Politics and the Constitution

The forced vacancy at the Supreme Court, courtesy of the United States Republican Senators, is a rebuke to Chief Justice Robert’s assertion that the justices are umpires and detached from political opinion. No one believes this but John Roberts. And for good reasons. The Constitution, any constitution of any country, is a political document that codifies the rules of power sharing and the limitations imposed on Government. The nine justices (currently eight that are evenly divided by their political persuasion) are empowered to rule on the limitations of both the legislative and executive branch of Government. Both exercise political power as representatives of the people. The ferocity of the current Republican presidential election, the fight over denying a nomination to the Supreme Court by a sitting President are all evidence that how the court rules determines how the country policies itself. And since the Supreme Court shares the power with the two political branches of Government, which convert politics into law and regulations, the Supreme Court justices are arbiters of these laws and regulations not because they decide if they are good or bad, but if they are constitutional and, alas, reflect the political will of the nation going all the way back to the founding fathers. The fact that in 1776 there were no founding mothers or black founding fathers has been remedied in Amendments to the Constitution as the expression of the political will (at one time forced by a bloody civil war) of later generations.

On Trade and Jobs

The presidential primaries bring free trade and high paying jobs back into focus as economic inequality gets worse, mostly at the expense of blue collar workers’ pay checks, which have barely risen over the last two to three decades. Manufacturing jobs, usually well paying and with pensions attached, have been lost to outsourcing labor and to competition of Made in America with cheaper products from overseas.

Free trade is good. For the country, for the economy as a whole.

Free trade has losers and winners, as Donald J Trump would say, and he is one of the winners exploiting cheap labor both by selling goods manufactured in other countries (including Mexico) as well as hiring visa workers for his various construction and golf course operation (including from Mexico). He is currently exploiting the disaffection of white blue collar workers who are the major victims of manufacturing jobs lost to globalization for his presidential campaign. A Machiavelli he is.

Free trade is good.

And here is the reason. One obviously has to see free trade as a macroeconomic effect, where the benefits of trade benefit both partners. For American workers, the trad-offs are fewer manufacturing jobs, but also cheaper goods and many more newer jobs. The market is shifting and the question is why people feel disenfranchised. It is one thing to enjoy cheap goods, it is another to not have enough money to buy more expensive American made products. Let;s talk about cheap products; Amazon’s success is a veritable text book story of the fact that Americans buy the cheaper products every single time (ordering discounted books rather than supporting local bookstores that create local jobs). Cheap products come with low cost jobs. And in this respect the current political fights for higher paying jobs and increasing minimum wages are interesting, because they aim for the same, but seem to be motivated from opposite sides of the political spectrum. Either approach, the trade barrier approach a-la Trump to create American jobs or regulation to increase minimum wages will have the same effect, higher prices for goods. Yet we know Americans will not pay higher prices for goods, unless they must by products from companies with virtual monopolies on goods no one can live without (cable TV, health care, higher education or flying).

I mostly blame supply side economics and trickle down philosophy of the conservative right, together with the union bashing right-to-work laws (I am looking at your, Wisconsin) that put pressure on wages and lower them in the long term. Inequality, as it stands today, exists for the simple reason that the low taxes on the rich and corporations allow them to profit and stash cash, while there is zero incentive to rise wages and have the workers share in the benefit of globalization. Except for buying the cheap products from overseas.

What’s Ailing the Economy?

According to the theories of macro-economists, the current economy should not be what it is. It should do much better. Larry Summers writing in Foreign Relations calls it secular stagnation and recommends stimulus spending, not for the banks, but via infrastructure rebuilding, aka jobs. But what is secular stagnation? It is a term that captures a growing economy, albeit on unequal terms, with much cash laying around. Too much savings, hording cash, low spending, and stagnant low wages. On one hand, the poor and middle class people do not have enough money to spend, since they need to save for an uncertain future (they depend on the stock market, zero interest accounts and shrinking social security payments). On the other hand, the very rich have too much money they cannot spend on goods that produce jobs. The rich are truly no longer the job creators, the poor are, but they do not earn enough to buy what they want. The rich can keep more and more of their money thanks to historically bottom low taxes, which is money the Government cannot spend on infrastructure, social security, medicare and small business stimulus. In other words, high savings and low spending make sure there is not enough money flowing through the economy. Money in savings accounts and corporate cash-havens does Nada for the economy.

I propose a few solutions.

Lower student loan debt and interest rates on this debt. While banks get money for close to zero, student loans cost 6% and upward. Add insult to injury, this debt is about the only debt that cannot efficiently be unloaded through bankruptcy like a Donald Trump can with his many failed business ventures. An estimated one point three trillion dollars are locked up in student debt and cannot be spent on goods and services. And it appears to me that one reason we have secular stagnation is the shift from pensions to 401k accounts in a time of a demographic shift to larger retiree populations. Now, people have to save or they risk not having money in their retirement. With a pension, you would not worry since it is literally money you will receive for life and a company that pays a pension will create good business and job opportunities rather than give away profit to shareholders, as they can do now. Today, the economic risk in the future lies on the shoulder of the workers, while publicly traded companies chase quarterly returns to keep rising their stock values. But as we all know from the prospectus of a mutual fund, past gains are no guarantee of future earnings. Anxiety all around.

An Interesting Death

Does the Constitution still have the same meaning when an originalist justice dies?

The unexpected and peaceful death of Justice Antonin Scalia adds some interesting developments into an already interesting presidential election year. Now, just a few weeks after the Chief Justice Roberts complained about the politicization of the High Court, the Republican leadership of the legislative branch is throwing down the ultimate political gauntlet taunting Obama of the executive branch, thus very likely hurting the institution of the judicial branch. Frivolously claiming the voters should ‘decide’ (well they have by electing Obama whose term ends January 2017) they are playing brinkmanship with the rules of the election of Supreme Court Justices. The President nominates, the Senate ‘advises and consents’. This pretty much means that, in the parlance of Scalia’s originalism that ‘words mean what they mean’ (we miss you already, Scalia), the Senate is obligated to consent to a High Court nominee of the President’s choosing.

But alas, this season it is different, yet history teaches us it never will be, since politics is a human affair. Is this not what Scalia implores with originalism, that the rules established by a group of white land owners shall not be frivolously reinterpreted? So it may come as little surprise that in this 240st year of the Republic, one of the richest white land owner is destined to become the Republican candidate for the Presidency of the United States of America.

So Much for Hope

After reflecting about my hopes for 2016 a month ago, I was hopeful and now look at what happens. The stock market is down with a vengeance, but hope says that in the long term, this will have been just another missed buying opportunity. The rational agents in the market are not so rational after all, or as Christian’s would say ‘God works in mysterious ways’. All it shows, though, is that after a relentless talking down of overvalued stocks, 2015 markets could hardly hold on to their values and now finally let go. On the political front, all is contorted as the Donald tries very hard to lose support by insulting everyone and even seems willing to shoot someone in broad daylight to just accomplish this. Donald’s supporters stubbornly hold on to him, while stock owners are rushing to discard their doomed holdings, buying bonds and holding on to their cash. We humans do vote with our guts, and our guts mostly care about what others are doing. We desperately look for winners and run away from losers. At this time it seems hard to stick to ones conviction, no matter how rational and foundational they seem to us. After all, we want to be right, and then we want to be loved, and then we want to be respected. And the best way to get there is to join the majority. So we sell loosing assets hoping not to lose it all, or we support the presidential candidate more likely to win (all these Trump supporters can’t be wrong, now can they), as we hate to waste our vote. Yet this desire to join the winning team misleads us since both the stock market and the elections are systems where the outcome changes the input and individual actions are not isolated and predictable, but rather through their influence on other individuals’ actions, form a feed-back loop that we cannot really control. To make matters worse, our thinking is linear, believing that what is happening now is happening for ever, neither willing to anticipate change nor being able to predict its exact occurrence. As they say in mutual fund statements, past returns do not guarantee future returns. So we are stuck between individual psychology and group think. It becomes hard not to believe that this time it is different, oscillating from greed and exuberance to doom and despair. So when people say that we are more divided than ever, do not believe them. Go ask a historian instead, it simply means that what happens now feels more visceral than what happened a long time ago. It does not mean that the past was only glorious and obvious. It never was when it happened. So stick to your believes and your goals and keep on going. Good luck.