Americans are facing a housing affordability crisis—and Texans are no exception.
Texas families struggle to make ends meet with high inflation, stagnating wages, and rising mortgage rates. Add high property taxes to the equation, and it is not difficult to see why 1-in-2 Texans reported that they were behind on rent or mortgage payments and that eviction or foreclosure in the next two months is likely.
Property tax relief is needed more than ever to help homeowners, renters, and businesses during these challenging times. For this purpose, the Foundation proposes a way to cut local property taxes substantially next year, and cut them nearly in half over the next decade.
In Texas, the housing market is cooling as there were three months of supply of homes for sale relative to demand in September 2022, which is the highest since May 2020 after a couple of years of a very tight housing market. This cooling of the housing market resulted from mortgage rates topping 7%, a 20-year high that dramatically raises borrowing costs and monthly payments.
Another contributing factor to the affordability crisis in Texas is high and rising local property taxes.
Texas is blessed to have constitutional bans against a personal income tax and a statewide property tax. But while Texas has a costly gross receipts-style tax called a franchise tax, which should be eliminated, the most burdensome taxes discussed during soccer practices or business events are local property taxes.
These taxes have nearly tripled over the past 20 years. And it’s wrong to think that property taxes are high because there is no personal income tax, as other states like Florida and Tennessee have much lower property tax burdens. The problem is excessive local government spending that requires more taxes.
Property taxes are regressive. The Texas Comptroller’s office estimates that the lowest 20% of income earners will pay 6.9% of their total income in property taxes compared with 1.9% for the highest income quintile in 2023.
Moreover, the Tax Foundation ranks Texas 11th in property tax collections per capita, 6th for its burden on homeowners, and 13th most burdensome to businesses, which is ultimately passed to consumers.
Consequently, property tax relief is a top priority to help relieve some of the housing affordability issues. Reducing property taxes for Texans would keep more money in their pockets to satisfy their desires during a rising affordability crisis.
To do so, the Foundation proposes eliminating nearly half of total property taxes. The proposal uses state general revenue-related funds to replace the maintenance and operations (M&O) property taxes partially funding independent school districts (ISD), which is about $60 billion per biennium.
Specifically, most, if not all, surplus general revenue-related funds, which the Legislature has the most control over, above the state’s new state spending limit based on the rate of population growth plus inflation would be used to replace the ISD M&O property taxes each period until they’re eliminated.
We calculate that this could happen in a decade. We use the average two-year growth rates over the last decade from 2012 to 2021, given that the state has a biennial budget for general revenue-related funds of 9.3% and a rate of population growth and inflation of 6.7%. We then use a reasonable 90% of this 2.6-percentage points surplus each biennium and half of the latest 2022-23 surplus of $27 billion to find this is achievable while fully funding public schools based on the current state-determined school finance formulas.
With a record $27 billion expected surplus and another $14 billion likely in the state’s rainy day fund, the state has plenty of taxpayer money to fund limited government provisions within the normal taxes collected while returning surplus money to Texans.
This is a historic opportunity to provide substantial property tax relief and more opportunities for businesses to move to Texas without costly incentive deals. The result would be Texas having a more robust economy, more job creation, more investments, and more opportunities to prosper so that Texans can be more able to afford their desired livelihood.
Originally posted at TPPF
Susan, a suburban married mother working one job, peacefully drops her son off at his private school and drives back to her gated community in a Range Rover. Because in addition to her cushy home and vehicle, another thing money can buy is any education for her son. She was able to assess each schooling opportunity to choose the one that best met his unique needs, settling on a private school. He’s thriving and on track to be admitted into a prestigious college that will propel him into his dream career.
Meanwhile, Rachel, an inner-city single mother working two jobs, anxiously drops her daughter off at the bus stop to her district-locked public school. Her daughter has special learning needs that aren’t best suited for a big public school environment, and her falling grades and reading scores make her daughter feel like a failure. Rachel reassures her daughter but knows she’s ultimately being let down by a system that doesn’t suit her. She wishes she could find a better schooling option, but that’s a choice she can’t afford, and it’s her daughter who suffers.
This disparity shows the reality of the current privilege-centered schooling system where wealthier parents have schooling options while budget-strapped parents are trapped at a government-run school in the district. A public school system run by educational bureaucrats with a schooling monopoly does not put students first. And it ultimately disempowers parents and teachers.
The solution to these issues already active in Arizona that Texas and many other states should adopt is school choice.
Despite being known for its business-friendly economy and family-loving culture, Texas lags in educational freedom. Meanwhile, Arizona, since implementing the most expansive school choice policy in the nation this year, received nearly 8,000 more new Empowerment Scholarship Account (ESA) applications as parents jumped on the opportunity to explore educational opportunities for their children.
Rather than funneling taxpayer money for education into government-run schools, school choice redirects those funds to families. Arizona has reimagined school choice in the form of ESAs that supply about $7,000 per student per year. Parents can use the money to fund any school-related expenses, such as private school tuition, homeschool curriculum, tutors, etc.
This approach empowers parents to pursue a more holistic approach to their children’s education rather than being forced to place them in a one-size-fits-all system that varies immensely in quality depending on location, mainly.
Not only are parents empowered with the ability to choose what’s best for their kids, but studies show that school choice positively affects academic outcomes. Students test better and experience overall improvement from a school that fits their unique needs. At the same time, new data on educational progress shows that public school performance has fallen behind even more since the pandemic.
School choice also increases competition, as public schools are more incentivized to improve education for their students by breaking down the monopoly situation (one dominant supplier). And this tends to provide better compensation for teachers who have little negotiating power in states where public schools have a monopsony (one dominant consumer).
So what’s the holdup? Well, for Texas and many other states, politicians in rural communities have pushed back against school choice.
This results from misconception and, in some cases, fear-mongering that school choice somehow defunds public schools, which would be a concern for rural areas where public school is the primary option. But school choice doesn’t take money away - it gives it back to parents and allows them to choose which education services receive it.
High-quality public schools will attract more students and, thereby, more funding. Public schools spend more than $14,000 per student per year in Texas, and outcomes for students and teachers are lacking, so more funding isn’t the answer. If the question is about funding for public schools, then those against school choice are conceding that public schools aren’t able to compete. So, it seems school choice opposition is more about politics and winning votes than what’s best for students, whether a parent is like Rachel or Susan.
The U.S. system of federalism allows for a laboratory of competition in which states can implement new ideas. Arizona is taking full advantage of this liberty and using it to empower its parents, students and teachers with educational freedom.
To remain competitive and among the freest states, the time is now for Texas to enact school choice. Our vote matters this November, so the next session will be when we can say, “It’s for the kids.”
Originally posted at The Center Square
Today, the Tax Foundation released the 2023 State Business Tax Climate Index. The report ranks all fifty states based on the collective burdens of each state’s corporate income tax, individual income tax, sales tax, unemployment insurance, and property tax.
The results show that spending restraint funded with low rate, broad-based taxes provide the best climate for business activity, which supports more jobs; and we all know that work helps provide people with dignity, purpose, and hope, along with the long-term self-sufficiency that is essential for families to flourish.
The Tax Foundation’s report notes what many entrepreneurs in Louisiana already know: the state’s business tax climate needs improving.
Figure 1 shows that this year the state ranks as the 12th worst among the 50 states, which is an improvement from the 8th worst ranking in the prior year, but still well below where it needs to be to support more in-migration, economic growth, and well-paying jobs. This year’s ranking is influenced by the corporate tax rank of 32nd, individual income tax rank of 25th, sales tax rank of 48th, property tax rank of 23rd, and unemployment insurance tax rank of 6th in the nation.
Compared with nearby states, Louisiana ranked ahead of Arkansas (40th), behind Mississippi (30th), and remained well-below neighboring Texas which improved from the previous report to 13th best in the nation.
The Texas model of relatively less government spending, no personal income tax, relatively low tax burden, and a sensible regulatory system have propelled it to substantial prosperity over time. This helped Texas diversify its economy from being as dependent on oil and gas activity as it was in the 1970’s and 1980’s. Still, Texas ranked behind the more fiscally conservative Florida (4th), who can provide an even better direction for where Louisiana should head if it wants more businesses to thrive in Louisiana.
The Tax Foundation’s report also provides caution of what not to do: don’t be like California (48th), New York (49th), or New Jersey (50th). These states have high government spending, high personal income taxes combined with other tax burdens, and a costly regulatory climate.
Given the upcoming 2023 session in Louisiana, the state legislature has an extraordinary opportunity to learn from the Tax Foundation’s report on how to improve. For Louisiana to provide greater opportunity for entrepreneurs and families to prosper, the business tax climate must improve by limiting spending, reforming and cutting taxes, and reducing regulatory burdens. Doing so will help more Louisianans live the American Dream.
Originally posted at Pelican Institute
Economics is the new American religion. Disagree with the mainstream narrative surrounding it, and you’re a heathen needing quick conversion. No longer is it seen as a social science requiring unbiased scrutiny: it’s about giving people what they think they want, no matter the cost.
And the cost they take in doing so is a big one: people’s prosperity.
I recently sat down with Dr. Peter Boettke, professor of economics and philosophy at George Mason University, to discuss what needs to happen to reverse the problem of people turning “to politics for a sense of truth,” as he puts it. He explains the problem this way: “When my truth is not being listened to, my only recourse is to impose truth on others who are peddling in falsehood.”
He’s correct. This desperate need to control is what leads to the government being placed on a pedestal as the Almighty solution rather than being viewed as a tool to preserve liberty. And there’s a need to use economics to tradeoffs of proposed solutions. When people aren’t allowed to disagree concerning economics and more policies are pushed on them as gospel, Americans are left with less opportunity for accomplishing extraordinary things.
Instead of getting caught up by culture concerning economics, we need to return to the four pillars as defined by Boettke that substantiate this social science and contain the basis to achieve prosperity.
Pillar One: Truth and Light
The truth is that we live in a world of scarcity. This reality sheds light on the truth that because of scarcity, we must make tradeoffs to attain our goals. For most, this looks like trading your scarce time to work and earn money for scarce goods. Many today argue that not everyone can work or should be required to do so, which leads to petitioning Capitol Hill to pass policies that reduce the need to work.
Lawmakers can pass one policy after another, but that will never change the inherent “dignity of work” as Boettke puts it. And respecting people’s agency gives them dignity.
Pillar Two: Beauty and Awe
We live in a world of spontaneous order. In every century, it’s beautiful and awe-inspiring to see how voluntary activity results in the spontaneous order that leads the way to the formation of global markets through which we thrive today.
To achieve this phenomenon, it’s essential that individuals are empowered to work and contribute to society. Governmental policies that impose economic barriers cannot produce the same orderly result that emerge when people are permitted to achieve their hopes and dreams through a system of free markets and limited government.
By latching onto the cultural ideology that the government and not the individual must work to solve all economic woes, we move further away from personal responsibility and deeper into the crippling dependency mindset. A mindset that convinces people they are powerless instead of possessing the tools required to flourish.
Pillar Three: Hope
Economics gives us hope of changing our circumstances. Through capitalism and entrepreneurship, we can have hope in civil society as the first resort while the government is the last resort in reducing poverty by encouraging long-term self-sufficiency.
This was one of the major downfalls of governments across the country in 2020.
By shutting down the economy and deciding which businesses were essential, small business owners and entrepreneurs were sidelined, leaving them fewer opportunities and less hope of climbing out of the government-imposed economic crisis. And less hope for those locked into their road to serfdom.
Pillar Four: Compassion
Economics at its core takes compassion on the impoverished and disadvantaged, seeking to lift them up. “It’s not about making the wealthy better off but about how we can lift up the poor [so that] the poor get richer even faster than the rich get richer,” Boettke explains.
If people understood economics under these four pillars, rather than viewing it as a list of technicalities with which to police people, more progress would prevail.
Governmental barriers imposed in our lives may be in popular demand but they are not the proposed solution among the American entrepreneurs fueling the economy. As Matt Ridley writes, “Innovation is the child of freedom and the parent of prosperity.”
When seeking economic solutions for the nation, the path forward should be about how best to provide opportunities to let people prosper by removing barriers, respecting individual agency, and allowing hope and compassion to be cultivated in communities. That’s achieved by enhancing and preserving liberty through limited government and a flourishing civil society. Otherwise, we’re destined to fail the lessons of economics.
Originally posted by Econlib
The latest U.S. Jobs Report for September 2022 may look good, but a peek under the hood shows major weakness in a fragile economy. Things will get worse before they get better. And those most affected by the worsening economy are everyday Americans, small business owners, and entrepreneurs, without whom capitalism’s prosperity crumbles.
Of course, Democrats fearing upcoming election loss are hiding behind the record-low 3.5 percent unemployment rate to ignore the reality that inflation-adjusted average hourly earnings fell by 3 percent over the last year, the 18th consecutive monthly decline. These earnings have risen slower than inflation, essentially after the $1.9 trillion, March 2021 American Rescue Plan that was supposed to “stimulate” the economy.
Unfortunately, trillions more taxpayer dollars have been appropriated since then, further fueling the fire of money-printing by the Federal Reserve, which is a major cause of 40-year high inflation that won’t soon moderate without a more aggressive tightening policy.
The trickle-down effects of high inflation from money-printing funding excessive deficit-spending are keenly felt by American families, who have experienced an estimated loss in real income per capita of $4,200 since January 2021. And 40 percent more say they may not be able to pay their bills, compared to a year ago.
Americans are forced to make tradeoffs they should never face.
But with prices for food at home up 13.5 percent, shoppers must choose between eating healthy or paying the bills. Many are choosing less-healthy eating habits, creating health concerns in an already fragile healthcare system dominated by failures from government intervention. Reduced purchasing power has forced other tradeoffs, such as 93 percent of working Americans having a side hustle.
The dismal state of the nation is squashing people’s potential to prosper.
In addition to the average working American, businesses are hit hard. GAP, Peloton, Tesla, Microsoft, J.P. Morgan, and countless others have laid off hundreds to thousands of workers as they grapple with the effects of this recession. More importantly, 75 percent of small business owners say inflation is hitting their profit margin and 56 percent don’t see inflation abating until at least summer 2023, forcing them to raise prices, cut overhead costs, and minimize labor hours.
Unable to compete with big corporations that can keep costs lower, small businesses and entrepreneurs are seriously threatened. If the Fed doesn’t act more aggressively to substantially reduce its bloated $8.8 trillion balance sheet, lowering the high inflation it largely created, Americans will continue to suffer. This economy especially hurts the poor, who are stripped of their dignity without a well-paid job and the ability to afford necessities for their family.
There must be a liberty-friendly, pro-growth approach moving forward, removing government barriers that have crippled the success of capitalism.
This should include cutting government spending, taxes, and regulations to help quickly balance the budget, to stop fueling the Fed’s destructive policies. Congress should pass rules-based policies of a spending limit with a maximum growth rate of population growth plus inflation to cut bloated government spending, and a monetary policy rule, short of eliminating the Fed.
At the very least, Republicans should help undo the damage from a reckless government that has added nearly $7 trillion in deficit spending over the last couple of years. Of course, this violates the Statutory Pay-As-You-Go Act of 2010. Last year, the Biden administration waived PAYGO, like the Trump administration inappropriately did in prior years, in pursuance of the American Rescue Plan Act. But with a now evenly divided Senate, Republicans have the power to oppose similar proposals that would drive the nation into deeper debt.
To pull America away from the grips of a recession and the shackles of inflation, the government must get out of the way of the productive private sector. So long as the government continues egregious progressive policies, the hardworking Americans fueling the economy will be unable to do so, making for a government-dependent and economically unfree status that capitalism, with limited government, once helped them escape.
Originally posted by AIER
Louisiana Economic Situation October 2022
Key Point: Louisiana’s labor market looks okay on the surface but the working-age population is 12,366 (-0.35%) below pre-shutdowns in February 2020 and private sector employment remains 35,900 (-2.2%) below then. Moreover, the decline in real GDP annualized growth in Q2:2022 of 3% was the 5th worst in the nation.
Labor Market: The best path to prosperity is a job, as work brings dignity, hope, and purpose to people by allowing them to earn a living, gain skills, and build social capital that endures. The table below shows Louisiana’s labor market over time according to the U.S. business cycle until the latest data for September 2022. Net total nonfarm jobs in the state increased by 5,000 last month, resulting in increases for 11 of the last 12 months but remains 56,900 jobs below the pre-shutdown level in February 2020 while the working-age population is down 12,366 since then. Compared with a year ago, total employment was up by 95,600 (+5.2%) with the private sector adding 98,100 jobs (+6.4%) and the government cutting 2,500 jobs (-0.8%). The labor force participation rate of 58.5% is 0.1-percentage point lower than it was in February 2020 but well below June 2009 at the trough of the Great Recession. The employment-population ratio is 1-percentage point below where it was in February 2020, and the private sector employs 35,900 (-2.2%) fewer people than then. Louisianans still face challenges given these latest figures for the labor market and remain well below the pre-shutdown trend.
Economic Growth: The U.S. Bureau of Economic Analysis (BEA) recently provided the real gross domestic product (GDP) for Louisiana and others states. The following tells the story of the U.S. and Louisiana economies over the last two and a half years. The steep decline was during the shutdowns in 2020 in response to the COVID-19 pandemic, which was when the labor market suffered. The decline in real GDP annualized growth in Q2:2022 of 3% was the 5th worst in the nation. The BEA also reported that personal income in Louisiana grew at an annualized pace of 5.8% (19th best) in Q2:2022 (tied +5.8% U.S. average).
Bottom Line: Louisianans continue to feel the effects of the shutdowns in 2020 and policies that are too restrictive in allowing more economic growth and prosperity with well-paid jobs. This has influenced a net outmigration of Louisianans to other states over time, which is a drain on the state’s economic potential now and in the future. State and local policymakers should work to reverse this trend by passing pro-growth policies following the Pelican Institute’s roadmap for a comeback story.
Recommendations: In 2023, the Louisiana Legislature should provide the state’s comeback story by:
Originally posted at Pelican Institute
he Fraser Institute recently released the 2022 Economic Freedom of the World (EFW) Report, reflecting data and rankings for 2020. The findings show that economic freedom in the U.S. fell to its lowest level since 1975, from 6th place to 7th. Although all countries in the report were negatively affected in terms of economic freedom by the COVID-19 pandemic and subsequent shutdowns. The U.S. decline is considerable and indicative of pressing problems that will continue to erode our liberty and prosperity if left unresolved.
Thankfully, the problems that put us here also point to the solutions that can propel us forward into prosperity.
During the peak of the pandemic-related shutdowns, the EFW rating fell to its lowest level since 2009, from the depths of the Great Recession.
Entrepreneurs were sidelined, small businesses deemed “non-essential,” and many Americans sent home from work, reducing economic freedom and opportunities to quickly overcome the government-imposed dire situation.
I recently interviewed Dr. Robert Lawson, founding co-author of the EFW report and Clinical Professor at Southern Methodist University’s Bridwell Institute, about these findings.
“The income per capita in the top countries [in the report] is about eight to nine times higher than the lowest-ranking nations,” he explained.
Economic freedom does not significantly affect equality, a common concern among critics, but it does have empirically positive outcomes for prosperity. As Thomas Sowell famously said, “There are no solutions. There are only trade-offs.”
In this case, the temporary health concerns of the public were placed on a pedestal that did not consider long-term prosperity. While vaccines and reopenings may have provided some relief from the pandemic, the massive economic consequences are proving to be much longer and steeper than it seems many policymakers were willing to concede.
Out-of-Control Government Spending
In just five months, we’ll be three years out from shutdowns and stay-at-home mandates that continue to negatively affect our economy today. The national deficit of 2020 was more than three times what it was in 2019, which was already bloated at $1 trillion due to excessive government spending.
At the time, many were convinced this was necessary for getting us through a public health crisis, and they were discouraged from considering the financial consequences these measures could impose. Couple that with the Federal Reserve’s more than doubling its balance sheet to $9 trillion, simply printing money at this point, and the U.S. is enduring its highest inflation rate since 1982.
And now, the Biden Administration discounts the wisdom history can teach us about inflation and instead opts to endorse new, unproven economic schemes like Modern Monetary Theory, which asserts that the Fed should create more money to fund Congress’ deficit spending, regardless of how it alters inflation.
It’s no wonder, then, that inflation continues to climb, robbing people of their purchasing power. This is theft through inflation.
Change is critical not just for economic output but because “more economic freedom improves indicators of social wellbeing,” as Lawson says. With more purchasing power and fewer impeding regulations, Americans can overcome challenging circumstances through work and long-term self-sufficiency, instead of being dependent on government programs that provide short-term payments. But cultivating this change requires creating trust as a culture in communities.
“In rule-based, highly regulated countries, building up trust is much harder,” says Lawson, who ventured to Venezuela, Cuba, Russia among other countries, speaking with citizens about how the lack of economic freedom affects their lives as research for his book Socialism Sucks. Without social trust, people don’t want to trade. Each new regulation and trade restriction the government passes weakens an individual’s ability to bring about change at ground level.
In addition to improving economic freedom, we need more hope in our public discourse. For nearly three years now, Americans have woken up daily to harrowing messages about how they’re vulnerable and incapable due to a widespread virus, inflation, supply-chain problems, and more. The common gloom-and-doom narrative has become the norm, leaving the nation yearning for optimism. Optimism sets democracy apart from totalitarianism and is desperately needed today.
The truth of the matter, and the hope it provides, is that there is a solution to this crisis: economic freedom. While the next annual EFW report hits in 2021 will likely reveal an even worse situation for economic freedom, a trend will likely continue given how the Biden administration is pursuing big-government policies that are destroying not only economic and individual liberty, but the American Dream itself.
We need a return to the classical liberalism that has advanced people’s livelihoods through capitalism and limited government. Those principles helped set the stage for billions of people to be brought out of extreme poverty, so let’s get back to them.
Originally posted by AIER
Top Stat: Average hourly earnings (inflation-adjusted) down about 3.0% year-over-year
Key Point: The economy will get worse before it gets better because of bad policies out of D.C.
Overview: The shutdown recession from February to April 2020 and subsequent government failures caused major destruction to Americans’ livelihoods, which includes a recession and high inflation. One policy mistake was Congress adding $6.5 trillion in deficit spending since January 2020 to reach the new high of $31.1 trillion in national debt, or more than $247,000 owed per taxpayer. Another mistake is the Federal Reserve monetizing so much debt, creating 40-year-high inflation rates. These policy mistakes have resulted in an artificially inflated boom that’s busting into what will likely be a long, deep recession with high inflation. The failed policies of the Biden administration, Congress, and the Fed must be replaced with a liberty-preserving, free-market, pro-growth approach so there are more opportunities to let people prosper.
Labor Market: Today, the U.S. Bureau of Labor Statistics released a weaker U.S. jobs report for September 2022 than in recent months. The report shows that there were 263,000 net nonfarm jobs added last month, with 288,000 added in the private sector. The official U3 unemployment rate increased slightly to a historically low 3.5%, but challenges remain. These challenges include about a 3% decline in average hourly earnings (inflation-adjusted) over the last year, a 0.3 percentage point lower prime-age (25–54 years old) employment-population ratio at 80.2% than in February 2020, and a 1.1-percentage-point lower labor-force participation rate at 62.3% with at least three million people out of the labor force.
Moreover, since the shutdown recession ended in April 2020, total nonfarm jobs have increased by 22.5 million for an increase of 514,000 since the previous peak in February 2020. About 56% of these total jobs gained were during the Trump administration from April 2020 to January 2021 and 44% of them during the Biden administration thereafter. Private nonfarm jobs have increased by 22.1 million and are now up 1.1 million from the past peak. Similarly, about 6 out of 10 private jobs gained were during the Trump administration.
Adding to the concern is a “zombie economy.” This includes “zombie labor” as many workers are sitting on the sidelines and others are “quiet quitting” while there is a declining number of unfilled jobs than unemployed people. And that demand for labor is likely inflated from many “zombie firms,” which run on debt but are likely to lay off workers as costs of debt rise with interest rate increases. Small businesses slowly adding jobs in recent months and their sentiment remain near a half of a century low are worrying signs.
Economic Growth: The U.S. Bureau of Economic Analysis’ data below show a comparison of real total gross domestic product(GDP), measured in chained 2012 dollars, and real private GDP, which excludes government consumption expenditures and gross investment.
The shutdown recession contracted at historic annualized rates because of individual responses and government-imposed shutdowns related to the COVID-19 pandemic. Since then, economic activity has had booms and busts because of inappropriately imposed government restrictions in response to the pandemic, even as there is little to no evidence that these restrictions helped. However, they did severely hurt people’s ability to exchange and work.
In 2021, the growth in nominal total GDP, measured in current dollars, was dominated by inflation, which distorts economic activity. The GDP implicit price deflator was up 6.1% for Q4-over-Q4 2021, representing half of the 12.2% increase in nominal total GDP. This inflation measure was up by 9.1% in Q2:2022—the highest since Q1:1981—for an 8.5% increase in nominal total GDP. There were two consecutive declines in real total (and private) GDP, indicating a recession.
This criterion has been used to date every recession since at least 1950. The Atlanta Fed’s early GDPNow projection on October 7, 2022, for real total GDP growth in Q3:2022 was 2.7%, which was a large revision up and the actual real GDP figures will be reported on October 27.
For historical comparison, the last expansion from June 2009 to February 2020 had average annualized growth of 2.3% in real total GDP and 2.8% in real private GDP. The earlier part of the expansion had slower real total GDP growth but had faster real private GDP growth. An explanation for this discrepancy is that deficit-spending in the latter period grew faster, contributing to crowding-out of the productive private sector. With excessive spending bloating the national debt thereafter, especially since the shutdown recession, the Fed has monetized much of the new debt instead of allowing many interest rates to rise to a market-determined rate. This resulted in higher inflation as there has been too much money chasing too few goods as their production has been overregulated and overtaxed. The consumer price index (CPI) is up by 8.3% in August 2022 over the last year—highest rate since January 1982. After adjusting total earnings in the private sector for CPI inflation, real total earnings are flat in August 2022 since February 2020 as inflation has limited people’s purchasing power. Elevated inflation will continue until the Fed more sharply reduces its balance sheet to provide a positive real federal funds rate target.
Just as inflation is always and everywhere a monetary phenomenon, high deficits and taxes are always and everywhere a spending problem. As the federal debt far exceeds U.S. GDP, and President Biden has proposed an irresponsible FY23 budget, America needs a fiscal rule like the Responsible American Budget (RAB) with a maximum spending limit based on population growth plus inflation. If Congress had followed this approach from 2002 to 2021, the (updated) $17.7 trillion national debt increase would instead have been a $1.1 trillion decrease (i.e., surplus) for a $18.8 trillion swing to the positive that would have reduced the cost 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 the Federal Reserve should follow a monetary rule.
Bottom Line: Americans are struggling from bad policies out of D.C., which have resulted in a recession with high inflation.
Instead of passing massive spending bills, like passage of the “Inflation Reduction Act” that will result in higher taxes, more inflation, and deeper recession, the path forward should include pro-growth policies. These policies ought to be similar to those that supported historic prosperity from 2017 to 2019 that get government out of the way rather than the progressive policies of more spending, regulating, and taxing. The time is now for limited government with sound fiscal and monetary policy that provides more opportunities for people to work and have more paths out of poverty.
Originally posted at Pelican Institute
NEW ORLEANS— The Pelican Institute for Public Policy, a New Orleans-based free market think tank, has announced the hiring of Dr. Vance Ginn and Jamie Tairov. Ginn will serve as the institute’s chief economist and Tairov as senior policy associate.
“I am thrilled to welcome Vance and Jamie to the Pelican team as we work to write Louisiana’s comeback story,” said Pelican CEO Daniel Erspamer. “The best talent in the country is required to accomplish bold change and ensure everyone in Louisiana has the opportunity to flourish. Vance and Jamie bring nationally recognized policy expertise, research excellence and a deep commitment to winning on behalf of Louisiana families to achieve our mission at this critical time of charting a new path for Louisiana.”
Ginn is a free-market economist. Before joining the Pelican Institute, he served as the chief economist at the Texas Public Policy Foundation and is currently policy director for the Alliance for Opportunity campaign, a multi-state poverty relief initiative featuring Louisiana, Texas and Georgia. In 2019 and 2020, he served as the associate director for economic policy of the Office of Management and Budget at the Executive Office of the U.S. President. He has contributed to The Wall Street Journal, Fox News, The Washington Post and National Review.
“I’m excited to join the fantastic team at the Pelican Institute and hit the ground running toward providing proven free-market policy solutions that let people prosper,” Ginn said. “There is a historic opportunity in Louisiana to work on budget restraint, tax reform and poverty relief. We want to remove barriers and unleash families in search of a bright future in Louisiana. By working toward limited government, there will be unlimited paths for families to achieve their hopes and dreams, and that is what I hope to foster with the team at the Pelican Institute for all Louisianans.”
Tairov will bring years of Louisiana policy and budgetary expertise to the Pelican Institute and will serve as senior policy associate. Before joining Pelican, she spent many years in various roles at Louisiana State University, where she completed a master’s in public administration. She then worked as a budget analyst for the fiscal division of the House of Representatives. At Pelican, she will be working to advance solutions in the areas of fiscal policy, social safety net, criminal justice and occupational licensure.
“I am so excited to join the Pelican Institute and work to advance proven policies that will give all Louisianans the opportunity to flourish,” Tairov said. “Through proven social safety net and criminal justice reforms, as well as changes to our state’s complex tax code and budgetary systems, we really can write Louisiana’s comeback story.”
Vance Ginn, Ph.D.