In LPP Episode #10, I talk with Dr. Boettke, who is a professor at George Mason University, about why he chose economics, his books on economics and rules-based policy, COVID, and No Due Date group.

You can find the YouTube video and links to the Apple Podcast and Spotify for this episode in my newsletter here. Please excuse any spelling or grammatical errors as this transcript is from an online converter and it and I may not have caught everything. For those that remain, I take all credit for those errors.

​I hope you'll read, watch, and listen to the episode, and please subscribe to my newsletter and other avenues for more episodes like this one.

​The Washington Post called them President Biden’s “wins in Congress.” But Democrats shouldn’t take that victory lap yet, as the Post admits—there’s little in the so-called Inflation Reduction Act that will do anything of the sort.

Despite the Biden administration’s claims to the contrary, the U.S. is in a recession. And despite its claims that everything else is to blame for the 40-year high in inflation, the blame is on the bad policies of excessive spending, taxing, regulating, and money-printing out of Washington. And the progressive fiscal policy pursued by this administration and Democrats in Congress is only making it worse. Signing the IRA was only throwing gasoline on the raging economic fire.

In the first two quarters of 2022, the U.S. had two consecutive quarters of declining real economic output, historic declines in productivity, and rapid inflation contributing to half of companies planning to cut jobs. Every time there have been two declining quarters of real economic output since 1950, the period has been called a recession. So why should this time be different? Clearly, the economy is floundering and American families are struggling to make ends meet. No wonder, we’re all dealing with lower economic output and high inflation not seen in four decades.

The IRA will result in higher taxes, more debt, more inflation, and deeper recession at exactly the worst time for the American people. The policy solutions aren’t complicated; we must limit government and maximize liberty by reducing spending, cutting taxes, removing regulations, and tightening the money supply. The policy mistakes in Washington over the last year prove that rules-based policies that rein in the failures of government are needed now maybe more than ever.

Originally posted at TPPF.

While a stagnating economy with high inflation is what economists usually call stagflation, the current situation is worse, as the real economy is declining. So there’s much less to go around for everyone—making us poorer in the process.

This inflation-recession could be resolved by Washington reversing course, but President Joe Biden and Democrats in Congress are doing the opposite. Their new bill, called the “Inflation Reduction Act” (IRA), will spend more, raise taxes, increase debt, and contribute to more inflation, resulting in a deeper recession.

The IRA includes estimated hikes in taxes with a new 15% corporate minimum tax rate, 87,000 new Internal Revenue Service (IRS) agents to audit more taxpayers, and new closure of “carried interest loophole.” These are each bad policies, but especially during a recession. These add up to an estimated tax hike of about $730 billion compared with current policy over the next 10 years.

The main tax hike is the new alternative minimum tax (AMT) of 15% on book income for corporations with net income exceeding $1 billion. This proposal has a rosy revenue projection of $313 billion. But businesses don’t pay taxes; they just submit them. People pay them, through higher costs, lower wages, and fewer jobs. The dynamic effects will result in less tax revenue collected from this hike.

According to a recent study by the Tax Foundation, this tax hike alone would contribute to killing 23,000 jobs, a 0.1% cut in wages, and 0.1% less in economic output. If we consider other provisions like the tax hikes on carried interest and reinstatement of the federal Superfund program, the total number of jobs killed is 30,000 with every income group having a reduction in after-tax income.

Clearly, this wouldn’t reduce inflation or help the economy recover. But there’s more.

While the IRA is aimed at taxing the rich and corporations more, the Congressional Joint Committee on Taxation finds that every income group except those with income between $10,000 to $20,000 per year would face a higher average tax rate. This would mean President Biden’s pledge to not tax anyone earning less than $400,000 per year would be broken, with about half of the burden falling on those earning less than $200,000 per year.

And the $80 billion in additional funding for 87,000 new IRS agents to increase tax enforcement and compliance is expected to bring in a phony amount of about $200 billion over a decade. But this will just increase more bureaucracy in an already overly bureaucratic federal government that will make Americans’ lives worse as they put more costs on taxpayers. Specifically, there could be 1.2 million more individual audits per year, and you can bet when the IRS doesn’t increase tax collections from legal tax returns they will come after every tax group, not just those making more than $400,000 per year.

On the spending side, the IRA provides tax incentives and subsidies for unreliable wind and solar energy, an expansion of Obamacare subsidies until 2025, and other expenditures to the tune of about $430 billion. Using these rosy assumptions, there is a projected deficit reduction of $300 billion over 10 years.

However, more conservative estimates suggest that the IRA will have less deficit reduction and will likely increase the deficit.

The Tax Foundation, Penn Wharton Budget Model (PWBM), and Congressional Budget Office (CBO) calculate a $178 billion, $247.8 billion, and $101.5 billion in deficit reduction over the next decade, respectively. But assuming the Obamacare subsidies are extended over the full 10-year period for an apples-to-apples comparison, the PWBM estimates that would bring that deficit reduction down by $158.9 billion to just $88.9 billion over the decade, which is the same amount of the deficit in just June 2022.

But recall that these estimates are compared with current policy assumptions over the next decade, which already have massive deficits because of reckless spending, so the IRA will most likely make the deficit worse.

Spending will be permanent and is on the front end of the bill, while taxes will likely be temporary and are more on the back end—so the deficit will be higher in the first few years, which will give the Federal Reserve more debt to purchase thereby creating more inflation.

And the higher taxes, more debt, and more inflation will stifle economic growth so a deeper recession will result.

The IRA does the opposite of what the name implies. This is now too common with Democrats in Congress as they like to keep redefining things that don’t match their narrative. They should instead name this bill the “Inflation Recession Act” because we will get more of both.

This far-left agenda must be rejected. Kill the bill.

Published at TPPF with Daniel Sanchez-Pinol

Americans are sacrificing their savings to keep up with soaring inflation.

This burden has contributed to consumer sentiment reaching its lowest level in June since the University of Michigan started the survey in January 1978. And the progressive policies in D.C. could soon make this bad situation worse.

The personal saving rate, which is the share of after-tax income not used for consumption, declined again to 5.1% in June. This is after it reached 33.8% in April 2020, which was a record high since January 1959, after the first round of “stimulus” checks sent by Congress during the shutdowns.

There were two more rounds of checks sent by Congress, along with enhanced unemployment payments and other handouts that weren’t connected to work, which kept the saving rate historically high as many places were shut down and people made more from handouts than they did while working.

Remember, nothing is free.

Those handouts and other government spending contributed to more than $6 trillion in additional national debt, which the Federal Reserve then mostly monetized—leading to the generational high in inflation.

The higher inflation outpaced saving and income growth since then, as the costly policies came home to roost and cut the saving rate to 5.1%—the lowest since August 2009.

What will happen when Americans run out of savings? But there’s little reprieve in sight as inflation looks to keep rising or at least not abating soon from bad policies in D.C.

Inflation, which is the loss of purchasing power of your dollar, continues upward to 6.8% in June 2022 as measured by the personal consumption expenditure (PCE) price index—the highest since January 1982. The PCE inflation measure accounts for the substitution effect from high priced goods to lower priced goods. This isn’t reflected in the often-reported measure of the consumer price index (CPI) inflation rate of 9.1%, which is the highest since November 1981.

Both measures show Americans’ money isn’t going nearly as far as it did a year ago. In fact, families’ purchasing power is set to be cut in half in just 10 years at the pace of PCE inflation and even faster for CPI inflation.

This implies that in order to maintain the same consumption levels, households have to allocate more income to consumption than to savings. And many Americans are turning to increased debt as their savings dry up.

Household debt increased to a record high of $16 trillion in the second quarter of 2022. Not surprisingly, credit card debt grew the most by 13%, which is the fastest increase in 20 years. Moreover, household debt to real economic output passed the 80% mark at the end of 2021. It’s up to 82% in the second quarter of 2022, a historically high rate, as debt increased and the real economy declined for two straight quarters.

This share will likely get worse in the following quarters as Americans go through their savings and dip further into debt. And interest rates going up means the amount to pay interest on the debt will contribute to higher balances and more pressure to meet their financial obligations.

No wonder people don’t feel secure about their economic future. Bad policies by Congress and the Federal Reserve contributed to this destruction and could even make things worse.

Congress spent too much, leading to massive deficits, which gave the Fed debt to purchase to inject money into the economy over the last two years. That inflated “boom” had to eventually “bust.” And that’s what is happening now as the redistribution by Congress has slowed some and the Fed is finally raising its target interest rate allowing markets to correct.

But Congress should be spending much less and the Fed should be more aggressive in tightening the money supply and raising its interest rate target. The famous Taylor rule suggests a rate of at least 6%, which is substantially higher than the current range between 2.5% to 2.75%.

Ultimately, what’s needed now are pro-growth policies of spending, taxing, regulating, and printing cuts instead of what’s coming out of Washington. President Biden and Democrats in Congress aren’t helping the situation with the “Inflation Reduction Act,” as it will lead to more debt and more inflation that will further deplete savings, thereby making a bad situation worse for Americans. Things must change.

Published at TPPF with Daniel Sanchez-Pinol

The U.S. government is bankrolling favored businesses at the expense of taxpayers and other businesses. Again. By continually involving itself in the market, government is impeding economic growth and the potential of industries to reach their full potential. That must change.

Congress recently passed the CHIPS Act, which is a $280 billion spending boondoggle that will provide funding of $52.2 billion to computer chip manufacturers. To sweeten the pot, Congress is also offering a 25% tax credit for semiconductor fabrication, which could cost an estimated $24 billion over five years. And these subsidies could support production in other regions, such as China and Europe.

President Joe Biden will sign this obscene corporate welfare scheme into law soon. Congress claims this will strengthen domestic semiconductor production and help the U.S. compete with China, but that rhetoric is wrong.

Domestic production of these technologies has been slowing since 1990. The U.S. still has valuable domestic producers, like Texas Instruments and Intel, but these corporations recently accounted for 12% of global chip production in 2021, down from 37% in 1990, according to the Boston Consulting Group.

While the federal government might seem smart for attempting to help this industry compete, its methodology is flawed. Expanding corporate welfare will only serve to degrade competition and diminish the free-market principles that uphold the U.S. economy.

This flawed approach is apparent when considering the data around prices of chip production.

The total 10-year cost of ownership of a new semiconductor fabrication plant in the U.S. is 30% higher than in Taiwan, South Korea, or Singapore, and 37% to 50% higher than in China—or $10 to $40 billion dollars depending on the product. Anywhere from 40% to 70% of the difference in price is directly attributable to the incentives government provides that contribute to reduced competition.

Throwing taxpayer money at the problem is a solution in search of a problem.

In 2021, the U.S. semiconductor industry had substantial growth. In the closing months of 2021, American sales increased by 5.2%. That year the market had the largest share of growth worldwide, expanding 27.4%. While recessions in the U.S. and elsewhere have reduced consumption of goods that use semiconductor chips and as production increases, there has been a reduction in shortages and lower chip prices—contributing to lower stock prices.

While the U.S. lags China in semiconductor production, the U.S. industry is growing faster, and we still lead by large margins in research, development, and design. The U.S. industry is a leader in chip design, and accounts for roughly 60% of all global fabless firm sales, and some of the largest integrated device manufacturers. The U.S. accounts for the largest share of the global design workforce, speaking to our leadership and development prowess.

Earmarking $76 billion of taxpayer money for an already growing industry while in the midst of a recession is politically irresponsible and economically destructive. Moreover, spending to this degree fuels the bloated national debt during a recession and puts upward pressure on inflation if the Federal Reserve monetizes the debt.

While President Biden will likely sign the CHIPS Act, Congress ought not use this as a precedent to subsidize more industries. The outsourcing of semiconductor production should be a wake-up call to the burdensome overregulation, overspending, and over-taxation domestically on businesses; not a license to spend more taxpayer money.

With more subsidies going to specific companies, less investment and the further fleeing of business from America to places with more attractive and beneficial economic circumstances will continue.

Advocates like U.S. Sen. Tom Cotton tried to justify this bill by claiming that “by ceding semiconductor manufacturing and development to countries like China, the United States has fallen behind and given the Chinese Communist Party dangerous leverage over our nation.”

While China has leverage over America in that department for now, this corporate welfare is economically harmful. In the process of providing cash to businesses, corporate welfare takes money from taxpayers and consumers, reducing economic growth and increasing the debt that has many risks—including economic and national security.

Because corporate welfare disrupts natural market processes, it shifts money from the most productive economic actors to those less productive—but more politically connected. This creates economic inefficiency and stunts competition, making the situation worse.

The U.S. government ought to instead cut the cost of doing business domestically by reducing government spending, taxes, and regulations. By correcting the current government failures in this market in this way, Americans will flourish more.

Published at TPPF with Noah Busbee

Two and two make five. This non-truth is one of the small phrases at the heart of George Orwell’s “1984.” It is used to demonstrate the ruling party’s focus on the absolute domination of its citizens, often subverting or rejecting truth in order to maintain its power.

Orwell’s phrase is often invoked in political discourse to indicate that the government, or someone else in power, is subverting, rejecting, or attempting to redefine the truth in order to serve their political ends.

As previously noted in the Ginn Economic Brief, the economy is experiencing the deadly combination of stagnation and high inflation—stagflation. Families across America are getting hit by a massive hike in the cost of living, driving them to struggle to make ends meet, dip into savings to pay for basic necessities, or turn to government handouts in the form of safety nets.

Despite clear evidence to the contrary, the Biden administration and its media lapdogs (or perhaps, the other way around—the radical leftist media and its lapdog, the Biden administration) refuse to assume responsibility for the actions that have brought on this rapidly-worsening economy. Instead, they deflect: “inflation is transitory,” “inflation is not as bad as it looks,” “the issue’s we’re facing are a result of supply chain issues from COVID,” and “Make no mistake: The current spike in gas prices is largely the fault of Vladimir Putin.”

However, this refusal to assume responsibility is par for the course for the Biden administration—it’s not so much a subversion of the truth as it is simply a string of false excuses. The statements strike a dishonest, but not Orwellian, chord. They’re not why we invoke Orwell’s “two and two make five.”

That dubious honor, instead, goes to the recent string of press releases, tweets, and news articles arguing, in various ways, that no, the economy is not headed into—or is already in—a recession. Either because the “numbers are not what they seem,” “the definition of recession is far more nuanced than just two quarters of negative growth,” or “the traditional definition of recession is outdated and needs to be updated to reflect modern monetary theory.”

This is the true Orwellian speak—ahead of a second consecutive report of negative inflation-adjusted economic growth, which came out this morning, the generators of that contracting economy are out in force arguing that no, you shouldn’t believe your eyes, your bigger bills, or your dwindling savings account—the economy is actually fine!

The rationale for this attempt to deflect on how a recession is typically defined is fairly straightforward: The Biden administration is already flagging in polls, and an official declaration of recession would be a confirmation of what most Americans are already feeling—a complete and total lack of confidence in the Biden administration’s ability to lead America or implement policies that lead to human flourishing.

This is the truth that must be remembered amidst the deluge of people and organizations trumpeting that idea that recession is either not what we think it is or not as bad as we think it is. The current administration’s radically progressive, half-baked policies are slowly, but surely, destroying our economy and the American dream.

Published at TPPF with Austin Prochko