory of economics want to limit government to the enforcement of contracts and national defense. They consider Social Security and Medicare to be government overreach. To them, government is not the solution, but instead they see government as the problem. We will all be better off when our introductory economics courses do a better job of explaining the very important role that the government plays in making our economy more productive and more efficient.

For more, read the books by Mariana Mazzucato such as: “The Entrepreneurial State: Debunking Private vs. Public Myths” and my book: “Money Flow in a Dynamic Economy,” which introduces the new money flow paradigm, which explains economic inefficiency, instability, inequality, and the role of government.

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After World War II the United States along with many other countries experienced a population explosion. With soldiers returning from war creating new families, birth rates shot up. By the 1960s, books were written claiming that the dangerous rate of increase in world population meant that we needed to start looking for another planet to populate, as earth would soon become overpopulated.

In recent decades the dramatic drop in birth rates in the United States and elsewhere has produced a Darwinian natural selection paradox. The species that has come to dominate the earth has suddenly dramatically reduced its rate of population growth to below the population replacement rate of 2.1 children for each woman in her reproductive years. The world population appears to have reached a maximum with many countries subsequently experiencing a persistent and precipitous drop in their populations.

In the United States, with the large number of baby boomers retiring, an even more dramatic potential reduction in the labor force would be occurring if it were not for the ability of America to attract large numbers of immigrants. Without a substantial number of immigrants, the work force in the United States would shrink. Without additional workers, the cost of everything would rise substantially.

Someone needs to go out in the hot California sun and pick the fruits and vegetables that we all need, or we will all end up paying a lot more for our basic groceries. I am too old to climb up on my roof to replace my rusting gutters and downspouts, so I am forever grateful to those two Spanish-speaking immigrants who did it for me. I also need them to pay the earning tax matched by their employer to finance my Social Security income. A smaller work force with fewer people working would mean less money for Social Security.

The reality is, from a purely economic point of view, we need immigrants now more than ever. Chaos at our borders is never welcome. Many undocumented immigrants need to be processed to become legal immigrants so that they can properly contribute to our economy and keep prices down. Statistically, immigrants in general have a lower crime rate and a higher rate of new business creation than the general population of Americans. We often get the best and the brightest people coming to America in what is often seen as a brain drain in their originating countries. We should feel blessed to have such wonderful people coming to America in what has been a long tradition that began in 1492 with the first “illegal” immigrant coming to the Americas, Christopher Columbus.

Economists call the idea that there is somehow a fixed number of jobs in this world, and we need to fight over them, the lump of labor fallacy. It may be cheaper to produce textiles in China than in the United States, but that does not mean that the United States cannot expand the economy to provide jobs with greater productivity and higher compensation in America than those menial jobs that we have off-loaded to China.

What about jobs in the steel industry? Shouldn’t politicians increase tariffs to protect jobs in the steel industry to gain the votes of the members of the United Steel Workers (USW)? When competition from abroad is blocked, it results in higher steel prices that suppress jobs in industries using steel as a factor input in the production of their products. Protecting steel industry jobs with tariffs just takes jobs away from the workers in the steel-using industries. Taxing Peter to pay Paul may work to deceive voters, but it does not improve overall employment or productivity in our economy and just raises prices for everyone.

When products for Walmart are unloaded at the dock at the port of Long Beach, California, a U.S. federal inspector and a broker representing Walmart arrange for Walmart to pay the tariff on that shipment. To keep its prices low, Walmart maintains a very low profit margin and relies more on volume to make its money. Since many of the products Walmart sells are low-price day-to-day necessities, Walmart can and generally does pass the cost of the tariffs on to its customers. The wonderful pair of memory foam sneakers from China that I bought at Walmart a few years ago for $9.98 are now selling for about $15 after the imposition of higher tariffs.

More tariffs will directly and immediately drive up prices. Some politicians seem to think that the exporting country has to pay for a tariff we place on the products we import from them. There is no way that the Chinese government is going to pay us for any tariff we place on Chinese exports. At best the Chinese could cheapen their currency to maintain their competitive position, but even that may be unlikely as they would like the Chinese yuan to replace the U.S. dollar as the world’s reserve currency.

Are we losing to China in the international trade battle? The Chinese people take their natural resources and make products for us that we import at exceptionally low prices. In return, instead of sending them our products, we send them pieces of paper with George Washington’s picture on it ( U.S. dollars ). Ordinarily, those U.S. dollars would go out to the foreign exchange markets and drive down the price of U.S. dollars and increase the price of the Chinese yuan (also known as the renminbi or people’s money). That would make our products cheaper for the Chinese to purchase and the Chinese products more expensive for Americans to purchase to create a more balanced trade between the USA and China.

But the Chinese government does not allow that to happen. The Chinese administration is facing a political problem. Many Chinese peasants are moving from the rural areas in China to the cities. The Chinese government needs to find work for these peasants to avoid the political unrest that would come with large numbers of unemployed Chinese peasants in the cities. But China does not yet have a large enough middle class to buy up all the products that these peasants can produce. Consequently, China is taking advantage of America’s much larger middle class to find the buyers it needs for all these products. To avoid a rise in the price of the Chinese yuan and a drop in the price of U.S. dollars, the Chinese government requires that the Chinese businesses turn in those dollars to the Chinese government in exchange for yuan. The Chinese government uses those dollars in its sovereign wealth funds to buy US Treasury securities in the New York financial markets.

Has China been taking advantage of America in this battle over international trade? Let’s see now, we get the Chinese products, but instead of sending them our products, we send them U.S. dollars and keep our products for ourselves. The Chinese government then loans us our money back to pay for our federal government deficit spending by buying trillions of dollars in US federal debt ( US Treasury securities). Who is getting ripped off here? Hint: It is not us.

Eventually China will build up a large enough middle class to not have to rely on America’s middle class to provide enough demand for Chinese products. At that point China will allow all the U.S. dollars it acquires to flow out into the foreign exchange markets to drive down the value of the U.S. dollar and increase the value of the Chinese yuan to produce a more balanced trade between China and the United States.

In addition, the U.S. dollar is the world reserve currency and is used widely in international trade. As international trade expands, the demand for U.S. dollars increases so the US is able to print more dollars out of thin air without taxation and without undermining the value of its currency. America is not getting ripped off. In fact, it is almost like some type of colonial exploitation.

Can stopping abortions make American great again? What are the demographic and economic consequences of abortion restrictions? Advocates for more restrictions on abortions may be in for a big surprise. America already has a less-than-replacement birth rate, and it has been falling steadily. But won’t stopping abortions mean more children and eventually a larger workforce? 

Banning abortions won’t result in more children. In fact, in response to abortion bans, more men are already getting vasectomies and a new form of male chemical contraceptive has just been invented. Women may cut back on sex and make much better use of contraceptives. Even marriage rates are falling.  The fear among women is that having a miscarriage may be interpreted as some form of illegal abortion so that the doctor and mother may be brought before a court for the judge and the jury to decide if the loss of the fetus was really a miscarriage or actually an abortion. Women may decide to avoid this risk by just not getting pregnant. Will having fewer children make America great again?

But won’t having fewer children reduce the demand for day care workers and free more women up for the workforce?  In theory and in the past, this may have worked.  But in reality, in recent years retired grandparents have more and more filled the day care role. Consequently, most young mothers are already working, so having fewer children will not lead to much increase in the workforce, either now or in the future.  

Baby boomers are retiring big time. A shrinking workforce means that fewer goods and services will be produced. But the baby boomers are not dying off that fast, and the demand for health services is growing. Supply of goods and services will drop, but demand will remain strong. Too much money will be chasing too few goods and services. If you are unhappy with our current rate of inflation, you haven’t seen anything yet. 

Deporting massive numbers of undocumented immigrants will shrink our workforce, suppress the supply of goods and services and drive up prices. Imposing tariffs will drive up prices even more. Abortion restrictions will ironically cause us to have fewer children and potentially shrink our work force, which, in turn, will reduce supply relative to demand and drive up prices.

These policies taken together will generate inflation levels only seen in recent years in Zimbabwe and Venezuela. If you think that deporting all undocumented immigrants, imposing more tariffs and imposing abortion restrictions are going to make America great again, you are going to be in for a big surprise as the American economy shrinks and inflation drives prices and the cost of living through the roof.