Category Archives: Economics

Surviving Trumponomics

Economics

In his platform for reelection in 2024, President Donald Trump promised to “build the Greatest Economy in History.” But in his first 60 days as president, the stock markets have dropped like a rock: The S&P 500 is down 7%, the Dow Jones has dropped 6%, and the Nasdaq has plummeted 10%.

~Fortune Magazine

If you are one of those people who took pride in the return on investment (ROI) of your 401(k) or IRA during the Biden administration, congratulations.  But do not consider yourself a financial wizard.  The scope of broad-based gains across most investment instruments assured that whatever choice you or your advisor made would have produced more than satisfactory results.  Of course some ROIs were better than others, a good indicator being whether your ROI was above or below the ROI if you had only held shares in an S&P 500 mutual fund.

As noted in the above quote, the situation in the opening months of Trump 2.0 suggests one metric of financial acuity would be whether your portfolio decreased percentage-wise less than the S&P 500.  Though “I only lost five percent compared to seven percent” is not very satisfying.  Here is where yesterday’s post “Telegraph” comes into play.

Donald Trump does not play by the old rules.  Maybe you should not either.  For example, financial advisors have historically said that you are better off letting your investments “ride” during stock market booms and busts.  That axiom is based on the assumption that it is hard to predict the top of a bull market or the bottom of a bear one.  However, you do not have to be an unintentionally invited member of a policy chat on Signal to know exactly what Donald Trump is going to do to roil the markets and when he is going to do it. His “attack plan” against the world economic order is so clear even a political scientist can figure out the impact on stock prices.

I call it the “penny saved is a penny earned” approach to survival in the Trump economy.  Here’s how it has worked so far.  Despite promises of new global tariffs, it was clear financial pundits at the Wall Street Journal, CNBC and Fox Business (another cohort of oligarchs’ useful idiots) believed this was more Trump bluster.  And as lemmings do, investors heralded the second coming of Trump with optimism resulting in a rise in the S&P index by almost two percent in the first 30 days since January 20th.  So for the very short term it made sense to let your investments ride.

But even the dumbest investors realized that Trump had convinced himself (again, his one man game of telephone) that tariffs were the answer to all the country’s ills. So on day 31, all you had to do was put all your IRA or 401(k) assets in non-equities (e.g. money market accounts, CDs or bonds), resulting in the following payoff.

Assume you had a portfolio valued at one million dollars.  On February 20, you put it all in a money market account at the current interest rate of 4.05 percent.  We are not talking about a “penny” saved.  By March 20, you would have saved $70,000.  Additionally, on March 31 you would receive $3,375 in interest.  If and when the Trump administration concedes “no mas” and takes off its tariff gloves, which he will surely telegraph in time for you to buy back into the market, you will have saved tens of thousands of dollars in the interim.  And if he does not, the savings will keep accumulating.

No need to stop there.  There are already opportunities to increase total savings.  For example, you plan to buy a new car this summer.  Yesterday, CNBC.COM reported if you make that purchase before April 2, you will save an average of $8,000 on the transaction.  Another “penny,” or in this case 800,000 pennies, saved.

Bottom line.  What Trump, et. al., are doing to America is not normal.  Neither should a creative response to Trumponomics follow norms.  The new metric of choice should be savings, not ROI, at least until the point in time ROI stands for “rejection of insanity.”

For what it’s worth.
Dr. ESP

 

Grandpa Takes the Field

Economics, Sports

Boston Celtics sold for $6.1 billion to group led by private equity executive Bill Chisholm, a record for a U.S. sports team.

~CNBC.COM

After finishing with a league-worst 3-14 record last season, the Browns have increased the prices of their season ticket packages by an average of about seven percent.

~Crain’s Cleveland Business

There’s something quite ludicrous about someone who already has, say, $5.1 billion running off to his city with his fedora in hand.  Yet this is what sports team owners do on a regular basis.

~Inc. Magazine

Forget the days when ownership of a sports franchise was a wealthy person’s “give back” to the community.  Owners now see it as among the  most lucrative investments in their portfolio.  Just ask the previous Celtic’s owner, the Grousbeck family, who purchased the franchise in 2002 for $360 million, a 1,694 percent ROI  in 23 years. And how will the new owners recoup their $6.1 billion investment?  As noted above, raising ticket prices or threatening to move the team if its current home city does not pony up taxpayer dollars to subsidize a new, state-of-the-art stadium or arena.  The final piece of this three-legged stool is media revenue, which like ticket sales, depends on the size of the audience.

To increase fan interest in any number of sports, owners and league management have proposed or implemented changes which they believe will attract more fans to attend games or watch on television.  Some changes make sense, perhaps, the best example being baseball’s pitch clock to do away with the egomaniacal  histrionics of those who thought the mound was akin to the Globe Theater.  Sadly, Major League Baseball (MLB) refused to quit while it was ahead. They created the “runner on second” rule for extra innings where the team starts with a player at second base.  But it only applies in the regular season.  The lifelong memory of sitting in the stadium until the wee hours of the next day is no longer a possibility.  And why was it a “lifelong” memory?  Because it happened so rarely, few fans ever had a similar experience.

And then came this “brilliant” concept.  MLB Commissioner Rob Manfred recently floated the idea of a “Golden At-Bat” rule that “would allow teams to choose one at-bat in a game to send any hitter to the plate, regardless of the batting order.” (ESPN)  Fortunately, negative feedback forced Manfred to back off, saying, “To go from the conversation stage to this actually showing up in MLB is a very long road.”  Hey Rob, did you forget you’re the genius who started the conversation?

Though baseball is a piker when compared to the National Football League.  Consider the following.

  • More than doubling the length of the half-time intermission during the Super Bowl to accommodate musical extravagances.  On more than one occasion, this extended break completely changed a team’s momentum and the outcome of the game.
  • Creating a kick-off scenario which challenges the time/space continuum in the name of player safety while proposing to add an 18th regular season game to the schedule.
  • Knowing an additional game would be detrimental to players’ health, one version of the 18-game season would require players to sit out two of those contests.  Too bad if you paid top dollar for seats to watch your favorite player on the sidelines in street clothes.
  • Imposing a penalty on an offensive lineman whose head does not line up with the center’s behind.
  • Thursday night football.  Forcing teams to prepare for a game without the prerequisite time to recover from the previous one.
  • Spreading telecasts across two broadcast networks, two cable networks and two streaming services so viewers never know where to look for games or have to subscribe to additional platforms.  Is pay-per-view far away?

Not to mention fútbol/soccer.  A sport that uses technology called “Video Assistant Replay” (VAR), a fancy name for instant replay, for every offside violation cannot figure out how to operate a game clock.  I can only imagine the outcry if the World Cup champion is determined by a goal scored after the announced stoppage time in the second half has lapsed.

But let me close with my own sport of choice–golf.  The beauty of the game sportswriter Rick Reilly dubbed “A Good Walk Spoiled” is the environment in which it is played.  Recently, Tiger Woods, Rory McIlroy and the PGA Tour decided that the challenge of uphill, downhill and sidehill lies further complicated by the weather du jour could be moved from its natural home to an indoor arena with fake grass mats, projected holes and an undulating green with hydraulic lifts that change throughout the contest.  The extent to which this setup resembles little that is associated with real golf was proved when the best player of this generation Woods confused a simulated 190 yard shot with a 90 yard attempt.  It produced a good laugh, but not golf.  Hopefully, it will go the way of World Team Tennis.

What do all these sports have in common?  The guardians of each do not have enough faith in what makes their respective domains special.  So they do things that bastardize the original concept in search of new audiences.  Why?  Because it takes time to educate the next generation about the challenges, strategies and nuances that makes one appreciate what is happening on the field, gridiron or course.  Because a parent cannot afford to take his or her children to a ballgame and share “inside information” about the game.  For example, the first time I took my daughter to a Royals game in Kansas City, I explained why walking the lead-off batter was a mistake.  One out of three times, the walked batter eventually reaches home base.  Twenty-five years later she reminded me of that statistic while watching an Orioles game at Camden Yards.  Instead of constantly looking for gimmicks to grow an audience, maybe owners and commissioners should figure out how to increase these interactions among long-time and potential new fans of their sports.

Grandpa has to go now.  It’s time for his seventh-inning nap.

For what it’s worth.
Dr. ESP

Economic Idealism

Economics

You can’t have everything.  Where would you put it?

~Comedian Steven Wright

The new economy still plays by the old economy rules.

~Nobel Laureate Economist Paul Romer

Wright was half-right, half wrong. Case in point?  At the height of post-COVID inflation, every economist west of the Atlantic coastline predicted the Biden administration faced an inevitable recession and higher unemployment if the Federal Reserve Bank raised interest rates to tamp down inflation.  However, unlike Wright’s warning, the American economy got everything it wanted–no recession, lower inflation, unprecedented job growth, record low unemployment, increase in wages, a stock market at all-time highs and rising consumer confidence.

How was the Biden administration able to do this?  Two very simple reasons.  Policy makers did not get drawn into the false choice between fiscal and monetary methods of juicing the economy.  And they had decades of historic data which provided guidance about the purpose and timing of these competing economic theories.

Remember, before Joe Biden took his oath of office, the unemployment rate peaked at 14.8 percent in April 2020.  In March 2021, Biden signed the American Rescue Act which provided $1.9 trillion in fiscal stimulus.  By the first anniversary of the law’s passage (March 2022), the unemployment rate fell to a historic low of 3.7 percent. 

That same month, the Federal Reserve Bank (The Fed) raised interest rates on “federal funds” (the short-term interest rate at which banks lend money to each other overnight to ensure liquidity) from 0.25 to 0.50 percent, the first increase since the beginning of the pandemic in March 2020.  The Fed would continue to raise the federal funds rate for the next 16 months to fight the inflationary impact of the stimulus package and disruptions in the supply chain for goods and services, until it reached a high of 5.50 percent in July 2023.

Where did Steven Wright miss the boat?  American voters did find a place to put this surprisingly ideal economic environment.  OUT OF SIGHT, OUT OF MIND.  Thanks in part to poor messaging by the Biden administration.  But mostly due to the “glass totally empty” fairy tale shared with sleepwalking Americans nightly on Trump state media.  Could the government have brought down inflation more quickly through even higher increases in interest rates or less fiscal stimulus?  Of course, but at what cost?  That is the point at which we need to heed Paul Romer.  The old economic rules would still apply.  Such drastic actions would probably have made the economists’ prediction of a recession a self-fulfilling prophecy.  Would the MAGA-verse and its media echo chamber be any less critical with a lower inflation rate but more Americans without jobs and income to take advantage of the more stable pricing?  I think you know the answer.

So now we have an administration that is on the path of applying both fiscal and monetary policy for the wrong reasons and at the wrong time.  John Maynard Keynes, the father of fiscal economic policy, would tell us economic stimulus is most effective during downturns, not when the U.S. economy has experienced four years of sustained growth despite the odds of a recession.  To make matters worse, Donald Trump wants to eliminate The Fed’s independence to set interest rates, making that function more susceptible to political whims rather than impartial analysis.

SPOILER ALERT.  The regional Fed bank in Atlanta is now predicting the U.S. economy will shrink 1.5 percent from January-through-March 2025.  This decline, which is attributable to uncertainty associated with Trump’s across-the-board tariffs and lower consumer confidence, will give Trump and the MAGA Congress a justification for a stimulus package made up largely of tax breaks for the wealthy and major corporations.  Seems like the only history the Trump economic team has been reading is the infamous quote by Vietnam War era Lt. Colonel John Paul Vann to justify napalm bombing as a counterinsurgency tactic.  “It became necessary to destroy the village in order to save it.”  And how did that turn out?

POSTSCRIPT

On last night’s edition of HBO’s “Last Week Tonight,” John Oliver honed in on Trump’s proposal to eliminate federal income tax on tips, a targeted gimmick to appeal primarily to hospitality industry workers.  Sadly, Kamala Harris chose to also endorse the change in tax policy.  Oliver gave a number of reasons why the no-tax-on-tips idea might not be a good one and why it would be extremely hard to implement.  But he left out what may the most obvious reason this tax break would be unfair.

Since Trump originally made his no-tax-on-tips pledge at a campaign rally in Las Vegas, I will use the hospitality industry there as an example.  According to the website GLASSDOOR.COM, “The estimated salary range for a food server at the Bellagio in Las Vegas is between $54,510 and $168,543per year, depending on seniority.”  In contrast, SALARY.COM reports:

As of March 01, 2025, the average annual salary for a Public School Teacher in Las Vegas, NV is $59,989. According to Salary.com, salaries can range from a low of $41,053 to a high of $85,207, with most professionals earning between $50,077 and $73,189.

No one should be surprised.  Oliver pointed out that most servers at many lower-end restaurants, even with tips, do not make enough money to have any income tax liability; so the proposal would be of no benefit to them.  However, those at establishments that cater to the most wealthy would be the primary beneficiaries, while school teachers would likely face a tax increase based on the “Big Beautiful Bill” working its way through the House of Representatives.  One more reason Trump says, “I love the uneducated.”  They cannot do the math.

For what it’s worth.
Dr. ESP

Iowa Deports Trump

Economics, Politics

The Drudge Report called Saturday’s final Des Moines Register poll in Iowa a shocking development.  I must disagree.  The only thing shocking about this reversal of fortune for Donald Trump is the fact people are shocked.  Iowa is ground zero for the perfect storm for Trump’s economic agenda.  It can be summed up in four words:  tariffs and mass deportations.

Iowa farmers already know what tariffs mean to the agriculture industry.  Choice Magazine assessed the impact on American farmers from Trump’s 2018 tariffs on steel and aluminum.

In total, over 800 U.S. agricultural exports worth nearly $30 billion in 2017—including grains, livestock, dairy, horticulture, specialty crops, processed foods, beverages, tobacco and cotton—were hit by retaliatory tariffs in China, Canada, Mexico, the EU, Turkey, and most recently, India (June 2019).

In case you forgot, the cost of this ill-conceived trade policy was 19 billion taxpayers dollars to ameliorate the negative impact on farmers and food processors.

If Iowa farmers had not suffered enough, Trump’s proposal for mass deportations will further stifle two of the state’s major industries.  The absence of migrant workers will force farmers to reduce acreage or, in some instances, choose to forego some produce items.  But Iowans are not the only victims.  American consumers in every state will feel the inflationary impact of a scarcity of U.S. grown produce.

Mass deportation is also a double whammy for the meat processing industry, a second staple of the Iowa economy.  Facilities associated with meat preparation and packing operate 24 hours a day.  Two shifts are devoted to the core business.  The late shift involves the nightly clean-up and sanitation required by USDA.  Both aspects of the production cycle are largely staffed by documented immigrants and temporary workers.  Again, this would result in a major disruption of the supply chain, scarcity, and higher prices.

Due to its unique system of party caucuses, Iowans tend to be more politically astute than the average American.  This better grasp of  issues that affect them personally explains the possibility they have looked at Trump policies and decided to tell Trump “go back where you came from.”  The remaining question is whether other largely rural Plains States look at the Des Moines Register poll and wonder, “Are they seeing something we have not?”  We’ll know the answer some time in the next few days.

For what it’s worth.
Dr. ESP

Head Fart

Economics, Politics

Here they go again.  Just when you thought the Heritage Foundation “geniuses” at Project 2025 who proposed a two-tier regressive system increasing taxes for lower and middle class Americans while giving the wealthy new and deeper tax cuts, wait until you see their plan to reduce opportunities for early childhood education.  Not only do they want to get rid of Head Start, they want the beneficiaries to pay for making it go away.  From page 482 in “Project 2025: Mandate for Leadership”:

Eliminate the Head Start program. Head Start, originally established and funded to support low-income families, is fraught with scandal and abuse. With a budget of more than $11 billion, the program should function to protect and educate minors. Sadly, it has done exactly the opposite. In fact, “approximately 1 in 4 grant recipients had incidents in which children were abused, left unsupervised, or released to an unauthorized person between October 2015 and May 2020.”68 Research has demonstrated that federal Head Start centers, which provide preschool care to children from low-income families, have little or no long-term academic value for children. Given its unaddressed crisis of rampant abuse and lack of positive outcomes, this program should be eliminated along with the entire OHS. At the very least, the program’s COVID-19 vaccine and mask requirements should be rescinded.

The identified endnote #68 is found on page  501.

Madison Marino, “Over 1,000 Safety Violations Mar Head Start.  Children Deserve Better,” Heritage Foundation Commentary, November 10, 2022.

You might wonder, “Who is Madison Marino?”  She is according to the Heritage Foundation website, “a Senior Research Associate for the Heritage Center for Education Policy.”  And the cited article originally appeared in The Daily Signal, which, though legally separate from the Heritage Foundation, has many of the same donors and relies heavily on Heritage staff for content.  To recap, a conservative think-tank justifies a call to end Head Start based on an article by a member of its own staff published in a legally separate, but allied, publication.  To quote Captain Renault (Claude Raines) in Casablanca, “I’m shocked, shocked that gambling is going on in here!”

Of course Head Start has flaws and there are instances of people gaming the system in every federal program.  Ask the major corporations that received a total of $530 million in SBA loans after 9/11.  The question is, “Would the Heritage geniuses have come to a different conclusion if they had read a June 2019 report by the Brookings Institute which looked at the long term impacts of the program?”  Their conclusion draws heavily on a January 2018 study by economics professor Andrew Barr (Texas A&M) and education professor Chloe Gibbs (Notre Dame) titled, “Breaking the cycle?  Intergenerational Effects of an Anti-Poverty Program in Early Childhood.”  Brookings summarized their work as follows.

New research by Gibbs and Barr finds intergenerational effects of Head Start along the same lines of the Heckman work – the children of those who were exposed to Head Start saw reduced teen pregnancy and criminal engagement and increased educational attainment.

By the way, the operational issues identified in Project 2025 come from a September 2022 report by Suzann Murrin, deputy inspector general of Joe Biden’s Department of Health and Human Services in which the department calls for more oversight to address these concerns.  Dare I say, in contrast, the tag line for the Project 2025 proposal should be, “Throwing out the baby’s education with the bathwater.”

But wait.  The impact on low-income families also has a financial dimension.  Eligible low-income beneficiaries do not pay for their children to participate in Head Start programs.  If the program is eliminated, those same families would be saddled with daycare expenses for the six hours/day previous covered via Head Start (the average length of a daily Head Start program).  What does that mean in out-of-pocket expenses?

CARE.COM reports that the average cost of childcare per child in 2024 ranges from $766/week (nanny) to $321 (daycare) to $230 (family care center) to $192 (babysitter).  Since most Head Start programs do not run through the summer, a family with one child would now face nine months (36 weeks) of childcare expenses.  Under the family care center option that equals $8,280/year.  Keep in mind, that is per child.

So let’s run the numbers.  The non-profit National Head Start Association reports there were approximately 809,000 children enrolled in Head Start in FY2024.  The federal Head Start budget for the same year was $11 billion.  Therefore to save $11 billion dollars (.0016 of one percent of the total federal budget), those “UNreal men of genius” who want to raise taxes on lower income Americans want to add $6.7 billion/year of out-of-pocket expenses on those who can least afford it.  Not to mention (but of course I will), as of July 2020, 17 states controlled by MAGA governors and legislatures impose work requirements on individuals who apply for TANF (Temporary Assistance for Needy Families) benefits.  Once again, the party that promotes the “traditional family” as the elixir for all that ails America promotes policies that do just the opposite. 

Someone needs to tell J. D. Vance that legislation to eliminate Head Start should forever be known as the “How to Discourage Motherhood and Create Homes for Cats Act of 2025.”

For what it’s worth.
Dr. ESP