What History Gets WRONG About Calvin Coolidge, Who REALLY Caused The Great Depression & More w NYT Bestseller Amity Shlaes | Ep. 46
Today, I'm honored to be joined by Amity Shlaes, who has written four NYT bestsellers, chairs the board of the Calvin Coolidge Presidential Foundation, is winner of the Manhattan Institute's Hayek Book Prize, and serves as a scholar at the King's College.
You can watch this interview on YouTube or listen to it on Apple Podcast, Spotify, Google Podcast, or Anchor. Please share on social media, subscribe to your favorite platform and my newsletter, like it and leave a 5-star rating.
Key Point: Texas is a leader in job creation over the last year and since February 2020 (Figure 1 by @SoquelCreek). But Texas will struggle to compete with other states or prosper more as the 88th Legislature passed the largest budget increase in the state’s history, passed the largest corporate welfare increases in the state’s history, passed the largest safety net increases in the state’s history, didn’t pass property tax relief, and didn’t pass school choice. Governor Greg Abbott called a special session to tackle property tax relief and border security with more special sessions likely to come.
Overview: Texas has been a leader in the country’s economic recovery since the costly shutdown recession in Spring 2020. This includes reaching a new record high in total nonfarm employment for the 19th straight month. The current 88th Legislature ended the regular session on May 29 with a record surplus but chose to pass the largest spending and welfare increases in the state’s history without passing tax relief or school choice. This was a huge, missed opportunity for Texas that will set up a fiscal cliff with so much spending, less competition with fiscally conservative states, and less opportunity to let people prosper which combined will stop the Lone Star State from being a leader in the country. Fortunately, Governor Abbott called what is likely the first of multiple special sessions to tackle property tax relief (and border security).
Labor Market: The best path to let people prosper is free-market capitalism as it is the best system that supports jobs and entrepreneurship for more people to earn a living, gain skills, and build social capital. Table 1 shows Texas’ labor market for April 2023.
The establishment survey shows net nonfarm jobs in Texas increased by 33,300 last month, resulting in increases for 35 of the last 36 months, to bring record-high employment to 13.8 million. Compared with a year ago, total employment was up by 534,600 (+4.0%)--second fastest growth rate in the country to Nevada (+4.2%)—with the private sector adding 476,800 jobs (+4.2%) and the government adding 57,800 jobs (+2.9%).
The household survey shows that the labor force participation rate is higher and employment-population rate is slightly lower than in February 2020, but the former is well below June 2009 at the trough of the Great Recession. The state’s unemployment rate of 4.0% is higher than the U.S. rate of 3.4% but this is weak indicator as it’s highly volatile based on changes in the labor force. There is also continued declining inflation-adjusted average earnings in Texas.
Economic Growth: The U.S. Bureau of Economic Analysis (BEA) reported the real gross domestic product (GDP) by state for 2022. Figure 2 shows Texas had the fifth fastest real GDP growth of +3.4% to $1.9 trillion (above the U.S. average of +2.1% to $20.0 trillion).
The BEA also reported that personal income in Texas grew by 5.3% to $1.9 trillion in 2022 which was the third highest in the country. This is behind Idaho (+6.2%) and Colorado (+5.4%) but well above the U.S. growth rate of 2.4% (to $21.8 trillion). Figure 3 shows personal income growth across the country.
Bottom Line: As Texans struggle from high inflation and high property taxes and an uncertain future with the U.S. economy likely in a deepening recession, they need substantial relief to help make ends meet. Other states are cutting, flattening, and phasing out taxes, passing responsible budgets, and passing school choice, so Texas must make bold reforms to support more opportunities to let people prosper, mitigate the affordability crisis, and withstand destructive policies out of D.C. Figure 4 provides a comparison of the size of government, economic freedom, and economic outcomes among the four largest states and nearby Louisiana. While Texas does relatively well, there is much more to do for more liberty and prosperity. Unfortunately, the Texas Legislature failed to achieve these needed policy objectives in the regular session of 2023 so Governor Greg Abbott is calling them back where the Legislature should spend less, provide more in property tax relief, pass school choice, and reduce or eliminate corporate welfare and expansions of safety net programs.
Free-Market Solutions: The Texas Legislature should improve the Texas Model by:
Key Point: Louisianans aren’t reaching their full potential primarily because of bad public policies but that can change with the Pelican Institute’s “Comeback Agenda.”
Louisiana’s Labor Market: Table 1 shows Louisiana’s labor market over time until the latest data for April 2023 from the U.S. Bureau of Labor Statistics.
The establishment survey shows that net total nonfarm jobs in the state increased by 8,200 jobs last month (+0.4%), bringing total jobs to 33,700 jobs below the pre-shutdown level in February 2020. Private sector employment was up by 5,900 jobs (+0.4%) and government employment increased by 2,300 jobs (+0.7%) last month. Compared with a year ago, total employment was up by 48,400 jobs (+2.5%), with the private sector adding 41,400 jobs (+2.6%) and the government adding 7,000 jobs (+2.3%).
The household survey finds that the working-age population declined by another 920 people last month, down 11,077 people over the last year, and down 33,212 people since February 2020. But the civilian labor force rose by 6,260 people last month, 16,090 people over last year, and 24,592 people since February 2020. These figures result in a labor force participation rate of 59.5%, which is up from 58.9% from last year and up from 58.3% since pre-shutdown but well below the 61.2% rate in June 2009. While the unemployment rate of 3.6% is substantially lower than the 5.2% rate in February 2020, a broader look at Louisiana’s labor market shows that Louisianans still face challenges (see Figure 1). These challenges include the continued decline in the working-age population which weighs on the labor-market shortage and long-term economic growth and comparisons with neighboring states based on several measures indicate concerns.
Economic Growth: The U.S. Bureau of Economic Analysis (BEA) recently provided the real (inflation-adjusted) gross domestic product (GDP) and personal income for Louisiana and other states in Figure 2.
Table 2 shows how U.S. and Louisiana economies performed since 2020. The steep declines were during the shutdowns in 2020 in response to the COVID-19 pandemic, which was when the labor market suffered most. The increase in real GDP of +2.2% in Q4:2022 ranked 26th in the country, resulting in an annual decline in economic output by -1.8% in 2022 which was the second worst in the country.
The BEA also reported that personal income in Louisiana grew at an annualized pace of +6.0% (ranked 32nd) in Q4:2022 (below +7.4% U.S. average). This resulted in personal income growth of 0.0% in 2022, ranking 50th of the states, driven by the negative $10 billion (-4.0-percentage points) in transfer payments from a decline in safety net payments as the expanded child tax credit expired and more people found jobs, but increases in net earnings by $8.4 billion (+3.4-percentage points) and other income by $1.6 billion (+0.6-percentage point). Personal income per person in Louisiana increased by 0.08% to $54,622 last year, which ranked 42nd in the country but the increase was well below inflation.
Bottom Line: More Louisianans gained jobs in April, but their pay hasn’t been keeping up with inflation in a stagnant economy. Economic freedom matters to human flourishing, but Louisiana ranks relatively low among the states in economic freedom and other measures. While the state improved its tax code in 2021, there’s a historic opportunity to ensure prosperity by doing more this session. The combination of spending restraint, not busting the spending caps, paying down debt, and putting money in the rainy day fund for tax relief now are essential. These steps would improve the state’s poor business tax climate, help curb the net outmigration of Louisianans, and help mitigate the 19.6% poverty rate that ranks second highest in the country. State and local policymakers should work to reverse this trend by passing pro-growth policies.
Which pro-growth policies should be pursued? Refer to the Pelican Institute’s “Comeback Agenda” for policy recommendations related to the state’s budget and taxes, K-12 education, public safety, social safety nets and workforce development, technology and innovation, and reducing regulatory barriers.
This Week's Economy Ep 10 | Is U.S. in Recession? Will TX Pass Largest Spending Increase in HISTORY?
Today, I cover:
1) National: What's the latest on the debt ceiling deal, why I believe that the U.S. is in a recession based on the latest GDP report, and how inflation continues to indicate more aggressive monetary tightening by the Fed;
2) State-Level Jobs: I break down the latest state-level jobs report and share reasons for optimism and more with a focus on Texas and Louisiana.
3) Texas: What's going on with the current Texas legislative session, and why the proposed budget increase would be the largest spending increase in TX history while not passing the largest property tax relief in history. Plus, massive increases in corporate welfare, and large increases in social safety net spending, which would result in a disaster for Texans and the Texas economy.
You can watch this episode and others along with my Let People Prosper Show on YouTube or listen to it on Apple Podcast, Spotify, Google Podcast, or Anchor (please share, subscribe, like, and leave a 5-star rating!).
For show notes, thoughtful insights, media interviews, speeches, blog posts, research, and more, check out my website (https://www.vanceginn.com/) and please subscribe to my newsletter on Substack, share this post, and leave a comment.
Louisiana's Legislature Should Focus on Tax Relief, Not Overblown "Fiscal Cliff"
You may have heard that the state of Louisiana is facing a “fiscal cliff” and this is why the Legislature shouldn’t reduce the taxes Louisianans pay to fund the government.
This claim is based on assumptions that the state’s tax collections will decline dramatically from the expiration of the “temporary” sales tax rate hike of 45 cents in fiscal year 2025 and the potential for less tax collections from slower economic growth.
But this doesn’t appear to be true. Instead, the latest reports of growth of net earnings and tax revenues in Louisiana indicate these claims of a “fiscal cliff” are likely overblown.
In fact, these assumptions support a historic opportunity to provide much needed tax relief by hitting the revenue triggers for more money in Louisianans’ pockets and the need for legislators to restrain government spending. Add in the $3 billion in taxpayer money in the state’s savings accounts and we can see that the claims of a “fiscal cliff” are likely overblown.
There has been strong growth in net earnings that support more income for Louisianans, which has resulted in higher taxes collected, and there’s plenty of money on the sidelines in case there’s a downturn. Instead of worrying about how the bloated government will grow, we must consider struggling taxpayers across Louisiana and ensure the revenue triggers are hit for tax relief.
According to the latest report from the Bureau of Economic Analysis, Louisiana’s personal income growth was stagnant at 0.0% to $250.7 billion in 2022, which declined when adjusting for inflation. But this was driven by the negative $10 billion (-4.0-percentage points) in transfer payments from a decline in safety net payments as the expanded child tax credit expired and more people found jobs.
Just considering the factors that support increased economic growth and higher tax revenue, net earnings increased by $8.4 billion (+3.4-percentage points) and other income was up by $1.6 billion (+0.6-percentage point). And given that these gains in the productive part of the economy were in the industries that pay taxes such as manufacturing, wholesale trade, professional services, and health care, the trend of higher tax collections will likely continue thereby reducing the fear of a fiscal cliff.
While there are economic headwinds with elevated inflation and rising interest rates from bad policies out of D.C., Louisiana must do more to help Louisianans withstand these headwinds. A pro-growth path forward includes passing a responsible budget, not busting the spending cap, paying down debt, and hitting the revenue triggers for tax relief.
There have been strides to achieve these steps in the House’s budget. Table 1 shows that more spending restraint is necessary to pass a Responsible Louisiana Budget that holds spending growth to no more than the rate of population growth plus inflation, which is a good measure for the average taxpayer’s ability to pay for government spending.
Table 1. Louisiana’s FY24 State Effort in House Budget Is Above Pelican’s Proposed Responsible Louisiana Budget
But even if the maximum threshold of the proposed Responsible Louisiana Budget isn’t met, there’s a grand opportunity to put money into the rainy day fund to hit the triggers put in place in 2021 for substantial relief in personal income and corporate franchise taxes.
The results of lower spending and lower taxes are clear from more fiscally conservative states like Florida and Texas compared with more spending and taxes like in fiscally profligate states like California and New York. Table 2 provides a comparison of these states with Louisiana in terms of economic freedom, burden government, economic prosperity, and poverty.
Table 2. States with More Economic Freedom Have Better Economic Outcomes
Notes: Dates in parentheses are for that year or the average of that period. Data shaded in red indicate “best,” and in blue indicate “worst” per category by state.
Economic prosperity happens when a robust private sector has a more competitive tax system, and this starts with spending restraint and limiting government. Louisiana has the keys to do this; now there needs to be political will to overcome the overblown fears of a “fiscal cliff.”
If Louisiana doesn’t, there will be more losses of people and businesses. But if the Legislature achieves this pro-growth path, there will be more opportunity to let people prosper.
Originally published at Pelican Institute.
What REALLY Happens in the White House, Need Tax & Spending Reforms & More w Paul Winfree | Ep. 45
Today, I'm honored to be joined by economist and trusted public policy adviser Paul Winfree, who has served in top management and policy roles in the White House, U.S. Senate, and think tanks.
Paul Winfree is an economist and a trusted public policy advisor. He has served in top management and policy roles in the White House, the US Senate, and in think tanks.
The late, great economist Milton Friedman said, " The real problem is government spending."
This is true as spending comes before taxes or regulations. In fact, if people didn't form a government or politicians didn’t create new programs, then there would be no need for government spending and no need for taxes. And if there was no government spending nor taxes to fund spending then there would be no one to create or enforce regulations.
While this might sound like a utopian paradise, there are essential limited roles for government outlined in constitutions and laws. Of course, most governments are doing much more than providing limited roles which preserve life, liberty, and the pursuit of happiness. This is why I have long been working diligently to get a strong fiscal rule of a spending limit enacted in all states and at the federal level promptly under my calling to "let people prosper," as effectively limiting government supports more liberty and therefore more opportunities to flourish.
Fortunately, there have been multiple state think tanks that have championed this sound budgeting approach through what they've called either the Responsible, Conservative, or Sustainable State Budget.
I started this approach a decade ago with my colleagues at the Texas Public Policy Foundation with work on the Conservative Texas Budget which began in 2013. The approach is a fiscal rule based on an appropriations limit that covers as much of the budget as possible, ideally the entire budget, with a maximum growth rate based on the rate of population growth plus inflation and a supermajority (two-thirds) vote to exceed it. A version of this approach was started in Colorado with their taxpayer's bill of rights (TABOR), which was championed by key folks like Dr. Barry Poulson and others.
While there are other measures to use for the growth limit, this metric provides the best reasonable measure of the average taxpayer's ability to pay for government spending without excessively crowding out their productive activities. It is important to look at it from the taxpayer’s perspective rather than the appropriator’s view given taxpayers fund every dollar that appropriators redistribute from the private sector. Population growth plus inflation is also a stable metric reducing uncertainty for taxpayers (and appropriators) and essentially freezes inflation-adjusted per capita government spending over time.
The research in this space is clear that the best fiscal rule is a spending limit using the rate of population growth plus inflation, not gross state product, personal income, or other growth rates. Given the high inflation rate more recently, it is wise to use the average growth rate of population growth plus inflation over a number of years to smooth out the increased volatility. And this rate should be a ceiling and not a target as governments should be appropriating less than this limit, ideally freezing or cutting government spending at all levels of government to provide more room for tax relief, less regulation, and more money in taxpayers' pockets.
Figure 1 shows how the growth in Texas’ biennial budget was not only cut in half after the creation of the Conservative Texas Budget in 2014 that first influenced the 2015 Legislature when crafting the 2016-17 budget along with changes in the state’s governor and lieutenant governor. And the 5.2% average growth rate of appropriations was been well below the 9.4% average rate of population growth plus inflation over the latter period.
And this approach was mostly put into state law in Texas in 2021 with Senate Bill 1336, as the state already has a spending limit in the constitution. The bill improved the limit to cover all general revenue, base the growth limit on population growth and inflation, and raise the vote to three-fifths of both chambers to exceed it. There are improvements that could be made to SB 1336, such as adding it to the constitution and improving the growth rate to population growth plus inflation instead of population growth times inflation calculated by (1+pop)*(1+inf). But this stronger limit is likely the strongest in the nation as historically the gold standard for a spending limit of the Colorado's Taxpayer Bill of Rights (TABOR) has been watered down over the years.
From June 2019 to May 2020, I took a hiatus from state policy work to serve my country as the associate director for economic policy at the White House's Office of Management and Budget. There I learned much about the federal budget, the appropriations process, and the economic assumptions which are used to provide the upcoming 10-year budget projections. In the President's FY 2021 budget, we found $4.6 trillion in fiscal savings and I was able to include the need for a fiscal rule which rarely happens.
When I returned to the Texas Public Policy Foundation in May 2020, as I wanted to get back to a place with some sense of freedom during the COVID-19 pandemic and to be closer to family, I started an effort to work on this sound budgeting approach with other state think tanks. This contributed to me working with many fantastic people who are trying to restrain government spending in their states.
My hope is that if we can get enough state think tanks to promote this budgeting approach, get this approach put into the state's constitution and statute, and use it to limit local government spending as well, there will be plenty of momentum to provide sustainable, substantial tax relief and eventually impose a fiscal rule of a spending limit on the federal budget.
This is an uphill battle but I believe it is necessary to preserve liberty and provide more opportunities to let people prosper.
Here are the states (in alphabetical order) and state think tanks which I'm working with in some capacity or will be soon along with information on how this process is going in that state, which I will update periodically, with the successful versus not successful budgeting attempts being 13-5.
If you're interested in doing this in your state, please reach out to me.
P.S. Good write-up on this issue here by Dan Mitchell at International Liberty.
This Week's Economy Ep 9 | New Debt Ceiling Bill, Importance of Reducing Taxes, Gov. Spending & More
Don't miss the 9th episode of "This Week's Economy,” where I briefly share insights every Friday on key economic and policy news across the country.
Today I cover:
1) National: Breaking down the latest debt ceiling bill and the importance of restraining government spending for helping the economy to bounce back;
2) States: How states are setting an example of better spending habits with responsible budgeting and taxation in states like Florida and Iowa; and
3) Recession: Why I believe next year's data will show that we are in a recession that is set to deepen due to ongoing stagflation, and more.
You can watch this episode and others along with my Let People Prosper Show on YouTube or listen to it on Apple Podcast, Spotify, Google Podcast, or Anchor (please share, subscribe, like, and leave a 5-star rating!).
For show notes, thoughtful insights, media interviews, speeches, blog posts, research, and more, check out my website (https://www.vanceginn.com/) and please subscribe to my newsletter on Substack (vanceginn.substack.com/).
According to a recent CNBC survey, pessimism regarding the American economy is at an all-time high, with 69% of the public having a negative view. The leading reason is inflation in a weak economy. The latest report this week shows that inflation remains persistently high at near 5%, eroding slower-growing average weekly earnings year-over-year for 25 straight months.
The Federal Reserve recently raised its federal funds rate target for the 10th meeting in a row to 5.25%–the highest since August 2007. While these rate hikes were anticipated in light of ongoing inflation, they could have been avoided. But excessive government spending and money printing during the “boom” led to this government-failure bust, the effects of which we’ll feel for months and even years to come.
The sluggish economic growth has been rough on Americans, but inflation has been a killer. The survey also noted, “Just 5% say their household income is growing faster than inflation, 26% say it’s keeping pace, and 67% report they are falling behind.” This is devastating lower-income households’ standard of living.
The trend of declining real wages is particularly harmful to low-income Americans. But even the wealthy feel the effects, as more than half of higher-income Americans surveyed report spending less on eating out and entertainment. This has contributed to the anemic annualized economic growth of just 1.1% in the first quarter of 2023 after rising by only 0.9% from the fourth quarter of 2021 to the fourth quarter of 2022.
As prices increase, businesses spend more on production, making it more difficult to raise workers’ wages while remaining profitable. Employees who can’t be paid enough to fund costly goods like childcare and groceries, which have risen by 7.1% over the last year, spend less on other things or fall behind on their bills. Businesses earning less revenue will invest less, and so goes the vicious downward cycle.
Another hit on Americans has been the cost of shelter, which was up 8.1% over the last year even as there are signs that housing prices are cooling across the country. Still, housing prices have been “eclipsing the inflation rate by 150% since 1970.” This means many Americans can’t afford to own a home, and that’s getting further out of reach as mortgage rates have soared.
What’s to be done about inflation threatening Americans’ livelihoods? Legendary economist Milton Friedman had some advice about addressing sky-rocketing inflation that is valuable today.
There is one and only one basic cause of inflation: too high a rate of growth in the quantity of money—too much money chasing the available supply of goods and services,” he argues. “These days, that cause is produced in Washington, proximately, by the Federal Reserve System, which determines what happens to the quantity of money; ultimately, by the political and other pressures impinging on the System, of which the most important are the pressures to create money in order to pay for exploding Federal spending and in order to promote the goal of ‘full employment.’
Despite raising its target interest rate to fight inflation, the Fed has a bloated balance sheet of nearly $9 trillion, which is too high for disinflation to its target of an average 2% rate. When the Fed engages in excessive money printing compared with the supply of goods and services, inflation is the result, as Friedman described.
While it was appropriate for the Fed to raise its target rate, the ongoing increase to its balance sheet is just continuing to distort productive economic activity. And Congress must restrain spending. The national debt is nearly $31.5 trillion, with net interest payments on the debt set to exceed $1 trillion soon.
The government must borrow to finance the deficit when it spends more than it makes, driving up interest rates. Higher interest rates increase the cost of borrowing for businesses, leading to lower investment, which reduces the supply of goods and services. Add in the Fed buying the debt that increases the money supply with less supply of goods and services, resulting in more inflation.
House Republicans passed a debt ceiling bill that would return spending to 2022 levels and limit spending to just 1% growth over the next decade while eliminating other bad policies. Negotiations between the two parties continue, while a June 1 deadline looms. If they don’t reach agreement, it will make the debt issue an ongoing concern as defaulting on the debt nears, further raising interest rates that weaken the economy.
This means we can expect a deeper, longer recession. The Fed and Congress have a duty to stop flawed policies of excessive printing and spending, respectively. High inflation harms Americans, and the Fed and Congress must address this. If they don’t take action soon to address these government failures, the erosion of the American dream will continue.
The future of America depends on sound, pro-growth, pro-liberty policies instead that will let people prosper.
Originally published at Econlib.
President Calvin Coolidge regarded “a good budget as among the most noblest monuments of virtue.” Government spending is at the heart of sound public policy. President Coolidge understood the importance of economy in government in order to achieve sound public policy. President Coolidge’s fiscal conservatism is being exemplified at the state level by Iowa Gov. Kim Reynolds, who is making fiscal conservatism a priority resulting in benefits to Iowans. Gov. Reynolds, just as with Coolidge, understands that prudent budgeting is a virtue.
Despite the national economic malaise from high inflation and stagnant growth, Iowa’s fiscal foundation was strong heading into the 2023 legislative session.
Last year, Gov. Reynolds and the Iowa Legislature continued to place a priority on prudent budgeting. The general funds budget for fiscal year 2023 was $8.2 billion, increasing by just 1 percent from the prior year. This session the legislature enacted an $8.5 billion budget for fiscal year 2024, which is a 3.6 percent increase from the previous year’s budget.
This holds the budget well below the Conservative Iowa Budget, which set a cap on the budget of $8.8 billion based on the maximum rate of population growth plus inflation of 7.4 percent. In other words, taxpayers benefit from the budget growing well below the growth of the economy, allowing more money in the productive private sector.
In January, Gov. Reynolds proposed an $8.48 billion budget, which reflected her priorities including funding the Students First Act, which created a universal Education Savings Account program. After budget negotiations between the House and Senate, the Legislature passed a budget that was a slight increase from the governor’s original proposal. The $8.5 billion budget spends only 88.25 percent of projected tax collections.
Since 2018, Gov. Reynolds and the Legislature have placed an emphasis on passing tax reforms and restraining the growth of spending. This approach has left more money in taxpayers’ pockets with a substantial tax relief package headed toward a low flat tax by 2026. What too many people overlook is that significant tax cuts like Iowa’s are only made possible by years of prudent and conservative budgeting. Without spending restraint, any tax relief, regardless of the tax, becomes impossible.
The evidence is clear that prudent budgeting is paying off for Iowans.
Iowa’s budget continues to be in surplus. The surplus for fiscal year 2023 is projected to be $1.7 billion and the current estimated surplus for fiscal year 2024 is projected to be $2 billion. In addition, Iowa’s reserve accounts (Cash Reserve Fund and the Economic Emergency Fund) will continue to be funded at their statutory limits with a combined balance of over $961 million. The Taxpayer Relief Fund will also continue to increase. The balance in the Taxpayer Relief Fund for fiscal year 2023 is $2.7 billion and this is estimated to increase to $3.5 billion in fiscal year 2024.
Both Gov. Reynolds and legislative leaders have signaled that further income tax reform will be a priority for the 2024 legislative session. The Taxpayer Relief Fund, which was originally created for the purpose of income tax relief, will be instrumental in further income tax rate reductions. Iowa Senate Republicans introduced an income tax reform proposal this past session that if enacted would have sped up the income tax rate cuts and used the Taxpayer Relief Fund to phase-out the income tax altogether.
In addition to restraining spending, Gov. Reynolds also made some important reforms that will impact future state spending.
One of her major priorities was to reform state government. Gov. Reynold’s state government reform measure consolidates and makes government more efficient. Currently, Iowa has 37 executive branch cabinet agencies – more than all neighboring states. The governor’s proposal will reduce the number of executive-level agencies to 16, streamlining and cutting bloated bureaucracy while saving taxpayer dollars. It is estimated that this plan will save taxpayers over $214 million over four years. This was the first major reform of Iowa’s bureaucracy in nearly 40 years.
Further, Reynolds issued an executive order at the beginning of the legislative session that requires an extensive review process of Iowa’s regulatory code. Both reforming Iowa’s bureaucracy and reducing burdensome regulations are essential in the path to sustaining limited spending.
In its Fiscal Policy Report Card on America’s Governors 2022, the Cato Institute ranked Gov. Reynolds as the best governor. “Governor Reynolds has been a lean budgeter and dedicated tax reformer since entering into office in 2017,” wrote Chris Edwards and Ilana Blumsack, authors of the report.
This year, Gov. Reynolds and the Legislature are continuing this trend. Iowa is at the forefront of conservative budgeting that other states and the federal government should follow.
Originally published at The Center Square and co-authored with John Hendrickson at Iowans for Tax Relief Foundation.
TRUTH On Inflation, Housing Market, Interest Rates, & Incentives w. Dr. Chuck Beauchamp | Ep. 44
In today's new episode of the "Let People Prosper" podcast, I'm thankful to be joined by Dr. Chuck Beauchamp for a thought-provoking discussion on new inflation numbers and the current economy.
1) The newest inflation numbers and how the rate is impacting various markets including food, housing, and energy;
2) Interest rates' impact on the housing market and the crisis of affordability; and
3) Why the U.S. dollar's status could continue to wane and more.
You can watch this interview on YouTube or listen to it on Apple Podcast, Spotify, Google Podcast, or Anchor (please share, subscribe, like, and leave a 5-star rating).
Find show notes, thoughtful economic insights, media interviews, speeches, blog posts, research, and more here at my website (https://www.vanceginn.com/) or Substack newsletter (https://vanceginn.substack.com). Please subscribe to the newsletter, share it with your friends and family, and leave me a comment.
Op-Ed: If The Dollar Loses Its Reserve Status, Kiss Your Middle-Class Lifestyle Goodbye
The U.S. dollar will likely soon lose its status as the global reserve currency. The dollar’s global reserve dominance has declined in recent years. As a result, international trade partners are hedging new connections. This will restructure the global economic order and create challenges ahead, especially for middle-class Americans.
Americans should know what’s happening and how they can prepare for this possibility. But first, what does it mean to be the world’s global reserve currency, and why does it matter?
The U.S. Dollar is the dominant global reserve currency. It’s widely accepted and is the preferred medium of exchange for international transactions. The dollar has enjoyed this status for the past 80 years due to its strong reputation acquired across a long history of America’s rising military prowess, fulfilling its financial obligations, and maintaining a strong economy.
These institutional foundations of the dollar created high demand among foreign entities. One of the most important transactions utilizing the dollar is the purchase of oil. Oil is currently priced in dollars globally and other dollar-denominated assets. Losing or weakening the dollar’s position and value results in higher oil prices.
The dollar’s elevated demand has helped keep its value high relative to other currencies. This prompted many countries to tie their currency directly to our dollar. The U.S. benefited by leveraging foreign demand for dollars into loans to the U.S. federal government. Foreign investors lend the U.S. high volumes of money because of the debt’s dollar denomination.
The higher demand for U.S. Treasury securities pushes down domestic interest rates. This influences lower rates on mortgages and business loans, which help provide increased investment and economic growth. Losing or weakening the dollar’s reserve position will result in increased interest rates, decreased investment, and weak to negative economic growth.
The dollar’s reserve status has also meant an increased volume of international trade. Ultimately, international trade helps keep interest rates and inflation moderately low. Losing or weakening the dollar’s reserve position will result in increased inflation.
Trouble for the dollar is on the horizon.
The once-givens about the dollar have come into question recently due prominently to excessive deficit spending. Foreign investors are reducing their demand for dollars as they diversify their portfolios. This combination contributed to the ballooning of the debt, depreciated the dollar, led to higher inflation and falling year-over-year real average weekly earnings for 25 straight months, and drove up interest rates, thereby slowing economic activity.
Of course, this will have tradeoffs and many of them won’t be good.
As mentioned, the major tradeoffs will be higher inflation and interest rates. The latter will trigger a move by the Federal Reserve to attempt to lower interest rates. But if its target rate is held below what markets dictate, the Fed will monetize the debt, increase the money supply, and drive inflation higher. The long-term result will be even higher interest rates to tame inflation.
Unfortunately, the consequences of higher interest rates and inflation would be severe. People should expect higher mortgage rates than the already rising average rate of 6.4%. This is the highest in 15 years. Ultimately, higher interest rates would result in a steeper contraction in the housing market, exacerbate economic weakness, increase job losses, and worsen poverty.
But maybe more importantly, it would likely crush middle-class Americans and the lifestyle that they’ve been accustomed to having for decades. The higher cost of shelter, food, gasoline, and energy as the dollar loses its reserve currency status would wreck havoc on their budgets and force major decisions about what’s best for their families. This could mean having to put off saving for college, going on vacations, and living in much smaller homes.
All because our government couldn’t spend our money wisely. Therefore, the government should take serious steps to restore confidence in the dollar before a bad situation for Americans becomes worse or irreconcilable.
To start, the federal government should reduce deficit spending. The long-term goal should be a balanced budget and an eventual start to paying down the debt. This will be pro-growth as the government stops redistributing taxpayer money from productive to unproductive activities. It will also strengthen the fiscal and economic situation of the U.S. The result will be an improvement in foreigners’ outlook on the dollar that would help preserve the dollar’s status.
Dollar-focused policies should be tied to reducing the money in circulation. This should occur as the Federal Reserve reduces its balance sheet. Doing so tames inflationary pressures and could even result in some disinflation. This would allow the hard-earned dollars of Americans to go further than they do today.
These policy improvements should be put into law with fiscal and monetary policy rules. The rules should remove the discretion of big-government spenders and printers. This would enable people’s livelihoods to get back on track and improve for generations.
The potential loss of the dollar’s reserve currency status could have significant economic consequences, and there are even more than highlighted here. There is, however, reason for optimism: The U.S. economy is resilient and adapts well to challenges. But will those in D.C. allow for that to happen in the dynamic marketplace? Time will tell. But let’s hope so before it’s too late for middle-class Americans and everyone else to have the opportunity to fulfill their hopes and dreams.
Originally published at The Daily Caller with Chuck Beauchamp, Ph.D.
Key Point: The best way to let people prosper is free-market capitalism. Unfortunately, government has created a situation where inflation-adjusted average weekly earnings are down year-over-year for 25 straight months and economic growth is anemic.
Overview: Government failures drove the “shutdown recession” and stagflationary period over the last three years that has plagued Americans, with more banking problems to come. This is fueled by the debt ceiling fight and elevated inflation that has also rocked the U.S. dollar. The answer are pro-growth policies of less spending by Congress, less regulation by the Biden administration, and less money printing by the Fed.
Labor Market: The Bureau of Labor Statistic recently released its U.S. jobs report for April 2023, which was another mixed report with some strengths but many weaknesses.
The establishment survey is the most reported shows there were +253,000 (+2.6%) net nonfarm jobs added in April to 155.7 million employees, which has increased by +4.0 million over the last year but just +3.3 million since February 2020. However, there were cumulative revisions in the prior two months of 149,000, so on net for that reduced the net increase to just +104,000 jobs indicating a weakening labor market. Over the last month, there were +230,000 jobs (+2.7%) added in the private sector and +23,000 jobs (+2.1%) added in the government sector. Most of the private sector jobs were added in the sectors of private education and health services (+77,000), professional and business services (+43,000), and leisure and hospitality (+31,000), which these three also led over the last 12 months. But wholesale trade lost -2,200 jobs last month while no industry had job losses over the last year.
The household survey increased by +139,000 jobs to 161.0 million employed in April. There have been declines in net employment in four of the last 13 months for a total increase of +3 million since April 2022 and +2.3 million since February 2020, which both are 1 million below the jobs reported in the establishment survey. This could be because of reporting issues or the number of jobs each person has in the market. The official U3 unemployment rate ticked down to 3.4% and the broader U6 underutilization rate fell to 6.6%, which both are near or at historic lows. Since February 2020, the prime-age (25-54 years old) employment-population ratio is up by 0.3pp to 80.8%, prime-age labor force participation rate was 0.3-percentage point higher at 83.3%, and the total labor-force participation rate was 0.7-percentage-point lower at 62.6% with millions of people out of the labor force holding the U3 rate artificially low.
Given some improvements, challenges remain for Americans as inflation-adjusted average weekly earnings were down (-1.1%) over the last year for the 25th straight month.
Economic Growth: The U.S. Bureau of Economic Analysis’ recently released the 1st estimate for economic output for Q1:2023. Table 1 provides data over time for real total gross domestic product (GDP), measured in chained 2012 dollars, and real private GDP, which excludes government consumption expenditures and gross investment. Most of the estimates for Q4:2022 and growth in 2022 have been revised lower, providing more evidence that 2022 was a very weak economy if not a recession.
Economic activity has had booms and busts since the government-imposed COVID-related restrictions in response to the pandemic and poor fiscal and monetary policies that severely hurt people’s ability to exchange and work. In 2022, the first two quarters had declines in real total (and private) GDP, providing a reason to date recessions every time since at least 1950. While the second half of 2022 looked better, those two quarters were influenced by net exports and inventories that would have made the economy much weaker. For 2022, real total GDP growth is reported +2.1% year-over-year but measured by Q4-over-Q4 the growth rate was only +0.9%, which was the slowest Q4-over-Q4 growth during a recover on record. Then the anemic growth of just +1.1% in Q1:2023 provides more reason that this is an extended recession or at least stagflation. The Atlanta Fed’s early GDPNow projection on May 8, 2023 for real total GDP growth in Q2:2023 was +2.7% based on the latest data available, but this rate has been lowered in recent quarters.
Considering the last expansion from June 2009 to February 2020, there was slower real private GDP growth in the latter part of that period due to higher deficit-spending, contributing to crowding-out of the productive private sector. Congress’ excessive spending since February 2020 led to a massive increase in the national debt by nearly +$7.6 trillion that would have led to higher market interest rates. This is yet another example of how there is always an excessive government spending problem as noted in Figure 2 with federal spending and tax receipts as a share of GDP no matter if there are higher or lower tax rates.
But the Fed monetized much of the new debt to keep interest rates artificially lower thereby creating higher inflation as there has been too much money chasing too few goods and services as production has been overregulated and overtaxed and workers have been given too many handouts. The Fed’s balance sheet exploded from about $4 trillion, when it was already bloated after the Great Recession, to nearly $9 trillion and is down only about 5.2% to $8.5 trillion since the record high in April 2022 after rising nearly $400 billion in March 2023 then down $200 billion since then. The Fed will need to cut its balance sheet (total assets over time) more aggressively if it is to stop manipulating markets (see this for types of assets on its balance sheet) and persistently tame inflation, as we may need deflation which hasn’t happened since 2009 given the rampant inflation over the last two years.
The current annual inflation rate of the consumer price index (CPI) has been cooling since a peak of +9.1% in June 2022 but remains elevated at +4.9% in April 2023, which remains the highest since 2008 as do other key measures of inflation. After adjusting total earnings in the private sector for CPI inflation, real total earnings are up by only +2.6% since February 2020 as the shutdown recession took a huge hit on total earnings and then higher inflation hindered increased purchasing power. Just as inflation is always and everywhere a monetary phenomenon, deficits and taxes are always and everywhere a spending problem. David Boaz at Cato Institute notes how this problem is from both Republicans and Democrats.
In order to get control of this fiscal crisis which is contributing to a monetary crisis, the U.S. needs a fiscal rule like the Responsible American Budget (RAB) with a maximum spending limit based on the rate of population growth plus inflation. If Congress had followed this approach from 2003 to 2022, the figure below shows tax receipts, spending, and spending adjusted for only population growth plus chained-CPI inflation. Instead of an (updated) $19.0 trillion national debt increase, there could have been only a $500 billion debt increase for a $18.5 trillion swing in a positive direction that would have substantially reduced the cost of this debt to Americans. The Republican Study Committee recently noted the strength of this type of fiscal rule in its FY 2023 “Blueprint to Save America.” And to top this off, the Federal Reserve should follow a monetary rule so that the costly discretion stops creating booms and busts.
Bottom Line: Stagflation will continue with the a deeper recession this year given the “zombie economy” and the unraveling of the banking sector which will hit main street hard. Instead of passing massive spending bills, the path forward should include pro-growth policies that shrink government rather than big-government, progressive policies. It’s time for limited government with sound fiscal and monetary policy that provides more opportunities for people to work and have more paths out of poverty. There is some optimism with the House Republicans debt ceiling bill package, but it’s got an uphill battle to become law with Democrats in the Senate and White House so more must be done.
This Week's Economy Ep. 8 | TRUTH On Inflation, U.S. Dollar, Debt Ceiling, Texas & Louisiana Policy
Thank you for checking out the 8th episode of "This Week's Economy,” where I briefly share insights every Friday on key economic and policy news across the country. Subscribe to receive new posts and support my work.
Today I cover:
1) National: Breaking down the latest report on CPI inflation and how it relates to real average weekly earnings, what’s going on with the debt ceiling debate, and why the Fed should continue to raise its interest rate target and cut its balance sheet;
2) States: ALEC's newest "Rich States, Poor States" report findings related to where Texas stands in comparison with Utah and Florida, what the legislatures are doing late in the sessions of Texas (here), Louisiana (LA jobs report and tax relief), and elsewhere; and
3) Other: New findings on the importance of work-life balance, the value of the U.S. dollar, and more.
You can watch this episode and others along with my Let People Prosper Show on YouTube or listen to it on Apple Podcast, Spotify, Google Podcast, or Anchor (please share, subscribe, like, and leave a 5-star rating!).
For show notes, thoughtful insights, media interviews, speeches, blog posts, research, and more, continue to check out my website (https://www.vanceginn.com/) and please subscribe to my Substack newsletter (https://vanceginn.substack.com).
In Texas, widely viewed as one of the reddest states in the nation, conservatives are working hard to get a large property tax relief package, an education savings account (ESA) program, and other landmark reforms to Governor Greg Abbott’s (R) desk before the state legislature adjourns its 88th regular session on May 30.
Governor Abbott has made school choice a top priority this year, barnstorming the state for months and speaking at numerous events in favor of providing Texas families with school choice, something that parents and children have in a growing number of states. Since the beginning of 2021, legislatures in ten states have enacted or expanded ESA programs. When Governor Ron DeSantis (R) signed legislation in March to provide universal access to ESAs in Florida, it was the fourth state to enact legislation in 2023 making ESAs available to children.
Recent polling continues to show strong public support for ESAs in Texas. Anew University of Texas-Austin Texas Politics Project poll, like many previous polls, found strong bipartisan backing for ESAs among Texas voters. That poll, which was conducted in April, found 60% of Texas voters overall support the creation of an ESA program, including 75% of Republicans surveyed and 46% of Democrats. The UT-Austin poll also found majorities of black (64%) and hispanic (56%) voters support the enactment of an ESA program in Texas.
Since Lt. Governor Dan Patrick (R) passed an ESA bill, Senate Bill 8, out of the Texas Senate on April 6, those pushing for school choice in Texas have been focused on the House. Legislators know they likely face a special session this summer if significant property tax relief and a bill that expands school choice in a meaningful way is not enacted before the regular session ends.
Bills Conservatives Want To Fail
While school choice is one of the top reforms that conservatives would like to see Texas lawmakers send to Governor Abbott this month, there are other pending bills that many conservatives and free market oriented legislators would like to see voted down or allowed to die. One such proposal that is viewed as a legislative threat by conservatives is House Bill 4602/Senate Bill 1498, legislation that would raise taxes on Texans who lend their personal vehicle out through a car sharing platform. Such platforms are relatively new, but they’ve proven popular because they expand consumer options while providing people with a new source of income. These platforms have been described by some as “AirBnB, but for personal vehicles instead of personal homes.”
HB 4602/SB 1498 is part of a multi-state campaign by rental car company lobbyists who are seeking to impose higher taxes on a competitor. Rental car company representatives claim that they are at a disadvantage since they must collect and remit rental car excises taxes, while car sharing hosts do not.
Yet car sharing platforms, car sharing hosts, and other opponents of HB 4602/SB 1498 point out that the playing field is already uneven, with rental car companies currently possessing their own tax advantage relative to car sharing platforms. That’s because rental car companies do not pay sales tax on the vehicles that they rent out, whereas Texans who rent out their cars through an online platform have paid sales tax on their vehicle.
Critics of HB 4602/SB 1498 contend that it would further exacerbate an unlevel tax framework in favor of rental car companies at the expense of Texans. Unlike rental car companies, Texans who earn income through peer-to-peer car sharing services pay a motor vehicle sales tax. Rental car companies, meanwhile, collect gross rental receipts tax from their customers instead of paying the motor vehicle sales tax.
HB 4602/SB 1498 would force Texans to remit three taxes (the motor vehicle sales tax, gross rental receipts tax, and a local stadium tax). Rental car companies, meanwhile, only have to remit two of those taxes. Opponents of HB 4602/SB 1498 point out that the majority of peer-to-peer car sharing customers (or guests) in the state are Texas residents in need of a vehicle for in-state trips. Texas residents who would be adversely affected by HB 4602/SB 1498 already help pay for local stadiums through property taxes and general sales tax payments. Rental car company lobbyists insist they’re seeking tax parity with car sharing platforms, but critics view this proposal as bad policy that would further tilt the playing field in favor of rental car companies to the detriment of many Texans.
Another bill still pending in Austin that conservatives would like to see go down this month is House Bill 3395, legislation that would prohibit credit card interchange fees from applying to the tax portion of a transaction. In April, a coalition of conservative organizations sent a joint letter to Texas legislators urging opposition to HB 3395, stating that if this bill is enacted, state government “would be interfering in the free market in an attempt to control who bears the burden of collecting and remitting sales tax – risking higher costs for Texans in a time of out-of-control inflation.”
“Like every government attempt to control the market, there will be unintended consequences,” the April joint letter added. “By drastically increasing the amount of transactions processed, forcing processors to create new systems, software, and even new equipment, costs for small businesses and consumers in Texas would rise.”
California-Style Committee Proposed In TexasWhile heavy handed regulations like plastic bag bans and taxes are typically associated with blue states like California, they can still pop up in red states. Take House Bill 3210, legislation now pending in the Texas House of Representatives that aims to “address the proliferation of carryout bags” and “reduce a source of litter on the landscape.”
HB 3210 seeks to accomplish this mission through the creation of a new committee that will “develop and implement a statewide litter program to comprehensively address litter prevention and reduction.” The committee created by HB 3210 will also “evaluate existing state laws, and any administrative rules related to those laws, that address litter.”
Concerns that the committee created by HB 3210 could have negative unintended consequences were voiced at the April 20 hearing on the bill.
“This committee, as proposed, should be given the ability to assist recyclers collect and process the targeted items in a cost effective manner,” said Bryan Wallace, an Alvin resident, in testimony presented to the April committee hearing on HB 3210.
“However,” Wallace added, “If the goal of this committee becomes that of an enforcement agency with a punitive culture toward businesses, then I would be very opposed to using public funds to build such an organization.”
The Manhattan Institute’s Brian Riedl has written about how “leading progressive bills make utopian promises of huge new benefits and then assign a commission or agency to figure out how to make it all work.” Enactment of HB 3210 would have Texas taking a similar approach.
In addition to these bills that Texas conservatives would like to see defeated, there are many who believe that Republicans in both the state House and Senate are proposing to spend too much. One of those is Vance Ginn, Ph.D., an economist who has worked on public policy in Texas for a decade where he helped create the Conservative Texas Budget approach and is now a senior fellow at Americans for Tax Reform. Ginn says the current spending levels that have been proposed by both the House and Senate are too high.
“The Senate and House passed two-year budgets that substantially increase from what was appropriated last session to totals of more than $300 billion,” says Ginn. “These irresponsible budgets spend too much and provide too little in new property tax relief.”
“The amount of new property tax relief should be about $20 billion to be the ‘record relief’ desired by state leadership to account for inflation since the $14.2 billion in property tax relief in 2008-09,” Ginn adds. “Texas must remain competitive and not sit back on its laurels as other states are passing responsible budgets, providing substantial tax relief, and creating universal ESAs. But time is running out quickly.”
While Texas conservatives are playing offense in trying to enact property tax relief and expand school choice, it’s clear they still see many legislative threats looming in the final weeks of session in Austin. If House and Senate leaders are unable to get top priorities to Governor Abbott’s desk this month, however, there is a good chance they’ll have to return to Austin this summer to address unfinished business in a special session.
Originally posted at Forbes.
Vance Ginn, Ph.D.