Category Archives: Economy

Simply Staggering

DRUDGE REPORT 2011® The federal budget deficit in the month of February 2011 exceeds the deficit for all of 2007 by 40 percent.

Simply staggering.

Yet Senate Democrats refuse to cut more than a paltry $6 billion. They refuse because they seem bent on collapsing the American system – the economy, the government, and the people themselves.

But at least the Obama administration stands by with its arms folded as gasoline prices skyrocket at the their fastest pace in history.

(h/t Drudge Report)

4 Ways Government Can Help Create Shared Value

Last week I wrote about Creating Shared Value. In that post, I pointed to a Harvard Business Review article by Michael Porter and Mark Kramer. If you haven’t read both my post and the Michael Porter piece, please do so now.  I’ll wait.

Now that you’re up to date, let me add the Tea Party angle to this. 

Though Porter did not dwell on government’s role in Creating Shared Value (CSV), he did point out that government must reform for CSV to succeed.  Here are a few of the Tea Party reforms necessary if Porter’s (and Whole Foods CEO John Mackey’s) vision is to succeed:

Stop Vilifying Business:  Both parties fail to defend business when business is unfairly attacked.  Instead, politicians tend to jump on the populist bandwagon, piling on companies and industries. One example:  the regulation of cable television in the early 1990s.  Responding to false claims that cable companies were gouging customers, Congress stepped in and imposed regulations that caused cable rates to increase faster and customer satisfaction to tumble. 

Stop Picking Winners:  General Motors, Chrysler, Bank of America, Citigroup, and dozens of other banks and businesses should have failed.  Only illegal and inappropriate government interference in the market saved these companies, transferring financial responsibility from the owners to the tax payers.  Regardless of future performance, our economy is worse off than it would have been had government stayed out of the mess.  Moreover, innovation and ideas that might have improved the world and increased sustainability are lost because government’s clunky hand manipulated the markets.

Stop Creating Entitlements: Welfare reform gave us a few years of federal budget surplus. With Barack Obama’s historical and dangerous deficits, the last thing we needed was a new entitlement. But Obama and the 111th Congress gave us just that with health control.  John Mackey of Whole Foods pointed out a system that many employers offer that reduces healthcare costs and makes good insurance affordable for everyone.  Were affordable health insurance Obama’s actual goal, he would have embraced the high deductible solution. Instead, he outlawed it.  Government must eliminate all entitlements, not make new ones, if CSV is to succeed.

Reform the Tax Code:  Most of the our favorite tax breaks—designed to change behavior—will go away in order to pay off massive deficits brought about by entitlements and political handouts.  It’s time, then, to flatten out the tax code.  That means establishing in a tax-free income level (say $20,000), and a tax rate (say 18 percent).  The new 1040 looks like this:

Income:________ – $20,000 = _____________ * 0.18 = Tax Due ______________

 

Creating Shared Value is a business strategy.  Fully embraced, it offers the possibility of remarkable growth for companies, communities, and economies.  It rejects the notion of trade-offs, like clean air or full employment. Instead, it means clean air because of  full employment.

Companies can reach CSV only if government gets out of their way.  And if companies get out of their own ways.  But Michael Porter has advanced a strong argument for the later.  Now it’s time for the Tea Party to encourage government to do its part.

How else can government help advance Creating Shared Value by reducing its size, scope, and cost?  Leave your thoughts below in the comments.

Jay Nixon Putting Party Ahead of Missouri? *UPDATE*

Last week, the Illinois legislature passed a massive income tax increase on individuals and businesses.  Overall, it represents about a 67 percent income tax increase.

In response, neighboring states of Wisconsin and Indiana have wisely mounted massive campaigns to suck businesses and people out of Illinois.  Even New Jersey’s fabulous governor, Chris Christie, plans to fish the Land o’ Lincoln for some business transplants.

One state bordering Illinois has been notoriously silent.  Missouri Governor Jay Nixon has done nothing to steal business and residents away from Illinois.

Is Nixon being lazy?  Or is he just being a good Democrat?

While we’re at it, why isn’t St. Louis Mayor Francis Slay beating the bushes on the East Side?  The city needs business and people desperately, but Slay has been as silent as Nixon.

Look, people, I realize that we have a lot of friends in Illinois.  My wife is from GC.  Most of her family lives in Madison County.  But businesses and workers are going to flee to the state.  Illinois dropped from the 23rd best tax state to the 36th in one step.  With Democrats in charge of the legislature and the governorship, this increase is only the beginning.  Illinois taxes will rise until the people in Illinois elect tax cutting budget hawks.

In the meantime, Jay Nixon has an obligation to put Missouri’s economy ahead of Democrat party loyalties.  Missouri needs to follow the leads of Indiana, Wisconsin, and New Jersey by campaigning for fleeing Illinois businesses and people.

*UPDATE* Over on United for Missouri, Emily Iles explains the extraordinary dangers to Illinois’ economy this tax hike poses.

Ideas Have Consequences—Even Stupid Ones

When Barack Obama became president in January 2009, he began a campaign to weaken America. I’m not talking about military cuts; I’m speaking of America’s stature.  Barack Obama famously refused to acknowledge American Exceptionalism in 2009. He bowed to kings and princes, then denied doing so, then bowed again and again. His White House has driven down the dollar. Timothy Geithner, Obama’s Secretary of the Treasury, warns that the world economy must “rebalance” with less reliance on America.

Barack Obama is short-selling America.

The results of a US President talking down his own country are stark.  America is losing prestige, and the office of our president loses prestige right along with the rest of us. 

Asian Embarrassment

In the last week, Barack Obama got a taste of the new, devalued USA.  In South Korea and Japan, Obama was no longer treated as first among equals, but us the kid at the far end of the table.  Having trashed America’s swagger and replaced it with a lilting prance, Obama learned that it’s not so fun to be a relatively young leader of relatively young nation whose prestige has taken a major blow.

From a Wall Street Journal editorial, we see just how far the USA has fallen under Obama’s presidency:

Has there ever been a major economic summit where a U.S. President and his Treasury Secretary were as thoroughly rebuffed as they were at this week’s G-20 meeting in Seoul? We can’t think of one. President Obama failed to achieve any of his main goals while getting pounded by other world leaders for failing U.S. policies and lagging growth.

For Obama, now, there is nowhere to turn.  American voters have rejected his domestic policy. His base has turned against his handling of Afghanistan. The world leaders, seeing him as weak, are planning world economic policy more or less over Obama’s head.

Stagflation

But there’s more. Obama’s economic policies promise to do two things: 1) perpetuate high unemployment and 2) increase inflation.  In fact, the Fed’s stated policy, which Obama defended twice in Asia last week, is to use Demand-Pull inflation to grow the US economy. 

We’ve seen this before.  In 1978 to 1982, America suffered a malaise brought about by bone-headed economic policies from a president who believed America had gotten too big for its breeches.  Jimmy Carter’s policies produced high unemployment, flat growth, and runaway inflation.  The term for this economic condition is “stagflation.”

True, Bernanke is a Bush appointee and the Fed is independent from the White House.  But Treasury Secretary Geithner and President Obama are full participants in an economic policy that threatens to revisit the disastrous years of 1978 through 1982.  Being unemployed, underemployed, or underpaid is bad enough. When the cost of necessary goods and services rise quickly, things get worse fast for the economically challenged.  And signs of stagflation are everywhere.

Alan Reynolds of the Cato Institute wrote in a WSJ op-ed that several inflationary signals surfaced in October:

Producer prices rose at an annual rate of 5.5% in September and 4.8% in August. The broad price index for GDP rose at an annual rate of 2.3% in the third quarter, up from 1.9% in the second quarter and 1% in the first.

For ordinary folks trying to make ends meet, the prospect of inflation is frightening.  Already the weak dollar has driven up the price of gasoline and food—the two things we all need to survive.  The two things the government omits from its consumer price index.  In the past week, gasoline prices in the St. Louis area jumped $0.25 overnight. 

The Next Congress

There is little the 112th Congress can do to repair the economic damage, but it can lay the foundation for the next president and the 113th Congress. I encourage all members of the next Congress to follow Arthur Laffer’s prescription of extending the Bush tax cuts, repealing Obamacare, eliminating incentives for idleness, and push free trade. 

3 Signs of Economic Disaster

Each day, more economists jump onto the Double-Dip bandwagon. Signs abound that the natural economic recovery that would normally follow a deep recession won’t happen. Instead, the economy is now saddled with so much debt, so many regulations, and such onerous new taxes that the Obama Administration tells us to be happy with 9.5 percent unemployment.

great-depression

Barack Obama is an economic disaster of the first order.

So why all the pessimism? 

Well, every week it seems we’re hit with wave after wave of bad news. At the same time, Biden and Obama tour the country telling the unemployed they never had it so good.  Here’s today’s top stories on Drudge:

 drudge25AUG10

Here’s a link to one of the stories—on CNBC—that says we have left recession and entered . . . economic DEPRESSION.

And that brings us to this week’s triple-play of disastrous economic news.

First, existing home sales fell by 27 percent in July to the lowest levels in 15 years. At the same time, inventories climbed and interest rates fell.  That means prices will have drop dramatically before the housing market can recover.

Second, durable goods orders, excluding transportation, fell by 3.8 percent in July. Economists and analysts expected a 12 percent rise.  That means businesses have abandoned hope of recovery.

Third, existing home sales plummeted 12 percent in July to the lowest level on record. 

Why can’t the economy find solid footing?  Because America can no longer afford the government in Washington.  With government workers earning twice as much as people who actually produce value in the economy, wage earners can afford only two things:  subsistence and taxes. Truly, the government has erected a multitude of New Offices and sent hither swarms of Officers to harass our people and eat out their substance.

Either we cut the cost of government or die.  That’s a stark choice.  But it’s the one we’ve been given.

2/3 Think Worst Is Yet to Come for USA

The Wall Street Journal headline is grim:

Grim Voter Mood Turns Grimmer

Underpinning the gloom: Nearly two-thirds of Americans believe the economy has yet to hit bottom, a sharply higher percentage than the 53% who felt that way in January.

Wow.  I think the barrage of terrible economic news this week has people realizing that you can’t borrow your way out of a debt problem.

So far this fiscal year, the US has paid more in interest on its rapidly rising debt than it’s taken in from all corporate taxes.  That’s just the service on the debt, people.  And interest rates are at all time lows.  From the WSJ.com:

Years of deficit spending by Washington have led to a mounting national debt. Interest payments so far in fiscal 2010 amount to $185.25 billion; by contrast, corporate taxes collected by the government during the same 10 months were $139.71 billion. Interest payments in July alone were $19.9 billion.

The Fed and Treasury officials admit they’re out of options for dealing with economic crisis.  As a nation, we are living paycheck to paycheck.  Yet we’re STILL maxing out every credit card we can get.

Soon, we won’t be able to get more credit cards. Then we’re totally screwed.

Barack Obama inherited a bad situation and made it orders of magnitude worse.  In July, he and the Democrat Congress spent twice as much as they took in.  You can’t make it up in volume, Nancy.

To be honest, I would hate to be a member of the next Congress.  They will face a crisis that few living Americans have ever seen. And it looks like Republicans have a better chance of controlling the House, at least, with each passing headline:

Republicans, meantime, are gaining ground on a number of issues that have traditionally been advantages for Democrats. More Americans now think the GOP would do a better job on the economy—an advantage the party last held briefly in 2004 but has not enjoyed consistently since the mid-1990s. On one of the Democrats’ core issues, Social Security, just 30% now think the party would do a better job than the GOP, compared to 26% who favor the Republicans. That margin was 28 points in 2006.

No matter how you spin it, business is being stifled by two things: debt and taxes. Obama campaigned on raising both. At least he kept that promise.

Now, will the American voter keep alive the promise of America?  We have 83 days to make it happen.

Fed: Other Shoe About to Drop

The only two people in the world who believe the economy is healthy and vibrant are Barack Obama and Joe Biden. 

Train%20fire[1]

Now, the Federal Reserve Board’s Open Market Committee (FOMC) is getting ready to announce that the economy is sicker than we thought.

Although Fed policymakers still believe the basic trajectory of the economy remains one of moderate expansion, there may be more attention given to heightened dangers of a sharp slowdown. “The FOMC will have to tone down its assessment of the economy in view of recent weak indicators on real growth, real consumption spending and employment,” said Brian Bethune and Nigel Gault, economists at Global Insight.

Last Friday, we got more bad news about the economy, particularly job growth.  The economy still is not adding enough new jobs to keep up with population growth. The 9.5 percent unemployment rate remains that low only because so many people have simply given up finding a job. 

Yet Barack Obama keeps telling audiences that we’re better off than we think we are.

The fact remains that the economy is getting weaker, not stronger.  Consumer confidence is falling, heading toward 12-month lows.  A swarm of bureaucrats and an avalanche of tax hikes are about to hit the country on January 1.  The Obama agenda includes measures intended to hurt businesses and the American consumer.

Obama is right to say that the economy is on track. What he’s not tell you is that the track he’s put it on is one that ends in tears for most Americans.

On November 2, most Americans will elect to switch trains.  A ticket to anywhere is better than Obama’s express to economic hell.

Bi-Partisan Consensus: We’re Screwed

What if:  In January, a new Republican Congress is sworn in. First up on the agenda? A bi-partisan report stating that Congress must enact the most draconian tax increases and entitlement cuts in history or face total economic collapse.

obama-debt[1]

That’s the scenario developing.

President Obama appointed a bi-partisan commission to make recommendations about the US government’s debt.  The commission will not report out until after the November 2010 elections, but the leaders—Republican Alan Simpson and Democrat Erskine Bowles–have given some warning about what we can expect. Here are some of the frightening highlights:

  • “This debt is like a cancer” Erskine Bowles
  • Federal revenue—the sum of all taxes and fees— “is completely consumed by three programs: Social Security, Medicare, and Medicaid.”
  • “We cannot grow our way out of this” Erskine Bowles.
  • Neither Bowles nor Simpson is confident that any measures will prove successful
  • "I don’t know that I ever heard a gloomier picture painted that created more hope for me”—Arkansas Governor Mike Beebe
  • Your personal debt obligation—the amount Congress charged to your Social Security Number—is over $47,000 and growing daily. And “you” is every American, born today or 100 years ago.

Among the ideas being tossed around:

  • Reduce or eliminate the home mortgage tax deduction
  • Raise the Social Security age to 70
  • Means tests for Social Security benefits
  • Means tests for Medicare

The irony, of course, is that 100 percent of taxes go to three entitlement programs prohibited by the Constitution. Either we begin a long-term phase out of those programs, or we face a horrific and prolonged depression.  Half the population cannot continue to live off the other half.

What do you think about giving up your home mortgage deduction to pay for wild government spending? Speak out in the comments section.

Don’t Blink (you’ll miss the recovery)

eyes430x300 The stock market reacted mildly to some devastating economic news today.  In fact, the stock market appears to be in denial about the state of America’s economy. 

Existing home sales fell in May.  As of this morning, economists expected a six percent increase

Economists expect new home sales to be worse than existing home sales.

And economists expected home sales to fall off the table in July and for the remainder of 2010.

But the actual housing market is already worse than economists were thinking. And now over 56 percent of economists expect home prices to fall throughout 2010.

And the bad news keeps pouring in.

Europe is going on a spending and borrowing diet – the sort that tea partyers have advocated for the USA.  But Obama wants to keep on borrowing and spending, borrowing and spending, extorting and bribing.  The contrasting strategies threaten to create a rift in the G20 at a time when unity is pretty important for economic stability.

Obama wrote a letter to his European counterparts on Friday urging them borrow and spend more.  Apparently, he wants the whole world to crash together. Are his projections so ugly that he’s afraid Germany will be bailing out America? 

Cuts in government spending now may cause some short-term pain in the US economy, but continue irrational borrowing will send the US off a cliff into debt slavery. That Obama and his minions no longer bother to argue that point tells me they don’t care about the consequences of their policies. 

See the W? 

What Are We For?

A few weeks back, the Christian Science Monitor asked me to write an op-ed. The subject was, “If the Tea Party ran America, how would things change; and why do you think you’ll win?”

The call was my opportunity to break from the easy, unassailable position that things are bad and getting worse. It meant coming up with a solution or two.  And solutions already find disagreement somewhere.

For over a year I’ve said that the Tea Party movement, begun out of anger, must shift its energy over time from anger to solutions.  Now, I have no idea the exact shape of these slopes, but I’ve always pictured a graph something like this:

image

By November 2010, when our candidates accept the honor of serving in Congress or state capitols, we better have armed them with solutions to the problems developed over the past decades.

On May 23, the Washington Post carried an op-ed by Senator Bob Bennett. Bennett recently lost his bid to stand for re-election when Utah Tea Partyers targeted him for retirement.  In his op-ed, Senator Bennett correctly challenges Tea Partyers to move beyond negative slogans and to adopt positive reforms.

Their two strongest slogans are “Send a message to Washington” and “Take back America.” I know both very well because they were the main tools used to defeat me in Utah’s Republican convention two weeks ago. They also worked in Kentucky on Tuesday. They are more powerful than most pundits inside the Beltway realize.

More importantly, he points out that, by November or next year, Americans will be ready for sunny optimism again.

We can advance positive ideas, recognize today’s problems, and point to that brighter future all at the same time.  Honestly, that’s what leaders do every day.

No fool would believe that the incoming batch of legislators can solve all the problems generated over fifty years. But we must tackle a few.  I outlined some of the areas for consideration in the CS Monitor piece, but I’d propose just three reforms for the first term: Repeal the healthcare takeover, overhaul the tax code, and set an expiration date on one entitlement program.

Repeal Healthcare Takeover

The first step toward getting out of debt is to stop borrowing money. The easiest way for Washington to stop borrowing money is to stop creating new entitlement programs.

Now, Barack Obama will veto the repeal.  Do it anyway.  The left will claim we have no solution. Let them.  The American people have already decided this, and they came down on our side. The debate is over: ObamaCare lost everywhere except Washington, DC.

The replacement will be to unshackles states from crafting experiments to determine the best solution.  Other states will follow the successful models and shun the failures.  When done at the state level, experimentation works. When Washington experiments, the whole nation is in danger.

Overhaul the Tax Code

The income tax system in the United States is a sham designed to perpetuate itself by breeding succeeding generations of accountants, lawyers, and tax experts who will lobby to sustain an industry.

No more.

We need to begin this overhaul by implementing the system Ronald Reagan and Jack Kemp wanted in the 1970s: A flat tax on earnings above a certain threshold.

I don’t know the exact numbers, but I see the new tax form looking like this:

1040F

As I said, the exempt amount and the percentage are probably not perfect, but the formula works. The exempted amount would be indexed to inflation to that the government has no incentive to allow inflation to raise your taxes.

This is a formula everyone can understand, with the exception of Washington bureaucrats and politicians.

I know many in the Tea Party movement are fans of the Fair Tax, but I am not, and I’ll explain why: the Fair Tax is impossible to explain and easy to attack.

In Pennsylvania’s 12th Congressional District race to fill Jack Murtha’s term, the Tea Party candidate, Tim Burns, was portrayed as supporting the Fair Tax.

Most voters didn’t  “get” the Fair Tax idea until Tim’s opponent, Mark Critz, and the DCCC explained it this way: “Tim Burns wants to impose a 25 percent national sales tax on everything you buy.”

Burns lost, and it wasn’t close.

The Fair Tax might represent a much better solution, both economically and Constitutionally, than the Flat Tax.  But if the Fair Tax gets our best candidates defeated and cannot get through Congress, what good is it?  At present, the Fair Tax is simply too complicated to win broad national support.  It involves too many formulas and rebates and repealing the 16th Amendment.

When we get the votes in Congress to repeal the 16th Amendment, I’ll jump onboard the Fair Tax. But let’s do this one step at a time, okay?  Let’s make things better now, then make them best later.  Let’s not make things worse by demanding perfection on day one.

Under the Flat Tax, taxes will go up for some, down for others.  No one will be punished for achieving more.  The deduction of your first $30,000 is more generous than most combined deductions today.

Additionally, there is not marriage penalty because there are no filing statuses other than “Me.”  You worked or didn’t.  You earned or you didn’t.  I don’t care how many kids you have or whether your home is also your office.

Expire One Entitlement

I don’t care which one, but set a formula for eliminating one of the three big entitlements.  I would start with Social Security, which has not only jeopardized our economic future, it encourages otherwise good people to whine and beg for government handouts.

Social Security is a Ponzi scheme that works only if the next generation is much larger than the current one.  When Americans stopped having 4.5 kids per couple, the cookie began to crumble.

There’s a formula for ending Social Security, but it requires we all pay taxes to fund it until its dead. That’s because Congresses have spent all of the Social Security trust fund—and then some.  The SSA hold numerous notes that must be paid out of general revenue.

That’s okay.  If you borrow money, you have to pay it back sometime. And we’re the ones who borrowed this money by refusing to face this monster earlier.  Fine. Let’s get on with it.

First, anyone drawing Social Security or who’s within 15 years of eligibility will receive payments according to the rules in place today.  So I don’t want to hear from Big Old People that I’m stealing their entitlement.  I am not.

Second, those who have already begun paying into Social Security will have a choice: they can receive a tax-free,  lump sum payment equal to their lifetime contribution without interest, or they can leave the money in the SSA until age 65, then receive a lump sum payment including interest equal to the rate of inflation.  Either way, the FICA withholding—the individual’s and the employer’s—stops.

Third, those fortunate souls who are too young to have opened an SSA account never will.  They simply pocket the 16 percent that currently goes to fund a failing system.

States may want to create their own voluntary or even mandatory retirement scheme.  Fine.  That’s how the federalist system works.  I wouldn’t support a mandated state system, but there’s nothing in the Constitution that would prevent a state from adopting such.  The people of the state could always vote out the legislators who created it.

Solutions

My solutions may not solve all of our problems.  But they will advance four goals of the Tea Party movement:  smaller government, lower taxes, fiscal responsibility, and federalism.

By adopting this list of goals, candidates will move to the right of my chart above, providing solutions instead of just pointing out problems.  Yes, our enemies will throw mud at these ideas: there’s no idea that won’t find critics.

In the end, our mission from day one has been to make America’s future brighter than its brilliant past. We can do that only by moving toward the future we want, not away from the unknowns we’re afraid of.

Please take this poll:

[poll ID=9]

8,000 Dow? *UPDATE*

So says Yale economist Nouriel Roubini in an interview today on CNBC.

“There are some parts of the global economy that are now at the risk of a double-dip recession,” said Roubini, head of Roubini Global Economics. “From here on I see things getting worse.”

unemployment-line-nyc-depression

Roubini’s comments came in response to a 376 point drop in the Dow Industrials. Nasdaq and S&P 500 were off significantly as well.  All three indices are at or near correction territory, having fallen about 10 percent from their peaks.

The reasons for the nosedive are pretty obvious:

In short, if the news isn’t uncertain, it’s bad news for economic growth.  Other economists see weakness in the US economy, as in this Yahoo News story:

“The economic recovery story has started to look like a mirage and the new reality is a return to credit crunch conditions” like those seen during the financial crisis, said Tom Samuels, manager of the Palantir Fund in Houston. “If that’s correct, stock prices are well ahead of economic reality.”

Buckle your seatbelts.  It looks like Obama’s second recession is on its way.

*UPDATE*

The stock sell-off continues in Asia on Friday.  Major indices are down about 2.5 percent from yesterday’s close.  The Senate tonight voted to place massive controls on banks and finance, a move sure to spoil investors’ appetites.  This Congress and this administration are bent on controlling every aspect of our lives.  Alexis de Tocqueville predicted this outcome 180 years ago:

Above this race of men stands an immense and tutelary power, which takes upon itself alone to secure their gratifications and to watch over their fate. That power is absolute, minute, regular, provident, and mild. It would be like the authority of a parent if, like that authority, its object was to prepare men for manhood; but it seeks, on the contrary, to keep them in perpetual childhood: it is well content that the people should rejoice, provided they think of nothing but rejoicing. For their happiness such a government willingly labors, but it chooses to be the sole agent and the only arbiter of that happiness; it provides for their security, foresees and supplies their necessities, facilitates their pleasures, manages their principal concerns, directs their industry, regulates the descent of property, and subdivides their inheritances: what remains, but to spare them all the care of thinking and all the trouble of living?

Please read the rest of Democracy in America, Volume II, Section 4, Chapter VI.