Two and two make five. This non-truth is one of the small phrases at the heart of George Orwell’s “1984.” It is used to demonstrate the ruling party’s focus on the absolute domination of its citizens, often subverting or rejecting truth in order to maintain its power.
Orwell’s phrase is often invoked in political discourse to indicate that the government, or someone else in power, is subverting, rejecting, or attempting to redefine the truth in order to serve their political ends.
As previously noted in the Ginn Economic Brief, the economy is experiencing the deadly combination of stagnation and high inflation—stagflation. Families across America are getting hit by a massive hike in the cost of living, driving them to struggle to make ends meet, dip into savings to pay for basic necessities, or turn to government handouts in the form of safety nets.
Despite clear evidence to the contrary, the Biden administration and its media lapdogs (or perhaps, the other way around—the radical leftist media and its lapdog, the Biden administration) refuse to assume responsibility for the actions that have brought on this rapidly-worsening economy. Instead, they deflect: “inflation is transitory,” “inflation is not as bad as it looks,” “the issue’s we’re facing are a result of supply chain issues from COVID,” and “Make no mistake: The current spike in gas prices is largely the fault of Vladimir Putin.”
However, this refusal to assume responsibility is par for the course for the Biden administration—it’s not so much a subversion of the truth as it is simply a string of false excuses. The statements strike a dishonest, but not Orwellian, chord. They’re not why we invoke Orwell’s “two and two make five.”
That dubious honor, instead, goes to the recent string of press releases, tweets, and news articles arguing, in various ways, that no, the economy is not headed into—or is already in—a recession. Either because the “numbers are not what they seem,” “the definition of recession is far more nuanced than just two quarters of negative growth,” or “the traditional definition of recession is outdated and needs to be updated to reflect modern monetary theory.”
This is the true Orwellian speak—ahead of a second consecutive report of negative inflation-adjusted economic growth, which came out this morning, the generators of that contracting economy are out in force arguing that no, you shouldn’t believe your eyes, your bigger bills, or your dwindling savings account—the economy is actually fine!
The rationale for this attempt to deflect on how a recession is typically defined is fairly straightforward: The Biden administration is already flagging in polls, and an official declaration of recession would be a confirmation of what most Americans are already feeling—a complete and total lack of confidence in the Biden administration’s ability to lead America or implement policies that lead to human flourishing.
This is the truth that must be remembered amidst the deluge of people and organizations trumpeting that idea that recession is either not what we think it is or not as bad as we think it is. The current administration’s radically progressive, half-baked policies are slowly, but surely, destroying our economy and the American dream.
Published at TPPF with Austin Prochko
It’s official—we’re in a recession. And have been all year.
The government reported today that there were two consecutive quarters of declining inflation-adjusted economic output to start 2022, a condition that has been called a recession every time since 1950. And inflation is running at a 40-year high.
Americans are struggling in the Biden economy. Consumer expectations about the economy have dropped to the lowest in nearly a decade. Small business sentiment is at a 48-year low. Even as the Biden administration is stuck on how to define a “recession,” Americans feel this depressed economy.
This stagflation on steroids hasn’t been seen in a generation and it is the direct result of the economic policy disaster coming out of D.C.
Forty years ago, the economy dealt with a similar situation after bad policies from the Carter administration and the Federal Reserve. It took severe monetary tightening by Fed Chair Paul Volcker and a double-dip recession to correct the prior government failures.
Fortunately, the Reagan administration balanced some of Volcker’s (correct) quantitative tightening with a pro-growth policy approach of some spending restraint, large tax cuts, sensible deregulation, and more free trade agreements. These policies removed barriers imposed by government and supported incentives to work and invest so that the economy expanded, such that the next 20 years are called the Great Moderation.
Fast-forward to today and we’re in a similar economic situation with a recession and high inflation but without the same bravado of sound policy at the Fed or in the White House.
Instead, Federal Reserve Chair Jerome Powell has been tightening monetary policy at a faster rate than in recent years—but at a much slower rate than Volcker did then, meaning high inflation will likely persist.
And President Joe Biden is clearly no President Reagan.
In fact, just this week President Biden has been pushing a $280 billion spending bill known as the “CHIPS Act,” which is essentially taxpayer handouts to semiconductor businesses and the tech industry that may help China in the process at the expense of all other businesses and Americans. The Senate passed the CHIPS Act and the House likely will, too, as some see it as “free” money to win votes.
Instead of increasing corporate welfare, raising the national debt, and likely driving inflation higher, the answer should be to reduce the cost of doing business by cutting taxes, spending, and regulation, which is a proven recipe for prosperity.
We’ve seen the opposite. When you overinflate an economy through overspending by Congress, overprinting by Fed, and overregulating by Biden, these are the depressed and depressing results.
And Biden and Congress are doubling down on bad policy.
There may be an agreement in the Senate on a scaled-down version of “Build Back Better” in a reconciliation bill, which is being scored over a decade at $430 billion in new spending but potentially a reduction in the debt by $300 billion from an estimated $730 billion tax hike. But the devil will likely be in the details of how much more permanent spending is hidden, as in previous versions, and how much of this temporary tax hike won’t materialize in more revenues as it makes the recession more severe.
Tax hikes don’t work to reduce the deficit because they slow economic growth, which reduces tax revenues. And this is the worst time to be raising taxes, much less paying for $370 billion more for the Green New Deal, forcing us toward unreliable energy sources at a very high cost.
So this will likely raise the deficit, give the Fed more ammunition, and raise inflation further at the expense of growth. We can’t afford these progressive policies.
But we can correct past government failures faster and have another long period of economic prosperity like after Volker and Reagan.
The Fed should move back to a rules-based monetary policy and tighten more quickly now. Congress should pass a fiscal rule that restrains or cuts spending and make the Trump tax cuts permanent while finding more tax relief. And Biden should roll back his onerous regulation and sign free trade agreements.
And if they don’t, the states and the people have to step up to the plate to get us out of this depressed economy.
Published at TPPF
Florida Gov. Ron DeSantis recently responded to questions about California Gov. Gavin Newsom’s ads airing in Florida, “It’s almost hard to drive people out of a place like California given all their natural advantages, and yet they are finding a way to do it.” He noted that California is hemorrhaging its population because of bad progressive economic policies so that they could be more free
Florida ranks third in the nation for economic freedom, according to the Fraser Institute. And California ranks second to last.
Our own study supports the position of DeSantis.
Freer states that were more reluctant to shut down their economies due to COVID-19 are doing much better economically than states with severe shutdowns. Even a state like California is suffering — which was considered an American paradise for nearly a century, with its perfect weather and natural beauty.
This month’s U.S. jobs report showed an increase of 372,000 net nonfarm jobs in June, yet it’s still under the pre-shutdown number by 524,000. The Biden administration trumpeted the good news of job growth, yet the real story is in the details. Labor participation is lagging and inflation-adjusted average hourly earnings are declining, and the bulk of the new jobs added are decisively in lower-tax, pro-growth-oriented states.
Residents are fleeing California, New York, Illinois, and Pennsylvania for places like Georgia, Florida, Tennessee, and Texas. DeSantis noted that it was once unusual to see California license plates in Florida, but it’s now a growing trend.
Of the 14 states that have recovered all their jobs lost due to the shutdowns, 12 are in states with legislatures and governors, championing a better fiscal and regulatory climate. This supports lower costs of living that offer new residents greater purchasing power and better opportunities to weather a looming recession.
Perhaps the most important statistic is how Americans are voting with their feet.
Forty-six million Americans changed zip codes in a 12-month period ending in February 2022. That’s the most moves since 2010. According to the U.S. Census Bureau, in 2021, California, New York, and Illinois had the highest domestic migration losses, and Florida, Texas, and Arizona gained the most.
Pods, a moving and storage company, offers up their own data on where Americans are increasingly headed. Virtually every destination benefitting now is in the Southeast, Texas, or Arizona. Pods continually cites that people say the lower cost of living as a primary reason for relocation.
U-Haul released a report showing essentially the same results. And there are private research organizations as well with more corroborating evidence, such as How Money Walks that uses IRS data.
And it’s not just people that are moving but businesses, too.
In June, Caterpillar Inc., a Fortune 500 company, announced they are moving their headquarters from Deerfield, Illinois, where they have been since the early 1900s, to Irving, Texas. This makes Texas now the headquarters of 54 of the Fortune 500 companies in the world. Remington Firearms, America’s oldest firearms manufacturer, recently announced its relocation from New York to LaGrange, Georgia.
The list goes on and on.
Competition amongst states for residents and businesses is a booming trend that doesn’t look like it will abate soon. Undoubtedly, ad campaigns and recycled political rhetoric will ratchet up the fight on both political sides for new residents and commercial enterprises. Yet the policies of lower spending and taxes, deregulation, and stronger property rights resulting in more freedom are winning.
Prolonged COVID-19-related shutdowns and excessive government mandates proved to be a formula for economic destruction. The evidence in favor of economic opportunity and robust markets is overwhelming.
Fortunately, Americans are now seeing and acting on not only mounting evidence but also their own real-life experiences — which is the true test of which approach is more viable.
Published at Real Clear Policy with Erik Randolph
On July 15, Austin City Manager Spencer Cronk laid out a proposed $5 billion city budget for fiscal year 2023. While introducing the mammoth 971-page document, Cronk said: “We are always mindful of our impact on the pocketbooks of Austinites. At the same time, we firmly believe that effective city government is critical to the success, financially and otherwise, of our whole community—and we will endeavor to continue to strike the right balance.”
But while balance may have been the intent, big government spending was the result. It’s time for a Responsible Austin Budget that puts taxpayers first.
Under the guise of worker shortages and a perceived inability to meet core government services, such as law enforcement or emergency services, the budget focuses on increasing pay and benefits to city employees on the back of taxpayers.
Specifically, it proposes increasing their minimum wage from $15 to $18 per hour and giving a $1,500 stipend for employees serving at least one year. It also creates at least 200 new positions, an interesting choice given the city’s difficulty retaining its current employees and its many vacancies.
These increases, along with other priorities such as reducing greenhouse gas emissions and homelessness with large city-funded programs, come at a high, irresponsible cost. No government spending is “free,” as every dollar comes from taxpayers.
Cronk presented the budget as a positive step after fears last year that economic strain would lead to drastic budget cuts and layoffs, and attributed this gain to the city’s fiscal management and economic recovery after COVID-19.
However, much of the city’s fiscal position could well be attributed to the pro-growth policies at the state level and huge influx of federal aid, which could create big problems for taxpayers later, if not handled properly. Once one-time federal monies expire, officials will be tempted to maintain programs indefinitely through tax and fee increases.
It doesn’t matter if it comes out of the left or right pocket, this excessive spending will put even greater pressure on Austin taxpayers.
To be fair, the proposed budget does provide for a property tax rate reduction, moving the current rate from $0.541 to $0.4519 per valued $100 , a 16.5% cut. However, this is being done in large part to compensate for soaring real estate valuations and in order to stay under the newly-imposed 3.5% revenue limit, so depending on how much appraisals are up this could still be a tax hike.
To counter the growth of taxes and spending, TPPF has proposed a Responsible Austin Budget. Over the last 10 years, the city of Austin has passed a budget that grew 14.3 percentage points faster than population growth plus inflation, increasing the cumulative cost of funding spending for an average family of four by more than $9,000.
The FY 2023 RAB sets a maximum budget of $4.93 billion based on population growth plus inflation of 5.75% to help improve Austin’s affordability crisis in an already economically costly time. The proposed city of Austin budget exceeds this limit by $70 million, a staggering amount when you consider that prices at the gas pump and grocery store are by far the biggest concern of American adults today. The Federal Reserve raised its federal funds rate target today, creating more concern about the high cost of operating businesses, taking out loans, and maintaining essentials of everyday life.
In all, given rising inflation and economic uncertainty from mostly the bad policies out of D.C., but also those from the city of Austin, local officials should be responsible in maintaining budget limits. Not generous in creating new positions and raising wages which will unduly burden taxpayers.
The Austin City Council should amend the budget before final approval, maintaining a Responsible Austin Budget, instead of doing more harm by exceeding it. That will help Austinites weather this economic storm.
Published at TPPF with Caroline Welton
Only a bolt of lightning or a dose of radiation can awaken zombies in the movies; the same isn’t true for an economic zombie. In the latter’s case, it took many years—especially the last two years—of deficit-spending fueling excessive money printing to get this day of reckoning for the U.S. economy with frequent mentions of “stagflation” and “recession.”
An economic zombie is harder to kill than in the movies, as they last as long as the policies that raised them, causing much avoidable pain to Americans—especially to those who can least afford it. Bad policies must stop so this scary movie disrupting our lives ends.
Zombie firms are those that are fragile as debt mainly funds their operations. They rose in the U.S. since 2008 as the Federal Reserve held interest rates too low for too long and Congress passed numerous bailouts and spending packages. Congress’ recent actions of even worse deficit-spending packages that led to a 20% increase in the national debt since January 2020 to a whopping $30.5 trillion—or $90,000 owed per American—helped prop up many more zombie firms.
Thankfully, the Fed is finally fighting the 40-year high inflation rate by (slightly) reducing its balance sheet to raise its federal funds rate target. But it’s well-behind the curve as it should be tightening much faster according to the well-respected Taylor rule. It’s also good news that Congress doesn’t look poised to pass any more reckless deficit-spending packages—thanks to Senate Republicans, Democratic Sen. Joe Manchin, and Sen. Kyrsten Sinema—but a new attempt is brewing.
When these bad policies stop, there will be a correction of these government failures that created zombie firms to turn to dust.
Evidence of this is small businesses—which are the most sensitive to these escalating costs—cutting 91,000 jobs in May, making it three out of four months with job losses at small businesses. And according to a recent WSJ survey, six out of ten small-business owners expect the economy to be worse in the next year, matching the record low in April 2020. Dying zombie firms will put downward pressure on labor markets as they cut workers and drop open positions to stem higher costs, which will reduce the inflated number of job openings exceeding unemployed workers.
With so many workers not looking for a job, there are also many zombie workers.
Millions of workers haven’t returned since the recession and others are jumping from one job to another to keep up with rapidly rising inflation and to find the “best” match. The handouts without work requirements—such as “stimulus” checks, child tax credit payments, and expanded Medicaid over the last two years—contributed to this situation as the personal savings rate jumped to a historic high of 33% in April 2020 and stayed elevated for a while. But now that rate is dropping like it’s hot, as people are running through their savings—with the latest rate of 5.4% in May 2022 being the lowest in nearly 14 years.
If zombie firms begin to crumble and zombie workers don’t search for a job, the resulting zombie economy will hit a wall. The result will be a rising unemployment rate, soaring inflation, and stagnating economy, which would extend this costly period of stagflation. This weakens President Biden’s argument that the strength of the labor market can mitigate the effects of inflation, as inflation-adjusted hourly earnings remain negative.
The Fed is way behind the inflationary curve, and it’s the primary entity that can correct this walking dead inflation situation. Instead of blaming “corporate greed” or “Putin’s price hikes,” President Biden, Congress, and the Fed must cut regulations, spend and tax less, and print less money.
The zombie economy’s reckoning is likely a recession with real GDP declines of in the first quarter and another likely decline in the second quarter. No wonder President Biden’s approval rating is hitting record lows and his disapproval rating hitting record highs.
To awaken the zombie economy, there needs to be responsible fiscal and monetary policies in Washington. This includes pro-growth spending, regulating, and taxing reductions to support expanding supply and aggressive quantitative tightening to deflate demand. Until then, the zombie economy will continue to bring deeper, longer-lasting pain.
Published at TPPF with Charles Beauchamp
Texans face an affordability crisis with inflated bills, diminishing savings, and a looming U.S. recession. While this is mostly the result of Washington’s irresponsible policies, Texas governments can help by using massive surpluses to dramatically reduce the sixth most burdensome property tax system in the nation without harming the delivery of core services. The Foundation’s Lower Taxes, Better Texas plan accomplishes this by lowering maintenance and operations (M&O) property tax bills while adequately funding core services.
Published at TPPF with James Quintero.
As most of the country struggles with the effects of stagflation and is either in or will soon be in a recession, Texas has been an economic leader. The Texas Model of economic freedom with the strongest state spending limit in the nation, no personal income tax, sensible regulations, and a relatively low cost of living have helped sustain this leadership.
No wonder 54 of the Fortune 500 companies call Texas home—most of any state. But excessive local spending and taxing must be addressed to improve ways to let people prosper.
Net nonfarm jobs in Texas increased by 74,200 in May, resulting in increases in 24 of the last 25 months and the 7th consecutive month of record-high employment. Compared with a year ago, employment was up by 762,400 (+6.1%) with the private sector adding 733,900 jobs (+6.9%) and the government adding 28,500 jobs (+1.5%). Compared with February 2020 before the pandemic-related shutdown, the state’s labor force participation rate is higher at 63.7%, employment-population ratio is close at 61.1%, and private sector employment is up 410,000 jobs.
States with limited government better support opportunities for people to gain self-sufficiency and flourish. Erik Randolph at the Georgia Center for Opportunity calculates that Texas’ private sector employment is 98.9% of its pre-shutdown trend, which ranks sixth best nationwide. Overall, 22 of the 25 best-performing states are red-leaning states and 12 of the 14 worst performing states lean blue.
These data are insightful because only Republican governors, with the exception of Louisiana, ended the enhanced supplemental unemployment payments that contributed to some people receiving more payments than while working well before the payments expired in September 2021. Texas ended these enhanced payments in June 2021.
Clearly, incentives matter.
In fact, the positive effects of this decision and more well-paid jobs in Texas helped increase personal income by an annualized 4.6% in the first quarter of 2022 even as many federal safety-net payments without work requirements expired.
But Texas faces challenges.
Bad policies primarily out of Washington have contributed to stagflation. Recent data show that Texas’ inflation-adjusted economic output declined by 2.6% on an annualized basis in the first quarter of 2022, more than the 1.6% decline nationally. This was after Texas led the way with 10.1% growth in the fourth quarter of 2021. The decline in the first quarter indicates that elevated inflation, less investment, and other factors are reducing economic activity.
This stagnating economic growth hasn’t hit the labor market yet, which has a 4.2% unemployment rate, but the labor market is a lagging economic indicator. Fortunately, Texas has been doing better than many states as people and businesses move to the Lone Star State.
Texas must do more to combat Washington’s irresponsible policies and remain a leader.
The affordability crisis of a 40-year high inflation, record-high home values, and skyrocketing property taxes are hurting Texans. While Texas can’t directly influence the inflation rate—which is driven by excessive money printing by the Federal Reserve fueled by out-of-control spending by Congress, it can help with the housing affordability issue by reducing local zoning restrictions and reducing property taxes.
Texas is expected to have about $30 billion in extra taxpayer dollars available next session. As Governor Greg Abbott recently tweeted, “We must use a substantial portion of this money to cut property taxes in Texas.” We agree as there is a need to cut school district maintenance and operations (M&O) property taxes, which is about half of most Texan’s property tax bill and part of a renters’ rent.
The Legislature ought to hold spending growth below population growth plus inflation as it has in the last four initial biennial budgets, and even more so now given less spending equals more money in struggling Texans’ pocket. Then use the surplus to dramatically cut school district M&O property taxes while funding core services.
But the Foundation’s recent report shows how many local governments have been spending excessively. They should pass responsible budgets that spend less than this metric to be consistent with the state’s fiscal prudence and help Texas be more affordable statewide. Doing so will give many local governments the opportunity to compress their own M&O property taxes and fund essential provisions.
Texas ought to strengthen its successful model by reducing and ultimately eliminating arcane M&O property taxes that hinder people from keeping or ever actually owning their home. There is a historic opportunity to at least lower property tax bills next session if governments limit spending and rightly make taxpayers the priority.
Published at TPPF with Nathan Evenhar
Vance Ginn, Ph.D.