Author: o.oyewo

An analysis of the 1.4 percentage point GDP growth in the second quarter of this year by the Bureau of Economic Analysis tells us that a steady increase in private consumption along with exports and nonresidential fixed investment were responsible for the economic growth in the first half of 2016.

The largest increase in consumer spending since gas prices have dropped, according to Aneta Markowska, economist at Societe Generale has been on healthcare.

“Since the Affordable Care Act’s main coverage provisions took effect at the beginning of 2014, expanded coverage is accelerating our recovery from the Great Recession by increasing families’ demand for health care goods and services and reducing their out-of-pocket medical costs, which frees up money to meet other pressing needs.” says Jason Furman, Chairman of Council of Economic Advisers.

“In nominal terms, household spending on healthcare averaged 3.9% between 2010 and 2013. It began to accelerate in the first half of 2014 and has averaged at 5.2% since then. Importantly, this pickup in healthcare spending was not driven by higher costs; real spending in this category accelerated from 1.9% in 2010-2013 to 3.9% thereafter. This would indicate that Americans have not only been spending more because of increased costs, but also intentionally allocating more of their wallet to the sector ” says Aneta Markowska.

“To match the increased spending, the healthcare sector’s labor market has also been booming” notes Aneta. According to the Bureau of Labor Statistics: the healthcare sector produced about 240,000 jobs per year between 2010 and mid-2014, since then, it has averaged at 354,000/year and the sector is currently producing about 500,000 jobs annualized. Over the past 12 months, health care has added 445,000 jobs.

In class, we spoke about how trump is a media magnet with him getting a lot of free media coverage, well it’s good to know Hillary is finally catching up.

According to Carl Bialik of FiveThirtyEight who tracks media coverage for the two presidential candidates through mediaQuant, a Portland, Oregon, firm that analyzes television, print and online media and social for the quantity and quality of mentions of candidates.

“While Trump hogged free media coverage earlier in the 2016 campaign, Clinton started matching his pace soon after both nominations were clinched. That trend continued in September: Clinton got coverage worth $423 million on television, in print and online, to Trump’s $465 million in September.”

Also noteworthy is the quality of media coverage, according to Bialik “Since mid-September, Clinton’s net favorability rating is 10 percentage points better than Trump’s”

Obamacare was a hot topic during the last presidential debate with the presidential candidates arguing for or against repealing the affordable care act (ACA). Each candidates’ comment on the ACA is stated below:

Clinton: “If we were to start all over again, we might come up with a different system. But we have an employer-based system. That’s where the vast majority of people get their health care. And the Affordable Care Act was meant to try to fill the gap … 20 million people now have health insurance. So, if we just rip it up and throw it away, what Donald’s not telling you is, we just turn it back to the insurance companies, the way it used to be.”

Trump: “Obamacare is a disaster. You know it, we all know it. … Their method of fixing it is to go back and ask Congress for more money. More and more money. … We have to repeal it and replace it with something absolutely much less expensive, and something that works.”

Argument Against Repealing Obamacare 

As a result of passing the ACA, the uninsured rate has dropped in every congressional district in the country, and the uninsured rate is at the lowest it’s been since the Great Recession according to the US Census Bureau.

To be specific: “The uninsured rate for non-elderly Americans has fallen from about 16.6% in 2013 to 10% in the first quarter of 2016, and  8.6% taking into account seniors who have near-universal coverage.”

As Secretary Clinton noted during the debate, the law made it illegal for health insurance companies to exclude people based on their health status and allowed young adults to stay on their parents’ plans. It also expanded Medicaid eligibility to people with incomes below 138 percent of the federal poverty line (though 19 states have chosen not to).

I would have to agree with Secretary Clinton, it is better to fix Obamacare than to repeal it. To repeal Obama Care will be to waste years of progress and to start over, what is the guarantee of a positive outcome.

“The Cure for Wage Stagnation” This is an Op-ed in the Wall Street Journal by Kevin Hassett and Aparna Mathur from the American Enterprise Institute. This article argues that lowering the corporate income tax raises wages because, “lower corporate rates create the right incentives for firms to give workers better tools. Workers become more productive when they acquire better skills or have better tools and more productive workers earn higher wages.”

The authors use the sales tax analogy to back their argument by proposing we look at the corporate income tax the same way we look at sales tax stating, “It is widely accepted that sales taxes are not necessarily paid by consumers. If the government charges a 10% sales tax, goods prices go up 10%, in which case consumers would pay the whole tax. In the same way- If a higher corporate tax reduces the return to capital, then capital may move abroad. This outflow could reduce the productivity and compensation for domestic workers, who are relatively immobile. So just as a sales tax might have an impact on the final goods price, a higher corporate tax might have an impact on wages. If wages go down when corporate taxes go up, the worker is left holding the tax bag.”

Their findings are also based on empirical analysis of a data gathered on international tax rates and manufacturing wages in 72 countries over 22 years.

This is a very logical argument and I might have to agree in the absence of any evidence proving otherwise. Although there has been research conducted by the Congressional Budget office and other organizations estimates that 75% to 82% of the burden of the corporate income tax falls to capital, there is no research on who the other 18% to 25% of tax burden affect.

This is an interesting Op-Ed piece in the Washington Post by Jared Bernstein, a former chief economist to Vice President Biden, and senior fellow at the Center on Budget and Policy Priorities.

In this piece, Mr. Bernstein asks the question “Do presidents really influence the economy, how? And by how much?” He cautions voters to be wary of bogus claims like Donald trump’s claim of creating 2.5 million jobs over the next decade by cutting taxes and widespread deregulation.

According to this article, there are two major ways a president can help improve the economy, “First, enact policies that steer more opportunities to those who’ve been left behind by structural economic changes that tilt against them or embedded problems such as racism and poverty? Second, enact policies to help offset the next recession with robust counter-cyclical policies, an area where a president can make a real difference”

And let’s not forget the role the Congress plays influencing the final results of policies proposed by presidents.

The article concludes “outside of some public investment (including human capital, such as early childhood interventions), it has never been clear what presidents can do to boost productivity growth, especially in the near term.”

I have mixed feelings about Mr. Bernstein’s analysis, I understand that a lot of the economic changes are due to non-immediate and aggregate factors that over time lead to results we see as with what happened in the 2008 recession or what is happening now with trade and manufacturing jobs but I would still like to believe that the economic decisions made by the presidents go a long way in determining the economic climate and economic future of a country

A new report released by the Council of Economic Advisers at the White House showcases the steps the Obama Administration has taken over the last eight years to combat income inequality in the nation. This report focuses on three specific areas where the Administration has achieved its most substantial and immediate success in reducing inequality—restoring economic growth, expanding access to health insurance, and enacting a fairer tax code.

The report states:

“Changes in tax policy since 2009 and the coverage provisions of the ACA will boost 2017 incomes in the bottom quintile by 18 percent, or $2,200, and in the second quintile by about 6 percent, or $1,500, relative to what they would have been under the continuation of 2008 policies. These policies will also boost incomes in the middle quintile by 0.7 percent, or $300. In contrast, these policies will reduce the after-tax incomes of families in the upper tail of the income distribution, particularly those in the top 1 percent. Targeted tax increases will reduce after-tax incomes by 5 percent for the 99th through 99.9th percentiles and reduce after-tax incomes by 10 percent for the families in the top 0.1 percent, a group projected to have average incomes over $8 million in 2017.

These changes in tax policy combined with the ACA coverage provisions will reduce inequality by more than 20 percent in 2017, as measured by the ratio of the average after-tax income of the top 1 percent to the average after-tax income of the bottom quintile.”

This is good news!

Details about presidential candidate Donald J. Trump’s tax plan can be found on his website –www.donaldjtrump.com. According to his website presidential candidate Donald J. Trump will change the existing tax laws to make America great again by collapsing the current seven income tax brackets into three brackets, lowering the business tax rate from 35 percent to 15 percent for both big and small business and eliminating the estate or death tax amongst other things.

What Trump’s tax plan means for the economy

Trump’s plans aims to reduce the nation’s tax burden and somehow boost economic growth at the same time as if government taxes don’t play an important role in building the society we see. According to Jared Bernstein, a former chief economist to Vice President Biden, Trump’s tax plan involves tax cuts heavily tilted towards the wealthy and relies on the theory of trickle-down economics which presumes “a tax cut that raises the after-tax wage or lowers the after-tax cost of capital could boost the supply of these critical variables, increase growth, and spin off some revenues.”

“My plan will embrace the truth that people flourish under a minimum government burden and will tap into the incredible, unrealized potential of our workers and their dreams,” Trump said in a recent speech to the Economic Club of New York.

Jared Bernstein states, “Based on its -trickle-down economics- historical record, listeners should wholly discount linking high-end tax cuts to faster growth. What they will do is exacerbate after-tax inequality and raise the budget deficit.”

Last week the U.S. Census Bureau released a report with results strongly indicating that the Job Market is well on its way to been recovered. This report showed that, the median household income increased from $53,718 to $56,516, a 5.2 percent increase between 2014 and 2015.

Interpretation of this report by the Chairman of the Council of Economic Advisers at the White House indicate that the increase in income was spread across the entire population, with the greatest gains noted for the poorest Americans. The chart below further explains this.

This is definitely a step in the right direction, and a good sign of recovery.

There are two main stories about how the U.S. job market is doing as highlighted by this article by Ben Casselman of FiveThirtyEight, titled “Trump and Clinton can both spin the Latest Job Report”

According to this article, on the one hand, the Democratic candidate Hillary Clinton tells us, the job market is in great shape, citing the steady job growth, low unemployment rate, and rising wages as evidence, while the Republican candidate Donald J. Trump using this same evidence spews a negative rhetoric of slow recovery and claiming the numbers are manipulated.

As noted in my last blog post on the views of the economy, while an almost equal number of Americans 43% compared to 49% believe it is easy to find a job in their community, what is more important, I believe, is that a higher number of Americans, 53%, believe their family income is falling behind their cost of living.

There is cause to be hopeful with the latest report by the Census Bureau showing an increase in real median household income between 2014 and 2015, the first since 2007.

Amidst starkly different portrayals of the state of the economy by the presidential candidates, here is a quick look at what the data tells us.

The latest National Income and Products Account report by the Bureau of Economic Analysis, Department of commerce shows that Gross Domestic Product, the broadest measure of goods and services produced across the U.S., grew at an annual rate of 1.1% in the second quarter of the year. This is well below the pace economists expected.

Analysis of this report by FocusEconomics tells us that this result was above the 0.8% increase in the first quarter of the year. “This marks the third consecutive quarter of near 1% growth as opposed to the historical long-term average of 3%,” says Lawrence Yun of the National Association of Realtors.

On a brighter note, job availability and income growth seem to be unaffected with the recent Employment Situation Report by the Bureau of Labor Statistics showing that unemployment rate remained at 4.9% with a total of 151,000 jobs added in August. Hourly wages is slowly growing with a 2.4 percent increase over the past year. Also, a new report by the Census Bureau at the Department of Commerce shows that “Real Median household income increased 5.2 percent between 2014 and 2015. A first annual increase in median household income since 2007”

According to Economists at FocusEconomics, “the weakness in GDP growth in the second quarter highlighted what was a disappointing first half of 2016 for the U.S. economy. Nonetheless, many analysts believe that the economy will pick up momentum in the second half of the year, supported by strong growth in private consumption, an improvement in investment and a rebuilding of inventories.”