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This week’s episode dives into key election-related issues that could significantly impact Social Security and the broader economy. With projections indicating that the Social Security Trust Fund could be depleted in six years under another Trump presidency, while a Harris presidency may maintain the status quo, voters must consider the fiscal implications of their candidates' policies. Topics covered include the impact of tax exemptions, tariff policies, and entitlement expansion, all of which threaten the solvency of the nation’s mandatory programs. Watch the episode on YouTube below, listen to it on Apple Podcast or Spotify, and visit my website for more information. Venezuela's Socialism, U.S. Immigration, & the Fight for Freedom w/ Daniel Di Martino | LPP Ep. 11810/17/2024
Join me for Episode 118 of the Let People Prosper Show with Daniel Di Martino, a PhD candidate in Economics at Columbia University and a graduate fellow at the Manhattan Institute, who shares his experiences living under socialism in Venezuela and its impact on his family. DiMartino discusses the current political landscape in Venezuela, the challenges faced by the opposition, and the implications of socialism on daily life. He also delves into immigration in the U.S., presenting research on immigrants' economic and fiscal impacts and the ongoing debate surrounding immigration policy. The conversation concludes with thoughts on the future of immigration reform in the U.S. and the importance of understanding these issues as the election season approaches. Please share and rate the Let People Prosper Show wherever you get your podcasts, visit vanceginn.com for more insights, and subscribe to my newsletter for show notes at vanceginn.substack.com. Thank you for tuning into the FINAL Let People Prosper podcast episode 76 of 2023! Today, I have a brief but informative podcast for you, recapping the highlights of the economy and my business, Ginn Economic Consulting, LLC.
As a Christmas gift, I am giving away a complimentary subscription to the paid version of my newsletter and a copy of Lexi Hudson’s fantastic book, “The Soul of Civility: Timeless Principles to Heal Society and Ourselves.” To enter this giveaway, simply fill out the information at the link and rate my podcast on either Apple Podcasts or Spotify. Is there anyone whom you would like for me to interview in 2024? Leave them in the comments. Today, I cover:
The Fraser Institute recently released its annual “Economic Freedom of the World” report. While the US inched up one spot from its previous ranking to fifth-best, this ranking remains below its peak of third-best in 2000.
A first-time finding not seen in any of 27 prior years: Hong Kong fell from first place. Singapore nudged out Hong Kong for the top spot by 0.01 points. While that rating may seem minuscule, the implications of how both countries got here are not. The report, which shows comprehensive data from 2021, assesses economic freedom among nations across five major areas: size of government, legal system and property rights, sound money, freedom to trade internationally, and regulations. According to the Fraser Institute’s Matt Mitchell, “The most important component of economic freedom…is the rule of law section…you need to be able to trust that the contracts you form and the property you acquire will be protected. We found that regulatory barriers and the rule of law matter more than taxes [for economic freedom].” Given these guidelines, Hong Kong’s fall isn’t surprising. China’s special administrative region allowed to manage most of its own affairs under the “one country, two systems” precedent since 1997, Hong Kong’s independence has been seriously threatened since 2020 with the passage of China’s new security law. Today, as a result, Hong Kong has one of the fastest-growing political prisoner populations worldwide. Although the protection of Hong Kong’s independence under the system was set to last until 2047, it seems unlikely that China will keep its promise. Over the past two years, Hong Kong’s economic freedom ranking dropped by a substantial 0.40 points, a total decline of 0.64 points since its highest rating of 9.19 in 2010. This is much steeper than the average economic freedom drop worldwide following the pandemic, which is the lowest average score since 2009, pointing to China’s harsh policies as a primary factor. China’s recent security law inhibits free speech and impartial justice, integral to the rule of law which is the foundation upon which individuals can construct their economic aspirations, with trust as the indispensable glue. But trust isn’t just a legal concept. It’s deeply interwoven with a nation’s cultural fabric. Trust is the bedrock upon which economic prosperity thrives, allowing individuals and businesses to engage in voluntary exchanges with confidence. Recent developments, including China imposing significant trade barriers, limits to foreign labor employment, increased business costs, and new attempts to restrict media, tarnished Hong Kong’s overall score. The lesson from the report rings loud and clear: A small government footprint in fiscal matters alone won’t guarantee economic freedom. What’s needed is a symphony of elements: the rule of law, property rights, stable currency, open trade, and sensible regulation. High-income industrial economies like now top-ranking Singapore shine in areas related to legal systems, property rights, sound currency, and international trade while keeping their government size compact. The report is a valuable tool for deciphering economic freedom’s complexities, and the factors underlying the success story of Singapore and Hong Kong’s decline drive home the point that tax rates don’t solely determine economic prosperity. It hinges on the quality of institutions, the rule of law, and the cultural values that champion trust and voluntary exchange. As the US strives to enhance its economic freedom, the country would be wise to heed the lessons offered by Singapore’s rise and Hong Kong’s fall. In particular, this should include removing government barriers so that there are more ways for free people to prosper. Originally published at American Institute for Economic Research. The Biden Administration’s Justice Department took Google to a civil trial on Tuesday, beginning the department’s first major monopoly lawsuit since it took on Microsoft in 1998. What’s the allegation? Google supposedly violated U.S. antitrust laws. But it seems the main “violations” are that Google is good at what they do, consumers love their product and Microsoft is mad.
Jonathan Kantor at the Justice Department (and Lina Khan at the Federal Trade Commission) have pushed an endlessly fruitless crusade against “Big Tech.” Now, it has taken issue with Google’s methods of becoming the default browser on popular devices, which they’ve done through legal means that more savvy people might just call “marketing.” Products like iPhones and MacBooks make it easy for consumers to change their default browser to whatever they prefer. Most of them favor Google because they believe it’s a better search engine. Herein lies the real crux of the lawsuit. Antitrust laws were created to preserve competition. The original laws were rightly deemed too broad and vague, so a new guiding principle of the consumer welfare standard for enforcing these laws was implemented to consider whether consumers are better or worse off from the actions of businesses. In economics, consumer welfare is defined as the “value consumers get from a product less the price they paid.” That value varies from person to person, which is what makes free markets work. Consumers have the ability and the sovereignty to decide which product or service is best for them. To violate the consumer welfare standard would mean moving toward a monopoly. This is when a business has a large market share, or even the market share, such that they can raise prices of their goods or services regardless of quality. The outcome would reduce consumer welfare and, therefore, contribute to potential antitrust law violations. Found guilty, a business could be broken up into smaller parts, forced to sell off part of it or face penalties. In other words, it’s another hindrance to productive activities as targeted employers are forced to beef up on lawyers to deal with federal pushback instead of allocating those resources toward productive means that would help their employees and customers prosper. Despite what the DOJ claims, antitrust laws are rarely enforced to protect consumer welfare, and this case is no exception. Google is not only Americans’ preferred browser, but the company is consistently rated one of the best places to work. So, it seems most of its consumers find value in the product. If they don’t, they can use Bing, Firefox, DuckDuckGo or any other search engine that competes with Google and is readily accessible. So, if this case isn’t centered around consumer welfare or targeting monopolies, what is it really about? If the DOJ wins, which is highly unlikely, American competition and innovation will be stifled. This rent-seeking behavior may win votes with folks on the Left concerned with restricted competition and those on the right concerned about censoring on popular platforms like Google and Meta, but at what cost? Inhibiting free markets with increased regulations is far more likely to drive up prices and decrease consumer welfare than any part of “Big Tech.” This pursuit wastes taxpayers’ dollars that would be better spent elsewhere or, better yet, for the federal government to spend less so people have more money in their pockets to improve their own welfare. At a time when inflation remains too high, the labor market is cooling and Americans are suffering from a bleak economy, this lawsuit is a frustrating misuse of government resources. Moreover, government attempts like this to manipulate markets will always fail due to what economist Friedrich Hayek identified as the knowledge problem. He argued that information (knowledge) is decentralized, dispersed across society and not contained within departments of power. Central planners, in this case the DOJ (and FTC), do not have all the knowledge necessary to designate market competition, and they never will. Free market capitalism cannot be manipulated but must be allowed to work through spontaneous order. This lawsuit attacks free markets and, thereby, free people. Not monopolies or consumer welfare violations, and it’s abundantly clear that neither of those are real problems regarding Google. It’s time for the DOJ to accept defeat and focus on things that actually matter. Ganging up on Google amid all the problems Americans face today, while understanding legitimate concerns with some of Google’s actions, is out-of-touch, to say the least. Originally published at Daily Caller. Today, I cover: 1) National:
3) Other: My thoughts on the DOJ lawsuit against Google for violating antitrust laws and why I believe it's an attack on consumers and capitalism. You can watch this TWE episode and others along with my Let People Prosper Show on YouTube or listen to it on Apple Podcast, Spotify, Google Podcast, or Anchor. Please share, subscribe, like, and leave a 5-star rating!
For show notes, thoughtful insights, media interviews, speeches, blog posts, research, and more, please check out my website (www.vanceginn.com) and subscribe to my newsletter (www.vanceginn.substack.com), share this post, and leave a comment. We discuss: 1) How antitrust laws harm capitalism, why free markets work better with less government interference, and how people misunderstand antitrust laws; 2) What people, especially younger generations, misunderstand about capitalism, what it is and isn't, and how most of us on either side of the political aisle have more in common than not; and 3) How Hannah believes the country could change for the better, and her fascinating background from being a singer/songwriter and interning for Taylor Swift's team to becoming a liberty warrior. Hannah’s bio:
You can watch this episode and others along with my Let People Prosper Show on YouTube or listen to it on Apple Podcast, Spotify, Google Podcast, or Anchor. Please share, subscribe, like, and leave a 5-star rating! For show notes, thoughtful insights, media interviews, speeches, blog posts, research, and more, please check out my website (www.vanceginn.com) and subscribe to my newsletter (www.vanceginn.substack.com), share this post, and leave a comment. In this episode, we discuss: 1) The importance of economic freedom, how it is measured, the rule of law, and the importance of protecting private property; 2) Myths about which European countries are socialist and the history of different economic institutions in Poland, including his latest work “The Road to Socialism and Back: An Economic History of Poland, 1939–2019”; and 3) A history of socialism and communism, what Marx failed to see in countries with capitalism or socialism, and reasons to be optimistic about economic freedom and prosperity worldwide. Matt’s bio:
For show notes, thoughtful insights, media interviews, speeches, blog posts, research, and more, check out my website (https://www.vanceginn.com/) and please subscribe to my newsletter (www.vanceginn.substack.com), share this post, and leave a comment. Oren Cass, founder of the think tank American Compass, presents a vision of the “new right” in his recently released book, Rebuilding American Capitalism. In it, he advocates for a top-down approach to governance in response to what he perceives as free-market failures.
He tends to believe that certain politicians can and should shape markets to achieve desired outcomes rather than letting free markets, which are free people, work. This attempt to rebrand not only the right but capitalism itself is flawed, as history and sound economics prove. Cass pinpoints growing concerns in the economy to help bolster his arguments, like poor inflation-adjusted wage growth and lack of strong social and family units. These are problems making it harder for people to prosper, but they are not, as he suggests, evidence that free-market capitalism has failed. But these problems–if they are problems, as Scott Winship and Jeremy Horpedahl recently found that people are thriving–aren’t the results of free markets but are driven instead by government failures. These failures include bloated government spending, restrictive regulations, high tax burdens, excessive safety net programs, costly tariffs, and other barriers to entry in the marketplace. They are imposed by politicians and government bureaucrats, hindering competition, disrupting entrepreneurial endeavors, impeding wage growth, and destroying human flourishing. Cass contends that capitalism only works under the right conditions, which must be facilitated by the government to keep the labor market and the economy strong. Rather than what he calls the “Old Right’s market fundamentalism” of fewer regulations and less government intervention being best, he welcomes more government with certain politicians in power. He proudly makes markets the scapegoat and, with it, globalization and financialization. In the book’s foreword, Cass writes: "Globalization must be replaced with a bounded market that restores the mutual dependence of American capital and labor and invites the trade and immigration that benefit American workers. Financialization must be reversed so that both talent and capital in pursuit of profit find their best opportunities in productive investment rather than extraction and speculation." Believing that more opportunities in the form of globalization inhibit rather than help Americans is the same faulty basis with which people discourage immigration and trade, which are central to thriving economies. But the crux of Cass’s theory is that he believes markets must be molded, even referring to work by the father of modern economics Adam Smith. Conveniently, he fails to cite the economist Frederick Hayek, who built on Smith’s ideas, to identify spontaneous order, the basis of free-market capitalism that argues economic growth and prosperity arise from voluntary transactions by free people, not government guidance and control. This “new right” idea was debunked long before Cass came along by Hayek (and others), who also highlighted the “knowledge problem” associated with central planning. He argued that no central authority can possess the information necessary to make efficient decisions for an entire economy. The complexity of economic interactions and the constant flux of information require decentralized decision-making and market mechanisms to aggregate and incorporate local knowledge effectively. Hayek’s insights emphasize the limitations of top-down control and the importance of allowing market forces and individual actors to shape economic outcomes based on their localized knowledge and preferences from the bottom-up. But Cass would have it that government is heralded as the keeper of knowledge and the arbiter of good decisions rather than encouraging freedom and liberty in individuals, i.e., the essence of capitalism. Capitalism allows individuals to pursue their economic aspirations and make decisions based on their knowledge and preferences through voluntary exchange within rules of the game set by limited government. Through this freedom, innovation, entrepreneurship, and competition thrive, leading to greater prosperity for all. History is full of successful economic transformations driven by leaders who championed limited government and free markets. Former President Calvin Coolidge cut government spending, cut taxes, and reduced the national debt, providing more paths for human flourishing. Likewise, former President Ronald Reagan cut taxes, tried to rein in government spending, and reduced regulations, unleashing economic growth and job creation. Both of them understood that cutting spending, reducing taxes, and removing excessive regulations create an environment where businesses thrive and workers can benefit. Their approaches embraced the power of individual freedom and self-determination, not top-down control that breeds the opposite. Oren Cass’s theory of the “new right” and its embrace of government fundamentalism misunderstands the principles of capitalism and human behavior. Top-down approaches, rooted in centralized control and regulation, do not lead to economic prosperity or personal freedom no matter who is in charge but do distort the efficient allocation of resources, undermine the adaptability of markets, and reduce opportunities to let people prosper. To achieve a thriving and prosperous economy, we must adhere to and strengthen the principles of free-market capitalism, which too much of our economy today is deprived of when considering healthcare, education, transportation, manufacturing, and the labor market. This should include embracing limited government, voluntary exchange, and individual freedom as the pillars of strong families, productive workers, and profitable employers. Economist Milton Friedman noted what this debate is about decades ago. “The problem of social organization is how to set up an arrangement under which greed will do the least harm; capitalism is that kind of a system.” And while “history suggests that capitalism is a necessary condition for political freedom,” it’s clearly “not a sufficient condition.” But capitalism is the best system yet that has supported economic prosperity and political freedom. The problem is that we have had too little free-market capitalism for people to thrive because of too much government. There’s no need for a “new right” of big-government progressive policies offered by Cass and others when free-market capitalism of the “old right” is too often missing in our lives. Originally published at Econlib. On today's episode of the "Let People Prosper" show, which was recorded on March 6, 2023, I'm honored to be joined by Dr. Arthur Laffer, legendary economist and 2019 recipient of the Presidential Medal of Freedom. We discuss:
Dr. Arthur Laffer’s bio and other info (here):
Both Republicans and Democrats at the national level have put us down a path of slow growth, massive deficits, and high inflation. With a new Republican majority in the U.S. House and the daunting debt ceiling fight over the bloated $31.4 trillion national debt almost exclusively due to excessive spending, there’s a proven pro-growth, pro-liberty path.
In 2022, the U.S. had real GDP growth of just 0.9 percent (Q4-over-Q4), the highest inflation in 40 years, the highest mortgage rates in 20 years, and the worst stock market in 14 years. Average real weekly earnings have now declined year-over-year for 22 straight months. Fortunately, history is a good guide for how to overcome this mess. The two of us have served as chief economists at the Office of Management and Budget (OMB), though 50 years apart. One of us (Arthur Laffer, originator of the “Laffer Curve”) was the first chief economist of the OMB in the Nixon White House. The other (Vance Ginn) was the last associate director for economic policy at the OMB in the Trump White House. While much has changed since the OMB was formed in 1970, the problems are basically the same today. There remains a lot of unjustifiable government spending, prosperity-killing taxes, unwarranted regulations, excessive liquidity, and harmful interference in international trade. But just because counterproductive economic policies have been around for a long time doesn’t mean we shouldn’t try for a better world. Each of the above areas is the subject of intense debate. In politics, these debates have their short-term winners and losers as judged by elections. But the principles of economics aren’t determined by votes. The remedy for economic malaise has been and is less government, not more. Free-market, pro-growth policies are the cure. The legacy of the 1970s is now called the era of stagflation, and the 2020s are shaping up to be known for the same, or worse. Even with 50 years of experience, many people still haven’t learned a lesson. During the Nixon and Ford administrations, the economy was stifled at every turn. The dollar was taken off gold and devalued, resulting in higher inflation. Then there was the imposition of wage and price controls, which did nothing to stop inflation but instead ravaged the economy. Government spending was out of control. Taxes were raised, and tariffs imposed, including a 10 percent import tax surcharge; such was the wisdom of the D.C. crowd. The consequences were rising inflation, stock market collapse, impeachment, and a weak economy. Then, President Jimmy Carter tried to do more of the same with the same consequences. There followed a true renaissance, led by President Ronald Reagan’s tax and regulatory cuts and Federal Reserve Chairman Paul Volcker’s sound monetary policy. Inflation crashed, the stock market soared, new jobs surged, and Reagan won re-election in a landslide, winning 49 states. And then there was the sad interlude of George H.W. Bush, who broke his promise by raising taxes, leading to a one-term presidency. President Bill Clinton, partnering as he did with House Speaker Newt Gingrich, cut government spending by 3 percentage points of GDP, cut capital gains tax rates while exempting owner-occupied homes from this tax altogether, and finally, he and the Republicans pushed the North American Free Trade Agreement (NAFTA) through Congress. On the bad side, he raised the top two tax rates. But the spending restraint contributed to a budget surplus for four straight years. President George W. Bush, with a penchant for spending more and for temporary tax cuts, was followed by President Barack Obama, with a desire on steroids to spend even more, plus he nationalized health care. Stagnation took hold, and prosperity faded. In his first two years, President Trump reversed some of the prior 16 years of bad policy with substantial tax cuts, historic deregulation, and other measures that helped get government out of the way, contributing to the lowest poverty rate and the highest real median household income on record. But with the onset of the pandemic, prosperity was cut short by the ill-advised massive spending increases and lockdowns. Today, we’re once again mired in a sea of bad policies and bad consequences despite President Joe Biden’s self-serving narrative. With tax hikes, massive spending, oppressive energy regulations, soaring debt levels, trade protectionism, and a bloated Fed balance sheet, stagflation was given a brand-new lease on life. We should follow the proven, pro-growth path (not currently taken) of sound money, minimal regulations, free trade, flat taxes, and most of all, spending restraint for the sake of the economy and human flourishing. It’s also great politics. With this elixir in hand, it would be springtime again in America. And that is something Americans can believe in. Vance Ginn, Ph.D., is an economist and senior fellow at Young Americans for Liberty and previously served as the associate director for economic policy of the White House’s Office of Management and Budget from 2019 to 2020. Arthur Laffer, Ph.D., is an economist from Nashville, Tennessee, and was the first chief economist of the White House’s Office of Management and Budget. Originally published at The Federalist. California Gov. Gavin Newsom boldly — and a wee bit desperately — ran ads last summer encouraging Florida residents to relocate to California . Housing affordability is one reason it probably won't work.
Housing affordability has been a major factor driving Californians to states such as Texas and Florida, where they can realistically afford the American dream of owning a home. Cost of living — which is mainly a housing problem — and taxes round out the top motivations for fleeing the once-growing states such as California. The states that win on housing affordability from free-market-oriented policy win overall. Twenty years ago, few would have bet on a mass exodus of residents from the popular albeit highly regulated housing market in California. Issues related to land use, zoning, and bureaucratic chaos led to substantially higher housing costs. The five most expensive housing markets nationwide are all within California. Further, a recent Hoover Institution report found that one of the top reasons companies leave California is “... high living costs, particularly the cost of housing affordability.” In the same vein, C2ER finds that California’s housing costs are about 1.7 times greater than Florida’s and 2.2 times higher than Texas’s. This contributes to California suffering losses of big businesses (11 Fortune 1,000 companies) between 2018 to 2021, along with small, quickly growing companies. Texas and Florida have figured out the secret to housing affordably through free-market policies that help entrepreneurs address challenges to build more homes in a safe, less costly manner. The recent census report shows how Florida drew the most net new domestic residents (318,855), with Texas coming in second (230,961). Many people packed up and moved to states with “lower taxes, more affordable housing and a higher standard of living.” What’s more, Texas came in first in overall population growth (470,708), with Florida second (416,754). These states are the ones that tend to let builders build more freely than the others. The Wharton Residential Land Use Regulation Index , one of the most respected analyses of the effect of regulation on price, shows a strong, positive correlation between house prices and over-regulation. Take, for example, San Francisco, where it takes 861 days to get a permit for one residential home. In Houston, it takes just 15 days . That’s huge savings for homebuilders and, therefore, homeowners. For Texas to remain competitive, it must guard against bureaucratic bottlenecks like those developing in Austin, where simply getting residential site plans approved now takes one to two years . To remain prosperous, Texas must keep and improve on free-market principles, especially in housing. Otherwise, the resulting higher costs of living will force people and businesses elsewhere. Florida has done a good job winning the war against excessive regulation to make way for more home construction. In 2019, the Sunshine State passed a law allowing third parties to help streamline the permitting process, alleviating wait times for home construction. In 2021, it passed a shot-clock law that effectively limited permit responses by cities to no more than 30 days. It’s not complicated: The states and cities that will prosper in the coming decade will be those that allow a less regulated housing market so the quantity of housing supplied can efficiently meet the quantity demanded. For states that plan to attract business while retaining residents, they must improve the regulatory environment for builders by getting out of the way. This should include streamlining building regulations to make it easier to build new housing, reforming land use policies to encourage development, and sorting out the bureaucratic bottleneck that complicates the building process. Like musical chairs, if you have fewer chairs than people, some people have to find a new home … or a state. Vance Ginn, former associate director for economic policy in the White House Office of Management and Budget, is president of Ginn Economic Consulting, LLC , chief economist at Pelican Institute for Public Policy, and senior fellow at Young Americans for Liberty. Nicole Nabulsi Nosek is the founder and chair of Texans for Reasonable Solutions. Originally published at Washington Examiner. Key Point: Americans are suffering under big-government policies as average weekly earnings adjusted for inflation are down for 21 straight months. It's time for pro-growth policies to unleash economic potential to let people prosper. Overview: The irresponsible “shutdown recession” and subsequent government failures have led to a longer, deeper recession with high inflation that are having persistent consequences for many Americans’ livelihoods. This includes excessive federal spending redistributing scarce private sector resources with deficit spending of more than $7 trillion since January 2020 to reach the new high of $31.4 trillion in national debt—about $95,000 owed per American or $250,000 owed per taxpayer. This new debt has hit its limit and needs to be addressed with spending restraint as the Federal Reserve monetized most of the new debt, leading to a 40-year-high inflation rates. The failed policies of the Biden administration, Congress, and the Fed must be replaced with a liberty-preserving, free-market, pro-growth approach by the new majority by House Republicans so there are more opportunities to let people prosper. Labor Market: The U.S. Bureau of Labor Statistics recently released the U.S. jobs report for December 2022. The BLS’s establishment report shows there were 223,000 net nonfarm jobs added last month, with 220,000 added in the private sector. Interestingly, while there have appeared to be a relatively robust number of jobs created, a recent report by the Philadelphia Fed find that if you add up the jobs added in states in Q2:2022 there were just 10,500 net new jobs rather than more than 1 million initially estimated. This further indicates that the recession started in (likely) March 2022 (more on this below). That expected revision to the establishment report supports the weak data in the BLS’s household survey, which employment increased by 717,000 jobs last month but had declined in four of the last nine months for a total increase of 916,000 jobs since March 2022. This number of net jobs added since then is much lower than the report 2.9 million payroll jobs in the establishment. The official U3 unemployment rate declined slightly to 3.5%, but challenges remain, including: 3.1% decline in average weekly earnings (inflation-adjusted) over the last year, 0.4-percentage point lower prime-age (25–54 years old) employment-population ratio than in February 2020, 0.6-percentage point below prime-age labor force participation rate, and 1.0-percentage-point lower total labor-force participation rate with millions of people out of the labor force. These data support my warnings for months of stagflation, recession, and a “zombie economy.” This includes “zombie labor” as many workers are sitting on the sidelines and others are “quiet quitting” while there’s a declining number of unfilled jobs than unemployed people to 4.5 million And that demand for labor is likely inflated from many “zombie firms,” which run on debt and could make up at least 20% of the stock market and will likely lay off workers with rising debt costs. Economic Growth: The U.S. Bureau of Economic Analysis’ released economic output data for Q4:2022. The following provides data for 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 in 2020 had GDP contract at historic annualized rates because of individual responses and government-imposed shutdowns related to the COVID-19 pandemic. Economic activity has had booms and busts thereafter because of inappropriately imposed government COVID-related restrictions in response to the pandemic and poor fiscal policies that severely hurt people’s ability to exchange and work. Since 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 +6.1% for Q4-over-Q4 2021, representing half of the +12.2% increase in nominal total GDP. This inflation measure was +9.1% in Q2:2022—the highest since Q1:1981—for a +8.5% increase in nominal total GDP that quarter. This made two consecutive declines in real total (and private) GDP, providing a criterion to date recessions every time since at least 1950. In Q3:2022, nominal total GDP was +7.6% and GDP inflation was +4.4% for the +3.2% increase in real total GDP. But if inflation had been as high as it was in the prior two quarters or had the contribution of net exports of goods and services (driven by natural gas exports to Europe) not been 2.9%, real total GDP would have either declined or been essentially flat for a third straight quarter. In Q4:2022, there was a similar story of weaknesses as nominal total GDP was +6.4% and GDP inflation was +3.5% for the +2.9% increase in real total GDP. But if you consider the +2.9% real total GDP growth was driven by contributions of volatile inventories (+1.5pp), government spending (+0.6pp), and next exports (+0.6pp) which total +2.7pp, the actual growth is quite tepid. For all of 2022, real total GDP growth is reported +2.1% year-over-year but measured by Q4-over-Q4 the growth rate was only +0.96%, which was the slowest Q4-over-Q4 growth for a year since 2009 (last part of Great Recession). The Atlanta Fed’s early GDPNow projection on January 27, 2023 for real total GDP growth in Q1:2023 was +0.7% based on the latest data available. The table above also shows the last expansion from June 2009 to February 2020. The earlier part of the expansion had slower real total GDP growth but had faster real private GDP growth. A reason for this difference is higher deficit-spending in the latter period, contributing to crowding-out of the productive private sector. Congress’ excessive spending thereafter led to a massive increase in the national debt that would have led to higher market interest rates. This is yet another example of how there is always an excessive government spending problem as noted in the following figure with federal spending and tax receipts as a share of GDP. But the Fed monetized much of it to keep rates artificially lower thereby creating higher inflation as there has been too much money chasing too few goods and services as production has been overregulated and overtaxed and workers have been given too many handouts. The Fed’s balance sheet exploded from about $4 trillion, when it was already bloated after the Great Recession, to nearly $9 trillion and is down only about 6% since the record high in April 2022. The Fed will need to cut its balance sheet (see first figure below with total assets over time) more aggressively if it is to stop manipulating so many markets (see second figure with types of assets on its balance sheet) and persistently tame inflation. The resulting inflation measured by the consumer price index (CPI) has cooled some from the peak of 9.1% in June 2022 but remains hot at 6.5% in December 2022 over the last year, which remains at a 40-year high (highest since June 1982) along with other key measures of inflation (see figure below). After adjusting total earnings in the private sector for CPI inflation, real total earnings are up by only 1.1% since February 2020 as the shutdown recession took a huge hit on total earnings and then higher inflation hindered increased purchasing power. Just as inflation is always and everywhere a monetary phenomenon, high deficits and taxes are always and everywhere a spending problem. The figure below (h/t David Boaz at Cato Institute) shows how this problem is from both Republicans and Democrats. As the federal debt far exceeds U.S. GDP, and President Biden proposed an irresponsible FY23 budget and Congress never passed one until the ridiculous $1.7 trillion omnibus in December, 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. Recommendations:
Key Point: Texas continues to lead the way in job creation over the last year (see first figure) and second in economic growth in the third quarter of 2023 (see last figure), but there’s more to do to help struggling Texans deal with the state’s affordability crisis, especially spending, regulating, and taxing less. Overview: Texas has been a national leader in the economic recovery since the inappropriate shutdown recession in Spring 2020. This includes reaching a new record high in total nonfarm employment for the 14th straight month, leading exports of technology products for 20 consecutive years, and being home to more than 50 of the world’s Fortune 500 companies. While the 87th Texas Legislature in 2021 supported the recovery by passing many pro-growth policies like the nation’s strongest state spending limit, there’s more to do in the ongoing 2023 session to remove barriers placed by state and local governments. Labor Market: The best path to prosperity is a job, as it helps bring financial self-sufficiency, dignity, hope, and purpose to people so they can earn a living, gain skills, and build social capital. The table below shows the state’s labor market for December 2022. The establishment survey shows that net nonfarm jobs in Texas increased by 29,500 last month, resulting in increases for 31 of the last 32 months, to bring record-high employment to 13.7 million. Compared with a year ago, total employment was up by 650,100 (+5.0%)—fastest growth rate in the country—with the private sector adding 628,800 jobs (+5.7) and the government adding 21,300 jobs (+1.1%). The household survey shows that the labor force participation rate is slightly higher than in February 2020 but well below June 2009 at the trough of the Great Recession. The employment-population ratio fell was unchanged in November and nearly where it was in February 2020, and the private sector now employs 700,000 more people than then. Texans still face challenges with a worse unemployment rate, though historically low, and nonfarm private jobs just recently above its pre-shutdown trend (Figure 1). The figure below compares the ratio of current private employment to pre-shutdown forecast levels in red states and blue states if both chambers of the legislature and the governor are Republican (dark red), Democrat (dark blue), or some combination (lighter colors). The results show a clear distinction between red states and blue states, with the stringency of restrictions by governments during the pandemic along with pro-growth policies before and after the shutdowns playing key roles. Specifically, 21 of the 25 states with the best (highest) ratios are in red-ish states while 13 of the 15 states and D.C. with the worst (lowest) ratios are in blue-ish places as of December 2022. The following figure from Soquel Creek on Twitter tells the story even more directly: those states with more economic freedom prosper more than those with less economic freedom (see rankings in Fraser Institute's Economic Freedom of North America report: FL ranks #1, Texas ranks #4, California ranks #49, and New York ranks #50). Overall, multiple indicators should be considered in this nuanced labor market, such as the fact that the unemployment rate is a weak indicator as many have dropped out of the labor force. While the labor force participation rate in Texas slightly exceeds where it was before the shutdowns, and the 3.9% unemployment rate could be considered full employment, the employment-population ratio is 0.2-percentage point below the pre-shutdown ratio. Economic Growth: The U.S. Bureau of Economic Analysis (BEA) recently provided the real gross domestic product (GDP) by state for Q3:2022. The Figure below Texas had the second fastest GDP growth (first is Alaska) of +8.2% on an annualized basis to $1.89 trillion (above the U.S. average of +3.2% to $20.05 trillion). In the prior quarter, Texas had the fastest growth with +1.8% growth as the U.S. average declined by -0.6% that quarter. Of course, these followed Texas’ GDP contractions of -7.0% in Q1:2020 and -28.5% in Q2 during the depths of the shutdown recession. Fortunately, GDP rebounded in Q3 and Q4, yet declined overall in 2020 by -2.9% (less than -3.4% decline of U.S. average) but increased by +3.9% in 2021 (below the +5.9% U.S. average). The BEA also reported that personal income in Texas grew at an annualized pace of +6.9% in Q3:2022 (ranked 6th highest and faster than the U.S. average of +5.3%) but slower than the robust +8.4% in Q2:2022 (ranked 6th best and above the U.S. average of +4.9%) as job creation and inflated income measures found their way across the economy. ![]() Bottom Line: As Texas recovers from the shutdown recession and faces an uncertain future with the U.S. economy having stagflation and a likely recession, Texans need substantial relief to help make ends meet. Other states are cutting, flattening, and phasing out taxes, so Texas must make bold reforms to support more opportunities to let people prosper, mitigate the affordability crisis, and withstand destructive policies out of D.C.
Free-Market Solutions: In 2023, the Texas Legislature should improve the Texas Model by:
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Vance Ginn, Ph.D.
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