Trump wants Fed to cut already low rates, but that could harm seniors

Gordon L. Weil

Donald Trump's strongest political case for re-election is the success of the American economy.  It's also a big risk, and he knows it.

That's why he lambasts the Federal Reserve for not lowering interest rates.  He believes that lower rates will stimulate more growth, keeping the historic Obama-Trump recovery going.

His demands for lower interest rates and his frontal attacks on Jerome Powell, his own choice as Fed chair, have created an open war between the president and the independent Fed.  

Short-term political demands can conflict with the Fed's role to protect the economy long-term.  That's what seems to be what's happening now.

The recovery from the Great Recession has been long but not especially strong.  The benefits have not been the same for all Americans.

Republicans blocked President Obama's effort for a second economic push, leaving the Fed to handle the recovery.  It cut interest rates and made money available for borrowers, successfully stimulating economic activity.

The GOP tax cut and Trump's cutback on environmental regulation have helped sustain the recovery.  But its long life, the president's strongest political argument, carries considerable risk.  Trump needs it to last even longer, through to the November 2020 election.

He has long believed in low interest rates, partly because of his experience as a borrower for real estate investments.  He argues that growth would have been higher if interest rates had been cut, and they should be slashed now to juice up higher growth.

Trump openly believes that the Fed should follow his policies.  Yet, like other central banks in free market economies that manage major world currencies, the Fed is supposed to operate independently of the politics of the day.  That's one reason its members' terms are 14 years, well beyond even two presidential terms.

Central banks take a long view of their role in promoting a stable currency and economic conditions that will increase employment.  The Fed, now composed primarily of Republican economists, has done that consistently since the Great Recession of 2008.

By cutting interest rates, it made investment and home buying easier.  As the recovery continued, it gradually began increasing rates, though they still remain well below the rates of the past 60 years. 

Taking care that its small steps would not harm the recovery, the Fed began increasing rates so that it would have a tool – its ability to again cut rates – if there were signs of a recession.  Trump ignores that longer range concern and focuses on his desire for higher growth now.

If there is any reason the Fed might cut rates, it is the uncertainty created by the president's trade moves that unsettle world markets.  Wobbles elsewhere could spread to the U.S.

Trying to impose his will on the Fed, Trump has openly sought ways to dump Powell.  He would like the powers of the near-dictator Turkish president, who just fired his central bank chief.  And he envies the Chinese ruler's day-to-day economic control.  He ignores the need to protect the stability of the dollar, the standard world currency.

Two recent picks to fill Fed vacancies were obviously unqualified and were dropped.  One of the next two named openly displays her vast ignorance of monetary policy.

Unqualified nominees who do not support the Fed's independence are unlikely to be confirmed by the Senate, though it is under GOP control.  Republican resistance is similar to its unwillingness to eliminate the requirement for 60 votes to end debate on most bills, though Trump demands it.

The Republicans recognize that the Senate majority will almost inevitably shift one day to the Democrats.  They are likely to continue to protect Fed independence and require more than a simple majority.  It's not that they oppose Trump.  But they worry about what the Democrats would do.

Beyond these policy concerns, there's a practical reason to worry about unnecessary rate cuts.  When the Fed lowers interest rates, payouts are reduced on bonds, the fixed investments on which many retirees depend, whether its obvious to them or not.  The interest rate paid on bank savings also falls.

Maine has the highest median age in the U.S.  Lowering interest rates can cut retiree income.  Because the effects of any national economic policy are not evenly distributed, lower interest rates could harm older Mainers and not be offset by a small increase in national economic growth.

With its broad, long-term focus, the Fed can take such facts into account.  Trump's focus on how to force the Fed to help him win in 2020 doesn't do that.

Cutting taxes vs. health care for all: the voters' choice

Gordon L. Weil

Here are three statements made last week.

In a Democratic debate, Sen. Bernie Sanders said he wants a national system in which the government provides health care and there is no insurance.

Washington Post columnist Marc A. Thiessen commented on the Democratic debates and concluded, "[T]here was one clear loser – the American taxpayer."

Billionaire Eli Broad wrote in the New York Times, "I am in the 1 percent.  Please raise my taxes."

Their statements focused on taxes and the role of government – two sides of the same coin.

Obviously beyond their notice was a popular vote in one Maine school district.  Voters in all four towns of SAD 75 added $600,000 of new spending to raise teacher pay beyond the school board's own proposed increase.

This vote demonstrated what can happen when people take government spending into their own hands.  They raised their own taxes, but did not see themselves as "losers."  They simply set government policy, weighing both the costs and benefits.

Thiessen's conservative view makes taxes the enemy and assumes that any action to increase taxes will be unpopular no matter what the purpose.  People would rather make their own decisions about how to spend their money, which means turning as little as possible over to government.

Behind this position is basic opposition to government itself.  If you pay less in taxes, you get less government.  A conservative view is that people are better individually at making choices than through a common effort by government.

Ultimately, the free market, driven by competition to make money, will produce the results people need and want, the theory goes.  That's better than public policy made by legislators who may impose their views and be out of touch with what people really want.

The wealthiest people have the money to drive market growth, so cutting their taxes makes sense, according to this conservative view.  Because they pay most of the taxes, they should get most of the tax cuts.  That has led to what the news agency Reuters calls "an ever-widening chasm between the unfathomably rich and everyone else."

Opposing more taxes to pay for more government, critics often distort proposals for government action.  They have also increasingly resorted to labeling as "socialism" almost any proposal for increased government.  "Socialism" is a foreign system designed to crush free enterprise, they suggest.

Problems arise.  The America health system, run by hospitals and private insurers, left tens of millions without adequate care.  Veterans and older people were given greater assured access, but many remained outside the system.

To cover the uninsured, Congress adopted the Affordable Care Act, providing government aid to allow more people to purchase private insurance.  But the GOP blocked a public, non-profit insurer, which might have provided lower-cost competition and limits on drug prices.

Sanders and some other Democrats argue that only a public insurer and care provider can bring costs under control and prevent the drug industry from raising prices to boost its profits and advertising budget.  The Democrats' proposed system would be taxpayer supported.

That would require a big tax increase.  However, its opponents ignore the elimination of insurance premiums.  Medical and drug costs could be controlled.  This year, Maine took the first step toward cost controls, which Congress has banned for Medicare, and the free market fails to produce.

If there is a net taxpayer cost for including the millions still outside the health care system (or for any other policy), perhaps voters would pay it.  That's a choice to be made or rejected, but it is hardly socialism to provide a public health care option and more help for the uninsured. 

Increased public spending should be financed by new taxes.  Both parties readily adopt measures, from tax cuts to social spending, without paying for them.  They create more debt and pass the bill to future generations.

Broad wants the wealthiest to pay more taxes, just as the not-so-wealthy school district voters decided.  He offers neither a blank check nor to be the sole payer.  Like the district voters, he likely wants to know the purpose of any tax increase, like debt reduction, and that others are also paying.

In light of all the tax-cutting loopholes and the sharp curtailment of inheritance and estate taxes, he proposes an annual two percent tax on wealth above $50 million.  A businessman and philanthropist, Broad is hardly a socialist.

Broad, Thiessen and Sanders focus on what may be the central debate of this election: what is the proper role of government and are we willing to pay for it?  

Trump policy-making: a new version of 'Whack-a-mole'

Gordon L. Weil

"Whack-a-mole" is an old arcade game that's an exercise in futility.  It has come to mean that each time you try to solve a problem, another problem pops up.

In the original game, players would hit the mole on the head, forcing it back into its hole.  Another would pop up, and players had to move fast to hit each new one.  Satisfaction from whacking each mole did not last long.

Much American policy under President Trump is like playing Whack-a-mole.  In trying to fulfill his campaign promises, each problem Trump attacks seems to create another. 

Take China.  It pursues unfair trade policies and has a trade surplus with the U.S.  It also steals American trade secrets and forces U.S. companies to turn them over, if they want to do business in the huge Chinese market.

Trump whacked China by raising tariffs on its exports, a move reducing trade by making their goods more expensive.  He believes that will bring them to the bargaining table, where the U.S. can win concessions.

But higher tariffs raise prices for American consumers.  U.S. agriculture loses markets in China when it retaliates by increasing its own tariffs and buys elsewhere.  The trade deficit with China has grown a little worse, according to official statistics.

More moles.  Quit the Trans Pacific Partnership and lose allies opposing China and farm exports to Japan.  Meet with the North Korean leader without result, but boost his international standing.  Force a North American trade deal, creating hostility with neighbors. 

Taxes are too high, stifling economic development, Trump says.  They should be cut, notably for the middle class and for business, which will invest the money with the profits yielding offsetting tax revenues.  Smack that mole.

In 2017, the GOP lowered taxes on the biggest taxpayers, also supposedly the biggest investors.  It also allowed corporations to bring foreign profits home and cut the corporate tax rate.

But the tax bill's economic effect faded by 2019.  Corporations used added funds to buy back their stock and increase executive pay, with only a portion going into new productive capacity.  Federal debt grew faster than the promised new tax revenues.  That's the new mole.

Or immigration, Trump's signature issue.  He warned that Mexican gangsters and rapists were streaming into the U.S.  Building a wall, paid for by Mexico, would end the problem.  Meanwhile, separating immigrant families is stepped up, supposedly to serve as a deterrent.

But keeping his promise depended on Congress and Mexico, and neither agreed with him.  Immigrants arrived in even higher numbers.  They were not Mexicans, but mostly from Central America and Africa.  Instead of U.S. aid to slow the flow at the source, it was cut.  Americans were shocked by immigrant family separations. 

Undeterred, Trump promised to sweep up millions of undocumented immigrants and deport them.  But his immigration agencies were caught by surprise and were unready for the task.  The president backed off, saying he wouldn't carry out the threat if the Democrats agreed to his demands to change the immigration laws.

The mole: Iran.  The nuclear deal with Iran was unsatisfactory, because 15 years later Iran could choose to resume its production of nuclear fuel.  Also, the deal did not halt Iran's aggressive moves in the Middle East.

The U.S. withdrew from the deal and has put strong economic pressure on European participants to force them to stop buying Iranian oil.  No direct talks with Iran.

Iran announced that, if the U.S. stops its oil exports, it will restart nuclear fuel development that would have been forestalled under the deal.  The situation became more tense than it was under the now-rejected agreement, as both sides rattle their sabers.

When Iran shot down an American drone, which the U.S. says was over international waters, Trump readied a retaliatory strike, but then backed off.  He said the U.S. did not want to cause 150 deaths.  Is it possible the U.S. was not absolutely sure of the drone's location?

Trump has had some big successes.  He has set a new record in sustaining President Obama's economic recovery.  He has induced European countries to increase NATO-related spending.  He now has China's attention.

But he usually announces immediate solutions – Whack-a-mole – instead of traditionally less dramatic, incremental measures, creating new problems. 

Will the oncoming campaign and what he has learned as president lead Trump to cut back on playing the game?

In his recent immigration and Iran reversals, Trump may have begun to recognize that his sudden policy announcements raise new issues and don't finally settle matters.

Separation of church and state slowly erodes

Gordon L. Weil          

This week, the U.S. Supreme Court ruled that a large Latin cross on public land in Maryland was no longer a religious symbol, but merely a tribute to fallen American soldiers of any faith.  Government was not giving special status to a Christian symbol, it ruled.

This blurring of the line between church and state takes place in a country in which religious belief is increasingly given special status.

We now run the risk of government a la carte, a system in which people can choose which laws they are willing to obey.

When religious belief conflicts with public policy, individuals may demand a choice not to obey the law.  Vaccination, same-sex marriage and abortion all raise this issue.

The Constitution's drafters thought they had avoided such conflicts.  Government can neither endorse any religion nor prevent people from practicing their religion or none at all. 

Of course, government leaders are influenced in their policies by their opinions and religious beliefs.  They may be guided by those beliefs, but they must stop short of imposing them on others.  Neutral laws, applying to all, are supposed to be adopted by government in the name of the people.

This approach arose from the emphasis on personal freedom, central to the American political system.  The threat, as Europe's history taught, was that government would force religion, perhaps even a specific religion, on the people. 

In practice, government did not impose religion on anybody, and it accommodated a wide variety of religious beliefs.  Such action was not merely meant to prevent laws that endangered the free exercise of religion.  So long as others were not harmed, it served to facilitate individual belief.

A clear example has been conscientious objector status.  When men were required to provide military service, those who refused to kill another person, even in defense of their country, could be assigned non-combat duty.

The risk to others of allowing some people not to obey the law may result from a conflict between religious belief and the public interest as defined by government.  That has happened in recent years over the issue of vaccination.

Decades ago, medical science demonstrated that inoculation against certain diseases could prevent their spread, even to the point of eliminating them.  Starting vaccination among children was usually the most effective method of preventing the spread of illness.

Without scientific evidence, but as a matter of belief, some people concluded that even if vaccinations prevented some diseases, they caused other maladies.  As a result, they chose to opt out of government-required vaccinations, a practice that was adopted by some religious groups.

While there was no evidence to support the belief that vaccinations caused illnesses, there was mounting evidence that the absence of vaccinations could allow the spread of fatal diseases that had almost been eliminated.  In short, opting out has an effect on others, not merely the children who were not vaccinated.

Vaccinations are under state control, and previously only two states denied a religious exemption from required inoculations.  With the spread of measles this year, the number of states accepting only a medical exemption has grown to five, including Maine, which acted this year.

A conflict between religious belief and public policy has also arisen as a result of the Affordable Care Act requiring access to contraception.  Before the passage of the ACA, the U.S. Supreme Court, led by conservative Justice Antonin Scalia, ruled that religious belief could not overrule a neutral law of general application.

Congress then passed a law requiring courts to decide if a law subject to dispute on religious grounds was the least burdensome way of accomplishing a public purpose and, if not, to overturn it.

The result was that a company can inform the government it will not provide contraceptive coverage under the ACA, because such coverage is against the religious beliefs of its owners.  The government may then tell the insurer to provide such coverage.

Undoubtedly, the greatest conflict has arisen on abortion.  As a matter of religious belief, some find that abortion amounts to taking a life, while many others see it as a legal medical procedure, performed at the discretion of a woman.

While the Supreme Court has ruled that abortion is not prohibited by the Constitution or laws, the controversy continues.  Under their control of medical procedures, some states have imposed conditions intended to virtually prevent abortions.

In contrast, Maine this year required insurance coverage for abortions and funded this coverage in the low-income health plan

Conflicts between neutral laws and religious belief take on huge political roles.  Parties may exploit them as "wedge" issues, adopting positions on them to gain almost blind support for their policies on many other issues.  

Far from the Constitution's intent, religious belief may end up getting special consideration in government decisions.  The result could be an expanding menu of government policy options, with choice left to individuals, rather than a uniform set of general laws.   

Trump's the issue, but congressional math matters – especially Maine

Gordon L. Weil

Last week, President Trump travelled to Europe, jumped into British politics, patronized the Irish Prime Minister and attacked House Speaker Pelosi while he sat in front of American war graves at Normandy.

It's no surprise that Democrats and "Never Trumpers" want to see him defeated next year.  But Trump won't be the sole focus of the 2020 campaign.  Most Democratic presidential hopefuls are trying to keep voters' attention on issues.  And much will depend on congressional races.

In fact, Republicans may focus more on Trump than will the Democrats.  Because he has broad backing within his party, they strongly support his reelection with its possible coattail effect for their congressional candidates.  If the party controls the presidency and the House or Senate, it rules.

For the Democrats, there's a dilemma.  Should they try to unify around a progressive platform or seek to draw moderate voters away from Trump Republicans?  It's less about Trump than a focus on the political math.  In that calculation, Maine matters.

Looking at the House of Representatives, in 2018 the Democrats picked up a surprising number of seats in formerly GOP districts.  Not only was the vote about Trump, but it reflected reduced ability of Republican state legislatures to gerrymander, resulting in more fairly designed districts.   

The GOP will target first-term Democrats like Maine's Second District Representative Jared Golden.  He has remained independent of his party's liberal wing in hopes of boosting his narrow margin in last year's election. 

Even state legislative races will matter to congressional math.  The new legislatures will draw House district lines for the next 10 years.  Republicans have benefitted in recent decades, but their gains could be reduced or erased by Democratic legislatures or neutral redistricting commissions.

Politically influenced district lines exist all over the country.  Even with just two districts in Maine, redrawing the line could improve Democratic chances of holding both House seats.  Moving some of the party's voters into the Second District could also reduce the chances of the GOP picking up one of the state's electoral votes.

As for the U.S. Senate, Democrats held 25 of the 35 contested seats in the 2018 elections.  They surprised the pundits, losing only a net two seats.  The GOP gained only a 53-47 majority.

Next year, the situation flips with 22 GOP seats up for grabs out of 34 to be contested.  The Democrats may find that picking up the four seats needed for a safe majority will be difficult. Much depends on the mood of the voters, incumbents' records and turnout, especially among African Americans, women and the young.

Sen. Susan Collins is considered vulnerable because of her vote to confirm Justice Brett Kavanaugh and the plentiful Democratic money that could match her large war chest.  She remains popular, so much depends upon whether the Democrats can field a strong candidate.

Collins's election could prove to be a key factor in the battle for the Senate control.  If the Democrats fail to win a majority, Mitch McConnell would remain in charge, assuming he holds onto his own seat in Kentucky.  He needs Collins' support.

This congressional math suggests that there will be more to the elections next year than an up-or-down vote on Trump.  But the media will keep him the focus.

The Democrats seek to win by attacking his trade tactics that cost jobs and raised prices and the GOP tax cuts favoring the wealthy.  They believe his backing can be stripped away by showing his supporters that they have been hurt by his policies.

That means Democrats may avoid making their main focus his lack of truthfulness or treatment of women, because such arguments will not necessarily move his backers.

The Republican Party is now almost totally Trump's and he enjoys overwhelming popularity within his party.  His political challenge is how far beyond the party, whose supporters number less than either Democrats or independents, his appeal extends.  He cannot win without votes from more than Republicans.

Trump relishes the challenge and stays on message.  While he must avoid alienating his congressional allies, he pushes the limits of traditional constraints on presidential action. 

His brash style seems to remain popular with many voters.  Still, Trump's 2016 victory may owe more to a Democratic candidate who failed to inspire her party's faithful in key states like Pennsylvania and Michigan than to his appeal.  

In 2020, while the Democrats' policies emphasize women, the young, consumers and the environment, he believes he could benefit from the extended economic recovery, immigration fears and nostalgia for the America of yesteryear.