In LPP Episode #10, I talk with Dr. Boettke, who is a professor at George Mason University, about why he chose economics, his books on economics and rules-based policy, COVID, and No Due Date group.
You can find the YouTube video and links to the Apple Podcast and Spotify for this episode in my newsletter here. Please excuse any spelling or grammatical errors as this transcript is from an online converter and it and I may not have caught everything. For those that remain, I take all credit for those errors.
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Current safety-net programs too often discourage recipients from achieving long-term self-sufficiency, but a new holistic approach called empowerment accounts would help recipients achieve this with existing resources.
Also find at TPPF website.
For several decades and under the control of both Republicans and Democrats, Tennessee has been known for its fiscally conservative budgeting. Years of limited spending and low taxes have kept hundreds of millions of dollars in the pockets of Tennessee taxpayers that might otherwise have gone to government bloat. In fact, according to the Tax Foundation, Tennessee residents pay less in taxes than anyone in the country.
But future good times are no guarantee—and that’s why, whether in good or bad times, Tennessee families practice priority-based budgeting, making tough choices on how to spend their hard-earned dollars, especially while inflation is at the highest rate in decades. With the federal government and Federal Reserve pumping trillions of dollars into the economy, Tennesseans are looking to their state government for solutions. While solutions have mostly focused on one-time relief such as sales tax holidays, by continuing to control spending, Tennessee policymakers can ensure that state government does not grow faster than taxpayers’ ability to pay for it. Further conservative budgeting would allow state policymakers to implement more permanent tax cuts, providing relief in a time of rising prices and fostering further economic growth and prosperity. The Conservative Tennessee Budget sets the cap of growth of the state’s budget at population plus inflation growth to make this prosperity a reality.
Originally at Beacon Center of Tennessee.
The Washington Post called them President Biden’s “wins in Congress.” But Democrats shouldn’t take that victory lap yet, as the Post admits—there’s little in the so-called Inflation Reduction Act that will do anything of the sort.
Despite the Biden administration’s claims to the contrary, the U.S. is in a recession. And despite its claims that everything else is to blame for the 40-year high in inflation, the blame is on the bad policies of excessive spending, taxing, regulating, and money-printing out of Washington. And the progressive fiscal policy pursued by this administration and Democrats in Congress is only making it worse. Signing the IRA was only throwing gasoline on the raging economic fire.
In the first two quarters of 2022, the U.S. had two consecutive quarters of declining real economic output, historic declines in productivity, and rapid inflation contributing to half of companies planning to cut jobs. Every time there have been two declining quarters of real economic output since 1950, the period has been called a recession. So why should this time be different? Clearly, the economy is floundering and American families are struggling to make ends meet. No wonder, we’re all dealing with lower economic output and high inflation not seen in four decades.
The IRA will result in higher taxes, more debt, more inflation, and deeper recession at exactly the worst time for the American people. The policy solutions aren’t complicated; we must limit government and maximize liberty by reducing spending, cutting taxes, removing regulations, and tightening the money supply. The policy mistakes in Washington over the last year prove that rules-based policies that rein in the failures of government are needed now maybe more than ever.
Originally posted at TPPF.
The shutdown recession from February to April 2020 and subsequent government failures have caused substantial harm to Americans’ livelihoods, which include high inflation and a recession. One policy mistake was Congress adding more than $6.1 trillion in deficit spending since January 2020 to reach the new high of $30.6 trillion in national debt, or nearly $244,000 owed per taxpayer. Another mistake is the Federal Reserve monetizing much of the new debt, contributing to 40-year-high inflation rates. These bad policies have resulted in an inflated boom that is busting into what will likely be a long, deep recession with elevated inflation. The failed Keynesian policies out of the Biden administration, Congress, and the Fed must be replaced with a free-market approach so that Americans have more opportunities to prosper.
Published at TPPF
A nation emerging from a significant pandemic and an economic downturn awaited President Joe Biden in early 2021. President Warren G. Harding inherited a similar situation after winning the 1920 election in a landslide. But Harding overcame it by getting government out of the way. The economy recovered quickly—whereas Biden enacted bad progressive policies that have resulted in a double-dip recession with 40-year high inflation.
Biden should learn from Harding and his successor President Calvin Coolidge to correct government failures and allow markets to heal so that we can enjoy abundant economic prosperity again.
In the aftermath of the Great War, the U.S. suffered a severe economic downturn. The late economist Milton Friedman described this as one of the most “severe on record.” The depression of 1920-1921 is often forgotten because it was short-lived, but it offers policy lessons that can be applied to our current situation.
Prior to and during the Great War, President Woodrow Wilson led a massive expansion of the federal government, which included the creation of the Federal Reserve and personal income tax system. After the war, markets corrected from those government failures throughout the economy triggering a steep economic downturn.
The business and agriculture sectors were hit particularly hard by the depression of 1920-1921, which led to bankruptcies and farm foreclosures. Unemployment was estimated to be about 12% and the nation was hit buffered from deflation. Americans were hurting.
During the presidential campaign of 1920, then-Sen. Warren G. Harding pledged a “return to normalcy” against Wilson’s progressivism. During the campaign, Harding argued that the nation needed to return to sound money, less spending, lower taxes, less debt, and limited government.
This was the fiscal policy blueprint of the “normalcy” agenda. Harding understood that to revive business confidence and lower high income tax burdens, the federal government must get its fiscal house in order.
In 1921, Congress passed the Budget and Accounting Act, which under the leadership of Bureau of the Budget Director Charles Dawes and later his successor, Herbert Lord, worked to reduce federal spending. Dawes would compare the task of cutting spending to having a “toothpick with which to tunnel Pike’s Peak.”
Harding also understood that to lower the high tax rate, spending had to be addressed first. “The present administration is committed to a period of economy in government…There is not a menace in the world today like that of growing public indebtedness and mounting public expenditures…We want to reverse things,” explained Harding.
Reducing spending was not easy.
As an example, Harding vetoed a popular bonus for veterans of the Great War. Overall, Harding’s commitment to economy in government resulted in an estimated 50% reduction in federal spending. Harding also relied on Secretary of the Treasury Andrew Mellon, who also shared his views regarding limiting spending.
Mellon would serve as the lead architect for Harding’s tax reform policies. The top income tax rate was over 70% and Mellon’s goal was to lower the rate. Through a series of tax reforms, the high rate would eventually be cut to 25% during the Coolidge administration.
Harding and Coolidge’s fiscal conservatism of lowering spending and tax rates and paying down the national debt resulted in a quick economic recovery. The Federal Reserve also tightened the money supply. The historian Paul Johnson wrote “Harding had done nothing except cut government expenditure, the last time a major industrial power treated a recession by classic laissez-faire methods…”
After the death of Harding in August 1923, Coolidge continued and strengthened the economic policies of Harding. President Coolidge, along with Secretary Mellon, continued to lower spending and tax rates. The federal budget was $3.14 billion in 1923. By 1928, when Coolidge left, the budget was $2.96 billion.
Altogether, spending and taxes were cut in about half during the 1920s, leading to faster real economic growth and productivity that contributed to budget surpluses throughout the decade. The decade had started in depression and by 1923 the national economy was booming with low unemployment.
And that continued throughout much of the decade. This would have continued but government expanded again. In particular, the Hoover administration ran deficits and raised taxes and the Federal Reserve had too loose and then too tight money supply. This led to the Great Depression—a phenomenon that was avoidable and was exacerbated by President Roosevelt’s large expansion of government.
It’s unlikely that President Biden will follow the pro-growth economic policies of Harding and Coolidge, nor will the Fed tighten the money supply enough to reduce inflation.
Published at Real Clear Policy with John Hendrickson
Everyone is feeling the pinch at the supermarket these days, as inflation—measured by the decline in the purchasing power of money for a basket of goods and services—recently hit a 40-year high. From eggs to milk, it is getting harder to bring home the bacon. Nowhere has that been more visible than in the prices for beef.
While inflation has contributed to the increase in the price of beef, the scary truth is there is a more nefarious reason for this: excess regulation.
The beef industry can be categorized into three sectors: cow-calf, stockyard, and slaughterhouse operations. Slaughterhouses have long been allowed to operate in what’s considered an oligopoly, as they’re heavily regulated by the United States Department of Agriculture (USDA) and Federal Drug Administration (FDA).
A century ago, the Packers and Stockyards Act aimed to fix what was considered to be a market failure. It broke up the five major slaughterhouses controlling the beef industry. Yet today, only four slaughterhouses control 80% to 85% of America’s beef.
Now, the Senate Agriculture Committee has passed two bills that aim to do that exact thing the Packers and Stockyards Act was supposed to do. That begs the obvious question: Is more regulation really the answer to this bloody mess?
The proposed legislation of the Cattle Price Discovery and Transparency Act would require slaughterhouses to buy more cattle on the cash market. And the Meat and Poultry Special Investigator Act would require the USDA to investigate and prosecute anti-competitive practices.
Cow-calf producers and stockyards are margin operators in one of the most complex markets in the world, and often fall victim to unpredictable forces like fluctuating demand, adverse weather, and disease. Of course, there are inherent risks in every market, and participants accept those risks.
The issue here is these operators can appear to be unfairly squeezed by slaughterhouses that seem to be manipulating prices. These practices include utilizing market strategies such as forward contracting and retaining ownership.
Forward contracting allows buyers and sellers to complete transactions months in advance to price in risk of the cash market. This strategy was intended to be a risk management tool for producers, giving them better control over their profit margins.
Secondly, slaughterhouses have taken advantage of the “retained ownership” principle by purchasing their own stockyard inventory. Cattle in stockyards are typically owned outright by the yard or owned by cow-calf producers that retain ownership and pay on a per-head or per-day rate.
So, in the event of unforeseen demand changes like, perhaps, a pandemic, inflation, drought, or mysterious cattle deaths, slaughterhouses can pull up their own inventory and mitigate any cost of buying cattle ready to be slaughtered at the cash market value.
Put plainly, the new legislation would limit slaughterhouse’s ability to slaughter cattle they own in hopes of forcing them to offer producers higher prices. But this can only go so far. And likewise, there’s only so much regulation that can be implemented to correct issues created by overregulation.
Threatening prosecution for market manipulation violations doesn’t break up the oligopolies because it addresses the wrong problem. Instead of trying to impose regulations to attempt to remedy the power disparity, eliminating the regulations that create barriers to entry in the first place would break up packer conglomerates naturally.
In short, the answer to eliminating unfair pricing schemes does not lie in implementing additional regulations to an already heavily regulated industry.
According to a 2022 report by the USDA, 900 slaughterhouses are federally inspected and 1,900 plants are not. The non-federally inspected plants that meet their states’ inspection standards can only sell or transport beef intrastate, barring them from being in direct competition with the Big Four. State inspections are required to meet criteria “at least equal to” federally inspected facilities.
One solution is to add competition by deregulating the inspection requirements, which would result in more competitors for the slaughterhouses, helping achieve what as the two proposed bills aim to do through market forces instead of government regulation. Continued regulation of a market at this level is identical to how many experts believe India and many African countries fell into complete food dependence on their government.
Congress’s signaled sympathy for cattlemen the past three years is probably all in vain—especially considering its legislation created the problem in the first place. Most importantly, consumers are about to feel even more pain at the meat counter come this fall.
Without substantial deregulation of the beef industry, sly slaughterhouse owners and confused senators may enjoy their prime rib dinner, while the rest of us settle for chicken—or worse, “plant-based proteins.”
Published at TPPF with Livia Lavender
While a stagnating economy with high inflation is what economists usually call stagflation, the current situation is worse, as the real economy is declining. So there’s much less to go around for everyone—making us poorer in the process.
This inflation-recession could be resolved by Washington reversing course, but President Joe Biden and Democrats in Congress are doing the opposite. Their new bill, called the “Inflation Reduction Act” (IRA), will spend more, raise taxes, increase debt, and contribute to more inflation, resulting in a deeper recession.
The IRA includes estimated hikes in taxes with a new 15% corporate minimum tax rate, 87,000 new Internal Revenue Service (IRS) agents to audit more taxpayers, and new closure of “carried interest loophole.” These are each bad policies, but especially during a recession. These add up to an estimated tax hike of about $730 billion compared with current policy over the next 10 years.
The main tax hike is the new alternative minimum tax (AMT) of 15% on book income for corporations with net income exceeding $1 billion. This proposal has a rosy revenue projection of $313 billion. But businesses don’t pay taxes; they just submit them. People pay them, through higher costs, lower wages, and fewer jobs. The dynamic effects will result in less tax revenue collected from this hike.
According to a recent study by the Tax Foundation, this tax hike alone would contribute to killing 23,000 jobs, a 0.1% cut in wages, and 0.1% less in economic output. If we consider other provisions like the tax hikes on carried interest and reinstatement of the federal Superfund program, the total number of jobs killed is 30,000 with every income group having a reduction in after-tax income.
Clearly, this wouldn’t reduce inflation or help the economy recover. But there’s more.
While the IRA is aimed at taxing the rich and corporations more, the Congressional Joint Committee on Taxation finds that every income group except those with income between $10,000 to $20,000 per year would face a higher average tax rate. This would mean President Biden’s pledge to not tax anyone earning less than $400,000 per year would be broken, with about half of the burden falling on those earning less than $200,000 per year.
And the $80 billion in additional funding for 87,000 new IRS agents to increase tax enforcement and compliance is expected to bring in a phony amount of about $200 billion over a decade. But this will just increase more bureaucracy in an already overly bureaucratic federal government that will make Americans’ lives worse as they put more costs on taxpayers. Specifically, there could be 1.2 million more individual audits per year, and you can bet when the IRS doesn’t increase tax collections from legal tax returns they will come after every tax group, not just those making more than $400,000 per year.
On the spending side, the IRA provides tax incentives and subsidies for unreliable wind and solar energy, an expansion of Obamacare subsidies until 2025, and other expenditures to the tune of about $430 billion. Using these rosy assumptions, there is a projected deficit reduction of $300 billion over 10 years.
However, more conservative estimates suggest that the IRA will have less deficit reduction and will likely increase the deficit.
The Tax Foundation, Penn Wharton Budget Model (PWBM), and Congressional Budget Office (CBO) calculate a $178 billion, $247.8 billion, and $101.5 billion in deficit reduction over the next decade, respectively. But assuming the Obamacare subsidies are extended over the full 10-year period for an apples-to-apples comparison, the PWBM estimates that would bring that deficit reduction down by $158.9 billion to just $88.9 billion over the decade, which is the same amount of the deficit in just June 2022.
But recall that these estimates are compared with current policy assumptions over the next decade, which already have massive deficits because of reckless spending, so the IRA will most likely make the deficit worse.
Spending will be permanent and is on the front end of the bill, while taxes will likely be temporary and are more on the back end—so the deficit will be higher in the first few years, which will give the Federal Reserve more debt to purchase thereby creating more inflation.
And the higher taxes, more debt, and more inflation will stifle economic growth so a deeper recession will result.
The IRA does the opposite of what the name implies. This is now too common with Democrats in Congress as they like to keep redefining things that don’t match their narrative. They should instead name this bill the “Inflation Recession Act” because we will get more of both.
This far-left agenda must be rejected. Kill the bill.
Published at TPPF with Daniel Sanchez-Pinol
Americans are sacrificing their savings to keep up with soaring inflation.
This burden has contributed to consumer sentiment reaching its lowest level in June since the University of Michigan started the survey in January 1978. And the progressive policies in D.C. could soon make this bad situation worse.
The personal saving rate, which is the share of after-tax income not used for consumption, declined again to 5.1% in June. This is after it reached 33.8% in April 2020, which was a record high since January 1959, after the first round of “stimulus” checks sent by Congress during the shutdowns.
There were two more rounds of checks sent by Congress, along with enhanced unemployment payments and other handouts that weren’t connected to work, which kept the saving rate historically high as many places were shut down and people made more from handouts than they did while working.
Remember, nothing is free.
Those handouts and other government spending contributed to more than $6 trillion in additional national debt, which the Federal Reserve then mostly monetized—leading to the generational high in inflation.
The higher inflation outpaced saving and income growth since then, as the costly policies came home to roost and cut the saving rate to 5.1%—the lowest since August 2009.
What will happen when Americans run out of savings? But there’s little reprieve in sight as inflation looks to keep rising or at least not abating soon from bad policies in D.C.
Inflation, which is the loss of purchasing power of your dollar, continues upward to 6.8% in June 2022 as measured by the personal consumption expenditure (PCE) price index—the highest since January 1982. The PCE inflation measure accounts for the substitution effect from high priced goods to lower priced goods. This isn’t reflected in the often-reported measure of the consumer price index (CPI) inflation rate of 9.1%, which is the highest since November 1981.
Both measures show Americans’ money isn’t going nearly as far as it did a year ago. In fact, families’ purchasing power is set to be cut in half in just 10 years at the pace of PCE inflation and even faster for CPI inflation.
This implies that in order to maintain the same consumption levels, households have to allocate more income to consumption than to savings. And many Americans are turning to increased debt as their savings dry up.
Household debt increased to a record high of $16 trillion in the second quarter of 2022. Not surprisingly, credit card debt grew the most by 13%, which is the fastest increase in 20 years. Moreover, household debt to real economic output passed the 80% mark at the end of 2021. It’s up to 82% in the second quarter of 2022, a historically high rate, as debt increased and the real economy declined for two straight quarters.
This share will likely get worse in the following quarters as Americans go through their savings and dip further into debt. And interest rates going up means the amount to pay interest on the debt will contribute to higher balances and more pressure to meet their financial obligations.
No wonder people don’t feel secure about their economic future. Bad policies by Congress and the Federal Reserve contributed to this destruction and could even make things worse.
Congress spent too much, leading to massive deficits, which gave the Fed debt to purchase to inject money into the economy over the last two years. That inflated “boom” had to eventually “bust.” And that’s what is happening now as the redistribution by Congress has slowed some and the Fed is finally raising its target interest rate allowing markets to correct.
But Congress should be spending much less and the Fed should be more aggressive in tightening the money supply and raising its interest rate target. The famous Taylor rule suggests a rate of at least 6%, which is substantially higher than the current range between 2.5% to 2.75%.
Ultimately, what’s needed now are pro-growth policies of spending, taxing, regulating, and printing cuts instead of what’s coming out of Washington. President Biden and Democrats in Congress aren’t helping the situation with the “Inflation Reduction Act,” as it will lead to more debt and more inflation that will further deplete savings, thereby making a bad situation worse for Americans. Things must change.
Published at TPPF with Daniel Sanchez-Pinol
The U.S. government is bankrolling favored businesses at the expense of taxpayers and other businesses. Again. By continually involving itself in the market, government is impeding economic growth and the potential of industries to reach their full potential. That must change.
Congress recently passed the CHIPS Act, which is a $280 billion spending boondoggle that will provide funding of $52.2 billion to computer chip manufacturers. To sweeten the pot, Congress is also offering a 25% tax credit for semiconductor fabrication, which could cost an estimated $24 billion over five years. And these subsidies could support production in other regions, such as China and Europe.
President Joe Biden will sign this obscene corporate welfare scheme into law soon. Congress claims this will strengthen domestic semiconductor production and help the U.S. compete with China, but that rhetoric is wrong.
Domestic production of these technologies has been slowing since 1990. The U.S. still has valuable domestic producers, like Texas Instruments and Intel, but these corporations recently accounted for 12% of global chip production in 2021, down from 37% in 1990, according to the Boston Consulting Group.
While the federal government might seem smart for attempting to help this industry compete, its methodology is flawed. Expanding corporate welfare will only serve to degrade competition and diminish the free-market principles that uphold the U.S. economy.
This flawed approach is apparent when considering the data around prices of chip production.
The total 10-year cost of ownership of a new semiconductor fabrication plant in the U.S. is 30% higher than in Taiwan, South Korea, or Singapore, and 37% to 50% higher than in China—or $10 to $40 billion dollars depending on the product. Anywhere from 40% to 70% of the difference in price is directly attributable to the incentives government provides that contribute to reduced competition.
Throwing taxpayer money at the problem is a solution in search of a problem.
In 2021, the U.S. semiconductor industry had substantial growth. In the closing months of 2021, American sales increased by 5.2%. That year the market had the largest share of growth worldwide, expanding 27.4%. While recessions in the U.S. and elsewhere have reduced consumption of goods that use semiconductor chips and as production increases, there has been a reduction in shortages and lower chip prices—contributing to lower stock prices.
While the U.S. lags China in semiconductor production, the U.S. industry is growing faster, and we still lead by large margins in research, development, and design. The U.S. industry is a leader in chip design, and accounts for roughly 60% of all global fabless firm sales, and some of the largest integrated device manufacturers. The U.S. accounts for the largest share of the global design workforce, speaking to our leadership and development prowess.
Earmarking $76 billion of taxpayer money for an already growing industry while in the midst of a recession is politically irresponsible and economically destructive. Moreover, spending to this degree fuels the bloated national debt during a recession and puts upward pressure on inflation if the Federal Reserve monetizes the debt.
While President Biden will likely sign the CHIPS Act, Congress ought not use this as a precedent to subsidize more industries. The outsourcing of semiconductor production should be a wake-up call to the burdensome overregulation, overspending, and over-taxation domestically on businesses; not a license to spend more taxpayer money.
With more subsidies going to specific companies, less investment and the further fleeing of business from America to places with more attractive and beneficial economic circumstances will continue.
Advocates like U.S. Sen. Tom Cotton tried to justify this bill by claiming that “by ceding semiconductor manufacturing and development to countries like China, the United States has fallen behind and given the Chinese Communist Party dangerous leverage over our nation.”
While China has leverage over America in that department for now, this corporate welfare is economically harmful. In the process of providing cash to businesses, corporate welfare takes money from taxpayers and consumers, reducing economic growth and increasing the debt that has many risks—including economic and national security.
Because corporate welfare disrupts natural market processes, it shifts money from the most productive economic actors to those less productive—but more politically connected. This creates economic inefficiency and stunts competition, making the situation worse.
The U.S. government ought to instead cut the cost of doing business domestically by reducing government spending, taxes, and regulations. By correcting the current government failures in this market in this way, Americans will flourish more.
Published at TPPF with Noah Busbee
With extensive economic pressure facing the U.S., progressive lawmakers in Washington believe they have found a new solution: taxing and spending. This failed fiscal framework has become an easy sell for each new progressive administration. But this time the Biden administration has placed America in a high-inflation recession, and looks to do more harm with the “Inflation Reduction Act.”
But there’s an overlooked concern of hundreds of billions of taxpayer funds redistributed by the federal government to state and local governments for supposedly COVID-relief efforts and even more in the recent “infrastructure” bill over the last two years.
These excessive federal funds should be used wisely in order to not hinder Texas’ economic prosperity. That could mean public-private partnerships, which increase transparency and efficiency.
Texas’ nonfarm employment has increased in 25 of the last 26 months, bringing record high employment in eight consecutive months. Compared with a year ago, total employment was up by 778,700 (+6.2%) in June with the private sector adding 761,800 jobs (+7.1%) and the government adding 16,900 jobs (+0.9%).
Texas also ranks fifth best in a Georgia Center for Opportunity study that compares the ratio of employment to an estimated pre-shutdown recession trend in each state. That’s a huge feat given how many jobs were lost during the costly shutdowns. And Texas is now headquarters for more than 10% of all Fortune 500 companies.
Texans and all Americans are struggling with economic uncertainty due to a 40-year high in inflation and a recession from mostly bad policies out of D.C.
Texas has been allocated about $116 billion between COVID 19-related funds and the “Infrastructure Investment and Jobs Act” (IIJA) since March 2020.
This includes $79 billion from several bills from March 2020 to March 2021. A major chunk of that figure was $24.5 billion from the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020 that was primarily for COVID 19-related provisions, including for health care, public education, childcare, and worker safety.
The other was $40.3 billion from the American Rescue Plan Act (ARPA) in March 2021 that was for specific projects like broadband, water, and infrastructure along with $15.8 billion of those funds available for various recovery purposes. Fortunately, the state separated the ARPA funds in Article XI of the budget so that there is less comingling of federal with state funds to avoid considering these as an ongoing funding source.
The rest was $36.3 billion from the IIJA to be used primarily for projects related to broadband, transportation, and water.
Ultimately, these funds must be spent responsibly—if at all—and only for one-time items to avoid a fiscal cliff when these funds go away. If not, there will be wasteful spending that will unnecessarily grow the state’s budget, leading to higher taxes and distortions throughout the economy and less prosperity.
Since the massive expansion of federal assistance to states began in the 1960s with President Johnson’s “Great Society,” the burden of federal funding in states has continued to grow. Texas usually has about one-third of its total budget funded by taxpayer dollars collected at the federal level.
We need a new approach. These one-time federal funds must be spent on on-time expenditures.
Next, public-private partnerships (P3) should be considered.
They’re contractual agreements between a government and private entities. The state provides funding with oversight of a new project while a private company does the work. They can transfer risk, bundle projects, and increase efficiency through a design-build approach.
Ultimately, most projects should be left to the private sector, where the best productive projects happen because of profit-loss decisions. But the opportunity to use P3s with these one-time federal funds should be carefully considered to reduce waste and inefficiency on projects.
While there are legitimate concerns about corporate welfare to private businesses through picking winners and losers, the use of these one-time federal funds allocated for projects makes sense—though careful consideration should be made now and later.
Given the poor track record of excessive federal funds and the success of P3s, Texas should look to set a precedent for fiscal responsibility and more market-oriented solutions by employing P3s with the federal funds recently received rather than resorting to the failures of too many government-run projects.
Published at TPPF with Nathan Evenhar
Over the last decade, major Montana local governments have grown their budgets faster than population growth plus inflation, burdening taxpayers with millions in excessive spending .
The 2023 Real Local Budgets demonstrate the need for government spending restraint and an improved budget process to protect taxpayers.
City and county officials should focus on holding the growth of expenditures to less than population growth plus inflation to ensure that the cost of government stays within the bounds of the average taxpayers’ ability to pay for it.
Published at Frontier Institute with Kendall Cotton
With its vibrant cities, relatively cheap cost of living, and thriving industries like manufacturing,
healthcare and hospitality, it’s obvious why South Carolina is one of the fastest growing states in
the nation. To keep its competitive edge and protect the interests of taxpayers, it is imperative
that state government spending – which has seen significant growth in recent years – be brought
For that reason, SCPC has partnered with the Texas Public Policy Foundation (TPPF) for a new
project: the South Carolina Sustainable Budget. This introductory report compares the last
decade of state appropriations with what spending would have looked like under a sustainable
budget. A future report will provide sustainable budget spending recommendations for fiscal
year (FY) 2024.
Published at South Carolina Policy Council with Bryce Fiedler and Video discussion here.
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
Nearly every major city and county government in Texas spends well beyond what the average taxpayer can afford, according to a series of new research papers on local government spending by the Texas Public Policy Foundation. As a result, over the last decade the typical family of four has paid thousands of dollars in taxes over what the state considers to be a reasonable increase.
(Individual reports linked below)
“Major cities and counties in Texas are spending huge sums that are wildly out of step with what many taxpayers can afford to pay,” said Dr. Vance Ginn, TPPF’s Chief Economist and co-author of the series. “The data should be a huge red flag that we are heading toward unsustainable spending growth and tax increases that kill jobs, punish families, and drive people and businesses out of the state.”
TPPF defines reasonable spending growth as no more than population growth plus inflation. The state of Texas has followed this spending limit for state budgets for several biennia and officially adopted most of it into state statute in the last legislative session. City and county budgets are currently under no obligation to follow this reasonable spending limit.
“Responsible Local Budgets (RLB) would promote efficiency and prudence with taxpayer money, creating less need for higher taxes and fees, but still provide all the funding needed for critical government functions,” said James Quintero, TPPF’s Policy Director for the Government for the People campaign and co-author of the research. “Taxpayers would love to see local governments voluntarily adopt these spending limits, but, as long as cities and counties continue their spending binge, it may be necessary for state lawmakers to impose strict parameters to protect taxpayers.”
Over the last decade, Dallas has been the worst offender among cities, spending more than 34% above a responsible spending growth limit. In that time, the average family of four in Dallas paid more than $10,000 in excess taxes. The cities of San Antonio and Austin spent over 16% and 14% higher, respectively, than the average taxpayer’s ability to pay.
Spending growth in Texas’ major counties has been eye-popping. Lubbock County’s spending has grown 66% above a responsible limit, Bexar County by 52%, Travis County by 43%, Dallas County by 40%, and Tarrant County by 27%. Only Brownsville spent under the growth limit during the decade.
Harris County takes the prize as the worst of all local governments by exceeding a responsible spending limit by 114%.
“Now it is time to rein in excessive government spending growth at the local level,” Ginn and Quintero write. “We urge local governments to voluntarily adopt these taxpayer protections. Because some may not, we recommend that the Texas Legislature pass a spending limit for all other local governments that includes all spending from any revenue source, restricts expenditure growth to a maximum of state population growth plus inflation from the prior year, and requires a two-thirds supermajority vote by the local governing body to exceed the limit.”
“Limiting the growth of these budgets to population growth plus inflation with the RLBs outlined here will help ensure these localities can be vibrant places for people to prosper.”
Since the severe spring 2020 shutdown recession, Texas has been a leader in economic recovery. This includes reaching new record highs in total nonfarm employment for 7 straight months, leading exports of technology products for 20 consecutive years, and being home to 54 of the Fortune 500 companies. Fortunately, the 87th Texas Legislature supported the recovery with the passage of many pro-growth policies like the nation’s strongest state spending limit, but there is more to do to remove barriers placed by state and local governments for Texans to reach their full potential. Solutions include governments passing responsible budgets and returning surplus tax dollars collected to taxpayers by reducing maintenance and operations property taxes until they are eliminated. Given the laboratory of competition in the U.S. system of federalism, other states are cutting, flattening, and phasing out taxes, so Texas must make bold reforms to support more opportunities for people to prosper, lower the rapidly rising costs of living, and withstand bad economic effects from policies out of D.C.
“We’ve had two quarters: 1.5% decline in GDP, that’s actually done the first quarter, and this quarter now is estimated by the Atlanta Fed as being very, very close to zero,” economist Art Laffer told Fox Business. “If it comes in negative, that will be the two quarters in a row—that would be the definition of recession.”
With the economy stagnating and inflation soaring, stagflation is here for the first time since the Great Inflation of the 1970s because of bad policies out of Washington. A recession is inevitable as the government-inflated “boom” busts—and we could already be in one. But pro-growth policies would help ease the pain.
The pandemic prompted irresponsible and record-breaking deficit spending by Congress, pumping in massive “stimulus” funds that raised the national debt by $6 trillion to $30 trillion, or about $90,000 owed by every American.
And President Biden has also been on a regulatory spree. His administration has finalized 360 rules through June 17 with a cost of about $215 billion, according to the American Action Forum. Compared to the same time since its inauguration, the Trump administration completed 367 rules at an economic cost of $1.2 billion.
Those bad policies by Congress and the Biden administration have been a major reason why the economy is stagnating, with negative growth in the first quarter of 2022 and likely little to no growth in the second quarter. And the Fed purchasing that debt and printing too much money to chase too few goods resulted in a 40-year high in inflation.
This stagflation affects employers and workers.
Firms now can hold less inventory for the same amount they paid previously, which reduces their profitability and causes them to increase prices, cut costs, or reduce output to keep up with inflation. And consumers have less purchasing power.
Workers and employers must then reduce their spending and investment, respectively. With workers producing less, productivity declined by at the fastest rate since 1947, contributing to why inflation-adjusted average hourly earnings are down substantially over the last year.
Another issue is that safety-net programs were increased without work requirements during and since the pandemic. Those programs included expanding Medicaid, increasing child tax credits, and enhancing unemployment insurance payments. This has created even more dependency on government.
And these expansions of government contributed to soaring deficit-spending with a 25% increase in the national debt in just the last two years. These handouts also encouraged people not to work because they would lose more in payments than they would receive from working. There are now 5.5 million more unfilled jobs than unemployed workers.
In order to reduce the pain of the inevitable recession, Congress ought to adopt pro-growth policies, similar to those between 2017-2019. These policies included a concerted effort to reduce onerous regulations and to pass the Tax Cuts and Jobs Act. They contributed to the U.S. records of the lowest poverty rate (across most demographics) and the highest inflation-adjusted median household income.
But excessive spending was an important factor that was missed then because Congress spent too much. If Congress just reined in spending to no more than population growth plus inflation, as outlined in the Foundation’s Responsible American Budget (RAB), the $20 trillion increase in the national debt over the last 20 years would instead have been a nearly $3 trillion surplus.
This would have meant more money in Americans’ pocket and more economic growth from lower interest rates and less debt for the Fed to purchase to create inflation. Which is why the Fed also needs a monetary rule, which would call for it to have a much smaller balance sheet to reduce the quantity of money and a much higher federal funds rate target.
Historically, the federal funds rate target must be as high or higher than the rate of inflation. With the latest inflation rate being 8.6% and the federal funds rate target being in a range of only 1.5%-1.75%, the rate target should be much higher. While this would likely result in a quick and deep recession, this is necessary given the government-inflated boom that must now bust.
Bad policies have driven this government failure that’s making the situation worse before it gets better. For the sake of Americans, let’s end them now, because more government isn’t the solution.
The economic destruction from the shutdown recession from February to April 2020 and subsequent policy mistakes has been persistent. The labor market has improved but this is not a “booming economy.” Congress has added $6 trillion in deficit spending since January 2020 to reach the new high of $30.5 trillion national debt, which amounts to about $91,000 owed per American. And the Federal Reserve has monetized much of the new debt, leading to a 40-year high inflation rate. This has resulted in stagflation rearing its ugly head for the first time since the 1970s with rampant inflation and a stagnating economy, as output may decline in the first half of 2022. The Biden administration, Congress, and the Fed can correct this by not overregulating, overspending, and overprinting, respectively, but instead providing pro-growth policies for more productive private sector activity so that Americans can improve their livelihoods.
When did it all start to go wrong? In the early 20th Century, Americans fighting poverty not only lost sight of the goal—lifting families up—but even of the problem itself, and instead sought to remake society through government intervention, often at the expense of the very people they were meant to help.
In 1920, Owen Lovejoy, president of the National Conference of Social Work, set a “new task” for the increasing number of social workers—they would become “social engineers,” who would create “a divine order on earth as it is in heaven.”
As Marvin Olasky writes in his book, “Renewing American Compassion,” such a goal is far too lofty for individual acts of charity; “As some leaders forgot that compassion means suffering with, they looked more and more to government. They combined power seeking (for the good of others, of course) with social universalistic faith.”
Who has time to worry about that man under the bridge when we’re remaking the world?
This helps to explain failures in the war on poverty. Even setting aside the Great Depression and World War II, our most concentrated efforts have failed to move the needle on the official poverty rate.
Nationally, about $25 trillion (adjusted for inflation) have been spent to combat poverty since 1964 when President Lyndon B. Johnson’s “war on poverty” engendered the Great Society. And the nation spends about $1 trillion per year on more than 80 federal safety-net programs. However, the country’s official poverty rate was declining before 1964, which was the primary measure available, but remained virtually unchanged between 10-15% since then, suggesting a failure of these redistributionist measures to substantially mitigate poverty.
In addition to losing sight of the goal, we’ve lost sight of the problem itself—poverty. We haven’t done a good job of defining it, much less fixing it.
To define the official poverty measure, the U.S. Census Bureau provides an estimated income threshold annually. When a family’s income falls below that threshold, they are considered to be in poverty, which the rate was 11.4% in 2020. There are flaws with this measure. So, if we merely look at it, we know a lot less about real poverty than we might think we do. While there are now better measures of poverty based on broader income levels or consumption, which tend to show much lower rates of poverty since 1964, these measures are focused primarily on material things rather than other important issues that influence poverty.
What can we know about other issues related to poverty? We can look at statistical correlations and learn a lot.
The strongest correlation we see with poverty is a job. Employment, in general, drives down poverty, irrespective of wages, although the effect is more pronounced with higher wages. The availability of jobs has a significant impact on poverty in both the present and a decade into the future.
Education matters, as those with a high school diploma have a 24.7% poverty rate. Graduating high school is vital to help stay out of poverty.
Demographics also matter. Perhaps the most powerful demographic structure, and the most powerful predictor of poverty in general, is single motherhood (25.6% poverty rate overall or 46.2% for those with children under 6 years old). Single motherhood is also a strong predictor of intergenerational poverty.
Location matters; for example, there are 41 Texas counties within 100 miles of the U.S.-Mexican border that have been considered “persistently poor,” meaning at least 20% of the residents have been living in poverty for the last 40 years.
Age is also a factor in poverty, but its impact varies depending on other group characteristics. Metro areas with a younger Black population have higher poverty rates, while areas with an older Black population have lower poverty rates.
What does this tell us? It tells us where we can focus our efforts—and it’s not a one-size-fits-all approach.
The path forward must consider these facts for increased opportunities for people to find financial self-sufficiency through a more holistic approach to poverty relief through an education, job, training, community, social capital, intact families with a mother and father, and other avenues provided by civil society whereby government provisions are available as a last resort.
This follows much of what’s in the success sequence which is a formula of at least graduating high school, working full-time, and marrying before having kids (in that order) to have a 97% chance of not being in poverty.
By connecting people to work, education, or training, enhancing community-based case management, streamlining safety-net programs, and getting resources to those who need it most, we can provide more opportunities for people to be self-sufficient.
Vance Ginn, Ph.D.