The Impact of the National Debt

Author: R. Alan Harrop, Ph.D

We, the American taxpayers, need to be aware of the soaring national debt; primarily because we will ultimately suffer the consequences of this out-of-control spending. Let’s take a look at the facts. I strongly suggest that you sit down as you read this.

Much of the following data was obtained from the website www.us.debtclock.org as of the end of August 2024. The total debt is currently 35.2 trillion dollars. This debt, by far the highest of any country in history, is increasing at the rate of 1 trillion dollars every three months. This amounts to $268,000 per taxpayer. The debt to the Gross Domestic Product (GDP) ratio is 122% as compared to 35% in 1980. This is comparable to an individual having a debt that is 122% higher than their total assets and income. The interest alone on the national debt now amounts to 918 billion dollars per year, which is more than the entire military defense budget. This is clearly unsustainable.

The impact of federal spending on inflation is equally alarming. Compared to the year 2000, the price of essentials is truly shocking. For example, the average price of a new home is now $406,000 as compared to $166,000 in the year 2000. New cars now average $49,000 as compared to $22,000; annual healthcare now averages $15,000 as compared to $5,000; college tuition now averages $27,000 per year compared $11,000. Contrast these dramatic increases to the increase in median annual income that is now $39,000 compared to $32,000 in the year 2000. Clearly, the standard of living of the average American, especially the young, has diminished significantly, especially when you add the $268,000 we all owe on the national debt!

As we face the upcoming election, we need to evaluate the impact the Democrat and Republican platforms will have on the national debt and inflation. The Democrat platform, as far as we can tell, includes price controls, $25,000 gifts to first time home buyers, increases in corporate tax rates, allowing the Trump tax cuts to expire, a tax on unrealized capital gains, transferring student loan debt to others, and a wealth tax. History shows that none of these proposals will reduce the national debt or inflation–they will only increase government spending and reduce the incentive of the average person or corporation to invest.  Couple this with the money being spent to support illegal aliens, and the problem only worsens. For example, price controls lead to shortages in supplies and result in price increases. The Republican platform includes efforts to reduce the cost of energy by eliminating costly green energy programs and expanding the use of fossil fuels and nuclear power, reducing excessive government regulations, incentives to increase investments, and returning manufacturing to this country. Decreasing the cost of energy is essential to reducing inflation. The national debt crisis can only be solved by reducing the size of the federal government (e.g. abolishing the federal Department of Education and cutting the budgets of all federal agencies) and growing the economy by encouraging investment.

We have a very clear choice in the upcoming election. The fate of the economic survival of this country is on the ballot. Time to face reality.

Economic Growth Has Significantly Slowed

On Thursday, The Daily Signal posted an article about the revised downward economic growth in the first quarter of 2024. America is not doing well economically.

The article reports:

The U.S. economy grew less than previously thought in the first quarter of 2024 amid a slowdown in consumer spending, the Bureau of Economic Analysis announced Thursday.

Gross domestic product was revised down in the first quarter from 1.6% to 1.3% year-over-year in a sign that the economy is not as strong as initial estimates indicated, according to a release from the BEA. Economists originally expected growth in the first quarter to be around 2.2%, more in line with the above trend growth seen in the third and fourth quarters of 2023, which were 4.9% and 3.4%, respectively.

The revision was due to new information that shows that consumer spending, private inventory investment, and federal government spending were lower than initial estimates, while state and local government spending, nonresidential and residential fixed investment, and exports were slightly greater than original tallies, according to the BEA.

Current-dollar GDP was also revised down to 4.3% from 4.8%, and real gross domestic income totaled just 1.5% in an initial estimate from the BEA.

Consumer spending is down because consumers are being forced to spend more on necessities and less on extras.

The article concludes:

In an attempt to bring inflation back down to around 2%, the Fed has placed its federal funds rate in a range of 5.25% and 5.50%, a 23-year high, which has put pressure on consumers and businesses to slow spending. The hike in the federal funds rate has increased the cost of credit across the board, making it more expensive to take out debt, such as through credit cards.

The cumulative amount of debt held by Americans totaled $17.69 trillion in the first quarter, with $1.12 trillion of that being on credit cards. The share of people who were behind 90 days or more on their credit card payments in the quarter jumped to 10.7%, outdoing the pandemic high of 10% in the first quarter of 2021.

Job growth has also slowed as of late, with the U.S. adding just 175,000 nonfarm payroll jobs in April, far lower than the 242,000 that were expected, while the unemployment rate ticked up slightly to 3.9%. In April, there were fewer gains in government jobs than in previous months, contributing largely to the slowdown, with March adding 303,000 new jobs.

This problem was government-caused and can be government-solved. Cut taxes and cut spending–that is the solution if Congress ever has the integrity to do it.

How Long Can This Continue?

On Sunday, Clarice Feldman posted an article at the American Thinker about our rapidly disintegrating President.

The article notes:

A day after his pumped-up divisive State of the Union address, unsurprisingly headlined “fiery” by the copycat media lackeys, President Biden, speaking in Pennsylvania, reverted to his old befuddled self.

“Pennsylvania, I have a message for you: send me to Congress!” 

“Last night [at] the U.S. Capitol — the same building where our freedoms came under assault on July the 6th!”

“We added more to the national debt than any president in his term in all of history!”

Some Americans believe that the senility and dementia are an act. I don’t agree, but I think it would probably be better if it were.

The article continues:

Well, the last statement is true. I’ll give him that. And large budget deficits are a pattern in Democrat-run cities and states. Democrats pay off cronies and constituencies with government money and then raise your taxes because they’ve spent more than they were able to squeeze out of the economy.

Nearest to me, that pattern is evident in Maryland and Washington, D.C.: They look the other way at rising crime because they defunded the police and decriminalized conduct and then bemoan empty purses as people and businesses flee. They locked down their states and were surprised to learn that capped the revenue spigot. They made ridiculous, frivolous expenditures like bike lanes and street cars and painting BLM on a major street and then can’t pay for necessities like cops, road repairs, and schools.

The article concludes with a list of some of the accomplishments of Calvin Coolidge and some of the things that happened under his watch:

Without government interference, private enterprise quickly electrified the country and created a transportation revolution as more Americans could drive their new automobiles.

Average earnings rose 30 percent in a decade. Gross domestic product (GDP) rose by a third… This great economic and lifestyle revolution for Americans of modest means happened with basically no guidance from the federal government. The government largely stayed out of the way. 

We can dream, can’t we?

It really is time for a change.

Inflation Isn’t Over, And The Damage Will Continue

No one who has bought groceries recently or filled up their gas tank believes inflation is over. Yet recently economist Paul Krugman declared, “Inflation is over. We won.” I guess he doesn’t do the grocery shopping in his family. Yes, inflation has slowed. However, we are still dealing with the price increases that occurred in the past three years. If the baseline is where we were when President Biden took office, the inflation rate is somewhere over 15 percent. If we are talking about the past few months, the number is much lower. However, that number is in addition to the 15 percent that we have already been dealing with.

On Saturday, Real Clear Politics posted a commentary about the damage the Biden administration has done to the economy.

The commentary notes:

The truth is that the wild inflation, high interest rates, bank failures, and other economic harms of the last three years were all entirely avoidable and all entirely caused by President Biden and the Democrats’ arrogant and unwise policies.

This is not “Monday morning quarterbacking.” Some of us were saying this well before the fact. My May 7, 2021 column (“Joe Biden, Economy Killer”) accurately forecast the inflation, rising interest rates, and rising government debt service long before the Biden administration even acknowledged the risks were real.

The U.S. economy did not need another giant stimulus plan when Biden and the Democrats took control in 2021. The U.S. gross domestic product, knocked down by the COVID shutdown in the first half of 2020, had jumped up by a record 33% in the third quarter of 2020 and by another 4% in the fourth quarter, all before Biden took office. The S&P stock market had risen 16.3% in 2020. Employers were waiting for workers to come back to work, and another stimulus package had been passed with bipartisan support in the last quarter of 2020. Happily, the inflation rate was only 1.4% as 2020 ended, with a one-year Treasury rate of just 0.10% and a 10-year Treasury rate of just 0.95%

The commentary concludes:

The Congressional Budget Office last week revised its government deficit estimates upward, expecting $48.3 trillion of government debt by 2034. Interest expense on the federal debt this year has already jumped up to $870 billion, which is larger than the defense budget. Additionally, Biden’s higher interest rates will continue to increase debt service costs as old government debt rolls off and is replaced at higher costs. The risk is stark: a 3% higher interest rate on even the existing $33 trillion level of federal debt equates to $1 trillion of extra federal interest expense each and every year, on top of the already giant existing debt service number.

There is no painless way to pay down this deficit or cover this extra annual government interest cost. The need for billions and billions of extra tax money or budget cuts will fuel fierce political fights, populist divisions, and national anger for years to come. All this public unrest will also be the legacy of the bad Democratic economic policies since 2021. Professor Krugman, when it comes to Bidenomics, “We lost.”

I believe we can turn this around, but it will take an administration that includes people who have worked in the private sector and run businesses. Whatever administration is elected in November needs to include people hired for their qualifications and experience–not for any other reason.

This Is Probably A Done Deal

Now that Arizona Senator Kyrsten Sinema has agreed to vote for it, the Inflation Reduction Act will probably pass the Senate and become law. That is not good news for Americans.

The Conservative Treehouse points out some of the changes that were made to the law to get Senator Sinema to agree to vote for it:

Arizona Senator Kyrsten Sinema has announced her support for the senate climate change spending and tax proposal after some modifications to the new taxation.

To support the hedge fund donors, Senator Sinema insisted the carried interest loophole tax provision be removed and instead replaced with a corporate tax on stock buybacks.  Any time a corporation wants to buy back their own shares of stock, they will now pay the U.S. government a tax for doing so; at least that’s the ¹intent.

[¹Note: taxing shares of company stock will never work, because that’s exactly what shell companies were designed to avoid. Set up a child shell company to purchase the stock and the parent company doesn’t pay taxes on the child’s purchase. It’s a shell game]

Additionally, according to reports, there is some kind of agreement to modify the 15% corporate minimum tax. Details unknown. Bottom line, Senator Sinema now supports the $700 billion climate change spending and tax proposal.

The Tax Foundation has an analysis of exactly what the financial impact of the bill will be:

Last-week’s Democrat-sponsored Inflation Reduction Act (IRA), successor to the House-passed Build Back Better Act of late 2021, has been touted by President Biden to, among other things, help reduce the country’s crippling inflation. Using the Tax Foundation’s General Equilibrium Model, we estimate that the Inflation Reduction Act would reduce long-run economic output by about 0.1 percent and eliminate about 30,000 full-time equivalent jobs in the United States. It would also reduce average after-tax incomes for taxpayers across every income quintile over the long run.

By reducing long-run economic growth, this bill may actually worsen inflation by constraining the productive capacity of the economy.

Our analysis contains estimates of the budgetary, economic, and distributional impacts of the Inflation Reduction Act as specified in bill text provided on July 27.

Using the General Equilibrium Model, we estimate that the tax provisions, IRS enforcement, and drug pricing provisions in the bill would increase federal revenues by about $656 billion over the budget window, before accounting for $352 billion in expanded tax credits for individuals and businesses, resulting in a net revenue increase of about $304 billion from 2022 to 2031.

Excluding the anticipated revenue from increased tax compliance and the drug pricing provisions, the bill would lose about $126 billion in revenue over the budget window.

The article includes the following chart:

The bill also includes almost $80 billion in appropriations for the Internal Revenue Service to put toward taxpayer services and enforcement. I suspect those of us in the middle class will feel that change. Even if your taxes are done correctly to the penny, the IRS can make you very uncomfortable. My husband and I experienced that after we donated to the tea party. The next year we were audited. We sent them all the applicable information, and they delayed the case for a year. They couldn’t find anything wrong, but they took a long time admitting that. The IRS does not need more money–it needs to go away and have our tax code replaced by something that people can understand and can fit on one sheet of paper.

 

 

The Long-Term Cost Of The Covid School Shutdown

Om Wednesday The Daily Wire posted an article about the long-term cost of the Covid school shutdown. Keep in mind that the science shows that children are less at risk from Covid than they are from the regular flu.

The article reports:

A group of leading economists is predicting that American economic productivity will be reduced by 3.6% over the next three decades as a result of COVID-induced school closures.

The Penn Wharton Budget Model — a nonpartisan public policy research initiative at the University of Pennsylvania’s Wharton School — found that a lack of workforce development due to the school closures will severely limit long-term economic growth in the United States.

According to the PWBM model, an extra month of schooling added on to the end of this year would offer a 16-to-1 return for the United States economy:

PWBM estimates that the learning loss from school closures reduced GDP by 3.6 percent in 2050. Extending the 2021-22 school year by one month would cost about $75 billion nationally but would limit the reduction in GDP to 3.1 percent. This smaller reduction in GDP produces a net present value gain of $1.2 trillion over the next three decades, equal to about a $16 return for each $1 invested in extending the 2021-22 school year.

Because labor productivity is “an integral component of the production of goods, services, and wealth in an economy,” students affected by “reduced education and lower productivity” will be a “drag on the future GDP of the United States for decades in the future.”

The article concludes:

The economists also found that the effects of school closures are more pronounced upon low-income students. By 2050, disadvantaged primary and secondary schoolers will see their wealth reduced by 15.2% and 11.2%; for non-disadvantaged primary and secondary schoolers, the drops in wealth are 14.4% and 10.7%.

The analysts point out that extending the 2021-2022 and 2022-2023 school year would soften the impact of school closures; with the extensions, long-term GDP would be lessened by 2.7% instead of 3.6%.

Many teachers unions — particularly in large urban areas — are a leading force in delaying state education officials’ school reopening plans.

In January, a Chicago Teachers Union leader told educators to refrain from returning to work over concerns about school buildings’ air filtration. 

In March, United Teachers Los Angeles told members of a private Facebook group to avoid posting spring break pictures online, as “it is hard to argue that it is unsafe for in-person instruction, if parents and the public see vacation photos and international travel.”

Note that low-income students were more impacted by the shut-downs. One side effect of the school closures was to widen the gap between the lower-income students and the higher-income students. Widening that gap and eliminating the middle class is one tool Marxists use to destabilize a country. We need to look very carefully at the events of the past 18 months and the people behind the decisions that were made as we attempt to move forward as a country.

The Economy Continues To Move In A Positive Direction

Ed Morrissey posted an article at Hot Air today about the latest economic numbers. As usual when a Republican is President, the ‘experts’ were surprised that the numbers were better than expected.

The article reports:

It’s not great news for the White House, but it could have been a lot worse. The US economy’s growth slowed to 2.1% in the second quarter, down a full point from Q1. However, with economists predicting a recession right around the corner, the growth is still substantial enough to look positive:

Real gross domestic product (GDP) increased at an annual rate of 2.1 percent in the second quarter of 2019 (table 1), according to the “advance” estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 3.1 percent.

The Bureau’s second-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency (see “Source Data for the Advance Estimate” on page 2). The “second” estimate for the second quarter, based on more complete data, will be released on August 29, 2019.

The increase in real GDP in the second quarter reflected positive contributions from personal consumption expenditures (PCE), federal government spending, and state and local government spending that were partly offset by negative contributions from private inventory investment, exports, nonresidential fixed investment and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased (table 2).

The deceleration in real GDP in the second quarter reflected downturns in inventory investment, exports, and nonresidential fixed investment. These downturns were partly offset by accelerations in PCE and federal government spending.

President Trump weighed in on Twitter:

The article at Hot Air concludes:

“Not bad” is a little bit of an understatement, actually. It’s pretty good, especially in the context of the global economy. That’s the bigger anchor, especially the trade disputes that at least for one quarter hit our exports hard.

The steady growth with low inflation should result in the Federal Reserve lowering interest rates in the near future.

The Latest Economic Numbers

On Friday, Market Watch reported that the U.S. economy did better than expected during the first three months of 2019.

The article reports:

Reports of the demise of the U.S. economy proved unfounded as first-quarter activity showed surprising strength. The U.S. economy expanded at a 3.2% annual pace in the first three months of 2019, the government said Friday.

The gain was well above forecasts. Economists polled by MarketWatch had forecast a 2.3% increase in gross domestic product. The economy grew at a 2.2% rate in the final three months of 2018.

Inflation moderated a bit in the first quarter.

The article includes other good economic news:

Final sales to domestic purchasers, which excludes trade and inventory behavior, rose 2.3% in the first quarter, the smallest gain in three years, but still well above what economists were expecting.

The value of inventories increased to $128.4 billion from $96.8 billion, adding to GDP.

The trade sector added a little more than 1% to growth in the first quarter. Exports rose 3.7%, while imports dropped by the same amount, leading to a smaller trade deficit.

Offsetting these gains, consumer spending decelerated to a 1.2% gain, the slowest increase in a year.

Business fixed investment decelerated to a relatively slow 2.7% gain, down from a 5.4% gain in the prior quarter. Investment in structures fell 0.8%, the third straight decline.

Investment in new housing was another weak spot. Residential investment dropped 2.8%, the fifth straight quarterly decline.

I believe that the weakness in the housing market is being caused by a number of things. The millennials, the generation that would currently be entering the housing market, are weighed down by student debt. There is also a different attitude among young Americans about owning a house that there was a few generations ago. In the past, many Americans looked at their home as an investment–something that would grow in value over the years. Many older people began with a ‘starter house’–a small house that allowed them to enter into the housing market. Today, couples are having children later than previous generations. Their first house is paid for by two incomes, and they are not dealing with the expense of having children. The concept of a ‘starter house’ is no longer with us. Those facts, along with the price of the home most young people want to own are working to slow down the housing market. I am not convinced any of those factors are going to change.

Even The Good News Is Clouded With Doom When The Media Reports It

Market Watch posted an article yesterday about the January trade deficit in America. The article notes that the deficit shrank to $51.1 billion in January from almost $60 billion in December. That is really good news. However, the media doesn’t seem to want good economic news.

The article notes:

Economists polled by MarketWatch had forecast a $57.7 billion deficit.

Notice that they were more than a little off.

The article continues:

The lower U.S. trade deficit, if it persists, could provide a small boost in the first quarter to gross domestic product, the official scorecard of the economy. But the drop in imports could also be taken as sign of softening demand in the U.S. that adds to worries about a slower growth.

Whatever the case, the U.S. is coming off the highest annual deficit in a decade and it’s unlikely the gap will shrink much if at all in 2019.

The President is renegotiating trade deals. This is not an ‘instant’ process. His negotiating skills and business acumen are responsible for the growing economy–the unemployment rate is down and the workforce participation rate is up. Can someone in the media please give President Trump a little credit and show a little optimism.

It Really Is The Spending

The following graph was posted at The Washington Examiner yesterday:

The article notes:

As shown in the chart below, in the 50 years prior to the effective date of the Trump tax cuts (1968-2017), tax revenue averaged 17.4 percent of gross domestic product, while spending averaged 20.3 percent. With the Trump tax cuts in place, revenue is below the historical average for the next few years, but by the middle of the decade, it returns to that average and then surpasses it as some provisions of the tax cut begin to expire. By 2029, the end of the CBO projection period, revenue reaches 18.3 percent — or nearly one point of GDP above its historical average.

We need some serious budget-cutting in Washington. It is time for baseline budgeting to stop. Department budgets need to start from scratch and justify every penny.

A Relevant Political Strategy?

Every Friday I have a brief conversation with Lockwood Phillips that airs on 107.1 WTKF some time between 6 and 7 pm. This week we talked about the Cloward-Piven political strategy. This strategy was developed by Richard Cloward and Frances Fox Piven at Columbia University in May 1966. A description of the strategy was posted in the magazine “The Nation” with the title, “The weight of the poor: A strategy to end poverty.” I think ending poverty is a wonderful idea, although I don’t think it is possible. Deuteronomy 15:11 says, “There will always be poor people in the land. Therefore I command you to be openhanded toward your fellow Israelites who are poor and needy in your land.” If you believe the Bible, we will always have poor people; it is our responsibility to treat them kindly and help them–not enable them to stay in poverty.

So what is the Cloward-Piven strategy to end poverty? It is a political plan to overload the U.S. public welfare system so that it collapses and then replace it with a system that provides a guaranteed annual income for everyone. Theoretically this will end poverty. Some of the people who have espoused this strategy are Bill Ayers, Saul Alinsky, Bernadine Dohrn, Frank Marshall Davis, and George Soros. Many of these people were very instrumental in the political career of former President Barack Obama.

So let’s look at where our welfare system is now (the figures below are from 2015):

  • Roughly $1 trillion annually is given to more than 107 million Americans who receive some type of government benefits–not including Social Security, Medicare or unemployment
  • Before President Obama took office there were 26 million recipients of food stamps. In 2015, there were 47 million. The number peaked in 2013, at 47.6 million. In July 2017, the number was 42.6. Economic policies make a difference.

In 2012, Forbes posted the following about President Obama’s welfare society:

  • An increase of 18 million people, to 46 million Americans now receiving food stamps;
  • A 122 percent increase in food-stamp spending to an estimated $89 billion this year from $40 billion in 2008;
  • An increase of 3.6 million people receiving Social Security disability payments;
  • A 10 million person increase in the number of individuals receiving welfare, to 107 million, or more than one-third of the U.S. population;
  •  A 34 percent, $683 billion reduction in the adjusted gross income of the top 1 percent to $1.3 trillion in 2009 (latest data) from its 2007 peak.

And let’s not forget new entitlements like Obamacare, which will result in government expansion and expenditures by 2022 to the tune of:

  • Federal expenditures on Obamacare will total $2.3 trillion, a $1.4 trillion increase from the program’s initial estimates;
  • The combination of budget cuts and sequestration will reduce defense spending by $1 trillion, while total government spending will increase by $1.1 trillion;
  • Taxes will be increased by $1.8 trillion;
  • Yet, the national debt will increase by another $11 trillion.

The Heritage Foundation summarized well: “In 1964, programs for the poor consumed 1.2 percent of the U.S. gross domestic product (GDP). Today, spending on welfare programs is 13 times greater than it was in 1964 and consumes over 5 percent of GDP. Spending per poor person in 2008 amounted to around $16,800 in programmatic benefits.”

How will illegal immigration impact these numbers? What is the current financial situation of California? Do we want the financial situation in California to become the financial situation of America?

There are people in our government working behind the scenes to implement the Cloward-Piven strategy. The honestly believe that taking money from the people who earn it and giving it to the people who did not will end poverty. Most of the people working toward this goal are quite well off and somehow figure that their wealth will not be impacted. I guess if they succeed and are in control, it is possible that their wealth will not be impacted. Good luck to the rest of us.

 

Talking Points vs Reality

Investor’s Business Daily recently posted an editorial about the impact of President Trump’s proposed tax cuts. The editorial notes that the Democrats sudden concern for deficits is a bit disingenuous after the impact President Obama had on the deficit during the past eight years. The editorial also notes that President Trump’s tax plan will not increase the deficit, but will probably decrease the deficit due to the economic growth created by lowering taxes.

The editorial includes the following chart:

The editorial explains:

According to the Congressional Budget Office, the House tax bill would boost deficits over the next 10 years by a total of $1.4 trillion. The added interest on the debt would kick that up to $1.7 trillion.

That looks like a lot of money. Except that equals just a 17% increase in total deficits projected over the next decade.

And that increase is a wild exaggeration, since it doesn’t allow for any extra economic growth from the GOP‘s pro-growth tax cuts — a premise that even some honest liberal economists don’t believe. The actual deficit boost, if there is any, will be far smaller than what the CBO says.

But let’s accept the CBO’s numbers as gospel truth.

Look more closely at the data and you see that what’s driving deficits ever upward isn’t the Republican tax cuts. It is out-of-control spending.

Over the past 50 years, despite all the myriad changes in tax laws, revenues as a share of GDP have remained remarkably close to the average: 17.4%.  In fiscal year 2017, which ended in September, the share was 17.3%. In Bush’s last in office, it was 17.1%. When Bill Clinton took office in 1991, it was 17.3%.

What happens if the Republican tax plan goes into effect? According to the CBO, taxes as a share of the economy in 2027 will be … 17.9%.

That’s right. Even with an allegedly budget-busting tax cut, the federal government will claim a greater share of the nation’s economy in 2027 than it does today, and that share will be above the average for the previous 50 years.

The only reason deficits continue to climb over the next decade is because federal spending is going up at an unsustainable rate.

The editorial concludes:

But the bigger problem is that any reasonable attempt to rein in any of the entitlement programs is met by fierce and unrelenting opposition from all those Democrats who now claim to worry about deficits. They will viciously demagogue any Republican who dares to propose real reforms of these programs, and then brag about any resulting election victories.

So, the next time you hear Democrats pretend to be deficit hawks, ask them what their plan is to bring entitlement spending under control.

 

The Trump Economy

There are no guarantees in the economy. There are certain things that the government can do that historically have aided growth and certain things that the government can do that have inhibited growth. We have history as our guide as to what works, but sometimes people have a political bias that tends to ignore history.

Real Clear Politics posted an article today about the Trump economy. The article was written by Stephen Moore. The economy is not booming, the workforce participation rate is still too low for it to be considered booming, but it is definitely improving. The title of the article is, “Why the Left Has Been So Wrong About the Trump Boom.”

The article reports:

Time magazine‘s cover story for the week of Nov. 6 is a classic. It blares: “The Wrecking Crew: How Trump’s Cabinet Is Dismantling Government As We Know It.” The New York Times ran a lead editorial complaining that team Trump is shrinking the regulatory state at an “unprecedented” pace.

Meanwhile, last week the stock market raced to new all-time highs; we had another blockbuster jobs report with another fall in the unemployment rate; and housing sales soared to their highest level in a decade.

The article at Time magazine fails to recognize that those two facts are related.

The article at Real Clear Politics further notes:

But so far the Trump haters have missed the call on the economy‘s trajectory. Doubly ironic is that the same Obama-era economists who are trashing Trump’s increasingly realistic forecast of 3 percent growth are the ones who predicted 4 percent growth from the Obama budgets. Obama never came anywhere near 4 percent growth, and at the end of his second term, the economy grew at a pitiful 1.6 percent.

Under Obama, free enterprise and pro-business policies were thrown out the window. What was delivered was the weakest recovery from a recession since World War II, with a meager 2.2 percent average growth rate. Middle America felt it, which is why Trump won these forgotten Americans.

One reason that economist Larry Kudlow and I and others assured Donald Trump that 3 to 4 percent growth was achievable was that Trump could capitalize on the underperformance of the Obama years. Under Obama, business investment fell almost two-thirds below the long-term trend line — thanks to higher taxes on investment. Now, partly in anticipation of the tax cut, business spending keeps climbing.

The article at Real Clear Politics concludes:

Maybe the liberal economists and their shills in the media should show some humility. They should acknowledge they were dead wrong about how much Obamanomics was going to grow the economy and about how Trumponomics would crash the economy and the stock market. Or better yet, maybe the rest of us should all just stop listening to them.

The other conclusion that can be reached is that the free market works every time it is allowed to work. Government interference has a very negative impact on economic growth. We need to send President Obama’s economic advisors and a good number of Congressmen back to school to study basic economics.

Perspective On The Tax Plan

The Canada Free Press posted an article today about some of the benefits of President Trump‘s proposed tax package. The article points out some basic economic principles that should be considered when analyzing the tax proposal.

The article points out:

1. The corporate tax cut will free up approximately $200 billion in capital every year to be reinvested into the economy.

2. The transfer of this wealth from control of politicians to business people will ensure that capital fuels real, profit-driven productivity rather than simply being transferred to politically favored constituencies. In other words, if you want some of that capital, you’ll have to do something productive to earn it. That’s how economic growth happens.

3. A company that earned $100 million in profits will now save $15 million on its federal tax bill. What can a company that size do with a suddenly found $15 million? How many people can it hire, products can it develop, machines can it buy, facilities can it expand?

4. The professional service industry should benefit tremendously from this tax change, particularly smaller practitioners. Why, you ask? They don’t pay massive taxes, after all. You’re right, they don’t. But the massive corporations they’d like as clients do. Many of these corporations view the services of such professionals as a luxury they would like, but can’t afford when margins are too tight. Freeing up extra cash for big corporations will give professional service providers more opportunity to secure large corporate contracts.

5. Wages will increase, but not for the reason some people think. Many of the arguments liberals make against corporate tax cuts is that corporations will just pocket the money and won’t share it with their workers. But that’s not how business works. The goal of a corporation is to be more productive and profitable, and you need capital to invest in productivity. When productivity rises, wages follow because workers can provide more value. Corporations aren’t going to raise wages just because there’s more money sitting around, nor should they. They’ll raise wages because the greater capital availability will make it possible to increase productivity.

6. Liberals argue that the government would spend the $200 billion as well, so it would be reinvested back in the economy regardless. The government would spend it, but businesses will spend it more wisely because they’re accountable for the result of the spending. Also, you always spend money more wisely when it’s money you earned as opposed to money you simply confiscated from someone else. That’s why lottery winners so often end up in bankruptcy.

Unfortunately, many Americans are not familiar with the basic economics that will make this tax plan work. The Democrats have already begun yelling ‘tax cuts for the rich,’ and many people will believe them. The basic concept here is that the tax cuts should go to the people who are paying the taxes. Since almost half of Americans do not pay income taxes and will not pay taxes under the proposed plan, why should they resent those who are paying taxes getting a small break?

What Tax Reform Can Do

President Truman is quoted as saying, “It’s amazing what you can accomplish if you do not care who gets the credit.” He also said, “You can’t get rich in politics unless you’re a crook.” We are seeing the truth in both of those observations in the current tax debate.

This is a picture of America‘s Gross Domestic Product (GDP) in recent years from the balance:

You might remember that 2012 was the year the tax increases to pay for ObamaCare began. In 2013 the Capital Gains tax increased for high income earners, and the increase in the medicare payroll tax also began in 2013. Obviously raising taxes did not help the economy.

This is the laffer curve:

As you can see, there is a point where tax increases no longer generate revenue.

I am going to assume that Democrats are going to try to block President Trump’s tax reform. I think that is rather obvious. So the question becomes, “Do Democrats not understand economic principles and economic growth (e.g. the Laffer curve) or do they simply want to enslave the American worker?” At this point it is a valid question.

I can understand high-tax states not wanting to give up the benefit they reap in the current tax code. I can also understand all the lobbyists tearing their hair out because their special interest will no longer get a tax break, but at some point Congress needs to do what is best for the country and for the American people. Economic growth is struggling under the current tax burden. Every American who works is giving the government a higher percentage of what they earn than the Medieval surfs paid their lords. That is a scary thought. At the same time, many people who choose not to work are driving expensive cars and living better than the people who do work. The poverty in America that the government is now supporting currently owns a nice car, a big-screen television, an ipad, a smart phones, and central air conditioning. I am all for helping people in time of need, but I think we have lost our way.

Congress needs to pass President Trump’s tax plan. Every Congressman who does not support the plan needs to be voted out of office as soon as possible. Unless the American voters begin to hold their representatives accountable for what they do, the swamp will never get drained. The problem is in both political parties. It is time to take note of the people whose votes help America and the people whose votes hurt America.

 

Who Has Prospered Under President Obama?

Investor’s Business Daily posted an article on Friday about the growth of regulations under the Obama Administration.

The article includes the following chart:

RegulatorsThe growth of regulations under President Obama has been astounding.

The article reports:

Total spending on federal regulatory activity has jumped almost 18% in real terms since Obama took office, reaching $56 billion this year. That outpaced overall economic growth, which has climbed a total of 13% since 2008.

Over those same years, the number of jobs at these regulatory agencies climbed by 11.8% — to almost 280,000 workers — while the number of private sector jobs has growth by 8.5%.

To put these numbers in perspective: If GDP had grown as fast as the federal regulatory budget, the economy would be $696 billion bigger today. If private sector employment had kept pace with the growth in regulatory jobs, there would be 3.7 million more people at work.

 The study, published jointly by the Weidenbaum Center at Washington University in St. Louis and the Regulatory Studies Center at George Washington University, also breaks down regulatory spending into “social” and “economic” categories. Social regulations cover health, safety and environment, and include agencies such as the FDA, Homeland Security, the EPA, the National Highway Traffic Safety Administration.

The thing to remember here is that regulations cost money. They are an extra burden on small businesses and slow down the growth of the economy.

The article notes:

Based on the administration’s own figures, these Obama-imposed rules cost the economy a total of $108 billion a year, but as Heritage notes, the actual costs are much higher because federal regulators routinely lowball compliance costs.

This is no way to run an economy.

The Path To National Prosperity

 

Investor’s Business Daily posted an article today citing the results of a recent National Bureau of Economic Research study by MIT economist Daron Acemoglu and University of Chicago economist James A. Robinson.

The study reports:

It’s long been a truism that democracy brings benefits and flexibility to an economy that help boost growth. But some theoretical work “suggests that not all the mechanisms unleashed by moving political institutions from autocratic to democratic are positive for economic growth.” The economists built a model that controlled for possible unexpected influences — such as recessions and negative economic shocks, which often take place before a nation turns democratic. It’s tricky.

After doing the necessary number fiddling, what they found was pretty remarkable: “Our central estimates suggest that a country that switches from autocracy to democracy achieves about 20% higher GDP per capita over roughly 30 years.” That’s a huge difference.

The article mentions that after the fall of the Berlin wall, there was a movement around the world toward democracy. Unfortunately, some of the countries that attempted to become democracies have slipped back to their totalitarian ways. Russia, Venezuela, China and Argentina have all encountered major financial crisis since moving away from democracy. The statistics indicate that one of the most basic solutions to those financial problems would be a move toward democracy. The other kingpin of national prosperity is private property rights (rightwinggranny). That is an area where Americans need to be paying attention to what their government is doing. Less private property rights means less prosperity for the citizens of a country. Freedom breeds prosperity. We need to make sure we guard our freedoms.

 

 

Government Policies Do Impact The Economy

John Hinderaker at Power Line posted an article today about the latest economic numbers showing that the Gross Domestic Product numbers are not good.

The article includes the following chart:

Screen Shot 2015-05-29 at 11.07.02 AM

As you can see from the chart, the economy has not shown consistent growth since 2009.

The article concludes:

The administration always offers excuses for the economy’s inadequate performance on its watch–most recently, cold weather–but the common denominator is an anti-business, anti-growth administration that spends too much, wastes too much, incurs too much debt, and imposes too many costly regulations.

Our country was designed to be governed by laws made by lawmakers who would be held accountable by the voters. Unfortunately, we have evolved into a country where regulations made by unelected officials who are not accountable to anyone have crippled economic growth. It is long past time to elect leaders who will follow the constitution and not allow unelected bureaucrats to determine our economic future.

Watch This Space

I firmly believe that at some time in the future, Senator John Thune will run for President. I’m not saying I would vote for him (or that I would not) and I am not commenting on the candidate he would be, I’m just saying that I believe that he will run someday. Just for the record, I also believe that if I were a Hollywood casting agent, I would cast him for the part. I just think there is something about him that looks presidential. He is now in the process of doing something that desperately needs to be done.

The Washington Examiner is reporting today that Senator Thune is going to fight back on the Obama Administration’s limits they are planning to place on ground-level ozone.

The article reports:

The South Dakota Republican’s bill would prevent the Environmental Protection Agency from imposing a more stringent standard until 85 percent of the more than 200 counties that have yet to comply with the current regulation do so. Sen. Joe Manchin, D-W.Va., is lined up to co-sponsor the bill, said Thune spokeswoman Rachel Millard.

The move comes as the comment period for the proposed EPA rule closes Tuesday. The House Science, Space and Technology Committee will hold a hearing on the subject Tuesday.

The EPA in November floated lowering the tolerable limit for ozone, or smog, to between 65 and 70 parts per billion, down from the level of 75 ppb set under former President George W. Bush in 2008. The agency also is taking comment on whether to set the standard at 60 ppb, though it wasn’t part of the official proposal.

I need to make it very clear that I am not in favor of pollution. What I am in favor of is fairness and practicality. It makes total sense to wait for the majority of our worldwide neighbors to comply with the current regulations before we make ours tougher. We are not a major part of the problem, and until our neighbors also take steps to cut their pollution, our efforts will not actually amount to much.

The article reports:

Industry groups and Republicans contend the updated standard would be one of the most expensive ever. They say it would throw dozens more counties into “non-attainment” zones that would restrict permitting for expanding or adding industrial emitters such as factories, refineries and other manufacturing facilities.

A National Association of Manufacturers-commissioned study by NERA Economic Consulting put the price tag for a 60 ppb level at $140 billion annually from 2017 through 2040. The study did not weigh potential benefits.

We need balance. We also need everyone to participate. Right now the move by the Obama Administration is overkill. Senator Thune is right to fight it.

Some Good News and Bad News In The October Employment Numbers

Yesterday Investors.com posted an article about the employment numbers released by the Bureau of Labor Statistics on Friday.

The jobless rate is 5.8%, the lowest since June 2008. However, the Labor Force Participation Rate (the percentage of Americans of working age who are working) is at 62.8 percent, essentially flat since April according to the Bureau of Labor Statistics website.

Despite these relatively good numbers, consumer confidence is still low, Part of the reason for that is what has happened to Middle Income family income since 2007.

The article at Investors.com reports:

Real median household incomes fell 6.6% from $55,627 in 2007 to $51,939 at the end of last year. It will take years to recoup that loss. Meanwhile, male workers’ incomes have been in a tailspin for over a decade.

Private-sector wages grew 2% from last year in October — just barely ahead of the 1.7% rise in inflation.

So lack of opportunity stemming from 2% GDP growth and slow-growing family incomes have put average Americans in a sour mood.

The article at Investors.com further reports:

It’s policy failure. We and others repeatedly warned that President Obama’s massive stimulus, cheap money and heavy-handed regulation were a recipe for stagnation. That’s exactly what happened.

Each era of big government tinkering ends with the the economy being systematically run into the ground by Keynesian policymakers — and with economists pondering whether it’ll always be this way.

“Are you better off today than you were four years ago?” President Reagan famously asked in the 1980 campaign. Today, Americans seem to be saying no.

I hope the new Republican Congress will have the courage to encourage the President (strongly) to change direction.

Time For A Change Of Economic Policy

This is a chart from today’s Wall Street Journal:

The article reports:

Gross domestic product, the broadest measure of goods and services produced across the economy, contracted at a seasonally adjusted annual rate of 2.9% in the first three months of the year, according to the Commerce Department‘s third reading released Wednesday. That was the fastest rate of decline since the first quarter of 2009, when output fell 5.4%, and matches the average pace of declines during the recession.

GDP was recession-like in the first quarter, although most other data clearly signal that the decline is an outlier,” said Jim O’ Sullivan, economist at High Frequency Economics.

In its third GDP reading, based on newly available data, Commerce said first-quarter consumer spending and exports were even weaker than previously estimated. Consumer spending growth was lowered to 1% from 3.1% previously, largely because health-care spending was weaker than previously estimated.

President Obama has been in office since 2009. His economic policies have been in place for more than five years. It is becoming obvious that those policies have not been effective in reviving the American economy. It is time to send people to Washington who have new ideas that will encourage small business growth and turn the American economy around.

This Is Not What An Economic Recovery Looks Like

Katie Pavlich posted an article at Townhall.com today about the revised Gross Domestic Product (GDP) number from the first quarter of 2014. Initially, the  GDP growth number was listed at just .01 percent. That number has been revised downward to -1 percent. If the GDP number shrinks two quarters in a row, the economy is considered to be in a recession.

It is time for the Obama Administration to examine its economic policies. One way to boost the economy would be to approve the Keystone Pipeline and begin to develop America’s energy resources.

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The Economic Recovery In One Graph

Today’s Wall Street Journal posted a story about the latest Gross Domestic Product numbers. The article included the following graph:

The Wall Street Journal reported that the Gross Domestic Product grew at a seasonally adjusted annual rate of 0.1% in the first quarter of 2014.

The article in the Wall Street Journal explains some of the factors responsible for the low economic growth. Some suggested causes were the extremely cold winter which slowed consumer spending, and the sudden drop in exports, declining at a 7.6% pace in the first quarter.

Obviously, this is not the robust economy the President has been claiming.

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The Revised Numbers Tell A Different Story

On Friday the Washington Times posted a story about the Obama economy. As I am sure you remember, when the government announced that the economy had grown 3.2 percent in the last months of 2013, economists announced that America was well on its way to prosperity. Well, not so fast.

The article reports:

However, according to a revised estimate released Thursday by the U.S. Commerce Department’s Bureau of Economic Analysis, that 3.2 percent figure was a wild exaggeration.

The U.S. gross domestic product (GDP), the broadest measure of our country’s entire economic output, grew no more than 2.6 percent in the fourth quarter — a pitifully low growth rate for the largest economy in the world.

“Averaged across the four quarters of last year, real GDP added 1.9 percent in 2013 from 2012,” said Forbes’ website reported.

So what happened? Part of the reason for the lack of growth is that personal income has not grown for several months, putting a damper on consumer demand. Also, 2013 brought higher taxes to all income levels–some hidden taxes included in ObamaCare like the medical devices tax. High earners also faced increased capital gains taxes, which slowed risk taking and job growth. In February, contracts to buy new homes fell for the eighth month in a row.

Unless something happens to cause President Obama to change his policies, we will have three more years of a non-recovery recovery., If you are not happy with the direction the country is moving in, you need to voice your opinion at the ballot box in November. A Republican Senate may be able to reverse enough of this to get the economy moving.

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At Some Point, Even Low-Information Voters Will Laugh At These Reports

Ed Morrissey at Hot Air posted an article today about recent economic growth in America. The Bureau of Economic Analysis claimed a moderate economic annualized growth rate of 3.2% last month. The Bureau has now adjusted its numbers, saying that the economy only grew at the stagnation level of 2.4%:

The article reports the following from the Bureau of Economic Analysis:

The GDP estimate released today is based on more complete source data than were available for the “advance” estimate issued last month. In the advance estimate, the increase in real GDP was 3.2 percent. With this second estimate for the fourth quarter, an increase in personal consumption expenditures (PCE) was smaller than previously estimated.

Reuters reports the following:

Consumer spending was cut to a 2.6 percent rate, still the fastest pace since the first quarter of 2012. It had previously been reported to have grown at a 3.3 percent pace. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, contributed 1.73 percentage points to GDP growth, down from the previously reported 2.26 percentage points.

As a result, final domestic demand was lowered two-tenths of a percentage point to a 1.2 percent rate. The loss of momentum appears to have spilled over into in the first quarter of 2014, with an unusually cold winter weighing on retail sales, home building and sales, hiring and industrial production.

The article at Hot Air concludes:

Weather will be a factor in 2014 Q1, but it wasn’t in 2013 Q4. The economy was stagnating well before the polar vortices arrived, and has been ever since the June 2009 technical recovery. This is just more of the same.

President Obama’s economic policies are not working. Can we please try something else?

 

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