DEMOCRAT POLITICIANS DO NOT UNDERSTAND HOW THE AMERICAN ECONOMY WORKS

President Joe Biden touts his “Bidenomics” as being a great success in turning around the economy but Americans aren’t buying it.  No one has defined exactly what “Bidenomics” is so I assume it’s deficit spending trillions of dollars.  Inflation had been as high as 9.1% under Biden’s presidency, though it has come down significantly, probably due to the huge tax rate cuts for both individuals, businesses, and corporations that president Trump fostered and passed via the Tax Cuts and Jobs Act.  Biden and the Democrats will end the tax rate cuts as soon as they can but the tax cuts will expire in 2025 anyway. The problem of the Democrat Party not understanding how the economy works is not new. It’s been that way for a very long time.

The Democrat and the Republican parties, have completely opposite ideas and policies on growing the economy and creating jobs, but it’s difficult to understand how this can be.  No longer simply theory, but proven time-and-time again to work, cutting tax-rates and cutting regulations stimulate the economy and creates jobs to the extent that the additional tax revenues generated from the rate-cuts usually exceeds the cost of those rate-cuts. This is exactly what happened with the Trump tax rate cuts to the extent that even efter the Covid pandemic locked down the ecenomy, once it opened back up (when Joe Biden was President), jobs snapped backed.

President Kennedy did this, as well as Presidents Reagan and Trump.  Why doesn’t the Democrat Party understand this, but instead sticks with Keynesian economics which allegedly doubled the duration of the Great Depression in the 1930s?  Also, many Democrat Senators and Congressmen  embrace Socialism, which has destroyed every economy that has fully embraced it (currently Venezuela).  Understanding the economics of it is so simple that I can only conclude that the Democrat Party doesn’t want to understand it, but why not? (see Marco Rubio’s book, American Dreams; and Arthur Laffer and Stephen Moore’s book, Trumponomics)

One of the constituencies that the Democrat Party claims is the poor.  The Democrat Party’s policies, however, keep the poor being poor (see Jason Riley’s book, Please Stop Helping Us, and William Voegeli’s book, The Pity Party)  On the other hand, “Supply-side” economics (see Milton Friedman’s book, Free to Choose)  pulls up many of the poor into the working class, middle class, and some will even become wealthy.  When this happens, they frequently no longer vote Democrat.  It’s therefore in the Party’s self-interest to keep people poor, keep them victims, keep them envious and vengeful, have them believe they’re the victims of racism, discrimination, etc.

Another reason I believe the Democrat Party  wants everyone (except themselves) to be poor is that it strongly encourages equality of results or outcomes (called equity, not equality)  and with their preferred economic system (socialism), everyone except government and political officials, will eventually be equal but equally poor (ask citizens of Venezuela).

The most recent evidence that this is so was the relentless attacks against the huge Trump and Republican tax-rate cuts, using the phony pretext that the cuts only benefited the wealthy.  Since the wealthiest 1% of the population pay about 37% of Federal income taxes and the top 10% pay about 70%, they receive the largest reductions in taxes, though they are just a small amount of the population.  In addition, lowering the corporate tax rate from the very highest in the world, 35%, to a much lower and more competitive rate, 21%, benefits not only the stockholders of the corporation but all of the people that a corporation employs, as well.

It’s far past the time that the Democrat Party changes its posture on stimulating the economy and creating jobs based on reality.  Actual great results have been achieved every time by reducing tax-rates and regulations and usually pay for themselves in generating greater tax revenues.

IS CAPITALISM ETHICAL? DOES SOCIALISM WORK?

Bernie Sanders, Kamala Harris, Elizabeth Warren and many politicians as well as academia advocate Socialism; the National Debt doubled…increased by $10 trillion to $20 trillion during President Obama’s 8 years; annual Gross Domestic Product growth under 2% for Obama’s entire reign; …ad infinitum.  Currently, President Biden is creating a far worse record with very high inflation and needless deficit spending, $8 trillion to date in only 2 years as President.  Is Capitalism to blame for America’s woes under Presidents Obama and Biden or did President Trump prove that Capitalism is the solution to our Nation’s economic problems through the economic miracle he created while President?

Let’s take a closer look, first with very brief definitions of Capitalism and Socialism so we’re clear on what we’re talking about.  From the book, ‘isms and ‘ologies by Arthur Goldwag, Capitalism is the “free exchange of goods in a competitive marketplace.”  Also, in that book, “Socialism” is defined as the opposite of Capitalism.  Further, “In socialist economies, the means of production are either controlled by or directly owned by the state…” European and Nordic countries are not socialist, but simply are capitalist countries with many welfare benefits, free healthcare, and very high taxes.

Capitalism is fueled by a motive to make profits and it does this by providing goods and services that consumers want and at a price that can beat competitors’ prices who also provide similar goods and services.  This forces capitalists to constantly improve quality and undercut competitors’ prices.   Socialism eliminates the profit motive and therefore satisfies some people’s altruistic side and also attempts to redistribute wealth from the “haves” to the “have-nots,” satisfying some people’s idea of fairness.  Because in Socialism there is no continuous need to improve efficiency and effectiveness, there usually is significant waste and inefficiencies.  Capitalists would argue that they earn their profits, attending college for many years and then working 70-80-hour workweeks… and it’s their taxed profits that enables government to have the money to help others.

Capitalism creates wealth,  which then is taxed and used to help the poor and needy.  Socialism makes equality of outcomes most important, consequently leading to everyone being equally poor with no large sums of funds available for government and charities to help those in need.  Socialism takes away the incentive for people to work hard and excel to provide for themselves and their families.  In 2019, the top 50% of taxpayers paid 96% of all Federal taxes.  The bottom 50% of taxpayers paid 3.6% of Federal income taxes.

Government is usually the culprit behind much fraud, unemployment and economic downturn and  is responsible for our current economic woes.  Loans to people unable to repay them was the precipitating event that caused the 2007-8 economic downturn.  Quasi-government Fannie Mae and Freddie Mac forced banks, with threats of lawsuits, to make those bad loans.  Therefore, to have the government fully control the economy is insanity.  Government does not understand business, does not understand how jobs are created, does not comprehend how many of its regulations, especially “Obamacare,” are destroying the economy.

The Dodd-Frank Bill, proposed by and named after two of the most significant initiators of the 2008 economic downturn (Congressman Barney Frank and Senator Chris Dodd), was truly absurd.  For all of its harm to small banks and to the economy, it didn’t even address the cause of the downturn, Fannie Mae and Freddie Mac.

So, let’s answer our two basic questions, “Is Capitalism Ethical”, “Does Socialism Work?”  Capitalism is a huge engine for job creation and wealth to the extent that the Pacific Rim countries have embraced it, as well as China (and they are all becoming wealthy fast)…and there’s nothing unethical about making a reasonable profit for providing goods or services.   Socialism, on the other hand,  can be forced to work, but at the cost of civil liberties, prosperity, unemployment, and political interference in all aspects of our lives.

Finally, how about some people becoming billionaires?  Is it ethical for anyone becoming that wealthy?  Huge wealth is certainly a possibility and a reality under Capitalism.  However, very wealthy people pay most of the taxes and also eventually give away much of their wealth, after providing for their families, to charities, which use it much more wisely than the government ever will. Finally, if you still have a problem with Capitalism, then call it “free enterprise” which means the same thing but is more descriptive and uncontroversial.  And if you’re still unconvinced if socialism works or has ever worked, just check out what’s happening in Venezuela, and if you think Socialism is great, then continue to vote for Democrats and be prepared for the continued decline of the United States.

 

 

MINIMUM WAGE INCREASE: PROS & CONS

Who can be against a livable wage and why would they possibly be against it?  That’s what this post is about.

The Congressional Budget Office (CBO) previously reported that if the minimum wage were to be increased to $10.10 nationwide, or a 40% increase, about 500,000 to 1,000,000 million minimum-wage employees, from a pool of 16,500,000 minimum wage employees, would lose their jobs because employers could not pay it and remain in small business.  However, if the new proposed minimum wage jumped to $15/hour, the effects of such a raise is estimated as being the loss of about one and a half million jobs.

So why do it?  The main argument is that it’s not a “living wage,” that no one can live on and raise a family on that wage.  Sounds like a reasonable justification but, of course, we need to look at other sides of the argument before reaching sound conclusions.  I already cited one of the primary reasons why government should not mandate raising the minimum wage too high…the loss of about 1,500,000 minimum-wage jobs; however, another significant reason is that it would almost shut down the first step on career ladders for unskilled workers…to the extent that they couldn’t even get that first job, get their foot in the door…because their work would not be worth $15/hour.  Many small businesses, like restaurants, are very sensitive to the minimum wage and when government mandates that wage to be increased substantially, restaurant prices increase substantially, which hurts the business and makes it fail (so the end result may also be the elimination of jobs).  Finally, it’s far more accurate to call the “minimum wage” the “starting wage,” because that’s exactly what it is for most people.

It appears that labor union leadership and consequently the Democrat Party is the only beneficiary of government mandating dramatic minimum wage increases with everyone else being harmed; therefore, gradual increases in the minimum wage may be able to satisfy genuine concerns of the minimum wage argument.

The best way to raise everyone’s wages the most is to create a booming economy like they did in North Dakota, for example,  where $15/hour was the starting wage in fast food restaurants because of the huge competition for employees that North Dakota’s great economy had fostered.  Former President Trump did precisely that with the U.S. economy, which resulted of a 3.4% increase in workers’ wages.  The government did not have to mandate minimum wages…they occurred naturally.

CAN PRESIDENT TRUMP CREATE JOBS & GROW THE ECONOMY AGAIN?

After most recessions, Gross Domestic Product (GDP) growth comes back with  a strong minimum 5% increase/year.   But not the recession of 2008-09…annual growth averaged under 2% for the eight years that Barrack Obama was President and the Civilian Labor Force Participation Rate diminished to 62.8%, the lowest it had been since 1978.  Moreover, although the official unemployment rate was under 5%, it would have been about 12% if it were measured the way it was back in the year 2000, and over 20% if it were measured the way it was during the Great Depression in the 30’s.

So what happened under President Obama?  Why not the usual strong growth?  Business had  a few trillion dollars that it held onto oversees, so why didn’t it spend its money to expand its operations and create millions of jobs in the U.S.?  There’s a lot of  reasons why business was cautious in expansion…and we need to understand what the problem was in order to continue to turn around today’s economy and foster substantial job growth (and the increased tax revenues that come with job growth).  Of course, the Affordable Care Act (“Obamacare”) is filled with disincentives to job growth, especially full-time jobs, so it was partially responsible. The large number of regulations and tax increases under President Obama also added additional burdens on job creators and that’s another major cause.

But who am I to be pontificating on jobs and the economy?  Well, I do have a masters degree in Government Administration from the University of Pennsylvania.  And my degree is from the Wharton School in the U. of P., which is known for its econometric models of the economy.  To be clear, however, my education was in government, not economics, though I did need to have economics and accounting courses as well as a statistics course in order to graduate from Wharton with my MGA long ago.  I also worked for the Federal government for over40 years in various capacities, and have also worked for the state of Pennsylvania and the city of Philadelphia.

FORMER  SUCCESSFUL QUICK RECOVERIES

Let’s put aside education and experience qualifications because, from my observations, ideology trumps education.  I’ve seen PhD’s advocate  really stupid positions, even in light of contradictory evidence.  So I tend to look at the real world, what actually happens when a particular economic policy is followed and practiced.

I’ll start with the policies used by President John F. Kennedy in the early 1960s.  When confronted with a recession, he cut tax rates which led to increased economic growth and recovery.  In addition, when President Ronald Reagan inherited the worst recession since the Great Depression from President Jimmy Carter in 1980 (unemployment over 10%, inflation 13.5%, mortgage interest rates up to 20%), President Reagan cut tax rates to the extent that GDP almost doubled in ten years and tax revenues to the Federal government greatly increased in the 10 years following the tax rate cuts.  President George W. Bush had a similar experience with tax rate cuts, revenues to the Federal government significantly increased.

The most recent economic successful recovery was orchestrated by President Trump with cuts in taxes and regulations, which resulted in an extremely low unemployment rate of 3.4% and the lowest unemployment rates in U.S. history for African-Americans, Hispanic-Americans, and Asian-Americans.

PAST FAILURES

Let’s look at what actually happened when the opposite approach was used:  it is estimated that President Franklin D. Roosevelt doubled the duration of the Great Depression in the 1930’s by using the John Keynes economic model of increasing government deficit spending, and the US still did not even get out of the Great Depression until World War II.   Moreover, when Japan’s economy went bust in the 90’s, it spent trillions over a 20-year period trying to stimulate its economy.  The huge deficit spending did nothing except give Japan a huge debt.

WHAT PRESIDENT OBAMA TRIED

Which brings us up to to when President Barrack Obama spent almost a trillion dollars in his “stimulus” package in a effort to turn around the economy…and he also devalued the dollar by having The Federal Reserve Bank print trillions of dollars with no backing through it’s so-called Quantitative Easing 1, 2, and 3.  He also tried other short-term Federal spending programs such as his “cash for clunkers” and engaged in huge annual deficit spending, the extent of which had never been seen before.  His economic policies, based on the discredited theories of economist, John Maynard Keynes,  have actually have made the economy worse by piling up huge government debt (over $20 trillion in total national debt which is greater than the annual GDP of the US), with very little to show for it,  and whose interest payments will be unsustainable when interest rates increase.

Let’s look at other factors significantly adversely affecting the economy, such as oppressive government regulations.  One of the reasons for President Bill Clinton’s economic success in the 1990s was his significantly cutting back many Federal Regulations (as well as the reduction in government employment through attrition) as part of his “National Performance Review” initiative.  President Obama’s policy, on the other hand,  on preventing drilling for oil in the Gulf of Mexico, has resulted in 240,000 barrels/day less oil from the Gulf,  which would have led to large increases in gasoline prices were it not for oil companies engaging in horizontal drilling and fracking on private and State lands.  Another example of over-regulation is the Dodd-Frank bill, the stated purpose of which was to prevent future financial meltdowns…but it did not even deal with the cause of the meltdown, Fannie Mae and Freddie Mac, who threatened  and coerced banks into making housing loans to people who could not afford to repay them.  Dodd-Frank also had adverse impacts on small banks and dried up loan money for small businesses that would have otherwise been available to them to expand.

Then there’s Obamacare which has been estimated to actually cost the government up to 3 trillion dollars in the first 10 years, as well as lead to very expensive, rationed and inferior health care.   Then, of course, there’s EPA’s over-regulations, such as the one on carbon dioxide, which as we know, is an inert gas, the chief purpose of which is food for plant life, plants which turn carbon dioxide into oxygen.  Moreover, let’s not forget how hundreds of thousands of farm hands were suddenly unemployed when the US Department of the Interior shut off the water to California’s Central Valley in an effort to protect the Delta Smelt (a small fish) that was on the Endangered Species list.  All of these things had severely hurt jobs.  Finally, President Obama extending unemployment benefits to 99 weeks actually increased unemployment because studies show that, on average, unemployment benefit recipients don’t even begin looking for work until 4 weeks prior to the end of their benefits.

IS CUTTING TAX RATES FAIR?

But stimulating the economy by cutting tax rates isn’t fair, is it?  Even President Obama said in an interview a year or so before he was elected President, when confronted with the fact that cutting the capital gains tax rate in the past had actually resulted in increased tax revenues to the Federal government, that he still would not cut the capital gains tax rate because “it isn’t fair.”

So is it fair to cut tax rates even though we know that the result would be to increase tax revenues?  The nation would then have more money to help the poor, not less, so why not do it?  I can understand the “equality” argument but  is it really a good thing if everyone were equally poor as they are in many countries?   “So what” if there are some super-wealthy people…we know that in the United States they will eventually give most of their money to charity anyway and do it much more wisely than the Federal government!   Winston Churchill said that  capitalism is a bad form of government except that it’s better than all other forms of government.

THE SOLUTION

Cutting  tax rates and regulations have always worked in the past and stimulated the economy and thereby created many jobs.  Presidents Kennedy, Reagan,Bush and Trump all increased tax revenues by cutting tax rates for everyone.  Today, the bottom 50% of earners pay almost no Federal income taxes…the wealthiest 10 %, on the other hand,  pay over 70% of all Federal income taxes.  If you believe that’s not enough, how much is enough?  The U.S. corporate tax rate was 35% but Trump and the Republican Congress reduced it to its current 21%, and it consequently has led to many corporations moving their operations and jobs back from other countries and has caused the United States to regain many jobs.  It’s time for President Trump to work his Wharton School “magic” again and bring back the economy again.  I believe that President Trump can and will bring back the economy.

 

GOP/TRUMP ECONOMIC PLAN THAT REDUCED TAX RATES & INCREASED TAX REVENUE

For further reading…

How could President Trump and a Republican House and Senate have possibly eliminated budget deficits and eventually the National Debt (which is what was projected)?  Few politicians explain this so I thought that I would.  Many are concerned that the U.S. is addicted to large deficits, which then are added to our huge National Debt ($32 trillion) at the end of each fiscal year. The economy is dynamic, not static,  therefore, when you change some things like reducing corporate taxes from the 35% to President Trump’s 21%, as well as reducing taxes on the working and the middle classes, this stimulates businesses in many ways, bringing back U.S. business and investment money to America and stimulating new businesses and the growth of existing businesses.  In addition, Trump repealed the individual mandate contained in Obamacare, which is the penalty that Obamacare imposed on those who chose not to be covered under it, estimated at $358 billion. Finally, there was about $3 trillion in U.S. corporate funds that resided in other countries, that a one-time repatriation tax rate of 15.5% on liquid assets and 8% on illiquid assets, returned to the United States and invested here (trillions have already been repatriated).

All of this resulting economic activity resulted in a huge increase in the Gross Domestic Product (GDP), which is a measure of the size of the U.S. economy.  The taxes from this huge growth, though the tax rates were reduced, resulted in tax revenues being vastly increased.  President Ronald Reagan did this in the 1980’s, as well as reduce regulations, and Gross Domestic Product (which measures the size of the economy) consequently almost doubled in size within 10 years from the time that Reagan’s tax rate cuts went into effect (1983).  President Kennedy also did this in the 1960’s.

GDP growth is an extremely important because, with 4% annual GDP growth, the United States can afford to do what needs to be done without having annual budget deficits (which are then added to the total national debt at the end of each fiscal year).

Because the Trump/GOP tax cuts became law, the United States economy (as measured by GDP) should more than double in 10 years from the date they were enacted (in the Tax Cuts and Jobs Act of 2017).

 

 

CONSEQUENCES to the U.S. from PRESIDENT OBAMA’S ECONOMIC POLICIES

President Obama meant well.  He sounded sincere and touted “fairness” as his primary concern in his governance of the nation.  However, it’s true that “the road to hell is paved with people with good intentions.”  In plain English, it almost doesn’t matter if the President was sincere  and meant well if the results of his policies were to cause great  harm to hundreds of millions of people.  Until the Obama Presidency the percentage of Americans with full-time jobs (“Civilian Labor-force Participation Rate”) had not been as low as then (62% of civilian labor force) since the late seventies and if unemployment statistics were calculated the way they were in the year 2000, unemployment would be about 10%.  If they were calculated the way they were during the Great Depression, unemployment would be over 20%.  Below is my analysis of those major policies of President Obama that destroyed the American dream for many Americans and which President Trump, who came after President Obama, and the Congress had to reform:

A. OBAMACARE/AFFORDABLE CARE ACT: This  law was a wet blanket on the economy. While everyone is for good healthcare, and for insuring people with pre-existing conditions, as well as kids up to the age of 26 years-of-age on their parents insurance, Obamacare is a bureaucratic nightmare with much more expensive premiums for most people, and unbelievably-high deductibles and co-pays.  This turns most Obamacare policies into catastrophic care only because most people will never meet their deductibles and will therefore be paying out-of-pocket for most of their healthcare.  This turkey needed to go and hopefully replaced with something much better.

B. IMPEDING ENERGY PRODUCTION:  A decision on the Keystone pipeline was made for political reasons.  Oil production on government land was significantly down, however, basically because the environmental lobby was against all fossil fuels.  Meanwhile, America has more gas, oil, coal, and shale oil than all of the countries in the Middle East combined but government regulations prevented most of it from being developed.  The wealth created by all of this energy could pay off the National debt, the trillions in unfunded liabilities, and produce an economic boom the likes of which no country has ever seen.  And as thoroughly, scientifically, and irrefutably proven in David Archibald’s, Twilight of Abundance, the warming trend of the earth over the last century and up until recently,  is due mostly to Sun Spots and Solar Flares, not to the burning of fossil fuels.  

C. DEFICITS/NATIONAL DEBT: President Obama doubled the National Debt (from $9 trillion to $20).  The Federal government is still borrowing billions/month from the Federal Reserve so the annual budget deficits grew to over 1/2 trillion dollars/year.  Each year the Annual Budget Deficit is added to the total National debt and when Obama left office was about $20 trillion.  This amount of deficit spending and National Debt is unsustainable. The Federal Reserve  has the authority to print money and by doing so has been able to get away with this huge deficit spending,  but doing so without the backing of gold and/or legitimate loans from other countries, simply inflates our currency.  The U.S. dollar is currently the world’s “reserve currency,”  but our borrowing and spending may eventually change that.  When it occurs, the dollar will immediately decrease in value by about 30%, our credit rating dramatically reduced and interest rates on our borrowing dramatically increased, and our ability to borrow severely curtailed.

D. REGULATIONS:  Regulations are necessary in our society but government needs to be very careful in not over-regulating since this can and does add significant costs to the economy, negatively impacts business creation, and reduces freedoms.  The regulations written pursuant to Dodd-Frank, the Endangered Species Act (ESA), and the Affordable Care Act  (“Obamacare”), among many others, are excessively burdensome to people and the economy.  ESA, for example, had caused the destruction of many crops in California’s Central Valley due to the Delta Smelt, a small fish on the Endangered Species list. Dodd-Frank is a financial nightmare that does nothing to prevent future bank problems.  Obamacare has and is destroying jobs.

E.  HIGH TAXES:  Money taken from the economy in taxes should be limited because it hurts the economy.  Tax money should be used only for legitimate purposes.  Higher taxes is a drag and drain on the economy so  government needs to be careful to spend it wisely.  Lowering tax rates on everyone who pays taxes in order to stimulate the economy is the preferred way of increasing tax revenues and growing the economy to pay for Social Security, Medicare, Medicaid, unemployment benefits, etc.

F. CORPORATE TAXES:  A significant Obama policy  that had unintentionally done  harm to many people was the retention of the 35% corporate tax (reduced under Trump to 21%), which was higher than any other country in the world except for Japan.  This has led to the flight  of many U.S. corporations and businesses to other countries, and with this flight, the jobs and taxes that go with them.

G. PROLONGED UNEMPLOYMENT BENEFITS:  Extension of the duration of unemployment benefits for more than  12 months is very harmful to the unemployed as evidenced by studies showing  the unemployed usually do not even look for jobs until a few weeks prior to their unemployment benefits expiring.  At one point, Obama, in conjunction with a Democrat Congress, extended unemployment benefits to 24 months. “Compassion” was the stated reason, but “buying votes” I believe was the real reason.

H., I., J.,K., L., M., N., etc.

In closing, most Americans were proud that the U.S. elected an African-American President 151 years after the Emancipation Proclamation freed  American slaves, even if they personally did not vote for Barack Obama.  The United States inherited slavery from England when it took over the country in 1776 but had to temporarily retain slavery  in order to form the Union to include Southern States (the “Great Compromise”).  At the first opportunity, the U.S. rid itself of slavery (in 1863).

The first African-American President unfortunately had no experience in managing anything or in guiding an economy and therefore the U.S. consequently  hurt  badly economically.  While I believe President Obama meant well, he also still believed that failed liberal/”progressive” economic policies (“Keynesian economics”) were the way to stimulate the economy and therefore turned a blind eye to workable economic policies.

President Reagan demonstrated how to get an economy working and the proof is the fact that the Gross Domestic Product (which measures the size of the economy) of the United States almost doubled 1n the 10 years following Reagan’s implementation of his large reduction in tax rates (1983-1993) and curtailing Federal regulations.  President Kennedy also stimulated the economy during a recession in the 60’s by cutting tax rates.