Friday, May 26, 2017

Supporting the American Defense Industry

In Donald Trump's recent speech in Saudi Arabia, he stated the following:

"King Salman, I thank you for the creation of this great moment in history, and for your massive investment in America, its industry and its jobs. I also thank you for investing in the future of this part of the world."

This speech was given after Saudi Arabia signed a deal to purchase $110 billion worth of arms effective immediately and $350 billion over ten years.  While it's interesting to see that President Trump thanked Saudi King Salman for his contribution to American industry and jobs, there is a group of people that should receive even greater thanks for their contribution to the U.S. defense industry - American taxpayers.

On the Federal Procurement Data System website, we can access an annual listing of the top 100 contractors when measured using government-wide spending data.  Looking through this data, we can see just how much the American military-industrial complex should be thanking U.S. taxpayers for their beneficence.  Let's look at who has benefited over the past three years with 2015 being the latest year for which data is available:

1.) 2015: In total, there were $238.544 billion in contracts across all federal government departments.  The top five vendors were all defence contractors and were recipients of $90.291 billion worth of contracts or 37.8 percent of federal contract spending.  Here is a bar graph showing the total size of the contracts for the top five contractors:

The biggest recipient, Lockheed Martin, received contracts worth $36.26 billion or 8.3 percent of total federal contract spending.

2.) 2014: In total, there were $235.933 billion in contracts across all federal government departments.  Again, the top five vendors were defence contractors and were recipients of $90.074 billion worth of contracts or 38.2 percent of all federal contract spending.  Here is a bar graph showing the total size of the contracts for the top five contractors:


Again, the biggest recipient was Lockheed Martin which received $32.230 billion or 7.26 percent of total federal contract spending.

3.) 2013:  In total, there were $255.638 billion in contracts across all federal government departments.  Once again, the top five vendors were defence contractors and were recipients of $102.453 billion worth of contracts or 40.1 percent of all federal contract spending.  Here is a bar graph showing the total size of the contracts for the top five contractors:


Not surprisingly, the biggest recipient was Lockheed Martin which received contracts worth $44.114 billion or 9.64 percent of total federal contract spending.

Let's drill down a bit into the 2015 data, focussing on the contracts given to Lockheed Martin by various parts of the Department of Defense showing the total size of all contracts granted as well as the percentage of spending for that category:

Navy - $15.524 billion (18.4%)
Army - $4.039 billion (5.6%)
Air Force - $7.394 billion (14%)
Defense Threat Reduction - $40.228 million (4.2%)
Defense Microelectronices - $32.472 million (6.4%)
Defense Information - $367.726 million (7.4%)
Defense Advanced Research Projects Agency - $198.726 million (19.7%)
Missile Defense - $935.529 million (19.9%)
Special Operations - $656.413 (22.5%)

Even Homeland Security jumped onto the Lockheed Martin bandwagon, granting contradicts worth $327.036 million in 2015.


As you can clearly see from the data shown in this posting, the American military-industrial complex and the President of the United States should not be thanking the Saudi Royal Family for their "investment in America, its industry and its jobs" rather, they should be thanking the taxpayers of the United States who have sunk trillions of dollars into their businesses over the decades, particularly since the endless War on Terror began in 2001.  In particular, the 97,000 employees at Lockheed Martin should be thankful that the Department of Defense has chosen the products that they manufacture to arm the U.S. military.  And, just in case you thought that I'd forgotten the company's named executive officers, here are a few more corner office dwellers from Lockheed Martin that should be thankful to U.S. taxpayers:



Thursday, May 25, 2017

America's Deteriorating Infrastructure - A Growing Problem

The American Society of Civil Engineers (ASCE) has released the 2017 version of its Infrastructure Report Card and the state of America's infrastructure continues to receive a failing grade.  Here is a summary of their findings and how decades of neglect means that the condition of key ++++

Let's start by looking at an overall summary of the shortfall in infrastructure funding.  As shown on this table, in total, the funding gap between what is required to upgrade America's deteriorating infrastructure and the estimated actual government funding totals $2.064 trillion:


To meet the infrastructure spending needs, all levels of government and the private sector will have to increase the level of infrastructure investment from 2.5 percent to 3.5 percent of U.S. GDP by 2025.  Failure to close this funding gap will result in the following economic consequences by 2025:

1.) $3.9 trillion in losses to GDP

2.) $7 trillion in lost business sales

3.) 2.5 million lost American jobs

4.) a $3400 loss in disposable income by American families

Let's look at a summary of the grades for three major types of infrastructure and what investment is required to rehabilitate the current situation:

1.) Aviation - Grade - D - America's 3,345 airports, of which 514 offer commercial services, serve more than 2.25 million passengers daily and there are roughly 7,000 aircraft in American airspace at any given time.  In 2015, there were 786 million enplanements, up from 728 million in 2011 and is projected to rise to 1.24 billion by 2036.  Congestion at major airports is becoming problematic with 24 out of 30 of the nation's largest airports projected to experience Thanksgiving-style passenger volumes at least once a week.  America's airports need $157 billion in infrastructure funding over the next decade and the funding gap is expected to range from $4.2 billion to $4.6 billion annually.  This investment shortfall is expected to cause the loss of nearly 257,000 jobs and $337 billion in lost GDP by 20205.

2.) Bridges - Grade - C+ - American has a total of 614,387 bridges with an average age of 43 years.  Of the total, 39 percent or 245,755 are 50 years or older and an additional 15 percent are between the ages of 40 and 49 years as shown here:


Most bridges are designed for a 50 year life so it is clear that the problem of bridge rehabilitation is likely to increase.  Of the total number of bridges, 9.1 percent or 56,007 were considered to be structurally deficient in 2016 down from 12. 3 percent in 2007; on average, there were 188 million crossings of structurally deficient bridges each day.  Here is a graphic showing the top and bottom states by number and percent of structurally deficient bridges:


Federal investing in bridge rehabilitation and rebuilding was boosted in 2009 and 2010 thanks to the American Recovery and Reinvestment Act with spending peaking at $18 billion in 2010.  Nonetheless, a recent federal estimate calculates that the backlog of spending on the nation's bridges totals $123 billion. 

3.) Roads - Grade - D - According to the Bureau of Transportation Statistics, in 2013, there was 4.071 million miles of roads with 2.678 million miles being paved and 1.394 million miles being unpaved; in 2015, total distance driven on these roads reached 3.13 trillion miles, up from 2.989 trillion a decade earlier.   More than 40 percent of America's urban interstate highways are congested and 20 percent of highway pavement is in poor condition with 32 percent of urban roads in poor condition compared to 14 percent of rural roads.  As we all know, driving on potholed roads can be expensive; in 2014, driving on roads in need of repair cost American motorists $112 billion in extra vehicle repairs.  Not only is increased vehicle repair costs an issue, traffic congestion is also costly as shown here:


One added benefit to improving the road infrastructure would be an increase in safety.  While road fatalities dropped over the past decade, they rose by 7 percent between 2014 and 2015 and by 8 percent in the first nine months of 2016.  This suggests that the current road infrastructure is under growing stress.

Governments, particularly the federal government, have been underfunding the American highway system for many years which has resulted in a $420 billion needed to repair existing highways, $167 billion for systems expansion and $126 billion for system enhancements including safety enhancements, operational improvements and environmental projects.  Here is a graph showing the declining level of public spending on America's highway infrastructure:


While governments seem to find endless ways to waste taxpayers' money, it is clear that they could receive a big payout from increasing investments in America's failing infrastructure, a move that will lead to greater economic strength that will benefit everyone.  Kicking the infrastructure funding "can" further down the road is only going to make it more expensive to fix in the future and result in reduced economic growth now.

Wednesday, May 24, 2017

The Biggest Fallacies of Washington's Budgets

The release of the proposed fiscal 2018 federal budget from the Trump Administration revealed, once again, why Washington's annual budgets are barely worth the paper that they are written on.  While the budget proclaims that it will help reduce the threat to American prosperity from the $20 trillion federal debt that was inherited from the Obama Administration, it makes broad economic assumptions that will be the undoing of this latest iteration of fiscal (mis)management from Washington.

Let's start by looking at the assumptions made in the budget from Table S-9 Economic Assumptions found on page 45:


You may not notice the weakness in these assumptions immediately, however, if you look at the line showing the year-over-year percent change in nominal GDP you will notice some very optimistic projections.  The budget assumes that nominal GDP will grow by between 4.3 percent and 5.1 percent between fiscal 2017 and fiscal 2027 and that real GDP will grow by between 2.3 percent and 3.0 percent over the same timeframe.

Let's look at the real world.  According to FRED, this is what has happened to nominal GDP growth rates since the end of the Great Recession:


Since the fourth quarter of 2009, nominal GDP has grown by an average of 3.4 percent over 30 quarters of economic expansion, well below the rates seen in prior expansions as shown here:


In addition, nominal GDP actually contracted by 3.1 percent and 3.2 percent on a year-over-year basis during the first and second quarters of 2009.
  
Here's what has happened to real GDP growth since the end of the Great Recession:


Since the first quarter of 2010, real GDP has grown by an average of 2.1 percent, again, well below the rates seen in prior expansions as shown here:


During the Great Recession, real GDP contracted by as much as 4.1 percent on a year-over-year basis during the first quarter of 2009.  

Not only is the assumption of economic growth rates used in the 2018 fiscal budget overly optimistic, there is one other assumption that is completely erroneous; the assumption that the economy will continue to expand without ceasing until fiscal 2027.  Let's look at a chart which shows the length of economic expansions (trough to peak) going back to the 1850s:


The longest trough to peak was 120 months during the expansion which began after the March 2001 to November 2001 recession. Over the period from 1854 to 2009, there were 33 economic cycles with an average trough to peak duration of 38.7 months.  As far as the latest economic cycle goes, we are now 95 months into the expansion and if the assumptions used in the fiscal 2018 budget hold, the economic expansion will be a whopping 222 months long, nearly double the longest expansion in the past century and a half.

While I'm sure that there are those who would love to blame this on yet another Trump Administration blunder, here is a screen capture from the fiscal 2017 final Obama Administration budget showing that they made similarly erroneous assumptions on Table S-12 (page 163):


You will notice that while the budget makes no allowance for any kind of economic contraction going out to fiscal 2026, it does make somewhat more realistic assumptions when it comes to both nominal and real economic growth rates.

When one reads through government budget documents, it is always key to closely examine the assumptions used.  If these assumptions do not transpire, the projections of future budgetary improvements like dropping deficit levels and improving debt accumulation rates are completely unattainable.  But then again, what did you really expect from politicians?  

Tuesday, May 23, 2017

Donald Trump and Mainstream Media Bias

Here's a quote from a U.S. President:

"Also, never forget.  The press is the enemy.  The press is the enemy.  The press is the enemy."

Donald Trump has successfully accomplished one thing since he took over the Oval Office in January 2017, he has dominated the 24 hour news cycle, particularly in the United States.  A report from Harvard Kennedy School's Shorenstein Center on Media, Politics and Public Policy has analyzed the news coverage of Donald Trump's first 100 days in office, and provides us with an analysis of the coverage and its level of positivity/negativity as well as a comparison to the coverage received by his predecessors.  The analysis is based on newscasts on CBS, NBC, CNN and Fox News, news reports in the print editions of The Washington Post, The New York Times and The Wall Street Journal and coverage in three European news outlets including BBC in the United Kingdom, ARD in Germany and Financial Times in the United Kingdom.  Let's look at some of the highlights of this report. 

In Donald Trump's first 100 days in the Oval Office, he was the topic of a record-breaking 41 percent of all news stories, three times the usual amount of coverage received by a U.S. President.  Donald Trump did most of the talking on his own behalf, appearing as the featured speaker in 65 percent of stories that covered him followed by 11 percent who were administration officials, 6 percent who were Democrats, 4 percent who were Republicans, 3 percent who were protestors, 1 percent who were the FBI and 10 percent who were "others".   All totalled, Republicans inside and outside the administration accounted for 80 percent of what newsmakers said about Donald Trump's presidency.

Here is a pie chart showing the topics covered by the American media when discussing the Trump presidency:


The print media focussed more on the immigration issue while television news focussed more on the health care issue.  Fox News was an outlier in that it gave less than half of the coverage of the Russia election interference story than its six U.S. media peers.

Here is a pie chart showing the topics covered by the European media when discussing the Trump presidency:


Not unexpectedly, Europe's media gave more coverage to international trade, military and foreign policy issues than their American counterparts.  Additionally, Europe's media was more likely to focus on the issue of Trump's fitness for office with the fitness issue garnering 20 percent of total Trump coverage for Germany's ARD, the nation's main pubic broadcaster in January 2017, dropping to 18 percent in February and 10 percent in March and April, well above the 3 percent coverage that the fitness issues received in the U.S. media.  Note that most of this "fitness for office" coverage was negative.

Let's look at the tone of the media coverage of Donald Trump's first 100 days in office.  Here is a graphic showing the tone (positive vs. negative) for the first 100 days in office for the past four U.S. presidents:


As you can clearly see, the coverage for Trump's first 100 days set a new standard for negativity.  In all of the weeks during the first 100 days, no week saw the negative coverage drop below 70 percent, hitting a high of 90 percent in March as you can see on this graphic which plots positive coverage (in green) vs. negative coverage (in red):


The least negative week (70 percent negative) took place when Donald Trump ordered a cruise missile strike against a Syrian airbase in retaliation for the alleged use of nerve gas on Syrian civilians and the most negative weeks took place when federal judges struck down his executive order banning Muslim immigrants from several nations and when the House of Representatives was unable to muster the votes needed to pass a repeal of Obamacare.

In closing, let's look at a graphic which shows the positive and negative bias of Trump news coverage for each of the American and European media outlets used in the study:


It is interesting to see that even Fox, the media bastion of American conservatism, had slightly more negative coverage than positive coverage (52 percent vs. 48 percent) of the Trump Administration's first months in office.  Fox was most positive on Trump's handling of the economy (57 percent vs. 44 percent for all other outlets), his fitness for office (67 percent vs. 15 percent for all other outlets), international  trade (80 percent vs. 12 percent for all other outlets) and the terrorist threat (81 percent vs. 25 percent for all other outlets).  

Even by the standards of today's presidentially critical press, Donald Trump has broken new ground.  What is particularly interesting is that the coverage of the Trump presidency is overwhelmingly negative even though he is talking on his own behalf nearly two-thirds of the time.  The level of negativity appears to lend credence to Trump's claim that the media are aiming to destroy his presidency before it has really taken hold and that much of the mainstream media is "fake news" as shown on this tweet from February 2017:


The analysis also shows one key problem with the media coverage of the early days of the Trump presidency; there is little news coverage of most of his executive orders with all executive orders other than the immigration orders receiving less than 1 percent of total Trump media coverage.  This tells us that the mainstream media has chosen to focus on a handful of issues while ignoring other important developments that may show the Trump presidency in a different light.

Here is a closing paragraph from the report:

"Journalists would also do well to spend less time in Washington and more time in places where policy intersects with people's lives.  If they had done so during the presidential campaign, they would not have missed the story that keyed Trump's victory - the fading of the American Dream for millions of ordinary people.  Nor do all such narratives have to be a tale of woe.  America at the moment is a divided society in some respects, but it's not a broken society and the divisions in Washington are deeper than those beyond the Beltway."

Apparently, despite the lessons taught by the Clinton loss in 2016, journalists are a slow-to-learn bunch.  As a group, they also seem to have forgotten that the opposition to the ruling party should not solely come from the press, rather, it should come from the government's elected political opponents, a group that received only 6 percent of the mainstream media's airtime.  This is most definitely not how a democracy should function.

By the way, while it may have sounded like a Trumpism, the opening anti-press quote was actually from President Richard Milhous Nixon.

Friday, May 19, 2017

Russia's Assessment of America's Political Theatre

All of the media time being devoted to the Trump-Putin-Russia connection over the past weeks makes for fascinating political theatre, however, we rarely hear how Russia's political leadership feels about the issue.  Thanks to RT and Russia Insider, we now have video showing Vladimir Putin's commentary on the issue on May 17th, 2017:


Note the 55 second mark where Foreign Secretary Lavrov, a career diplomat, chuckles at Vladimir Putin's comments that he would have to give him a "ticking off" for not sharing America's secrets with him or Russia's intelligence apparatus.

According to Putin's press conference, he is ready to provide a transcript of the meeting that took place between Donald Trump and Russia's Foreign Minister, Sergey Lavrov, where the U.S. media claims that American state secrets were leaked.

Here is a complete transcript of the pertinent section of the press conference with my highlights:   

"As for the results of Foreign Minister Lavrov’s visit  to the United States and his meeting with President Trump, we assess the results highly. This was the first visit, a return visit by our foreign minister, after we received US Secretary of State Tillerson here in Moscow.

This is normal and natural international practice.   At the same time, however, we see the growing political schizophrenia in the United States. There is no other way I can explain the accusations against the current president that he handed whichever secrets over to Lavrov

Incidentally, I spoke with him [Lavrov] today about this matter, and I will have to give him a ticking off for not sharing these secrets with me. Not with me, nor with our intelligence officials. This was really not good of him at all. 

What’s more, if the US administration has no objection, we are ready to provide a transcript of Lavrov’s conversation with Trump to the US Senate and Congress. Of course, we would do this only if the American administration so desires. 

Initially, when we watched the first developments in this internal political struggle, we were amused. But now, the spectacle is becoming quite simply sad, and it is causing us concern, because it is hard to imagine just how far people willing to think up this kind of nonsense and absurdity might go. All of this is ultimately about fanning anti-Russian sentiment. 

This does not surprise me. They are using anti-Russian slogans to destabilize the internal political situation in the United States, but they do not realise that they are harming their own country. If this is the case, then they are quite simply stupid. If they do understand what they are doing, then they are dangerous and unscrupulous people. In any event, this is the United States’ own affair and we have no intention of getting involved. 
As for assessments of President Trump’s actions so far in office, this too is not our affair. It is for the American people, American voters, to give their assessment. Of course, this will be possible only once he is fully allowed to work."


It is interesting to see that at least one major world leader has a sense of humour about his  country's relationship with the United States  and a clear understanding of America’s increasingly self-destructive political reality in these difficult and increasingly tense times.