Monday, May 23, 2016

Why Trump will (probably) be Trumped

Time and time again, people have predicted Trump's fall, and have been proved wrong. Trump is now the presumptive GOP nominee, and the GOP race actually finished before the Democratic nomination. Does that mean that Trump will continue to do well, and win the presidency. No. Despite Trump's rise, the general election electorate is very different from the GOP electorate. Neither the demographics nor the electoral college favor Trump. That being said, Trump has proved before that he is capable of an upset.

To begin, Trump is the most hated general election candidate in US history since the beginning of polling. In the most recent Real Clear Politics average of polls (5-6-5/19), Trump's net favorability rating was an atrocious -24.2%. Even Clinton, who is also hated, still has a favorability rating nearly 5 points better, standing at a less terrible -19%. Among groups that the GOP needs to improve with to win, the situation is even worse. Trump calling for a wall to be built on the Mexican border, for the deportation of all illegal immigrants, and calling Mexican illegal immigrants "rapists" has certainly not helped among one key demographic, Hispanics. Among Hispanics, according to the most recent polling in late April 2016, Trump's net favorably rating is a nearly impossible -78%, compared to Clinton's +29%. Obama won 71% of the Hispanic vote in 2012.  It appears because of Trump, Clinton would do even better than Obama. In the above poll 76% said they would vote for Clinton.

Trump does not do much better among women. Polls taken in March have Trump's net favorability rating among women around -50%, while Clinton averages slightly below even. In nearly all polls Trump is down among women by over double digits, a recent NBC poll has him down 15%, a little more than Romney's loss by 11 percent to Obama. However, when women make up about half the voters, 4% is a big deal. Trump has certainly not helped himself with comments he has made about women, whether it be Meagan Kelly, Carly Fiorina, or others.

To make matters worse, Trump appears to have a built-in disadvantage in the Electoral College. To illustrate this, here is CNN's swing state map. Swing states are shown in yellow.

Of those states, according to the Census in 2014, about 1/5 of Colorado's and Florida's population are hispanic, and 1/4th of Nevada's population is hispanic. This number of hispanics in the U.S. has only increased since then, with the growth rate well above the growth rate of the total U.S. population. Those states have a combined 44 electoral delegates. If Clinton wins those three and holds on to the rest of the Democratic leaning and solid Democratic states, she has already won, even if Trump wins all the rest of the swing states (which is a big if) which combine for 66 delegates. If Clinton drops either Nevada or Colorado, but keeps Florida, she still wins. And if she drops Florida, but keeps wins Nevada and Colorado, along with Virginia and Wisconsin, both states Obama won in 2008 and 2012, Clinton wins.

All of that being said, Trump has chance to win, and I think a better chance than many people realize. It should be encouraging for Trump that his net favorably has risen and Clinton's has fallen, in fact using the three most recent polls, Trump and Clinton are even, each at -20.333. Clinton's net favorability rating not rising can be attributed to the Democratic Nomination race not being over. However, it actually falling may point to deeper problems. It is possible that some of it is due to Bernie supporters being bitter, and Bernie going as far as calling for the system unfair. This option would likely be best for Clinton, after all, the 2008 Democratic race was bitter, but the party united then. A worse alternative would be that her image is being tarnished among all groups. That would make it more difficult for her to get the post-nomination bump that Trump has gotten.

As far as that post-nomination bump, it points to the idea that Trump has united the GOP, and remarkably quickly. For all the talk of never-Trumpers, people who are actually willing to follow through with it are a tiny minority. After Trump being down for the entire cycle, he is now in a statistical tie with Clinton. Once again, this points to the election not necessary being a blowout like 2008, but a closer election, such as 2004 or even 2000.

Although Trump is catching up, polls at this time in the cycle are not particularly reliable. Trump appears to have gotten a bump from his party uniting, and if history is any guide Clinton will get the same thing. Thus, Clinton is likely to be doing better in both her net favorably rating and the matchup polls once she inevitably raps up the nomination (unless she gets indicted). Additionally, the election is decided buy the Electoral College System, not by the popular vote. Clinton has a built in advantage here (according to CNN, 237 safe Democrat or lean Democrat, vs 191 safe Republican or lean Republican). Trump would probably need to turn states in the rust-belt with large white non-hispanic working class populations. According to the Census, as of 2014 Michigan is 76% white Pennsylvania is 78% white, and Wisconsin (not entirely a rust-belt state, but Eastern Wisconsin, its most populous part, is) at about 82%. From 1992 onward, all three states have voted Democrat in every Presidential Election. If Trump were to win these states, Ohio (which he almost certainly would given that the these other, more Democratic leaning, Rust-belt states went for him) and either NC or Florida, he would win the election. If he won both Florida and Ohio, he could afford to lose Wisconsin and Michigan, or just lost Pennsylvania, or lose Pennsylvania and Wisconsin but win any other state. However, turning any of those three rust-belt states a difficult task. A rust-belt revolution is probably wishful thinking. So while Trump does have a chance greater than zero, and higher than many think, by no means is this a 50-50 election. Barring a drastic change, such as a recession, a liberal third party candidate gaining traction, a major terrorist attack, or a major scandal for Clinton, it is more likely than not that Trump will finally be Trumped.

Thursday, March 24, 2016

2016: The Four types of Republicans

As the Republican party looks as divided as it has been in quite some time, with speculation of a brokered convention or even a political realignment, one should consider why this is happening. The Democratic Party is more uniform in its ideology and interests, where as the Republican Party is not. I believe there are four different types of Republicans in today's GOP, and the rise/fall of each of them is having a significant impact on the party. They are: fiscal conservatives, defense hawks, religious/ social conservatives, and blue collar populists. The former two tend to make up the so called establishment, the latter two make up the outsiders, with the last one the most recent phenomenon, having largely replaced Libertarians as the 2nd relative outsider group. There is some overlap, and the most politically successful Republicans, such as Reagan and Bush can appeal to all of them. However, candidates with too much overlap sometimes end up with no real base, being too many people's second choice prevents one from being enough people's first. Lets examine them in detail.

Fiscal Conservatives

Prior examples: Bob Dole, Mitt Romney, and John Huntsmen

In 2016 : Jeb Bush,  John Kasich, George Pataki and Chris Christie

Fiscal conservatives promote low government spending, low taxes, and free trade. They tend to have more moderate views on social issues than religious/social conservatives. The ones furtherest to the left on social issues, such John Katich and especially Jon Huntsman Jr, tend to have less success than ones that adapt the views of other parts of the party. This is because low taxes, free trade, and low government spending aren't as obviously in the interest of many members of the party, it alone only appeals to relatively few voters.

Defense Hawks

Prior Examples: George H. W. Bush, John McCain, and Dick Cheney

In 2016 : Lindsey Graham

Defense Hawks are often the most moderate on other issues, believing in immigration reform, more government spending than other Republicans (especially on the military), and are the most liberal on social issues. Especially with Reagan's military buildup, this group gained prominence in the GOP, becoming what was then the third leg to the GOP stool. However, they are no longer as unique as a group, for two seemingly paradoxical reasons. The first reason is the Iraq War, afterwards direct military intervention, especially troops on the ground became unpopular. Many defense hawks lost prominence in the GOP, and 7 years outside the White House meant that there were fewer active Republicans involved in military decisons. The 2nd is the rise of ISIS, which has created a sense of fear in much of the Republican party. As a result the policies of a true defense hawk, such as ground troops, is unpopular. However, moderately hawkish views are common enough that defense hawks do not stand out among the candidates in their rhetoric. Lindsey Graham's campaign ended up without much purpose, his positions on defense were held to a lesser extent by several others. Therefore his moderate views on social issues, such as immigration, became a greater liability.

Social Conservatives:

Prior Examples: Pat Buchanan, Mike Huckabee, and Rick Santorum

In 2016: Mike Huckabee, Rick Santorum, Ted Cruz, and Bobby Jindal

Social conservatives generally focus on religious issues, like gay marriage, abortion, and the role of religion in society. These often appeal to evangelical voters, such as in Iowa the southern states, and some western states, giving theoretically them a strong and consistent base. It is these voters, especially the more fiscally conservative ones, that were the backbone of the Tea Party wave in 2010.  There is significant variety on economic issues among social conservatives: Huckabee and Santorum were both quite moderate or even liberal on economic issues, such as Social Security, while Cruz is very fiscally, conservative, even proposing a flat tax.

Despite their strengths, true social conservatives have never actually won the nomination. Additionally, the influence of the these voters seems to be in decline, as gay marriage becomes increasingly accepted and America becomes less religious. The result is a shift among Evangelicals to the last defined group and the most recent phenomenon, blue collar populists.

Populists appealing to blue collar voters

Donald Trump(but probably many more in the future)

These candidates appeal to blue collar workers, angry about trade and immigration driving down their wages and causing them to lose their jobs. Rather than pointing out the immense benefits of both and that the manufacturing jobs that have been outsources are not coming back, they channel the anger. Populists appealing to blue collar voters only pay lip-service to the religious right, fiscal conservatives, and defense hawks, and sometime not even that. Economically, these candidates have significant similarities to Buchanan, Huckabee, and Santorum economically, and therefore are able to bring in large amount of evangelical voters who might have otherwise voted for a social conservative. Blue collar populists have large potential voter bases in the mid-west and northeast, but less so in western states that are religious and don't have large manufacturing bases. Another potential voter base is in the south and southwest for voters who are concerned about immigration. These candidates do especially well among voters without a college education.

As a result, these candidates have a potential voter base across nearly all states geographically, which provides a huge advantage in the primaries. However, this message, being so against the traditional Republican orthodoxy, will also fail to resonate among many conservative voters. Therefore, these candidates are high floor but relatively low ceiling. As a result, there could be significant resistance, although whether this will mean taking longer to rally around a nominee, staying and home, or actually voting against him/her in a general election is hard to say.

The hybrids

Prior examples: Ronald Reagan and George W Bush

In or was in 2016 Race: Scott Walker and Marco Rubio

These candidates try to appeal to more than one group. Every candidate does this to an extent, but these do it to such an extent that they can not be classified into any one group. Reagan and Bush appealed to fiscal conservatives, social conservatives, and defense hawks. This can work well in a small field and/or when there is not another strong candidate appealing to the other groups. In a best case scenario, the result is a united party behind a strong candidate.

However, the approach can also go very wrong, especially in a large field. There is a risk of being acceptable to everyone, but not being anyone's first choice. Scott Walker's early demise in a way foreshadowed Rubio's. Rubio was a stronger, more charismatic candidate, but each had the same problem, one foot in the establishment, one foot in the Tea Party. Rubio's best hope was to become the default anti-trump candidate, but after his horrible performance in Nevada it was clear this would not occur. After Super Tuesday, the writing was on the wall for a Rubio campaign that had only won one state, Minnesota, and did not have a clear path going forward. Ted Cruz was not going anywhere, and Kasich knew that he had a better chance winning his home state than Rubio did with his. The hybrid candidates are high ceiling but low floor.

What this means:

Trump almost certainly will have the most delegates by the time of the convention. He likely will be the nominee, eventually, but it will not be pretty. At the very least, he will not clinch it until after California votes on June 7, at the latest it will not be until after multiple ballots at the GOP convention in July.  There is even a chance that another candidate could be chosen, whether it be a Cruz-Kasich unity ticket, Kasich pulling off a huge upset (highly unlikely), or even a candidate who has not run yet, such as Paul Ryan.

Regardless, the likely result will be a divided party. If Trump does not win with a commanding delegate lead just short of a majority, these voters will be incensed, possible leading to a Trump 3rd party run. Trump at the head of the ticket would isolate many more moderate Republicans, possibly leading to a 3rd party option. And even if the party could untie behind him, Trump would be one of the most unpopular nominees among the general electorate in history.

As a result, Clinton will probably be the next president. It certainly did not help in having 16 other candidates besides Trump, and many strong "establishment" types. While in 2012 the party establishment rallied around Romney early, in 2016 it has remained divided for the entire primary, leaving it with two plausible options (Trump and Cruz). Neither are appealing to the establishment nor have a good chance at winning of they become the nominee. While some thought at first that having so many qualified candidates was a strength, it actually proved to be a profound weakness. Whether the party will learn its lesson, and do a better job narrowing the field early on, or whether it will continue to disintegrate is anyone's guess.

Friday, January 8, 2016

A brief note: Why the Fed should not have raised interest rates

Recently, the United States Federal Reserve decided to raise its key interest rate, the Federal Funds rate target, from 0%-.25% to .25%-.5%. This rise, while small, was not wise.

The federal funds rate is the benchmark rate for the Fed, decided by the FOMC(Federal Open Market Committee). The FOMC is made up of the 7 members of the federal reserve board, of which Janet Yellen is the head, and five federal reserve bank presidents, of which the president of the New York bank is always a member. It has control of key decisions, including raising the federal funds rate.

The federal funds rate is the rate at which banks and credit unions lend to other banks and credit unions over night without colateral. Lower interests rates result in cheaper borrowing, increasing consumer spending and investment, and thus aggregate demand, which results in higher inflation and GDP, as well as lower unemployment. Higher interests rates have the reverse effects.

There are a few reasons to raise interest rates. One is to lower inflation. However, as of now, this is not a problem. The Fed's target for inflation is 2%, but right now inflation is much lower. The Fed prefers the PCE price index to measure inflation. According to its most recent numbers total inflation increased .2% from a year earlier. However, this is unreliable because it includes volatile food and energy prices. Even when excluding them, inflation increased 1.3% from a year earlier. In fact, for over three years straight, inflation has been below the target. So as of right now, inflation is not high enough for concern.

Not only is inflation low, but there is little sign it will be of concern in the future, or even reach its target. Core inflation has been flat for several months, and the trend over the past few years is slightly down, not up. Wage growth is modest, but not high enough for worries about inflation.
In the period of solid growth, stretching from (January 2003-January 2007), average wage growth per month was about .34% in terms of average weekly earnings. Over the past year, average wage growth per month has been .17%. Clearly, wage growth is neither were it should be, nor does it indicate that there will be problematic inflation in the near future.

The economy, while recovering, is still not at full strength. I have already mentioned the lackluster wage growth. The U6, an alternate measure of labor underutilization and the one I prefer because it includes people who want a job but have stopped searching and people who want to work full time but can only find part time work, stood at 9.9% seasonally adjusted for the December 2015 jobs report. This is down significantly from its peak, and by an impressive amount from a year ago. However, it is still a couple percentage points above where it has been in past expansions (see previous posts). GDP growth is much lower than it has been historically during recent periods of robust growth.

The only other argument is fear of a bubble. At least in the U.S., however, this does not appear to be a problem. Housing prices are yet to recover from their peak. While the stock market is up significantly since its trough, it has stagnated in the past year. Continued low interest rates are not likely to cause a bubble, for the stock market had a correction with near zero interest rates. The most recent correction, occurring after the rate increase, while caused by a variety of factors, does not support the idea that the Fed made the right choice.

The problem with raising interest rates is that it makes borrowing more expensive. This reduces consumer spending and investment, which in turn increases unemployment and reduces growth. In fact, the last two major rate increases by western economies, Sweden in 2010 and the Euro-zone in 2011, were followed by interest rate decreases in the next few years because their economies struggled. While the U.S. economy now is stronger than either of those were, raising rates is still an unnecessary risk.

Overall, the feds interest rate rise is small, and definitely not catastrophic. However, with economic activity still not at full strength, it was not the right course of action either.

Tuesday, October 6, 2015

Bashar Al Assad- The lesser of two evils

          Right now Russia is launching strikes into Syria. Although its exact motives are disputed, it is clear that the U.S. has little control of what is occurring on the ground, and little control over the details of a solution. A change of strategy is needed.

     The current strategy has failed. The number of U.S. trained fighters a few weeks ago was reported to be only "four or five" by a top general despite having spent $500 million on a train and arm program, although it has increased since then. CNN stated "The government's plan to train moderate rebels has been a flop. The goal was to train 3,000 to 5,000 fighters a year. So far the U.S. has trained an estimated 75 rebels- some of whom were kidnaped as soon as they crossed into Syria" Over 1/4th of the military equipment has been given to the al-Nusra Front, an Al-Queda affiliate in Syria. Meanwhile, the most effective groups in Syria besides the regime are the al-Nusra front and IS(Islamic State). For well over a year, the 'moderate' opposition, including the Free Syrian Army, has been ineffectual. Some have disbanded all-together. Meanwhile, radical opposition is advancing on Assad.   Despite U.S. led coalition airstrikes, the war with IS(Islamic State) is either considered a stalemate or very small gains are being made. This is not very encouraging, and IS is still advancing on Assad. A strategy to train and arm the moderate rebels may have been viable in 2011, but is not now.

     A partition of Syria still could work, similar to one proposed in one of my earlier posts. Although the situation in Syria has changed, the basic premise remains sound: that it will be nearly impossible to ever stabilize Syria with its current borders. The partition is already de-facto, there should be a plan to make it de-jure for a post IS Syria.

     Knowing that a partition is still unlikely to happen, the best option appears to be Assad. Assad is a cruel dictator, but he is the least bad option. Unlike the Nusra front and IS, the Assad regime shows no indication of wanting to destroy Israel, the border had been quiet for nearly 40 years when the Civil War started.  When in power and not facing rebellion, Assad does not terrorize his people to nearly the extent that IS does. Unlike the al-Nusra Front, the Assad regime may use brutal warfare, but it does not commit terrorist attacks.  The most recent UN estimate of the death toll is about 220,000, but not all of it is Assad's fault. After all, pro-government fighters are dying as well, and not all civilian casualties have been caused by the regime.

     The question for anyone who wants to remove Assad is what do to next.  As seen in Libya and Iraq, once the government is removed, there is a power vacuum that needs to be filled, leaving the country highly unstable. Colin Powell had a rule known as the "pottery barn rule": you break it, you own it. Unless Americans are willing to send a large military force to Syria for many years at the costs of hundreds of billions of dollars, any further action to bolster the Syrian opposition is a bad idea.

     However, not fighting Assad may not be enough. If Russian intervention does not work and Assad loses, radical rebels or even IS could take Damascus and Aleppo, the two largest cities in Syria. In a scenario were Assad keeps losing, the U.S. may need to implicitly support Assad. Stated support would be a bad idea, because it would anger Sunni allies and much of the Muslim world.

     At the very least, any plan for peace will require Assad to leave only after a long period of time, if at all. If we truly care about the people of Syria, the Civil War needs to end soon. With a diplomatic solution looking more and more unlikely, unfortunately the world's best bet is with the regime.

     Just a side note, the proposed no fly zone is a terrible idea. With Russian planes in the sky, it would be either ineffective, possibly humiliating if the U.S. backs down, or extremely confrontational if Russia does not abide.

Friday, August 7, 2015

The U.S. economy: not as good as it seems

The unemployment rate now stands at 5.3%, which is good and close to the 4.8% in June 2006. However, this number does not show an accurate reflection of the labor market, nor the economy. Labor labor force participation is down 3.6% since June 2006 from 66.2% to 62.6%, but this isn't a particularly good number either.  It is not a good number because it doesn't factor in people retiring as the U.S. gets older, nor involuntary part-time workers. In the future most of the decrease will be because of demographics. However, I will argue that right now,  people focusing on the unemployment rate and not on alternate measures of under-utilization, and stating the U.S. economy is in good health should be less optimistic than they are. 

There are two reasons June 2006 is a good starting time. First of all, it was before the recession during good but not great economic growth. In the prior two quarters, average GDP growth was 3.05%. June 2006 should indicate what economic data should be in slightly above average times. Also, it is exactly 9 years before the latest statistics were available(when post was first drafted). This allows for comparison of statistics that are not seasonally adjusted.

To show that the drop in the labor force participation rate isn't solely due to aging, I will bring up an important statistic. Labor force participation ages 25-54 in June 2015 down 2.1% from June 2006, from 82.7% to 80.6%. 25-54 are the peak working years, so this number should not be shrinking even though the country is aging. This shows that even among people who are not out of peak work years, the labor force participation rate is shrinking. 

To more accurately determine the labor situation, I will use an alternate rate of labor underutilization, one provided by the BLS, referred to as U6. [It is calculated as all unemployed people + plus all marginally attached workers + all employed part time for economic reasons/ (civilian labor force + all marginally attached workers)] * 100.  It stood at 8.4% June 2006 (after revisions), but was 10.5% in June 2015. Both of the previous figures were seasonally adjusted. While this number has gotten better, it was at 17.1% in September 2010(after revisions) it is still significantly above that of 8 years ago. 
The less than stellar employment numbers are reflected in GDP as well. In 2006, GDP growth averaged 3.05% in the first and second quarters. This number is slightly below the year average during the fairly brisk expansion of the mid 2000s (2003-2006).  This is good relative to what the economy has done since the great Recession, but far below the growth seen in the mid-late 90s. Therefore, it is not such a high number that it is unreasonable to reach it during good economic times, but not so low that it can be reached easily. In the first two quarters of 2015, GDP growth averaged 1.45%. Although growth may pick up later this year, no annual GDP increases for the past 8 years have come within .65% of the number back in the first part of 2006.

    The economy has recovered significantly, but is not in good shape yet. Employment and GDP growth are far behind what they have been in the past in the middle of prior robust expansions. Fortunately, the economy could get better, as the general trend for economic indicators in the past few years is that they have been getting better. Unfortunately, better economic growth is not guaranteed. If this is the new good, the best days of America's economy are surely behind us. At the very least, anyone stating America's economy is back to normal is wrong, and the economy should be a much bigger issue in the election cycle than it has been so far.

(note:all statistics are accurate as of when this post drafted)