Originally published at Washington Times.
In President Biden‘s recent State of the Union address, he painted a rosy economic picture, touting what he called “Bidenomics” as the driving force behind what he claims is a robust economy. He pointed to a low unemployment rate, the absence of a recession, and a lower inflation rate as evidence of success. Reality, however, tells a different story. And Mr. Biden’s recently released irresponsible budget sends the federal government and America further toward bankruptcy. Despite the president’s assertions, the economy and inflation remain top concerns for most Americans. The disconnect between the headlines and the lives of ordinary citizens underscores the profound challenges facing the nation’s economic landscape. This sense of malaise can be directly attributed to the flawed principles underlying Bidenomics, as outlined in his latest budget. These include excessive spending, taxation and regulation. Each is destructive, but together, they are catastrophic. The result has been stagflation and less household employment in four of the last five months. There have also been lower inflation-adjusted average weekly earnings by 4.2% since January 2021, when Mr. Biden took office. Rather than fostering economic growth and prosperity, Bidenomics has stifled innovation, investment and job creation. At its core, Bidenomics represents a misguided attempt to address complex economic issues through heavy-handed government intervention. While the administration may tout short-term gains, the long-term consequences of such policies are far-reaching and unaffordable. The reality is that excessive government spending has led to unsustainable levels of debt, burdening future generations with the consequences of fiscal irresponsibility. Similarly, excessive taxation is stifling entrepreneurship and dampening economic activity, limiting opportunities for individuals and businesses alike. Excessive regulation serves only to hamper innovation and drive up costs, exacerbating the challenges facing working families. Unfortunately, Mr. Biden’s latest budget proposal doubles down on these bad policies. Even with rosy assumptions of tax collections being a higher share of economic output over time as the tax hikes will reduce growth and, therefore, lower taxes as a share of gross domestic product, the budget continues massive deficits every year. This will result in higher interest rates, higher inflation, more investment These results have been highlighted in economic theory by economists such as Alberto Alesina and John B. Taylor. Their research has found that raising taxes doesn’t help close budget deficits because of the reduction in growth from higher taxes in a dynamic economy. The way forward should be cutting or at least better-limiting government spending — the ultimate burden of government on taxpayers. Amid these challenges, America also needs a return to optimism and flourishing. This includes leadership that inspires confidence, fosters innovation, and empowers people to pursue their dreams. We need out-of-the-box policies prioritizing economic freedom and individual opportunity, allowing the entrepreneurial spirit to thrive and driving growth and prosperity. More specifically, this means reducing the burden of government intervention through lower spending and taxes, streamlining regulations, and fostering an environment where entrepreneurship can thrive. By embracing fiscal sustainability and making tough choices, we can ensure the long-term stability and prosperity of our nation. In short, while Mr. Biden tries to spin a positive narrative about the economy, the facts speak for themselves. We cannot afford Bidenomics, no matter the headlines, what was touted in the State of the Union address, or the latest budget. The stakes are too high, and the consequences too grave, to ignore the reality of our economic situation. We need leadership that is willing to confront the hard truths and enact policies that prioritize the well-being of all Americans, fostering an environment where optimism and flourishing can thrive.
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Thank you for listening to the 45th episode of "This Week's Economy."
Today, I cover: 1) National: -DeSantis drops out of the race, and New Hampshire primary results put Trump and Haley fairly close, so what happens next? -Real GDP for Q4 2023 was up 3.3%, but the contribution of costly, unproductive government spending makes the real private GDP rate lower. -The stock market has been better under Trump than Biden through three years of their terms, but Trump can’t necessarily take the credit. Will he try? -Grocery prices have moderated but have still outpaced earnings since 2019; what does it mean to you? -Why the tax code shouldn’t serve as social engineering, but why does Congress try? 2) States: -National School Choice Week highlights which states need to provide universal education freedom. Is your state next? -My new paper with Sal Nuzzo of the James Madison Institute notes how Florida can reduce its sales tax burden, but will they do it? -State-level jobs report reveals that job growth is slow across most states, but Texas leads in job creation. How does your state do? 3) My Media Hits & Other: -My recent commentary reveals what’s really going on in the labor market. -My latest bonus LPP episode with Brad Swail of Texas Talks shares my thoughts on the economy, Texas, property taxes, immigration, and more. -Last week’s LPP episode with Matt Mitchell reveals how Estonia is freer than the U.S. -Set your alarms for Monday so you don’t miss my upcoming episode with Dr. Bruce Caldwell on Friedrich Hayek and much more. Please like this video, subscribe to the channel, share it on social media, and provide a rating and review. Also, subscribe and see show notes for this episode on Substack (www.vanceginn.substack.com) and visit my website for economic insights (www.vanceginn.com). Originally published at Daily Caller.
A new study from the International Monetary Fund (IMF) has ruffled assumptions, asserting that “40% of global employment is exposed to AI.” The study also predicts that high-skilled jobs will bear the brunt of this transformation, disproportionately influencing roles that traditionally require higher education and professional experience. Among advanced economies, the IMF estimates that the share of jobs affected by AI could be 60 percent. Half of them could benefit from increased productivity, and the other half hurt by replacement. The IMF concludes that the impending shift should compel countries, particularly those well-prepared for AI integration like the U.S., to implement “robust regulatory frameworks.” They argue this would help cultivate a safe and responsible AI environment with safety nets to help those whose jobs are AI “vulnerable.” But we don’t have to look too far back to realize how attempting to harness AI innovation and its results would be disastrous for people and prosperity. The rise of AI presents a unique chance for society to better adapt to challenges and capitalize on new opportunities. Humanity has always adapted to new technological possibilities, turning most disruptions into positive outcomes. For instance, dedicated professionals called “calculators” once performed complex calculations. With the emergence of pocket-sized calculators in 1971, the computing revolution began, showcasing the transformative potential of technological innovation. Those human calculators, who would today be considered high-skilled, highly vulnerable individuals, went behind the machines and created and perfected better computational technologies. Whether or not they felt threatened by the technology, they adapted nevertheless and made their skills indispensable to the technology. As the electronic calculator removed much busy work, their minds were more available to focus on tasks machines couldn’t perform. The emergence of health-related diagnostic tools like X-rays and MRIs did not render doctors less valuable but widened the breadth of their jobs. Tractors did not displace farmers but made aspects of the role significantly more accessible, allowing for higher output. The examples of technology helping humans by making their jobs easier are endless. High-skilled professionals facing AI exposure should view this revolution as an opportunity to learn and grow. Rather than advocating for regulatory barriers, individuals can proactively enhance their skills, pursue further education, earn certificates, or even explore career transitions. The power of spontaneous order in free markets lies in allowing people to innovate when not restricted by government overreach. The IMF study’s conclusion urging countries to hurriedly embrace AI regulation overlooks the resilience and adaptability inherent in free societies. Attempting to pause AI innovation is impractical in the face of rapid advancements by other nations. Our big tech competitors like China and the UAE will not inhibit progress with red tape, so why would we? We’ve already seen demonstrative instances. Recall that in June 2023, Meta launched what was, at the time, the largest open-source language model ever, Llama 2. For almost two months after that, America was the global AI leader due to this technology, only to be eclipsed by the UAE government with their release of Falcon 180b, which has more than double the parameters of Llama 2. In a matter of weeks, America lost its top spot in AI innovation. Imagine what would happen if we introduced more regulatory barriers, as suggested by the IMF, or required a pause in AI advancement, as suggested by Elon Musk and others last year. It’s not just the U.S. reputation as a world leader at stake but our very security, as we could quickly be overtaken by nations who embrace the power of AI in technology, cybersecurity, and beyond. To maintain leadership in the AI landscape, the U.S. must welcome disruptive changes and cultivate an environment encouraging competitiveness. The future belongs to those who can adapt and innovate, and AI, as a tool created by humans, should be embraced rather than feared. We must learn from history or be doomed to repeat it. This includes honestly assessing the economy in 2023 so that we have better information for making decisions in 2024.
Starting with a bang on many people’s minds is housing affordability. The year commenced with a surge in the average 30-year fixed mortgage rate from 6.5% in January to nearly 8% in October but has declined recently to about 6.6%. These higher mortgage rates and record-high housing prices contributed to an unaffordable housing market. While existing home sales were up 0.8% in November, they are down 7.3% over the last year, indicating a struggling housing market for families that will unlikely improve much in 2024. Another concern is costly inflation. Rampant hikes in the cost of a typical basket of goods and services have meant less purchasing power for us. This contributes to making housing, food, education, and other expenses for that basket less comfortable or worse for many families. As of November 2023, the core consumption personal expenditures increase was 3.2% year-over-year. This price measure of a basket of goods and services excludes food and energy and is what the Federal Reserve prefers to watch. While core PCE inflation has moderated from close to 6% in 2022, the recent 3.2% inflation rate remains 60% higher than the Fed’s average inflation target of 2%. Although moderating inflation represents some relief for many Americans, the challenge is that average weekly earnings adjusted for core inflation declined in 23 of the last 35 months since January 2021. In total, these real average weekly earnings are down 0.8% since then, indicating why inflation is a top concern. An additional problem is debt. Because earnings haven’t been keeping up with inflation, credit card debt soared to more than $1 trillion as people struggled to make ends meet, which is a bad sign for 2024. And many people have been going through their savings and retirement funds quickly. What about jobs? The White House recently celebrated “total job gains achieved under the Biden administration reached 14.1 million through November 2023.” But this metric becomes less impressive considering that 9.4 million of those jobs were just recovering jobs lost during the pandemic lockdowns. So, there have been 4.7 million new jobs added since January 2021, which is 134,000 per month. While this is positive, it is not record-breaking. The weaker labor market in recent months indicates that 2024 could be tough for many workers. Most people’s pocketbooks did not grow but diminished this year, and the job market similarly lags. But what about the nation’s overall growth? Hasn’t GDP soared? Not exactly. In the third quarter of 2023, the annualized real GDP growth hit 4.9%, which appears robust. But when you dig into the details, it’s more complicated. Government spending, which is a drag on the economy as it must take taxes from the private sector and distort market activities, threw in 0.99 percentage points. And private inventories, influenced by the whims of fluctuating interest rate expectations, chipped in 1.27 percentage points. When you exclude those contributions to consider stable real private GDP, there was just a 2.6% bump up. This slower pace didn’t just pop out of nowhere. It’s been a saga since early 2022, when we hit a two-quarter decline in real gross domestic product, waving a big red flag for a recession. And when you consider the valuable metric of real gross domestic output, which is the average or real gross domestic product and real gross domestic income, the economy has declined in three out of the last seven quarters. While these economic issues suggest stagflation triggered by misguided pandemic lockdowns and subsequent trillions of new money printing of deficit-spending, there may be some relief. The Fed’s slow correction to its bloated assets of $9 trillion at its peak to $7.7 trillion contributed to interest rates soaring since March 2022. But with Congress continuing to deficit spend of about $2 trillion per year and net interest payments soaring to $1 trillion per year, there are massive economic challenges ahead. These deficits will make it more difficult for the Fed to correctly normalize its assets quickly to get them back to at least the pre-pandemic $4 trillion. This is because the budget deficits would contribute to higher interest rates, so the Fed will likely monetize the debt more to help Congress avoid needed spending restraint. While these truths are tough to swallow, many beacons of hope also emerged throughout the year that should be noted. In 2023, a momentous shift unfolded with a transformative surge in educational choice. Twenty states expanded school choice, and a record-breaking 10 states passed some form of universal school choice, making 36% of American students eligible for a private choice program. Some states have been slow to increase educational freedom, but this revolution’s overall impact is historical. Recognizing that children are the cornerstone of our nation’s future and acknowledging that improved education is a pivotal predictor of their success, the catalyst for change is undeniably rooted in more universal school choice. The second bright light is the flat state tax revolution. Many states took bold steps to enhance their economic landscapes. Notably, prominent states like California and New York faced ongoing out-migration as individuals sought refuge from progressive policies, and less heralded states embraced free-market principles, propelling them onto the national stage. More conservative Florida and Texas continued to lead the way in places where people moved in 2023. The third thing to cheer is a responsible movement toward a sustainable state budget revolution. Some states are pushing toward improving their spending limits to one that covers more of the budget, limits budget growth to no more than population growth plus inflation, and has a supermajority vote to bust the limit or raise taxes. The synergy of these reforms demonstrates the power of federalism as states experiment with policies, revealing effective strategies and fostering a healthy laboratory of competition. We need lawmakers at the federal, state, and local governments to recognize what works and implement them. The trajectory in 2024 and beyond hinges on embracing free-market capitalism, which is the best path to let people prosper. This includes less government spending, less money printing, more school choice, and more tax relief. In short, less government. That’s how we get a more prosperous 2024. Happy New Year! Originally published at Econlib. 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:
Originally published at Real Clear Policy.
During the fourth Republican presidential candidate debate the four participating candidates were asked to name a past president who would serve as an inspiration for their administration. In his response, Governor Ron DeSantis stated that he would take inspiration from President Calvin Coolidge. Coolidge, stated DeSantis, is “one of the few presidents that got almost everything right.” Further, DeSantis argued that “Silent Cal” understood the federal government’s role and “the country was in great shape” under his administration. To say that the federal budget process is broken is an understatement. The national debt continues to grow driven by out-of-control spending. The budget hawk within the Republican Party is an endangered species. Governor DeSantis is correct that the Republican Party needs to rediscover the principle of limited government. The best way to do this is to take inspiration from the Republican Party’s best known budget hawks and champions of limited government, Presidents Warren G. Harding, and Calvin Coolidge. President Harding assumed office in 1921 when the nation was suffering a severe economic depression. Hampering growth were high-income tax rates and a large national debt after World War I. Congress passed the Budget and Accounting Act of 1921 to reform the budget process, which also created the Bureau of the Budget (BOB) at the U.S. Treasury Department (later changed in 1970 to the Office of Management and Budget). President Harding’s chief economic policy was to rein in spending, reduce tax rates, and pay down debt. Harding, and later Coolidge, understood that any meaningful cuts in taxes and debt could not happen without reducing spending. Harding selected Charles G. Dawes to serve as the first BOB Director. Dawes shared the Harding and Coolidge view of “economy in government.” In fulfilling Harding’s goal of reducing expenditures, Dawes understood the difficulty in cutting government spending as he described the task as similar to “having a toothpick with which to tunnel Pike’s Peak.” To meet the objectives of spending relief, the Harding administration held a series of meetings under the Business Organization of the Government (BOG) to make its objectives known. “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. Not only was Harding successful in this first endeavor to reduce government expenditures, his efforts resulted in “over $1.5 billion less than actual expenditures for the year 1921.” Dawes stated: “One cannot successfully preach economy without practicing it. Of the appropriation of $225,000, we spent only $120,313.54 in the year’s work. We took our own medicine.” Overall, Harding achieved a significant reduction in spending. “Federal spending was cut from $6.3 billion in 1920 to $5 billion in 1921 and $3.2 billion in 1922,” noted Jim Powell, a senior fellow at CATO Institute. Harding viewed a balanced budget as not only good for the economy, but also as a moral virtue. Dawes’s successor was Herbert M. Lord, and just as with the Harding Administration, the BOG meetings were still held on a regular basis. President Coolidge and Director Lord met regularly to ensure their goal of cutting spending was achieved. Coolidge emphasized the need to continue reducing expenditures and tax rates. He regarded “a good budget as among the most noblest monuments of virtue.” Coolidge noted that a purpose of government was “securing greater efficiency in government by the application of the principles of the constructive economy, in order that there may be a reduction of the burden of taxation now borne by the American people. The object sought is not merely a cutting down of public expenditures. That is only the means. Tax reduction is the end.” “Government extravagance is not only contrary to the whole teaching of our Constitution but violates the fundamental conceptions and the very genius of American institutions,” stated Coolidge. When Coolidge assumed office after the death of Harding in August 1923, the federal budget was $3.14 billion and by 1928 when he left, the budget was $2.96 billion. Altogether, spending and taxes were cut in about half during the 1920s, leading to budget surpluses throughout the decade that helped cut the national debt. The decade had started in depression and by 1923, the national economy was booming with low unemployment. Both Harding and Coolidge were committed to reining in spending, reducing tax rates, and paying down the national debt. Both also used the veto as a weapon to ensure that increased spending and other poor public policies were stopped. The results of the Harding-Coolidge economic plan created one of the strongest periods of economic growth in American history. Unemployment remained low, the middle class was expanded, and the economy expanded. From 1920 to 1929 manufacturing output increased over 50 percent and the United States was a global leader in many key industries. In our current era marked by dangerous debt levels and high inflation whoever becomes the Republican presidential nominee should take inspiration from Harding and Coolidge. Thank you for tuning into the 75th episode of the Let People Prosper Show podcast!
Today, I’m joined by Dr. Chris Coyne, professor of economics at George Mason University and author of the book, “In Search of Monsters to Destroy: The Folly of American Empire and the Paths to Peace.” Today, we discuss: 1) The economic impact of war and the many consequences of engaging in it; 2) What Friedrich Hayek's principle of "fatal conceit" reveals about America's involvement with war; and 3) The truth about terrorism, what the U.S. got wrong with Afghanistan and Iraq, and Chris' thoughts of how Russia-Ukraine and Israel-Hamas can be at peace. Economic Reality Check: What Do Falling Mortgage Rates & Jobs+Inflation Signal for the 2024 Economy?12/15/2023 Thank you for tuning into the 39th episode of “This Week’s Economy.”
Much information is packed into today’s newsletter, including my new podcast episode revealing the economic news you need to know in less than 14 minutes! Today, I cover: 1) National: -Why the new U.S. jobs report (my latest commentary) is not as strong as some say -Inflation rates have moderated but still remain well above the Fed’s 2% rate target -Federal Reserve paused again with its federal funds rate target in the range of 5.25-5.5%, supporting a boost in the stock market and likely lower mortgage rates 2) States: -Sustainable Colorado Budget was released that I authored with Ben Murrey at Independence Institute, which provides a path forward for the Centennial state to return to its TABOR roots and buy down the income tax -School choice challenges face Texas as many state leaders are against it, and they keep spending too much -California’s deficit reaches crazy highs, proving why spending is the ultimate government burden 3) Other: -Don't miss my latest LPP episode with Jennifer Huddleston discussing problems with regulating technology, including AI -One of my latest op-eds argues why China is not our biggest threat…what is? -Argentina's new president makes significant strides that could set an example for the U.S. Originally published at American Institute for Economic Research. Rating agency Moody’s just downgraded China’s credit outlook from stable to negative after doing the same to the US about a month ago. Does this mean that China is on equal footing with us? Worse? Better off? An economic analysis suggests that China is not our biggest threat, nor are we theirs. In fact, the biggest problem we face is completely self-inflicted and found on our home soil. Apprehensions about China’s military actions and trade strategies maintain resonance, especially among middle-aged and older Americans. While caution is warranted, especially concerning their censorship and the treatment of Hong Kong and Taiwan, an economic comparison settles many doubts. Regarding economic might, the US outshines China with a GDP of $27 trillion compared to China’s $18 trillion. The contrast is stark on a per-capita basis. Americans enjoy an average income of $79,000, six times more than their Chinese counterparts. One alarming similarity stands out though: Both nations have weathered credit downgrades mainly due to escalating budget deficits and national debts. The United States’ national debt is shaping up to be this decade’s hallmark. Now nearly $34 trillion, the deficit spiked in 2020, with trillions of dollars more added since. Net interest payments on the debt climbed by 39 percent and recently surpassed $1 trillion annually. The repercussions of the national debt crisis are not merely theoretical – they are tangible, affecting the everyday lives of citizens.
In 2023, the dollar has significantly depreciated. Fitch (and now Moody’s) downgraded our creditworthiness. Home sales hit their slowest pace since 2010. Average 30-year fixed mortgage rates reached their highest point since 2000. And real median household income dipped to its lowest level since 2018, to name just a few of our recent economic woes. These findings shed new light on our competition with China. They should prompt America’s leaders to reevaluate our priorities and consider whether the enemy across the Pacific is as pressing as the ones we face at home. While some argue the government spending that drove the deficits was necessary, especially during the pandemic’s peak, it underscores the broader problem – a lack of fiscal discipline and a predisposition to rely on debt as a quick fix. It is high time the US adopted a spending-limit rule. Without one, we’ve only made things worse and failed to reach budget agreements. A reasonable spending limit of no more than the rate of population growth plus inflation has worked at the state level, and it would work at the federal level. While the US points the finger at China, we have three other fingers pointing back at us. Excessive government spending and a burgeoning national debt are eroding the foundation of our economic stability. Now is not the time to allocate excessive resources to confront external foes, but to address the fundamental issue plaguing us: a government that refuses to rein in spending of taxpayer money. America should also correct the errors in recent years of trade protectionism. There is reason to counter those countries who don’t play by the same rules, like China, but that should be done by joining free trade agreements with allies. This would be a more effective and affordable approach for Americans instead of raising taxes on them through tariffs, appreciating the dollar thereby increasing the trade deficit and contributing to trade wars that often lead to military wars. Let’s refocus our efforts, fortify our economic foundation, and confront the genuine threat within our borders. If not, governments will not be able to do their job of preserving liberty. This is of utmost importance. Today, I cover the following:
Check out the short from the episode below if you want a quick recap before watching the full episode. Be sure to check out and subscribe to the "Human ReAction" podcast.
We discuss the following and more:
The document below is the syllabus for a course that I teach on free-market economics and the importance of institutions. Please provide feedback. Thanks! While the latest “strong” US jobs report and “cooling” CPI inflation have been touted as promising, a closer look reveals more complexity, and many American families continue to bear the brunt of DC’s failures over the last three-plus years.
The payroll survey’s net gain of 336,000 non-farm jobs is a popular headline, as the figure nearly doubled expectations. But the household survey, a second crucial report by the US Bureau of Labor Statistics, shows that only 84,000 jobs were added in September. Meanwhile, the unemployment rate stayed at 3.8 percent, which would be much higher if more people were looking for work. Let’s consider the labor force participation rate of 62.8 percent to double-check the headlines. If this rate were 63.3 percent, as it was in February 2020, there would be 1.4 million more people in the labor force. If they are all unemployed, today’s unemployment rate would be nearly 5 percent, which is substantially higher than the touted 3.8 percent rate. There have also been substantial revisions to the non-farm jobs report in recent months because of volatile data used for seasonal adjustments since the shutdowns, which makes much of it “garbage in, garbage out.” There were, for example, an additional 119,000 jobs added over just July and August than what was initially reported, giving us reason for pause with all of these reports. In short, this volatility in the job market data makes it challenging to discern actual trends, especially when Americans continue to be concerned about the economy. On top of a fickle job market, the latest consumer price index (CPI) sits at 3.7 percent over the past year, while the core inflation, which excludes food and energy, is 4.1 percent. This core inflation rate is double the Federal Reserve’s average inflation rate target and doesn’t show any signs of reverting to 2 percent any time soon. This problem was created by the Fed’s bloated balance sheet, which results from its willingness to help finance the federal budget deficits caused by excessive government spending. Until Congress reins in government spending and money printing, inflation will strain household budgets. Also, real (inflation-adjusted) average weekly earnings dropped by 0.2 percent over the past year, and the average family’s real income has suffered a significant blow, with a decline of more than $7,000 since the start of 2021. These financial setbacks are not coincidental. They are the direct result of the progressive policies of the Biden Administration, the Federal Reserve’s bloated balance sheet, and Congress’s habit of excessive spending. If we want to understand the true state of our economy, we should pay more attention to the Fed’s balance sheet, which remains a crucial indicator of inflationary pressures. This is why I was never on team “transitory inflation.” Even a relatively superficial understanding of the work of Milton Friedman, Friedrich Hayek, and John Taylor has indicated from the start that we would face persistent inflation. Sure, supply-side factors contributed to higher prices in some markets, as did supply chain bottlenecks. But those are short-term fluctuations that don’t tell the entire story of reduced purchasing power for everyone over a longer period, which is a story of failed public policy on top of the failed shutdowns during the pandemic. The explanation is pretty straightforward. There was a sudden halt in the economy due to pandemic shutdowns that distorted many exchanges throughout the marketplace. The federal government then sent out redistributed money to individuals and employers so they wouldn’t have to fret too much during a stressful time. This propped up many Americans, creating any number of zombie firms, zombie workers, and a debt-fueled zombie economy. But this alone wouldn’t explain the inflation, as increased government spending doesn’t stimulate anything other than more government and some specific markets. Next, the Fed more than doubled its balance sheet, increasing its assets from $4 trillion to $9 trillion. This doesn’t lead to long-term economic growth, but it does contribute to many market distortions and inflation across the economy. Much of this money stays in the hands of the banks, mortgage companies, and others at the upper part of the income spectrum. Only then does some of it spread further, in a process known as the Cantillon effect. The problem is not only a propped-up economy with multiple asset bubbles, but reduced purchasing power that punishes lower-income families the most. Few, if any, of the positives from more money in circulation goes to these families. Instead, they have seen whatever savings they had dwindle. To achieve a more stable and prosperous economic future, we must strike a balance between sound fiscal and monetary policies and curb excessive government spending and money printing. This will only begin to happen when we have rules that control discretionary policies by the administration, Congress, and the Fed. While headline jobs and inflation data might suggest a strong economic recovery, digging just a little deeper into the data shows a weak economy with major challenges. It’s time for policymakers to take a hard look at the factors contributing to these economic woes and adopt prudent policies that address the root causes of stagflation. Originally published by AIER. Originally published at American Institute for Economic Research.
While the latest “strong” US jobs report and “cooling” CPI inflation have been touted as promising, a closer look reveals more complexity, and many American families continue to bear the brunt of DC’s failures over the last three-plus years. The payroll survey’s net gain of 336,000 non-farm jobs is a popular headline, as the figure nearly doubled expectations. But the household survey, a second crucial report by the US Bureau of Labor Statistics, shows that only 84,000 jobs were added in September. Meanwhile, the unemployment rate stayed at 3.8 percent, which would be much higher if more people were looking for work. Let’s consider the labor force participation rate of 62.8 percent to double-check the headlines. If this rate were 63.3 percent, as it was in February 2020, there would be 1.4 million more people in the labor force. If they are all unemployed, today’s unemployment rate would be nearly 5 percent, which is substantially higher than the touted 3.8 percent rate. There have also been substantial revisions to the non-farm jobs report in recent months because of volatile data used for seasonal adjustments since the shutdowns, which makes much of it “garbage in, garbage out.” There were, for example, an additional 119,000 jobs added over just July and August than what was initially reported, giving us reason for pause with all of these reports. In short, this volatility in the job market data makes it challenging to discern actual trends, especially when Americans continue to be concerned about the economy. On top of a fickle job market, the latest consumer price index (CPI) sits at 3.7 percent over the past year, while the core inflation, which excludes food and energy, is 4.1 percent. This core inflation rate is double the Federal Reserve’s average inflation rate target and doesn’t show any signs of reverting to 2 percent any time soon. This problem was created by the Fed’s bloated balance sheet, which results from its willingness to help finance the federal budget deficits caused by excessive government spending. Until Congress reins in government spending and money printing, inflation will strain household budgets. Also, real (inflation-adjusted) average weekly earnings dropped by 0.2 percent over the past year, and the average family’s real income has suffered a significant blow, with a decline of more than $7,000 since the start of 2021. These financial setbacks are not coincidental. They are the direct result of the progressive policies of the Biden Administration, the Federal Reserve’s bloated balance sheet, and Congress’s habit of excessive spending. If we want to understand the true state of our economy, we should pay more attention to the Fed’s balance sheet, which remains a crucial indicator of inflationary pressures. This is why I was never on team “transitory inflation.” Even a relatively superficial understanding of the work of Milton Friedman, Friedrich Hayek, and John Taylor has indicated from the start that we would face persistent inflation. Sure, supply-side factors contributed to higher prices in some markets, as did supply chain bottlenecks. But those are short-term fluctuations that don’t tell the entire story of reduced purchasing power for everyone over a longer period, which is a story of failed public policy on top of the failed shutdowns during the pandemic. The explanation is pretty straightforward. There was a sudden halt in the economy due to pandemic shutdowns that distorted many exchanges throughout the marketplace. The federal government then sent out redistributed money to individuals and employers so they wouldn’t have to fret too much during a stressful time. This propped up many Americans, creating any number of zombie firms, zombie workers, and a debt-fueled zombie economy. But this alone wouldn’t explain the inflation, as increased government spending doesn’t stimulate anything other than more government and some specific markets. Next, the Fed more than doubled its balance sheet, increasing its assets from $4 trillion to $9 trillion. This doesn’t lead to long-term economic growth, but it does contribute to many market distortions and inflation across the economy. Much of this money stays in the hands of the banks, mortgage companies, and others at the upper part of the income spectrum. Only then does some of it spread further, in a process known as the Cantillon effect. The problem is not only a propped-up economy with multiple asset bubbles, but reduced purchasing power that punishes lower-income families the most. Few, if any, of the positives from more money in circulation goes to these families. Instead, they have seen whatever savings they had dwindle. To achieve a more stable and prosperous economic future, we must strike a balance between sound fiscal and monetary policies and curb excessive government spending and money printing. This will only begin to happen when we have rules that control discretionary policies by the administration, Congress, and the Fed. While headline jobs and inflation data might suggest a strong economic recovery, digging just a little deeper into the data shows a weak economy with major challenges. It’s time for policymakers to take a hard look at the factors contributing to these economic woes and adopt prudent policies that address the root causes of stagflation. Check out the highlights from my recent segment on Fox Business. Former Office of Management and Budget chief economist Vance Ginn and Slatestone Wealth chief market strategist Kenny Polcari analyze how the Middle East conflict and House speaker standstill impact markets.
Full segment on Fox Business here. Highlights
Overview
The Bureau of Labor Statistics recently released its U.S. jobs report for April 2023, which was another mixed report with some strengths but many weaknesses.
Economic Growth The U.S. Bureau of Economic Analysis recently released the third estimate for economic output for Q2:2023.
The latest indicator of this concern is U.S. real GDP was revised lower to just a 2.1% increase last quarter. Moreover, previous quarters were revised lower and there continue to be indications of a recession in early 2022 from two consecutive quarters of declining economic activity and relatively weak thereafter. Another measure of economic activity is the real average of GDP and GDI which accounts for domestic production and income. It increased by just 1.4% to $22.1 trillion. This important measure has declined in half of the last six quarters, increasing this value by only 1.2% since the first quarter of 2022, which is likely when the recession started. Meanwhile, the federal budget deficit is growing faster because of overspending and declining tax collections from a weak economy (See Figure 2). The national debt has ballooned to $33.5 trillion, and net interest payments on the debt will soon be a top federal expenditure of at least $1 trillion. Adding to these fiscal challenges are other large, unnecessary expenditures of taxpayer money. The Fed has monetized, or printed, much of the new debt to keep interest rates artificially lower than where the market would have them. This created higher inflation as there was too much money chasing too few goods and services. And this has been exacerbated as production has been overregulated and overtaxed and workers have been given too many handouts. The Fed will need to cut its balance sheet (total assets over time) more aggressively if it is to stop manipulating markets (see this for types of assets on its balance sheet) and persistently tame inflation. The current annual inflation rate of the consumer price index (CPI) has been cooling since a peak of +9.1% in June 2022 but remains elevated at 3.7% in September 2023, which remains too high as are other key measures of inflation. Just as inflation is always and everywhere a monetary phenomenon, deficits and taxes are always and everywhere a spending problem. David Boaz at Cato Institute has noted how this problem is from both Republicans and Democrats (See Figure 3). In order to get control of this fiscal crisis which is contributing to a monetary crisis, the U.S. needs a fiscal rule like the Responsible American Budget (RAB) with a maximum spending limit based on the rate of population growth plus inflation. This was recently released as part of Americans for Tax Reform’s Sustainable Budget Project. If Congress had followed this approach from 2003 to 2022, Figure 4 shows tax receipts, spending, and spending adjusted for only population growth plus chained-CPI inflation. Instead of an (updated) $19.0 trillion national debt increase, there could have been only a $500 billion debt increase for a $18.5 trillion swing in a positive direction that would have substantially reduced the cost of this debt to Americans. The Republican Study Committee recently noted the strength of this type of fiscal rule in its FY 2023 “Blueprint to Save America.” And to top this off, the Federal Reserve should follow a monetary rule so that the costly discretion stops creating booms and busts. Bottom Line
The stagflationary destruction will continue given the “zombie economy” and the unraveling of the banking sector which will hit main street hard. Instead of passing massive spending bills, the path forward should include pro-growth policies that shrink government rather than big-government, progressive policies. It’s time for a limited government with sound fiscal and monetary policy that provides more opportunities for people to work and have more paths out of poverty. Recommendations:
This was originally posted at Texans for Fiscal Responsibility. In the tapestry of human history, one recurring thread stands out – the need for limited power in leadership.
As far back as the 7th century B.C., Homer explored this theme with remarkable insight in his timeless epic, "The Iliad." In modern-day America, where today’s leaders often assume too much power, Homer's lessons about the imperfections of inflated authority offer valuable insights. Recognizing the perils of excessive control, he creatively described what could be key to combating pressing issues today. In "The Iliad," the gods of ancient Greece held dominion over justice and politics, not wholly unlike today's political leaders. Yet, Homer masterfully portrayed the limitations and imperfections of these gods, revealing that even the mightiest beings are not immune to human-like foibles. These divine beings often acted out of self-interest. They were susceptible to basing actions on desires or petty grievances, making them appear more human than celestial. For instance, Zeus, the king of the gods, is reluctant to help the Trojans because of his disapproving wife, Hera, who strongly favors the Greeks. Zeus acts to maintain harmony, which is seen in Book IV of "The Iliad," when he contemplates helping the Trojans in battle but ultimately refrains from directly interfering. His hesitation reflects his complex role as the ruler of the gods, the upholder of fate, and his desire to manage the divine politics within Mount Olympus. When not hoping to maintain marital harmony as Zeus did, the other gods often behaved out of concern for personal honor, which was highly valued in ancient Greece. The discord between Agamemnon and Achilles exemplifies this theme. As the leader of the Achaean forces, Agamemnon believed he deserved the highest prize, Briseis, and was willing to oppress Achilles, a crucial warrior in the Trojan battle, to claim her. Achilles, in turn, prioritized his claim to Briseis over aiding the war efforts. Both placed their honor and pursuit of what they believed was rightfully owed to them above the collective well-being, jeopardizing the battle’s victory. In one instance, Apollo admitted that his intervention wasn't driven by compassion for the Trojans but by a desire to protect his favored hero, Hector. This acknowledgment underscores the willingness of the gods to manipulate events for personal gain as opposed to the greater good. The parallel between the gods of "The Iliad" and contemporary leadership is their susceptibility to act in self-interest. While the gods may seem all-powerful, their actions often reveal a profound concern for their agendas and favored heroes. Although not as strong a principle today, personal honor preservation reveals itself in modern leaders through rent-seeking behavior. We see elected officials sometimes prioritize their agendas, party interests, or re-election prospects over the welfare of their nations and citizens. Just as Zeus was more concerned with appeasing influential people, politicians may succumb to surrounding pressure, foregoing long-term goals of improving the country. Today's America faces numerous challenges, from mounting national debts to housing affordability, inflation, and stagnant wages. These issues often stem from government overreach and misguided policies, reminiscent of the interference of the gods in "The Iliad." It is crucial to recognize that unchecked government power can lead to a loss of personal liberties and economic prosperity. In contemplating the lessons from Homer's "The Iliad," we discover that unchecked power carries inherent risks, whether in the hands of gods or modern leaders. Pursuing self-interest, personal glory, and re-election can overshadow the well-being of nations, leaving citizens to bear the consequences of misguided decisions. We must limit government power, embrace free markets, and prioritize the greater good derived from individual gain to mitigate these risks. As the characters in Homer's epic grappled with the consequences of self-interested gods, we, too, must seek to promote paths that seek to empower the people and limit the government as our forefathers intended. By doing so, we can create a world where the lessons of "The Iliad" guide us toward better governance and a brighter future. In heeding these ancient warnings, we can navigate the complexities of contemporary leadership and secure a more prosperous future for all. Originally published by Online Library of Liberty's Banned Books series. PMorgan Chase CEO Jamie Dimon says Americans would be making a “huge mistake” if they believe narratives saying the U.S. economy is booming.
NTD spoke to Vance Ginn, the president of Ginn Economic Consulting and former Chief economist at the Office of Management and Budget, on some ideas to kickstart the economy. Ginn says he agrees with Dimon’s statement, citing increasing inflationary pressures and inflation-adjusted spending being basically flat. Watch my full interview on NTD News here. As the U.S. commemorates Labor Day, we should consider how many Americans aren’t actively participating in the workforce and what to do about it.
The labor force participation rate was 66% in 2007, declining to 63.3% in February 2020. Today, it’s even lower at 62.8%. Although there are many reasons for this trend, including Baby Boomers retiring, one glaring cause that will continue to exacerbate it with time is the flawed safety-net system. Labor Day was created to commemorate the many contributions of American workers, and rightly so. There’s an inspiring symbiotic relationship between the dignity individuals derive from working and the flourishing that the country experiences as a result. This is why it’s so concerning that the current structure of the many safety-net programs can disincentivize work-capable individuals from seeking, finding and keeping employment. Too often, these recipients become trapped in a cycle of government dependence. Programs like Temporary Assistance for Needy Families (TANF) and Supplemental Nutrition Assistance Program (SNAP) have minimal work requirements. This can discourage users from seeking better-paying employment opportunities, especially if the increase in income reduces the payments from these programs, which is called a benefits cliff. With purchasing power decreased from ongoing inflation, dependence on these programs is growing. There’s a high cost of these programs on recipients and taxpayers funding it, with little to show for it. Anti-poverty efforts have cost taxpayers about $25 trillion (adjusted for inflation) since 1965 and more than $1 trillion annually. While the official poverty rate in America has barely changed since 1970, only six years after President Lyndon B. Johnson declared the “war on poverty,” other measures show substantial improvements in people’s livelihoods. But much of that is because of safety-net programs that boost people’s income at the expense of other taxpayers. Ideally, a flourishing civil society with strong families, communities, nonprofits, churches and other institutions in civil society would render government assistance irrelevant. But we’re a long way from that vision being attainable. Until then, these programs need key reforms, and implementing empowerment accounts (EAs) would help. EAs are designed to consolidate state-administered safety-net programs into a single account accessible through a debit card. While they initially focus on streamlining existing programs, their potential lies in gradually replacing most, if not all, other safety-net programs over time. EAs incorporate a work requirement for work-capable adults, complemented by skills training and education. Recipients would also have access to financial literacy education, community-based case management and opportunities to build savings while enrolled in the program, helping reduce the benefits cliff. An essential aspect of EAs is their adaptability. The account’s government contribution would depend on current income, assets and dependents. Unlike current safety-net programs with income thresholds that create benefit cliffs, empowerment accounts would use a time limit while offering more flexible income limits for up to a year. This approach ensures recipients are motivated to achieve self-sufficiency within a defined period. Community-based case management, provided by established non-profit organizations, would connect recipients with crucial resources and foster connections within local communities. EA’s structure of requiring participation from safety-net recipients would go beyond merely providing financial assistance to equipping them to sustain fiscal and employment stability. The result would not only mean taxpayer funds are more efficiently spent, but struggling individuals are equipped for independence, leading to a decreased poverty rate, higher labor force participation rate and a flourishing economy. Too often, the government promotes mediocrity by quickly “rescuing” people from their situation without showing them how to maintain stability. But all individuals deserve to experience the irreplaceable satisfaction that comes from earned self-sufficiency. While celebrating Labor Day, Americans should emphasize not lack of work but meaningful work that aligns with individual callings. By empowering individuals to regain their financial independence through encouraging labor force participation, we pave the way for holistic human flourishing. Implementing empowerment accounts would mark a pivotal step towards promoting prosperity and reducing dependency on government safety nets. Originally published by The Daily Caller. In this episode, we discuss: 1) How Arkansas continues to grapple with the same issues decade after decade, including a broken foster care system, high poverty rates, and poor K-12 reading scores; 2) Why safety net reforms are key to Arkansas' flourishing, specifically concerning Medicaid; and 3) How more school choice would put Arkansas on the map, and why Arkansas has the potential to be the next go-to state like Texas, Florida, and Tennessee. Nic’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. This Week's Economy Ep. 21 | Happy Birthday, Milton Friedman: Economic Wisdom That Still Applies Now8/11/2023 Today, I'm honoring what would have been the 111th birthday of Nobel prize winner and economist Milton Friedman. His economic wisdom has profoundly impacted my philosophy. By discussing some of his most famous quotes, I divulge how so much of Friedman's findings and theories still apply today, and how we could have a better economy with more human flourishing by incorporating more of his research and views. Two of my favorite books of his I recommend: You can watch this episode and others along with my Let People Prosper Show on YouTube or listen to it on Apple Podcast, Spotify, Google Podcast, or Anchor. Please share, subscribe, like, and leave a 5-star rating!
For show notes, thoughtful insights, media interviews, speeches, blog posts, research, and more, check out my website (https://www.vanceginn.com/) and please subscribe to my newsletter (www.vanceginn.substack.com), share this post, and leave a comment. Today, I'm honored to be joined by Dr. Michael Munger, director of the interdisciplinary politics, philosophy, and economics program at Duke University and professor of political science. We discuss: 1) How transaction costs, including regulations and political corruption, prolong poverty and prevent prosperity and the role of economic freedom in human flourishing; 2) Whether capitalism can work within America’s republic and the ways in which it's currently failing because of too much government; and 3) Why cutting taxes without cutting spending is futile and the need for de-regulation, especially in regards to housing. Dr. Munger’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. Key Point: Louisiana’s labor market shows improvement on the surface but there are underlying problems because of poor public policies which can be overcome with the Pelican Institute’s “Comeback Agenda.” Louisiana’s Labor Market: Table 1 shows Louisiana’s labor market information over time until the latest data for May 2023 which was released this month by the U.S. Bureau of Labor Statistics. The BLS report has two surveys which provide different information about the labor market. The payroll survey provides information on nonfarm employment based on responses by established employers for at least two years. The household survey provides responses from households for those who have a job and their demographics, which determines measures like the labor force participation rate and unemployment rate. The payroll report shows that Louisiana’s net total nonfarm jobs increased by 4,600 jobs last month (+0.2%) to 1.96 million employed, which is 29,700 jobs below the pre-shutdown level in February 2020. Private sector employment was up by 4,400 jobs (+0.3%) to 1.65 million and government employment increased by 200 jobs (+0.1%) to 317,100 last month. Compared with a year ago, total employment was up by 48,400 jobs (+2.5%), with the private sector adding 41,700 jobs (+2.6%) and the government adding 6,700 jobs (+2.2%). This results in about 85% of all nonfarm jobs being in the productive private sector while 15% is in the government sector, which is the same as the share for the entire U.S. Figure 1 shows the percent changes in changes in employment, average weekly hours, and average weekly earnings by industry over the last year. The industries leading the way in increases in employment are mining and logging, construction, and financial activities while information and other services have the largest declines. Average weekly hours have declined or been flat in all industries with manufacturing, trade, and professional and business services declining the most. Average weekly earnings increased the most in manufacturing and education and health services but declined in most industries with trade and financial activities declining the most. These data show the dichotomy between those in the labor market as there are industries gaining employment but average weekly earnings are falling in most cases and are falling even further when adjusted for inflation, hurting many chances for Louisianans to make ends meet. The household survey finds that the working-age population, defined as 16 to 64 years old, declined by another 894 people last month to 3.6 million, down 10,623 people over the last year, and down 34,106 people since February 2020. But the civilian labor force, defined as those who are working or looking for work, rose by 3,377 people to 2.1 million last month, 22,506 people over last year, and 27,910 people since February 2020. These figures result in a labor force participation rate of 59.6%, which is up from 58.8% from last year and up from 58.3% since pre-shutdown but well below the 61.2% rate in June 2009. But the number of employed has been increasing as it was up 2,363 over the last year, contributing to the slightly higher unemployment rate over the last year from 3.5% to 3.5%; but this rate remains lower than the 5.2% rate in February 2020. And a broader look at Louisiana’s labor market shows that Louisianans still face challenges with the continued decline in the working-age population which weighs on the labor-market shortage and long-term economic growth. And comparisons with neighboring states based on several labor market measures indicate concerns. Economic Growth: The U.S. Bureau of Economic Analysis (BEA) recently provided the real (inflation-adjusted) gross domestic product (GDP) and personal income for Louisiana and other states. Table 2 shows how the U.S. and Louisiana economies performed since 2020. The steep declines were during the shutdowns in 2020 in response to the COVID-19 pandemic, which was when the labor market suffered most. The increase in real GDP of +2.2% in Q4:2022 ranked 26th in the country, resulting in an annual decline in economic output by -1.8% in 2022 which was the second worst in the country. The BEA also reported that personal income in Louisiana grew at an annualized pace of +6.0% (ranked 32nd) in Q4:2022 (below +7.4% U.S. average). This resulted in personal income growth of 0.0% in 2022, ranking 50th of the states (see Figure 2). The growth rate for 2022 was driven by the negative $10 billion (-4.0-percentage points) in transfer payments from a decline in safety net payments as the expanded child tax credit expired and more people found jobs but increases in net earnings by $8.4 billion (+3.4-percentage points) and other income by $1.6 billion (+0.6-percentage point). Personal income per person in Louisiana increased by 0.08% to $54,622 last year, which ranked 42nd in the country but the increase was far below inflation.
Bottom Line: More Louisianans gained jobs in April, but their pay hasn’t been keeping up with inflation in a stagnant economy. While the state improved its tax code in 2021, there was an irresponsible budget passed in 2023 which excessively grew spending, busted spending caps in FY23 and FY 24 and didn’t provide tax relief even with billions in excess tax revenue. Given these results, there is little reason to believe that there will be improvements in the state’s poor business tax climate, net outmigration of Louisianans, or the 19.6% poverty rate which ranks second highest in the country. Which pro-growth policies should be pursued instead? Refer to the Pelican Institute’s “Comeback Agenda” for policy recommendations that would turn the tide and provide opportunities for people to prosper. Originally published at Pelican Institute. 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. |
Vance Ginn, Ph.D.
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